After a two day meeting, the Central Bank of Nigeria (CBN)’s Monetary Policy Committee has left its key benchmark rates on hold at 12 percent for the third time in a row with an interest rate corridor of +/-200 basis points.
While committee members raised concerns about inflationary pressures, they commended the federal government for taking positive steps to tighten fiscal policy but also warned against accumulating huge domestic debt, saying that such a development would have a negative impact on interest rates.
The CBN governor, Sanusi Lamido Sanusi stated that the country’s inflation figures for February had been moderated by several factors, including “a re-allocation of spending by consumers, a slowdown in government spending and the strengthening of the Naira.”
Nigeria’s average debt service to Gross Domestic Product ratio currently stands at 17.8 per cent, which is still lower than the 40 per cent limit recommended by international finance organisations.
According to Mallam Sanusi, “although, the debt to GDP ratio in 2011 stood at 17.8 per cent, the committee noted that the percentage of debt to government revenue was a high 19.1 per cent in the same year.
“In view of the high interest rate environment occasioned by tight monetary policy stance, a moderation in government borrowing would be positive not just for fiscal position, but for access to finance by the private sector” he said.
Consumer inflation fell 0.7 percent to 11.9 percent in February from 12.6 percent in January as the removal of subsidies on fuel had impacted prices more than economists had predicted.
He also warned that there is a resurgence of an inflationary threat to the economy” from higher fuel prices, amongst other things.
The nation’s foreign exchange reserve was put at $35.43bn as at March 14, 2012, which is an improvement over the $32.64bn level at the end of December 2011.
The CBN also revealed that the apex bank will investigate the involvement of any bank in the alleged fraud that had rocked the public sector pension fund, stating that any bank discovered to have breached the Banks and Other Financial Institutions Act would be severely punished.