Central Bank of Nigeria
Communiqué No. 87 of the Monetary Policy Committee
Meeting of Monday, January 21, 2013

The Monetary Policy Committee (MPC) met on, January 21,
2013 with ten (10) out of the twelve (12) members in
attendance. The Committee reviewed the domestic
economic conditions in 2012 and the challenges therefrom
against the backdrop of the international financial and
economic environment in order to chart the course of
monetary policy in 2013.

The International Economic Situation
The Committee noted that global economic growth
remained largely uneven and subdued in most economies
in 2012. Latest data from the IMF indicate that global output
was weaker than previously forecast due to continued
contraction in the Euro zone and Japan as well as the less
than anticipated growth in Brazil and India. The fragility in
the global economy was further compounded by the
uncertainties surrounding resolution of the “fiscal cliff” and
debt ceiling challenges in the US and the difficulties
associated with China’s attempts to “rebalance” its growth.
These developments adversely affected private sector
confidence, worsened the unemployment situation and
further tightened financing conditions in both the periphery
and core economies. In the euro area, economic and
financial conditions remained severely weak. Although the

European Central Bank (ECB) attempted, through its
intervention scheme, to halt the downward trend in
economic activities in the zone, the effort did not record
much success. Overall, global output was estimated to
have expanded by 3.2 per cent in 2012 against the earlier
projection of 3.3 per cent made in the October 2012 IMF
World Economic Outlook.

Growth in the advanced economies was estimated at 1.3
per cent in 2012 and projected at 1.5 per cent in 2013,
reflecting an upward revision of 0.2 percentage point,
respectively, from the initial estimates. The Committee
noted that the decline in global investment was mainly
traced to the fiscal standoff in the US and its implications for
the paltry expansion in output of 2.0 per cent in Q3, 2012.
Emerging European economies, which had previously
shown signs of strong rebound from the credit crisis, have
now been hit hard by slow exports growth and a halt to real
GDP growth. On the whole, the Committee is of the view
that while the decisions of the ECB considerably reduced
the probability of a Eurozone-wide financial crisis, the
condition of country-level financial systems remained
difficult and could constitute significant challenge to output
expansion in 2013.

Latest data from the Asian economies suggest that a
gradual recovery may be underway. China's economy,
which had previously recorded a slowdown over seven
consecutive quarters to Q3, 2012, witnessed improved
economic activity in Q4, 2012. Recent fiscal and monetary
easing
operations
have
increased
investment
in
infrastructure with signals of further spending into 2013. The
Indonesian economy, after recovery from the severe
flooding in 2011, continued to show resilience against the

global slowdown as investment and strong domestic
demand contributed more to growth. It is expected that
these twin drivers of growth would further sustain output
expansion in 2013, although recent reports indicate that
severe flooding has once again hit the economy during
January 2013. The sub-optimal performance of the
Japanese and Indian economies, however, was a major
drag on recovery in the region. The Indian economy was
hampered by slow approvals for new projects, deterioration
in business sentiment largely due to the rising current
account deficit, uncertainty over the selling of government
stakes
in
state
owned
enterprises,
fiscal
deficits,
depreciation of the Rupee and a high debt burden, as well
as slow implementation of structural reforms. Japan’s
drawback was largely due to a combination of declining
exports and sluggish domestic demand. There are,
however, expectations that the growth decline would
bottom-out in 2013 as anticipated rebound in major trading
partner economies like China and the US would translate to
a recovery in the demand for Japanese goods and
services.
The Middle East and North Africa (MENA) region continued
to
record
mixed
performance,
evidenced
by
the
divergence between the economies of oil-exporting and
oil-importing countries. Oil-importing countries experienced
subdued economic performance with an estimated growth
of 2.0 per cent in 2012 while the oil-exporting countries grew
at an average rate of 6.6 per cent. Growth in oil-exporting
countries was driven largely by high oil output and prices
coupled with the early post-conflict recovery of Libya.
Growth for the entire region in 2013 has been projected at
3.75 per cent, which is 1.35 percentage points below the
estimate for 2012. The Committee noted that the challenges

confronting these countries is how to strengthen the
resilience of their fragile economies against major oil price
shocks through diversification and expansion of the private
sector.

Economic conditions in sub-Saharan Africa remained
generally robust despite the sluggish growth in the global
economy. Prudent policies and improved fundamentals in
most countries provided additional impetus for increased
economic activity in the region. The Committee noted that
the main risks to the outlook for the region come from their
trading partners including the possible intensification of the
financial stress in the euro zone and a sharp fiscal
adjustment in the US.

In light of the uncertainty about the direction of fiscal policy
in the US, particularly with regard to the yet to be resolved
issue of debt ceiling, and the persisting euro zone financial
and economic crises, the Committee was of the view that
the global economic environment was still fragile and highly
vulnerable to a further contraction, although the downside
risks appeared to be less severe relative to conditions in the
last two years.

Domestic Economic and Financial Developments
Output
The National Bureau of Statistics (NBS) estimated real Gross
Domestic Product (GDP) growth rate at 6.61 per cent for
2012, which is lower than the level recorded in 2011 by 0.84
per cent. The estimated real GDP growth rate at 7.09 per
cent in the fourth quarter of 2012 was higher than the 6.48
per cent in the third quarter but lower than the 7.68 per cent
recorded in the corresponding period of 2011. The non-oil
sector remained the major driver of growth recording 8.23

per cent increase in contrast to the oil sector, which
contracted by 0.17 per cent during the period. The
Committee expressed concern about the continued
decline in the contribution of the oil sector to growth due to
lower production relative to the corresponding period of
2011 and enjoined the Federal Government to fast track the
passage of the Petroleum Industry Bill to halt the trend.

