Nigerian central bank cuts rates as governor’s future remains unclear

Pressures on emerging markets are major factor behind rate cut, MPC says
Godwin Emefiele
CBN governor Godwin Emefiele
IMF

The Central Bank of Nigeria cut its policy rate by 50 basis points in its first change for three years, as the future of governor Godwin Emefiele remained unclear.

The CBN’s monetary policy committee said in a statement on March 26 that six of its 11 members had voted for the cut to 13.5%. Only two members voted to hold the policy rate at its current level, while one voted for a larger cut of 100bp and two for a smaller reduction of 25bp.

Recent pressure on emerging economies’ currencies and bonds was one significant factor behind the cut, the statement said. The MPC added that “signalling through loosening by a marginal reduction would serve to manage the sentiments in the capital markets”. It said the rate cut “would further uphold the bank’s commitment to promoting strong growth by way of encouraging credit flow to the productive sectors of the economy”. 

The reduction was the first change in Nigerian policy rates since a series of increases in early 2016, as the central bank coped with inflationary pressure.

Governor’s future unclear

Emefiele’s first five-year term is due to end in June. He could be appointed to a second term by Nigeria’s recently re-elected president Muhammadu Buhari, who won a second four-year term earlier this month. Local media has, however, said that some of the president’s allies are urging him to appoint a new governor.

One report by the news agency Bloomberg said Buhari had sent Emefiele a letter telling him that his tenure would end in three months. Some local media reports this month said Emefiele had already left the bank on a three-month period of “terminal leave” at the president’s request. But central bank sources contacted other local reporters to say that Emefiele was still at the bank.

“It is not true that Emefiele was asked to go on terminal leave by the president,” a CBN spokesman told local magazine Punch on March 26. “As we speak now, the governor is in his office working.”

This is not the first time Nigeria’s political environment has caused severe uncertainty about the leadership of the country’s central bank.

Emefiele was obliged to decide monetary policy on his own for several months between November 2017 and May 2018. The law governing the central bank mandates that decisions be made by the monetary policy committee. But Nigerian lawmakers refused for over six months to confirm new members nominated by president Buhari to fill gaps caused by retirements.

One possible factor in the choice of a governor is Nigeria’s ethnic and religious divides. Buhari is a Muslim from Nigeria’s north, whereas Emefiele is a Christian from the south. The president may be considering replacing Emefiele with a candidate from the mainly Muslim north, some locally-based reporters said.

Several local media outlets have named several possible replacements for Emefiele. One is CBN deputy governor Aisha Ahmad, who was confirmed in the role by Nigerian lawmakers in May 2018 after being nominated by Buhari. 

Another is Ahmed Kuru, managing director of the state-owned Asset Management Corporation, a “bad bank” set up in 2010 to manage many of Nigerian banks’ non-performing loans. Both have worked in the private financial sector before taking their current roles.

Nigerian media sources have named several other possible candidates for the governor’s role. Pulse magazine suggested that academic economist Soji Adelaja, and former CBN deputy governor Obadiah Mailafia are being considered by the president. Another candidate named in the local press is Mohammed Kyari Dikwa, who as a civil servant was responsible for implementing Buhari’s policy of making all Nigerian government agencies use the same single treasury account.

Several senior executives with private sector firms have been named as potential replacements for Emefiele. These include Bello Maccido, the chairman of FBN Merchant Bank, Adesola Adeduntan, chief executive of First Bank of Nigeria, Umaru Abdul Mutallab, former chairman of the same bank, Herbert Wigwe, chief executive of Access Bank, and Bismarck Rewane of Financial Derivatives Company. 

Prominent policy-maker

As governor, Emefiele has put himself at the forefront of efforts to diversify Nigeria’s economy away from its dependence on oil and gas exports.

He has used several billion dollars of central bank money to fund industrial investment projects considered to be strategic, including electricity distributors, oil refineries and sugar processing plants. The central bank under Emefiele has also funded small and medium enterprises, particularly in the agricultural sector. It announced plans to set up a national micro-lending institution in January. 

Emefiele has been particularly prominent in deciding Nigeria’s economic policy due to the weakness of the finance ministry under president Buhari, observers told Central Banking.

Buhari failed to appoint a finance minister for almost six months after his first election. He eventually appointed Kemi Adeosun, an accountant who some observers say appears to have little influence over government policy.

Emefiele took over the role in June 2014 after Sanusi Lamido Sanusi was effectively forced out of the governor’s office by Nigeria’s then president Goodluck Jonathan. Sanusi was accused by Jonathan of having leaked official documents that pointed to massive corruption at the state-owned oil firm.

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