The consumer price index (CPI) fell to 12.8 percent year-on-year in the month down from 12.9 percent in June, the National Bureau of Statistics (NBS), said yesterday.
This became a surprise to many analysts who had expected it to rise due to the effects of fuel subsidy removal in January and base effects.
Also, the CPI increased 0.24 percent month-on-month.
“A look at the monthly changes over the previous three months reveals that although the CPI has generally risen, its increase has been at a slower rate, which suggests that prices may be easing across the economy,” the NBS said.
The Central Bank of Nigeria was anticipating consumer inflation rising to around 14 percent by the end of the first half of this year due to the upward effects on prices from the partial removal of fuel subsidies in January.
Interest rates have been on hold at 12 percent since October last year but the bank tightened money supply at its meeting last month to help support the weakening naira currency.
The impact on inflation from the subsidy removal has been more muted than expected, so far, with consumer inflation averaging around 12.5 percent this year, after averaging around 10 percent in the second-half of last year.
Food inflation, the largest contributor to the headline index, rose slightly to 12.1 percent year-on-year in July, compared with 12.0 percent in June, the NBS also said in a report.
Meanwhile, Nigeria’s interbank lending rates fell sharply yesterday to an average of 14 percent, from around 19.33 percent the previous day after about N283 billion ($1.80 billion) in budget allocations to government agencies hit the market.
Nigeria distributes money from oil revenue to its three tiers of government from a centrally held account, which provides liquidity for the banking sector and eases the cost of borrowing among banks.
Dealers said the market was short prior to the disbursal of the budget funds due to stricter central bank’s measures to tighten liquidity in the system and support the local currency.
“The market opened with a deficit of about 197 billion naira on Friday, but by the time the budget allocations hit the system today, the cost of borrowing fell sharply,” one dealer said.
The central bank in July raised the cash reserve requirement for lenders to 12 percent from 8 percent, and reduced net open foreign exchange positions to 1 percent from 3 percent, to restrict the money supply and support the currency.
The bank also barred banks that borrow naira funds from its official window from using those funds to buy dollars at its by-weekly auction, a bid to crack down on currency speculation.
Dealers said the release of the budget funds on Friday was a relief to the market which has been hit by cash shortages.
The secured Open Buy Back (OBB) dropped to 14 percent from 18 percent the previous day and lower than the 15 percent it closed last Friday.
Overnight and call rates closed at 14 percent each, compared with 20 percent respectively on Thursday.