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Nigeria’s Central
Bank left its benchmark interest rate at 6.25 percent on Tuesday, to
allow a previous rate hike to filter through the system, but said it
recognised there was a need for monetary tightening.

The following are some analysts’ reactions:

Samir Gadio –
emerging markets strategist, Standard Bank: “The ability of the Central
Bank to tackle or contain inflationary pressures is constrained by the
weight of the food category in the CPI basket, but also the increasing
disconnect between expansionary fiscal policy and a more conservative
monetary stance.

“Yet, this year’s
substantial fiscal expansion and the monetisation of excess crude
account proceeds since early 2009, have been offset by sluggish private
sector dynamics and a weak money multiplier, notably as excess
liquidity has been mostly reinvested into the Nigerian bond market, and
not the real economy.

“As such, while it
is true that the annual base effect in core inflation has deteriorated
lately and non-food inflation rose 13.2% y/y in October, from 12.8% y/y
in September and 12.4% y/y in August, this trend could still flatten in
Nov-Dec., as a more favourable index comes into effect.

“Interestingly, the MPC reiterated that exchange rate stability remained a policy priority.

In our view, the
CBN is keen to preserve the USD/naira 150 level, since the exchange
rate is its main nominal monetary policy anchor, and inflation
targeting is unlikely to be implemented in the medium-term, given the
predominantly exogenous nature of Nigerian inflation,” Mr. Gadio said.

Kayode Akindele –
Greengate Strategic Partners: “The committee acknowledged the growing
inflationary pressure in the economy, especially in terms of food
prices, and given their “price stability” mandate, a rise in MPR was
expected. The rate was, however, maintained by a narrow one vote
majority which suggests a rise at the next meeting.

“The corridor was
narrowed, which increased the deposit rate instead, which they hope
will encourage banks to deposit more money with the CBN and out of
circulation. This would, however, discourage growth in private sector
credit, which has been very low since the banking crisis and needs to
grow more rapidly.

“The MPC again
emphasised the need for supply side reforms, especially in agriculture
and energy, by the government, to curtail inflationary pressures in the
medium to long term, and also warned about the rapid expansion in
government borrowing, also voiced recently by the World Bank … and
how it is encouraging inflationary spending and crowding out the
private sector from the debt markets,” explained Mr. Akindele.

Alan Cameron –
Sub-saharan Africa analyst, business monitor international: “Although
the CBN has decided to leave the headline policy rate unchanged, its
decision to raise the lower band of the corridor around the MPR by a
further 100bps will effectively tighten liquidity.

“This is consistent
with the language in September’s communiqué, in which concerns over
rising prices appeared to be taking precedence over the bank’s
objective of financial sector stability.

“In addition to the
litany of upside risks already cited by the CBN, as a net food
importer, Nigeria is highly exposed to rising commodity prices
internationally.

“The real question
then is how effective rate hikes will be at combating inflation. Given
the low penetration of banking services and the fact that inflation has
been high, in spite of credit growth being so low, we do not think the
transmission mechanism is particularly strong.

“However, the CBN
does have a mandate for price stability, so it cannot afford to be seen
sitting on the sidelines as inflation continues to run into the double
digits, with risks now manifestly to the upside,” said Mr. Cameron.

Razia Khan – head
of research for Africa, Standard Chartered: “Growth in monetary
aggregates remains below trend, and the Central Bank would have been
wary of a full-blown tightening at this stage of the cycle.

“Nonetheless, given
persistently high inflation and recent pressure on FX reserves, there
would have been a need to signal the ongoing intention to maintain
tight policy, or perhaps even tighten policy further over the course of
next year.

“Hence, the
measures to narrow the band around the MPR, which is consistent with
the overall policy bias of the Central Bank. With fiscal spending
likely to go into overdrive ahead of the elections, it is more a case
of when more tightening measures will follow, rather than if.

“For now, however,
given continued uncertainty in the outlook, not least with oil output
under pressure again, and concerns over too rapid a correction in the
bond market, the latest move should be seen as normalisation of policy.

“The return to a symmetric band around the MPR once again signals
that the extraordinary monetary policy accommodation put in place at
the time of Nigeria’s banking sector crisis has probably run its
course. Recovery will require less accommodative monetary policy, and
fiscal policy is forcing that policy change to happen sooner rather
than later,” Ms. Khan said.