By Amaka Agwuegbo

The Central Bank of  Nigeria (CBN) has increased its benchmark interest rate by a quarter of a percentage point to head off a pickup in inflation.

The CBN Governor, Sanusi Lamido Sanusi, said the raise of the Monetary Policy Rate to 6.25 per cent is the first increase since June 2008.

The Statistics office said inflation accelerated to an annual 13.7 per cent in August from 13 per cent in July.
Sanusi said rising government spending before elections next year and the CBN’s purchase of commercial banks’ toxic debts may boost the money supply, adding to price pressures.

“The main lending rate to commercial banks was increased to 8.25 per cent from 8 per cent, while the borrowing rate was raised to 3.25 per cent from 1 per cent.

“The CBN must attack inflation after a reweighting of the consumer price index pushed the rate up from 10.3 per cent in June.

“The CBN is targeting inflation of less than 10 percent.
“We are likely to have a significant liquidity injection towards year-end, so we have to take precautionary steps.”

The CBN Governor said rising wage costs, increased government spending to organize elections and higher food prices are threats to inflation, adding that plans by government to end fuel subsidies may also add to price pressures.

“The CBN supports deregulation of the fuel industry and we will continue to monitor price developments with a view to taking appropriate policy measures to stem any inflationary threat.”

Sanusi said he was satisfied that there has been sufficient reform of the banking sector, giving the central bank room to raise interest rates.

Nigeria’s economy, the second-biggest on the continent after South Africa, is expected to grow 7.78 per cent in 2010, up from 6.96 per cent last year, driven by non-oil industries, such as agriculture.

Growth is expected to reach 7.72 per cent in the third quarter and 8.19 per cent in the fourth quarter, compared with 7.69 per cent in the three months through June, Sanusi said.