Tinubu’s suspension of Emefiele fuels monetary policy speculation

Nigerian President Bola Tinubu has suspended Central Bank governor Godwin Emefiele in a break with predecessor Muhammadu Buhari’s management of monetary policy.

According to a government statement, Tinubu, who was inaugurated on 29th May, has suspended Emefiele from office “with immediate effect”.

“This is sequel to the ongoing investigation of his office and the planned reforms in the financial sector of the economy. Mr Emefiele has been directed to immediately hand over the affairs of his office to the Deputy Governor (Operations Directorate), who will act as the Central Bank Governor pending the conclusion of investigation and the reforms.”

On Saturday, the Department of State Services (DSS) said on Saturday that Emefiele had been detained and was being held in custody for investigative reasons.  

Change in monetary policy?

The suspension marks a stunning fall from power for Emefiele, whose stint as Central Bank governor began in 2014 under the presidency of Goodluck Jonathan.

Emefiele, a former senior executive at Zenith Bank, was instrumental in crafting monetary policy throughout Buhari’s two terms in office, including overseeing a controversial multiple exchange rate system in a bid to keep the naira strong.

That ultimately led Emefiele to sell dollars at various rates to individuals and businesses to manage demand. The series of step devaluations led the naira to fall a cumulative 65% against the dollar during his tenure, according to Capital Economics, but the official exchange rate of around N460/$ still remains much stronger than the N740/$ found on the parallel market.

Under Emefiele the Central Bank also became a major source of government funding – Since President Buhari took over in May 2015, so-called “Ways and Means Advances” – overdrafts from the Central Bank – rose exponentially, from N790bn to N23.8 trillion ($1.7bn to $51bn) according to data from the institution. Prior to Buhari’s exit. Lawmakers approved a plan to convert a N22.7 trillion ($49bn) Ways and Means overdraft into bonds to be repaid in about 40 years.

The Central Bank funding helped to push headline inflation to 22.2% y/y in April – a 17-year high.

Emefiele’s suspension has fuelled speculation that Tinubu will pursue a monetary policy at odds with Buhari, although some analysts have urged caution.

“Investors will no doubt welcome Mr. Emefiele’s suspension and potential removal from the CBN given that he had overseen a period of unconventional and botched policies, especially the mismanagement of the naira…A move away from the current monetary policy and exchange rate setup now appears to be on the cards. After all, in his inauguration speech, President Tinubu had declared that “monetary policy needs a thorough housecleaning”, says Jason Tuvey, deputy chief emerging economist at Capital Economics.  

“At this stage, though, we remain cautious. It remains to be seen how far the naira is allowed to fall and whether the gap with the parallel market rate is closed. Even if the naira does reach something closer to fair value and President Tinubu fulfils his pledge of a unified exchange rate, investors will want to see that the naira is allowed to move more freely in line with market dynamics.”

In 2022, Emefiele fuelled speculation that he sought to replace Buhari as president, when he filed a lawsuit, later thrown out, asking a court to permit him to remain in office while pursuing his presidential ambition.