CENTRAL BANK OF NIGERIA COMMUNIQUE No. 59 OF THE MONETARY
POLICY COMMITTEE, DECEMBER 11, 2008

The Monetary Policy Committee (MPC) held its 206th meeting today, December 11,
2008 and reviewed the economic and financial developments in the international
scene and the domestic economy. The Committee noted the continued weakening of
the global economy despite the coordinated response by the fiscal authorities and
central banks to the global financial crisis and the ensuing economic downturn.
Specifically, global unemployment has been on the rise, shortage of liquidity and
acute scarcity of credit have remained visible in the financial institutions, while stock
market developments have been marked by a high degree of fluctuation and
corporations have continued to post financial losses. With falling demand by
developed economies, the international crude oil and other commodity prices have
declined sharply during the preceding three months. Inflation, however, appeared to
have moderated slightly in most developed economies and some emerging market
economies.

The Committee also evaluated the outcomes of the policy decisions taken at its
Special Meeting on September 18, 2008 and noted that the desired macroeconomic
outcomes were largely achieved. Inflation rose further in October contrary to the
seasonal pattern, while the naira exchange rate depreciated in all segments of the

foreign exchange market since November. In addition, key interest rates rose during
the review period after some moderation in September through October following the
implementation of the decisions taken at the Special Meeting of the Committee. The
MPC also expressed concern on the potential negative impact of the rapidly
declining oil prices on the fiscal operations of the three tiers of Government and the
overall economy. Against this background, therefore, the overall macroeconomic
outlook remains challenging.

KEY MACROECONOMIC DEVELOPMENTS
Inflation
The Committee noted the sharp rise in headline year-on-year inflation in October to
14.7 per cent from 13.0 per cent in September 2008, which is counter seasonal and
driven by both food and non-food components. Similarly, core inflation rose to 7.9
per cent in October from 6.9 per cent in September. Staff projections indicate that
the year-on-year headline inflation is not likely to moderate significantly in the
remaining months of 2008.
Output
Aggregate output growth in the third quarter was estimated at 6.83 per cent
compared with 5.23 per cent in the second quarter. The growth was driven largely by
the non-oil sector, which grew by an estimated 9.16 per cent. However, output of the

oil sector declined by 0.81 per cent. Current NBS estimate of real GDP growth for
the fourth quarter of 2008 is 8.69 per cent, while the overall output growth for 2008 is
estimated at 6.77 per cent compared with 6.40 per cent in 2007.
Money and Credit
Provisional data showed that growth in broad money (M2) moderated in October
2008. M2, which grew by 43.5 per cent, as at end-October, 2008 which when
annualized translates to 52.2 per cent. The growth in M2 has continued to be driven
mainly by credit to the core private sector, which grew by 52.5 per cent (or 63.0 per
cent annualized) as at end-October, 2008.
Interest Rates
Key interest rates moderated in late September through October following the
implementation of the decisions of the Special MPC meeting held on September 18,
2008. The rates rose in early November but have since moderated.
Exchange Rate
The sustained stability that has characterized the foreign exchange market in the last
24 months appeared to have come under threat since November 2008 largely due to
the global economic and financial developments. The demand for foreign exchange
at the WDAS has risen sharply since October as private inflows have shrunk and oil
prices softened at the international market.

Banking Sector Performance
The Committee noted with satisfaction that Nigerian banks were largely robust
enough to withstand the effects of the financial turmoil. Whereas many banks abroad
have been making loses and faced with potential bankruptcies, Nigerian banks have
in fact been posting profits. Nonetheless, there is in general a welcome recognition
of the need to enhance regulatory and supervisory efforts to set up appropriate
information profiles and risk management strategies in the banks. The industry
liquidity ratio declined from 52.95 per cent in September to 49.22 per cent in October
2008 but rose to 51.55 per cent in November. The Capital adequacy ratio continued
to be robust at 22.25 per cent in November, 2008.

External Reserves
The MPC noted with satisfaction the level of external reserves at US$58.11 billion as
at December 10, 2008. The Committee also expressed concern about the effect of
the continuing slide in oil prices on the domestic economy and assured that
appropriate policy measures would be adopted to minimize the overall impact on the
wider economy.

ECONOMIC OUTLOOK
The general expectation is that in 2009 highly developed economies would post
negative growth rates while emerging market economies are likely to register sharp
slowdown as a consequence. Other developing countries are also expected to
decelerate. In the circumstance, the policy responses of most developed and
emerging economies have tended to focus on growth and financial stability.
Overall, the challenges facing the Nigerian economy are in respect of developments
in the international oil market encompassing both slack demand from advanced
economies and declining oil prices. If the current trend continues, Nigeria’s fiscal and
external payments positions are likely to be further weakened in 2009. It is, however,
expected that the domestic non-oil sector will rise to the challenge to offset to some
extent the slack from the external sector. The optimism stems from the expected
buoyant agricultural output, improvement in infrastructure as financial resources flow
to the sector, and other development-enhancing activities of the government.

In the light of the above, the Monetary Policy Committee decided as follows:
1. Leave the MPR unchanged at 9.75 per cent;
2. Reduce banks’ foreign exchange net open position from 20.0 to 10.0 per cent
of shareholders’ funds with effect from Monday December 15, 2008; and

3. CBN to participate actively in the daily inter-bank foreign exchange market by
buying and selling through the two-way quotes.

In conclusion, the Committee noted the anxiety of participants in the foreign
exchange market and will like to assure the public that the CBN remains committed
to a stable exchange rate regime and will continue to meet demand for foreign
exchange at market determined rates.


Professor Chukwuma C. Soludo, CFR
Governor,
Central Bank of Nigeria
Abuja
December 11, 2008