The Central Bank of Nigeria governor has denied that the country’s financial system is under threat from speculative investments valued at around $10 billion.
Governor Lamido Sanusi said that even if those investments were to leave the country, Nigeria would still have $36 billion in reserves.
Speaking at a conference in the capital Abuja, Sanusi said that high interest rates had managed to keep inflation below forecast, as well as stabilise the naira and attract foreign currency reserves.
“The policy is working,” he said with regard the interest rates. “I don’t like high interest rates, but we have stability and that’s what I’m paid to do.”
Though inflation rose to 11.7 per cent in October, it remained below the bank’s forecast, which had been for as much as 15 per cent after the gasoline subsidy was cut in January. With this stability in mind, the Sanusi-led Monetary Policy Committee has maintained the policy rate at the current record 12 per cent this year to help support the naira and combat inflation.
Sanusi rejected calls for lower interest rates in order to spur economic growth, saying there was no evidence that this would be the case as the main obstacles to borrowing and credit were in fact the poor power supply and insufficient infrastructure.
“I do understand the pain of the borrowers paying high interest rates,’’ Sanusi said. But he added: “Let’s not exaggerate this transmission, the potential of a lower interest rate to increase gross domestic product,” Sanusi said.
He said this monetary policy had lifted the pressure on the naira, which he said that been caused by “leakages” such as fraudulent fuel subsidy payments and crude oil theft, which had cost the country $7 billion last year.
“If that money had gone into reserves, we wouldn’t have had the pressure on the naira that forced us to tighten,” he said.
Foreign investors account for 70 per cent of transactions on the Nigerian Stock Exchange, according to CEO Oscar Onyema, with the value of Treasury bills sold by Nigeria rising 31 per cent to 2.1 trillion naira ($13.4 billion) in the first six months of 2012.
The central bank said bonds increased 12 per cent to 3.7 trillion naira ($23.5 billion).