Central Bank of Nigeria Communiqué No. 88 of the Monetary
Policy Committee Meeting of Monday and Tuesday, March 18 and
19, 2013

The Monetary Policy Committee met on March 18 and 19, 2013
with all the 12 members in attendance. The Committee reviewed
the conditions and challenges that confronted the domestic
economy in the first quarter of 2013 against the backdrop of
current international economic and financial developments with
a view to reassessing the monetary policy options in the short-tomedium term.
International Economic Developments
At the outset, the Committee observed that global growth
remained subdued throughout 2012 due to the softer than
expected level of activities in the euro area and the slipping of
Japan into recession during the second half of the year. Weak
and fragmented growth was also recorded across major
economies and regions including the US. The emerging market
economies, however, showed a fair degree of resilience.

The growth outlook, however, appears promising. The IMF January
2013 WEO Update, projected a global output growth of 3.5 per
cent in 2013 compared with the 3.2 per cent achieved in 2012. In
the Advanced Economies, output was estimated at 1.4 per cent
for 2013 compared with the 1.3 per cent achieved in 2012.
Recession is expected to continue in the euro area although the
magnitude of the contraction, estimated at 0.2 per cent in 2013,
represents an improvement over the 0.4 per cent contraction in
2012. A slowdown in growth is also expected in the US in 2013, as
output is projected to decline by 2.0 per cent from 2.3 per cent in
2012, owing largely to the short term effects of its fiscal
consolidation regime as well as the weaknesses in the labor and
housing markets.
The emerging Asian economies were projected to post a gradual
recovery that would propel global output growth in 2013. China,
which previously recorded a slowdown over seven consecutive
quarters to Q3 2012, witnessed improved activity in Q4 2012;
confirming that an upswing in growth was underway. The recent
fiscal and monetary easing operations of the Peoples Bank of

China led to increased tempo of investment in infrastructure with
indications of further public spending in fiscal 2013. Thus, the
economy is expected to grow strongly in 2013 amid gradual
improvements in the external environment. Japan returned to
growth in the fourth quarter of 2012, raising hopes of an end to the
15-year deflation. The major setback in the region is expected
from India, with real GDP growth of 5.4 per cent in 2012 on
account of the poor performance of the manufacturing,
agriculture and service sectors.
The Committee noted that growth in Sub-Saharan Africa was still
robust, although real output growth dropped to 4.8 per cent in
2012 from 5.3 per cent in 2011. The performance of Sub-Saharan
Africa during 2013 would partly depend on developments in the
euro area as well as the extent of recovery in China. With policy
buffers weaker than they were prior to the 2008 crisis, the ability of
governments to implement countercyclical fiscal policy may be
constrained.
Domestic Economic and Financial Developments
Output

The Committee was satisfied with the relatively robust output
growth projections for 2013 despite the slowing global economy,
on the back of favorable conditions for increased agricultural
production, the outcome of banking sector reforms, as well as
other initiatives by government to stimulate the real economy. The
National Bureau of Statistics (NBS) reported that the real GDP
growth rate declined from 7.43 per cent in 2011 to 6.58 per cent in
2012. The decline was partly driven by the oil sector which
contracted by 0.91 per cent. The major driver of overall growth,
therefore, remained the non-oil sector, with agriculture; wholesale
and retail trade; and services contributing 1.37, 2.19 and 2.10
percentage points, respectively.
The Committee was concerned that the declining contribution of
the oil sector to growth, which became apparent in the second
half of 2011, continued in Q4 2012. Crude oil production, including
condensates and natural gas liquids, decreased by 37,000 barrels
per day (bpd) in February 2013 to 2.054m bpd compared with the
level of 2.072m bpd attained in December 2012. Oil theft in the
Niger-Delta remained a source of concern. The Committee was

also concerned that the decline in the growth rate of agricultural
output which started in the 4th quarter of 2011 continued up to the
end of 2012.
The Committee was of the view that although the GDP growth
projection remained high, there were a number of risk factors that
were likely to affect output performance. These include
perception of increased levels of corruption and impunity in the
country, insecurity particularly in the northern part of the country,
as well as mixed signals from power and petroleum sector reforms.
Prices
Headline inflation which had decreased to a four-year low of 9.0
per cent in January 2013 inched up to 9.5 per cent in February,
driven largely by the food component. Food inflation, which was
10.1 per cent in January 2013, increased by 0.87 percentage point
in February due mainly to increases in the prices of farm produce
and imported food items. Core inflation, however, moderated
slightly between January and February 2013. The Committee
noted that the sharp drop in inflation in early 2013 compared with
early 2012 is largely a result of the base effect of the partial

removal of fuel subsidy in January 2012. With the tapering off of
the first and second round effects of the increase, the prudent
monetary policy stance and stable exchange rates are yielding
lower headline inflation figures.
Monetary, Credit and Financial Market Developments
Broad money supply (M2) grew by 2.86 per cent in February 2013
over the level at end-December 2012, which annualizes to 17.16
per cent. Aggregate domestic credit (net) grew by 10.17 per cent
over the same period (an annualized rate of 61.02 per cent). The
significant growth in net credit in the period was due to the huge
increase in credit to government (net), which rose by 108.18 per
cent.
Interest rates in the interbank money market declined between
January 21 and March 14, 2013 owing to liquidity surfeit in the
banking system. The interbank call and the OBB rates, which
opened at 10.35 and 10.33 per cent on January 21, closed at
10.29 and 10.28 per cent, respectively, on March 15, 2013. The
average interbank call and OBB rates for the period were 11.38
and 11.23 per cent, respectively. The average prime lending rate

inched up slightly from 16.54 per cent in December 2012 to 16.56
in February 2013, while the maximum lending rate more or less
remained flat at 24.60 per cent during the period. The weighted
average deposit rate, however, increased from 3.77 to 5.37 per
cent during the review period.
The Committee noted the upswing in activities in the capital
market, as equities market indicators all trended upwards in the
review period. The All-Share Index (ASI) increased by 17.3 per cent
from 28,078.81 on December 31, 2012 to 32, 950.08 on March 15,
2013 while Market Capitalization (MC) rose by 17.5 per cent, from
N8.97 trillion to N10.54 trillion. The Committee, however, observed
that the improved performance was largely induced by the
substantial portfolio inflows, as foreign investors took advantage of
the favourable domestic environment brought about by the high
yield on government debt instruments, and stability in the naira
exchange rate.

External Sector Developments

At the Wholesale Dutch Auction System (wDAS), interbank and
the BDC segments of the foreign exchange market, the exchange
rate opened at N157.29/US$, N157.10/US$, and N159.00/US$ on
22nd January 2013 and closed at N157.32/US$, N158.65/US$, and
N160.00/US$, respectively, on March 15, 2013. The average wDAS,
interbank and BDC exchange rate during the period was
N157.30/US$, N157.65/US$, and N158.94/US$, respectively. The
Committee noted the slight depreciation in the exchange rate at
the wDAS and interbank segments of the foreign exchange
market. The BDC segment, however, appreciated during the
period due to the low patronage by speculators on account of
the improved supply of foreign exchange by oil companies,
increased inflow from portfolio investors, and the effect of the
prohibition of the simultaneous access to the CBN window (Repo
and Standing Lending Facility) and wDAS transactions by DMBs.
The Committee expressed satisfaction with the significant
accretion to external reserves which stood at US$49.38 billion as at
March 14, 2013, representing an increase of US$ 5.5 billion or 12.68
per cent over the level of US$43.83 billion at end-December 2012.
The increase in reserves was driven largely by the proceeds from

crude oil and gas sales and crude oil-related taxes, as well as
reduced funding of the wDAS. The reserves level could finance
over 13 months of imports. The Committee urged the Bank to
continue the monitoring of portfolio and foreign direct investment
flows, while being conscious of the risks to financial stability of a
rapid outflow of hot money.

