MINUTES OF THE 216TH MEETING OF THE MONETARY
POLICY COMMITTEE (MPC) HELD ON TUESDAY 21ST
SEPTEMBER, 2010 IN THE MPC MEETING ROOM, 11TH FLOOR,
CBN, ABUJA
ATTENDANCE
1. Sanusi L. Sanusi - Governor, (Chairman)
2. Sarah O. Alade - Deputy Governor, (Econ. Policy)
3. Kingsley Moghalu - Deputy Governor, (Financial System Stability)
4. Sam O. Olofin - Board Director
5. Danladi Kifasi - Board Member, Perm. Sect, Fed. Min. Fin.
6. Adedoyin R. Salami - Member, MPC
7. Abdul-Ganiyu Garba - Member, MPC
8. John Oshilaja - Member, MPC
9. Okorie A. Uchendu - Director, MPD, Secretary
10. Uwatt B. Uwatt - Dep. Director, Deputy Secretary
OBSERVERS
11. Vincent Akinyosoye - Statistician Gen., Nat. B. of Statistics
12. Joe Alegeiuno - Director, Development Finance
13. Charles N. O. Mordi - Director, Research
14. O. F. Owolabi - Ag. Director, Financial Markets
15. Chris Chukwu - Ag. Director, Fin. Policy & Regulation
16. Lamido A. Yuguda - Ag. Director, Reserve Management
17. Folakemi Fatogbe - Ag. Director, Risk Management
18. Nathaniel T. Igba - Dep. Director, Trade & Exchange
19. Ahmad Abubakar - Dep. Director, Banking Supervision
20. Ibrahim Adamu - Dep. Director, Statistics
ABSENT WITH APOLOGIES
1. Tunde Lemo - Deputy Governor, (Operations)
2. Suleiman Barau - Deputy Governor, (Corporate Services)
3. Shehu Yahaya - Member, MPC
4. Chibuike U. Uche - Member, MPC

.

Opening
1.)
The meeting commenced at 10.07 a. m. with a general
prayer at the instance of the Chairman.
Minutes of the Previous Meeting
2.) With no observations for corrections, the minutes of the
215th meeting, held on Monday 5th July, 2010, were adopted
with motions by Sam O. Olofin and Adedoyin Salami. The
Committee, therefore, commended the Secretariat for the
error-free Minutes.
Matters Arising from the Minutes of the Last Meeting
3. None was raised.
4.) Presentations by the Departments:
Real Sector, Monetary Developments, Financial Markets,
Global Developments and Outlook
The highlights of the Economic Report were:
i) Projections by the National Bureau of Statistics indicated
that real Gross Domestic Product (GDP) would grow by 7.72
per cent in the third quarter of 2010 compared with 7.69 per
cent and 7.23 per cent in the second and first quarters of
2010, respectively. GDP was projected to grow by 8.19 per
cent in the fourth quarter of the year which would be driven
by the agriculture, wholesale/retail trade and services sectors

with relative contributions of 3.09, 2.38 and 2.38 per cent,
respectively. The oil sector was projected to positively
contribute 0.62 percentage point in the third quarter and 0.63
percentage point in the fourth quarter of 2010 as against the
contributions of 0.12 and 0.14 per cent in the third and fourth
quarters of 2009.
ii) The year-on-year headline inflation increased marginally to
13.7 per cent in August 2010 from 13.0 per cent in July 2010,
compared with 14.1 per cent in June and 12.9 per cent in May
2010. The higher inflation rate was attributed to the enlarged
and rebased index of consumer prices.
According to the National Bureau of Statistics (NBS), the
change in base year, from May 2003 = 100 to November 2009
= 100, arose from the need to adjust the composite weights of
the major commodity groups. The new basket contained new
products
which
reflected
the
growing
importance
of
expenditure on non-food items such as clothing and footwear,
furnishings, household equipment and household maintenance,
health, transport, communications, and education, while a few
obsolete items in the basket were removed.
Similarly, the core measure of inflation rose to 12.4 per cent
in August 2010 from 11.3 per cent in July 2010, compared with

