ABUJA, Nigeria—The Central Bank of Nigeria will stick to a stable exchange-rate policy as the country ramps up its economic growth, the bank's top official said, rejecting recent comments from the International Monetary Fund that its currency is overvalued.
In an exclusive interview, Nigeria's central-bank governor, Sanusi Lamido Sanusi, said devaluing its currency, the naira, wouldn't help the economy and could fuel inflation—already in the low double-digits.
"Price stability is the mandate of the central bank," he said. "We aren't targeting a particular exchange rate."
Earlier this month, the IMF released a report on Nigeria stating that the central bank's policies of protecting the value of the currency and keeping interest rates low have eroded foreign-exchange reserves.
The IMF report "stressed that greater exchange-rate flexibility would prevent one-way bets in the foreign-exchange market and cushion external shocks."
But Nigeria's central-bank governor took issue with the IMF diagnosis. A cheaper currency wouldn't aid exports, he said, since much of what the country sells overseas is oil at prices dictated by the international markets. And since much of what Nigerian factories make depend on foreign materials, he warned a sharp currency devaluation that would make imports more expensive "could shut down manufacturing."
At the end of 2010, the IMF estimated Nigeria's foreign-exchange reserves at $34.1 billion, down from $42.4 billion the year before.
But Mr. Sanusi said the more important priority than preserving reserves was keeping on the economy on track. Last year, Nigeria not only had to deal with the global financial crisis; it also face heightened political uncertainty at home. The country's president died, militants kept up attacks on its oil infrastructure, and there was renewed fighting between Muslims and Christians around the volatile region of Jos.
The political uncertainty is set to continue for at least a couple more months. In April, Nigeria will hold elections for president as well as posts for powerful state governors.
And yet, Africa's most populous country and second-largest economy has weathered the global downturn better than most. The IMF projected Nigeria's economic growth at 8.5% in 2010, more than twice as fast as the continent's largest economy, South Africa. It predicted the economy would grow by 7% this year, thanks in part to the emergence of a consumer class and demand for retail goods, telecommunications and other services.
The central-bank governor said Nigeria could grow at twice that projected clip by overhauling the nation's lackluster infrastructure.
Rather than exchange-rate adjustments, Mr. Sanusi said, steps to improve roads and spotty power supply as well as distribution of fresh farm produce—most of which rots before arriving at market—will be more effective at boosting growth and bringing down prices.