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CBN says tightening achieved aims

06 December 2012, 07:52

Abuja - The Central Bank Governor said on Wednesday that monetary tightening earlier in the year had largely achieved its objectives of stabilising the naira and taming inflation, which were less of a worry than four months ago.

Lamido Sanusi, who spoke to Reuters on the sidelines of the Nigeria Economic Summit in Abuja, also reiterated his concern that oil prices could fall due to global economic uncertainty, posing risk for Nigeria, one of the world's 10 biggest oil exporters.

The CBN kept interest rates on hold at 12 percent at its last Monetary Policy Committee meeting on Nov. 20, for the seventh time in a row. Sanusi at the time cited the need to tread a fine line between concerns over food inflation and threats to Nigeria's growth from global economic weakness.

Yet his comments during the meeting were seen by analysts as unusually dovish on inflation, leading some speculate that loosening could be in the pipeline in the near future.

"It's clear the objectives we set for ourselves when we tightened have been largely achieved," Sanusi told Reuters on Wednesday. "We've stabilised the exchange rate and we've stopped inflation from spiking. Core inflation has come down for the fourth consecutive month."

Nigeria's naira currency had been under pressure earlier this year, but central bank intervention at the end of June has seen it gradually appreciate since.

Analysts expect the current 12 percent base interest rate to be maintained until at least March next year, after which it may come down a bit, if inflation continues to stabilise, they say.

"There are underlying widespread pressures on imported food inflation ... But in terms of where we were 4-5 months ago, the concerns are more muted," Sanusi said, declining to comment on whether that means rates could soon come down.

"(At the last MPC meeting) We really didn't think it was time yet to start loosening, which is not to say we will not loosen," Sanusi said.

Nigeria, Africa's second-biggest economy, grew 6.5 percent in the third quarter from a year earlier, up slightly on the previous quarter but below last year's levels. Sanusi is concerned about the economic impact of an oil price shock.

"The major concerns are around the external environment: what's happening in America, what's happening in Europe and what will happen to commodity prices as a result," he said.

He added that the accumulation of foreign exchange reserves - they are currently at a more than three-year high - would help cushion Nigeria against a possible oil price shock.

But he remained concerned about the government spending too much of its oil windfall, especially with the legislature trying to inflate the benchmark oil price above the administration's proposed $75 a barrel, which would mean saving less.

Oil revenues above the benchmark are deposited into a savings account, so the higher it is, the less is saved.

"I don't think it is appropriate for the legislature to be increasing the benchmark price," he said.

- Reuters


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