Nigeria Devalues Naira, Holds Interest Rate To Spur Growth

Bloomberg

November 22, 2011, 4:26 AM EST

By Maram Mazen and Elisha Bala-Gbogbo
(Updates with fuel subsidy in eighth paragraph.)

Nov. 22 (Bloomberg) -- Nigeria’s central bank kept its benchmark interest rate unchanged for the first time this year and devalued the naira and to help support growth in Africa’s biggest oil producer.

The midpoint of the naira target band was lowered to 155 per dollar from 150, Governor Lamido Sanusi told reporters in the capital, Abuja, yesterday. The benchmark interest rate was left at a record 12 percent.

The Central Bank of Nigeria had raised its key rate at every meeting this year until yesterday, boosting it by 2.75 percentage points on Oct. 10 as inflation pressures mounted. Slower economic growth in Africa’s most populous nation and concern that oil prices may decline as the global recovery wanes gives Sanusi room to keep borrowing costs on hold.

“Monetary tightening was ahead of the curve and had been somewhat front loaded,” Adedayo Idowu, an analyst at Vetiva Capital Management Ltd. in Lagos, said in an e-mail. The bank is “exercising deliberate caution in providing a soft landing for the domestic economy should global risks materialize.”

Nigeria’s economic growth slowed to 7.4 percent in the third quarter from 7.7 percent in the previous three months as oil output eased, the statistics office said on Nov. 15. The price of oil plunged 13 percent in New York in the first nine months of the year.

‘Too Much’ Tightening

“We need to be very careful about how much tightening is too much and how much tightening is too fast,” Sanusi said.

Interest rates have been increased this year as inflation climbed above the central bank’s 10 percent target. Consumer prices rose 10.5 percent in October, up from 10.3 percent in the previous month, according to the statistics office.

Price pressures may increase next year as Nigeria prepares to remove a subsidy on fuel that costs the government $7.5 billion a year. The central bank will act to contain any “second-round” impact on inflation from the price shock, Sanusi said.

“It is clear from the Central Bank of Nigeria statement that monetary policy will remain tight in the interim,” Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said in an e-mail. This is the case “especially if fuel price subsidies are lifted and a secondary effect is evident.”

The central bank, which manages the exchange rate by selling foreign currency at twice-weekly auctions, has been struggling to keep the naira at its official target of 3 points above or below 150 per dollar. The rate at yesterday’s auction weakened to 155.21 naira per dollar. The naira fell 0.3 percent to 159.325 per dollar on the interbank market as of 9:16 a.m. in Lagos today.

“The market is already there, we haven’t moved away from where the market is,” Sanusi said. “The investor wants to know how the naira is likely to move within the investment horizon, and what we’re trying to do is to provide the right anchor for expectations.”

--Editors: Nasreen Seria, Ana Monteiro

To contact the reporters on this story: Maram Mazen in Abuja at mmazen@bloomberg.net; Elisha Bala-Gbogbo in Abuja at ebalagbogbo@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

http://www.bloomberg.com/news/2011-11-21/nigeria-devalues-currency-holds-interest-rate-to-support-growth.html

Nigerians tighten your belts!

The latest wave of mass impoverishment has begun

Can the OP kindly explain to me how devalulattion of Naira can boost growth?

Devaluation could boost growth in a country like Germany that makes stuff. Or China.

But a country that makes nothing like Nigeria, will not help.

^^ Your title is a little misleading then, as you acknowledge that it is deceitful to imply that devaluation of Naira can boost growth in Nigeria.

Since Nigeria sells oil from which we get 95% of our income, in dollars, there is no economic justification for devaluation.

The only thing that it achieves is the impoverishment and opression of the masses by making prices of everything to massively increase.

Isn't this the same Sanusi, that a few days ago, was reported to have claimed that devaluation was no longer necessary?

Isn't my title man. Just a c/p of the article.

The economic and financial policies of SANUSI are simply mysterious , just like his planned cashless experiment in Lagos state.

