Central Bank of Nigeria Communiqué No. 91 of the Monetary Policy
Committee Meeting of Monday 23 and Tuesday 24 September, 2013
The Monetary Policy Committee met on September 23 and 24, 2013,
with all of the 12 members in attendance. The Committee reviewed
the economic conditions and challenges that confronted the
domestic economy up to September, particularly since the last MPC
meeting in July 2013. It re-assessed the short-to-medium term risks to
inflation, domestic output, external balance and financial system
stability.
International Economic Developments
The global economy continued on the slow path to recovery with
financial systems responding swiftly to new and expected risks. The
risks include the possibility of the US FED tapering off its
accommodative monetary policy stance (QE) and higher long-term
interest rates as the economy enters the recovery mode. This move
which has been temporarily postponed portends uncertainties in
external
conditions
for
emerging
markets
and
developing
economies, including Nigeria. Meanwhile, the underlying risk of a
recession in the Eurozone, weak domestic demand and slowing
growth in China have created tight financial conditions; which could
easily worsen and reduce global growth prospects by the time
monetary contraction begins in the U.S, Japan and the other
advanced economies. The conclusion of German elections (and
the re-election of Angela Merkel for a third term as Chancellor),
should however open the door to much speedier progress in key
reforms, especially around the common resolution mechanism for
European banks.
In the interim, the IMF has declared that global growth is
strengthening on the back of accommodative monetary policy. The
Fund has further emphasized that though an end to unconventional

monetary policy was certain, its impact would largely depend on
country specific circumstances and the pace of recovery recorded
by various economies.
The Organisation for Economic Cooperation and Development
(OECD) has noted that the momentum in the global economy was
shifting away from the emerging markets back to the advanced
economies. The pace of business activity increased in the Eurozone,
while an official index of leading economic indicators for the US also
strengthened in August. Consequently, the OECD growth forecasts
for most advanced economies in 2013 have been revised upward to
between 1.5 and 1.8 per cent. The positive outlook in the advanced
economies has compensated for the slowdown of growth in the
major emerging markets. However, the OECD warned that a
prolonged slowdown in major developing countries could have
profound effects on the world economy and translate into weaker
growth for the advanced economies. The IMF had projected global
growth at 3.1 per cent in 2013.
Domestic Economic and Financial Developments
Output
The National Bureau of Statistics (NBS) has reported a slowdown in
the growth rate of real Gross Domestic Product (GDP) in Q1 and Q2
2013 relative to Q4 2012. Growth was estimated at 6.18 per cent in
Q2, down from 6.56 per cent recorded in Q1, 2013. Overall, GDP
growth for fiscal 2013 was projected at 6.91 per cent up from 6.58
per cent in 2012. The non-oil sector remained the major driver of
growth at 7.36 per cent in Q2 (lower than the 7.89 per cent reported
for Q1) in contrast to the oil sector output decline of 1.15 per cent
(worse than the decline of 0.54 per cent in Q1). The drivers of the
non-oil sector growth remained Agriculture; Wholesale and Retail
trade; and Services which contributed 2.14, 1.48, and 3.0 per cent,

respectively.
The
Committee
expressed
concern
about
the
worsening performance of the oil sector, which is principally due to
the reported incidence of growing crude oil theft and significant
revenue leakages in the oil sector. The Committee, therefore, urged
the government to step up efforts aimed at curtailing the
malfeasance in the oil sector, and adopting best practice in
establishing
strong
controls,
independent
oversight
and
transparency in the official oil sector.
Prices
Inflationary pressures continued to moderate in response to the tight
stance of monetary policy. Headline inflation declined from 8.7 per
cent in July to 8.2 per cent in August. Food inflation declined to 9.7
per cent in August from 10.0 per cent in July while core inflation, rose
slightly to 7.2 per cent in August from 6.6 per cent in July. The
Committee noted with satisfaction that, overall, headline inflation
has remained below 10.0 per cent for eight (8) straight months and
represented the lowest level achieved over the past 5 years, the
longest such stretch since 2008; and that the six-month inflation
outlook indicates that inflation would remain within single digit
range. The Committee was nonetheless, conscious of the potential
risks on the horizon, including the possibility of pressures coming from
the fiscal activities of the government in the later part of the year,
and in the run up to the 2014 elections.
Monetary, Credit and Financial Market Developments
Broad money supply (M2) contracted by 5.58 per cent in August
2013 over the level at end-December 2012. When annualised, M2
contracted by 8.37 per cent, compared with the growth of 3.51 per
cent in the corresponding period of 2012. M2 growth rate was also
below the benchmark of 15.20 per cent for 2013. This is to be
expected, given the tight monetary policy stance.

Aggregate domestic credit (net) grew by 3.85 per cent in August
2013 which annualises to a growth rate of 5.78 per cent over the
end-December 2012 level, compared with the contraction of 3.56
per cent in the corresponding period of 2012. The annualised growth
rate in aggregate domestic credit (net) at end-August 2013 of 5.78
per cent was below the provisional benchmark of 22.98 per cent for
2013.
Reserve money (RM) rose by 30.64 per cent to N4,227.61 billion at
end-August 2013 from N3,236.15 billion by end-June. At that level RM
was N343.06 billion or 8.83 per cent above the 3rd quarter, 2013,
indicative benchmark of N3,884.55 billion.
Interest rates in all segments of the money market moved in tandem
with the tight level of liquidity in the banking system. The inter-bank
call and OBB rates, which opened at 10.69 and 10.22 per cent on
July 29, 2013, closed at 15.67 and 14.92 per cent, respectively, on
September 20, 2013. The average inter-bank call and OBB rates for
the period were 14.86 and 13.93 percent, respectively.
The recovery in the Nigerian capital market continued, as equities
market indicators all trended upward during the period under
review. The All-Share Index (ASI) increased by 28.9 per cent from
28,078.81 on December 31, 2012 to 36,188.72 on September 20, 2013.
Market Capitalization (MC) increased by 28.4 per cent from N8.97
trillion to N11.53 trillion over the same period. Improved earnings and
investor confidence in the economy contributed to the rise in stock
prices.
External Sector Developments
The naira exchange rate remained stable at the wDAS segment of
the foreign exchange market. The exchange rate at the wDAS-SPT
during the review period opened and closed at N157.32/US$

