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Post-Sanusi CBN policy worrying investors – Analysts

By BusinessNews Staff on January 4, 2014

Economic analysts on Thursday reiterated the mounting concerns of investors over how the economy will be managed when the Governor of the Central Bank of Nigeria, Mr. Lamido Sanusi, leaves this year.

Sanusi, whose tenure expires in June, has reportedly said he would not seek a second term.

Experts told our correspondent that as it happens in any country of the world whenever a new central bank governor is to be appointed, local and foreign investors are increasingly concerned because they do not know what kind of monetary policy Sanusi’s successor will come up with.

According to them, the usual policy reversals whenever a new CBN governor is appointed may have contributed significantly to the worries.

The Head, Research and Intelligence, BGL Plc, Mr. Femi Ademola, said the process of appointing a successor for the head of a central bank in advanced countries provided little room for uncertainties unlike the case in Nigeria.

He said, “Even in the developed economies, the exit of the head of the central bank causes some uncertainties. However, the process for appointing a successor in those countries always provides transparency and quickly removes most of the uncertainties. In addition, these countries have created a strong institution in their central banks with clear processes and procedures for every action.

“However in Nigeria, recent experience has shown that there has always been some kind of disruptions when a new CBN governor is appointed. Even when the intentions are good, the approach by which the policies are implemented usually leads to avoidable disruptions in the financial system, usually to the detriment of investors.”

Ademola said it was difficult to predict the kind of change that may happen with a new CBN governor and its effects on investors and the financial system as a whole, but noted that the ability to profile and analyse the antecedents and expected behaviour of the successor to Sanusi would help investors to strategise on how to react to the expectations.

He, however, said there were indications that the Federal Government might announce Sanusi’s successor before March 2014.

Giving a clue to the likely post-Sanusi CBN, the BGL official said the central bank might either engage in policy reversals or evolve more demanding regulations.

He said, “Again, the banks are the most likely victims of any stunts from a new regime at the CBN. There may be some policy reversals or some more demanding regulations for the banks. As regards the management of prices (inflation, interest rate and exchange rate), there seems to be many options available.

“The CBN may either continue with the current monetary tightening and defence of the naira with the reserves or continue to defend the naira but ease the monetary tightening to help growth and employment.

“At this moment, it is difficult to determine, with some level of accuracy, how Sanusi’s exit from the CBN will affect investors until we know who the next governor will be and the full member of his Board and Monetary Policy Committee.”

A professor of Economics at the Olabisi Onabanjo University, Ogun State, Sheriffdeen Tella, said it was not out of place for investors to worry over the likely successor to Sanusi because monetary policy, to a large extent, affects the fortunes of investors.

According to him, the varied background of the CBN governors the nation has had in the past has been responsible for the policy reversals that have characterised their tenures.

Tella said, “If the Federal Government picks somebody from within the banking sector or the CBN, he or she may continue with the monetary policy stance of the current governor. But if somebody from outside the sector is picked, he may choose to do something else. This was the case with Charles Soludo and Sanusi.

“Sanusi, being someone from the banking sector, understands the banks and their tricks. This was why he went ahead to plug some loopholes. Soludo, because of his theoretical background, he felt things should be done in certain ways and he went ahead and did exactly that. So, the background will determine what every governor will do.”

There are reports that the Federal Government may pick the next CBN governor from any of Sanusi’s four deputies or get somebody from the banking sector.

Although the government is expected to announce the next CBN governor by March, industry sources said the government might do so before then.

Analysts believe such move will help the investors to re-strategise. However, Sanusi has reportedly said he would defend the naira value until he leaves in June.

[Punch]

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