Despite a further easing in core inflation for the fourth month, the Central Bank of Nigeria said the "risk of food inflation remained hawkish" with a rise in headline inflation likely connected to floods on farmlands which poses an upside risk to near-term inflation along with imported food inflation.
Nigeria's inflation rate rose to 11.7 percent in October from 11.3 percent in September while core inflation eased to 12.4 percent from 13.1 percent, well above the bank's 10 percent inflation target.
The conflicting price signals from the latest inflation number has created uncertainty as to the appropriate policy stance, the bank said, adding the factors underpinning inflationary pressures were structural so a monetary response would not be appropriate.
"The Committee observed that while there were compelling arguments for monetary easing at this time based on the continuous moderation of core inflation, slowdown in GDP growth and evidence of fiscal prudence, the short-term gains may not be sufficiently adequate to overturn the long term implications of sending a wrong signal that the tightening cycle was permanently over," it said.
The central bank said the global economy was still characterized by uncertainty along with decelerating growth and this would have implications for the domestic economy.
"Overall, the Committee believes that the fiscal gridlock in the US, the lingering euro zone financial and economic crisis, as well as the softening output growth in the key emerging Asian economies, could have serious implications for the domestic economy in the near-to-medium term
Nigeria's statistics office has revised down the economy's growth in fiscal 2012 to 6.61 percent from earlier projections of 6.85 percent, "indicating the economy is encountering growth challenges not previously anticipated."
In the third quarter, Nigeria's Gross Domestic Product expanded by an annual 6.5 percent, up from a rate of 6.4 percent in the second, but below the 7.4 percent in the third quarter of 2011.
The central bank said it had "noted with concern the continuing decline in the contribution of the oil sector to growth, in an area of strong oil price performance, which became apparent in the last half of 2011 and also the decline in the contribution of agriculture to growth since Q3, 2011."
Nigeria's central bank has held its policy rate unchanged since October 2011, but tightened its policy stance in July when its raised the Cash Reserve Ratio (CRR) to 12.0 percent from 8.0 percent.