(including 1% commission). The average wDAS exchange rate during
the period was N157.31/US$. At the interbank segment, the naira
exchange rate opened at N160.75/US$ and closed at N161.47/US$,
representing a depreciation of N0.72/US$ or 0.45 per cent. The
average
interbank
exchange
rate
during
the
period
was
N160.78/US$. At the BDC segment, the selling rate opened at
N162.50/US$ and closed at N163.00/US$, representing a depreciation
of N0.50k/US$ or 0.31 per cent. The average BDC exchange rate for
the period was N162.14/US$. The stability of the exchange rate
reflected the commitment of the Bank to supporting the currency at
a time of massive depreciation in the currencies of emerging and
frontier countries. This commitment was underscored by the policy of
intervention to improve supply conditions, and the very tight
monetary conditions maintained since the last MPC meeting.
The Committee noted the decline in external reserves to US$45.27
billion as at September 19, 2013. External reserves, however, still
increased by US$4.08 billion or 9.91 per cent, year-on-year,
compared with US$41.19 billion at end-September 2012. However,
the Committee noted that this level of accretion is too low given the
relatively high price of crude oil and further underscores the need for
much-needed reform of the oil sector.
The Committee’s Considerations
The Committee noted with satisfaction the positive developments in
the economy, especially, the moderation in inflation, stability in the
financial system and currency markets. It also noted the strong
growth forecast by the National Bureau of Statistics for Q3 and Q4 on
the back of relatively slow growth in Q2. It observed that the actions
taken by the Bank since the last MPC yielded their intended effect
on stabilizing the exchange rate while maintaining inflation within its
target range. The Committee also noted that the fundamentals in

the economy which necessitated the July MPC measures had not
changed substantially; except that the US Federal Reserve had
provided clearer insight into the tapering off of its asset purchase
programme - Quantitative Easing3. The Committee noted that in
more than 30 countries surveyed, the Naira exchange rate remained
one of the most stable having depreciated by only 2.3 per cent from
year to date compared with the massive depreciation in the value
of other currencies such as the Indian Rupee, the Indonesian Rupiah,
the Brazilian Real, the South African Rand and the Ghanaian cedi.
The clarifications provided by the Fed over its QE3 policy brought
substantial relief to the financial markets globally and initiated a
reversal of the trend in capital outflows from the country. However,
the Committee noted the existence of strong foreign exchange
demand pressures coming domestically and which are not
necessarily linked to an increase in the import of goods. This nonimport related demand was attributed to the buildup in political
activities in the country and increasing resort to dollarization of the
economy by the political class. The Committee charged the Bank to
ensure the stability of the currency in the face of these challenges,
and to fast-track plans for adopting new regulations aimed at
combating money laundering in the BDC segment.
The Committee considered the developments in money market
rates which rose astronomically to peak at 40.0 per cent on 18th
September 2013. However, these developments were temporary,
arising from the postponement/stalemate in sharing the monthly
Federation Account Allocation Committee Revenues. Banks which
participated in the wDAS widow expressed a preference for paying
high interbank rate for one day rather than their borrowing from the
CBN at 14.0 per cent and being barred from the wDAS window.

In any case, the Committee noted the continued dependence of
the banking sector on monetised oil revenues for its liquidity and
stressed the need to keep pushing banks into altering their business
model to reduce vulnerability.
Decision
The Committee noted that the actions taken at the last MPC have
served the purpose of helping the naira avoid the fate of other
developing-country currencies by keeping it relatively stable. It also
noted the continued moderation in inflation and the benign outlook
for the next six months. Finally, with the FOMC decision not to begin
tapering asset purchases immediately, and the improved outlook for
financial stability in Europe after the German elections, the risks of
currency instability are significantly reduced. The monetary stance
maintained by the US Federal Reserve is positive for international oil
prices and portfolio flows.
In consideration of all the issues, the Committee decided by a vote
of 11 members to hold the MPR at 12.0 per cent. One member voted
to reduce the MPR by 50 basis points. 11 members voted to retain
the symmetric corridor of 200 basis points around the MPR while one
member voted for an asymmetric corridor of 200 basis points above
the MPR and 400 basis points below the MPR. All members voted to
retain the 50.0 per cent Cash Reserve Requirement (CRR) on public
sector funds, and 12.0 per cent CRR on private sector deposits.
Thank you.
Sanusi Lamido Sanusi, CON
Governor
Central Bank of Nigeria
24th September, 2013

PERSONAL STATEMENT BY THE MONETARY POLICY COMMITTEE MEMBERS:
1.0
ALADE, SARAH
Headline inflation decreased by 50 basis points to 8.2 percent in
August from 8.7 percent recorded in July, 2013. However core
inflation increased from 6.6 percent 7.2 percent, while food inflation
decreased form 10.0 percent to 9.7 percent during the same period,
following the commencement of harvest season. In addition, fiscal
expansion remains elevated while revenue has trended below
budget due to lower oil production. On the international scene,
there are some improvements although some risks remain. Although
the United States Federal Open Market Committee’s recent
announcement that monetary policy stimulus in the United States will
continue for now, there is need for the country to be prepared for
orderly exit whenever the anticipated unwinding of monetary policy
stimulus crystalizes. In view of these developments, I am inclined to
support a hold in Monetary Policy Rate (MPR) and no change in
Cash Reserve Requirement (CRR).
Headline inflation continues to trend down with core inflation
increasing to 7.2 percent in August. Headline inflation decreased to
8.2 percent in August from 8.7 recorded in July. The decrease is
driven mainly by a decrease in food inflation which fell from 10.00
percent to 9.7 percent as the harvest season commenced with
downward pressure on local food prices coupled with the effects of
past monetary policy tightening. Core inflation however increased
to 7.2 percent form 6.6 percent recorded in July, suggesting that
inflationary pressure might be coming from areas other than food. In
a normal situation, this downward trend in inflation would have been
a strong case for monetary policy easing at this time; however, there
are other compelling reasons to tread cautiously for the moment.

One of the main reasons is the fear of sudden portfolio flows reversal
which could crystalize on monetary easing and may have a
destabilizing effect on the economy if not managed in an orderly
manner. At this point, a tight monetary policy stance is needed to
attract or retain inflows. Therefore there is need to maintain a
delicate balance between stability and growth objectives.

Gross Domestic Product (GDP) is trending below forecast. The 2013
second quarter GDP grew by 6.18 percent as against 6.6 percent
recorded in the first quarter and below 6.39 percent recorded in
the corresponding period in 2012. The growth is driven by non-oil
sector which grew by 7.36 percent in the second quarter of 2013
compared to its contribution of 7.9 percent in the first quarter of
2013. The oil sector‟s contribution to GDP declined by -1.15 percent
in the second quarter as against -0.5 percent in the first quarter of
2013. The decline in oil sector is as a result of the combination of oil
theft and pipeline vandalism in the Niger Delta that have resulted
in the shutdown of some oil wells and reduced oil production.
While the decline in GDP growth presents a strong argument for
monetary policy easing to encourage private sector lending in
other to accelerate growth, there is need for caution because
monetary policy is not solely responsible growth. Structural reforms
in areas such as power supply and transportation need to be
intensified to encourage growth. Although National Bureau of
Statistics (NBS) projections suggest a GDP growth of 6.91 percent
for the year, the achievement of this goal will require sustained
structural reform.
Reduced oil production is bound to put pressure on fiscal
operations of the government and budget implementation. The
low oil production due to pipeline vandalism and oil theft is
affecting
government
revenue
and
resulting
in
increased

