Yesterday, the Monetary Policy Committee (MPC) of Nigeria’s Central Bank devalued the country’s naira from N155 to N168 a dollar. Falling global oil prices and depleting foreign reserves meant the committee, charged with regulating the naira, had run out of options to stabilize Nigeria’s economy.

But this macro-economic decision has severe microeconomic implications. Put it simply, ordinary Nigerians will feel the pinch in their wallets, from the value of their cash at hand to their ability to borrow.

As a Nigerian, here are five things the devalued Naira means to you.

Your 100k is now 90k

Well, it is still N100,000 in amount, but its value is where the problem is. Before yesterday’s devaluation, Nigeria’s fixed foreign exchange rate was pegged at N155 to $1. Now it has been raised to N168. This 3.89 percent rise actually means the same percentage dip in the value of your cash, say from N100,000 to 91,100. Thus, you now need N100,000 for what your N90,000 used to buy.

The fixed exchange rate is just one side of the coin, literally speaking. There is the floating exchange rate, and that is where things seem much worse. The floating exchange rate is the market driven rate, or to make it simpler- how much your bureau de change guy charges for a dollar. Currently this rate is N176.8 – $1, falling 12 percent in two weeks, and analysts predict it could even fall to N200 – $1. This means the value of your N100,000 becomes even lower when you try to use it in transactions that directly involve the dollar, for example, trying to buy online from the US.

It is this freefall in the floating exchange rate that the MPC hopes to stem with its devaluation of the Naira. CBN Governor, Godwin Emefiele, said the committee believes “a more flexible naira in the face of non- existent fiscal buffers was the most viable policy option at a time of heightened demand pressure for foreign exchange and falling oil prices”.

Head of African Research at Standard Chartered bank, Razia Khan, told Reuters the monetary regulatory body made the right move in widening the band around the official mid-rate, and in setting the mid-rate at 168, given the higher interbank rate which is largely-market determined.

 

Your shopping just got costlier

The dip in the Naira’s value will lead to a spike in inflation; in essence, your groceries just got costlier. Analysts estimate Nigeria could suffer a double digit inflation, and some predict a rise to 10.5 percent from the current 8.1 percent.

Reuters news agency says the continued downward pressure on the naira threatens to stoke inflation by pushing up the cost of imports, on which the economy relies for around 80 percent of its consumption.

With the Naira further devalued amidst a real fear of an inflation spike, the price of your goods are in for it. First, because Nigeria imports many of its goods, and importation cost is paid in dollars, importers will now have to pay more naira because of the local currency’s lower value. That extra cost will of course be shifted, through the retailer, to the final consumer- you. So, if for example you go to buy peak milk and the seller tells you the price has increased from N800 to N850, remember it is imported from Holland. There is also the inflationary impact, which the cost of peak milk may not escape, even if it survives the impact of the devaluation. If the predicted 2 percent rise in inflation occurs, then you’re looking at a similar increase in the cost of goods.

To check the rise in inflation, the Central Bank announced it has raised the benchmark lending interest rate from 12 to 13 percent. There is wide scepticism about the efficiency of this move. And also, it has an adverse impact in your wallet, or your ability to augment it. You will find out how this happens later in this piece.

You may have to cancel that Holiday trip

Thinking of making or already made plans for foreign travels this festive season? You should reanalyse your budget. Your previous naira to dollar conversion needs recalculation, except you already have your money in dollars. If you don’t, then the $1500 reservation that you saved N250,000 for last month now needs an additional N18,000.

The negative speculation surrounding the naira means it could even cost more to purchase dollars internationally, with falls in the naira spooking bond investors who had been wooed by Nigeria’s high yields.

Foreign investors have pulled huge sums out of many emerging economies since the U.S. Federal Reserve began rolling back a policy that kept yields on US debt very low. This led to currencies from economies sensitive to oil prices, such as the naira, to suffer a massive hit. Another oil price-dependent currency, Angola’s kwanza, hit a record low of 100.895 to the dollar on Wednesday.

Although the naira’s attractiveness is at an all-time low, there seems to be light at the end of its tunnel. Reuters reports that foreign oil companies, which typically buy naira towards the end of the month to fund their Nigerian operations, helped the currency to recoup some of its losses on Wednesday. Total of France sold $20 million and Anglo-Dutch Shell, an undisclosed amount, boosting dollar liquidity on the interbank market, the agency quotes dealers as saying.

 

The Cost of Importation Will Rise

Like earlier stated, Nigeria depends greatly on imports for most of its household commodities, and those commodities are paid for in dollars. Thus, because of the devalued naira, Nigerian importers will need more money, more than they had already budgeted, to bring in foreign produced goods.

One of the major burdens on the naira is the massive imbalance in Nigeria’s international trade. In 2013, a Maersk report put Nigeria’s trade ratio at 91 percent import to 8 percent export. That problem is now further compounded by the fact that the main contributor to the feeble export ratio- oil- has now collapsed in price.

The high cost of dollar and the shrinking of export revenue due to falling global oil prices threaten the growth of Africa’s largest economy. This means that the weight of the falling naira is not borne by importers and exporters alone, but the whole value chain in the country, most especially the final consumer.

Borrowing too, just got harder

Not only did the value of your money decline, the devaluation has also hit your ability to add to it through borrowing.

As part of its measures to stabilise the naira, the MPC also increased the Monetary Policy Rate (MPR), from 12 to 13 percent. The MPR is the anchor rate at which the Central Bank lends to Deposit Money Banks to boost liquidity. The apex bank says it has to tighten the excess level of liquidity, which basically means too much cash in the banks- in order to address the sources of the demand pressure for foreign exchange.

But increasing the MPR decreases your accessibility to loans, because deposit banks will also increase interest rates. This implies that if you used to borrow from banks at a 15 percent interest rate, you could now be charged in the region of 17 percent. Banks employ similar monetary policies to rates as implemented by the Central Bank in the inter-bank market, meaning that they loan from each other and from the central bank. So if banks have to spend more to secure liquidity from the apex bank, they will also raise cost of borrowing to the public.

Despite the adverse effects of devaluing the naira, analysts say failing to do so would have been much worse. “The bold steps taken by the Central Bank will help tremendously to stem the drawdown in foreign exchange reserves,” South African-based NKC Research said on Wednesday.

The research agency stated that given the sharp depreciation of the interbank exchange rate in recent months, the cost of imports would have increased even in the absence of an official devaluation.

Efforts by the Central Bank to shore up the currency pre-devaluation have also failed. According to its website, the CBN has spent an average of $27.9 million a day this year defending the naira. The currency has nonetheless dropped by 11 percent since the start of the year. Continuing to defend the naira was already futile and would have led to the massive depletion of foreign reserves, which has fallen 25 percent from its 2013 peak of $49 billion to $36.5 billion.