Nigerian central bank governor Chukwuma Soludo’s recent measures show how market-friendly reform in Africa is being reversed in the face of the financial crisis.
Last month, Soludo added bank interest rate ceilings to his new foreign exchange controls. Banks will now be fined if they offer deposit rates of more than 15% and charge lending rates of more than 22%. Persistent offenders will have their access to foreign exchange cut off and their chief executives suspended.
Soludo’s foreign exchange controls have already caused the parallel market to flourish. International buyers now worry about how easy it will be to exit their positions; indeed the controls make securities trading from abroad slower to execute.
With such measures – restrictive and even protectionist as they are – Soludo has tried to ensure that his term is renewed after it expires this month. Foreign capital fuelled a bull run on the Nigerian stock market but its exit has seen the index lose two-thirds of its value over the past year.
The crash has endangered the banks in Nigeria that lent too much to their customers to make stock market investments during the boom. Concentrating on this problem might be more dangerous and potentially more damaging to the central bank’s popularity, at least in the short term.