12.7 per cent in June 2010. Food inflation also increased to
15.1 per cent in August 2010 from 14.0 per cent in July 2010.
The implications of the rebasing of the CPI for monetary
policy were that the inflation rate based on the old index
might have been under-estimated, while the declining weight
of food in favour of non-food items indicated changes in the
structure of prices in the economy in favour of non-food
necessities for modern living, thus reducing the influence of
volatile components in the CPI.
According to the report, while inflation trended upward during
the review month, anticipated injection by the AMCON,
expected fiscal injection from 2011 election expenses,
payment of salary arrears to Federal civil servants, increased
expenditure during the end of year festivities and the
implementation of the CBN quantitative easing policy measures
could constitute sources of further inflationary pressures.
iii) As at September 17, 2010, the inter-bank call and OBB
rates rose to averages of 3.56 and 2.91 per cent, respectively,
above their levels of 1.26 and 1.25 per cent in August 2010.
The average maximum lending rate rose to 22.31 per cent in
August 2010 from 22.27 per cent in July 2010. However, the
average prime lending rate consistently fell to 16.89 per cent

in August 2010, from 17.40 and 17.65 per cent in July and
June, 2010, respectively.
The weighted average savings rate declined consistently to
1.41 per cent in August 2010 from 1.62 and 1.95 per cent in
July and June 2010, respectively. The consolidated deposit
rate also declined to 2.27 per cent from 2.40 per cent in July
2010.
Thus, the spread between the average maximum lending rate
and the consolidated deposit rate widened marginally to 20.04
per cent in August 2010 from 19.87 per cent in July 2010.
iv) The average foreign exchange demand and sales per
auction in August 2010 stood at $309.90 million and $216.50
million, representing a sales-demand ratio of 69.86 per cent as
against the average demand and sales of $224.58 million and
$201.56 million in July 2010, or sales-demand ratio of 89.79
per cent.
On September 17, 2010, the wDAS exchange rate closed at an
average of N150.96/US$1 as against an average of
N150.78/US$ in August 2010, indicating a depreciation of
N0.18 or 0.11 per cent. In the BDC segment of the foreign
exchange market, the average selling rates of N153.50/US$
and N152.23/US$ were recorded on September 17, 2010 and

August 2010, respectively, representing a depreciation of 0.83
per cent. Similarly, in the inter-bank market, the average
selling rates on September 17, 2010 and August 2010 were
N152.05/US$ and N151.55/US$, respectively, indicating a
depreciation of 0.33 per cent.
The country’s gross external reserves stood at US$36.93
billion on 16th September, 2010, indicating a decline of
US$0.21 billion or 0.61 per cent when compared with
US$37.16 billion at the end of July 2010. The reserve level
fell by US$6.41 billion or 14.97 per cent when compared with
US$43.34 billion as at end-September 2009. The available
reserves level as at end-September could cover 18 months of
import at the current level of utilisation.
Total foreign exchange inflows in July 2010 was US$2.25
billion, representing an increase of US$0.19 billion or 9.22 per
cent over the US$2.06 billion recorded in June 2010. Of this
inflow, crude oil/gas revenue was US$2.16 billion or 93.97 per
cent while the other sources of inflow contributed US$0.09
billion or 6.03 per cent. Total outflows for the same period
amounted to US$4.03 billion, indicating an increase of
US$0.15 billion or 3.78 per cent over the US$3.88 billion
recorded in the preceding month. Thus, there was a net

outflow of US$1.78 billion during the review period. Inflows
from autonomous sources like oil companies, international
institutions and home remittances in July and August 2010
amounted to US$5.3 billion and US$4.7 billion, respectively.
Autonomous inflows from January to August 2010 totalled
US$37.8 billion. These inflows helped to augment foreign
exchange inflows from official sources and stabilized the
exchange rate.
v) The retained revenue of the Federal Government in August
2010 was N175.00 billion compared with an expenditure of
N390.79 billion during the month under review, resulting in a
deficit of N215.79 billion as against the proportionate budget
deficit of N222.15 billion for the month. The cumulative
retained revenue of the Federal Government from January to
August 2010 stood at N1,574.54 billion, which was lower than
the proportionate budget revenue of N1,662.55 billion for the
period by N88.01 billion or 5.29 per cent. The cumulative
expenditure of the Federal Government for the same period
was estimated at N2,411.97 billion and was lower than the
proportionate budget expenditure of N3,439.76 billion by
N1,027.79 billion or 29.88 per cent. The estimated deficit
resulting from the projected expenditure for the period was

