TUESDAY, 06 JULY 2010 01:20      

 

Central Bank of Nigeria (CBN) governor, Sanusi Lamido Sanusi, said on Monday negative growth in money supply and credit to the private sector remained key challenges inflation.Inflation, he said, remained a “real threat” due to an expected public sector pay rise and an anticipated rise in food prices caused partly by food shortages in neighbouring Niger republic.

 

“The CBN boss who spoke after Monday’s monetary policy committee meeting said the committee noted that the key policy challenges remained the negative growth in money supply and private sector credit as well as persistent high lending rates in the face of declining interbank rates,” Sanusi said. He said Nigeria’s (Gross Domestic Product) GDP growth was forecast at 7.74 percent this year compared to 6.66 percent in 2009.

 

The CBN boss said the committee also left its benchmark interest rate unchanged at 6.0 percent but noted that inflation was a real risk in sub-Saharan Africa’s second-biggest economy. The apex bank maintained its corridor of an eight percent lending rate and one percent deposit rate around the benchmark rate, which has been at 6.0 percent for a year despite double-digit inflation.

 

“The committee decided no changes are to be made to the current policy stance. Therefore, the monetary policy rate should remain unchanged at six percent,” Sanusi told a news conference after the MPC meeting in Abuja. Nigeria has kept interest rates on hold since last July, prioritising stimulating growth despite the risk of inflation, which eased to 11 percent year-on-year in May from 12.5 percent the previous month.

 

“The overarching priority for the CBN is getting the banking sector back to health, and until there is more evidence of progress on this front, rates are unlikely to move,” said Alan Cameron, sub-Saharan Africa analyst for BMI London.

 

“Although the authorities may be paying lip service to the importance of keeping inflation contained, we are not convinced that hiking interest rates would have an appreciable impact on prices anyway, hence the motivation to keep to the MPR low.”The MPC said provisional data showed M2 money supply declined 0.2 percent in May from December last year, representing a 0.48 percent contraction on an annualised basis.

 

(Source:BusinessDay)