LAGOS (Reuters) - Nigeria’s central bank will keep tightening monetary policy in a “steady and stable” manner as government spending and the resolution of a banking crisis add to inflationary risks, Governor Lamido Sanusi said Monday.
Nigeria’s monetary policy committee raised its benchmark interest rate by 25 basis points to 6.5 percent at its last meeting in January and took aggressive measures to tighten liquidity as it seeks to get inflation down to single digits.
Government spending, the major source of liquidity in sub-Saharan Africa’s second-biggest economy, is rising ahead of April elections while state bad bank AMCON is set to soak up all bad bank loans by the end of March, further boosting liquidity.
“If we do think there is a long-term growth trend in money supply, which we have seen with huge fiscal deficits and with the possibilities of AMCON, tightening looks like the reasonable option, albeit in a steady and stable manner,” Sanusi told Reuters in an interview in his office in Lagos.
Pursuing price stability and fighting inflation were his main objectives but he noted structural imbalances in the Nigerian economy -- including its heavy import dependence -- meant the short-term impact of monetary tightening was limited.
“The challenge is how do you address the structural bottlenecks that get in the way of transmission,” Sanusi said.
“If 47 percent of (headline inflation) is farm produce and agriculture gets only one percent of bank lending, what really is the impact on credit growth in agriculture of a tightening,” he said.
He rejected calls from the International Monetary Fund (IMF) for greater exchange rate flexibility and the suggestion that the naira currency was overvalued.
“If you devalue the currency that simply increases the cost of imports, and that fuels inflation,” Sanusi said in an interview as part of the Reuters Africa Investment Summit.
“On the export earnings side, all of our exports are commodities and they are denominated in U.S. dollars. The value of the naira has no bearing on the export side. So if the argument is about the external balance and the reserve position, devaluation is not a solution,” he said.
Two of the Nigerian banks rescued in a $4 billion bailout in 2009 have signed memoranda of understanding with new investors and two more should sign this week or next, Sanusi said.
A further two were close to deals but were ironing out some final issues, he said.
Sanusi declined to comment on which banks were involved but expected the deals to be completed within 8-12 weeks of the agreements being signed.
“The MOU more or less captures negotiations that have been completed. What is left is basically ... implementation of the terms, obtaining the necessary shareholder and regulatory approvals,” Sanusi said.
“That we think should be done in 8 weeks, maximum 12 weeks, from the signing of MOUs,” he said.
Banking sources said Afribank and Bank PHB were the two rescued lenders to have signed deals, Afribank with private equity group Vine Capital and Bank PHB with Pakistan’s Habib Bank, which already held a stake.
The 2009 bailout, which came just months after Sanusi took office, sent shock waves through the corporate elite.
His actions, which included the removal of eight bank chiefs, had the backing of late President Umaru Yar‘Adua and, with elections due in April, some analysts question what would happen to the reforms if that political backing ebbed away.
Sanusi said he was not concerned.
“The process has been very transparent. I don’t see how any credible administration is going to reverse anything that has been going on,” he said.
Additional reporting by Chijioke Ohuocha; editing by Ron Askew