N837.43 billion.
The report also showed that the total borrowing requirements
of the Federal Government was N600 billion and that the
Debt Management Office (DMO) would raise the sum of N150
billion every month beginning from September 2010 to the end
of the year.
The Committee was informed that three State Governments
had accessed the capital market to raise funds through the
issuance of bonds. These were Lagos State (N57.50 billion),
Bayelsa State (N50.0 billion), and Kaduna State (N8.50
billion). Ebonyi State was processing its application to raise
N16.50 billion before the end of the year.
vi) The broad measure of money supply (M2) increased by 7.0
per cent in August 2010, which when annualised, represented a
rise of 10.50 per cent compared with the indicative benchmark
of 29.26 per cent for 2010. The increase in the growth of M2
mainly reflected the substantial growth in credit to the
Government. Aggregate credit to the economy grew by 18.0
per cent, which annualised to 27.0 per cent compared with the
target credit growth of 55.54 per cent for 2010. Credit to
the private sector fell by 0.91 per cent in August 2010 or 1.37
per cent on annualised basis as against the benchmark of

31.54 per cent for 2010. Credit to the core private sector
declined by 0.78 per cent in August 2010 which annualized to
1.17 per cent. Credit to the government grew substantially by
65.81 per cent in August 2010 or 98.72 per cent on annualised
basis compared with 51.36 per cent indicative target for 2010.
The decline in reserve money (RM) observed since 2009
continued into the third quarter of 2010 and remained below
the indicative benchmark. Reserve money, which stood at
N1,691.29 billion as at end-August 2010, fell by 16.78 per cent
to N1,407.51 billion on September 13, 2010 and was below the
indicative benchmark of N2,006.02 billion for the third
quarter of 2010 by N598.51 billion or 29.83 per cent. The
decline in RM was attributed to the sharp drop in DMB’s
deposits with the CBN which fell to N257.70 billion on
September 13, 2010 from N596.79 billion as at end-August
2010, while currency in circulation increased to N1,149.81
billion on September 13, 2010 from N1,094.5 billion as at endAugust 2010.
There was no request for the Standing Lending Facility (SLF)
in August and up to September 17, 2010. The Standing Deposit
Facility (SDF) fell to N131.40 billion on September 17, 2010
from a monthly average of N294.57 billion in August 2010.

vii) The decline in key Nigerian capital market indicators
continued. The All Share Index (ASI) fell by 9.4 per cent to
22,993.77 on 17th September 2010 from 25,384.14 at endJune 2010. Similarly, market capitalisation decreased by 8.7
per cent to N5.63 trillion on 17th September, 2010 from N6.17
trillion at end-June 2010. The number of deals, volume and
value of shares traded fell by 4.6, 14.8 and 6.1 per cent,
respectively. The decrease in ASI and MC was partly
attributed to share price decreases in the banking,
food/beverage, insurance and oil and gas sectors.
viii) Developments in the Global Economy:
The performance of the global economy was mixed:
There was a mild threat of inflation observed in most of
the countries surveyed;
Stock prices fell in most countries;
Exchange
rate
developments
were
mixed
across
countries.
All the countries surveyed maintained their policy rates
except Chile and South Africa which increased their
policy rates.
Selected indicators for the US economy suggested a
slow down in economic activities.

