The Central Bank of Nigeria kept its benchmark interest rate unchanged at 26.5 percent yesterday, betting that recent inflation rises are temporary shocks the economy can weather.
Governor Olayemi Cardoso made the announcement after the Monetary Policy Committee's 305th meeting in Abuja. The CBN also held the Cash Reserve Requirements steady at 45 percent for commercial banks, 16 percent for merchant banks, and 75 percent for government deposits not in the Treasury Single Account.
Cardoso said the committee looked at inflation creeping up over two months but concluded the jump came from external pressures, not underlying problems. "Although inflation has risen marginally for two consecutive months, largely induced by external shocks, the MPC recognised its transitory nature and remain confident that the current macroeconomic environment is sufficiently robust to support a return to disinflation," he said.
The Middle East crisis pushed up energy and transport costs worldwide, he explained. But Nigeria's economy absorbed the shock better than it would have a year ago. Exchange rate stability, bigger foreign reserves, a stronger banking system, and government spending cuts all helped cushion the blow. "The pass-through of global commodity and energy price shocks to domestic inflation has been significantly mitigated," Cardoso said.
The central bank chief gave the economy a clean bill of health. He said conditions for price stability are solid and promised to stay watchful. The committee would maintain a cautious approach to keep inflation expectations anchored.
Nigeria's foreign reserves climbed to $49.49 billion, nearly back to pre-crisis levels. That sum can cover nine months of imports, Cardoso noted, and should reassure investors that the economy remains stable. He forecast inflation would tick up modestly in the near term from external shocks but expected it to fade quickly once food supplies improve and the exchange rate holds steady.
On foreign exchange markets, Cardoso pushed back against the idea the CBN needs to intervene. The market is deep enough to function on its own, he said. The central bank only steps in when it needs to pay loans or fund government agencies. "What we have done is to meet the needs of loans repayment or needs of various government agencies. As we do this, so funds also flow in," he said.
The CBN also signalled it will stay alert to risks from the recent banking recapitalization drive, where lenders raised capital to strengthen themselves. Cardoso said his team would watch for problems after the process wraps up and help banks that missed deadlines due to legal issues meet the requirements without destabilizing the system.
