Abuja - Nigeria's central bank kept its policy rate on hold at 12 percent on Tuesday for the fourth time in a row, saying the worrying trend of slowing economic growth countered largely expected higher inflation.
Central bank governor Lamido Sanusi said the bank was concerned about a slowdown in global economic activity and lower crude oil prices and domestic oil output, which meant Nigeria was facing a potentially sustained decline in its previously surging growth rates.
Underscoring the worry over growth, figures from the National Bureau of Statistics (NBS) showed on Tuesday that Nigeria's economy grew 6.17 percent in the first quarter of this year, down from 7.68 percent in the previous quarter.
Oil production meanwhile fell to an average of 2.35 million barrels a day (bpd) in the first quarter of 2012, from 2.4 million bpd in the fourth quarter of 2011, the bureau said.
Analysts had unanimously expected rates to stay at 12 percent. The bank also kept its +/- 200 basis point corridor around the base rate, so its recommended deposit rate is 10 percent and its lending rate is 14 percent.
"At this point in time the trajectory of prices is more dependent on fiscal than ... monetary policy," Sanusi said.
"Sluggish growth in credit, a stable exchange rate ... and benign month on month inflation do not suggest a need for further tightening at this point."
He added hastily that cutting rates would also be largely ineffectual, before giving the bank's decision.
Though Nigeria's economy has been one of the fastest growing in the world, poor fiscal management has had a tendency to waste some of these gains and cause inflationary pressures.
Nigeria's economy is expected to expand at a slower rate of 6.5 percent this year, down from 7.4 percent in 2011, due to disruptions to oil production and ongoing weakness in developed countries that buy crude from Africa's largest producer.
"This confirms a disturbing and uninterrupted trend of decline going back to Q1 2010," Sanusi said. "Crude oil production was estimated to have declined by 2.32 percent in quarter one 2012 ... Non oil GDP growth was much lower ..."
Sanusi noted "the very dark clouds gathering over global economic recovery in 2012," and said this would surely further impact Nigeria's oil-dependent domestic growth.
The NBS said in its report that "the non-oil sector continued to be a major driver of the economy in the first quarter of 2012 despite its decline," with 7.93 percent growth.
INFLATION/GROWTH TIGHT ROPE
Nigeria's inflation rate rose to 12.9 percent in April, year on year, driven largely by non-food items and a very price-stable comparative month in April last year, but the underlying trend is seen as relatively benign.
Owing to weaker growth and relatively benign prices, most analysts expected rates to stay on hold, possibly for much of the rest of the year.
"Although the CBN sounded a decidedly more dovish note, we believe that there will be limited room to ease interest rates," said Razia Khan, head of Africa research at Standard Chartered Bank. "We expect the monetary policy rate to be maintained at 12 percent, most likely until the end of the year."
Sanusi, who rarely misses an opportunity to call for broader reforms outside the bank's remit, said keeping Nigeria's economy on track required "that power and petroleum sector reforms as well as infrastructure investments ... be scaled up as quickly as possible".
"These should complement measures to enhance credit growth to the private sector," he said.
He added that the bank welcomed "efforts being made to improve fiscal consolidation," as a result of which government revenues had improved in the last quarter.
He attributed a recovery in foreign exchange reserves since December, to near two-year highs, to favourable commodity prices and an easing of restrictions on hot money.
Sanusi noted that a main cause for a downward trend in GDP growth was lower agricultural output.
"Interest rate movements would not be effective in stimulating growth under such circumstances," he said, adding that the government needed implement key agricultural reforms.
Agriculture makes up more than a third of Nigeria's GDP.
The NBS figures showed agricultural GDP growth fell to 4.15 percent in the first quarter of 2012, against 5.54 percent in the same period last year.