The Committee’s Considerations
The Committee was pleased with the prevailing macroeconomic
stability despite shocks from both external and domestic
environments; a development which informed the tightening
stance of monetary policy since the third quarter of 2010. Having
achieved a reasonable degree of moderation in the rate of
inflation, there were compelling arguments to consider easing
monetary policy, at least from the perspective of stimulating
growth in the real sector. Given the slowdown in overall GDP and
agricultural GDP growth, inability of the SMEs to borrow at the
current lending rates, and crowding out effects may require
monetary easing. The Committee carefully weighed the option of
relaxing monetary policy against the likely risks in the near-to-

medium term, noting that reversing the current stance of
monetary policy was not likely to produce a neutral outcome, as it
may signal the preference for a higher inflation rate on the part of
the CBN.

At 9.0 and 9.5 per cent in January and February, respectively, the
price data, which largely reflected the base effect of the first and
second round impact of the fuel subsidy removal in January 2012,
sends a clear signal that there was still an upside risk to inflation in
the near-to-medium term. Furthermore, yields on FGN bonds have
been declining steadily, signalling the impact of increased inflows
while equity prices have been trending upwards. Quantitative
easing, especially in the US and the EU is already creating a
potential new round of asset bubbles globally. The Committee
was of the view that the growth in the domestic capital market
was driven largely by the huge capital flows. The principal risk of
stability in the medium-to-long-term can be addressed through
diligent implementation of sound policies of fiscal consolidation
and structural reforms. Without these, the economy will not be
able to attract long term foreign capital inflow that makes the

gains of monetary policy sustainable and insulate the economy
from the risks associated with external shocks and capital flow
reversals. Monetary policy will, therefore, seek to preserve the
current gains of macroeconomic stability.

The Committee also noted the wide spread between deposits
and lending rates, which it attributed to the inefficiencies in the
market requiring institutional and structural reforms that would
enforce behavioural change on the market, consistent with the
long term needs of the economy.

The Committee was of the view that sustainable low lending rates,
could be achieved if the necessary infrastructure such as stable
power and good roads, amongst others, were put in place. The
Committee noted that the present infrastructural condition has
always provided an incentive for asymmetric response on the part
of the banks to the policy rate in a manner that was not always
beneficial to the small and medium scale customers. With respect
to the price level, the Committee observed that the rising pressure
in February after a significant moderation in January, was

indicative of the fact that there were some underlying factors that
could constitute a threat to inflation in the medium term.

The Committee noted the 2013 Federal Government Budget of
N4.9 trillion, passed by the National Assembly and signed into law
by the President, represents an increase of about 5 per cent.
Furthermore, the budget, predicated on an oil benchmark price
of US$79/barrel as against US$75/barrel, proposed by the
Executive, potentially slows down the pace of fiscal consolidation
with implications for accretion to the Excess Crude Account and
gross external reserves. In addition, the Committee observed that
the foreign exchange market has started experiencing pressure in
March 2013, mainly reflecting compression of yields in the fixed
income credit as well as outflows to pay dividends by
multinational corporations. However, the Committee noted that
the exchange rate has remained within the target range and also
that the current monetary conditions are conducive to further
tightening using Open Market Operations without recourse to an
increase in the MPR.

In view of these developments, the Committee was faced with
three choices:
(i) An increase in rates in response to the uptick in headline and
food inflation; and pressure on exchange rates;
(ii) A reduction in rates in view of declining core inflation and GDP
growth;
(iii) Retaining current monetary policy stance to sustain the gains
of monetary policy while utilizing the existing space in the corridor
to influence yields and exchange rates in the short term.

The Committee’s Decisions
The Committee considered and rejected option 1 as being
potentially unnecessary since there are no major inflationary
concerns at this time. While acknowledging the merit of the
arguments in favour of option 2, it was also rejected because it
could send wrong signals of a premature termination of an
appropriately tight monetary stance. The Committee, therefore,
decided by a majority vote of 9:3 to accept option 3 and
maintain the current policy stance i.e. to retain the MPR at 12 per
cent with a corridor of +/- 200 basis points around the midpoint;

retain the Cash Reserve Requirement at 12 per cent and Liquidity
Ratio at 30 per cent with the Net Open Position at 1 per cent.

Thank you.

Sanusi Lamido Sanusi, CON
Governor
Central Bank of Nigeria
19th March 2013

PERSONAL
STATEMENTS
BY
MONETARY
POLICY
COMMITTEE
MEMBERS
1.0 ALADE, SARAH
Headline inflation decreased to 9.0 percent in January and
edged up to 9.5 percent in February, 2013. This increase was
driven mainly by increases in domestic food prices. In the
international scene, the fiscal problems and budget cuts in
the United States have the potential of dampening the pace
of the global recovery. On the domestic front, the increase in
the 2013 Budget benchmark oil price and the Government
policy stance on the fuel subsidy regime remained possible
pressure points and pose upside risks to inflation. Based on
these, I am inclined to support a hold in Monetary Policy
Rate (MPR) and Cash Reserve Requirement (CRR).

Global economic growth is still showing some signs of weakness.
Global growth is projected to increase gradually in 2013 as policy
actions in the euro zone have lowered the risk of severe crisis.
However, the cut-back in spending in the United States and the
slide into recession in Japan pose risk to global growth prospects.
In the euro area, although there is a return to recovery after a
protracted contraction, low domestic demand and fiscal
contraction in some European countries could delay economic
recovery. In the emerging markets, coordinated policies have
resulted in a modest growth pickup especially in China and Brazil,
while growth in India remained weak. These mixed developments
call for a cautious approach to monetary policy at this time, until
conditions stabilize.
The single digit inflation should be viewed with cautious optimism.
Even with the achievement of single digit inflation in January and
February 2013, tight monetary policy is still necessary to safeguard
the economy as staff estimates suggest an upward trend in the
coming months. The achievement of single digit inflation is a
welcome development, signifying the benefit of past monetary
policy actions and overall policy coordination that have helped

to sustain the improvement recorded in macroeconomic
indicators. While there are strong arguments for monetary easing
at this point, to aid credit creation and flows to the real sector of
the economy among others, inflation edged up to 9.5 percent in
February. In addition, monetary policy cannot be the sole cause
of the lack of credit flow to the real sector. With risks such as
depressed global growth and uncertainties in the domestic
economy, a hasty monetary easing may not be in the interest of
economic stability. It is well known that structural imbalances in
the economy play a major role in the determination of high
borrowing cost and without tackling these problems, there is a limit
to what monetary policy can do. In addition, with the start of the
raining season and commencement of the planting season,
further upward pressures would be put on domestic food prices
and overall headline inflation in the coming months, as
consumable supplies dwindle.
Available data showed increasing liquidity in the banking system.
Money market rates have remained lower than the monetary
policy rate and banks deposit in the Standing Deposit Facility with
the Central Bank has been very high. Similarly, average open buy

back (OBB) and interbank call rates averaged 11.3 percent and
10.3 percent respectively since the last Monetary Policy
Committee meeting in January, suggesting liquidity in the banking
system. This development coupled with anticipated upward
inflationary pressure would suggest that monetary easing at this
time is premature.
The uncertainty surrounding oil prices could pose serious risk to the
Budget. The 2013 Budget signed into law by the President was
based on the oil price benchmark of US$79.00 per barrel as
recommended by the National Assembly in contrast to the
US$75.00 per barrel recommended by the Executive Arm of
Government. The continued slow-down in global growth and
increased domestic oil production in the United States have the
tendency of lowering oil prices in the global market. This could
have far reaching implications for the Nigeria economy in terms of
decreased
oil
revenue;
increased
debt;
and
adverse
consequences for external reserve build-up and volatility in the
exchange rate. This would have a destabilizing effect on the
economy and could undermine the policy gains of the past
couple of years.

