The Central Bank of Nigeria (CBN) said the monetary policy committee had considered the calls for a rate cut but decided the current level was "just about right" because the outlook for inflation "may be undermined by the increased sub-national government spending and Federal Government high expenditure in 2013, the higher benchmark oil price in the 2013 budget and the U.S. debt ceiling with possible impact on commodity prices."
The central bank, which said at its last meeting in November 2012 that a rate cut would send the wrong signal that the tightening cycle was over, noted the drop in headline inflation in December but also recognized that core inflation had risen, mainly due to cost-push factors in the face of sluggish growth in the monetary aggregates.
Nigeria's central bank, which started tightening policy in September 2010 and last raised rates by 275 basis points in October 2011, said inflationary pressure was elevated in 2012 with the annual average at 12.24 percent while the average core was 13.87 percent and food inflation was 11.32 percent.
The CBN targets inflation of 10 percent and said earlier this month that it was working towards achieving a 6 percent inflation rate.
The central bank said the global economy remained largely subdued and characterized by uncertainty and contraction in the euro zone and Japan, as well as lower than expected growth in the large emerging and developing economies. A partial resolution of the fiscal cliff in the U.S. offers some hope for gradual global economic recovery.
Although the central bank was satisfied with the federal government's efforts to keep deficits within the threshold prescribed, it said the increase in the oil price benchmark to $79 from $75 in the budget may pose a risk to the inflation objective and constituted a pressure point for the low inflation objective and effective monetary policy.
"The Committee reaffirmed its commitment to respond appropriately if panic spending in 2013 ultimately adds to inflationary pressures," the central bank said, adding that one of the choices facing the policy committee was to raise the MPR.
The committee also considered a rate reduction in light of lower growth and headline inflation, and keeping the rate steady in light of conflicting price signals and global uncertainties.
Nigeria's Gross Domestic Product rose by an annual rate of 6.48 percent in the third quarter, up from a rate of 6.28 percent in the second and 6.17 percent in the first.