* Interest rates have been stuck at 12 pct since 2011
* Bond yields fall, naira depreciates
(Adds details, market reaction, analysts)
By Camillus Eboh
ABUJA, June 5 Nigeria's new central bank
governor said on Thursday he would seek to gradually lower
interest rates for the first time in over two years, abandoning
the hawkish monetary policy of his ousted predecessor that cut
inflation to single digits.
Godwin Emefiele said he aimed to make it cheaper to borrow
to invest but this would have to wait until conditions allowed,
he said, and did not offer a specific timeframe.
Interest rates have been stuck at 12 percent since late
2011, and liquidity tightening measures are credited with
lowering inflation from 15 percent in 2010 to 7.9 percent
currently. But businesses say lending rates remain punitive.
"There is no doubt that reducing interest rates and
maintaining exchange rates are very daunting twin goals,"
Emefiele told his first news conference.
"However the central bank will work assiduously to ...
ensure that these goals are mutually achieved," he added.
Analysts said reducing interest rates too quickly could hurt
the naira and stoke inflation.
For details on analysts comments, see
Jonathan removed the previous governor Lamido Sanusi in
February, after the staunch anti-corruption campaigner presented
parliament with evidence that the state oil firm had failed to
pay $20 billion into federal coffers, citing corruption.
Jonathan's administration denied any link between Sanusi's
removal and his graft allegations but foreign investors are
concerned about presidential interference in the bank's affairs.
Sanusi was often accused by ruling party officials of
exceeding his remit when publicly chastising the government over
graft. Emefiele hinted he was unlikely to follow suit, saying
his role was "apolitical".
During his tenure, Sanusi often suggested he had to maintain
high interest rates because of reckless government spending,
especially during election cycles.
Emefiele said for now the bank would "maintain a monetary
policy stance reflecting liquidity conditions...as well as the
potential fiscal expansion in the run-up to the
2015...(presidential and parliamentary) elections."
That suggests Emefiele will also have to take into account
the level of government spending and revenue losses due to
corruption before moving to lower rates, analysts say.
BOND YIELDS, NAIRA FALL
Nigerian treasury bill yields fell 20 basis points across
the board on Thursday to an average of 11.3 percent after his
remarks, as buyers snapped up short dated debt in anticipation
of lower yields down the line.
Nigeria's benchmark 10-year bond yield was trading flat on
Thursday at 12.52 percent, after initially falling 7 basis
points on the new central bank governor's Emefiele's remarks on
interest rates. The 3-year bond yield was down 16 basis points
to 11.71 percent.
Emefiele said Nigeria's high yielding public debt "creates a
perverse incentive for commercial banks to simply buy risk-free
government bonds rather than lending to the real sector".
The naira hit a one-month low on Emefiele's remarks, easing
0.69 percent to 163.85 to the dollar and remaining outside the
bank's preferred 150-160 band that it has spent billions of
dollars of forex reserves this year trying but failing to
"Although Emefiele's comments were qualified with the
statement that it is a 'daunting' task ... the very fact that
lower interest rates were mentioned sends a strong signal to the
markets," said Standard Chartered's Razia Khan.
Emefiele promised zero tolerance of practices that undermine
financial stability, but gave few details. A 2008 financial
crisis pushed nine Nigerian banks to the brink of collapse until
Sanusi orchestrated a bail-out and had chief executives sacked.
(Reporting by Camillus Eboh; Additional reporting by Chijioke
Ohuocha; Writing by Tim Cocks; Editing by Chijioke Ohuocha and