Base on the above, I recommend a hold on Monetary Policy Rate
and Cash Reserve Requirement. In a situation of renewed
inflationary pressure and weak global growth, there is a need for
cautious approach to monetary policy and monetary easing at
this time could be counterproductive.

2.0 BARAU, SULEIMAN
Background
Having deeply observed developments in the domestic and
global economy since the last Monetary Policy Committee (MPC)
meeting, I have come to the conclusion that no significant event
has happened to make a change in the current stance of
monetary policy. I have therefore, today, voted to maintain the
status quo.
Developments/Discussion
Inflation – It is true that Headline Inflation trended down to single
digit at 9.0% in January 2013. However, the fact that it went up to
9.54% in February does support my position that we need to
observe consistent declining trend for all measures of inflation
overtime for us to consider a change in our tightening stance. We

currently have mixed signals. While core Inflation trended down
from 11.30% in January to 11.18% in February, Food Inflation
increased from 10.10% in January to 10.97% in February. Imported
Inflation also trended up to 14.33% in February from 14.10% in
January. The direction is therefore not very clear. There is also the
possibility of further inflationary pressure from liquidity injection due
to the commencement of the implementation of the 2013 Budget.
Upside risk to inflation may also come from higher electricity tariff,
the effect of duty and higher tariff on rice import amongst others.

Exchange Rate: Exchange rates have been stable but we have
recorded recent build-up of demand pressures, which led to mild
depreciation across all market segments. The WDAS rate
depreciated by 0.2% from N157.29/USD on January 21st to
N157.32/USD on March 15, 2013. The Interbank and BDC segments
of the market saw exchange rates also depreciating by 1% and
0.63% respectively as a result of demand and supply factors.

GDP Growth: Nigeria‟s GDP growth of 6.58% in 2012, though slightly
lower than the level in 2011 was remarkably higher than global

GDP growth rate of 3. 2% and Sub-Saharan African average of
4.8%. This strong growth level (though arguably below potential)
was achieved inspite of the tight monetary policy regime in 2012.
It is true that accommodative policy should generally help to elicit
better growth performance, but what is required to unleash
Nigeria‟s growth potential are the necessary real sector reforms
and the removal of market distortions that should elicit better
pricing of capital and other assets. In other words, access to
cheap finance is necessary but not sufficient to elicit sustained
growth. Structural reforms have to be implemented to gravitate
towards
growth
enhancing
sectors
such
as
agriculture,
manufacturing, among others.

Interest Rates: Market rates have been largely stable albeit taking
a recent declining trend. The decline in my view is due to a
combination of factors:
- Current liquidity in the system;
- Expectations of liquidity injection; and
- Expectation of reversal of tightening stance through the
lowering of policy rates by MPC.

With inflation rate at 9.5% in February real interest rates have
continued to be positive. But the decline in market rates has two
significant implications for policy consideration:
- Yields on Government Bonds have trended downward with
significant possible impact on profits;
- We are becoming less attractive to foreign investors seeking
destinations that offer attractive return on investment. This
has led to decline in foreign portfolio inflows and may impact
negatively on further build-up of foreign reserves and the
exchange rate stability. The MPC is aware of the very
obvious risks associated with foreign portfolio inflows and
many would argue that being a less attractive destination for
such flows is a positive development. I am happy to note,
however, that while MPC does not target portfolio inflows,
their positive impact on the build-up of foreign reserves,
stability of the exchange rate and creation of liquidity in the
capital market have been noted. The risks associated with
such inflows in the management of foreign reserves and
exchange rates are very well noted and appropriate
measures would be taken in due course to mitigate them.
What is also required is the complementary measures in the
capital market to remove the possibility of asset price bubble
as well as possibly ensuring that exits are well controlled and
managed.

Foreign Reserves: At US $49.3billion, the foreign reserves position is
at a healthy level and is sufficient to accommodate 13 months of
import. The healthy growth has been on the back of good oil
prices and significant portfolio inflows. The healthy foreign
reserves position has supported the stability of exchange rates.

Riding on the back of increased market liquidity and portfolio
inflows, we have recently witnessed increased demand pressure
at all foreign exchange market segments. The maintenance of
the current tightening stance would help to ensure the continued
stability of the exchange rate and sustained build-up of foreign
reserves.

Market Expectation/Sentiment: Recent commentaries in the
media understandably favoured reduction in MPR and the
possible adoption of accommodative (effectively a reversal of
current tight stance) monetary policy stance. This view is perhaps
predicated, as I understand it, on the following points;
- MPC has maintained the existing stance of policy for over a
year;
- It is probably somehow boring;
- The decline in inflation rate in January, buildup of foreign
reserves and stability of exchange rates at this point in time;
and
- The high lending rates and their adverse impact on
economic growth.

I have the following response to these issues, not in any particular
order:

- MPC decisions are not based on emotions or sentiments.
MPC members are presented with current numbers and facts
on local and global developments. Members factor in
pressure points and review outlook in order to take well
guided decisions. After a careful review of where we are
and the outlook, it is my judgment that we should maintain
the status quo.
- MPC decision is about rational choice. It is about price and
monetary stability. We had, in my judgment, focused on
inflation and exchange rate with modestly profound
outcomes. Lending rates are unacceptably high because of
the unusually high cost of doing business in Nigeria which
current efforts at structural reforms would help to reduce.
Fixing the structural issues would have a salutary effect on
our growth trajectory. It will also help to deliver more
acceptable lending rates. The MPC and the Central Bank of
Nigeria would continue to promote price and monetary
stability conducive to growth. The limitation of monetary
policy must, however, be recognized by the market.

Conclusion: It is in the light of the foregoing that I voted as follows:
Maintain MPR at 12% with the corridor of +/- 200 basis points
Maintain Cash Reserve Ratio (CRR) at 12%
Maintain Net Open Position (NOP) limit at 1%.

3.0 GARBA, ABDUL-GANIYU
I vote to:
1. Reduce the MPR by 0.50% to 11.50%.
2. Maintain the asymmetric corridors at ±2.0% around the MPR.
3. Maintain CRR at 12%.

The Context of Decision
1. The tightening regime and the complementary institutional
changes that the MPC implemented from September 2010 have
been successful in maintaining price stability, exchange rate
stability and narrowing the exchange rate premium.

2. As with all macroeconomic policies and indeed, all economic
choices, the laws of trade off and opportunity costs have
prevailed. The sacrifices in terms of forgone real GDP growth and,
rise in unemployment have been significant. The tightening would
have been far more successful at much lower costs had fiscal
policy been more efficient and effective in enhancing the
competitiveness of the Nigerian economy through upgrades in
infrastructures and delivery of sound public services.

3. In an increasingly interdependent world, laws of trade off and
opportunity costs are also at work constraining the effectiveness of
policies in smaller open economies. For while the MPC‟s has had
to tighten monetary policy to achieve stable price and exchange
rates, major global players (the US FED, the Bank of Japan, The

European Bank and the Bank of England) have been using
aggressive quantitative easing to reduce rates and weaken their
currencies to stimulate their economies and enhance their
competitiveness. The immediate consequences for Nigeria are the
above trend inflow of portfolio flows into treasury bills, bonds and
more recently, the capital market and, a crowding-out of FDI
flows into the real sector.

4. The volume of portfolio flows into the Nigerian capital after the
US FED‟s QE3 in September 2012 have stimulated growth in asset
prices reminiscent of 2007-2008. Prior to QE3, portfolio flows have
poured into government securities. These flows have expectedly,
not promoted budget discipline, efficient allocation of credit,
economic growth or job creation.

