Nigeria's central bank kept its monetary policy rate unchanged at a record high of 12%, as expected, saying it is satisfied with the relative macroeconomic stability, but concerned about the recent uptick in inflation, the expected increase in spending towards the February 2015 general elections and the possible effects of the ongoing US tapering on capital inflows and external reserves.

The monetary policy committee (MPC) underscored its concern about the weak translation of stability into microeconomic gains in employment and access to finance especially by small and medium-sized businesses (SMEs). It noted that the country has the potential to do better with appropriate macroeconomic policies and a monetary policy that supports non-inflationary growth in key sectors of the economy. However, it recognised the necessity of sustaining the stability of the local naira currency while balancing of the need for a low interest rate regime.

The new central bank governor, Godwin Emifiele, who assumed office on June 3, has said he would pursue a gradual reduction in interest rates to support lending growth and investments, but has ruled out rate cuts before the general elections.

Nigeria’s annual CPI inflation quickened for the fourth consecutive month in June largely due to higher food prices, reaching a 10-month high of 8.2%, up from 8.0% the month before. However, inflation remained within the central bank’s 6%-9% target band for the 14th month in a row. The MPC noted that all measures of inflation have witnessed progressive upward trend since February 2014 and agreed that this trend should be monitored closely to achieve a reversal.

Nigeria’s external reserves rose to USD 40.2bn by July 18 from USD 37.31bn at end-June 2014, but the MPC noted that reserves accretion must improve much faster to provide a more resilient buffer to fiscal operations. It urged for domestic production of some of the major food imports to reduce imports and help for accretion of reserves.

The MPC also emphasised the need for government to sustain and deepen tax revenue and enhance efforts aimed at fast-tracking the structural transformation of the economy with a view to making it resilient to adverse shocks as well as creating the necessary platforms for reducing unemployment, income inequality, and poverty in the country.

The MPC also retained the liquidity ratio at 30%, the public sector cash reserve requirement (CRR) at 75% and the private sector CRR at 15%.