Northerners are daft by default

Good News for me

2kass:

Northerners are daft by default

why dont you send them the configuration settings for knowledge

this sanusi chap is so clueless! 

Most of em are Educated illiterates. I dont know what devaluation of the naira will do to Nigerians now than having sanusi's name in record that he devalued the naira during his tenure

Sanusi at it again

CBN Imam

GenBuhari:

^^ Your title is a little misleading then, as you acknowledge that it is deceitful to imply that devaluation of Naira can boost growth in Nigeria.

Since Nigeria sells oil from which we get 95% of our income, in dollars, there is no economic justification for devaluation.

The only thing that it achieves is the impoverishment and opression of the masses by making prices of everything to massively increase.

Yes, you're right our income in in Dollars but the CBN converts the Dollar income to Naira before disbursement to the tiers of government, this naturally devalues the currency and causes inflation but he tried to stem that by flooding banks and BDCs with Dollars- it backfired, which is really what brought us into this situation.
SLS- probably one of the best bankers out there, but as an economist- CLUELESS!!

Devaluation makes domestic products cheap for importers. Since we produce nothing than the oil wells we own, it means the importers will be encouraged to buy our now cheap oil. This will mean less oil dollar per barrel and on the whole and more barrels of oil to sell and the consequent faster depletion of our oil reserves so as to meet up the looting businesses of government.

With all this grammar, Naira is exchanging for N158/N160 at the black market!

If an aboki can confess to me that Soludo still remains the best thing that happened in our financial sector then that means Soludo is really good! [his reasons, if not for soludo, banks will still be a duping house, he said Soludo tried to equal N1 to $1 dollar like Ghana but politicians protested because of their looted funds!]

This devaluation could actually help boost our economy. If my thoughts are correct here, the devaluation would mean that we would pay more naira for dollars right? If this is so, wouldn't it discourage us from importing goods and all the junk from China since we would be paying more? When folks are discouraged from importing, the nexts thing would be to some how start producing stuff locally for local consumption. Then again with 9ja, how can we do the local production with all the infrastructors and government supports that are lacking. We are in deep ShIt folks. Na wao, I guess we should keep doing what we do better than everybody else in the word, KEEP PRAYING TO GOD OR ALLAH

greateros:

Soludo tried to equal N1 to $1 dollar like Ghana but politicians protested because of their looted funds!]

the sad part is that ghana collected and used the same idea from soludo that was rejected

Devaluation should normally cause the price of imported goods to rise. This is beneficial to onshore producers with 100% local content such as the agric and a few other sectors. But evem with that because our economy is import dependent hardly any sector will escape the negative influences.

Devaluation has become necessary to maintain our credit rating by keeping the foreign reserves afloat and reducing the budget deficit caused primarily by the huge recurrent expenditure and yes, the spiralling fuel subsidy.

Unfortunately since we import virtually all our fuel devaluation means the projected rise in petrol prices to say N 120/l may actually be closer to N 150.

There's really no alternative. Devaluation is the world economy's way of saying, hey, you've shopped enough, now get back to work and start earning a decent living.

Kobojunkie:

Isn't this the same Sanusi, that a few days ago, was reported to have claimed that devaluation was no longer necessary? 

Yes it's the same Sanusi


https://www.nairaland.com/nigeria?topic=807778.msg9608751#msg9608751

I laugh in Swahili, we have finally hit the road, let the madness BEGIN!

jason2010:

This devaluation could actually help boost our economy. If my thoughts are correct here, the devaluation would mean that we would pay more naira for dollars right? If this is so, wouldn't it discourage us from importing goods and all the junk from China since we would be paying more? When folks are discouraged from importing, the nexts thing would be to some how start producing stuff locally for local consumption. Then again with 9ja, how can we do the local production with all the infrastructors and government supports that are lacking. We are in deep poo folks. Na wao, I guess we should keep doing what we do better than everybody else in the word, KEEP PRAYING TO GOD OR ALLAH

You are CORRECT! This will infact discourage imports i.e. only if we are producing not when 80% of everything we use is imported. If we are not producing, this will cause a ripple effect on the economy. How I mean is importers will double the price because they paid twice same amount to import, so if you purchased at N50 before, brace up, you might end up paying almost 2x the amount i.e. depending on what the devalue terms to other competing currencies are.