There was risk of economic downturn in Sub-Saharan
Africa due to the European fiscal retrenchment.
The global commodities market was affected by several
natural disasters such as flooding in China and Pakistan
as well as wild firestorms in Russia. Consequently,
commodity prices, especially food grains, trended
upwards with the risk of inflation pass-through from
major food exporters to consuming countries including
Nigeria.
ix) Outlook for the Future
Money market rates and other interest rates were
expected to remain low in the light of the existing
guarantee of inter-bank fund transactions and anticipated
liquidity injection.
There was heightened inflation risk thus making it difficult
to realise the single digit inflation target for the year.
The growth in M2 would likely improve in the fourth
quarter
following
the
implementation
of
the
CBN
quantitative easing measures such as utilisation of the
N250 billion and N50 billion by the Power and Aviation
sectors, respectively; refinancing/restructuring of DMB’s
exposures to manufacturers worth N200 billion, expected

huge electioneering expenses, payment of FGN workers’
salary
arrears;
increased
end
of
year
festivities
expenditures as well as the commencement of AMCON
operations.
Reserve money (RM) would continue to be below the
indicative benchmark in the near term.
With increased oil production following relative peace in
the Niger Delta region and higher oil prices expected to
rise up to $84 a barrel and efficient tax collection,
Federally-collected revenue would improve.
The naira exchange rate would remain stable in the near
term following the 2009 liberalization of the market, while
foreign exchange from autonomous sources would continue
to increase.
The capital market was expected to resume its upward
trend in the near term following on-going reforms in the
market.
Pressure Points and Policy Challenges
x) The pressure points identified in the report were:
The
continued
under-performance
of
monetary
aggregates
Heightened inflation threat resulting from anticipated

liquidity injections
High demand for FGN Bonds and possible market bubble.
The challenges for monetary and credit policy in the near
term were identified as:
provision of adequate incentives for banks to lend
surplus funds to the real sector
sustaining exchange rate stability
avoiding the incidence of FGN Bond market bubble
Moderating inflationary expectations; and
Minimising the crowding out effect of increased issuance
of bonds by both the Federal and States Governments.
xi.) Update on the Implementation of Previous MPC
Decisions before the September 21, 2010 Meeting:
The updates were as follows:
a) Of the N500 billion approved for power and aviation
sectors as well as for the refinancing/restructuring of
manufacturer’s portfolios with the DMBs, about N199 billion
had been paid to the Bank of Industry (BOI) for disbursement
towards the refinancing/restructuring of manufacturers’
exposures to the DMBs.
b) The nominees for the Board of the AMCON were awaiting
Senate confirmation.

c) Of the other liquidity injections approved by the CBN,
N80.701 billion had already been disbursed under the
Commercial
Agricultural
Credit
Scheme
(CACS),
while
N368.84 million had been paid by the Bank as its 6.0 per cent
interest rebate obligation on 35 large scale agricultural
projects under the Agricultural Credit Support Scheme.
Discussion of the Report
5.) A member observed that the gap between the deposit and
lending rates were still wide and asked whether there was a
model for determining interest rates in Nigeria. The Chairman
noted that the banks had failed to submit their risk-based
interest
rate
pricing
model
arising
from
the
nonimplementation of the decision taken at the April meeting of
the MPC. The Deputy Governor, Financial System Stability,
informed the meeting that the decision had been implemented
but that more pressure needed to be exerted on the banks
for full compliance with the directive. Currently, there
appeared to be no link between the MPR and interest rates.
Another member requested to know what accounted for the
slow pace in the disbursement of SME intervention funds. The
Committee was informed that the disbursement had been
done and that the Bank had been commended by Mr. President

who noted that the intervention had saved jobs in the
beneficiary companies.
On the power intervention fund, members were informed that
the fund was tied to having the right power policy and that
the Bank would provide guarantees for PENCOM to release
about N400 billion for the power sector. Funding the power
sector from PENCOM funds would reduce the burden of high
interest rates as well as remove the foreign exchange risks
arising from funding such projects through foreign loans.
Another member expressed concern about the increasing
exposure of the CBN balance sheet to risk through the
quantitative easing policy and noted that measures should be
taken to mitigate such risks. According to him, there was
pressure on interest rates. Increased Government funding of
its expenditure through bonds had the potential for crowding
out the private sector while there was the prospects of a
bubble in FGN bonds. In view of all these, there was need for
the Bank to express its concern in a way that would send out
appropriate signals to the market.
In response to a question that the time had come to deemphasise financial system stability and focus on the inflation
threat, the Chairman pointed out that there was no time at