drawdown on savings. Draw down on Excess Crude Account to
augment revenue shortfalls has continued for the past three
months. If this trend persists, it will have an adverse effect on the
Nigeria economy in terms of decreased oil revenue and external
reserve build up. Government will resort to increased borrowing at
higher interest rate which will crowd out private sector, further
constraining growth. To alleviate these risks monetary policy should
do all it can to dampen the adverse effects on the economy.
The effect of the last Monetary Policy Committee (MPC) decision on
public sector deposit should be allowed to take full effect. Money
market rates and exchange rate has been stabilizing as speculative
demand is reduced following the last MPC decision. Deposit rates
have edged up and weighted average savings rate increased to
2.42 per cent in July 2013 from 2.04 cent in June 2013. Similarly, the
weighted average deposit rate also increased in August, leading to
a decline in the spread between the average maximum lending
rate and the weighted average deposit rate in August. The effect of
the policy decision should be allowed to take full effects as it will
encourage banks to pay higher rate on deposits and also increase
private sector lending.
Global economic environment is improving, but growth is still
teetering. The Euro zone economies were officially out of recession in
August, although growth was driven mostly by France and Germany
as unemployment in the 17-nation bloc is still high. Second quarter
GDP growth in the zone rose to 0.3 percent compared to the first
quarter, beating analysts‟ estimate of 0.2 percent. In the United
States, unemployment rate edged down to 7.3 percent in August
after adding 169 thousand jobs to the economy, although the
Federal Reserve Open Market Committee indicated that the pace
of the growth is still not at a comfortable level to start unwinding

monetary stimulus. Second quarter GDP growth in China decreased
to 7.5 percent against the projected 7.7 percent, and most
emerging market economies are experiencing increasing capital
outflows and currency depreciation, which could further jeopardize
growth if not properly managed. Under these uncertain conditions,
monetary policy at this time should be focused at minimizing the
downside risks and safeguarding the economy.

Against this background, I support a hold on Monetary Policy Rate
and Cash Reserve Requirement (CRR) of 12 percent on private
sector deposit and 50 percent on public sector deposit to ensure
macroeconomic stability.

2.0
BARAU, SULEIMAN
Introduction
I am very satisfied with the impact of the various policy measures
that we took at recent MPC meetings, indeed, including those
taken at the last MPC.
Specifically, inflation measures have stabilized at single digit for the
last 8 months. Headline Inflation (HI) declined from 12% in
December, 2012 to 8.20% in August 2013. Headline Inflation
declined from 8.7% in July to 8.20% in August, 2013 due to
moderation in Food, Housing, Clothing and Transport segments of
the measure. The Month on Month HI also moderated from 0.54% to
0.25% over the same period. Core Inflation (CI) measure, though
showing a marginal increase from 6.6% (July) to 7.2% (August),
remained subdued at single digit.

Exchange rate also remained largely stable. The exchange rate at
the Wholesale Dutch Auction System (WDAS) window was stable at
157.32/USD between July, 23 and up to September 19, 2013.
However, the Interbank and Bureau De Change (BDC) segments
came under substantial demand pressure with rates trending
between N159.75/163.88 and N162/164 per USD over the same
period respectively. The pressure on the Naira exchange rate in
these two segments appears to be driven by sentiments. Market
operators appear to have formed a view on the direction of
exchange
rates
in
view
of
recent
internal
and
external
developments. Externally, there was expectation of possible reversal
of foreign portfolio flows stemming from the decision of the US to
“taper” its asset purchase programme under QE3. In addition, the
recent significant depreciation of currencies in other emerging and
frontier economies made the market to form a view that the Naira
would depreciate. Locally, the substantial reduction in the country‟s
oil production and exports, leading to the lack of recent build-up of
foreign reserves inspite of high oil price in recent time helped to
exacerbate the demand pressure. This pressure was witnessed
inspite of the substantial reduction of systemic liquidity associated
with the increase in Cash Reserve Ratio (CRR) on public sector
deposits from 12% to 50%.
The level of foreign reserves remains remarkably stable. External
reserves increased by 3.18% from US$43.83 billion to US$45.27billion
as at end December, 2012 and September 19, 2013 respectively.
But the September 29th foreign reserves level is lower than US$47.99
billion as at July 21, 2013. The various liquidity tightening measures
adopted by the MPC is largely responsible for this stability.
Global developments also contributed significantly to the relative
stability that we witnessed since the last MPC. The recent decision
by the Federal Open Market Committee (FOMC) in the USA not to

“taper” its assets purchase program as against market expectation
was the most significant development for us. The consequent
reduction in yields on bonds, rally in oil price and continued liquidity
injection via assets purchases by the Federal Reserve, all combined
to make us to remain an attractive destination for portfolio inflows or
at least stemmed the expected outflows. The re-election of Angela
Merkel for a third term signals stability in EU financial markets.
Overall one can conclude that though global recovery remains
slow, the remarkable progress and stability witnessed in the USA,
Japan and China are all important signals that impacted positively
on monetary policy implementation in Nigeria.
Risks/Challenges/Pressure Points
The robust but declining GDP growth remains an important
challenge for Nigeria particularly in the context of huge growth
potentials. Q2 GDP growth estimate at 6.18% shows a decline when
compared to Q1 GDP growth of 6.56%. The decline was due to the
substantial decline in the oil sector contribution to the GDP growth,
following the recent unfavourable and unfortunate production and
export leakages. Recent historical trends have however shown that
Q3 GDP growth is higher than Q2 due largely to the effect of
harvest of agricultural products. This trend is consistent with the
debatable GDP growth forecast of the National Bureau of Statistics
(NBS) of 6.93% Q3 and 7.67% Q4. Apart from the fact that the Q2
GDP growth decline was due to the decline in the contribution of
the non-oil GDP, there is a limit to the role of MPC in stemming the
decline. In other words high interest rate is not responsible for the
recent decline in GDP growth. Therefore, I reiterate my position that
the impact of MPC‟s measures in stimulating growth via interest rate
reduction can only be felt if we witness the structural reforms
needed to stimulate real sector development.

Oil sector production leakages continue to be a major threat to
Government revenues and foreign reserves level. The marginal
increase in production in August (1.88mbpd) relative to July
(1.85mbpd) is notable but the sustained decline in production has
no doubt impacted negatively on Government revenues. If the
decline is sustained, then the Government is left with no alternative
than to recourse to augmentation from Excess Crude Account
(ECA) disbursements or it will have to burst its forecast deficit levels.
The negative impact of a declining foreign reserves level to
exchange rate management, Government revenues and inflation
going forward is obvious.
The recent increase in Cash Reserve Ratio (CRR) has produced the
desired result in the context of efforts to achieve price stability. The
substantial reduction in systemic liquidity has led to the reduction in
Bank‟s Liquidity Ratio (LR) from 68% (June 2013) to 49.3% (August
2013). The increase led to volatility in money market rates as Banks
began to adjust their assets position in order to meet the Minimum
LR. Inspite of volatility in money market rates, the spread between
Consolidated Deposit and Maximum Lending Rates declined from
19.22% in July, 2013 to 18.87% in August, 2013. The issue of high
lending rates is still a matter for concern. It is in this regard that the
Shared Services initiative of the Bankers‟ Committee that aims to
drive the industry cost of doing business is expected to hopefully
deliver the expected benefit.
Future global development remains a major area of risk to MPC
going forward. The continuation of Q3 and refusal to begin to
“taper” appears to be a favourable development for us at least in
the short run but it also remains a risk since it will happen sooner or
later. The uncertainty regarding when to “taper” is the issue. The
Federal Reserve Chairman stated that it may be as early as

October. It is worth noting however that the forward guidance,
which provided that “tapering” will largely be tied to the success in
achieving the desired level of unemployment (6.5%) in the US and
overall growth parameter (2.5% GDP growth) gives room for
anticipation. In this context, we are able to orchestrate the orderly
exit of foreign portfolio flows and avoid shocks to our foreign
reserves, exchange rate and the foreign exchange market.
Conclusion
It is in view of the foregoing developments, risks, outlook and the
need for stability that I voted as follows:
Retain Monetary Policy Rate at 12%;
Maintain the symmetric corridor of plus and minus 2% for SLF
and SDF respectively;
Maintain Cash Reserve Ratio at 12% and 50% for private and
public Deposits respectively; and
Maintain Net Open Position for foreign exchange at 1% of
Shareholder's Funds.

