The Nigerian currency fell to a record low against the dollar Monday prompting concerns within financial circles in Africa's most populous country. The central bank said Tuesday the currency depreciation was a deliberate policy in the face of dwindling oil revenues.
Central Bank Governor Chukwuma Soludo told reporters Tuesday that Nigeria had sufficient foreign exchange reserves to meet all external obligations.
Speaking after a meeting with chief executives from private Nigerian banks, Soludo said the drop in the value of the local currency was a government-supported devaluation in the face of falling oil prices. Oil revenues account for 90 percent of Nigeria's export revenue. Oil has slumped more than 60 percent from a year ago.
The naira has dropped more than 23 percent since November when the central bank began limiting the supply of dollars to defend its foreign exchange reserves.
The central bank's depreciation policy has been criticized by some analysts who say it could have grave implications for the import-dependent Nigerian economy. Mike Obadan is an economics professor at the University of Benin, in southwestern Nigeria.
"Each time the naira depreciates in relation to the dollar and pound sterling, it adds to the inflationary problems in the economy," Obadan said. "And the reason for it is that the production structure of the Nigerian economy is heavily dependent on the importation of inputs in the form of equipment, transport for production and even raw material. Therefore, each time the naira depreciates it makes the cost of importing all these inputs very high and the cost of production jacks up and the producers reflect the higher costs in higher prices."
The naira dropped to a record low of 153 per U.S. dollar Monday, from 146 naira on January 9. Central Bank Governor Soludo says the government is committed to a stable, market-determined exchange rate.
Analysts predict a further weakening of the naira in the face of widening demand for foreign currency and speculation about the health of the Nigerian economy.