By Central Bank News
The Central Bank of Nigeria (CBN) held its Monetary Policy Rate (MPR) steady at 12 percent, citing persistently high inflation and promising growth, but expressed concern over the possible inflow of hot money following easing by the U.S. Federal Reserve and the European Central Bank.
Despite an inflation rate that remains above the central bank’s 10 percent target, CBN said inflationary pressures appeared to be moderating in the third quarter following its decision to raise the Cash Reserve Requirement (CRR) to 12 percent in July to reduce liquidity in the banking system.
Inflation in August eased to 11.7 percent from 12.8 percent in July due to lower prices of processed food and farm produce, and the bank said inflation for the whole year is likely to be lower than the current forecast of 14.7 percent.
“However, core inflation is still high at 14.7 percent in August. The threat of increased inflow of hot money arising from the actions of the US Fed to further stimulate the economy though its QE3 activities and its capital reversal implications were noted,” the CBN said.
CBN has held its kept its policy rate unchanged since October 2011.
The global economy had showed further signs of weakness in the last three months, due to negative spillover effects from the euro area’s financial market fragilities.
“Given developments in the global and domestic economy and the financial markets, the Committee noted that the weak global growth indicies called for cautious optimism by policymakers,” CBN said.
“Recent macroeconomic data indicates that the economy is performing better than forecasts although growth in the first two quarters of 2012 has remained consistently below the corresponding growth rates in 2011,” it added.
Provisional data show Nigeria’s real Gross Domestic Product expanding by 6.28 percent in the second quarter, up from 6.17 percent in the first quarter, but down from a 7.6 percent growth rate in the second quarter of 2011.
The growth forecast for fiscal 2012 has been revised up to 6.77 percent from 6.50 percent previously, but the bank was still concerned that this is lower than the 7.45 percent in 2011.
The central bank took note of higher crude oil prices, saying this could be due to the recent easing measures by the Federal Reserve and ECB, highlighting “the possible increase in carry trade and the risk of a bubble in the domestic capital market.”
“Overall, the MPC believes that the current rise in crude oil prices and the tight monetary policy regime presented an opportunity for building reserve buffers in the light of the uncertainties surrounding the global economy,” CBN said.
www.CentralBankNews.info
