Nigeria's central bank kept its monetary policy rate (MPR) unchanged at a record high of 12%, in line with expectations, saying that the achieved price and exchange rate stability need to be maintained amid risks stemming from both external and internal factors.

The Monetary Policy Committee (MPC), which met on May 19 and 20, noted that the key domestic risks include high systemic banking system liquidity, elevated security concerns and anticipated high election-related spending in the run-up to the 2015 general elections. It explained that the high liquidity could exert sustained pressure on both the exchange rate and consumer prices, as well as accentuate the already high demand for foreign exchange, further depleting the country’s external reserves. It also underscored the eroded fiscal buffers which have accentuated the regime of persistently high interest rates, elevated demand for foreign exchange and declining reserves accretion.

Nigeria’s gross official reserves as of May 15, 2014 stood at USD 38.3bn, up from USD 37.4bn at end-March, but down from USD 42.85bn at end-2013. The current level of the country’s external reserves could provide approximately 9 months of imports cover.

Regarding the external environment, risks to Nigeria’s domestic economy stem from prospects for increased interest rates in the US and the rather low level of economic activity in emerging markets, both of which could reduce foreign exchange inflows and undermine the stability of the naira exchange rate.

Nigeria’s annual consumer price inflation ticked up to 7.9% in April from 7.8% the month before, remaining within the central bank’s 6%-9% target band for the 12th month in a row. The MPC noted that core inflation has been sending conflicting signals since January 2014 – it slowed to 6.6% in January, rose to 7.2% in February, and further to 7.5% in April – and warned that if the upward trend continues, it could be a major factor in the upward trend in prices.