The country's incoming central bank governor Godwin Emefiele is seen
as a steady hand who will maintain tight monetary policy in the face
of currency weakness and avoid his predecessor's controversial forays
into politics.
President Goodluck Jonathan swiftly nominated
Emefiele as the next governor last week after suspending incumbent
Lamido Sanusi, who had become an increasingly vocal critic of the
government's record on corruption.
Sanusi, internationally
respected for his commitment to reining in inflation, implementing a
successful bailout of Nigerian banks in 2009 and cracking down on money
laundering and corruption in the banking sector, had been due to step
down in June. His early departure caused a panic selloff in financial
markets, although currency and stocks are now stabilising.
Emefiele,
who at 52 is the same age as Sanusi, boasts more than 20 years'
experience in the banking sector. He is the managing director of Zenith
Bank, Nigeria's third biggest, where he has built a well-capitalised
and stable institution, banking sources say.
"He's done a solid
job at Zenith and is likely to be a steady hand who will be calm, but
markets are jittery right now, so he's got a challenge on his hands," a
Nigerian banking source said, asking not to be named.
Emefiele's
appointment still has to be confirmed by the Senate. His office at
Zenith declined to comment and he was not immediately available to
comment on his new post.
His biggest challenge will be protecting
the naira, which has come under pressure over the past year on concerns
that reduced U.S. monetary stimulus will crimp fund inflows to
emerging markets. It slumped to a record low of 169.25 to the dollar in
the wake of Sanusi's suspension and was trading at around 163.5 to the
dollar on Tuesday, outside the bank's preferred 150-160/$ range.
Repeated
intervention by the central bank to keep the naira within the band has
run down foreign exchange reserves, and liquid reserves have declined
by about $2.2 billion or 5.2 percent from $42.46 billion at the start
of 2014.
That is about $45 million a day and raises the prospect
that interest rates, which have been on hold at 12 percent since
October 2011, may have to rise at some point this year to protect the
currency.
"We expect he will maintain the current monetary policy tightening stance," Vetiva Capital said in a research note.
"In
the short term, we believe the currency will remain under pressure
which would require continuous monetary tightening - restraining loan
growth within a high interest rate environment," it added.
MAINTAINING INDEPENDENCE
Analysts
expect the new governor will be more discreet than Sanusi, who was
often criticised by government officials for going far beyond his
remit, happy to talk openly about anything from bloated government
spending to the social problems which are feeding a bloody Islamist
insurgency in northeast Nigeria.
He won't dip into politics, given
the manner of Sanusi's exit, analysts say, and was described by
several banking sources as a conservative figure who appears confident
in public but gives little away.
Sanusi, who was suspended soon
after opening up questions about corruption within the government, has
said the biggest challenge his successor will face is keeping the
central bank independent.
President Jonathan says Sanusi's
suspension was due to irregularities found in an audit of the central
bank and that the regulator would remain independent.
Foreign
investors hold around $7 billion in Nigerian fixed income assets, down
from $9 billion in November, banking sources told Reuters. This is
likely to dwindle further in the coming months, heaping pressure on the
naira, they said.
Bank of America Merrill Lynch downgraded its
rating on Nigeria's external debt to underweight from market weight on
Tuesday, adding that it expects the naira to weaken to 170 against the
dollar this year, despite tight monetary policy.
Yvonne Mhango,
economist at Renaissance Capital, expects forex reserves to fall to $35
billion by the end of this year and thinks Emefiele will be forced to
devalue the midpoint in the naira exchange band to 170/$ in July.
"We
believe he is likely to maintain a firm policy environment and would
be inclined to tighten policy in the current environment of naira
weakness," Mhango said.
Deputy governor Sarah Alade will be acting governor until Emefiele takes up his post in June, assuming Senate approval.