5. Although, some Central Banks play down global tail risks, it
would be unwise for the MPC and Nigerian fiscal authorities to do
so. The ongoing bail-out crisis in Cyprus and the response of global
stock markets to the crisis is a reminder of how fragile and volatile
the global financial markets are. The simultaneous co-existence of

record stock market indexes and record sovereign debts, high
unemployment and slow growth point to a fragile global
economy. The risks of currency wars, asset price bubbles,
exportation of inflation and new rounds of macroeconomic and
financial crisis call for (1) a forward looking policy stance, (2)
continuous monitoring of the global economy also, the behaviors
of strategic players –private and government; monetary and fiscal
and (3) creative reaction functions.

The Basis for Decision
6. I decided in favor of a cut in MPR by 25 basis points in January
to signal “a commitment to macroeconomic stability now and, in
the future and, to avoid history repeating itself at an even greater
cost.” Nothing has happened between January and now to
convince me that I made the wrong decision. On the contrary,
the underlying asset price bubbles in the major capital markets
globally and, its “contagion effects” on the Nigerian capital
market convinces me that the observed flows and market
movements are not sustainable in Nigeria and globally.

7. Even more pressing now, is the need to begin the process of
stimulating the economy in the light of the well-established
evidence of consistent slowing down since the third quarter of
2010 and, of a consistent growth in unemployment. While it is true
that underlying fiscal, institutional and structural problems are key
constraints to growth, it is also true that interest rates correlate
negatively with growth. What is needed therefore, from monetary
perspective is to strengthen the potential effects of lower MPR
rates on growth by creatively deploying existing options and
institutions to directly address the malfunctions in financial
markets. The key is to work through incentive system embedded in
institutions to improve the operational and allocative efficiencies
of Nigerian players and, of the Nigerian financial markets in which
they “game with” global players: their loss is Nigeria‟s and vice
versa.

8. Reducing MPR by 50 basis points also signals to the fiscal
authorities a commitment to price stability conducive to growth as
well as a demand from them, of a commitment to fiscal discipline
conducive to job creating growth with price stability. The two

commitments are necessary to sustaining growth, to reducing
unemployment and to building the capacities that Nigeria will
need to mitigate the potentially damaging effects of the ever
frequent episodes of global tail risks crystallizing.

4.0 LEMO, TUNDE
Relative to the entire FY 2012, both headline and core inflation
witnessed considerable moderation in the first two months of
FY2013 with headline in particular falling into single digit, justifying
the current tight stance of monetary policy. On the basis of the
seemingly
evolving
benign
macroeconomic
environment
therefore, arguments could be advanced for relaxing the current
stance of monetary policy with the intent of stimulating real output
growth.

I have a couple of concerns, however, with loosening of monetary
policy so soon. There was a significant moderation in headline
inflation in January due, among others, to base effect while in
February, there was a renewed upward pressure on the price level
coming mainly from farm produce as a result of transport cost.

Developments in these two months, therefore show a conflicting
signal about the near to medium term path of inflation.
Furthermore, staff forecast, based on the prevailing stance of
policy, showed that inflation would be in the upper part of single
digit for a reasonable portion of FY2013. As a result, loosening of
monetary policy implies that the monetary authority is willing to
accommodate double digit inflation level.

Besides, the Federal Government Budget for FY2013 with
estimated total expenditure of about N4.9 trillion could be
adjudged less expansionary in view of the moderation in the fiscal
deficit/ GDP ratio. However, when consideration is given to the
higher benchmark of US$79/barrel of crude oil in the face of
downward swings in the international price of crude oil, it is not
unlikely that the actual fiscal deficit would exceed the budgeted
level with implication of crowding out the private sector as well as
further pressure on domestic interest rate.

Furthermore, oil production has been facing some challenges
since the second half of 2012 with actual output falling below the

target. When this development is added to the adoption of a
higher benchmark price of crude oil in the budget, it implies that
the capacity to build up the excess crude account is reduced
and thereby intensifies the vulnerability of the economy in the
event of adverse shock to oil price. The current level of external
reserve, which is gradually closing up with the pre global financial
crisis era, has been the result of both demand and supply factors.

On the supply side, stable exchange rate coupled with high
interest rate in the face of declining yield in other climes have
significantly enhanced inflows of foreign capital while the increase
in the Cash Reserve Ratio and Net Open Position of banks have
worked on the demand side. There appears to be slight change in
the tide on the foreign exchange market as it came under
demand pressure in the month of March with the naira recording
a marginal depreciation.

While it may be argued that a loosening monetary policy stance
with the attendant reduction in lending rate would have a
salutary effect on the harsh production environment, my view is

that the current production challenge goes beyond the
confinement of rising cost of funds. It requires broad based reforms
in critical infrastructure such as power and roads, including
addressing the current security challenge with a view to improving
the competitiveness of the business environment.

In the light of the absence of a clearly discernible lower path of a
future price level coupled with the risks identified above, I propose
that the current tightening stance of monetary policy be
maintained by holding both the MPR and the CRR at the current
rates.

5.0 MOGHALU, KINGSLEY CHIEDU
I vote to maintain the status quo and keep the Monetary Policy
Rate at 12 per cent (plus or minus 200 basis points), the Cash
Reserve ratio at 12 per cent, Liquidity Ratio at 30 per cent, and the
net Open Position of banks at 1 per cent.

Despite strong arguments to reduce the MPR on the grounds of
presumed pro-growth stimulus, concerns about the impact of an
MPR of 12 per cent on the availability of credit to the real sector,
and fears about the long-term implications for stability of an MPR
regime that encourages inflows of speculative capital (hot
money) – concerns that I fully share, I vote the position I have for
the following reasons.

First, we remain at this time faced with a tension between foreign
exchange stability and the need for long-term structural stability.
The exchange rate looms large, and its stability remains critical,
because Nigeria remains an import-dependent economy. Unless
and until this fundamental changes for the better – which requires
structural reforms in the larger economy to provide better
infrastructure and ensure that Nigeria‟s petroleum refineries
function at full capacity among other measures – maintaining
exchange rate stability in the short term will remain critical as one
instrument to control inflation.

The expectations in some quarters that the MPC should reduce
rates does not give adequate recognition of the responsibility of
structural economic policy – which in the long term is a fiscally
driven process – in creating the inevitability of the monetary
tightening stance the MPC has pursued for the past two years.
Thus the CBN has become a convenient target for the venting of
frustrations that should be directed at the adequacy of wider
structural economic policy beyond monetary policy. Were the
MPC to fail in its core responsibility of maintaining price stability –
while being mindful of growth – chaos would result from a situation
in which inflation could gallop out of control. As it is, however, an
independent MPC needs to be far more mindful of inflation
expectations than pressures to take steps based on populist or
analysts‟ sentiment.

Second, and most important, it is clear from the data on prices
that, while inflation fell into single digits in January 2013, data for
January – February 2013 do not yet constitute a trend of falling
inflation strong enough to reduce rates at this time. While staff
inflation estimates point to a downward trend in the months

ahead, the consistency of the actual trend in the next two to
three months with projections would form a stronger basis for
loosening the monetary stance. In a mixed signal, respondents to
a market intelligence survey expect elevated inflation rates in the
short to medium term.

Moreover, even the sustainability of possibly lower rates in the near
future is debatable if we factor in the impending elections season
starting from 2014. What this situation points to is the inevitability of
structural reforms in the economy and reducing the economy‟s
absolute dependence on oil revenues over the next two to three
years, while monetary policy holds the fort of stability until such a
time as infrastructure upgrades begin to ginger output production.
Effective power sector reforms, other infrastructure, and an
increased effectiveness and diversification of revenue generation
are the conditions that will spur weakening economic growth.

