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Pressure mounts on CBN to devalue the naira
The Central Bank of Nigeria will have to devalue the naira and loosen monetary policy to stimulate the economy hit by a plunge in oil prices, former CBN Governor, Lamido Sanusi, has said.
Sanusi was removed in 2010 by former President Goodluck Jonathan after he raised concern that tens of billions of dollars in oil revenues had not been remitted to the Federal Government's coffers.
"It is wrong to think that you can keep the naira at a certain level when the price of oil is falling without depleting your reserves," Sanusi told CNBC television on Friday.
"It does not speak well of us to pretend that the naira is appropriately priced," he added, criticising the CBN forex policy.
CBN Governor, Godwin Emefile, has ruled out another naira devaluation, saying repeatedly the currency was "appropriately" priced despite a sharp fall of oil revenues whacking public finances.
Emefiele has won backing from President Muhammadu Buhari for his stance.
Buhari had some weeks said he was opposed to a weakening of the naira and endorsed the CBN's policy of restricting foreign exchange trading.
"I don't think it is healthy for us to get the naira devalued," Buhari said in an interview in Paris with France 24 broadcast. The central bank is providing ample foreign exchange to "essential services, industries," he added Sanusi, who is now the Emir of Kano, also criticised foreign currency restrictions imposed by the central bank, which have frustrated local firms struggling to get dollars.
He also said interest rates were too high. The central bank let the main benchmark rate unchanged at 13 per cent at its last Monetary Policy Committee meeting in September while cutting the banks' cash reserve ratio to 25 per cent from 31 per cent.
"It's time to loosen monetary policy. We need to lower interest rates otherwise we compound an exchange rate crisis for businesses with high borrowing costs and declining demand," Sanusi said.
A number of local and foreign economists had criticised Emefiele's decision not to devalue the naira.
The stance has led the regulator to introduce some administrative controls aimed at preserving the external reserves.
United States lender, JP Morgan, expelled Nigeria from its government bond index in September over allegations of lack of transparency in the nation's forex market.
Economist and Chief Executive Officer, Financial Derivatives Company Limited, Bismarck Rewane, has emphasised the need to devalue the naira.
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