The relatively robust growth projections despite the slowing
global
economy
reflected
the
relatively
favourable
performance of wholesale and retail trade; the services
sectors; outcome of banking sector reforms; and initiatives
by government to stimulate the real economy. Despite the
developments in the international oil market where the US is
now the second largest oil producer, the Committee
observed that the growth projection remained promising,
anchored on the recent improvements in power supply. The
Committee
noted
with
satisfaction
the
Federal
Government’s efforts to sustain the current initiatives to
boost power generation, particularly the progress made in
reforming the power sector.
The Committee, however, observed that the severe
flooding in several parts of the country in 2012, which
damaged housing, agricultural and oil assets, could pose
downside risks to growth and feed into food supply deficits
and inflation in the near term. Also, the continuing security
challenges as well as delays in reform of the oil sector could
undermine investor-confidence and output growth in the
near-term.
Prices
The Committee observed that, on the average, inflationary
pressure was elevated in 2012. The year–on–year average
headline inflation rate in 2012 stood at 12.24 per cent, while

the average core and food inflation year-on-year stood at
13.87 and 11.32 per cent, respectively. The major drivers of
headline inflation in December 2012 included food and
non-alcoholic beverages, housing, water, electricity and
transport. The pickup in food inflation in the later part of
2012 was accounted for by imported food items and food
shortages due to the impact of flood on farmlands along
the major agricultural belt of the country. However, the
Committee was of the view that the pass-through effects of
imported food inflation to domestic prices may have been
subdued owing to the relatively stable exchange rate
during the period under review.
Monetary, Credit and Financial Markets Developments
Broad money supply (M2) grew by 13.72 per cent in
December 2012 over the level at end-December 2011.
Aggregate domestic credit (net) grew by 1.98 per cent in
December 2012, which was substantially below the
benchmark of 52.17 per cent for the year. Credit to
Government
contracted
between
September
and
December 2012; occasioned by the sustenance of
government as a net creditor to the banking system,
reflecting more prudent fiscal measures, including the
introduction of the Treasury Single Account.
Interest rates in all segments of the money market
moderated between 19th November 2012 and 3rd January,
2013. This reflected in increased liquidity in the banking
system including the release of statutory revenue to subnational governments, absence of repo transaction during
the review period, repayments of matured CBN Bills and
banks’ desire to maintain optimum liquidity position on their
balance sheets at the end of their common financial year.
The interbank call and OBB rates, which opened at 13.99

and 13.95 per cent on November 19, 2012, closed at 10.32
and 10.45 per cent, respectively, on January 3, 2013. The
average interbank call and OBB rates for the period were
11.09 and 11.03 per cent, respectively. The average prime
lending rate increased slightly to 16.54 per cent in
December 2012 from 16.48 and 16. 51 per cent in October
and November 2012, respectively. In contrast, the average
maximum lending rate fell marginally to 24.61 per cent in
December 2012 from 24.65 and 24.70 per cent, respectively,
in October and November, respectively while the weighted
average savings and term deposits rate decreased to 5.50
per cent in December from 5.57 per cent in the preceding
month. The Committee, therefore, encouraged the Bank to
fast track the financial inclusion strategy to improve
financial intermediation and the effectiveness of the
transmission mechanism of monetary policy and to adopt
ways of moderating the high spread between deposit and
lending rates.

The Committee observed that the rally in the Nigerian
capital market continued as equities market indicators
trended upwards in the review period. The All-Share Index
(ASI) increased by 35.45 per cent from 20,730.63 to 28,078.80
between December 30, 2011 and December 31, 2012.
Market Capitalization (MC) also increased, by 37.38 per
cent, from N6.53 trillion to N8.97 trillion during the same
period. The positive performance of the ASI and MC was
due to the sustained increase in the demand for blue-chip
stocks particularly in the banking and consumer goods
sectors following improvements in earnings and growing
investor-confidence. The Committee, however, noted that
the significant factor responsible for the recovery was strong
portfolio flows and cautioned that the capital market

remained structurally vulnerable to external shocks until its
funding basis was changed.
External Sector Developments
At the Wholesale Dutch Auction System (wDAS), the
exchange rate opened at N157.31/US$ on November 20,
2012 and closed at N157.33/US$ on December 31, 2012
representing a depreciation of N0.02 or 0.01 per cent. The
average wDAS exchange rate during the period was
N157.32/US$. At the BDC segment of the foreign exchange
market, the selling rate opened at N160.00/US$ on
November 20, 2012 and closed at N159.50/US$ on
December 31, 2012, representing an appreciation of N0.50
or 0.31 per cent for the period. At the interbank segment,
the selling rate opened at N157.95/US$ on November 20,
2012 and closed at N156.25/US$ on December 31, 2012,
representing an appreciation of N1.70 or 1.08 per cent.
Overall, the relative stability recorded in the foreign
exchange market could be attributed to the combined
effects of improved supply of foreign exchange by the oil
companies and enhanced capital inflows from portfolio
investors during the period under review. Also, oil revenue
increased at an average of 2.73 per cent monthly
throughout 2012. In the first eleven months of 2012, oil
receipts totaled US$40.087 billion.
The Committee noted with satisfaction that the premium
between wDAS and the interbank rate narrowed towards
the end of the review period. However, the premium
between the wDAS and BDCs widened towards the end of
the review period from N1.682/US$ to N2.172/US$ suggesting
the need to sustain and further complement existing
measures to discourage speculative activities in the foreign
exchange market. In general, the Committee noted that

