Chris Kay and Emele Onu Lagos

Nigeria’s currency is at risk of being devalued after President Goodluck Jonathan suspended the central bank governor last week, eroding confidence in monetary policy and sending the naira to a record low.

The naira, which rose for the first time in six days on Monday, posted its biggest five-day drop in eight months last week. The yield on Nigeria’s July 2023 dollar bond had its steepest one-day jump on record after governor Lamido Sanusi’s removal on Thursday. The security has lost 2.3 percent this year, compared with a 0.6 percent drop in the JPMorgan Chase index of African sovereign debt.

While the acting governor pledged continuity in policy on Friday, saying there were no plans to devalue the currency, the central bank will have to fight to keep the naira within its target range of 3 percent above or below 155 to the dollar at twice-weekly foreign-exchange auctions. The peg might shift to 170 a dollar, boosting inflationary pressures, said Yvonne Mhango at Renaissance Capital.

The suspension of Sanusi, 52, followed the governor’s calls for an investigation in December into billions of dollars in missing oil revenue. Sanusi, who was due to leave office at the end of his term in June, oversaw a drive for stability.

Sarah Alade, his deputy, was named acting governor.

Nigeria’s “economic fundamentals cannot be predicated on a single human being”, central bank spokesman Ugochukwu Okoroafor said. “The person to succeed Sanusi is a strong player in the industry and knows what to do on monetary policy. There is no basis nursing fears of a devaluation.”

Doyin Okupe, a spokesman for Jonathan, said: “The initial fluctuations following the suspension have stabilised.” There was “no indication a devaluation of the naira will occur.”

Sanusi could return if cleared of allegations, Jonathan said on Monday, adding it was within his powers to remove the central bank chief.

The currency strengthened 0.1 percent to 164.35 a dollar by 10.34am in Lagos yesterday, gaining for a second day after the Central Bank of Nigeria auctioned $399.7 million (R4 billion) to lenders.

The bank’s monetary policy committee has kept the benchmark interest rate at a record high of 12 percent for more than two years, pushing inflation below 10 percent from more than 15 percent in 2010.

Jibrin Ibrahim, a director at the Centre for Democracy and Development, said: “If I were an investor, I’d be worried. When you put it in the larger context of the decline of foreign reserves and pressure on the naira, if you’re having direct political control over the central bank, God knows where this will lead us to.” – Bloomberg