Nigeria Rate Meeting Visited by Spirit of Sanusi: Africa Credit

Investors are signaling confidence that Nigeria’s acting central bank governor will hold the line on monetary policy set by her predecessor following his sudden departure last month.

In Sarah Alade’s first meeting as head of the Monetary Policy Committee, she kept the key interest rate at 12 percent today, meeting the median estimate of 13 economists surveyed by Bloomberg. Yields on naira notes due January 2022 rose 7 basis points since Lamido Sanusi was suspended by President Goodluck Jonathan on Feb. 20, compared with a 19 basis-point drop in South African rand-debt maturing March 2021.

“Alade will want to be seen as continuing the policies Sanusi advocated,” Alan Cameron, an economist at FCMB Group Plc in London, who forecast the main rate will be left unchanged, said in an e-mailed response to questions last week. “She’ll want to be seen as a safe pair of hands.”

Sanusi, 52, had strengthened the credibility of monetary policy by keeping the key interest rate at a record high for more than two years to bring inflation under 10 percent since January 2013 and stabilize the currency.

He was suspended by Jonathan four months before the end of his five-year term for “financial recklessness and misconduct,” allegations that Sanusi denies. Tension between the two men have escalated since December, when Sanusi called for an investigation into the state-owned Nigerian National Petroleum Corp. for allegedly withholding billions of dollars of oil revenue.

Unexpected Exit

Sanusi’s unexpected departure prompted concern that the independence of the central bank risks being undermined, with yields on Nigerian dollar-denominated bonds due in July 2023 climbing to a seven-month high on Feb. 24 and the naira dropping to a record versus the dollar. Since then, yields on the securities have dropped 45 basis points to 6.06 percent through yesterday.

Alade said on Feb. 21 that the change in leadership at the bank “will not in any way affect the monetary policy direction” and its mandate of achieving price stability. Eight economists predicted rates will stay unchanged today, while two called a one-percentage point increase.

Five MPC members voted to hold the benchmark rate at 12 percent while four voted to raise it, Alade told journalists in the capital, Abuja today. The cash reserve requirement on private sector funds was increased by 3 percentage points to 15 percent, she said.“The committee unanimously agreed that continuation of tight monetary policy was needed to consolidate recent gains,” Alade said.

Inflation Eases

Inflation eased to 7.7 percent in February from 8 percent in the previous month, remaining within the bank’s 6 percent to 9 percent target band.

Policy makers will probably need to increase borrowing costs by at least 200 basis points in the next six months to help support the currency as oil output misses objectives and the threat of rising government spending before elections next year, according to Michael Kafe and Andrea Masia, Johannesburg-based economists at Morgan Stanley.

The central bank sells foreign exchange at auctions to help peg the naira within a range of 3 percent above or below 155 per dollar. Policy makers have spent $3.1 billion of their reserves to help defend the currency since it plunged to an all-time low of 168.90 per dollar on the day of Sanusi’s suspension, compared with $1.9 billion the month before.

The naira was unchanged at 164.85 per dollar by 2:51 p.m. in Lagos for a decline this year of 2.8 percent. That compares with a drop of 12 percent in Ghana’s cedi in 2014 and a 2.6 percent decrease in the value of the rand.

Enough Firepower

“They can and will continue to intervene in the coming weeks, as there’s been a big shakeout of foreign positions and they still have the firepower to support the naira,” Kevin Daly, a money manager who oversees about $10.5 billion in emerging-market and Nigerian debt at Aberdeen Asset Management in London, said in an e-mailed response to questions March 17.

“If the Central Bank of Nigeria stays on hold, the market could interpret that as a sign that interim Governor Alade is essentially a caretaker,” he said. That “may reinforce the view that its independence has been compromised,” Daly said

Godwin Emefiele, chief executive officer of Zenith Bank Plc, was nominated by Jonathan as Nigeria’s next central bank governor from June.

Normality is returning to financial markets since Sanusi’s exit and the government is committed to ensuring economic stability before elections, Finance Minister Ngozi Okonjo-Iweala said in an editorial comment in the London-based Financial Times on March 13. An audit of oil accounts must be conducted to clear up the confusion relating to the missing revenue alleged by Sanusi, she said.

Election Challenge

Sanusi declined to comment when contacted by Bloomberg yesterday. The NNPC denies Sanusi’s allegations that it failed to account for revenue, spokesman Omar Farouk Ibrahim said in a phone interview from London yesterday.

The ruling People’s Democratic Party, in power since Nigeria emerged from military rule in 1999, will face its most serious challenge in polls set for Feb. 14. The country’s main opposition parties joined to form an anti-PDP bloc last year, known as the All Progressives Congress, which accuses the PDP of failing to use the tens of billions of dollars Nigeria earns from oil exports each year to create job opportunities.

The West African nation is the continent’s largest oil producer and most populous nation with more than 170 million people.

Naira-denominated bonds have returned 0.1 percent since Feb. 20 through March 21, compared with a 1.1 percent return for rand debt, according to data compiled by Bloomberg.

“If markets react badly to decisions made on her watch, critics will accuse the CBN of lacking depth,” FCMB’s Cameron said. That “will lend weight to the argument that Sanusi really was the prime factor behind the past three years of stability,” he said. “She’ll want to send markets a signal that she is here to keep things stable.”

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