The naira yesterday dropped by N1 or 0.29 percent against the US dollar at the parallel market, as the Central Bank of Nigeria (CBN) embraced flexible exchange rate after the Monetary Policy Committee (MPC) meeting in Abuja.
It closed at N346 against the dollar compared with N345/$ the previous day at the parallel market. Naira closed stable at N343/$ at the autonomous market. Also, the CBN’s clearing rate at the inter-bank market closed stable at N197 against the greenback.
After the MPC meeting yesterday, the Monetary Policy Rate (MPR) was retained at 12 percent with the asymmetric corridor around the MPR also maintained at +2.0 percent/-5.0 percent. Also, the cash reserve ratio (CRR) was unchanged at 22.5 percent. The liquidity ratio of the banking sector was also left unchanged at 30 percent.
“We think the implementation of the proposed FX flexibility should kick off quickly to ensure that confidence is restored to the market without delay. We believe there are two options to the flexible FX structure. The first is that the CBN continues to sell the USD to the market.
“The second option is that the CBN appoints a security exchange such as the FMDQ or the NSE that will run the market while the CBN clarifies its own role in the market,” Tajudeen Ibrahim, head of equity research, Chapel Hill Denham Securities Limited, said in an emailed response to BusinessDay.
In his response, Edgar Ebinum, head, investment research, Cowry Asset Management Limited, said the policy decision would impact the economy in several fronts, with naira to remain under pressure as market forces adjust the fixed CBN’s clearing rate to a more realistic parallel market rate.
It is likely that foreign exchange inflows from domiciliary accounts estimated at $20 billion, as currency exchange risk minimises, he said.