3.0
DANIEL-NWAOBIA, ANASTASIA
From the analysis done so far which indicates a slow but positive
economic outlook (good economic rating, stable price levels and
favourable external reserves), there is need to thread on the path of
caution and not be in a hurry to change the monetary policy.
I assume that Government current efforts at addressing leakages in
the oil sector, improve power and transport infrastructure as well as
diversifying the economy should begin to yield positive results in no

distant
future.
I
am,
however,
worried
about
the
high
unemployment rate.
Despite the fear of anticipated Government spending in view of the
impending elections, there is need to tarry a while till the next MPC
meeting during which some of these fears may begin to play out.
The inflation rate is still within single digit and this is likely to remain so
within this period if the monetary policy is maintained. The Bank
should look deeply into addressing the high lending rate with the
view to bringing it down.
In view of the above, I wish to go with the position that the current
monetary policy of the Bank be sustained. The current policy on
foreign exchange should also be sustained to consolidate the
relative stability achieved thus far. Furthermore, the 50% CRR on
public sector deposits should be sustained in order to forestall
speculative demand in the foreign exchange market as well as
reduce banks‟ reliance on such deposits.

4.0
GARBA, ABDUL-GANIYU
Foundation for Decision
Expectations Impact of July MPC Decisions
At the last MPC, I voted (i) to raise the CRR on public deposit to 50%;
(ii) to maintain CRR on private deposit at 12% and MPR and (iii) for
an asymmetric corridor of -4 (Standard Deposit Facility) and +2
(Standard Lending Facility) around the MPR.
I voted for a 50% CRR on government deposit as a necessary first
step in the “process of correcting market and state failures in a
concrete and effective way.” I expected that a 50% CRR will (i)
eliminate the highly profitable repeated game of lending to

government its deposit; (ii) compel banks to adapt to new realities,
change their business models and become more efficient; (iii)
incentivize banks to seek for deposits from the private sector and, to
lend to the private sector, (iv) encourage the Federal government
to proceed quickly to the Treasury Single Account (TSA), all
governments to better manage public resources, cut down wastes
and unnecessary costs and (v) reduce the levels and costs of
government borrowing, the crowding-out effects of public sector
borrowing and, the cost of implementing monetary policy. In
addition, I expected (i) some portfolio adjustments in the structure of
DMBs‟ assets and liabilities, (ii) short lived rise in the operating targets
of the monetary policy transmission mechanism (OBB and Call rate)
and (iii) decline in liquidity ratios from the very high levels that
prevailed in the last one year.
In voting for an asymmetric corridor of -4 and +2, I expected that
reducing the SDF rate by 200 basis points to 8% will discourage DMBs
from using SDF window in favour of lending in the interbank market.
This in my view will diminish the potential crowding-out effects of the
SDF on the interbank market and to make the interbank market
more efficient. In addition, I expected that a more efficient
interbank market will moderate the effects of a 50% CRR on
government deposit.
At the September MPC, my primary concern was to (i) assess the
impacts of the 50% CRR on public deposits using a set of
complementary
analytical
tools/frameworks
(multi-market,
macroeconomic and trend) and (ii) analyze the implication of
global and domestic economic outlooks for the stability and growth
of the Nigerian economy in the next two quarters and beyond.

Preliminary Assessment
Available data indicates that the 50% CRR on government deposit is
having desired effects. First, the data shows significant changes in
the ownership and instrument structure of the deposits of DMBs in
favour of growth in government deposit and a more efficient use of
financial instruments by the government. For instance, between
June and August, Federal Government Naira deposit with DMBs rose
by almost N1.5 Trillion. By corollary, private deposits declined by
N1.077 trillion. As a result, total public sector Naira deposit rose to
N3.73 Trillion in August 2013 from N2.384 Trillion in June 2013 while
private sector Naira deposits fell to N8.7 Trillion from N9.78 Trillion in
the same period. In addition, a significant part of the increase in
Federal government Naira deposit (81%) was held in Time Deposit in
August 2013. These changes are positive signs that the 50% CRR on
government deposit is a game changer for the government
deposit. Also, that the efficiency of both money markets and public
finance are likely to improve. Second, though, there was an
increase in the average Open Buy Back (OBB) and interbank rates,
the rates trended downwards between August 20 and September
3, 2013. The positive trend after September 5, 2013 is linked to a
combination of factors including the usual FAAC effect. The short
term interest rates (intermediate targets) were on average flat: the
Maximum Lending Rate (MLR) declined on average by 16 basis
points and the Prime Lending Rate (PLR) rose by just 8 basis points.
Third, the exchange rate was relatively stable even as the
currencies of most emerging markets lost value against the US$. In
addition, the inflation maintained the downward trend, and
government borrowing, OMO, Treasury Bills Rate and OMO costs,
Liquidity ratio all trended downwards.
Though it is too early to draw firm conclusions about the effects of
the policy on the efficiency of the market and government, the

early signs are positive. The main area of concern for me is the
adjustment from Time Deposit to Foreign Currency Deposit which
rose by about N375.4 billion or about $2.4 billion. The seeming rising
preference for foreign currency suggests that greater attention
should be paid to the demand for foreign currency in the
management of the foreign exchange to eliminate the influence of
rent seekers on the efficiency of the foreign exchange market.
Domestic and Global Outlook
Staff estimates project a stable outlook for inflation while the
National Bureau of Statistics (NBS) third and fourth quarter GDP
growth estimates are strong. The key concerns are (i) fiscal risks
linked to the size and trend of the fiscal deficit and oil revenue
leakages; (ii) the seeming growth in speculative demand in the
forex market, (iii) the potentially destabilizing effects of portfolio
flows, (iv) the rising unemployment rates, (v) the lower than
expected growth in the second quarter and (vi) the inefficiencies in
the structure of loans and advances of DMBs that discriminates
against the real sectors that contributes the most to GDP growth
and job creation.
The main global tail risks are the risks associated with the
uncertainties linked to the tapering of QE3 by the US FED. The
postponement of tapering by the US FED against all expectations
and, the tying of tapering to US economic data indicates that while
tapering is inevitable, tapering will raise global economic
uncertainties for the next few months at least. It is important
therefore, to act cautiously and to prepare for the inevitable. I
expect that the looming US fiscal crisis would as usual be resolved at
the eleventh or twelfth hour. The worry is that such avoidable and
politically motivated crisis diminishes the credibility of the US
macroeconomic management and raises the risk of downgrade of

