Nigerian President Muhammadu Buhari erased any doubt on who is setting currency policy in Africa’s biggest economy -- to the detriment of the central bank’s independence.

Buhari said that he won’t “kill the naira” by allowing it to be devalued and that a weaker currency will only result in higher inflation and cause hardship for the country’s poor- and middle-class. His comments to Nigerians living in Kenya on Wednesday came only a day after Governor Godwin Emefiele resisted pressure to weaken the currency despite a plunge in oil prices that’s slashed revenue in Africa’s biggest crude producer.Definitely the independence of the Central Bank of Nigeria at the moment is undermined,” Robert Omotunde, an analyst at AfrinvestWest Africa Ltd., which manages the equivalent of $502 million, said by phone from Lagos. “It further dampens confidence in the Nigerian market. The argument for devaluation is so overwhelming on all fronts.”

Emefiele this week stuck to foreign-exchange restrictions that have caused capital flight, curbed output and led to the naira dropping to a record low on the black market. The central bank of Africa’s largest economy has pegged the naira at 197-199 per dollar since March to stem its slide amid a rout in oil prices.
More Convincing

Ibrahim Mu’azu, a spokesman for the Abuja-based central bank, didn’t answer two calls to his mobile phone or immediately respond to a text message request for comment. Two calls to presidential spokesman Femi Adesina didn’t connect, while two calls to Garba Shehu, another presidential spokesman, weren’t answered. Finance Minister Kemi Adeosun said in an interview last week that the central bank was “completely independent.”

Buhari’s critics will have to work much harder to convince him that “ordinary Nigerians will gain anything” from a devaluation, his spokesman said in a statement on Thursday. That’s despite the policy causing a shortage of foreign-exchange and being widely criticized by investors and businesses for exacerbating the economic slump. Growth was 3 percent last year, the slowest pace since 1999, according to the International Monetary Fund.

“It seems like Emefiele’s just left it to Buhari,” Bloomberg Intelligence analyst Mark Bohlund said on Friday. “In the near term, monetary policy decisions look likely to be steered by the president, and according to policy prescriptions from another era.”
Negate Authority

Three-month naira forwards weakened 0.7 percent to 228.07 per dollar as of 11:47 a.m. in Lagos. That’s pared the best weekly advance on record, with the contracts rallying about 9 percent as traders scaled back the size of any potential currency devaluation. The black market rate has plunged, falling to a record low of 306 per dollar this week.

“The president’s comment serves to negate the independence of the monetary authority,” analysts at Lagos-based Investment One Financial Services Ltd. said in an e-mailed note on Friday. It may prevent the central bank from doing what is needed to resolve issues around the regulator’s foreign-exchange demand management policies, they said.

The governor on Tuesday called for coordination of fiscal and monetary policies to help steer the economy away from oil dependence, while offering no hints of whether he is ready to ease controls to compensate for a decline in crude prices, which have dropped by a half since June to about $30 a barrel. Nigeria relies on oil for almost all exports and two-thirds of government revenue.

“One would have expected the CBN to take decisions that are in the interest of the country, not whether the president likes the decision or not,” AfrinvestWest’s Omotunde said. “The last decision by the CBN is not in favor of the reality on ground. For the CBN to refuse to devalue at this point in time is enough reason for most foreign investors to stay away from the market. It is not good for the Nigerian investment climate.’

source....http://www.bloomberg.com/news/articles/2016-01-29/buhari-blights-nigerian-central-bank-independence-to-save-naira