Central Bank of Nigeria Communiqué No. 89 of the Monetary Policy Committee
Meeting of Monday and Tuesday, May 20 and 21, 2013

The Monetary Policy Committee met on May 20 and 21, 2013 with 10 out of the
11 members in attendance. The Committee reviewed the conditions and
challenges that confronted the domestic economy in the first five months of
2013, and reassessed the short-to-medium term monetary policy options in the
light of the fragile global economic and financial environment. The Committee
noted that one of the members, Professor Sam Olofin has left the Board of the
Central Bank and, therefore, ceases to be a member of the MPC. The
Committee recognized his tremendous contributions to its deliberations over the
years and thanked him for his services.

International Economic Developments
Global economic recovery continues to be fragile due to suppressed growth
and weakness in key financial markets, including the euro area and Japan.
However, the emerging market economies and Sub-Sahara African (SSA)
countries continued to show resilience.

Global growth outlook remains subdued but promising. It is forecast to average
3.2 per cent in 2013. In the advanced economies, output is estimated to grow
by 1.2 per cent in 2013 compared with 1.3 per cent in 2012. In the US, budget
deficit figures are better than projections due to automatic spending cuts and
improved revenues boosted by dividend payments to the Treasury from
mortgage banks bailed out during the crisis. Unemployment figures are also
improving. Although the European Central Bank has commenced a wave of
monetary easing, the euro area is expected to remain in recession with output
contracting by 0.3 per cent compared with a contraction of 0.6 per cent in
2012. The EU made steady progress in establishing a Banking Union, pursuing a

three-pronged
initiative
of
the
Single Supervisory
Mechanism;
Deposit
Guarantee System; and a Recovery and Resolution Scheme. The development
has been adjudged as an important step towards recovery. The regime of
quantitative easing commenced by the Bank of Japan holds prospects for
Japanese recovery arising from a weaker Yen and improved competitiveness of
Japanese exports. However, the downside risk lies in Japan‟s demographics
whose key feature is a low propensity to consume, given its large population of
pensioners-about 30 per cent. With slowing growth momentum in the emerging
markets, global output is forecast to remain around the 2012 level.

The emerging and developing economies as a group are forecast to grow by
5.3 per cent in 2013, with SSA growing at 5.6 per cent. These economies have
continued to face the challenge of adjusting macroeconomic policy to
compensate for the weak external environment, particularly shocks induced by
developments in the advanced economies. The IMF suggests that with the
prospects of improvements in the global economy, policy recalibration in a
number of emerging market economies should address risks from sustained
rapid credit expansion and high asset prices. Growth in these economies has
somewhat moderated compared with last year. The strong GDP growth rate of
7.7 per cent recorded in the first quarter of 2013 for China was countered by
weaker rates in the other economies.
Domestic Economic and Financial Developments
Output
The National Bureau of Statistics (NBS) forecasts real GDP growth rate of 6.72 per
cent for Q2, 2013, an improvement over the Q1 estimate of 6.58 per cent. The
major driver of overall growth remains the non-oil sector led by services;
agriculture; and wholesale and retail trade. The Committee noted that the
relatively robust output growth projection for 2013 was hinged on expected

favourable conditions for increased agricultural production and other policy
initiatives aimed at stimulating the economy. However, the Committee noted
with caution, the high GDP growth projection in view of the extant risk factors
such as widespread insecurity, weak infrastructure and probable flooding from
the projected heavy rains in some parts of the country. In addition, the state of
emergency in the North East and the accompanying military operations in that
axis have the potential to adversely affect economic activities generally,
including agricultural production and food prices, as well as consumer demand.
The Committee also noted that although most sectors of the economy showed
improved growth performance in Q1 of 2013 when compared with Q1 2012, this
was not the case with respect to the key sectors like agriculture,
telecommunications and distributive trade. Concern was also expressed over
short-term prospects in the oil sector, mainly around possible reduction in oil
prices and continuing leakages in oil production due to bunkering and other
illegal activities.

Prices
Headline inflation increased from 8.6 per cent in March to 9.1 per cent in April,
remaining within the target range for the fourth consecutive month. Food
inflation was 10.0 per cent year-on-year in April compared with 9.5 per cent in
March, while core inflation declined further to 6.9 per cent from 7.2 per cent in
March. On a month-on-month basis, inflation showed broad-based moderation
across almost all components with the exception of imported food which may
be largely a reflection of the new tariff regime.

