Inflation Drops to 10.3%


By Emele Onu with agency reports, 07.17.2010

Nigeria’s year on year inflation rate dropped to 10.3 percent in June from 11 percent the previous month.Data released by the National Bureau of Statistics showed that growth in food prices, which form the bulk of the inflation index basket also eased to 12 percent from 12.3 percent in May.

Similarly, Nigerian interbank lending rates retreated to 1.41 percent on average this week from 8.25 percent last week following a large injection of funds from government allocations to public sector agencies, traders said.

Reacting to the inflation rate, the Head of African Research, Standard Chartered, Razia Khan was quoted by Bloomberg as saying, “despite ample domestic liquidity, Nigerian inflation surprises with a year-on-year fall.” 

Khan added that the rate supports an unchanged monetary policy stance, “but the Central Bank will still need to watch future risks closely.”

Nigeria’s benchmark interest rate, the Monetary Policy Rate has been on hold at 6 per cent for more than a year as the CBN focuses on stimulating growth in the economy, despite the inflationary risks.

The monetary policy committee noted at the end of its meeting early this month that inflation remained a potential concern, but will be cushioned.

Inflation outlook remained uncertain because of the expansionary fiscal policy and an injection of funds to deal with toxic debts in the banking system, said the CBN.

Interbank lending rates retreated during the week following the distribution of N413.28 billion from the federation accounts to the three tiers of government for June.

Some of the funds entered the system by Thursday, forcing down interbank lending rates, traders confirmed.

The secured Open Buy Back fell to 1.10 percent from 7.75 percent last week. OBB closed this week 10 basis points above the Standing Deposit Facility rate and 4.90 percentage points below the central bank’s benchmark rate.

Overnight placement slipped to 1.15 percent from 8.5 percent, while call money closed at 2.0 percent against 8.5 percent last week.

Dealers said about N271 billion of the budgetary allocation was credited to the accounts of the state and local governments with retail banks late on Thursday, pushing up the balance in their accounts with the central bank to N331.35 billion yesterday.

“We expect rates to remain flat next week because we do not foresee any major cash outflows from the system, apart from the usual funding for foreign exchange purchases,” one dealer said.




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