The news of the austerity measures rolled out by the Federal Government yesterday triggered further appreciation of the Naira in the interbank foreign exchange market, and increase in interbank lending rates. Nigeria’s naira fell 1.76 percent to a new intraday low of 176.30 against the greenback on Tuesday after dollar supply dried up and the central bank made no fresh intervention, dealers said.
The naira fell to 173.20 to the dollar on Monday, after central bank intervention failed to prop it up
Data from the Financial Market Quotes (FMDQ) show that the Naira depreciated by N1.05 kobo in the interbank foreign exchange rate as the interbank exchange rate rose to N173.25 to the dollar from N172.2 last Friday.
The Data also showed marked increase in cost of lending in the interbank money market. Cost of Overnight lending rose by two percent to 12.96 percent, while cost of collateralized lending rose by 1.71 percent to N12.5 percent.
Market sources attribute the depreciation of the naira and increase in interbank lending rates to the reaction to the austerity measures announced on Sunday by the Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo Iweala
Recalled that the federal government on Sunday announced austerity measures aimed at insulating the economy from fall in crude oil prices. The include reduction in the crude oil price benchmark for 2015 budget to $73 per barrel from $78, introduction of Luxury Good tax, and restrction on foreign travels and training for civil servants.
According to an analyst in the research unit of one of the banks, the measures are being interpreted to mean there are bad times ahead and people should make necessary preparations. He said the sentiments in the market is that the CBN does not have the resources to defend the Naira and hence the naira would continue to depreciate.
The Federal Government had on Sunday introduced some austerity measures and scaled down the crude oil bench mark for the 2015 budget, which is designed to insulate the economy from falling crude oil prices.
The government announced far-reaching policy measures to deal with the crashing crude oil prices, cutting 2015 oil benchmark from $78 to $73 per barrel.
Crude oil prices dropped to $77.76 per barrel, some cents below the $78 earlier proposed to the National Assembly as bench mark for the 2015 budget.
The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala told journalists in Abuja that the decision to cut revenue projection was part of measures designed to maintain economic stability, boost non-oil revenues further, plug loopholes and waste, as well as cut unnecessary expenditures in order to cope with the situation.
Keeping to her earlier warning that the government will soon introduce measures to protect the economy she said: “As part of the response to falling oil prices, the Medium Term Expenditure Framework (MTEF) and the Budget 2015 proposal to the National Assembly have been revised. Government is now proposing a benchmark of $73 per barrel to the National Assembly compared to the earlier proposed benchmark of $78.
She said, “Given the nature of the oil market, we needed to see the extent and trend of the oil price in order to take the right measures. Panic is not a strategy.
”It’s important that our strategies are based on facts and a clear understanding of both the strengths of the economy and the challenges posed by the drop in oil prices which is currently at $79 for our premium Bonny Light Crude.”