Why the Nigerian central bank’s policy meeting no-show isn’t helping investors

The Nigerian central bank’s decision not to hold its monetary policy committee this week has deepened uncertainty over how its new governor plans to tackle the currency crisis in Africa’s biggest economy.

It was the second time the meeting failed to take place since Yemi Cardoso took office in September. It also comes against a backdrop of chronic dollar shortages that have pushed down the value of the naira and driven galloping inflation.

President Bola Tinubu moved decisively in his first weeks after coming to power in May to roll out investor friendly reforms. He removed a costly fuel subsidy and allowed the naira’s value to be market determined. Godwin Emefiele, who as central bank governor implemented unconventional policies, was replaced with Tinubu’s choice, Cardoso, who is a well respected banking executive.

But, two months into his tenure — a long time for global investors — Cardoso is yet to hold a meeting of the bank’s monetary policy committee (MPC). The meeting typically culminates in the governor announcing the decision on the main lending rate and policy plans. The meetings are usually held every two months. A meeting had been due to take place on Monday and Tuesday this week, according to the central bank’s website.

“You can engender investor confidence by having predictable policies and knowing the central bank’s plans,” said David Omojomolo, Africa economist at Capital Economics in London. “We haven’t got a clear sense of what Cardoso is trying to achieve.”

The bank did not respond to a Semafor Africa request for comment about the meeting.

Nigeria’s inflation rate rose for a tenth month in a row in October to 27.33%, the highest in 18 years. Economists broadly agree that the conventional approach to tackle rising prices is to tighten monetary policy by raising the benchmark interest rate.

“A hike in the rates of at least 200 basis points would make sense to give confidence to the investment community that you’re serious about inflation,” Charlie Robertson, head of macro strategy at FIM Partners, told Semafor Africa. Omojomolo went further, arguing that a rise of at least 300 basis points was needed.

The lack of a monetary policy meeting is, on the face of it, not a big deal. But the truth is that investors like certainty. A clear sense of a plan and what’s being done to tackle problems would help international investors and foreign businesses put off by fears that currency fluctuations would make it hard for them to repatriate their profits.

Cardoso, a former chairman of Citibank Nigeria, was hailed as a wise choice when he was appointed two months ago. But the deafening silence around the new central bank leadership team won’t appeal to investors who perhaps thought the end of Godwin Emefiele’s tenure would bring order.

A number of people I spoke to drew comparisons with Kenya’s new central bank governor, Kamau Thugge. He was appointed in June and hiked the country’s main interest rate by 100 basis points in an unplanned meeting one week after taking office. That swift action prompted a dip in inflation and Thugge has maintained a stream of pronouncements to make clear his thinking.

It begs the question of why the meetings are being put off in Nigeria. Some analysts say Nigeria has come to rely on injections of dollars, such as a deposit pledged by Saudi Arabia earlier this month, to boost dwindling foreign currency reserves.

The cult of personality at the central bank in recent years — in which businesses and institutions who criticize policies are punished, for example through their access to dollars being reduced — means domestic investors and capital markets watchers are reluctant to publicly air their views.

One Lagos-based capital markets dealmaker, who did not want to be named, said: “Even if they had the meeting, what is he going to say?” But he added that international investors could be unsettled by the lack of clarity.

Another, who divides their time between Nigeria and overseas, said the bank’s actions gave the impression that Nigerian authorities underestimated the scale of challenges in the economy and believed the naira’s devaluation and subsidy removal were “magic bullets.”

The central bank’s quiet start under Cardoso is one of the ways in which efforts to rebrand Nigeria as an investor-friendly country are unraveling. The rapid reforms Tinubu implemented haven’t been followed up with policies to mitigate their impact. The fuel subsidy has been removed but, in practice, a de facto subsidy appears to be in place in all but name to stabilize prices. Meanwhile, the lack of a clearly stated plan to address the scarcity of dollars, which is pushing up prices for everything from food to fuel, creates the sense that Emefiele was replaced by a vacuum.

Razia Khan, chief economist for Africa and the Middle East at Standard Chartered, said “there has effectively been a tightening of monetary policy” through changes made in the buying and selling of government securities.

“For now, any rise in market yields will speak more loudly than a policy rate hike,” she said.

“For banks in Nigeria, they’ve been in close consultation with the CBN all along, and will therefore have a good understanding of the policy intent, already,” she said. The new team at the central bank has said that it needs time to assess the situation fully before formulating policy, according to Khan. “They communicate this both to banks and to investors.”

Kola Aina, founding partner of Abuja-based investment firm Ventures Platform, last week told Semafor Africa about the impact of Nigeria’s currency problems. “The stress today is that instability makes it difficult to plan and value companies,” he said.