Third, the 2013 budget is still an expansionary one, and with the
benchmark price at $79, above the $75 recommended by the
executive arm of government, the implications for fiscal

consolidation and accretion to the Excess Crude Account and
overall reserves are not positive. Combined with the sharp
increase of credit to government by 108.18 per cent, inflationary
threats have not dissipated. Reducing rates at this time will
therefore send the wrong signal by encouraging inflation
expectations. A recent staff study has found that the inflexion
point at which inflation begins to hurt economic growth in the
Nigerian economy is between 10.5 and 12 per cent.

There is not a great deal of difference between that range and
where we are at this time – headline inflation increased year-onyear in February 2013 from 9 per cent to 9.54 per cent, and monthon-month from 0.62 per cent to 0.75 per cent. If we accept that
core inflation is believed to be a better gauge of the impact of
supply and demand on GDP than headline inflation because the
former excludes food and fuel prices which tend to be volatile
while the latter encompasses all the factors of inflation, it is cold
comfort that core inflation was at 11.18 per cent in February
compared to 11.30 per cent year-on-year and declined from 1.40

per cent to 0.00 per cent month-on-month. It appears that this
was a base effect.

Given the overall structural problems confronting the Nigerian
economy, there is little likelihood that a marginal reduction of the
MPR will lead to a reduction in the interest rates charged by banks
to borrowers. If this outcome cannot be guaranteed, why take
the risk of reducing rates at this time and lowering our guard
against inflation?

The work of the MPC is important, and the committee must
continue to discharge its responsibilities. But, unless and until
structural economic reforms kick in over the next few years,
monetary policy must remain, at best a guardian of the flame and
at the worst, a necessarily short-term medicine for symptoms in the
hope that a long-term cure will be administered by overall
economic policy to address fundamental causes.

6.0 KIFASI, D. I.
The 2013 Budget was designed against the backdrop of global
economic uncertainty. Growth in the US is forecast to average
only 2 per cent in 2013. Similarly, the near-term outlook for the Euro
area has been revised downwards, with growth expected to
contract by 0.2 per cent. In Asia, the short-term outlook for Japan
is weak, with the Japanese economy expected to expand by only
1.2 per cent in 2013. Overall, global growth will average 3.5 per
cent in 2013, a moderate increase from 3.2 per cent in 2012.

In spite of the turbulent global economic environment, the
Nigerian economy has been resilient, experiencing a robust
growth of 6.58 per cent in 2012 compared with global growth of
3.2 per cent. Inflation is now down to single-digit at 9.5 percent in
February 2013, compared with 11.9 percent in February 2012. Our
fiscal deficit is on a downward trajectory, and below our threshold
of 3 per cent, while the exchange rate has remained stable.

Government remains focused on critical economic and social
sectors. Some of these sectors are largely driven by private sector

activity, while others require a great deal of public sector support.
The Government recognizes that our manufacturing sector
cannot grow without a reliable source of long-term finance and
more affordable interest rates. Approval has been given to
restructure existing Development Finance Institutions (DFIs) as retail
outlets for financing domestic lenders, while we build a strong
wholesale institution that will increase lending and drive lending
costs down.

In view of the above and given the current level of inflation (9.5%
in February, 2013) and its projection to fluctuate between 8.8 per
cent and 10.0 per cent in the next six months, I recommend that
the MPR be moderately reduced by 50 basis points from 12% to
11.5% in order to stimulate real sector production while the current
policy on foreign exchange be sustained to consolidate the
relative stability achieved thus far.

7.0 OLOFIN, SAM
The economy is far from being on a stable equilibrium path;
therefore it would be wrong to suggest that an auto-pilot

monetary policy stance is what we need, in a global economic
environment that is still fraught with uncertainties, particularly in
the Euro zone and the U.S that are the country‟s major trading
partners.

The truth remains however that over the last several quarters, there
have
been
no
significant
changes
in
the
economy‟s
fundamentals to warrant a major shift in monetary policy stance.
Our strategy has been that of ensuring stability in the short to
medium term, as efforts continue on the fiscal front, to bring about
necessary structural transformation of the economy. This is critical
if we are to grow the real sector of the economy and reduce its
vulnerability to any likely price shock that may significantly affect
export earnings and government revenue.

One of the major policy issues we are confronted with at this
meeting like in previous recent meetings is on when and how, we
would need to send appropriate signal(s) on major policy shift. In
other words indicating that time is ripe for the Committee to
embark on an accommodating monetary policy stance that

would be deliberately pro-growth. This of course would also
require that we consolidate the gains from the tight monetary
policy stance that has been in place ever since the MPR was
jerked up to 12 percent along with other ancillary tight monetary
policy measures.

Staff reports indicate that in the short to medium term
developments in the global economy may among other things
portend the following for the level and direction of domestic
economic activity. First, a slow-down in global output particularly
in the Euro area may be capable of reducing demand for oil, with
negative implications for government oil revenue and overall level
of economic activity. Decline in oil revenue would impair budget
implementation and possibly increase the size of fiscal deficit. A
fall in oil price would not only reduce government revenue, in the
absence of compensating private sector flows, it would also
reduce the rate of accretion to reserves and exert pressure on the
exchange rate.

On the domestic front, over-all GDP growth though slowing
remains robust at a projected rate of 6.75 percent for 2013.
Headline inflation which for the first time in recent times climbed
down to a one-digit level of 9 percent at the beginning of Q1,
2013, inched up again slightly to 9.5 percent in February, 2013.
Similarly month-on-month food inflation rate rose slightly from 10.10
percent to 10.97 percent over the same period and imported
inflation also rose from 14.10 in January to 14.33 in February 2013.
However core inflation declined slightly from 11.30 percent to
11.18 percent.

On the fiscal side the passing and signing of the N4.9 trillion 2013
budget represents an increase of 6.2 percent over the 2012
budget and may be adjudged expansionary, with potentials for
exerting inflationary pressure. Appreciation of equities in the
capital market has had more to do with portfolio inflows than to
changes in economic fundamentals.

Given the foregoing, one may conclude that the major monetary
policy challenges in the short to medium term among others

include the following: managing inflation and exchange rate
expectations to ensure price and exchange rate stability;
sustaining the current rate of accretion to foreign reserves which
as at March 14, 2013 stood at the level of $ 49.38 billion; sustaining
positive real interest rate, to increase our competitiveness in
attracting net inflows, potential long term destabilizing effects of
reverse hot money flows not withstanding; and reducing the
lending rate, and the still widening gap between lending and
deposit rates.

All said and done, there appears to be still strong evidence on the
need to tread the path of caution, by maintain the status-quo,
until we have sufficient evidence to show among other things,
that the observed decline in erstwhile double-digit inflation rate in
Q1, 2013 is an indicator of a downward trend; secondly that the
threat of a possible oil price shock is abating, as the pace of
global economic recovery gathers strength; and finally as we
have more evidence that the ongoing fiscal reform agenda is
beginning
to
yield
desired
results
of
gradual
structural
transformation of the economy. Consequently, barring any major

significant in-between meetings domestic and or/or external
developments that may warrant major policy review, I vote for the
retention of all the elements our current policy stance.

8.0 OSHILAJA, JOHN
I voted today to maintain the current Policy stance, with all
applicable
parameters
unchanged
because
available
information, in my opinion, did not warrant any changes. In fact I
perceived risks of slippage, in gains thus far achieved through
policy actions, if markets misread signals of the Committee‟s
resolve.

Followers of recent public speculation about the direction of
Monetary Policy might be forgiven for wondering if local policy
analysts appreciate the debilitating effects of market volatility.
The fact is, unless markets are broad, liquid and orderly, volatile
financial prices are inimical to sustainable economic growth.
What the MPC‟s mandate directs us to promote is monetary
stability. Specifically, price stability. To this end, the MPC expends
considerable effort and diligence in promoting monetary

conditions needed to achieve price stability on a sustainable
basis.

