ECONOMIC PERSPECTIVES: CBN NEW MONETARY POLICY

UNCLAS LAGOS 000592

SIPDIS

SENSITIVE BUT UNCLASSIFIED--HANDLE ACCORDINGLY, SIPDIS

ABUJA 1793

E.O. 12958: N/A
TAGS: ECON EFIN PGOV PREL NI
SUBJECT: ECONOMIC PERSPECTIVES: CBN NEW MONETARY POLICY



1. (SBU) Economic analysts see the Central Bank of Nigeria's (CBN)
new economic policy, including redenomination of the naira, as a
cosmetic makeover offering few economic improvements. One analyst
thought the new policy could succeed if it were harmonized with
macroeconomic policy objectives. End summary.

-------------- Rede nomination Desirable;
But Unnecessary
--------------


2. (SBU) Ayo Teriba, CEO, Economic Associates, commented that since
Nigeria was not experiencing hyperinflation, there was no need to
re-denominate the naira, particularly given its recent stability
against the U.S. dollar (USD). He said the naira is convertible
contrary to the Central Bank Governor's statement (Reftel) and
redenomination would not be the best way to achieve a desired
exchange rate level. He further argued that removing two zeros would
not affect the naira exchange rate to the USD as the value would
remain the same.


3. (SBU) Teriba said the new policy is a continuation of the
previous Administration's agenda and the Central Bank's lack of
consultation before announcing the new policy smacks of arrogance.
The Central Bank of Nigeria (CBN) only has operational autonomy and
not strategic independence, he averred, and thought "the Governor is
taking the CBN autonomy too far."


4. (SBU) Biodun Adedipe, a former World Bank consultant, faulted the
CBN Governor's desire to return to the 1985 exchange rate. Exchange
rate stability is more important than the actual rate, he posited.
However, he lauded the current account liberalization policy
starting January 1, 2009 because he thought it would increase
foreign investors' confidence in the economy.

--------------
Cosmetic CBN Changes Not Tied to Policy
--------------


5. (SBU) Bismarck Rewane, Managing Director of Financial
Derivatives, called the redenomination "cosmetic" because it was not
linked to policy or administrative changes. He commented that the
CBN's new monetary policy would not only be expensive (reprinting
naira notes) but that it would also entail administrative
consequences arising from trying to add U.S. dollars to the banking
system (Reftel). He called the proposed liberalization of the
Current Account "cosmetic" and warned it could make the system "more
opaque." He criticized the new monetary policy as not being tied to
broad macroeconomic policy objectives such as accelerating economic
growth, achieving sustainable and competitive domestic growth, or
diversifying the economy away from oil dependency. However, Rewane
thought "it is possible" that the new monetary policy could be
harmonized with macroeconomic policies and improve the economy.



MCCONNELL