its sovereign debt. Such a downgrade will have significant effects
on global financial flows. It is important therefore, that we maintain
and promote the efficiency of our financial markets and public
finance management to ensure that Nigeria is ready to deal with
the global tail risks whenever they crystallize.
Decision and Justification
I vote:
a) to keep CRR on government (Federal, State and Local)
Deposits with Deposit Money Banks at 50%;
b) to keep CRR on Private Deposits with DMBs at 12%; and
c) for an asymmetric corridor of -4% (SDF) and 2% (SLF) around
the MPR of 12%.
My decision to maintain the 50% CRR on government deposits is to
deepen and widen the positive impacts of the effects of the 50%
CRR on government deposit adopted at the July 2013 MPC. It is
obvious given (i) the positive signs and (ii) policy implementation
and policy impact lags, that the positive impacts will be stronger in
the next two months and beyond. In addition, as I emphasized in my
last personal statement, there is ample room for encouraging DMBs
and the government to be more efficient by changing the games in
favour of efficient strategies, choices and actions.
I maintain my vote for the asymmetric corridor to limit the
distortionary effects of high SDF rates on OBB and interbank rates. As
expected, in the immediate aftermath of the July MPC, DMBs usage
of the SDF facility was at record levels. Had these funds been
available at the interbank market, rates would have been more
moderate and the market would be more efficient. It is important
that the three key segments of the money market (interbank,

wholesale and retail) are efficient if the allocation of financial
resources is to be efficient.
I vote to maintain the MPR at 12% for strategic reasons. First, I expect
that by improving the efficiency of the money market and public
finance, the conditions for sustainable easing (tapering of
tightening) will be created. It will be counter-productive to ease
and not sustain it. Second, the data on DMBs loans and advances
indicates that access is a key problem for many real sector
operators. The DMBs continue to reveal a preference for lending to
the top five sectors with highest share of the non-performing loans
acquired by AMCON: capital market, oil and gas, general
commerce, construction and Transportation. There is lately, a rise in
exposure to the power industry. If it bears good fruit in terms of
greater efficiency in power supply, the effects on real activities will
be significantly positive. The key is to change the credit allocation
game in favour of the real sector borrowers as we have done for
deposits of DMBs. This will require a mix of creative strategies that (i)
incentivizes the market to prefer real sector borrowers and (ii) bypasses the market and provides credit directly to viable real sector
borrowers. As we carefully and creatively think through the global
and national policy environment and, critically evaluate the
development financing programmes of the CBN, it would be
possible to package together a creative package of policies and
programmes that will change the game of credit allocation in
Nigeria in favour of sustainable growth and employment.

5.0
LEMO, TUNDE
Macroeconomic condition has been quite stable. Inflationary
pressure has largely been curtailed with the headline measure
being in single digit since January 2013 while the outlook for the last

quarter also appears benign. The recent decision by the Federal
Reserve to suspend the termination of the third quantitative easing
pending further improvement in the US economy has helped to
calm market sentiments against developing and emerging
economies thereby stemming the tide of capital outflows. It is
equally noteworthy that the upward adjustment in the public sector
CRR has propelled an increase in the rates offered on term-deposits
by the deposit money banks without a corresponding increase on
the maximum lending rate. This development has helped in
narrowing the spread between the deposit and lending rates
thereby improving the efficiency of intermediation.
The major issue, however, is the slowdown in real output as
estimates of growth for the first half was 6.18 per cent, the lowest in
the last four years. The main reasons for the slowdown are reduction
in crude oil export, structural factors as well as security challenges in
some parts of the country. Given the benign inflation condition
therefore, it could be considered expedient to relax some of the
subsisting tightening measures of monetary policy or at least signal
an expansionary stance.
In taking decision however, it may be necessary to examine the risks
posed to the sustainability of the prevailing relatively stable
macroeconomic conditions. A major risk is from the rising fiscal
deficit due largely to shortfall in revenue. Indeed, it could be
reasonably safe at this period to affirm that the revenue projection
in the 2013 budget would be unrealized. Actual oil revenue has
consistently underperformed against target since the month of
March due mainly to production shortages. The average production
per day was 1.96 million in the first eight months against the budget
benchmark of 2.53 million, suggesting that production would have
to be jerked up to about 3.67 million barrel per day in the remaining
four months (September-December) to achieve the revenue target

in the budget. Apart from the fact that our export quota may not
permit this level of daily production, it is also unrealistic given the
binding capacity constraint.
Despite the significant fall in revenue, expenditure was just 18.1 per
cent below the proportionate level by the end of the first half of the
year even in the face of low level of implementation on capital
budget. Since more capital releases may be expected in the last
quarter of the year, the level of fiscal deficit could likely increase
above the planned level with implication for exchange rate and
inflation.
Furthermore, although the tide of capital reversal has moderated
following the recent decision of the Federal Reserve, there still exists
considerable pressure in the foreign exchange market. The pressure
was not quite glaring at the WDAS segment of the market, given the
stable rates in that market in the last two months, but this was
achieved at the expense of the external reserve, which declined by
about US$2 billion during the period. The pressure, however, was
very visible at the interbank segment of the market as evidenced by
considerable degree of volatility in rates during the period,
reflecting decline in the autonomous inflow of foreign capital.
In the light of the aforementioned risks, the various monetary
measures put in place in the last meeting should be retained.
Specifically, the MPR should be retained at 12 per cent, the general
CRR at 12 per cent, and the public sector CRR at 50 per cent.

6.0
MOGHALU, KINGSLEY CHIEDU
The Monetary Policy Committee is not under much pressure to take
a strong position either to tighten or loosen monetary aggregates at
this time. The global environment appears benign in the wake of

the United States Federal Reserve Bank‟s recent decision to
continue its asset purchase (quantitative easing) policy and thus
defer the beginning of “tapering” those purchases as a signal of an
imminent discontinuation of loose monetary policy.
On the domestic front, the inflation outlook also remains benign,
with headline and food inflation trending downward to 8.20 per
cent in August 2013 from 8.70 in July 2013 and 9.7 per cent from 10.0
per cent respectively for the same period, although core inflation
increased to 7.2 per cent from 6.6 per cent over the same period.
Overall, inflation is projected to remain in the single digits in the near
to medium term. This is indicative of the impact of tight monetary
policy over a period of nearly two years now. Projections for output
growth remain healthy at 6.9 per cent for fiscal year 2013, although
the growth rate of 6.18 per cent for the second quarter of 2013 was
lower than the 6.56 per cent in the first quarter.
Thus, while the option of tightening is not feasible against the
foregoing background, the MPC has reasons either to loosen policy
or hold steady. My initial position was to vote to lower the MPR at
this time on the strength of the argument that (a) inflation is on a
downward trend; (b) QE tapering has been postponed; (c) the
slowdown in GDP growth means that monetary easing may be an
incentive to growth, in particular in the non-oil sector that has
generated the filip for the much growth that has been recorded in
recent months; (d) the 2014-2016 Medium Term Expenditure
Framework (MTEF) of the Federal Government of Nigeria indicates a
slight shift to reduced fiscal dominance, with a proposed reduction
in the 2014 of N492 billion from the N4.987 trillion appropriated by
the National Assembly in the 2013 budget; and (e) declining
revenues accruing to the Federal Government combined with the
steps already taken by the MPC to tackle the liquidity surfeit in the

