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Nigeria Central Bank to review naira, likely 155-156/dollar target

Category: Money Market


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Nigeria Central Bank to review naira, likely 155-156/dollar target

 

Monday October 31, 2011 4:33pm

 

 

* Interest rates to remain high, money tight, Sanusi says 

* Inflationary pressures from bank bail out fund 

* Cenbank not committed to a fixed exchange rate  

 

Nigeria's Central Bank Governor Lamido Sanusi said on Monday the bank would review its target band for the naira in the next few days, and depending on where the exchange rate settles may move its midpoint to 155/156 to the dollar, compared to its current 150.

 

The bank's policy is currently to maintain the naira within around 3 percent either side of the 150 level.

 

"We'll give it a few more days and see where it settles finally and then we've got to come out with a new transparent band," Sanusi told Reuters in an interview on the sideline of an investment conference in Nigeria's capital Abuja.

 

"...Both the midpoint and the band could change. Whatever it is, we'll let the market know very soon ... It's more likely to be around 155/156."

 

He added that monetary policy was likely to remain tight for the foreseeable future to ward off inflationary pressures.

 

"We think that we will maintain ... a high interest rate environment. We're certainly going to keep money tight," Sanusi said. "There are a number of pressures that suggest we'll need tight monetary policy for a while yet."

 

He said inflationary pressures would come from efforts to "sterilise" the bonds of state-backed bad bank AMCON, which was set up to bail out nine banks that were judged near to collapse in 2009.

 

Others were structural, like Nigeria's dependence on fuel and other imports, and the high cost of running government, which would take a long time to address, he said.

 

The naira hit an all-time low against the dollar earlier this month, as worsening global economic conditions curbed risk appetite and dollar demand from importers and speculators increased.

 

The bank took measures to stabilise the currency in response, including lowering the amount of dollars banks can hold relative to shareholders' funds to 1 percent from 5 percent, and aggressively raising interest rates by 2.75 percent to 12 percent.

 

It also sold dollars directly on the market. The measures seemed aimed at keeping the naira within the 3 percent of 150 to the dollar target.

 

But Sanusi said the bank was flexible on the exchange rate.

 

"This gives us an opportunity to show the markets we were never committed to fixed exchange rate ... All we are trying to do is let people have a band within which to manage their expectations," he said.

 

The target exchange rate band would aim to "maintain stability without putting your reserve position at risk," he said. "I still think anywhere between 150 and 155 or 150 and 160 is fine."

 

"If we say its going to be 155 or 156, people know we're going to manage it within that band," he said.     

 

 

 

Source: Reuters (Reporting by Tim Cocks)

 



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