decisions at previous MPC meetings were yielding the
desired results.
The Committee expressed satisfaction with the sustained
accretion to external reserves which stood at US$43.849
billion as at December 31, 2012, representing an increase of
US$1.682 billion or about 3.98 per cent from the level of
US$42.167 billion at end-October 2012. Relative to the endDecember 2011 level of US$32.915 billion, the external
reserves at the end of December 2012, had risen by
US$10.934 billion or 33.21 per cent. The increase in the level
of foreign reserves was driven mainly by proceeds from
crude oil and gas exports and crude-oil related taxes as well
as reduced funding of the wDAS on account of the huge
inflow of foreign portfolio investments, which was about 77.0
per cent of total inflows through the CBN. The foreign
reserves level could finance about 9 months of imports.
The Committee’s Considerations
The Committee observed that the performance of the
global economy remained largely subdued and was
characterized by uncertainty and contraction in the Euro
zone and Japan, as well as lower than expected growth in
the large emerging and developing economies. The
Committee notes with caution that the partial resolution of
the Fiscal Cliff in the US offers some hope for gradual global
economic recovery as indicated by the rebound of many
global financial markets in the wake of the staving off of
automatic tax increases and expenditures cuts on 1st
January, 2013. The Committee further observed that the
robust prospects for energy independence of the US could
pose downside risk for global oil prices in the medium-tolong term which could threaten fiscal sustainability in many
oil- dependent economies around the world.

The Committee noted that in spite of the slow progress
made in the resolution of the Euro zone crises, the prospect
of a deepening recession in the near term has not been
completely
averted.
Developments
in
the
domestic
economy in the past three months highlighted some new
pressure points to macroeconomic stability. The Committee
was of the view that shocks to the economy could come
from significant fall in the demand for oil, leading to a fall in
oil prices and government revenues, weaker exchange
rate, rising inflationary pressures and depletion in external
reserves. The Committee also noted the drop in headline
inflation in December 2012, although it also recognized that
core inflation had risen; driven mainly by cost-push factors
even in the face of sluggish growth in the monetary
aggregates.
With regard to the budget of the Federal Government, the
Committee
cautioned
against
complacency
over
government revenues; despite the high level of oil prices.
The Committee noted uncertainty in global demand and
supply of crude oil, and weak performance of non-oil and
VAT revenues. The Committee, however, noted with
satisfaction the efforts the Federal Government aimed at
keeping deficits within the threshold prescribed by the Fiscal
Responsibility Act and advocated sustenance of the effort.
On expenditure, the Committee noted that there was still
the need to continue to drive down recurrent expenditure in
favor of capital expenditure in view of the infrastructure
deficit that continued to constrain growth performance. The
Committee noted that the oil price benchmark for the 2013
budget which was increased from US$75 to US$79 may pose
downside risk to the inflation objective and, therefore,
constituted a pressure point for the low inflation objective
and effective monetary policy in 2013. The Committee

reaffirmed its commitment to respond appropriately if public
spending in 2013 ultimately adds to inflationary pressures.
In view of these developments, the Committee was faced
with three choices:
(i) An increase in the MPR in response to the higher oil
price benchmark for fiscal 2013;
(ii)
A reduction in MPR in view of the declining GDP
growth trajectory and headline inflation; and
(iii) Retaining the current monetary policy stance in
view
of
the
conflicting
price
signals,
global
uncertainties and the need to preserve the stability
of the system.

The Committee’s Decisions
Given the stability achieved in the last twelve months with
average year-on-year headline inflation rate at 12.24 per
cent, in 2012, the MPR of 12 per cent was considered to be
just about right. The Committee considered the calls for a
reduction in the MPR because of the benign inflation
outlook other things being equal. However, this may be
undermined by the increased sub-national government
spending and Federal Government high expenditure in
2013, the higher benchmark oil price in the 2013 budget
and the US debt ceiling with possible impact on commodity
prices.
In view of the foregoing, the Committee decided that it was
prudent to hold and monitor developments between now
and the next meeting of the MPC. The Committee,
therefore, decided by a majority vote of 8:2 to maintain the
current policy stance i.e., to retain the MPR at 12.0 per cent
with a corridor of +/- 200 basis points around the midpoint;
retain the CRR at 12.0 per cent; and to retain the Liquidity
Ratio at 30.0 per cent. Two members voted for a reduction
of the MPR by 25 basis points.
Thank you.
Sanusi Lamido Sanusi, CON
Governor
Central Bank of Nigeria
21st January, 2013


PERSONAL STATEMENTS BY MONETARY POLICY COMMITTEE MEMBERS:

1.0
ALADE, SARAH
Headline inflation moderated to 12.0 percent in December compared
to12.3 percent recorded in November. This decrease is driven mainly by
food inflation which decreased to 10.2 percent compared to 11.6 percent
recorded in November 2012. In the international scene, there is slight
recovery in the United States driven mainly by the housing market and
renewed GDP growth in China. On the domestic front, the increase in the
oil benchmark poses downside risk to inflation and remains a possible
pressure point. Based on this, I will support a hold in monetary policy rate
and Cash Reserve Requirement (CRR).

Headline inflation decreased marginally to 12 percent in December from
12.3 percent recorded in the previous month. The decrease is attributable
largely to moderating food prices in December after a sustained increase
resulting from the national wide flood that affected food supply in some
parts of the country. Food inflation declined from 11.6 percent in
November to 10.2 percent in December. However, core inflation
increased marginally to 13.7 percent compared to 13.1 percent recorded
in the previous month, although the increase is marginal, it is of concern.
Staff projections suggest an easing of inflationary pressure in the coming
months
due
to
seasonal
pattern
and
other
macroeconomic
developments. However, this deceleration in inflation will need to be
monitored for a while to avoid premature monetary policy easing.