banking and monetary system mean that an excess of liquidity may
not be a credible threat in the near future.
All of this is well and good, and would argue, on the face of it, for
easing monetary aggregates. However, these points are
counterbalanced by others, mainly: (a) the decision of the U.S.
Federal Reserve on tapering is only a postponement of the
inevitable end of QE at some future date, which is anticipated to
have a negative impact on the Nigerian monetary landscape as it
will trigger some capital outflows from emerging markets; (b) the
two months between the last meeting of the MPC and this one is
too short a time to assess the full impact of the far-reaching decision
of the MPC at its last meeting to impose a drastic 50 per cent cash
reserve ratio (CRR) on public sector deposits on deposit money
banks (DMBs), thus easing at this point may be premature; and (c)
easing monetary policy at this time would remove the incentive,
(created by the 50 per cent CRR on public sector deposits) for
banks to diversify their deposit base by increasing deposit rates
offered to savers and so perpetuate the gap between high lending
and low deposit rates. Moreover, concerns remain about the
potential impact of election-related spending in the run-up to 2015,
as well as the pressure induced on dollar currency supplies by nonimport demand for the dollar.
For the foregoing reasons, on balance, I am persuaded to vote to
maintain the status quo on monetary aggregates at this time. I
would like to signal, however, that, should present trends continue in
the inflation outlook as a result of the success of monetary policy, in
the international landscape and oil prices, the time will have come
to seriously consider a slight loosening of monetary policy as a signal
nod to real fiscal consolidation and slackening growth rates should
these factors become pronounced.

I therefore vote:
Maintain the Monetary Policy Rate at 12 per cent, with a
symmetric corridor of plus or minus 2 per cent.
Maintain the Cash Reserve Ratio at 12 per cent for private
sector deposits in DMBs, and at 50 per cent for public sector
deposits.

7.0
ORONSAYE, STEPHEN OSAGIEDE
Although the figures released by the National Bureau of Statistics
(NBS) indicate that there was a slowdown in the country‟s Gross
Domestic Product (GDP) in the first and second quarters of 2013
compared to the last quarter of the previous year, the overall
national economic outlook since the last Monetary Policy
Committee (MPC) meeting of July 2013 has remained largely
positive.
Specifically, headline inflation was lowered from 8.7 per cent in July
to 8.2 per cent in August and food inflation declined from 10.0 per
cent in July to 9.7 per cent in August. However, core inflation, rose
from 6.6 per cent in July to 7.2 per cent in August.
That headline inflation has remained below 10.0 per cent for eight
consecutive weeks suggests that the MPC‟s decision are striking the
right economic chords that will linger on for a while only if we
exercise fiscal caution.
While the decision at the last MPC meeting to introduce a 50% Cash
Reserve Requirement (CRR) on deposits from the Public Sector was
a positive one, it was observed that the implementation did not
commence immediately because of the maintenance period. I am
of the view that a period of less than two (2) months is not long

enough to ascertain the full impact of the decisions. That being the
case, the better economic choice to make is to wait and further
observe the economic climate before we amend any of the
parameters put in place.
One of the mandates of the Bank as encapsulated in Section 12 (1)-
(5) of the CBN Act, 2007 (Amended) is to maintain Nigeria‟s external
reserves to safeguard the international value of the legal currency.
With the current demand pressure on the Naira (N), there is need for
better coordination between monetary and fiscal policies. We will
therefore need to be more strategic in our approach and be clear
in our communication to currency speculators that the CBN will
continue to defend the value of the Naira. This is particularly
important because we need to support planning for the real sector.
I am concerned about the level of oil theft in the country and do
think that Government‟s efforts need to be redoubled at plugging
identified leakages in order to keep our revenues high.
Confronted yet again with the question: Why do we need to reduce
the rate at a time when inflationary pressures still loom over the
economy? The arguments I canvassed for holding the MPR at 12% in
July remain unchanged. I still hold the view that retaining the MPR at
12% will help control inflation and ensure price stability.
Votes
Based on the foregoing, I voted for the following:
a) Retaining the MPR at 12%;
b) Retaining the symmetric corridor of 200 basis point around the
MPR;
c) Retaining the Cash Reserve Requirement (CRR) at 12% for
deposits from the private sector; and

d) Retaining the 50% Cash Reserve Requirement (CRR) on
deposits from the Public Sector.

8.0
OSHILAJA, JOHN
The 234th meeting of the Monetary Policy Committee concluded
with the majority of members voting (my vote included) to maintain
the present policy stance, with all underlying operating instruments
unchanged.
Inflation appears to be well-established in single-digit territory and,
despite episodic bouts of weakness; fundamentals underpinning
interbank exchange rates suggest that a return to confines of the
CBN‟s tolerance band is feasible. Why? Because notwithstanding
institutional casualties and costs, the decision taken (in the MPC‟s
233rd
meeting)
to
establish
sector-differentiated
reserve
requirements for bank deposits should be broadly constructive in
reducing exchange rate volatility and restraining formal demands
for FX. Banking sector liquidity has been reduced by a little over a
quarter (27%), with scope for further substantial reductions – if
necessary. Hence, with prevailing monetary conditions promoting
our price and financial stability objectives, I believe further
adjustments to Policy to be largely unwarranted at this time.
Money Market interest rates have also been more volatile than
usual since the introduction of a 50% reserve requirement for Public
Sector deposits. This is the other reason I voted to hold Policy rates
and instruments at current levels. Increased interbank rate volatility
suggests that balance sheets are being stressed as net borrowing
banks adjust to tighter funding conditions for unmarketable assets.
Nigerian banks operate in a bifurcated market for liquidity.
Surpluses at one end of the banking system, where deposit bases

are large and better diversified, do not readily flow to meet liquidity
deficits arising at the opposite end, where deposit bases are smaller
and more concentrated by clientele. Banks on this lower end of the
liquidity scale are going to need a longer adjustment period than
larger counterparts. Rather than lend to weaker funded banks,
larger Nigerian banks prefer to lodge their surplus liquidities with the
Central Bank, attracted by CBN‟s Standing Deposit Facility rate of
10%. Hence, my vote to hold also represents a vote in the interests
of banking sector stability.

