Nigeria will have to devalue the naira and loosen monetary policy to stimulate Africa’s biggest economy hit by a plunge in oil prices, former central bank governor Lamido Sanusi said on Friday, criticising the bank’s currency policy.
Sanusi was removed in 2010 after he raised concern that tens of billions of dollars in oil revenues had not been remitted to state coffers.
“It is wrong to think that you can keep the naira at a certain level when the price of oil is falling without depleting your reserves,” Sanusi told CNBC television. “It does not speak well of us to pretend that the naira is appropriately priced.”
Central bank Governor Godwin Emefile has ruled out another naira devaluation, saying repeatedly the currency was “appropriately” priced despite a sharp fall of oil revenues whacking public finances. Emefiele’s has won backing from President Muhammadu Buhari for his stance.
Sanusi, who is now the emir of Kano in Nigeria’s Muslim north, also criticised foreign currency restrictions imposed by the central bank, which have frustrated local firms struggling to get dollars.
He also said interest rates were too high. The central bank let the main benchmark rate unchanged at 13 percent at its last monetary policy meeting in September while cutting the banks’ cash reserve ratio to 25 percent from 31 percent.
“It’s time to loosen monetary policy. We need to lower interest rates otherwise we compound an exchange rate crisis for businesses with high borrowing costs and declining demand,” Sanusi said.