With lower inflation, the popular argument goes, the Central
Bank‟s Policy Rate should be reduced, so that credit can be
extended on more affordable terms. Affordable credit will lead to
increased business activity, which in turn would call for increased
employment and economic expansion. Really? I don‟t think so.
Not because the argument is wrong, but because the Nigerian
economy is still struggling to achieve the assumed preconditions
on which this argument stands.

The Nigerian economy has experienced eras of cheap credit
before. Largely owing to weakly governed institutions, profound
inconsistencies in the structure of the economy, and substantial
deficits in basic 20th century infrastructure, outcomes of loose
credit policies have been overwhelmingly disappointing, and
exceedingly costly. Economic planning has only lately started
coming to terms with key strategies and resources needed to
drive development meaningfully forward. But the required

structural reforms are still in vulnerable, early stages of progress. In
the absence of tangible structural changes, most of which
demand fiscal and not monetary measures, it would be
intellectually dishonest for the MPC to recreate unsustainable
monetary conditions of the past, and represent these to the Public
as positive indications of future potential. It goes without saying
that unsustainable monetary conditions are not what we are
committed to.

So far, since 2009, the MPC has managed to restore essential
Policy Transmission functions of the banking system, stabilize the
exchange rate, attract foreign portfolio investment and establish
real rates of return for domestic savers. All the while, the economy
demonstrated comparatively firm rates of real but essentially lowquality (i.e. jobless) growth; buoyed by high oil prices, and fiscal
and monetary interventions. Protracted sluggishness, in the
economies of major trading and development partners, is now
softening Nigeria‟s rate of economic expansion. Hence it‟s
understandable that calls for monetary accommodation become
more vocal. However, papering over structural economic

problems with cheaper domestic credit, is not an advisable
growth strategy. Nigeria has been there, done that (on several
occasions) and it never led to sustainable development solutions.
As I see it, the economy does not yet have enough of a base of
productivity-enhancing factors needed, to decisively keep
inflation low enough for credit expansions to underwrite
meaningful high-quality growth.

Measures of inflation taken over the last two months appear to be
heading in the desired direction, i.e. downwards. CBN Staff
forecasts for the next 6 months see Headline inflation fluctuating in
a range of between 8.8 and 10 percent, with Core inflation
expected to track a tighter 8.1 to 9.10 percent range. Further
available data points suggest the makings of a disinflationary
trend, but do not as yet confirm this trend. Until these forecasts
begin to actually play out as desired, changing the current
restrictive stance of Monetary Policy, in my view, risks incorrectly
signaling a willingness by the Central Bank to forgo exchange rate
stability in favor of foreign currency reserve accumulation. Not
only would this be erroneous signaling, it would be a totally

unnecessary trade-off to make at this time. There are more
effective tools, readily available to the CBN, for addressing
excessive, short term, rate and currency market fluctuations. For
example: Open Market Operations (OMO), by which central
banks conventionally withdraw and inject banking system liquidity.

Signaling a change in Policy stance when currency exchange
pressures are evident also opens another world of trouble for an
economy
that‟s
globally
competing
to
maintain
Investor
Confidence. Dawdlers on pending investment legislature might
wish to note that Foreign Portfolio Investment in Nigeria (FPI) has
consistently outstripped Foreign Direct Investment (FDI) by wide
margins each year since 2009. FPI was roughly six times the level
of in-bound FDI recorded by the CBN in 2012. This is purely
financial, and not real, capital. Meaning that it is easily
transferable, which makes it inherently unstable and therefore not
an ideal form of capital to use to rebuild financial buffers. Looked
at in another way, FPI is “rented” capital, and one of the implicit
terms of this “lease” to the nation is a reasonably predictable rate
of change in currency values. The point being that in frontier

financial markets like Nigeria‟s, excessive currency volatility
remains a deal-breaker.

Another, more fundamental, reason for continuing Monetary
caution at this stage lies with the current posture of Federal and
State Budgets. Notwithstanding creditworthy Federal efforts made
to rationalize its recurrent expenditures, and step up public
investments while rebuilding fiscal space, theirs is still an
expansionary budget. In fact, overall Nigerian Fiscal policies may
end up becoming looser than advertised, with recourse to
comparably low savings and/or borrowing, if either oil export
production falls short of targets, oil market prices unexpectedly
collapse – or both. Hence, the pace and quality of Budget
executions has to provide further reassuring markers to enable the
Committee to determine whether Monetary Policy needs to
remain countercyclical or adopt pro-cyclical positions.

The MPC tends to be forward-looking and anticipatory when
forming most judgments. At this stage in the rate cycle, however, I
would like to see a well-established down-trend in inflation, more

consistent, complementary market operations by the CBN and, in
the absence of negative external shocks, further encouraging
signs of Fiscal performance, particularly on non-inflationary
features of the nation‟s budgets. With these in play, I believe the
Committee would have credible reasons for reassessing the
current Policy stance.

9.0 SALAMI, ADEDOYIN
At 9.5 percent, the rate of increase in the Composite or Headline
Index in February, compared with prices a year ago, is slightly
higher than the 9 percent recorded when prices in January were
similarly, placed side-by-side prices 12 months earlier. Food prices
were 11percent higher in February while core inflation rose 11.2
percent.
In
contrast,
January
figures
reported
for
both
components of inflation were 10.1 percent and 11.3percent
respectively. The detail provided for these figures show both
imported and local food prices rising whilst non-food prices remain
„sticky‟.

In my comments after our meeting in January, I concluded that “I
would like to see a sustained trend of easing inflation numbers to
be convinced that monetary policy should ease”. While the
snapshot of price conditions in February 2013 provides another sub
10percent data point, it does not establish a trend. Furthermore,
Staff forecasts of inflation in the next 6months suggest continuing
volatility driven by a combination of „base‟ effects and
seasonality. Indeed, Staff forecast that the rate of change in
headline prices between March and August 2013 will average 9.6
percent and range between 8.8 – 10 percent – with the trough
being in March. Similarly, while the low point for Food price
increase is expected to be 9.2 percent in March, average rate of
increase in the next six months is estimated at approximately 11
percent with a peak of 12.1 percent in August. Over the same
period, the average rate of increase in Core Inflation is projected
to be 8.2 percent with a low point at 7 percent.

Beyond the absence of a discernible direction for inflation, there
are other concerns which make a „hold‟ decision, in my
judgment, the right decision at this time. Presidential assent to the

2013 Appropriation Act, which has adopted US$79/barrel as the
benchmark price of oil, creates a fiscal environment which is
looser than is warranted at this time, especially as the count-down
to the 2015 General Elections has commenced. Total spending by
the Federal Government of Nigeria, including the Subsidy
Reinvestment and Empowerment Programme (SURE-P), in 2013
amounts to NGN5.26trn. This level of spending represents a 12
percent increase in relation to the 2012 budget. Compared to the
provisional data for actual spending in 2012, the spending
provision in the 2013 Appropriation Act is 27.3percent higher. In
other words, fiscal policy is expansionary. That the signing of the
Appropriation
Act
was
immediately
followed
by
an
announcement
that
a
supplementary
budget
would
be
forwarded to the National Assembly to correct areas of
disagreement between the executive and Legislative Arms of
government, creates further uncertainty about the stance of fiscal
policy. We would have to wait until enactment of the
Supplementary Bill to properly determine the stance of fiscal
policy.

