* Godwin Emefiele delivers first MPC decision as governor
* Says seeks 5-year plan for reducing interest rates
* Inflation has risen since Feb, still within target
(Adds details, background, analysts)
By Camillus Eboh
ABUJA, July 22 Nigeria's new central bank
governor said on Tuesday he favoured a gradual reduction in
interest rates over the next five years, but inflation risk
meant there was no room to ease policy immediately.
Governor Godwin Emefiele, leading the first Monetary Policy
Committee (MPC) meeting since he was sworn in last month,
flagged "underlying inflationary pressure" as one reason to be
cautious and keep the policy rate at 12 percent, a level
unchanged for the past two years.
Consumer inflation in Africa's largest economy rose for the
fourth straight month in June to hit 8.2 percent, a 10-month
high - within the bank's current target of between 6 and 9
percent, but trending upwards due to higher food prices.
"All measures of inflation have witnessed a progressive
upward trend since February ... this trend should be monitored
closely to achieve a reversal."
Emefiele stayed the course of his respected predecessor,
Lamido Sanusi - a critic of government corruption who was
suspended from the bank by President Goodluck Jonathan in
February - in keeping monetary policy tight.
The MPC also kept the corridor for borrowing from or lending
to the bank at 200 bps plus or minus its benchmark rate, and
retained banks' liquidity ratio of 30 percent. The private
sector cash reserve requirement (CRR) stays at 15 percent, while
the public sector CRR remains at 75 percent.
The rate decision was announced after financial markets
For an analysts' view
Emefiele said the bank was satisfied that the economy was
relatively stable and that it welcomed a moderation in core
Emefiele at his first press conference last month said he
would seek to gradually reduce rates, in comments that sent bond
yields and the naira down against the dollar.
But in an interview with Reuters the following day he
clarified that there could be no rate cut until after the
February 2015 presidential elections, when fiscal spending has a
chance of getting under control.
Accordingly, at Tuesday's MPC meeting his plan to seek lower
rates at a later date was aspirational, and he did not indicate
whether a rate cut before the election was a possibility. He
said the committee was concerned about the impact of high
interest rates on "employment levels, wealth creation and the
growth of businesses."
However, this had to balanced against the risk posed to the
naira by increased government spending ahead of 2015 elections
and by a possible further tapering of the U.S. Federal Reserve's
bond-buying programme again hurting portfolio flows, he said.
"We are going to pursue a gradual reduction in interest
rates. That is a five-year agenda," Emefiele said.
"We are going to continue to monitor the situation ... and
if we see that the macroeconomic variables are moving in a
direction we expect, you'll begin to see the reversal of
interest rates in the direction of going low."
Investors have feared that the departure of Sanusi would
mean government interference in monetary policy.
Sanusi's tight policy was opposed by Finance Minister Ngozi
Okonjo-Iweala because of its impact on businesses.
At the same time, analysts said that while Emefiele favoured
gradual policy easing he would also face continued pressure from
fiscal authorities for the central bank to tackle the effects of
high government spending by tightening policy.
(Reporting by Camillus Eboh; Additional reporting by Chijioke
Ohuocha; Writing by Tim Cocks; Editing by Susan Fenton)