The inflation outlook remains relatively benign with projections of headline
inflation remaining in the single digit range for the next six months. This result
reflects a combination of base effect and the success of tight monetary policy
leading to muted growth in the monetary aggregates and exchange rate

stability. The principal risks to the outlook remain fiscal spending and possible
pressures on the exchange rate from any attrition to reserves caused by
declining revenues as a result of output leakages.

Monetary, Credit and Financial Market Developments
Broad money supply (M2) grew by 4.44 per cent in April 2013 over the level at
end-December 2012. When annualised, M2 grew by 13.3 per cent, compared
with the contraction of 0.03 per cent in the corresponding period of 2012. The
growth in M2 was slightly below the growth benchmark of 15.2 per cent for 2013.
Aggregate domestic credit (net) grew by 17.46 per cent in April 2013 which
annualized to a growth rate of 52.38 per cent over the end-December 2012
level, compared with the contraction of 6.12 per cent recorded in the
corresponding period of 2012.
Interest rates in the interbank money market moved in tandem with the level of
liquidity in the banking system. The average inter-bank call and OBB rates which
opened at 10.21 and 10.23 per cent on March 19 closed at 10.86 and 10.91 per
cent, respectively, on May 16, 2013. The average maximum lending rate rose
marginally to 24.53 per cent in April, 2013 from 24.49 per cent in March, 2013.
Similarly, the average prime lending rate, rose to 16.65 per cent in April 2013,
from 16.61 per cent in March.
The Committee noted the continued recovery in the Nigerian capital market as
equities market indicators were positive in the review period. The All-Share Index
(ASI) increased by 31.4 per cent from 28,078.81 on December 31, 2012 to
36,907.81 on May 17, 2013. Market Capitalization (MC) also increased by 31.5
per cent from N8.97 trillion to N11.80 trillion during the same period. Improved
earnings, increased capital inflow and portfolio investments as well as investor
confidence in the economy contributed to the up-swing in stock prices. The
Committee also noted the reported increase in the share of domestic players in

the capital market, thus reducing the risk of major shocks due to slowdown in
foreign participation.

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
N157.32/US$, N158.70/US$, and N160.00/US$ on 20th March 2013 and closed at
N157.30/US$, N158.33/US$, and N159.50/US$, respectively, on May 18, 2013. In all
three segments, the naira exchange rate appreciated in the review period. This
development reflected the effects of improved supply of foreign exchange to
the market. Both the average and monthly premia for the review period
remained insignificant, indicating the effectiveness of current policy measures.
The Committee also expressed satisfaction with the significant accretion to
external reserves which stood at US$49.13 billion as at May 16, 2013. This
represents an increase of US$5.3 billion or 12.1 per cent above the level of
US$43.83 billion at end-December 2012. This level of reserves could finance
approximately 13 months of import.

The Committee’s Considerations
The Committee was pleased with the prevailing macroeconomic stabilitymoderation in all measures of inflation on month-on-month basis; stable banking
system and exchange rate and robust external reserves. It commended the
agreement reached between the CBN and AMCON on the settlement of
outstanding AMCON obligations to all private sector investors by December
2014 and to repay the N3.6 trillion debts held by the CBN under a new
refinancing and restructuring arrangement within a period not exceeding ten
years at single-digit interest rate. The Committee noted that the repayments and
refinancing arrangements would have no adverse monetary policy implications;

but rather increase confidence in the financial system. Also, under this
arrangement, it is unlikely that banks will be required to contribute more than 0.5
per cent of their Balance Sheets annually to the sinking fund. By October 2014,
the CBN will be the sole creditor to AMCON, holding bonds guaranteed by the
Federal Government of Nigeria. The Federal Government will therefore have no
contingent liability to any party other than the CBN, and the Bank will recover its
debt from AMCON recoveries and contributions to the Sinking Fund by the
banks. Since the CBN supervises and regulates the banks and AMCON, this
exposure is considered a fair risk.

The Committee was concerned about the threat posed by developments in the
oil sector arising from uncertain oil market environment, high output leakages
arising from oil theft which has negatively affected the oil sector‟s contribution
to GDP and the prospects for declining output if the state of affairs continues.
The Committee observed that the accretion to reserves resulted principally from
increased portfolio capital inflows. The Committee noted the potential effect of
this development on exchange rates, reserves and the capital account in the
event of capital flow reversal, and thus stressed the need to maintain stability
and retain confidence of investors in the consistency of monetary policy.