9.0
SALAMI, ADEDOYIN
Despite the continuing trend of low increase in prices, confirmed by
the Inflation Report for August published by the National Bureau of
Statistics (NBS), preparation for this meeting of the MPC had been
clouded by a number of other developments which warrant
concern for our economy. I had expected a difficult meeting as the
Naira had, for long periods since our meeting in July, traded outside
its upper band of NGN160/US$. I had been anticipating that the
pressure on the Naira would be worsened by an announcement of
commencement
of
„tapering‟
its
Quantitative
Easing
(QE)
programme by the US Federal Reserve Bank. My sense of
foreboding was worsened by data from the National Bureau of
Statistics (NBS), released in the run‐ up to this meeting, which
showed slowing growth on the production side of the domestic
economy. To this mix was added the spike in money market rates
and the unfolding drama around Consolidated Discount House. All
of a sudden the continuing downward trend in inflation was almost
irrelevant.
Reaching a decision to vote for retention of the status quo is based
on my prioritization of maintaining currency stability ahead of any

considerations
of
slowing
growth
and
the
likely
adverse
consequences for unemployment. As a colleague on the MPC
noted “.........while (currency) stability is not everything, without
stability, there is nothing”. Furthermore, the obligations for price and
currency stability imposed on monetary policy making by relevant
legislation – namely the Central Bank of Nigeria Act 2007 – provides
a basis for the priority I have accorded currency stability.
Although oil prices have remained stable as security concerns over
the Middle East appear to outweigh the continuing fragility in global
economic activity in price determination, US monetary policy
decisions remain a source of concern. The initial relief which
announcement of deferred commencement of „tapering‟ its
Quantitative Easing (QE) programme by the Federal Reserve has
been quickly tempered by the caveat that, depending on
circumstances in the USA, tapering could start as early as October.
In other words, the downside risks to the Naira remain live! For quite
a while now, I have drawn attention to the significant increases in
the size of Domiciliary Account holdings by deposit holders in
Nigeria. In the past year, he share of domiciliary account holdings in
total deposits have risen from 16.2percent in June 2012 to
21.3percent in August 2013. The sharpest increase being recorded
between June 2013, when domiciliary accounts amounted to
19.7percent,
and
August

when
they
accounted
for
21.3percent.
There are a number of competing explanations for the rising taste of
deposit holders for holding foreign currency deposits. These include:
commencement of campaigns ahead of the 2015 general
elections; money laundering; corruption; and expectations based
on the Naira‟s relatively strong performance in comparison with
currencies of nations with better fundamentals. Irrespective of the
reason for the sharp adverse (at least from the perspective of

monetary policy management) change, it is clear that a
continuation of this trend will create significant difficulties for
continuing to keep inflationary pressures within manageable limits.
In other words, the Bank Staff inflation forecast of 7.8percent at year
end will be adversely threatened.
Notwithstanding my earlier comments on the limited attention I paid
to output growth performance data for Q2 2013, published shortly
before the meeting, in my decision, my analysis of the data has me
pondering possible explanations for the slower growth in the
distribution sector. At 7.3percent relative to Q2 2012, growth in the
distribution sector was 14percent slower in Q2 2013. Does this
slowdown in distribution activity represent the impact of military
action in the North‐ East on GDP? Might it simply represent the
impact of upward concentration of income resulting from rising
unemployment? Similarly, does the slower growth in the telecoms
sector also represent jurisdictional challenges or is it a manifestation
of the extent to which the consumer is constrained.
Concerns about slower activity growth are heightened by rising
incidence of non‐ performing loans (NPLs). Between June and
August 2013 the banking industry recorded a 40 percent increase in
the proportion of loans classified as non‐ performing. NPLs rose from
3.65percent to 5.18percent of banking industry loan book. Whilst a
comparison of rising NPLs and with events at Consolidated Discount
House is misplaced, the incidence of NPLs do suggest the need for
closer review by operators and regulator of existing credit
frameworks.
Important as the issues around growth and the quality of bank
credits are, my sense is that the question of how long the Central
Bank can hold the line on the external value of the Naira, which
circumstances prevailing at this meeting have enabled us avoid, will

doubtless be the focus of much attention for quite a while
going‐ forward. Whilst I am, at this time, comfortable with the
Central Bank‟s posture and its measures in managing the exchange
rate, it is clear to me that unless our circumstances improve quickly,
we may have some very difficult choices to make.

10.0 UCHE, U. CHIBUIKE
The very essence of monetary policy is to encourage economic
growth and development. The price stability mandate of the CBN
therefore cannot be seen as an end in itself. Rather it should be
seen as a means to promote economic growth and development.
In the light of the above background, an important concern for me
is to determine whether the current monetary policy stance of the
CBN has the capacity to aid economic growth and development in
Nigeria.
Available statistics show that our economic growth rate is on a
downward trend. Both the real GDP growth rate and non-oil GDP
growth rate are on the decline. Not surprisingly, our reserves are also
beginning to inch downwards. More worrying however is the huge
increase in the official unemployment figures. It is difficult to see how
the current tight monetary policy stance can help to ameliorate the
important indices stated above.
This of course does not mean that the current tight monetary policy
stance of the CBN has not had positive consequences for the
economy. One such consequence has been the attainment of a
single digit inflation rate for some time now. The fact that headline
inflation and food inflation are on the decline provides us with a
clear window to use monetary policy to encourage economic
development.

Attributing the relative exchange rate stability in our economy to
our tight monetary policy stance alone is however contentious.
There is evidence to suggest that such stability has substantially
been caused by the capital account liberalisation policy of the
government and the enormous opportunities foreign capital have
to engage in speculative activities in our economy. While this is
currently an important ingredient in our current exchange rate
stability status, it is in my view, unsustainable. The world is replete
with examples of the uncontrollable risks and damage capital
account liberalisation has done to economies. In my humble view
therefore foreign currency inflows into our economy makes no sense
except it is employed in the real sector. I therefore strongly believe
that the time has come for us to begin to think of clever ways of
discouraging the inflow of speculative capital into our economy. A
proactive monetary policy should therefore device tactical and
gradual ways of discouraging the inflow of speculative capital into
our economy.
A proactive monetary policy must also promote policies that will
encourage the diversification of our mono product economy. The
need to diversify our economy is now even more urgent especially
given the fact that statistics show that the income from our crude oil
sales is increasingly under threat from falling oil prices and persistent
oil theft. The increasing global sources of oil, investments in non-oil
sources of energy and the very concept of a rentier state makes it
unlikely that these pressures will abet in the near future. The current
tight monetary policy stance cannot in anyway help advance the
above cause.
A high MPR, for instance, naturally leads to increased cost of
lending. This is unhelpful to the development and growth of the real
sector which in turn impacts on the health of our banking system. It
is therefore not surprising that available statistics now point to the

fact that the risk profile of our banks is gradually beginning to
increase. This, I am convinced, is because of the current tight
monetary policy stance. After all, it is fairly well established that the
health of the real sector and that of the banking system are
correlated. Policies that inhibit the growth of the real sector are
bound to inhibit the growth of the banking sector.
At another level, I believe that we as a central bank can do more,
at least administratively, to encourage bank lending to the real
sector. I have for instance consistently raised concerns about the
high interest rate margins that are obtainable in this country. It is also
public knowledge that banks sometimes cross the line by engaging
in schemes that deliberately overcharge customers. While we have
done some valuable work in this area, there is still some room for
improvement.
I am aware that there are genuine concerns that government fiscal
dominance and its rising deficits complicate monetary policy
especially with respect to the attainment of price stability. The view
that government fiscal indiscipline will further increase especially as
we approach the 2015 elections is however in my view sometimes
over exaggerated. In arriving at this position, I am particularly
emboldened by the growing dispute between the three tiers of
government and between the executive and the legislature on all
aspects of revenue sharing and budget performance. This, I am
convinced,
will
increasingly
help
curtail
fiscal
recklessness.
Interestingly, we at the CBN have a key role to play in this direction
as adviser to the federal government.
After weighing the above arguments, I have come to the careful
conclusion that at the present time a real sector development
approach to monetary policy would yield better results than an
approach which focuses on price stability as an end in itself. I

therefore believe that the time has come for us to cautiously signal
an end to our current tight monetary policy stance. This will work
only if we simultaneously encourage banks to reduce their interest
rate spread and adopt policies that will curtail the damaging
effects of speculative foreign capital.
Based on the above factors, I hereby vote as follows: (1) to reduce
MPR by 50 basis points to 11.50 percent with interest rate corridor of
+ 200/- 200 basis points; (2) to retain CRR on government and other
deposits at 50 percent and 12 percent respectively; and (3) to
retain Liquidity Ratio at 30 percent.