A popular refrain ahead of this meeting in support of an easing of
monetary policy is the misalignment of interest rates. With the
Monetary Policy Rate (MPR) higher than market yields and the
Central Bank‟s Standing Deposit Fund (SDF) paying better than
OMO, the MPR, the argument suggested, had to be eased into
alignment with market rates. The hope of proponents of this view is
that the anchor policy rate would fall to ensure alignment. This
view then extends to suggest that bringing the MPR in line with
markets rates would translate into lower borrowing costs. In my
view, easing market rates are indicative of 2 things: (i) easier
monetary conditions; and (ii) over-adjustment of market rates.
That easing market rates point to easier monetary conditions is
supported by the increase in average Banking industry liquidity
from 68percent in December 2012 to 70.7percent at the end of
February 2013. I would thus expect that market rates will soon
correct themselves to reflect the stance of Monetary Policy.

A subtext of the argument for reducing the Monetary Policy Rate
(MPR) concerns the impact of monetary policy decisions on the
cost of credit. In on-going work exploring the relationship between

the MPR and key macro‐ economic parameters between Jan
2007 and Feb 2013, VAR analysis suggests that while there is a
positive and significant relationship between the MPR and the
Maximum Lending Rate (MLR), the relationship between MPR and
the Prime Lending Rate (PLR) is insignificant. Though the
insignificance of the relationship between MPR and PLR is
surprising, it is consistent with the observed concentration of
access to credit – the top 100 borrowers account for
approximately 40percent of total lending.

These preliminary results seem to confirm that whilst the prime
borrowers exercise market power in their borrowing relationship
with financial institutions, the lenders dominate other borrowers.
An important question which then arises is how much of total
economic activity comes from the top 100 borrowers, who
account for 40percent of lending? Providing answers to questions
of this nature will enable determination of the growth impact of
monetary policy decisions.

Recent pressure on the Naira serves as a warning of the currency
challenges with which monetary policy may have to deal. With
Portfolio Investment inflow of $13.413bn in 2012 and an average of
US$2.13bn in the first two months of 2013 – 85percent of which
went into the Equity Market, the challenge of managing capital
outflows as international investors change portfolio allocation
decisions cannot be understated and should therefore not be
underestimated. While it is clear that foreign savings cannot be
expected to be more than supplements for domestic savings, the
exchange rate stability which portfolio inflows have enabled
affords time, though limited, to meaningfully embark on the
process of structural reforms which reduce our exposure and
vulnerability to external events.

10.0 UCHE, U. CHIBUIKE
At the last MPC meeting in January 2013, I was part of the minority
that voted for a cautious reduction in MPR which had for over one
year remained at 12 percent. Developments in the past two
months have further strengthened my belief in the need for MPC

to rethink its position and signal an end to its current tight
monetary policy stance in a cautious and responsible way.

I am particularly emboldened by the fact that our base rate
remains in positive territory as inflationary pressures continue to
moderate albeit mildly. The inflation trend analysis for 38 months
suggests that inflation volatility has reduced and that headline
and core inflation are on the decline. It is important to note that
both the headline and core inflation which currently stand at 9.54
percent and 11.18 percent respectively (February 2013) are both
below the current MPR.

The consequences of the high MPR and tight monetary policy
stance of MPC remain obvious. It has for instance provided little
incentive for the development of the real sector which is central
to the attainment of sustainable economic development in our
country. This has been complicated by the increasing margins
between the lending and borrowing rates in our economy. It is
public knowledge that the excessive interest rates banks charge

on loans and advances is a major impediment to economic
development and even the health of our financial system.

Furthermore, despite the high MPR, deposits in the banking sector
continue to earn negative real returns. On the other hand, banks
charge borrowers‟ rates that double or even triple the MPR rates.
The consequence of the above is that the high MPR is basically
being exploited by the banks. Depositors are simply being forced
to subsidize bank profits in an oligopolistic market. In the long run
of course both banks and depositors will lose. This is because there
is always a positive correlation between the health of banks and
that of the underlying economy. Any monetary policy model that
does not recognize this fact cannot, in my view, be sustainable. As
I made explicit in my last MPC policy statement:

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. We
therefore need to do more to curtail the widening gap between
banks‟ deposit and lending rates.

At another level, as in previous MPC meetings, I have always
disagreed with the “popular view” that maintaining high MPR
makes Nigeria competitive with respect to attracting Foreign
Direct Investments. This is because most of these so called FDIs are
simply speculative capital looking for short term profit outlets. This
kind of capital does not develop economies. Admittedly,
attracting such monies usually help central banks to curtail
exchange rate pressures. This however happens only in the short
run. History has shown that speculative capital is always volatile
and economically destructive in the long run. The reverse flow of
such capital can easily put pressure on both currency exchange
rates and the capital market. The recent pressure on the Naira is
no doubt, at least in part, a consequence of FDI flow reversals.
Few will also dispute the fact that speculative FDI is partly
responsible for the current appreciation of share prices in Nigeria.
Such influences are clearly not sustainable.

For the avoidance of doubt, I have always conceded the fact
that the tight monetary policy stance of MPC has helped curtail
inflation in a rent economy with a long history of government fiscal
indiscipline. Despite this, it is important to carefully weigh the costs
of the tight monetary policy stance against its benefits. In
undertaking this balancing act, I am of the view that, even with
MPC‟s best efforts at maintaining price stability, the relatively high
global oil prices have been the most important ingredient in the
attainment of monetary policy stability in Nigeria in recent times.
Any material adverse change in international oil prices will spell
doom for our exchange rates, reserve accretion, inflation and
even political stability.

In the light of the above therefore, it is important that MPC should
always maintain objectivity in measuring its monetary policy
stability achievements. The real challenge for MPC is to develop
and promote policies that will grow the real sector in order to
diversify the economy away from oil rents. Doing this, especially
given the peculiar fiscal policy management complications of our

country, will not be easy. Any little progress we can make in this
direction will by far outweigh the short term benefits (which the
MPC even with its best efforts cannot guarantee) of crowding out
the real sector with high MPR in the guise of promoting monetary
stability. Whatever we do, it is always important to keep in mind
that monetary stability cannot be an end in itself. It makes sense
only when it helps promote real sector growth and development.
The argument that reducing MPR will not translate to any material
increase in credit to the real sector should not stop MPC from
moving in the only direction that can help in the attainment of
real sector development which is the underlying reason for its
monetary stability mandate. The current positive MPR terrain puts
MPC in a strong position to take a bold stance on monetary
policy.

It is in the light of the above I hereby vote as follows: (1) to reduce
MPR by 50 basis points to 11.50 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.

11.0 YAHAYA, SHEHU
I vote to maintain the Monetary Policy Rate at the current level of
12%. This is justified by the fact that there have been few
fundamental developments since I voted to maintain the policy
rate in January 2013. The two main changes that have occurred in
the domestic economy do not, as yet, justify a change of stance.

At the global economy little has changed since January, except
the recent upsurge in the stock markets. Growth has slowed to an
estimated 3.2% from 3.9%. Growth is picking up in countries such
as China, Brazil and Indonesia. It has also picked up a bit in the US,
but may be negatively affected by the sharp cuts in government
spending. Growth is robust in Africa and the Middle East, but the
countries in these regions account, at the moment, for only a small
proportion of the country‟s trade.

Although international oil prices are still high, there is a downward
trend in January-February, a trend which is expected to continue
in the next six months, not just because of the slow growth in the
global economy, but also due to the massive increase in shale oil

production in US and Canada which will affect demand for
Nigeria‟s Bonny light crude. Global prices are still on a downward
trajectory.

In Nigeria, GDP is estimated to have grown at 6.58%, slightly below
the projected growth rate and slower than 2011, although a slight
pick-up is expected in Q1 of 2013. Growth is largely driven by the
non-oil sector, while oil production declined in 2012. Food output
prospects for 2013 are cautiously optimistic.

Reserves are at a healthy level of US$49.4 billion, equivalent to 13
months of imports. The stock exchange has shown a significant rise
in value and shares traded. However, much of the investment
may be in the form of hot money. In the event of a significant
reverse in portfolio investment therefore, this could have a
deleterious effect on the level of reserves.

