Nigeria's next central bank chief a steady hand, who'll keep out of politics

by Reuters
Tuesday, 25 February 2014 16:00 GMT

* New governor likely to continue tight monetary policy

* Central bank will be expected to stay out of politics

* Governor will have challenge of defending the naira

By Joe Brock and Chijioke Ohuocha

ABUJA/LAGOS, Feb 25 (Reuters) - Nigeria's incoming central bank governor Godwin Emefiele is seen as a steady hand who will maintain tight monetary policy in the face of currency weakness and avoid his predecessor's controversial forays into politics.

President Goodluck Jonathan swiftly nominated Emefiele as the next governor last week after suspending incumbent Lamido Sanusi, who had become an increasingly vocal critic of the government's record on corruption.

Sanusi, internationally respected for his commitment to reining in inflation, implementing a successful bailout of Nigerian banks in 2009 and cracking down on money laundering and corruption in the banking sector, had been due to step down in June. His early departure caused a panic selloff in financial markets, although currency and stocks are now stabilising.

Emefiele, who at 52 is the same age as Sanusi, boasts more than 20 years' experience in the banking sector. He is the managing director of Zenith Bank, Nigeria's third biggest, where he has built a well-capitalised and stable institution, banking sources say.

"He's done a solid job at Zenith and is likely to be a steady hand who will be calm, but markets are jittery right now, so he's got a challenge on his hands," a Nigerian banking source said, asking not to be named.

Emefiele's appointment still has to be confirmed by the Senate. His office at Zenith declined to comment and he was not immediately available to comment on his new post.

His biggest challenge will be protecting the naira, which has come under pressure over the past year on concerns that reduced U.S. monetary stimulus will crimp fund inflows to emerging markets. It slumped to a record low of 169.25 to the dollar in the wake of Sanusi's suspension and was trading at around 163.5 to the dollar on Tuesday, outside the bank's preferred 150-160/$ range.

Repeated intervention by the central bank to keep the naira within the band has run down foreign exchange reserves, and liquid reserves have declined by about $2.2 billion or 5.2 percent from $42.46 billion at the start of 2014.

That is about $45 million a day and raises the prospect that interest rates, which have been on hold at 12 percent since October 2011, may have to rise at some point this year to protect the currency.

"We expect he will maintain the current monetary policy tightening stance," Vetiva Capital said in a research note.

"In the short term, we believe the currency will remain under pressure which would require continuous monetary tightening - restraining loan growth within a high interest rate environment," it added.


Analysts expect the new governor will be more discreet than Sanusi, who was often criticised by government officials for going far beyond his remit, happy to talk openly about anything from bloated government spending to the social problems which are feeding a bloody Islamist insurgency in northeast Nigeria.

He won't dip into politics, given the manner of Sanusi's exit, analysts say, and was described by several banking sources as a conservative figure who appears confident in public but gives little away.

Sanusi, who was suspended soon after opening up questions about corruption within the government, has said the biggest challenge his successor will face is keeping the central bank independent.

President Jonathan says Sanusi's suspension was due to irregularities found in an audit of the central bank and that the regulator would remain independent.

Foreign investors hold around $7 billion in Nigerian fixed income assets, down from $9 billion in November, banking sources told Reuters. This is likely to dwindle further in the coming months, heaping pressure on the naira, they said.

Bank of America Merrill Lynch downgraded its rating on Nigeria's external debt to underweight from market weight on Tuesday, adding that it expects the naira to weaken to 170 against the dollar this year, despite tight monetary policy.

Yvonne Mhango, economist at Renaissance Capital, expects forex reserves to fall to $35 billion by the end of this year and thinks Emefiele will be forced to devalue the midpoint in the naira exchange band to 170/$ in July.

"We believe he is likely to maintain a firm policy environment and would be inclined to tighten policy in the current environment of naira weakness," Mhango said.

Deputy governor Sarah Alade will be acting governor until Emefiele takes up his post in June, assuming Senate approval. (Writing by Joe Brock; Additional reporting by Vincent Flasseur; Editing by Tim Cocks and Susan Fenton)

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