The Committee also expressed concern over the low level of credit growth to
the private sector and traced this to the crowding out effect of high growth in
credit to the public sector. The Committee noted the N1.02 trillion increase in
claims on government and the N1.11 trillion drawdown on savings between
January and April 2013 and particularly the monetization of US$1 billion in April
2013, being proceeds of the Excess Crude Account. The combined effect of
new borrowings and reduced savings was an increase in net credit to the
central government of over N2 trillion in the first four months of 2013. The
evidence points to an increase in the rate of government expenditure in 2013

when compared with 2012. In addition, the recent military action in the NorthEast will result in additional spending. Although the Government has announced
that there will be no supplementary budget, the Coordinating Minister for the
Economy and Honorable Minister of Finance has already announced that there
will be a drawdown on a Contingency Vote embedded in the 2013 Budget to
cover emergencies. Overall, the Committee is of the view that government
spending will constitute a major risk to the inflation and exchange rate outlook,
thus advising prudence in monetary policy action at this time.

The Committee further noted that in spite of increased borrowings, yields on
FGN bonds have been declining steadily, signaling the impact of increased
inflows while equity prices have been trending upwards. The evidence does not,
therefore, support claims of monetary policy being too tight. The Committee
was of the view that the principal risks to long-term stability can be addressed
through diligent implementation of sound policies of fiscal consolidation and
efficient sectoral policies underpinned by structural reforms. These are required
to attract long term foreign capital inflow that would make the gains of
monetary policy sustainable, and also support credit extension to the private
sector players.

Consequently, the Committee weighed the following options:

(i) A reduction in rates in view of declining core inflation, stable exchange rates
and relative reserve accretion. Against the backdrop of sustained pressure to
ease the stance of monetary policy, the Committee considered the imperative
of signaling its sensitivity to the concerns expressed about high lending rates in
the economy;

(ii) Retaining current monetary policy stance to sustain the macroeconomic
gains of tight monetary policy and to continue to rein-in inflationary
expectations.

The Committee’s Decisions
The Committee considered and acknowledged the merits of option 1 but
rejected it as being premature in view of the potential risk factors in the horizon
posed by recent developments which would necessitate increased fiscal
expenditure in the short-to-medium term, resulting in a resurgence of inflationary
pressures. The Committee considered and decided by a majority of 7 votes to
hold and 3 votes to reduce the MPR by 50 basis points. Thus, by a majority vote
of 7 members to 3, the MPC voted to maintain the current policy stance i.e.
retain the MPR at 12 per cent with a corridor of +/-200 basis points around the
MPR; retain the Cash Reserve Requirement at 12 per cent and Liquidity Ratio at
30 per cent; with the Net Open Position at 1.0 per cent.

In the final analysis, the Committee was convinced that in view of the successes
achieved in all fronts - banking stability, low inflation, exchange rate stability,
strong reserve buffers and recovery in the equities market, there is no reason at
this point to change a policy that has worked so well.

Thank you.

Sanusi Lamido Sanusi, CON
Governor
Central Bank of Nigeria
21st May 2013

PERSONAL STATEMENTS BY MPC MEMBERS

1.0 ALADE, SARAH
Headline inflation increased to 9.1 percent in April from 8.6 percent recorded in
March, 2013. This increase is due to a combination of base effect of the partial oil
subsidy removal in 2012; and the dwindling of local food supply as planting season
commence, suggesting that inflation may be expected to stay elevated in the
coming months. In the international scene, there are some bright spots, but overall,
growth remains subdued with implication for spillover on the Nigeria economy in terms
of export earnings, exchange rate stability and reserve build-up. On the domestic
front, first quarter GDP grew by 6.6 percent compared to 6.9 percent recorded in the
last quarter of 2012. Based on this mixed developments, I am inclined to support a hold
in Monetary Policy Rate (MPR) and Cash Reserve Requirement (CRR).

There are some bright spots in the global scene, but some weaknesses remain. The
Eurozone economies are in the longest recession since record began in 1995. Gross
Domestic Product (GDP) for seventeen countries using the euro fell for the sixth straight
quarters in a row to -0.2 percent, although it is an improvement from -0.6 percent
recorded in last quarter of 2012, but it is still a 1 percent annual contraction in GDP
growth. This is as a result of reduced government expenditure and tax increases.
Germany which contribute more than a third of euro zone‟s economic output grew by
a weaker than expected 0.1 percent in the first quarter. As a major trading partner, this
has implication for the Nigeria economy in terms of export earnings and reserve buildup. Although the European Central Bank predicts slow recovery in the coming months,
there are still many risks to this prediction. In the United States, the effect of fiscal
consolidation is being felt in many areas, although latest unemployment data is
positive. These mixed development calls for a cautious approach to monetary policy
until condition stabilizes.

