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Abuja - Nigeria's new central bank governor said on Thursday he would seek to gradually lower interest rates for the first time in over two years, abandoning the hawkish monetary policy of his ousted predecessor that cut inflation to single digits.
Godwin Emefiele said he aimed to make it cheaper to borrow to invest but this would have to wait until conditions allowed, he said, and did not offer a specific timeframe.
Interest rates have been stuck at 12% since late 2011, and liquidity tightening measures are credited with lowering inflation from 15% in 2010 to 7.9% currently. But businesses say lending rates remain punitive.
"There is no doubt that reducing interest rates and maintaining exchange rates are very daunting twin goals," Emefiele told his first news conference.
"However the central bank will work assiduously to ensure that these goals are mutually achieved," he said.
Analysts said reducing interest rates too quickly could hurt the naira and stoke inflation.
Jonathan removed the previous governor Lamido Sanusi in February, after the staunch anti-corruption campaigner presented parliament with evidence that the state oil firm had failed to pay $20bn into federal coffers, citing corruption.
Jonathan's administration denied any link between Sanusi's removal and his graft allegations but foreign investors are concerned about presidential interference in the bank's affairs.
Sanusi was often accused by ruling party officials of exceeding his remit when publicly chastising the government over graft. Emefiele hinted he was unlikely to follow suit, saying his role was "apolitical".
During his tenure, Sanusi often suggested he had to maintain high interest rates because of reckless government spending, especially during election cycles.
Emefiele said for now the bank would "maintain a monetary policy stance reflecting liquidity conditions...as well as the potential fiscal expansion in the run-up to the 2015...(presidential and parliamentary) elections."
That suggests Emefiele will also have to take into account the level of government spending and revenue losses due to corruption before moving to lower rates, analysts say.
Bond yields, naira fall
Nigerian treasury bill yields fell 20 basis points across the board on Thursday to an average of 11.3% after his remarks, as buyers snapped up short dated debt in anticipation of lower yields down the line.
Nigeria's benchmark 10-year bond yield was trading flat on Thursday at 12.52%, after initially falling 7 basis points on the new central bank governor's Emefiele's remarks on interest rates. The 3-year bond yield was down 16 basis points to 11.71%.
Emefiele said Nigeria's high yielding public debt "creates a perverse incentive for commercial banks to simply buy risk-free government bonds rather than lending to the real sector".
The naira hit a one-month low on Emefiele's remarks, easing 0.69% to 163.85 to the dollar and remaining outside the bank's preferred 150 to 160 band that it has spent billions of dollars of forex reserves this year trying but failing to keep.
"Although Emefiele's comments were qualified with the statement that it is a 'daunting' task ... the very fact that lower interest rates were mentioned sends a strong signal to the markets," said Standard Chartered's Razia Khan.
Emefiele promised zero tolerance of practices that undermine financial stability, but gave few details.
A 2008 financial crisis pushed nine Nigerian banks to the brink of collapse until Sanusi orchestrated a bail-out and had chief executives sacked.
