Nigeria's central bank held its benchmark Monetary Policy Rate (MPR) steady at 13.0 percent, as expected, and said the impact of its rate hike in November had yet to "crystalize in the economy."
The Central Bank of Nigeria (CBN), which raised its MPR by 100 basis points in November and lowered the target for the exchange rate of the naira currency, underscored the numerous risks the country is facing, including security risks that have disrupted farming, the sustained decline in the contribution of oil to overall growth, the recurring challenge of excess liquidity in the banking system and the possible complications from a reversal of capital flows from the "high likelihood" of an increase in U.S. interest rates as well as demand pressures in the foreign exchange market.
"The gradual normalization of monetary policy by the US Federal Reserve could exacerbate the current retrenchment of portfolio flows and increase pressure on currencies in emerging and developing countries including Nigeria," the CBN said.
Largely due to the central bank's repeated interventions to stabilize the exchange rate of the naira, Nigeria's gross official external reserves fell to US$34.25 billion at the end of December from $42.85 billion at the end of 2013, but reserves are still able to finance 7.44 months of imports.
In November the CBN lowered its target midpoint for the naira to 168 to to the U.S. dollar from 155 and widened the band around the midpoint by 200 basis points to plus/minus 5 percent.
The naira began depreciating sharply in November last year with it falling in all three segments of the foreign exchange market. In the interbank market, the naira ended the year at 180 to the dollar, a fall of 8.63 percent during 2014.
The naira has continued to decline this year in tune with lower oil prices, quoted at 189.25 today, down some 3.5 percent this year.
Nigeria's headline inflation rate rose slightly to 8.0 percent in December, within the CBN's 6-9 percent target range, from 7.9 percent, but the central bank acknowledged some upside risks from a likely increase in import prices due to the appreciating U.S. dollar and possible food supply bottlenecks linked to insurgency and insecurity in some major agricultural zones in the country.
The central bank said the country's non-oil sector, particularly services, continue to dominate economic output and took not of the government's efforts to boost power generation and supply that would help improve the economy's job creation prospects in the medium and long term.
Nigeria's Gross Domestic Product expanded by 8.67 percent in the third quarter of 2014 from the second quarter for annual growth of 6.23 percent, down from 6.54 percent.