Policy stability seen as key African central bankers’ terms end

 

The possible replacement of the governors of three key African central banks this year could yield an unexpected surprise: policy stability.

Time is running out on the first terms of Nigeria’s Godwin Emefiele, Kenya’s Patrick Njoroge and South Africa’s Lesetja Kganyago. While all three are eligible to serve another term at the helms of their central banks, this isn’t guaranteed.

Still, deepening institutional strength means there should be broad buy-in of the policies these governors have overseen, according to analysts including Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank Plc.

Here is a look at what the three governors have achieved, and how likely they are to remain in their positions:

Emefiele removed a naira peg in 2016 to allow for a more market-driven currency and persisted with tight monetary policy that resulted in a gradual inflation slowdown, even as the economy contracted.

The future of Emefiele, whose first term ends in June, will likely be determined by the outcome of the country’s February elections, which are expected to be closely contested. The nation’s president nominates the central bank head, and lawmakers have to approve the appointment.

“So far, the governor seems to have enjoyed a good working relationship with this present administration,” Abiodun Keripe, head of research at Elixir Investment Partners Ltd., said by email.

Since the end of military rule no Nigerian central bank head has served more than one term. Still, a new central bank governor may not affect the interest-rate trajectory in Africa’s most-populous country as the rest of the MPC would remain mostly unchanged, Michael Famoroti, an analyst in Lagos at Vetiva Capital Management Ltd., said.

One of Njoroge’s biggest challenges has been the government’s decision to introduce rate caps, which he has said has frustrated the central bank’s attempts to transmit monetary policy. He’s also had to deal with a disruption of financial-market stability after three banks were placed in receivership within a year of his taking over the central bank.

Njoroge’s four-year term ends in June and he may be reappointed.

“Njoroge, in my opinion, has played a tricky hand with considerable finesse,” said Aly-Khan Satchu, the chief executive officer at Nairobi-based Rich Management Ltd. “It would be a big net loss for Kenya Inc. if his term wasn’t extended.”

South African Reserve Bank

Kganyago fought off a proposal by the anti-graft ombudsman to change the Reserve Bank’s inflation-targeting mandate in 2017 and is a strong voice for central bank independence.

His first five years as governor ends in November and he has said he’d be available to stay in the position if asked. The central bank head is named by the country’s leader and there is no limit on the number of terms. With the ruling African National Congress likely to retain its majority in an election this year, the decision whether to retain Kganyago would be made by President Cyril Ramaphosa.

By appointing Kganyago again, Ramaphosa would boost policy certainty and consistency at the central bank.

Whether Kganyago stays or goes, there will be changes in the bank’s senior leadership. Deputy Governor Francois Groepe has resigned and will leave the central bank at the end of this month, taking the MPC down to five members. Daniel Mminele’s second term as deputy governor ends in June and he hasn’t commented on whether he’d be available to stay. Kuben Naidoo’s term as deputy governor only ends next year.

What Our Economist Says…

I expect Kganyago and Njoroge to continue in office but of course this adds to the uncertainty about monetary policy. Emefiele will most likely leave the Central Bank of Nigeria.

Credit: Bloomberg