Nigerian inflation could fall to 5 pct by end of 2015-c.bank

Nigeria's central bank hopes to meet its longer term inflation target of 5 percent by the end of 2015, but remains concerned about a possible surge in fiscal spending ahead of elections that year, Deputy Governor Kingsley Moghalu said on Tuesday.

CBN Governor, Sanusi

   Inflation in Africa's top oil exporter is at a five-year low of 7.8 percent and the central bank recently lowered its inflation target for next year to between 6 and 9 percent.
   However, it held interest rates at 12 percent a week ago due to concerns about the inflationary impact of pre-electoral spending.
   The bank had previously stated its goal of reducing inflation to 5 percent in the medium to long term but had not given a timeframe.
   "We certainly hope to reach the 5 percent target by the end of 2015 (or) 2016," Moghalu told Reuters on the sidelines of an event to launch his new book, "Emerging Africa".
   Moghalu said a rate hike was not inevitable but the bank wanted to leave the option open as Nigeria gets closer to the 2015 polls seen as likely to loosen the fiscal purse strings.
   "If we see huge pre-election spending, if we begin to see supplementary budgets, if we begin to see things that make it clear that money supply will increase...then we would have to consider the possibility of a rate rise," he said.
   While increased foreign portfolio investment has helped support the naira, the bank does not want these inflows to dominate Nigeria's foreign exchange reserves, Moghalu added.
   Foreign investors' holdings of Nigerian bonds swelled nearly fivefold to an estimated $5.4 billion in the year after the country's inclusion in JP Morgan's benchmark GBI-EM local currency bond index, according to figures obtained by Reuters. [ID:nL5N0JA21O]
   Holdings of Nigerian debt, including Treasury bills, by offshore investors reached $11.6 billion as of September 2013, while nonresident equity holdings stood at $10.3 billion.
   "We don't want too much of our foreign reserves to be portfolio flows but we are not opposed to portfolio flows because they have been helpful in backing up the exchange rate," Moghalu said.
   The bank is studying mechanisms to mitigate the risk of significant capital outflows should the U.S. Federal Reserve start scaling back its quantitative easing programme, he added. He declined to give further details.
   Addressing journalists earlier he said monetary policy was made more difficult by Nigeria's singular dependence on oil.
   Exports of oil and gas account for around 80 percent of government revenues and 90 percent of foreign exchange.
   "The value of the currency is not backed up by the production of concrete manufactured goods," he said.
   "Continued reliance on oil just makes the country so vulnerable to exogenous macroeconomic shocks."
   Growing shale oil production in the United States and new oil discoveries in other African nations like Ghana, Kenya and Uganda would only make Nigeria more vulnerable, he suggested.