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