Naira in Focus as Emefiele Begins Nigeria Central Bank Job

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Bloomberg News by Daniel Magnowski

June 3, 2014

http://www.bloomberg.com/news/2014-06-03/naira-in-focus-as-emefiele-begins-nigeria-central-bank-tenure.html

Godwin Emefiele took over today as governor of the central bank in Nigeria, seeking to ward off pressure to devalue the currency of Africa’s largest economy and keep inflation under control.

Emefiele, 52, replaced Lamido Sanusi, who was suspended in February by President Goodluck Jonathan for alleged financial wrongdoing, claims that Sanusi denies.

A former chief executive officer of Lagos-based Zenith Bank Plc, Emefiele has pledged to maintain stability in the naira even as a slump in foreign-currency reserves limits the central bank’s ability to uphold the currency peg. While Emefiele has said devaluation will be “devastating” for the economy, investors have increased bets the bank will lower the midpoint of the currency peg from 155 per dollar.

The bank is “likely to maintain naira stability as the overriding priority ahead of February 2015 elections,” Philippe de Pontet, Africa director at New York-based Eurasia Group, said in an e-mailed note to clients.

The naira has dropped 1.4 percent against the dollar on the interbank market this year and was trading at 162.30 as of 12:47 p.m. in Lagos today. MTN Group Ltd. (MTN), Africa’s largest phone operator, said last month the naira will probably be devalued after the election.

Emefiele will hold his first press conference as governor at 10 a.m. local time on June 5, the Abuja-based central bank said in a statement on its website today.

Oil Theft

Reserves have slumped 15 percent this year to $37 billion as Nigeria struggles to meet output targets for oil, its main export earner. Theft and illegal sales by criminal gangs in the oil-rich Niger River delta have caused output and revenue to fall in the past two years.

Crude makes up about 80 percent of government revenue and 95 percent of foreign-currency income in Africa’s biggest oil producer.

Naira stability is key to keeping inflation under control. Under Sanusi and Acting Governor Sarah Alade, a tight monetary stance was combined with central bank support for the naira to keep consumer-price growth below 10 percent.

The MPC has kept its benchmark interest rate unchanged at a record 12 percent since October 2011, helping to bring the inflation rate down to 7.9 percent in April, inside the 6 percent to 9 percent target band.

Jonathan’s unexpected action in suspending Sanusi prompted the currency to drop to a record low of 168.90 against the dollar on Feb. 20 as investors worried that the bank’s independence would be threatened.

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