which the MPC neglected the control of inflation, but that the
inflation risk had not been very high. On credit risk, he
emphasised that the dimension of the risk was what mattered.
On the concern about inflation, it was noted that interest
rates might not rise with an increase in the MPR.
Policy Proposals for Monetary Policy Actions
6.) On the basis of the reports and discussions, the following
proposals for monetary policy actions were presented to the
Committee:
Scenario 1:
Retention of the MPR at 6.0 per cent: The arguments in
favour of this proposal were that maintaining the existing
monetary policy stance would sustain market expectations
with respect to inflation, interest and exchange rates. This
would allow uninterrupted implementation of approved policies
and the achievement of their objectives.
On the other hand, allowing the existing policy rate to remain
would signal insensitivity to the inflation threat arising from
the various liquidity injections anticipated towards the end of
the year.
Scenario 2:
Raise the MPR by 50 basis points:

The policy decision based on this proposal would signal
monetary policy tightening in response to the prospects of
heightened inflationary pressures arising from anticipated
liquidity injections in the near term. This proposal also took
cognizance of the moderating impact of the Debt Management
Office and State Governments sourcing of funds from the
financial market. The argument against this policy action was
its potential of raising MPR-tied lending interest rates.
Scenario 3:
Retain the MPR at 6.0 per cent but raise the cash reserve
ratio and liquidity ratio by 100 and 500 basis points,
respectively.
This policy decision would signal monetary policy tightening
while interest rates that were linked to MPR might not rise.
The argument against this proposal was that there would be an
upward pressure on some components of cost of funds.
The Committee was invited to consider the proposals as
presented.
7) Discussion of the Proposals for Monetary Policy Actions
In considering the proposals for monetary policy decisions,
the Chairman invited comments from the members on the
components of the Consumer Price Index (CPI) that the

Committee could reasonably focus attention on. This question
arose as a result of the rebasing of the CPI by the National
Bureau of Statistics which had effectively showed the
declining proportion of food in the index. A member raised
concerns about the proposal to increase the MPR. According
to him, an increase in the MPR would cause interest rates to
rise, and asked what the impact would be on the naira
exchange rate. He enquired whether the Bank was ready to
sacrifice the foreign exchange reserves in defending the
exchange rate. Responding, the Chairman informed the
members that with the liquidity injections expected towards
the end of the year from the Federal Government’s
expenditure, the AMCON purchase of non-performing loans
and election expenses, the Bank could mop up liquidity through
the use of open market operations. This monetary policy
action would reduce liquidity and reduce pressure on the
exchange rate, he noted, adding that raising the MPR would
also increase the cost of borrowing by the Government.
Voting and Decisions of the Meeting
8) After deliberations, the Committee unanimously voted to:
i) raise the Monetary Policy Rate (MPR) from 6 per cent to
6.25 per cent.

ii) adjust the asymmetric corridor of interest rates at
MPR+200 basis points and MPR-300 basis points for the
Standing Lending Facility and Standing Deposit Facility,
respectively.
iii) resume the sale of Treasury Bills through the open market
operations (OMO).
Any Other Business
9) The Deputy Governor (Economic Policy) sought the
permission of the Chairman for the dates of the meetings to
be shifted from the first to the third week of the month so
that departments providing inputs for the report could have
enough time to get reliable and up-to-date data. Responding,
the Chairman directed that meetings should continue to hold
in the first week of the month until the end of the year when
the calendar for the 2011 meetings would be announced.
The Deputy Governor (Economic Policy) also requested the
Chairman’s approval to move the MPC meeting to the new
meeting room in order to have enough space for participants.
Date of Next Meeting
10.) The next meeting was scheduled to hold in the third week
of November 2010.

Closing
11.) The meeting ended at 1.12 p.m. with a general prayer
directed by the Chairman.


CHAIRMAN SECRETARY
DATE