11.0 YAHAYA, SHEHU
I vote to retain the MPR at its current level of 12%, along with the
symmetric corridor of 2%, the general CRR at 12% and the 50% CRR
on public sector deposits. My position is predicated on levels and
trends in GDP, price levels, exchange rate, fiscal stance as well as
on the global economic/financial dynamics and its potential
impact on domestic macro and meso-economic variables.
The global economy is still recovering, with US growth recovery
slower than previously expected; the Euro area very slowly trying to
build up from recession and an unemployment rate in excess of
12%; and anaemic growth in emerging markets. Global inflation,
estimated at around 3.3% in 2013 is on a downward trend. Global
food production is projected to slightly increase and prices are
expected to fall. International crude oil prices are fairly stable and
are expected to remain so for some time. Growth in Sub-Saharan
Africa remains robust and, while it will become increasingly
important; it is currently a limited source of demand for Nigerian

exports. Imported inflation and significant declines in oil demand
have therefore receded as threats in the short term.
One of the main uncertainties in the global economy is what
decision the Open Market Operations Committee in the US will take
with respect to quantitative easing in the near future, which might
impact on portfolio flows and currency exchange rates in emerging
and frontier markets.
With respect to the domestic economy, GDP growth rates have
been fairly stable with a slight downturn, with a tentative and
conditional projection of 6.19% for 2013. Growth is mainly driven by
the non-oil sector. The downturn in GDP growth is partially
attributable to the security situation but much more to the decline in
oil revenue, which has been at its lowest level for three years.
Rejuvenating growth and sustaining it will depend, among other
things, on the fructification of efforts to increase oil revenue partially
through blocking leakages; progress in strengthening energy
infrastructure; agricultural transformation; continuous attention to
revamping
education/health
infrastructure,
promoting
more
equitable access to opportunities at the inter-personal, intergenerational and spatial levels; generating more jobs and
continuing political stability
Headline inflation is still trending downwards and is estimated at
8.2% year-on-year in August 2013. This is the lowest level achieved
since at least 2010. It is also expected that price levels will remain
stable for the next six months at the least.
In the foreign exchange market, the spike in the inter-bank and BDC
rates has abated and, while external reserves have experienced a
small decline to $45.27 billion, there is still substantial ammunition to
defend the value of the currency. Given the expected stability in
the international oil market and the maintenance of quantitative

easing in the US in the short term, there appear to be good
prospects for a healthy external reserve situation if the downward
trend in oil revenues can be reversed.
One important area of concern is the persisting high level of interest
rates as well as the large spread between lending and average
deposit rates. This continues to exert a limiting effect on credit
demand, financial deepening and growth. It also affects prices of
goods and services. There is an abiding need to creatively address
these challenges
On the fiscal side, achievement in revenue target is 78% while
expenditure is at 80% of the budgeted amount for the January-July
2013 period. Although revenue targets have not been achieved,
largely due to declines in oil revenue in April-March, it is clear that
the fiscal authorities have been making substantial efforts to
correspondingly
lower
expenditure.
Nevertheless,
capital
expenditure will be disproportionately affected, with implications for
future growth. It is also pertinent to note that credit to government
has declined substantially in August 2013. The major concern
remains the prospect of a slow recovery in oil earnings and
increases in expenditure due to political pressures.
We conclude by arguing that there are good prospects for
maintaining stable price levels in the near future, with manageable
risks from imported inflation as well as reserve levels that can help to
protect the value of the currency. Sustained growth will depend
more on political-economic rather than monetary factors, even if
the latter can make a useful contribution. There are potential threats
to price stability from declining oil revenues, possible tapering off in
quantitative easing in the US via the exchange rate effect, or
expenditure spikes due to political expediencies. The 50% CRR on
public sector deposits decided at the MPC meeting of July 2013

appear to be having the intended effect on banking sector
liquidity, but the full effects are still unfolding.
In consideration of the above therefore, I vote to retain the MPR
and its corridor, the general and the public sector CRR at their
current levels.
Thank you.

12.0 SANUSI
LAMIDO
SANUSI,
GOVERNOR
AND
CHAIRMAN,
MONETARY POLICY COMMITTEE
We met today on the back of two external developments that were
significant enough to influence our decision, but that in my view
have made it simple and straight forward. The decision by the US
Federal Open Market Committee (FOMC) to postpone the tapering
off in its asset purchases was received well by financial markets,
even though the operators were surprised as they had priced the
tapering into their decisions. Be that as it may, QE3 remains good for
the carry trade, and therefore has the potential for providing support
to the price of oil and other commodities, as well as encouraging a
return of portfolio flows to Emerging and Frontier markets. Both of
these results are positive for our mandates of maintaining currency
(and price) stability while minimizing attrition in external reserves.

The second development was the conclusion of the German
election and the re-election of Angela Merkel for a third term as
chancellor. It has long been believed that difficult decisions around
setting up common European banking supervision and resolution
structures have been delayed by considerations of German Politics,
and this victory increases the likelihood of progress in this area.

Domestically, inflation has remained within our target range
throughout 2013, falling to 8.2% in August, and we expect this trend
to continue well into 2014. After a difficult period in currency markets
the Naira held firm losing only 2-3% of its value at worst, compared to
massive depreciation in countries like India, Indonesia, Brazil, South
Africa, Ghana, Argentina, Venezuela and other Emerging and
Frontier markets. The FOMC decision has given support to the
currency and it has returned to trading within our target range.

It is clear to me that our decisions have continued to be pro-active
and effective and this is borne out by the results. There are concerns
around the slowdown in GDP growth rate but the main drag on GDP
is the negative growth in the oil sector due to oil theft and leakages
which cannot be cured by monetary policy. Although the
Government continues to stress its commitment to combating oil
theft and vandalism in the Niger-Delta, in my view greater focus
should be on the lack of transparency and accountability of the
official oil sector. There are also concerns expressed about the rising
cost of borrowing but this is a necessary price to pay for stability in an
era of loose fiscal policy.

I am of the view that by maintaining the status quo, we will succeed
in maintaining exchange-rate stability in a period of low inflation
without resorting to massive drawdowns of our reserves to meet
elevated demand for foreign exchange. I do not see any
fundamental need to alter our stance. There is no compelling need
for further tightening, and in any case, we need to leave room for
this if developments in the fiscal space so warrant in the near future.
Also, loosening of policy at this point risks reversing some of our hardwon gains.

I therefore have no hesitation in voting for maintenance of the status
quo, that is:

1. MPR of 12% + 2%
2. CRR of 12% on private sector deposits
3. CRR of 50% on public sector deposits
4. Minimum Liquidity Ratio of 30%