Central Bank of Nigeria Communiqué No. 62 of the Monetary
Policy Committee Meeting, April 08, 2009

The Monetary Policy Committee (MPC) met today to review the challenges posed
to the Nigerian economy by the complex mix of external and domestic economic
and financial developments. The Committee recognized at the outset that external
forces have had a severe impact on the Nigerian economy through trade, finance
and confidence channels. The Committee, however, noted that the severity of the
impact could be alleviated by undertaking appropriate economic and financial
policies, taking into account the evolving international economic situation.

The Committee noted that movements in crude oil prices play a critical role in the
Nigerian economy. This has limited the macroeconomic and external performance
of the economy since October 2008. During the first quarter of 2009, the outcomes
have been mixed.


Key Economic and Financial Developments

The Committee reviewed the recent policy initiatives by the CBN to stabilize the
foreign exchange market and to improve liquidity conditions in the domestic
money market. It welcomed the staff assessment of the positive impact of these
initiatives on the domestic economy, given the market view of the outlook in the
context of the global economic and financial crisis.

Domestic Output

Provisional aggregate output growth in the first quarter of 2009 was estimated at
6.32 per cent by the National Bureau of Statistics (NBS) compared with 5.78 per

cent in the corresponding quarter of 2008. For 2009 as a whole, the NBS estimate
of real output growth is 5.75 per cent. Compared with the growth outlook of the
rest of the world, the projected domestic output growth is robust.

Price Developments

Inflation

Inflation has been high and a matter of concern. The Committee noted the upward
swing of the year-on-year headline inflation from 14.0 per cent in January to 14.6
per cent in February 2009. Core inflation, however, decelerated to 7.2 per cent in
February from 8.0 per cent in January whereas food inflation rose from 18.4 per
cent in January to 20.0 per cent in February. The outlook for inflation in the near
term remains uncertain. Nonetheless, the staff estimates indicate that inflation
could decelerate to single digit by mid-2009, in response to subdued aggregate
demand, lower impact of imported inflation and the near-completion of the passthrough effect of the depreciation of the Naira.

Interest Rates

The domestic money market rates have been under pressure since February 2009.
The weighted average inter-bank call rate went up from 17.62 per cent in February
to 22.15 per cent in March. The collateralized Open Buy Back (OBB) rate
however was lower than the Monetary Policy Rate (MPR). The deposit and
lending rates too have inched up. The staff expects that in the near-term, interest
rates are likely to moderate in response to expected subdued inflation and

improvements in the liquidity conditions facilitated by the CBN initiatives in this
regard.

Exchange Rate

The MPC noted with satisfaction the positive outcomes of measures taken recently
in stabilizing the exchange rates in all the segments of the market. The demand for
foreign exchange has moderated significantly in the retail Dutch Auction System
and will continue to be sustained in the near term.

Monetary and External Developments

Provisional data indicates that broad money (M2) declined by 1.14 per cent in
February 2009 over the end-December 2008 level. However, on a year-on-year
basis (February 2009 over February 2008) M2 grew by approximately 30 per cent.
This was mainly on account of 44 per cent (on annualized basis) growth in credit to
the private sector by end-February 2009. The order of expansion in M2 on a yearon-year basis is in line with long term trends and could be sustained in the short to
medium term.

The Committee noted that financial conditions in the country remain robust. There
are no apparent systemic threats to the banking system. Regulatory practices and
guidelines are generally in line with best practice. The Committee further noted
with satisfaction the efforts being made to continuously improve upon the
regulatory framework.

Foreign exchange reserves position has continued to support external
sustainability, facilitated by the downward movement in the overall world trade
and financial flows.

Policy Coordination

The Committee is of the view that for monetary policy to be credible and effective,
it should have the support of appropriate fiscal policy and structural reforms. The
Committee therefore reaffirmed its commitment to coordinate monetary policy
actions with those of fiscal and other institutional and regulatory policies. The
MPC underscored the importance of the CBN acting in concert with the fiscal
authorities in the efforts at addressing the global economic and financial crisis.

Conclusion:
In conclusion, the MPC observed the relative tight monetary conditions in the
economy, and hence the need for monetary easing. The major pressure points for
monetary policy in the short term include:
• Liquidity tightness and hence relatively higher interbank interest rates, and
also pressures on other interest rates
• Lower growth rate of credit to the private sector compared to the trend in the
last three years
• Rising food price inflation, and need for increased agricultural output
• Ensuring the continuation of banking and financial sector stability and
soundness

Decisions
In view of the above, the MPC decided to:
i)
Reduce MPR from 9.75 per cent to 8.0 per cent;
ii)
Reduce the liquidity ratio from 30.0 per cent to 25.0 per cent with effect
from April 14, 2009; and
iii)
Reduce the Cash Reserve Requirement (CRR) from 2.0 per cent to 1.0
per cent with effect from April 14, 2009.

The MPC also commended the earlier CBN Board’s decision and Mr.
President’s approval in respect of the N200 billion special agricultural fund for
large scale agriculture. The CBN will fully underwrite the cost of the fund, and
ensure immediate implementation. This initiative will significantly reduce food
price inflation, and assist the CBN in achieving its core mandate of price
stability.


Professor Chukwuma C. Soludo, CFR
Governor, Central Bank of Nigeria
April 8, 2009