The Central Bank of Nigeria (CBN) kept its base interest rate on hold for the sixth time in a row on Tuesday, welcoming improved growth and a slight fall in headline inflation, but warning that core inflation remained stubbornly high.

The Monetary Policy Committee (MPC) also retained the Cash Reserve Requirement (CRR) at 12.0 percent and the the Net Open Position at 1.0 percent.

In a communiqué read at the end of the meeting by the CBN governor, Sanusi Lamido Sanusi, given developments in the global and domestic economy and the financial markets, the Committee noted that the weak global growth indices called for cautious optimism by policymakers.

He said the resolution of the euro area debt crises remained a major concern even with the approval of the efforts of the European Central Bank to address the debt crises in the euro area by the German Constitutional Court.

“It further noted that its decisions at the July MPC Meeting appeared to have had some positive impact in a number of areas, namely: a deceleration in year-on-year inflation in August 2012, stability of short term interest rates around the Monetary Policy Rate (MPR), buildup in external reserves and stability in the exchange rate. However, core inflation is still high at 14.7 per cent in August. The threat of increased inflow of hot money arising from the actions of the US Fed to further stimulate the economy through its QE3 activities and its capital reversal implications were noted,” he said.

“The Committee noted the rise in oil prices but cautioned against a hasty deployment of the windfall to immediate consumption as the trend could be reversed. Monetary policy could not, therefore, under the circumstance, react to what may be purely temporary developments.

“Despite the threats from a combination of global and domestic factors, the Committee noted that the level of economic growth in the third quarter of 2012 remained robust and the year-end forecast would likely be met owing largely to the improvements in power supply and the steady progress of reforms, actions in respect of the alleged fraud in the petroleum subsidy regime and improved fiscal operations. The Committee noted that these measures, generally take time to impact the real economy.

“With this development, the Committee observed that the inflation outcome for the remaining period of the year is likely to be lower than the initial forecast of 14.7 per cent. The Committee would continue to monitor developments in the price level, and remain firm in its commitment to price stability as its mandate. The Committee also noted that the growth rate of real output, though impressive by global trends, was on the downward trend since Q1 2010 most especially in the agricultural sector. It was of concern to the Committee that the declining output in the agricultural sector was traceable to the security challenges and high intensity of rainfall which has led to flooding in several parts of the country. It noted that the measures taken at the last MPC meeting have succeeded in stabilizing the foreign exchange market as well as enhancing the build up in external reserves.

“Overall, the MPC believes that the current rise in crude oil prices and the tight monetary policy regime presented an opportunity for building reserve buffers in the light of the uncertainties surrounding the global economy.”

He said the key policy challenges identified by the committee include: Protecting the domestic economy and building external reserves buffer; Potential large inflow of “hot money” resulting from further monetary easing in the US and Europe and improved yield on fixed income instruments; Persisting high core inflation rates;

“The Committee noted that this moderation in headline inflation has not been accompanied by a significant decline in core inflation. Given the unpredictability of food prices, there is a need to watch this trend as we approach year-end before altering the present monetary stance.”