Despite expansionary measures taken by the Central Bank of Nigeria to infuse more liquidity in the system, inflation rate slowed to 14.4 per cent.
The inflation rate stood at 14.6 per cent in February.

The stability was achieved after the Central Bank of Nigeria forced the interbank foreign exchange market to shut down and then restricted the number of foreign-exchange bureaus that can buy dollars at its daily auctions.

The Central Bank of Nigeria (CBN) had in September reduced the Monetary Policy Rate (MPR) from 10.25 per cent to 9.75 per cent and the Cash Reserve Requirement from 4 per cent to 2 per cent and liquidity ratio from 40 per cent to 30 per cent. These measures the bank would inject about N1.5 trillion into the financial system.

The CBN further cut the benchmark interest rate to 8 per cent on April 8 after keeping it at 9.75 per cent for seven months. The reduction came after the Naira stabilised at about 146 to the dollar in late February, after dropping from 118 at which had stabilised for about two years.

The subsequent fall in crude oil prices from a peak of $147 per barrel to about $40 in recent months resulted in the depreciation of the Naira by about 30 per cent against the dollar since Nov. 26, when the global economic crisis began to have visible effect on the currency. The currency plummeted as oil prices fell and the monetary authority decided against using reserves to defend it.

The reserves have been depleted from about $63 billion in October to about $47 billion currently.

Inflation had risen to 15.1 per cent after being stable at 14.7 per cent for the months of October and November 2008.

Inflation was largely subdued in 2006, 2007 and first half of 2008, during which inflation was within a single digit.

It rose above a single digit from June 2008 driven largely by the food component.

The Governor, Central Bank of Nigeria (CBN), Professor Chukwuma Soludo, in a recent seminar organised by the bank on the interplay of interest, exchange and inflation rates, expressed concern about the simultaneous rise in the inflation, exchange and interest rates.

He said that food had been the main driver of inflation in Nigeria essentially because of the large weight assigned to it in Consumer price Index (CPI) basket.

Currently, 63.76 per cent of the weight of the CPI basket is allocated to food while other goods and services constitute the balance.

"Inflation is difficult to tackle because any meaningful attempt to curb it entails a trade-off among other important macroeconomic and social objectives, such as increased employment, economic growth and social safety nets in the short-run," Soludo had said.

Analysts believe that the September 18 infusion of liquidity into the financial system through the cutback in central bank’s benchmark rate, the cash reserve ratio and the liquidity ratio would fuel inflation.

Though it inched up to 14.7 per cent in October and November and then 15.1 per cent in December, March rate shows that the effect is moderating, put a lie to the prediction of runaway inflation by pundits. According to Soludo, inflation is to a large extent a monetary phenomenon in the sense that it cannot be sustained without tinkering with money supply.

The apex bank recently commenced mopping up liquidity through the Open market Operations in order to curtain inflationary pressure.