Increasing macroeconomic stability in Africa’s second biggest economy, including a more stable naira currency, is drawing in foreign investors, but many are still wary of excessive government spending and widespread corruption.
Central Bank Governor Lamido Sanusi said on Tuesday that while Nigeria had achieved “a reasonable degree of moderation” with consumer prices, this was largely to do with cuts to the fuel subsidy no longer feeding through to higher prices, adding that there was still an upside risk to inflation.
The bank’s decision was a 9-3 majority, Sanusi said. Most analysts had expected the bank to keep rates on hold.
The bank also held the cash reserve requirement at 12 percent, and the liquidity ratio at 30 percent.
Nigerian consumer inflation rose to 9.5 percent in February, from 9 percent in January, the statistics bureau said on Saturday, but it was within the central bank’s single digit target for a second month in a row.
“The sharp drop in inflation in early 2013, compared with early 2012, is largely to do with the base effect of the partial removal of the fuel subsidy,” Sanusi said, and therefore did not necessarily reflect a sustainable downward trend.
President Goodluck Jonathan attempted to remove Nigeria’s blanket motor fuel subsidy in January 2012, and although mass protests forced him to partly reinstate it, he was able to increase fuel prices by around 50 percent.
The central bank has come under increasing pressure from business lobbies to cut rates to stimulate the economy.
“The committee carefully weighed the action of relaxing monetary policy, noting that reversing the current trend of monetary policy might have signalled a preference for a higher inflation rate,” Sanusi said.
“There is still an upside risk to inflation in the near to medium term … while equity prices have been trending upwards.”
The corridor for borrowing and lending to the bank was kept at 200 basis points around the base rate.
A shock fall in the naira last week prompted the bank to intervene on Friday to support it by selling dollars. Sanusi only noted that the naira remained within the target range of 3 naira plus or minus 155 to the dollar.
But analysts suspected last week’s fall in the local unit may have sealed the decision to hold rather than cut rates.
“In this context, reducing policy rates would have been counter productive with the potential to lead to further naira weakness,” said Standard Bank’s Samir Gadio.
Sanusi told Reuters last month that the bank would not be pressured into cutting rates anytime soon, because it “cannot take stability for granted.”
The bank has kept rates on hold since November after six successive hikes last year – including a 275 basis point rise in October to 12 percent – to ward off speculation against the naira. The currency rose 1.8 percent against the dollar in 2012