The 2013 budget passed by the National Assembly with a high oil
benchmark could be expansionary. The 2013 budget projected a budget
deficit of 2.17 percent, which is lower than 2.85 percent recorded in 2012,
and even lower than the 3 percent as stipulated in the Fiscal Responsibility

Act. The high oil benchmark which was increased from the initial proposal
of $75 to $79 per barrel could pose downside risk to inflation. Given that
past monetary policy decisions have been effective in strengthening the
buffers needed to safeguard the economy against downside risks,
monetary easing at this point could be counterproductive.

Past monetary policy actions have been successful in restoring stability in
the money and foreign exchange markets. Money market rates and
exchange rate have been stable as speculative demand is reduced. In
the foreign exchange market, there has been stability with rate
converging between the official rate and the unofficial window. Past
monetary policy decisions also aided capital inflows into the economy;
however, the declining imports of Nigerian oil by the United States as they
expand domestic production could affect the level of the inflows. This has
implication for both government revenue and exchange rate stability and
caution should be exercised to safeguard the Naira, suggesting that
monetary easing at this time is premature.

Global economic growth projection is showing some improvements
boosted by recovery from emerging market economies. Monetary easing
in China embarked upon in the last quarter of the year is starting to
stabilize the economy with fourth quarter GDP reaching 8 percent.
Although the United States economy is being hit by a headwind from the
Eurozone
debt
crisis,
there
are
some
positive
developments.
Unemployment rate is projected to average 7.7 percent in 2013, and
housing market is expected to continue moderate recovery with strong

gains in residential construction and home prices. In the Euro zone, the
continued progress by the Eurozone ministers to tackle the Euro area debt
problems has not yielded major breakthrough, but signs of improvements
are being recorded in Spain and Italy. These mixed development calls for
a cautious approach to monetary policy at this time.

Based on the above, with declining food inflation and no immediate
inflationary threats in the coming months, I will support a hold in Monetary
Policy Rate and Cash Reserve Requirement (CRR).
2.0
BARAU, SULEIMAN
I have voted for the retention of the current stance in monetary
policy for the following reasons;
Figures released by the National Bureau of Statistics (NBS) show
that real Gross Domestic Product (GDP) growth for 2012 is
projected to be 6.61%, only 0.84% lower than what was
recorded in 2011. Estimated real GDP growth rate for the fourth
quarter 2012 at 7.09% is higher than the 6.48% in the third
quarter. Though these growth numbers are lower than those of
comparable periods in 2012, they are higher than the average
for other Sub-Saharan African countries. The high real GDP
growth for the fourth quarter is an indication that in spite of the
relatively high lending rates, we still witnessed strong growth. In
fact, the lower growth rate for 2011 relative to 2012, is largely

due to decline in Agricultural Sector growth, a sector that
accounts for less than 3% of aggregate credits.
Year-on-Year (YOY). Headline, (HI) and Food Inflation (FI)
marginally declined from 12.3% to 12.0% and 11.6% to 10.2% for
November and December respectively.
However, Core inflation (CI) increased from 13.0% to 13.0% over
the same period. Besides, the Month-on-Month measure for
the three segments increased. We also face the following
challenges in the inflation management equation;
- Though at a reduced level, the budget passed by National
Assembly is a deficit one.
- Besides given that the time taken to pass the budget has
been at a record level and the fact that 2012 budget
spending is currently permitted, we may see injections of
substantial additional liquidity when the President signs the
2013 Appropriation Act.
- A reduction in Cash Reserve Ratio (CRR) may lead to
injection of additional liquidity which may threaten inflation
numbers and put pressure on the foreign reserves.
We have seen marginal appreciation in the value of the Naira
against the US Dollar in all segments of market at the end of
2012. Besides, we have seen substantial accretion to foreign
reserves. I will like to see it sustained for now

With both inflation and Monetary Policy Rate (MPR) at 12%, we
are just about taking real interest rate to a positive level. A
downward adjustment of MPR should logically follow a similar
downward reduction in the level of inflation in order to attain
positive real rate of interest which is desirable for the country.
The high level of interest rate and yields in government
instruments has led to crowding out of the private sector in an
environment of deficit financing by Government. This has also
led to recent surge in foreign portfolio inflows. There may be
risks associated with these inflows but what is more important is
for us to identify, quantify and manage these risks because
these flows are directly related to the accretion of reserves,
stability in exchange rate, increasing liquidity in the capital
market and increase in market capitalization.
I would therefore want to see sustained stability of inflation numbers
and exchange rate, before I can support easing of policy stance.
It is in the light of the foregoing that I voted as follows;
- Retain MPR at 12%
- Maintain the existing corridor at plus and minus 2% for
standing and deposit rates respectively
- Maintain the Cash Reserve Ratio at 12%.

3.0
GARBA, ABDUL-GANIYU

I vote to:
1. Reduce the MPR by 0.25% to 11.75%.
2. Maintain the asymmetric corridors at ±2.0% around the MPR.
3. Maintain CRR at 12%.

Justification
At the November MPC I voted to leave the MPR, asymmetric
corridors and CRR unchanged. I argued: “as the year comes to an
end, a major policy shift is not desirable . . . it is wise to stay the
course more so, given the pervasive uncertainties in the global
economy in fourth quarter of 2012 (failures of the EU to resolve its
sovereign debt crisis) and in the first quarter of 2013 (fears of the US
falling off the fiscal cliff).”

I had contemplated cutting the MPR at three MPC meetings in 2012:
March, 2012; May 2012 and July 2012. At all three meetings, I
expressed concerns about a recurring set of problems: slowing GDP
growth from third quarter of 2010; rising unemployment; high levels of
poverty; fiscal dominance (unsustainable levels of government
expenditures and debt and its crowding-out effects on private
borrowing, investment and consumption); growing disconnect
between the financial and real sector; the asymmetries in the gains
of tightening and the growing inefficiencies of financial markets
indicated by rise in interest rate spreads as well as the rise in the level
of profits of Deposit Money Banks in absolute and relative terms.