The achievement of single digit inflation should be taken with cautious optimism. The
decrease in inflation numbers to single digit in four straight months is a laudable
achievement. This is a welcoming development, signifying the benefit of past
monetary policy actions and overall policy coordination that has helped sustain the
improved macroeconomic environment. While this development coupled with high
reserve build-up present a strong argument for monetary easing at this point,
especially to aid credit creation and flows to real sector of the economy, there are
also compelling arguments for retaining the current stance given that inflation edged
up to 9.1 percent in April from 8.6 percent in March, suggesting that the threat of
inflationary pressure still looms on the horizon. In addition, it is important to recognize
that there is a limit to the efficacy of monetary policy in terms of credit flow to the real
sector, since structural imbalance in the economy plays a major role. In addition, with
downside risks such as depressed global growth and uncertainties in the domestic
economy, a rushed monetary easing may not be in the interest of economic stability.
Furthermore, the start of the planting season is expected to further put upward
pressure on domestic food prices and overall headline inflation in the coming months,
as consumable supplies dwindle, suggesting that the inflation outlook in the coming
months may not be completely benign.

Domestic output is trending downwards. The 2013 first quarter GDP grew by 6.6 percent
as against 6.99 percent recorded in the fourth quarter of 2012. Non-oil sector grew by
7.9 percent compared to its contribution of 8.2 percent in the fourth quarter of 2012.
The oil sector‟s contribution to GDP declined by -0.5 percent in the first quarter as
against a decline of -0.2 percent decline in the last quarter of 2012. These
developments can be attributed to a combination of insecurity in the northern part of
the country that has affected agricultural production and oil theft and pipeline
vandalism in the Niger Delta. Although National Bureau of Statistics (NBS) projections
suggest a GDP growth of 6.75 percent for the year, however, the achievement of this

goal will require careful planning and maintenance of stable macroeconomic
environment.

Money market conditions suggest ample liquidity in the banking system. While money
market rates have increased form the rates obtainable before the last Monetary Policy
Committee (MPC) meeting of March, 2013, great effort have been employed by the
Central Bank to achieve these rates through frequent Open Market Operations (OMO)
auctions. CBN securities worth N8.830.00 billion were offered between January 2 and
May 17, 2013, and this amount was substantially oversubscribed, suggesting excess
liquidity in the system. Growth in aggregate money resulted in a decline in maximum
lending rate to 22.3 percent in April from an average of 25 percent in the first three
months of the year. This development coupled with anticipated upward inflationary
pressure would suggest that monetary easing at this time may be counterproductive.

Oil output and production are hovering below projections while international oil price
is starting to trend downwards. The continued slow-down in global growth and
increased domestic oil production in the United States is affecting global oil prices and
demand. Oil output in the 2013 is lower than budgeted as a result of pipeline
vandalism and oil theft, in addition to downward trend in oil prices in recent months.
Overall production in the first quarter of 2013 remained below 2012 average
production. According to WEO, April 2013 report, average crude oil prices fell by 3.7
percent in April to $98.9 per barrel on weak demand, higher stocks and continued
gains in supply. If this trend persist, it would 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 exchange rate. In the face
such risk, monetary policy should do all it can to dampen the adverse effects on the
economy.

Base on the above, I recommend a hold on Monetary Policy Rate and Cash Reserve
Requirement (CRR), to consolidate on the macroeconomic gains.

