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What the Analysts are saying about Nigeria’s new central bank governor’s policy moves

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CBN Governor, Emefiele

Nigeria’s new central bank governor said on Thursday he would pursue a gradual reduction in interest rates, an apparent reversal of his predecessor’s hawkish monetary policy that was credited with bringing inflation down to single digits.
Emefiele’s comments triggered a fall in the local naira currency, bond yields and treasury bills across maturities with the short-tenored debt falling 20 basis point to an average of 11.3 percent.
Following are analysts’ reactions:

MELISSA VERREYNNE – ECONOMIST AT NKC INDEPENDENT ECONOMISTS
“This does appear to be a sharp turnaround from his predecessor. Whereas Mr. Sanusi would have been careful to emphasise that interest rates will remain high – both to keep inflation expectations anchored, and to support the naira – Mr Emefiele has chosen to take the opposite route.”
“While we will reserve judgement until we see evidence in support of this, his first public speech as new governor does seem to shift the focus of the central bank’s objectives, and this will make it more difficult to support the naira and keep inflation stable.”
ANGUS DOWNIE, HEAD OF ECONOMIC RESEARCH, ECOBANK
“The new Governor has set out a challenging goal: cutting interest rates while maintaining currency stability within a changing global macro environment that is likely to push global commodity prices up.”
“While lower domestic interest rates are very welcome, which should boost growth, it is not clear how these will be achieved given the link between currency stability and high interest rates – a policy pursued by former Governor Sanusi.”
ALAN CAMERON, ECONOMIST AT NIGERIAN STOCKBROKER CSL
“Emefiele’s speech will likely be interpreted by some as a new direction in monetary policy, we do not think it is that simple. The objectives of exchange rate stability and lower interest rates cannot be achieved simultaneously, in our view, and it is too early to say which of these will be prioritised.”
“We think it would be imprudent of the central bank lower interest rates too quickly, especially as this would likely come at the cost of a weaker exchange rate and higher inflation.”
RAZIA KHAN, HEAD OF AFRICA RESEARCH, STANDARD CHARTERED
“Emefiele’s comments were qualified with the statement that it is a ‘daunting’ task to achieve the twin goals of reducing interest rates while maintaining FX rates, the very fact that lower interest rates were mentioned sends a strong signal to the markets.”
“We are aware that the new CBN (Central Bank of Nigeria Governor has been focusing on a number of initiatives that might boost local Nigerian production, reducing demand for imports, and ultimately preserving FX reserves. The problem with most of these real economy initiatives is that they still need some time to work.”
GREGORY KRONSTEN, HEAD OF ECONOMIC RESEARCH AT FBN CAPITAL
“The new governor would like a steady reduction in interest rates but so did Sanusi if the conditions had permitted. As for the “difficult twin goals”, it appears that he is not going to abandon exchange rate stability, which requires portfolio money and thus attractive yields.”

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