I decided against a rate cut at the March and May meetings of the
MPC. In March I justified my decision on two pillars: (i) fiscal
dominance will undermine the effectiveness of a rate cut and (ii) the
pass through effects of rate cuts may not be instantaneous or strong
enough to stimulate real activity. Similarly, at the May MPC, I
decided against a rate cut because as I put it:

“the pass through of lower MPR to the Maximum lending
rate is likely to be inelastic. As a result, Small players who
are more likely to grow output and employment are
unlikely to benefit from an MPR cut. In addition, the
chances of growing the loan book is limited by the existing
structure of liquidity which is skewed in favor of Hold to
Maturity (HTM) government securities while the chances of
changes in the credit structure in favor of value-added
and job creating sectors and economic agents such as
farmers and small and medium scale industrialists is limited
without improvements in infrastructures among other
prerequisites.”

However, at the July MPC, I voted for a cut in MPR by 0.25% after a
review of the regime of tightening from macroeconomic, general
equilibrium and game theoretic perspectives. The details of my
argument are contained in my personal statement after the July
Meeting. Suffice to recall that I became convinced that the
argument about the magnitude and timing of the pass through of
rate cut became less important compared to the dangers of
portfolio capital that has poured into Nigeria in the period of
tightening. It is axiomatic that portfolio flows are volatile, cause asset

price bubbles and trigger financial crisis even when fundamentals
are strong as was the case of the Asian Tigers in 1997.

With the commitment of the MPC to stable exchange rates which I
support, interest rates along with creative administrative and
institutional game changers are the options to check the inflow of
potentially destabilizing capital while encouraging the inflows of
capital that will stimulate job creating growth.

The sharp growth in portfolio flows (i) after October 2011 and (ii) after
July 2012 is well above trend and its effects on the capital market
already signal that financial and macroeconomic instability lies in
the future unless the rights forward looking policies are implemented
now. The effects of the last episode of outflows in 2008 and the
effects on the capital market, the banking system and the costs of
bailouts are still fresh.

It is to avoid such costs that I vote for a cut in MPR by 0.25% as a
signal of a commitment to the macroeconomic stability now and,
in the future and, to avoid history repeating itself at an even greater
cost.
4.0
LEMO, TUNDE
Macroeconomic developments by end-December 2012 have
significantly justified the tightening stance of monetary policy since
2011Q3. Headline inflation at 12 per cent by end-December 2012

could be regarded as largely subdued in the face of the various
upside risks that confronted the economy such as the partial
removal of subsidy on the PMS, upward adjustments in electricity
and imports tariffs, as well as the unprecedented and highly
devastating flood. Furthermore, quite a number of market risk
indicators have fallen considerably as evidenced by fair degree of
stability in the money market rates, exchange rate, and reduction in
the yield of government bond, which suggest improved confidence
in the economy by foreign investors. In the light of the improvements
in the financial sector therefore, there are strong arguments that
priority should be given to the real sector of the economy in terms of
commencement of loosening stance of monetary policy. The
argument is more compelling against the backdrop of declining real
output growth rate as provisional estimates for 2012 at 6.61 per cent
indicate the continuation of the downward slide that commenced
in 2010.

While the considerations to relax the current tightening stance are
valid, it may be in order to examine some other upside risks in the
near term to the effective delivery of the primary mandate of price
stability. First, we may need to recognize that the effects of the major
contributory factors to inflation in FY2012 are yet to bottom out with
empirical analysis suggesting that the effect of some of these factors
particularly the flood would peak in the first quarter of 2013. Second,
core inflation at 13.70 per cent at end-December 2012 was still

elevated and significantly higher than the four-year average of 11.50
per cent, therefore requiring appropriate policy measures.

Finally, the accelerated passage given to the 2013 budget by the
National Assembly as well as the Presidential Pact with the Ministers
on budget performance suggest that there would be higher
injections into the economy in the first quarter of 2013 through
capital expenditure than what was experienced in the past. The
liquidity
surfeit
may
be
aggravated
by
the
concurrent
implementation of the extended 2012 capital expenditure as well as
the Supplementary Budget on 2012 flood relief and payments of
subsidy to oil marketers. Closely related to this development is the
current benchmark price of US$79/barrel of crude oil under the 2013
budget which is adjudged to be overly optimistic. Apart from the
fact that it would increase the level of domestic monetary
aggregates with implication for price level, it would also constrain
the capacity to increase savings into the Excess Crude Account
(ECA), making the economy highly vulnerable to shocks arising from
volatility in oil earnings.

In the light of the foregoing, I am of the position that the Bank should
closely watch emerging macroeconomic developments and clearly
recognize the evolving trend before a change in the current
tightening stance of monetary policy. Consequently, I vote for a hold
of both the MPR and the CRR at the prevailing rates of 12 per cent.

5.0
MOGHALU, KINGSLEY CHIEDU
I vote for a retention of the Monetary Policy Rate at 12 per cent, and
to maintain the status quo on the transmission corridor, the Liquidity
Ratio, the Cash Reserve Ratio and the Net Open Position for the
following reasons.

First and most important, although inflationary pressures are
moderating with headline inflation dropping to 12 per cent in
December 2012 from 12.30 per cent in November 2012, and with a
similar drop in food inflation from 11.60 per cent to 10.20 per cent
over the same period, core inflation increased from 13.10 per cent to
13.70 per cent. Inflationary risks remain in the Nigerian economy,
and the decelerating trend has not become consistent enough to
warrant a reduction in the MPR at this time. State Government
budgets have increased by more than 20 per cent year to year as of
December 2013, Federal Government expenditure will remain high in
2013, and this situation is likely to be exacerbated by the higher
benchmark oil price in 2013 budget.