From the point of view of monetary policy, there are two main
developments in the Nigerian economy since the January 2013
MPC meeting. The first is a surge in demand for foreign exchange

in the current month. Ordinarily, this can call for a tightening of
monetary policy in order to ease the pressure and maintain the
stability of the exchange rate around the policy band. However, I
believe this challenge can be addressed through the judicious
utilization of the reserves and open market operations.

The second development is more significant from the point of view
of monetary policy- the decline of headline inflation rate to 9% in
January 2013, which on the face of it may signal the creation of
more room for easing monetary policy. However, the significance
of this fall in headline inflation rate is undermined by the base
effect of the high price levels emanating from the adjustment in
fuel prices in January 2012. Furthermore there has been an upturn
to 9.5% in headline inflation in February 2013. Food inflation
(particularly farm produce) has also gone up. In addition, it is
premature, on the basis of the figures for one month, or even two
months, to determine that there is a fairly well established trend
sufficient to justify a substantial change in policy.

The above position is strengthened by a consideration of the fiscal
situation. There is no doubt that there has been a significant
improvement in fiscal policy and implementation and greater
prudence as compared to previous years. Nevertheless, some
time is needed to study the effects of the implementation of the
2013 budget before its impact on spending and money supply
can be properly gauged. This is particularly because the budget is
predicated on a level of oil output that might be too optimistic.
The surge of 18% in financial sector lending to the government
sector in February 2013 (Year on Year), although by itself is not
necessarily a bad thing, underlines the importance of carefully
watching the trends on the fiscal side.

Unfortunately, there has been no decrease in interest rates
charged by the Banks, and the gap between deposit and lending
rates remains very wide, which obviously, in combination with
other factors, makes it hard for SMES to borrow.

Overall, there is a high risk that easing monetary policy too early
before an established downward trend of prices is established,

may generate inflationary pressures and Naira depreciation. At
this time, this outweighs other considerations. I therefore vote to
maintain the MPR and the Cash Reserve Requirement at the
current level of 12%

12.0 SANUSI LAMIDO SANUSI, CON, GOVERNOR, CBN AND
CHAIRMAN, MONETARY POLICY COMMITTEE

We are holding this meeting at a time when the global economic
environment has not changed much since the last meeting. The
IMF has revised its forecast of Global and Emerging Market growth
in 2013 marginally downwards, but still projects an improvement
over 2012. Emerging Asia is likely to continue showing resilience to
global headwinds although a massive showdown in Indian growth
is a source of concern.
On the domestic front GDP growth in 2012 and projection for 2013
remain robust. As predicted, inflation figures have come down to
single digits with headline Year-on-Year at 9.0% in January and
9.5% in February. A major reason for this outcome is the base
effect of the first and second round inflationary impact of the
partial removal of fuel subsidy in January, 2012. Inflation is

expected to remain in high single digits for most of the year,
touching the 10% range at some points. Expectations are that the
rate in March will be lower than February, but headline numbers
will hover around 10% for the second and third quarters. This
outcome reflects a combination of base effects, the impact of
food harvest season, and continuing tight monetary policy stance.

There is no doubt that the monetary policy decisions taken by this
committee over the past three years have turned out to be the
correct ones, and have yielded desired outcomes. Inflation had
actually come down to single digits at end of 2011 from around
16% in the early part of 2009. There is every reason to believe that
without the oil subsidy price shock, 2012 would have witnessed a
lower average inflation rate. Our decisions have reduced the
inflation rate and, importantly, its volatility. We have also
succeeded in stabilizing the exchange rate and keeping it within
our target band. External Reserves have grown to almost $50
billion on the back of high oil prices, exchange rate stability, and
tight monetary stance (thus attracting significant portfolio flows
into the capital markets).

Macro Risks
While recognizing the good work done in establishing stability on
all fronts, we must recognize the inherent risks in the policy and
strategy adopted. Reserves have grown to almost $50b as
indicated but an increasing percentage of reserve accretion
comes from potentially volatile portfolio flows. In 2012 for
example, out of the total capital imported of $16.6 billion, only $2
billion came in the form of FDI, compared to $11.82 billion portfolio
inflows into equities and $1.66 billion into Bonds and money market
instruments. In the first two months of the year capital importation
amounted to about $4.94 billion. Out of this 72.2 % was portfolio
investment in the Equity market, 10.92 % in Bonds and 3.05 % in
money market instruments (a total of 86.17 %). Only 9.52 % came
in as equity FDI.

It is therefore important to always bear in mind the financial
stability and sustainability implications of these flows. First, it is
evident that the recovery of the Capital Market is driven, in large
part, by those huge inflows. The problem is magnified by what, in

my view, was a pre-mature decision to increase the symmetric
limit for daily stock price movement from 5 % to 10 %. While
Capital Market regulators hold the view that this would improve
the price discovery mechanism, engender trading efficiency and
make the market less predictable, I believe that the decision,
taken at a time of loose money in the advanced economies and
significant “carry trade”, is at least partly aimed at fast-tracking
the increase in the All-Share-Index. The potential to make up to 10
% gain in a single day attracts “hot-money” into the system and
raises stock prices rapidly. But just as in 2008, this means the stock
market would crash just as rapidly in the event of a reversal of
flows. With reserves at $49.3 billion out of which $37.45 billion (or
75.8 %) is owned by the CBN, the macro risks are fairly wellmitigated. However the risks to the capital markets of an oil price
shock cannot be ignored, and the CBN must ensure that banks
comply with all the rules set up to ring-fence deposits and keep
DMBs from taking bets on asset prices.

The point here is not to discourage foreign investment of any kind.
Rather it is to point out that the skewed nature of the capital

imported toward equities is an indictment of government
economic policy. These very low levels of FDI reflect failure to
create conducive environment for long-turn investment due to
policy somersaults around PPPs and slow progress in power and oil
industry reforms. The general deterioration in the security of life
and property in the north, as well as an increasing sense of rising
corruption and impunity also discourage investment.

The solution, therefore, is not to discourage portfolio flows or treat
them as inherently undesirable, but to fast track the necessary
improvements in governance and policy that will attract longerterm flows. We must keep reiterating that our decisions provide
stability in the short-term but for long-term stability, fiscal
retrenchment and structural reform are essential. If this is not
done, there is no guarantee of sustaining the gains of monetary
policy into the future.

Considerations
At this moment, however, we must acknowledge the successes of
monetary policy and stress the importance of maintaining course.

With the approval of the 2013 budget based on an optimistic
combination of price and output assumptions, the fiscal stance in
2013 will be unhelpful to monetary policy. To end the tightening
cycle based on two months data and in the face of a relatively
loose fiscal stance would in my view be pre-mature. It must be
noted that although the fiscal authorities have indeed embarked
on a part of consolidation, this high oil-price benchmark slows the
pace of fiscal reforms.

The exchange rate has remained within our target range, even
though it has come under relative pressure of recent. However
this is not a cause for concern. With OBB and Interbank rates stuck
to the lower end of our policy range for some weeks, there is
scope for tightening using open market operations without
breaching the ceiling of 14%. A combination of a structured use
of OMO and interventions in the inter-bank market should keep
the exchange rate within our range with no difficulty. There is no
need for increasing MPR to address this situation, given the
monetary space at our disposal.

Conclusion
I am not convinced that lowering MPR will lead to lower lending
rates or higher GDP growth. I also think sending a signal of
loosening at this point is premature in the face of the budget and
exchange rate pressure. I also believe that if we maintain MPR
and use OMO wisely, the market will correct itself and yields will
rise to a level where the pressure on the naira is lifted once more.

In summary I believe we are in the right place and should remain
there, while bearing in mind the risks highlighted above.

I vote for retaining the status quo.