2.0 BARAU, SULEIMAN
1.0
Review of Developments
1.1
Year-on-Year (YoY) Headline Inflation increased marginally to 9.1 per cent
in April from 8.6 per cent in March on account of declining food
inventories. It gives comfort that this is the fourth consecutive month of
single digit in the all-items measure of inflation in several years. However,
one should also observe that the marginal increase may indicate a trend
toward double digit. YoY Food Inflation also trended marginally upward
to 10.01 from 9.48 per cent in April and March, respectively. Core Inflation
trended downward to 6.9 from 7.2 per cent over the same period.
1.2
Money Market rates have been stable albeit showing a marginal decline
in April due largely to the sustained liquidity in the banking system. The
spread between deposit and lending rates remain high; estimated at an
average of 19 per cent.
1.3
The Naira exchange rate remained stable, while showing marginal
appreciation in the three market segments. The wholesale Dutch Auction
System (wDAS) rate appreciated marginally by 0.01 per cent to
N157.20/US Dollar (17/5/13) from N157.32 (18/3/13).
1.4
Estimated GDP growth at 6.56 per cent remains robust though it trended
downward compared with Q4 of 2013 of 6.99 per cent. This level of
growth is however high when compared to Q1 of 2012 (6.34%). Besides,
current GDP estimates and outlook is impressive when compared with
Sub-Saharan African average.

1.5
Oil prices are trending downwards. Nigeria‟s Bonny Light at $105/pb as at
end April is dangerously trending towards the $100 resistance level. This is
lower than the average of $113.7 in 2012. The days of rally in oil prices is
now somewhat over.
1.6
Foreign Reserves is stable at $$47.9billion in April. This is inspite of the slowdown of foreign portfolio inflows, a reduction in oil price and oil
production and export levels. Foreign Reserve level as at 13/4/13 is higher
than the average for Q2.
1.7
Oil production levels have trended downward to an average of 1.9 million
barrels per day (mbpd) in March and April compared to the average of
2.0mbpd in 2012 due largely to increased production leakages.
1.8
The banking industry has remained substantially liquid. Average liquidity
ratio stood at 72.4 per cent as at end-April compared with 60.8 per cent
as at end-December, 2012
1.9
In the area of public finance, at Federal level, we have seen remarkable
reduction in revenues accruing to government due to reduction in oil
production. But we have also seen remarkable increase in expenditure
which translated into higher deficit of N236 billion which is 6.4 per cent
higher than budgeted deficit of N222 billion.
1.10 There was remarkable growth in the banking industry balance sheet to
N21.2 trillion as at 13th April, 2013 compared to N18.61 trillion as at April 12,
2012. There was corresponding increase in gross credit of 14.2 Year-onYear in April, 2013.
1.11 In summary we have seen the monetary and financial stability due to the
following key developments since the last MPC.

Stability in prices – interest and foreign exchange

Stable (Headline) inflation in the last four months with mild increase
in inflation from March to April

Stable but increasing foreign exchange reserve levels

Declining oil price, government revenue and increase in Federal
Government deficits relative to budgeted levels.

Robust but declining GDP growth rate for Q1 2013 when compared
with Q4 2012. GDP growth rate for Q1 2013 is however higher than
that of Q1 2012.

Decline in lending to the manufacturing sector in 2013 compared to
2012 but we have also seen increased overall lending to private
sector. We have seen crowding out of private sector by public
sector borrowing.

Substantial liquidity in the banking system
2.0
Outlook/Risk/Considerations
2.1
Fiscal spending. I clearly see elevated risk to inflation and exchange rate
due to the possibility of increased Government spending particularly as
we seek to resolve the security challenges in the North-Eastern part of the
country. We are also likely to see increased spending in the second part
of 2013 as we head into the pre-election year.
2.2
Sustained liquidity in the banking system which will support the potential
increase in Government spending. This would pose further risk to inflation
and exchange rate management.

2.3
GDP growth continued to be robust as a result of the observed weak link
between interest rate and private sector credit growth. This may continue
until we see fundamental structural reforms in the real sector.
2.4
Declining oil price and export volumes is a major threat to foreign reserves
accretion, exchange rate and government revenues. Lower government
revenues would potentially translate into increased borrowing (and
further) crowding out of the private sector and increase in borrowing
rates. Declining oil price has the potential, if not managed, in reducing
foreign reserves. This will negatively impact our exchange rate
management
3.0
Monetary policy decisions should necessarily be forward looking. The
current clamour for easing monetary policy is based on the gains made in
tackling inflation, stability in interest rate and exchange rate, and
accretion to reserves, amongst others. The clamour does not take into
account the risks to these modest gains in changing policy stance to
these variables. I am convinced that what we need is stability, to enable
us to build on these gains rather than risk loosing them by changing
stance of monetary policy. The need to see increase in lending to the
real sector is strongly desired but the risk of easing may appear even
higher. Besides, we have witnessed strong growth inspite of the current
tight stance in policy. It is yet to be proven that without structural reforms,
we would elicit increased lending to the private sector and higher growth
level, if we ease policy.
4.0
It is in view of the foregoing that I vote to hold current stance in policy by;

Maintaining MPR at 12%

Maintaining the corridor at + and -2% around MPR

Maintaining Cash Reserve Ratio (CRR) at 12%

Maintaining Net Open Position (NOP) at 1% of Shareholders Funds

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

The Context of the Decision
2. I have consistently voted for a rate cut since January, 2013. My vote for
cutting MPR in January was to signal “a commitment to macroeconomic
stability now and, in the future and, to avoid history repeating itself at an even
greater cost” also, 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.”

