Easing inflation proves Nigeria monetary policy stance right

Bloomberg

Nigerian central bank Governor Godwin Emefiele’s tight monetary-policy stance and system of multiple exchange rates may have paid off through slowing inflation and a stable naira, and he’s not about to change that soon.
The MPC has kept its benchmark interest rate at a record 14 percent since July 2016 despite calls to lower rates to support economic growth. While gross domestic product expansion slowed in the three months through March, it’s now been positive for four consecutive quarters as the West African economy continues its recovery from a 2016 contraction.
Emefiele, 56, was appointed in 2014 by former President Goodluck Jonathan amid questions about the central bank’s independence. The finance ministry has urged the regulator to lower interest rates while some investors criticized foreign-exchange measures introduced under the former banker.
His policies have worked to stabilise the naira and moderate inflation, according to Peter Moses, an economist at Lagos-based Codros Capital Ltd.
Oil is the government’s biggest revenue source and the price collapse from mid-2014, along with Emefiele’s tightening of capital controls, starved the country of foreign currency, throttling growth and pushing inflation to almost 19 percent in January 2017. The black market consequently thrived.
Emefiele banned importers of 41 items from full access to the currency market to suppress dollar demand.
The central bank introduced various currency-trading windows, leading to a weakening of the naira rates used by investors, encouraged capital inflows and boosted foreign reserves.
While the International Monetary Fund has said the existence of multiple exchange rates creates distortions in the economy, Nigeria will probably maintain several naira rates until at least 2020, according to Moody’s Investors Service.