Nigeria's Central Bank Will Keep Policy Tight, Nnanna Saysby and
Nnanna will probably replace Alade as economic policy chief
No need for new dollar window once naira rates converge
Nigeria’s central bank will keep monetary policy tight as dollar shortages persist, Deputy Governor Joseph Nnanna said before an interest-rate announcement next week.
Now is not the time to ease policy, he said in an interview Thursday in the capital, Abuja. Inflation slowed for a third month in April, but at 17.2 percent remains almost double the upper limit of the bank’s 6 percent to 9 percent target.
“We are battling with liquidity as it were, so tight monetary policy will be for now,” he said.
The Monetary Policy Committee, of which Nnanna is a member, is scheduled to announce its decision on May 23. All but one of 21 economists surveyed by Bloomberg predict it will keep the main rate at a record high of 14 percent, a level it’s been at since July. Razia Khan, head of Africa macro research at Standard Chartered Plc, forecasts a cut of 100 basis points.
Nnanna said he will probably replace Sarah Alade as head of economic policy at the central bank, a role that’s key to wooing back foreign investors and helping the nation alleviate its dollar-squeeze.
Alade retired in March and was the best-known of Nigeria’s four deputy governors among global bond and stock investors, often accompanying Governor Godwin Emefiele on roadshows. Nnanna is currently in charge of financial-system stability and has overseen the economic policy brief since Alade’s departure.
“It appears that I will take on that responsibility permanently” once the Presidency picks a new deputy governor, Nnanna said. It would mean “working hand in hand with the governor to engage both foreign investors and domestic investors. I’ve been meeting with domestic investors already.”
Nigeria has been battered by a scarcity of dollars since oil prices crashed in 2014, its economy contracting last year for the first time in a quarter of a century. The central bank, which had imposed capital controls and tried to stop the naira falling, last month opened a platform for portfolio investors to trade the currency more easily and allow them to determine the exchange rate.
While investors welcomed the move, liquidity has so far been low, with only around $40 million traded daily, according to Exotix Partners LLP. It is picking up as the window starts to function properly and spreads between bids and offers are narrowing, Nnanna said.
The aim is to “achieve convergence” between the naira’s different exchange rates, Nnanna said. The currency trades at 382 per dollar in the new window, 18 percent weaker than the tightly controlled interbank rate of 315.
“If we achieve convergence, I don’t think the window will be necessary anymore because you’ll have one exchange rate for the economy,” Nnanna said.
One advantage of the foreign-exchange shortages is that they forced Nigerians to buy more local products, including food such as rice, Nnanna said.
“The craze for imported goods has declined,” he said. “Our consumption pattern is changing. We are producing what we used to import before.”
The central bank will boost lending to agricultural businesses through its so-called intervention funds, he said.
“We won’t lose sight of our developmental function, in the sense that if there’s a sector where we need to intervene, we will do so,” Nnanna said. “We are more bullish with the agricultural sector.”