However, keep in mind that devaluation can also help the economy such that investors are more likely to invest given that they can buy more domestic currency to the $$$. Now if that's the case, foreigners are best people to invest at this time rather than domestic folks because domestic investors looking to buy $$$ from abroad (like machinery) will pay more as opposed to the other.

Why blame Sanusi?

He has to do what President Jonathan orders.

Babangida started devaluing Naira when N1 was worth more than $1, today we need to pay N160 to buy $1.

What has the huge devaluation of Naira achieved for Nigeria so far?

Absolutely nothing but mass impoverishment and oppression.

Oppression in the sense that a large section of the population are struggling to afford to educate future generation, which is probably why corruption has been allowed to fester by the largely uneducated young people or Nigeria.

That is oppression!

If you have any savings in the bank now is the time to convert it into an asset that cannot devalue.

Weep for Nigeria

wetin no get value b4 na him them De-value again ?    sick people

watch-out 2012

1,Removal Of fuel subsidy

2,Increment of PHCN BILL

3,Re Introduction of toll gate

4, Compulsory Insurance Policy.

5,,

With all these in 2012, I smell danger  

Those of you clamoring for the status quo to remain, albeit keeping current N150/$1. Would you rather he continues to use our reserve to defend the naira? Don't forget that we've expended billions of dollars in our reserves in his attempt to defend naira. Was that a good move at all? While i'm not a supporter of devaluation, i think the man has been pushed to the limit and he has no other option but to devalue.

Time will tell,

I'm not an economist but I think people are getting "devaluation" all mixed up.

If Naira is devalued its benefit or lack thereof will depend on which side of the devaluation coin you’re on.

For avoidance of doubt, devaluing Naira means that the price of $1 will be higher in Naira. For example, if $1 is currently trading at NGN 155, it will trade at $1 = NGN 160 once devalued.

If you’re the Nigerian government, one of the ways devaluation will benefit you will be the availability of more Naira on hand for the same amount of exported crude oil. Since workers are being paid in Nigeria, having more Naira on hand makes it easier for the government to meet payroll without increasing number of barrels of exported oil.

If you’re an importer/consumer of goods, your goods will cost more in Naira. Since almost nothing is manufactured in Nigeria, price of goods will go up; hence, inflation.

If you’re a consumer that recently got the minimum wage, your purchasing power will not really improve or might even become lower because the price off goods will go up. You’ll be back to square one.

If you’re just a consumer that is not affected by the recent increment in wages, you’re screwed as you’re now poorer.


If Nigeria were a manufacturing economy, devaluing Naira would be ideal because products that you manufacture will become cheaper in the international market, which means you would sell and make more to meet demand. Selling more products means more profits, manpower, foreign exchange etc.

The only way growth can be spurred with the action taken by the CBN is due to the cost of borrowing. By keeping the cost stable, I now have more incentive to borrow money to build a factory as the cost of imported goods are now higher and I may be able to come in at a lower price point even when the cost of generating my own electricity is included.

In summary, his statements are factual but more beneficial to the government and local manufacturers.

@wallie nice one atleast we would continue to teach the so called graduates of economics what they are supposed to teach us
I find it very funny when people were critising SLS for this but I guess the economists amongst us would still argue against or in favour since their are always alternative options
But let's continue to tell them it for the good of the local industries and balance in trade deficit as a Marketer these are things that ui know and everyone should know we have to start to work produce anything with this window of opportunity we have now

nigerians get set for more belt tightening! 

I do not believe that there is any international trading that is done in Naira.

Devaluation is purely a tool of opression and impoverishment of the Nigeian people.

Weep for your country

Maybe if you people should ask where the idea of currency devaluation came from you will understand the intention.
World Bank/IMF Orders CBN to destabilize Nigeria. That is what the title should read like. For more information check my older posts.