Seamless transition at the CBN

 The Central Bank of Nigeria (CBN) under Sanusi Lamido Sanusi has maintained tight monetary stance for over two years and it is obvious that there may not be any monetary easing, at least, for the remaining 12 months of Sanusi’s tenure. The governor has announced his intention not to seek reappointment in 2014 when his tenure expires.

There is no doubt that the CBN lived up to its bidding, after the global financial crisis, typified with stable exchange rate, growing external reserves, reduced inflation rate and awareness of the need to check government’s fiscal expansion tendencies. 

Sanusi was sworn in as CBN governor June 3, 2009, amidst banking crisis of confidence, solvency and liquidity that almost eroded the long cherished confidence in the sector.

The governor is seen in some quarters as being courageous and daring in taking some decisions with varying degree of effects on the economy. For instance, inflation which was 13.5 percent in 2009 is now 9.1 percent since April 20, 2013; external reserves were $42.38 billion in 2009 and are now $48.45 billion as at Monday, June 6, 2013.

With a policy framework of implicitly targeting inflation, the Monetary Policy Rate (MPR) has been kept at 12 percent for the past two years against 8 percent in 2009 and cash reserve ratio (CRR) increased to 12 percent from 1 percent in 2009, reducing liquidity available for banks to create credit. 

Attractive interest rates resulted in the increase of portfolio funds, ‘hot money’, to approximately 12 percent of foreign reserves from 0.31 percent in 2009. Foreign direct investments, however, dropped to 6.81 in 2012 percent from 8.56 percent in 2009.

The foregoing therefore means that federal government must be prudent in its selection of the next governor for CBN. Paper qualifications alone will not do. Also needed is exposure and courage to continue with the current monetary policy, which has attractive different responses from both the analysts and ordinary citizens. Experience and nerve are currencies that investors respect.

To some analysts, the banking sector is yet to experience complete stability and the much needed turnaround for sustainability. We are still in crisis mode. The sector is experiencing temporal reprieve and will require another round of comprehensive surgery.

“For most long-term watchers of African economies, he (Sanusi) fundamentally transformed the notion of what a Central Bank governor is able to achieve, setting the bar really high for his peers,” says Razia Khan, analyst with Standard Chartered Bank, London. Khan also added, “Sanusi showed great courage in resisting the pressure to ease, when the beneficial impact of such easing may have been questionable, and might have put at risk Nigeria’s currency stability.” 

A continuation of the CBN’s tight monetary stance under Sanusi is expected, though the next governor may be less hawkish. Thankfully, the interest rate policy is set by a committee not an individual. We are confident that the president, who has displayed a knack for picking tested people for key positions, is consulting widely. This is the way to go; to ensure continuation, built on the significant institutional changes that the CBN has undergone.