The crashing price of crude oil that has forced Nigeria to devalue its currency is not likely to change, the Central Bank governor, Godwin Emefiele, warned Tuesday.
Mr. Emefiele announced new measures to combat the worst oil price fall in years, including devaluating the Nigerian currency by 13 naira against the dollar.
The naira will officially exchange at N168 for a dollar, against N155, Mr. Emefiele said at the 98th meeting of the Monetary Policy Committee.
He said the move will tighten Nigeria’s monetary policy against rising inflation and allow flexibility in the exchange rate to stem speculative activities and depletion of reserves.
Other key decisions announced by the CBN governor include raising the monetary policy rate (MPR) by from 12 to 13 per cent; increase of the Cash Reserve Ratio, CRR, on private sector deposits from 15 per cent to 20 per cent, while retaining public sector CRR at its current level of 75 per cent.
Noting the enormous pressure on the Naira since the beginning of the year, which resulted in the depreciation by 1.74 per cent, the CBN governor said the situation at both the interbank and the bureau de change (BDC) segments showed in the demand pressures from the falling oil prices and dwindling external reserves in recent times.
Despite the tight measures, Mr. Emefiele said the high demand for foreign exchange continued unabated.
He said the current downturn in oil prices appears not transitory but permanent.
He traced part of the challenge to declining demand of Nigeria’s oil, particularly from the United States, which now meets an average of 80 per cent of its domestic oil demand from local shale oil, while exporting over 8 million barrels of crude oil daily.
With six-month oil futures currently at below $70 per barrel, and the cost of shale oil production down to an average range of $52-$70 per barrel, the CBN governor said the oil price benchmark of $73 per barrel proposed in the 2015 Federal Government budget may have been too optimistic.
Emphasizing caution on the budget’s revenue projections, Mr. Emefiele called for a reduction in critical public and private consumption and investment spending.
“Without prejudice to this position, the Committee is of the view that the softening crude oil prices could provide necessary leverage for the fiscal authority to reduce budgetary outlays on fuel subsidy and channel such savings to growth enhancing sectors of the economy,” he said.
He asked the government to take advantage of the low oil price to reduce fuel subsidy spending and liberalize prices as in many emerging economies, while urging states to step up efforts to grow their Internally Generated Revenues (IGRs) in the New Year to minimize reliance on federal allocations.
Mr. Emefiele also called on the government and the National Assembly to speed up the process towards the immediate passage of the Petroleum Industry Bill, PIB, which has been pending passage for the past two years.