Nigeria’s Sanusi Says Price Surge Doesn’t Mean Higher Rates
Nigerian central bank Governor Lamido Sanusi said the surge in inflation last month was in line with policy makers’ expectations and doesn’t require an interest rate response.
“We front-loaded most of the tightening in anticipation of these policies and thus can afford to hold so long as inflation behaves in line with our forecast,” Sanusi said in an e-mailed response to questions yesterday.
The International Monetary Fund said yesterday a pause is “warranted” after Nigeria’s central bank raised its benchmark rate by 6 percentage points since 2010, to a record 12 percent, to combat price pressures. Sanusi said he is in “broad agreement” with the IMF.
“A pause is not the same thing as easing and monetary policy will remain tight so long as monetary easing is seen as constituting a major risk to inflation,” the governor said.
Inflation (NGCPIYOY), which accelerated to 12.6 percent in January, will probably peak at “just under 15 percent” by the third quarter and slow to under 10 percent by the end of 2013, Sanusi said. President Goodluck Jonathan partially scrapped a fuel subsidy in January, raising gasoline prices in Africa’s biggest oil producer to 97 naira ($0.62) a liter from 65 naira.
“We think the CBN is setting policy with its eye on the foreign exchange rate and the budget -- more so than inflation on its own,” CSL Stockbrokers Ltd. analysts, led by Guy Czartoryski in London, wrote in an e-mailed note to clients today.
Sanusi had said last month the Abuja-based bank may raise interest rates to curb inflation if lawmakers boost spending above budgeted targets and lift the benchmark oil price from the proposed $70 per barrel. The government is required to save oil revenue from sales above that price.
The National Assembly’s committees are deliberating on a budget proposal that would widen the deficit to 3 percent of gross domestic product, from 2.8 percent forecast in December, according to government estimates.
While the IMF called for a “clear inflation objective” for the central bank, there isn’t a need for an inflation- targeting policy, Sanusi said.
“The necessity, feasibility and propriety of it at this point are not evident,” he said. “We remain committed to stable prices with an implicit target of no more than 10 percent and continue to insist that we must always seek stability that is conducive to economic growth.”
The currency of sub-Saharan Africa’s second-biggest economy declined 0.1 percent to 157.7 per dollar as of 2:39 p.m. in Lagos, the commercial capital, paring a monthly gain of 2.1 percent, the biggest since October 2010. The naira has advanced 2.9 percent this year.
The naira’s stability is “sustainable” because of a decline in foreign-currency demand from petroleum importers, rising oil prices and an improvement in investors’ risk appetite, Sanusi said.
The central bank is “flexible” in managing the currency and has no reason to lower the midpoint of its target range from 155 per dollar, Sanusi said in response to the IMF’s recommendation for “greater exchange-rate flexibility.” The central bank sells foreign currency at twice-weekly auctions.
“The debate about exchange rate flexibility and the goals of monetary policy is a longstanding area of disagreement” between the IMF and the central bank, CSL said.
Higher borrowing costs have fueled demand from foreign investors seeking better returns, Sanusi said. Yields on debt due in 2019 surged 419 basis points, or 4.19 percentage points, to 16.02 percent in the past year, according to Feb. 28 prices on the Financial Markets Dealers Association website.
“The progress made in Europe on Greece has helped reduce risk aversion and the high yields in our market are attracting net portfolio inflow,” Sanusi said. “Exporters, particularly oil majors are now moving into naira as against betting against it.”