Muhammad Sanusi II, former Governor of the Central Bank of Nigeria (CBN), has brought attention to the impact of the CBN’s lending to the federal government under the administration of former President Muhammadu Buhari.
Sanusi suggested that such financial activities, executed through Ways and Means, contributed to Nigeria’s inflationary pressures and the Naira’s depreciation.
Speaking at the MTN Capital Markets Day, Sanusi raised significant concerns about the aggressive lending practices employed by the CBN, explicitly citing the consequences of lending to the federal government via Ways and Means.
He underscored that the transactions drove inflation and weakened the Naira, affecting the country’s economic stability.
Sanusi highlighted the CBN’s recent commitment to robust monetary tightening measures, evident in using various liquidity control instruments like open market operations (OMO), Open buyback (OBB) rates, and the maintenance of high Treasury bill rates.
He interpreted these actions as indications of the CBN’s dedication to maintaining financial system stability and controlling inflation amidst economic challenges.
The former CBN governor emphasized the substantial expansion of the central bank’s balance sheet over eight years through Ways and Means, pinpointing this expansion as a critical contributor to inflation and currency devaluation.
While acknowledging the CBN’s ability to employ diverse instruments to reduce excess money circulation, Sanusi stressed the importance of doing so in a manner that minimizes costs for both the central bank and the government’s balance sheet.
He advocated a greater reliance on non-conventional instruments to achieve these objectives effectively.
Sanusi observed recent signs of the CBN’s heightened efforts in tightening monetary policy, noting the gradual alignment of OBB rates towards appropriate levels.
He urged patience, suggesting that the impacts of these new monetary policies might take time to materialize.
Expressing short-term optimism, Sanusi commended the CBN’s current actions in tightening monetary policy, addressing market backlogs, and endeavouring to fund the market. He said the measures could potentially lead to stability in the near term.
“For the short term, I don’t think we have a problem. I think the central bank is doing the right thing – tightening money, clearing the backlog, trying to fund the market, and I think we will have stability,” he stated.