Nigeria’s apex bank explains monetary policy decisions

Sanusi Lamido Sanusi
Governor, Central bank of Nigeria

Nigeria’s apex bank explains monetary policy decisions

Nigeria's Central Bank Governor, Lamido Sanusi, has stressed that in order to cushion the high inflation risks in the country the apex bank will focus on tightening the nation’s monetary policy.

Islamic finance forum

On the sideline of an Islamic finance forum in Senegal's capital, he said that high food and fuel prices, coupled with high government recurrent spending, meant that overall inflation would be a concern in the near-term.

"I think that the indications are that ... we have to look at the money supply situation very closely. We seem to be left with no choice but to focus on a tightening stance”.

Inflation increase

Nigeria's headline inflation rose to 12.4 per cent year-on-year in May from 11.3 per cent in April.

The central bank is aiming for single digit inflation by the end of the year.

“Nigeria's recently passed budget of 4.485 trillion Naira, was based on an unrealistic benchmark for oil at 75 dollars a barrel, and could put pressure on the country's money supply. That benchmark clearly does not portend very good signals for money supply. It looks like we are going to have pressures from the money supply side," he said.
Sanusi said it was unlikely that inflation would be reined within the bank's target this year but had received assurances from the government on its commitment to fiscal restraint.

"A lot depends on what happens to international commodity prices, a lot depends on what happens to the exchange rates, to what happens to government fiscal stance and whether we actually see a reduction to it," he said.

Boosting Islamic banking

Nigeria also plans to issue its first sovereign Sukuk within the next 18 months in a move aimed at boosting Islamic banking.

He said: "We are working with the debt management office. The central bank is collaborating with them on capacity building. We do have a target of issuing a first sovereign Sukuk in Nigeria within 18 months.”

Sanusi declined to say how much will be issued.

"The process has just started, the decision (on amount issued) will be taken by the finance minister and the debt management office, Nigeria was on track to approve its first Islamic bank and was working towards become a regional hub for Islamic banking,” Sanusi addede.

The Apex Bank Chief noted that the Central Bank had given an implicit approval to Jaiz Bank, the country's first Islamic bank.

Jaiz Bank has six months to comply with the central bank's terms to get a final licence.

"Hopefully by the end of the year, we will have one Islamic bank in operation, about five banks operating Islamic banking windows and start looking at developing an Islamic money market," Sanusi said.

Islamic financial certificate

Sukuk, is an Islamic financial certificate, similar to a bond in Western finance, that complies with Sharia, Islamic religious law.

Because the traditional Western interest paying bond structure is not permissible, the issuer of a Sukuk sells an investor group the certificate, who then rents it back to the issuer for a predetermined rental fee.

The issuer also makes a contractual promise to buy back the bonds at a future date at par value.

Sukuks must be able to link the returns and cash flows of the financing to the assets purchased, or the returns generated from an asset purchased.

This is because trading in debt is prohibited under Sharia.

As such, financing must only be raised for identifiable assets

PR/Hauwa/Williams