Iraq's Central Bank will devalue its currency by more than 20 percent against the dollar to tide over a severe liquidity crisis triggered by low oil prices.

According to Iraq's Finance Minister Ali Allawi, one main reason for the move was to push the economic cycle forward and activate private sector and local production to avoid a severe budget deficit.

Iraq's central bank has increased the sale price of US dollars to banks and currency exchange to 1,460 dinars, from 1,182 dinars, seeking to compensate for a decline in oil revenue due to low petroleum prices, the bank said in a statement. This is the first reduction in exhcange rates the government has made in decades.

Riot police were dispatched outside the central bank headquarters in central Baghdad prior to the announcement in the event news of the devaluation sparked protests.

Iraq's October revenue from oil, its main source of income, stood at $3.394 billion with an average price per barrel of $41.778.

Iraq has been grappling with an unprecedented liquidity crisis since an oil price crash earlier this year. It had to borrow from the bank’s dollar reserves to pay the nearly $5 billion in monthly fees for public salaries and pensions.

(Writing by Seban Scaria; editing by Daniel Luiz)

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