GOVERNOR, Central Bank of Nigeria (CBN), Malam Sanusi Lamido Sanusi, has faulted the call by the International Monetary Fund (IMF) for greater exchange rate flexibility, arguing that the advice was based on flawed logic as he did not believe the naira was overvalued.
After ending consultations with Nigeria 10 days ago, the IMF noted in a statement on Thursday that foreign reserves had been falling and said speculation against the naira could become “intense.”
The IMF said its workers believed the naira, which has traded in a narrow band around N150 to the U.S. dollar for more than a year, was overvalued and that greater flexibility would cushion external shocks to sub-Saharan Africa’s second-biggest economy.
But Sanusi told CNBC Africa television: “We do not believe that the naira is overvalued... We do not believe that at a time when the oil price is going up and output is going up we should be losing the value of our currency.
“We also do not think that it makes sense, if the IMF is concerned about inflation, to ask a country that is import-dependent to devalue its currency... So the advice given by the IMF, frankly, is not based on sound economic logic.”
Sanusi, who told Reuters in January he was convinced a stable exchange rate was crucial for maintaining price stability and attracting foreign investment, said the IMF had gone ahead and published its advice without giving Nigeria’s position.
However, he said he agreed with the Fund’s assessment that further monetary tightening measures may be required if inflationary pressures continue, but added that it was “naïve” to believe that monetary policy alone could rein in rising prices.
Sanusi noted that expansion in credit to the private sector had remained weak despite an accommodative monetary policy.
His words: “The link between monetary policy and inflation is at best tenuous, it is theoretical. The reality is that the bulk of inflation is being pushed by structural forces.
“So, we do agree that we should tighten, but we think the IMF is a bit naive in its overestimation of the potency of monetary variables in the short term.”
The CBN raised the country’s benchmark interest rate by 25 basis points to 6.5 per cent three weeks ago and took aggressive measures to tighten liquidity, raising the cash reserve requirement and liquidity ratio for banks in a bid to reduce lenders’ ability to create more money.
Sanusi has made getting inflation into single digits a priority. Consumer inflation edged up to 12.1 per cent year-on-year in January from 11.8 per cent the previous month, although food inflation eased slightly.
Despite being Africa’s biggest crude oil exporter, Nigeria imports most of its domestic fuel needs because of the shambolic state of its refineries.
It also imports everything from rice to toothpicks, due to the neglect of agriculture and manufacturing since it started pumping oil half a century ago.
“We think we need to have a proper structural adjustment to reduce import dependence,” Sanusi told CNBC.
“The IMF should talk more to trade issues and other structural reforms that have not been ongoing rather than trying to compel or push the country into an unnecessary round of devaluation,” he said.
The CBN governor also repeated that four of the nine banks rescued in a $4 billion bailout in 2009 would sign memoranda of understanding (MoU) with new investors over the next one or two weeks.
He said at least two more were in “very advanced” talks and were trying to resolve final details.
“Once that is done, I think all the systemically important banks would have ... signed MoUs,” Sanusi said.
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