Sanusi Argues to Hold Nigeria Rate Amid Call for CutsMaram Mazen
Central Bank of Nigeria Governor Lamido Sanusi said he supports keeping the benchmark interest rate on hold to contain inflation in Africa’s top-oil producing nation as policy makers increasingly opt for a cut.
“My own inclination is to just hold and just continue doing what we’re doing, because it has worked very well,” Sanusi said in an interview on March 24 in Lagos, the commercial capital. “But I’m only one vote in the Monetary Policy Committee. The votes to ease are beginning to increase.”
The 12-member MPC, led by Sanusi, left the key rate at a record high of 12 percent for a ninth meeting last week to help bolster the naira and keep inflation below 10 percent. Three members voted for a reduction, up from two in January, to support the economy. Policy makers have so far rejected calls from businesses and the government to lower borrowing costs.
Inflation in Nigeria accelerated to 9.5 percent in February from 9 percent in the previous month. At the same time, the naira has dropped 1.3 percent against the dollar this year, making imports more expensive.
The impact of interest rates below inflation could be “horrendous” for economic stability, Sanusi said. “In the short term, the country has to live with high rates.”
Sanusi, 51, said on March 20 he won’t seek a second term as governor when his contract expires in June next year. A former chief executive officer of First Bank of Nigeria Plc, Sanusi was appointed in the midst of a debt crisis that threatened the country’s banking industry with collapse.
``I informed the president going back to 2011 that I would not be interested in serving for two terms,'' Sanusi said. ``The job has been done, largely.''
In the euro area, which has also been afflicted by a debt crisis, Cyprus earlier this week dodged a disorderly sovereign default and unprecedented exit from the euro by bowing to demands from creditors to shrink its banking system in exchange for 10 billion euros ($13 billion) of aid. Cyprus is the fifth country to tap international aid since the fiscal crisis erupted in Greece in 2009, pushing the euro area into a recession and forcing central banks to boost stimulus.
In the U.K., Bank of England Governor Mervyn King on March 7 was defeated for a second month in a vote to expand stimulus as the majority of policy makers said more bond purchases might erode their credibility. U.K. inflation accelerated to 2.8 percent in February, the fastest in nine months.
By contrast, euro-area inflation slowed to 1.8 percent in February from 2 percent, falling below the European Central Bank’s 2 percent ceiling, as the economy struggled to emerge from a recession. European economic confidence probably fell to 90.5 in March from 91.1 in the previous month, according to the median estimate of 30 economists in a Bloomberg survey. The European Commission will release the report tomorrow.
In France, the euro area’s second-largest economy, consumer confidence fell in March, the national statistics office Insee in Paris said today. The economy may recover later this year though the rebound will be “weak,” European Central Bank council member Benoit Coeure told Europe 1 radio.
U.K. retail sales unexpectedly stagnated in March, with a gauge of annual sales growth dropping to zero from 8 in February, the London-based Confederation of British Industry business lobby group said today. That’s the weakest in seven months. Economists in a Bloomberg survey forecast a gain to 9.
In Nigeria, economic growth slowed to 6.6 percent in 2012 from 7.4 percent a year earlier, hurt by a contraction in the oil industry, Sanusi said March 19, citing the National Bureau of Statistics. The economy will probably expand 6.8 percent this year, according to the statistics bureau.
Inflation may slow to below 9 percent in March and will probably remain between 9 and 11 percent this year, Sanusi said.
“Our own forecasts don’t show us getting back to the kind of 12 percent to 13 percent levels we saw last year,” he said. “Inflation is where we’d like it to be.”
The central bank manages the naira to help keep inflation under control. It sells foreign currency at auctions on Mondays and Wednesdays to keep the naira within a band of 3 percent above or below 155 naira per dollar.
“Unless there’s some major external shock, the foreign-currency market looks to me one in which we can have stability,” Sanusi said. The bank has enough reserves to defend the naira and “keep it where we want,” he said.
The House of Representatives passed a resolution on Feb. 20 ordering its committee on banking and currency to request the central bank lower its policy rate to below 10 percent to encourage borrowing and investment. Finance Minister Ngozi Okonjo-Iweala said in July record high interest rates pushed up commercial bank rates to about 20 percent and were making it difficult for businesses to borrow.
More MPC members may follow by voting for rate cuts.
“Who knows?” Sanusi said. “Maybe the next MPC there might be four or five, and so my own deputy governors might vote against me as they’ve done before.”