News Column

Presidency Unlikely to Meddle in CBN After Sanusi Backlash - Rewane

June 12, 2014

Oluwaseyi Bangudu

The former Central Bank Governor was controversially suspended four months to the end of his five year tenure by the Federal Government on allegations of misappropriation of funds and financial recklessness.

Subsequently, Godwin Emefiele, the Group Managing Director of Zenith Bank Plc, was nominated by the president and approved by the Senate as the next Central Bank Governor. He took over charge of the apex bank on Monday, June 2, 2014.

The analyst also proposed that there should be greater coordination between the Central Bank and Finance Ministry, moving forward.

"The Central Bank autonomy will remain intact because the PDP is on the ropes and the National Assembly (NASS) have other priorities" he said.

"The Monetary Policy Composition remains intact and institutionalized. The level of discourse will be unadulterated. The line in the sand for currency adjustment will be approximately $34bn. Attempts to assure the market that no cause for panic could backfire" he said.

According to Mr. Rewane, the new Central Bank Governor assumed office in the midst of high market expectations.

"MPC kicked the can down the road for the new Governor. The status quo was maintained when they could have adjusted the naira downwards. Alternatively, they could have tightened the Cash Reserve Ratio some more. Now the chickens are coming home to roost. Monetary conditions call for a change strategically or tactically, but definitely not status quo" he said.

Liquidity tightening anticipated

Despite MPC's maintaining monetary policy's status-quo at its last meeting, Afrinvest, an investment and research financial institution, said some liquidity tightening is expected from the apex body in the near future.

"We are convinced that considering the current level of success achieved with the hawkish stance of the previous Central Bank Governor and the likely political and economic headwinds, he may choose to sustain these policies to ensure these gains are maintained.

"In view of the 2015 campaign spending, we anticipate further liquidity tightening by an additional increase in the CRR on public sector deposit to 100.0 per cent before the end of 2014 and a subsequent reduction post the 2015 election.

"In addition, the gradual depletion of the reserves (from $49.0 billion in May 2013 to $37.3 billion as at May 2014), which also constitutes approximately $10.0 billion in "hot money" questions the viability of the continued intervention of the Central Bank at the Foreign Exchange market.

"In addition, in view of further stimulus tapering in the U.S. and the expected end to Quantitative Easing (QE) in November 2014, we foresee further capital reversals, hence mounting more pressure on the Naira in the mid-term. This presents the Central Bank with the daunting task of either increasing the MPR (by 50bps) to moderate capital flow reversals or permit the devaluation of the Naira to prevent further depletion of the reserves. The former may be the preferred so as to prevent inflationary pressure due to the import dependent nature of the Nigerian economy", Afrinvest said.

"Moreover, we expect the present cashless policy may be extended to accommodate dollar and foreign currencies transactions such that foreign currency payment can only be made for smaller amount with all informal payments in foreign currencies reduced. Lastly, we would expect a more collaborative economic policy between the fiscal and monetary authorities," the firm said.

Mr. Emefiele is the third governor since the new Central Bank Act passed into law and the 11th Governor since the Central Bank was founded. There have been only three economists of the 11.

"The new Governor is vastly experienced in finance. He is reserved, cautious and methodical. Eurasia describes him as not subservient or self-censoring," Mr. Rewane said.

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Source: AllAfrica

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