Central Bank Governor, Mallam Sanusi Lamido Sanusi, said in Washington, weekend, that the Central Bank would peg spending from foreign exchange reserves to defend the naira, but the present level of the naira did not necessarily need to be maintained “at all costs”.

Nigeria’s external reserves which stood at $62 billion in 2007 has dipped to $34 billion as at September 2010. Sanusi also stated that the CBN would henceforth make sure that the Federal Government does not have access to “easy money” to continue its deficit spending habits.

A series of factors that had been driving the Central Bank to draw down its forex reserves in defence of the naira were winding down, Sanusi spoke in an interview with Reuters Insider on the sidelines of the Annual meetings of IMF/World Bank board of Governors in Washington.

Earlier last week, the bank reported its forex reserves were down 15 per cent from a year earlier at about $34.57 billion, including a 7 per cent decline in just the last few weeks.

“I think we’ll see less spending, but I think the naira will remain stable,” Sanusi said. The naira slid to a 13-month low in September amid strong local demand for the US dollar by gasoline and rice importers. The Central Bank’s support has helped stabilise the naira, which ended the week just below 151 to the dollar, roughly even with its average level over the past year. But, he said, the current exchange rate is not a level that needs to be maintained “at all costs.”

“My own view is that exchange rates have multiple equilibria, and equilibrium exchange rates will depend on what we see as the long-term sustainability of the reserve positions.”

Nevertheless, in the short to medium term, “we do believe we can maintain this range,” Sanusi said. Replenishing the reserve level will depend to a significant degree on the level of spending by the government, Sanusi said. “The preservation of reserves is also dependent on a number of complementary government policies,” he said, citing efforts under way to reform the petroleum industry among other factors.

Sanusi added that monetary policy was being affected by government spending.

The central bank surprised analysts and investors last month by raising its benchmark interest rate by a quarter of a percentage point to 6.25 percent. Asked where he saw rates going into the end of the year and 2011, Sanusi said: “It depends on where we see inflation going.” Inflation is running at 13.7 percent, according to the latest figures.

“We can, at the very least, ensure that if there’s going to be significant government spending and significant government borrowing, that the government pays a good price for the money,” Sanusi said. “I think part of what we have to do is make sure there is no easy money for financing deficits.” The government should pay a high rate of interest if it’s going to continue with the deficit spending,” he said.