Central Bank of Nigeria (CBN)  has left its Monetary Policy Rate at 6.25 per cent on Tuesday to allow its previous rate hike to filter through the system, but said it recognised there was a need for monetary policy tightening.

The monetary policy committee (MPC) raised rates by 25 basis points to 6.25 percent at its last meeting in September, the first increase in more than a year, as it switched attention from boosting growth to battling inflation.

“Overall, (MPC) members agreed that there is need for tightening but the discussions centred on the form and timing of the tightening,” Central Bank Governor Lamido Sanusi said.

“After due consideration of the pros and cons of the various policy options, the committee agreed … to retain the current MPR given the need to retain flexibility and allow the effects of the previous rate increase to work through the system.” He said the committee had voted to leave rates on hold by a narrow majority of six to four members.

It also adjusted a corridor around its monetary policy rate to an 8.25 percent lending rate and 4.25 percent deposit rate. Consumer inflation in  the  Nigerian economy has remained in double digits for more than a year, easing slightly to 13.4 per cent year on year in October from 13.6 per cent the previous month. “The persistence of high inflation remains a major challenge when viewed against a relatively good harvest, improved supply of petroleum products, and weak expansion of credit to the private sector,” Sanusi said.

Analysts say public sector pay rises, government spending ahead of next year’s elections, and the new  Asset Management Company (AMCON) __ which will soak up bad bank loans in return for government bonds  all pose inflationary risks.

“With fiscal spending likely to go into overdrive ahead of the elections, it is more a case of when more tightening measures will follow, rather than if,” said Razia Khan, head of research for Africa at Standard Chartered.

“For now however, given continued uncertainty in the outlook, not least with oil output under pressure again, and concerns over too rapid a correction in the bond market, the latest move should be seen as normalisation of policy.” Sanusi said he expected GDP growth of 8.29 percent in the fourth quarter compared to 7.86 percent in the third quarter.

Full year economic growth was forecast at 7.85 percent, up from 6.96 percent in 2009, he said. He also said he expected the naira exchange rate to remain stable in the near term.