Second, we need to weigh the stability – increasing external reserves
that serve as an effective and necessary buffer for the economy, the
inflow of portfolio investments that has helped maintain the stability
of the exchange rate of the naira, and real interest rates – delivered
by monetary policy over the past year – against the loud calls for a
reduced MPR based on a belief that the present MPR of 12 per cent

is preventing increased credit to the real sector. Clearly, the stability
delivered by the prevailing regime of monetary policy outweighs a
view that is not supported by evidence that the MPR of 12 per cent is
what is actually stifling real sector credit. I certainly wish to see a
lower MPR, but this should only happen in response to a sustained
downward trend in inflation. In fact, credit to the private sector as a
ratio of GDP has increased by 9 per cent, and there remains no
evidence that credit to the real sector increased dramatically in the
years and months when the MPR was lower.

On the other hand, reducing the MPR will not affect real sector
growth owing to structural constraints in the economy that I have
argued in my previous MPC statements. Attempts to make monetary
policy “responsible” for problems the solutions to which lie elsewhere
should not influence the MPC to act precipitately. What is more,
given the recent return to life of Nigeria’s capital market in the wake
of the global financial crisis, a premature end to the monetary
tightening cycle could result in another stock market bubble.

I am aware of – and share – the concerns over the risks inherent in
creating seeming incentives for inflows of “hot money” into the
Nigerian economy. It is important that monetary policy not be built
on maintaining high policy rates merely for the purpose of attracting
portfolio inflows because of the benefits they offer. These benefits
are of a transient nature when considered against the structural
actions needed to grow the economy in a sustainable manner. But

price stability remains a core mandate of the Central Bank of
Nigeria. Together with exchange rate stability, they remain necessary
for Nigeria in the near to medium term, pending the realization of
more structural reforms by the Federal and State Governments and
fiscal authorities. And, provided the risks around hot money can be
managed – and from all indications they can – combating inflation
consistently downward remains necessary.

I therefore believe we should maintain the status quo and watch the
evolution of price levels and other monetary aggregates in 2013.

6.0
OLOFIN, SAM
Focusing on developments in the global economy since our last
meeting, and their potential impacts on the domestic economy,
staff reports indicate some degree of sustained, albeit gradual
improvements in projected global growth rate, from 3.0% in 2011 to
3.3% in 2012, and rising slightly further to 3.6 % in 2013. This not
withstanding, there are still some significant downside and upside
risks to global recovery that also portend potential dangers to the
domestic economy. There is strong evidence of rising food and
energy prices, posing upside risk to global inflation, and hence to
imported inflation in the domestic economy.

Financial market fragilities and uncertainties in the Euro-zone
constitute major downside risk to economic recovery, with potentials

for weakening demand for, and lowering of commodity prices
including that of petroleum. Low growth in critical emerging markets
and overall weak global investment climate, suggest that demand
from these markets may not be strong enough to pick up the slack in
the demand from the country’s traditional trading partners.

Highlights of developments in the domestic economy show
continued slow but robust growth in overall GDP which is estimated
at 6.61% for 2012. There is also evidence of moderating inflationary
pressures with headline inflation put at 12% in 2012. This is below a
four year average of 12.08%. While money market rates have
stabilized, lending rates remain high, with significant spread between
lending and deposit rates. Foreign exchange market has remained
stable with marginal appreciation in the exchange rate. There has
also been appreciable accretion to external reserves which stand at
$46.79 billion as at January 17, 2013, notwithstanding the fact that a
sizable, but manageable proportion of this is coming from hot
money inflows. There are growing concerns about sustainability of
current levels of indebtedness especially in respect of state
governments.

There are also growing concerns about the effects of internal
security threats, and impacts of flooding on level of economic
activity. Coupled with these are concerns about fiscal sustainability,
given threats to flow of oil revenue that may result from significant
reductions in US oil imports, as it shifts demand to its own domestic as

well as other competing sources. The overall economic outlook for
Q1, 2013 therefore is that of an economy with a stable financial
sector; a healthy non-oil sector led overall GDP growth performance,
with headline inflation trending downwards. There are however
major downside risks from uncertainties associated with tepid global
economic recovery, unresolved financial crisis in the Euro zone, and
their potential negative impacts on the level of economic activity in
the short to medium term.

The foregoing outlook leaves us with considerable doubts as to
whether the time is ripe for monetary policy easing or not. As always,
the critical issues surround the need to balance price stability needs
with growth considerations. In view of the relative stability gains
made over the last several quarters, it may be tempting to shift
emphasis from stability considerations to monetary easing to
promote growth. However such a major policy shift would be
premature at this meeting, in view of the continuing uncertainties in
the global economic outlook. Prudence demands keeping existing
measures in place for as long as the external uncertainties that pose
significant threats to domestic stability persist. One would therefore
be strongly inclined towards retaining the status quo, as we watch
further developments between now and the next meeting. I am
therefore voting for keeping MPR as well as the CRR at their current
levels. This would enable us maintain existing stability and further
strengthen our buffers by way of sustained accretion to foreign
reserves.

7.0
SALAMI, ADEDOYIN
Ahead of this meeting, the call for easing of monetary policy had,
perhaps unsurprisingly, gathered momentum. Release, a few days
ago, by the National Bureau of Statistics of inflation figures for
December 2012 showing a decline in the rate of increase in
Headline inflation to 12 percent appeared to provide support for the
case to ease monetary policy. Reflection on the inflation data
provides, at best, the most tenuous support for the notion of inflation
being under control. The decline in Headline inflation was essentially
the result of a ‘base’ effect in the year-on-year measure of food
inflation. The 100bp increase in the month-on-month measure of
food prices is quite large and perhaps reflective of the continuing
impact of the flooding on food supply.

