Will an Orderly Transition at the CBN Prevail?

By Samir Gadio, Emerging Markets Strategist, Standard Bank

According to media reports, President Goodluck Jonathan has asked CBN Governor Lamido Sanusi to resign on the ground that he leaked to former head of state Olusegun Obasanjo a letter exposing the alleged unremitted oil revenue proceeds to the Federation Account by the NNPC. The same sources indicate that Governor Sanusi denied doing so and said he was not ready to leave, except if he is removed by two-thirds of the Senate which in the current context and political configuration looks highly unlikely.

Governor Sanusi has already announced that he will not seek a second term in June 2014 and requested that the name of the next CBN Governor is announced three months before. The idea is that this would allow the market to assess institutional and monetary policy risk adequately and reduce the possibility of a build-up of pre-emptive long USD positions in Q2:14.

While the above mentioned development has yet to be publicly confirmed, we suspect the risks that the next CBN Governor will be a closer ally of the current administration – and less independent – have increased. This may not necessarily mean that the new governor will depart from the central bank’s historic FX stability stance, especially given the currency’s critical relevance in the forthcoming election, but there may well be concerted political pressure to lower policy rates and shift to a more expansionary monetary regime ahead of the next elections.

Should this be the case, the risks to USD/NGN would probably still initially be to the upside, but it may well be that a temporary period of NGN weakness would force the new monetary authorities to tighten liquidity conditions again before the general elections. Such action would actually place upward pressure on yields.

Perhaps the mitigating factor is that the composition of the MPC will not change drastically and, as such, it will be difficult for any pro-growth CBN Governor to by-pass the current decision-making process at the central bank and push for a materially more accommodative monetary stance.

On the political front, the market will keep a close eye on the PDP’s Board of Trustees and National Executive Committee meetings scheduled for 15 and 16 Jan. The most important point is probably whether the National Executive Committee will pass a vote of confidence in President Jonathan and the party’s national chairman Alhaji Bamanga Tukur. Besides, this will shed light on the extent of the support for the current party leadership amid a serious internal crisis that escalated in recent months, but will also point to President Jonathan’s chances to secure the PDP nomination for the 2015 elections later this year.

Author: nmmin

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