Emefiele sets a milestone; gets a second term

Contrary to popular view that Godwin Emefiele will be replaced as the Governor of the Central Bank of Nigeria (CBN) following the expiration of his tenor, he has made history, with news reports suggesting he would be the first CBN Governor to get a second term.

There were rumours that the CBN seat was likely to be zoned to the North, even as a wide list of potential candidates were bandied.

Emefiele, who had been on the management team of Zenith Bank Plc since inception, was Deputy Managing Director of Zenith Bank Plc from 2001 till August 2010 when he was appointed Managing Director to succeed Jim Ovia. Before commencing his

banking career, Godwin was a lecturer at the University of Nigeria Nsukka and the University of Port Harcourt. He holds a B.Sc. and an MBA in Finance from the University of Nigeria, Nsukka.

One of the successes of Godwin Emefiele’s term as Governor of the CBN has been the opening of the I&E window and the defence of the currency. We believe that the risk of an entirely new approach is quite low following his re-appointment.

The naira’s strength over the past year confers a degree of credibility that the Governor of the CBN may wish to maintain the preservation of the currency as his top priority. As such, we believe his re-appointment in the face of relatively enough reserves significantly reduces the risk of a devaluation.

Despite reduced foreign investor participation in the Nigerian economy, the foreign reserves have been resilient.This has supported a relatively stable naira exchange rate against the dollar at both the parallel market and the I & E window. Also, despite a 50bps cut in the Monetary Policy Rate (MPR) during the last MPC meeting, we believe the CBN will not be too aggressive with loosening, as concerns over portfolio flows should remain high on the CBN’s priority list.

Despite a positive outlook for 2019, the price of oil, a major source of foreign exchange to the country, remains extremely volatile. Oil trading at lower levels poses a threat to economic stability as it could stall the accretion of reserves and threaten exchange rate stability. Therefore, portfolio flows are still a go-to buffer in order to maintain a stable exchange rate and the MPR must remain attractive enough to sustain them.

For the equities market, we expect a neutral reaction. Though Emefiele’s re-appointment possibly points to no devaluation, which is positive news for the market, we believe the market currently needs more than news about the CBN Governor to show a positive reaction.