In addition, rising Core Inflation – increasing from 13.1per cent to 13.7
percent between November and December last year, continues to
be a source of concern. It is worth bearing in mind that higher nonfood prices have been driven, largely, by the cost of reform. The call
to ease monetary policy is unsupported by the most basic analysis of
the most recent available data on inflation. The outlook for inflation
in Nigeria in H1 2013 appears benign – Central Bank Staff estimate
the year-on-year rate of increase in Headline inflation easing to 8.5
per cent by the end of H1 2013, similarly, do they expect Core
inflation to ease to 6.6 per cent. Whilst the rate of increase in food

prices will also come off double digits, it is expected to be stickier
than the other measures of inflation – ranging in H1 2013 between 8.5
and 10.5 percent.

Beyond inflation, the sluggish growth performance of the economy
could also provide a basis for easing monetary conditions. Having
reviewed the quarterly GDP data, especially in comparison with
2011, it would appear that there is a growth momentum building in
the economy. In other words, the economy might already be in
recovery mode. Comparing the sector growth performance on a
year-on-year basis, summarized below, the sharp reduction in the
number of sectors with decelerating growth performance

No
of
Sectors
with
Growth
Accelerating
No
of
Sectors
with
Growth
Decelerating
No of Sectors
with
Growth
Accelerating
No of Sectors with
Growth
Decelerating
Q1

Q2

Q3

Q4

Data not available

when compared to the same quarter in the previous year provides
indication of improving activity. While it can be argued that easing
monetary conditions would further strengthen growth, it is important
in that context to ask whether Banks in Nigeria have regained their
appetite for lending. My interactions and conversations do not lead
me to conclude that banks are looking to expand their lending
portfolios in those areas that afford able to further stimulate growth.

Anyway, financial market conditions show a reduction in bond yields
since October, 2012. In other words, there appears to be a ‘natural’
decline in rates which should force the banks to seek more profitable
opportunities in the real economy. It would be prudent to see what
effect declining fixed-income market rates have on bank appetite
for
real
sector
lending.
Furthermore,
notwithstanding
the
improvement in forex reserves, a reduction in policy rates could
serve to trigger a disorderly exit of Foreign Portfolio Investors – a
prospect which would unnecessarily put pressure on the exchange
rate.

A couple of threats to the inflation outlook should not be overlooked.
The fragility of global economic environment continues to be a
source of concern. Our hope is that ‘Fiscal Cliff 2013’ is resolved
without adversely affecting global financial markets. Attention needs
to be paid to uncertainty as to the dynamics and mid-term direction
of oil prices. The importance of oil price to our economy cannot be
overemphasized. Whilst political uncertainty and increased liquidity
made available by Quantitative Easing activity of key Central Banks
suggest that oil prices will hold firm in the short-term, it appears that
we may begin to see oil prices ease on the back of new finds and
deployment of new technology. The increase in the budget
benchmark price of crude oil sanctioned by the National Assembly,
from US$75 to US$79, is potentially higher than its nominal value of 5
per cent. Based on actual average production in 2011 and 2012 of

2.1 million barrels/day, the revenue assumptions in the revision
proposed by the National Assembly raises the effective budget
benchmark price of crude oil to US$95/barrel. In other words, a 27
percent increase. An effective price of US$95/barrel leaves little
room for adverse fluctuations.

Furthermore, domestic conditions seem set fair to provide a recovery
in spending in 2013. On the public sector side, with only the budget
for Osun State unannounced, proposed spending by sub-national
government for 2013 shows an uplift of approximately 15 per cent –
ranging between – 17 Per cent and 42 per cent. This is in addition to
the stimulus provided to household budgets by the absence of
further action on fuel price deregulation.

I would like to see a sustained trend of easing inflation numbers to be
convinced that monetary policy should ease.

8.0
UCHE, U. CHIBUIKE
Throughout 2012, MPC maintained a tight monetary policy stance
and retained MPR at 12 percent. This no doubt helped curtail
inflation in a very turbulent year that witnessed a substantial petrol
pump price increase and widespread flood disaster. Another
consequence of the tight monetary policy stance is the increased
inflow of foreign direct investments which is in part responsible for the
ongoing recovery of the capital market. While these no doubt are

seen as positive developments by beneficiary stakeholders in our
economy, the fundamentals of our oil rent economy remain weak.

Foreign direct investments that do not impact on the development
of the real sector simply represent hot money chasing after instant
returns. High MPR and tight monetary policy has made investments in
Nigerian bonds and stocks to be very attractive to foreign investors.
At least in the short run, such foreign investments have also assisted
in helping ease the pressure on the Naira exchange rate. While this
may be welcome at the present time especially given the price
stability mandate of the CBN, potential danger lies ahead. Huge
inflows of foreign investments that only target high return stocks and
bonds without impacting on real sector growth cannot be
sustainable. This is especially so given the fact that the current
stability we are witnessing has little to do with sound economic
fundamentals. The country is simply at the mercy of the vagaries of
international oil prices and foreign investments.

Any mishap, like a sudden decline in oil prices will trigger massive
capital outflows which would swiftly reverse all the so called gains of
monetary stability. Monetary stability is not an end in itself. It makes
sense only if it facilitates real sector development. Monetary policy
must therefore be proactive in the attempt to promote real sector
growth. At this stage therefore, I believe that the time has come for
us to begin to think seriously about how to use monetary policy to
assist the real sector and how to reduce the inherent risks associated

with the increasing inflow of hot money. The fact that past attempts
to reduce MPR have rarely translated to reduced interest rates and
increased credit to the real sector should never be seen as an
insurmountable obstacle. It is in my opinion the duty of the CBN to
ensure that the wide interest rate margins of commercial banks are
curtailed. This should not be difficult because available evidence
show that such wide interest rate variances have in some cases
been fuelled by the abuse of existing CBN interest charge rules by
commercial banks. The belief that banks in a rentier state where
information inefficiency thrives will through moral suasion behave is a
less predatory manner with respect to interest rate policies is
erroneous. The current data which shows that banks are gradually
returning to their mega profit declaration days sometimes with little
respect for existing CBN rules is clear evidence of this.

Ensuring the enforcement of existing interest rate rules and if
necessary using regulation to limit the interest rate spread of banks is
a necessary condition for the creation of an enabling environment
for the transmission of MPR changes to the all-important real sector. I
am aware of the argument that the problem of the real sector in
Nigeria is structural because it would be difficult to assist the sector
without clear improvements in macro security and infrastructure.
While this argument has some merit, it should not prevent us from
encouraging banks to grant credit to this important sector. This is
especially so given the fact that the current scenario which is
dependent on high oil prices and predatory foreign capital is not

sustainable. Developments, although in fits and starts, in macro
infrastructure should also be acknowledged. The view that we must
wait until all the structural issues impeding the real sector are
removed before we can promote credit to the sector must be
discountenanced.

It is in the light of the above that I have come to the conclusion that
it is now time for us to rethink the current tight monetary policy
stance. Given the ability of some of the stakeholders who benefit
from the status quo to sabotage monetary policy, I am of the view
that we should cautiously start this process with signaling a change in
direction by reducing MPR by only 25 basis points in the first instance.
I therefore vote as follows: (1) to reduce MPR by 25 basis points to
11.75 percent with interest rate corridor of +/- 200 basis points; (2) to
retain CRR at 12 percent; and (3) to retain Liquidity Ratio at 30
percent.

9.0
YAHAYA, SHEHU
I vote to maintain the Monetary Policy Rate at 12%.

The current global and Nigerian situation is similar in some respects to
the last meeting of the MPC in November 2012 in the sense that
there are some significant areas of uncertainty, coupled with
developments that point in different directions.

Despite an improvement in growth in the US economy in the last
quarter of 2012, there are still major uncertainties regarding the
resolution of the fiscal, budgetary and debt crisis. Some of the
threats to the Euro have abated somewhat, but growth in the
Eurozone countries is still flat or declining; austerity measures are still
biting. Also growth in the emerging economies in the last quarter is
lack-luster, despite some recovery in China.

In the Nigerian domestic economy, the projected GDP growth rate
in 2012 is lower at 6.61% than for the previous three years, although it
is projected in the last quarter of the year to be slightly higher than
7%, which is the highest quarterly rate in 2012. Overall, GDP growth is
still robust.

The first quarter of 2013 is expected to experience lower pressures on
price levels due to a number of factors: the base effect; declining
global prices and therefore lower imported inflation; low aggregate
credit to the economy mainly due to significant fiscal consolidation
by the fiscal authorities (federal government borrowing declined
further in November 2012, and by 12.4% on an annualized basis);
slow growth in money aggregates. The high levels of interest rate
also appear to have attracted some hot money into portfolio
investments. Additionally, exchange rates in the country have been
remarkably stable over the last year, with the Naira performing
better than other African currencies, so there does not appear to be
a substantial risk of exchange-rate induced pressures on price levels.

On the other hand, inflation in December 2012 is estimated at 12%.
The NBS estimates that food prices may experience some pressure in
Q1 of 2013 due to the delayed effects of the floods last year.

Along with growth uncertainties in the US and Europe, fairly weak
growth in the emerging economies, discoveries of oil in many African
countries and rapid increase in oil production in the US, there are
huge uncertainties surrounding the oil market which clearly cloud
the outlook for Nigeria. Although there has been a significant
improvement in managing the federal government expenditure,
there are some concerns about the possibility of spending spikes
following budget approval and due to some carry over spending
from the 2012 budget. If this happens, there might be a liquidity
surfeit and thereby pressure on price levels.

Overall, with the inflation rate at the current level of 12%, rising level
of core inflation and the need to see a clearer picture with respect
to government expenditure and Q1 price levels, it would not be
prudent at this time to signal the end of the tightening period, which
has helped to reduce pressure on prices. It does not appear right
now that an easing of the monetary stance can translate into
cheaper lending for the productive sectors, whereas the risk on price
levels is more potent.

For these reasons I vote to hold.

10.0 SANUSI LAMIDO SANUSI, CON, GOVERNOR OF THE CENTRAL BANK OF
NIGERIA AND CHAIRMAN, MONETARY POLICY COMMITTEE
I will be very brief in this personal statement as the issues are clear
and have not changed much since last MPC. Inflation remains in
the lower double-digit range, with expectations of a decline in
January largely on the back of base effects of fuel subsidy shock in
Q1:2012. GDP growth is slower than last year due to slow growth in
the Agricultural and Oil sectors, underscoring the need for structural
policies to be fast-tracked.

Although inflation outlook is stable, the increased projected
spending by state governments and raised oil price benchmark at
the Federal level may pose a risk in the medium-term. The global
economy remains fragile and the outlook is mixed, at the very best.

In the past year, we have achieved price stability, exchange rate
stability, banking system stability and a healthy reserves position. The
equities market is also on the mend and although it is still vulnerable
to unstable portfolio flows, the fundamentals suggest that we are
nowhere near a bubble at this point. Indeed, the only negative in
this picture is the high lending rates faced by borrowers. The CBN will
continue working with the banks to work out how to best address the
question of spreads.

At this point, policy is working so well, there is no need to change it. I
vote that we retain current stance and watch domestic and global
developments ahead of next MPC and review the position in March.