3. My conviction then (January and March) and now is that price stability must
be conducive to job creating growth.

4. My key concerns then and now include (a) the co-existence of record stock
market indexes, record growth in sovereign debts and persistent high
unemployment; (b) the rising economic costs of achieving price stability
through sustained tightening under an expansionary fiscal regime; (c) the
infectious/competitive rounds of quantitative easing by the US Federal
Reserve Board, the European Central Bank, the Bank of England and the
Bank of Japan and the exports of short to medium term costs to Nigeria

(inflation through depreciation of the US$, volatile financial flows and costly
policy trade-offs) and, (d) the risks of currency wars, asset price bubbles,
exportation of inflation and new rounds of financial and macroeconomic
crisis as the major Central Banks persist in printing their way to growth and
lower levels of unemployment.

5. I am still convinced that the global economy is fragile given (a) the
fundamentals of the global economy, (b) the medium to long term costs of
quantitative easing by the main Central Bankers and (c) the dis-equilibriums,
asymmetries and inefficiencies in the dominant global financial games. As I
argued in my personal statement in March, in a strategic, asymmetrical and
volatile interdependent situation, the best strategy for public policy makers is
a forward looking one empowered by continuous monitoring and analysis of
economies, of financial games and of strategic players. Nigeria‟s urgent
needs give such a strategy much supports and make creative and
harmonious monetary and fiscal reaction functions critically important.

6. The comprehensive analysis of available data (inflation, interest rates, money
survey, fiscal deficit, public debt, banking system and corporate financials,
capital importation, All Share Index, Market Capitalization) for the period
2000-2013 preparatory to the meeting convinced me more than ever that a
forward looking strategy is the best for these times.

The Basis for Decision
7. In weighing the arguments for holding against the argument for rate cuts, I
asked myself if (a) the basis for my decisions in January and March have
changed and (2) if my decisions were wrong. On both counts I have not
established new facts that cause me to alter my decision.

8. Reserves are improving, the exchange rate remains stable and staff estimates
forecast inflations to trend downwards. Obviously, the argument for rate cuts
is strengthening not weakening. It is true that tightening has worked to
produce these results. It is also true that the costs in investment, output and
productivity growth and in higher levels of unemployment are significant. Post
2007, it has become clear that a Central Bank cannot pursue price stability at
all costs.

9. The evidence of asset price bubbles in Nigeria and globally and it is axiomatic
that the asset price bubbles are driving the quantitative easing by major
Central Banks. As with all speculative bubbles, a bust is inevitable unless
forward looking policies are taken to ensure a soft landing. Given the
commitment of the Central Banks to quantitative easing through to 2015 and
given the scope and size of the bubbles, the scope and size of the
“contagion effects” that may result will be significant and the cost for passive
countries may be catastrophic.

10. Although, some portfolio flows adjusted downwards in March and April, there
is need for further adjustments to levels that would not threaten the financial
and economic stability of Nigeria. Human history and Nigeria‟s recent history
provides strong foundation to expect that the flows are reversible while sound
theoretical and empirical analysis provides sound foundations in support of a
claim that the net flows are non-positive in the medium term.

11. The theory and the evidence anchor two main points. First, future stability of
prices, of the exchange rate, of the financial system and of the economy is at
risk if volatile financial flows grow unchecked. Second, following from the first,
the real choice is between short term stability and, medium to long term
stability.

12. In voting for a rate cut therefore, I am voting clearly for medium to long term
stability and, for minimizing short to long term costs of instability. I am also
voting implicitly for a strengthening of the transmission mechanism of
monetary policy, for a forward looking strategy and for institutional changes
that limits the depth and scope of the “inverted intermediation” that has
become a distinct feature of the Nigerian financial system.

13. Finally, as I have argued before, the tightening phase would have been far
more successful at much lower costs also, of a much shorter duration had
fiscal policy been substantially more efficient and effective in enhancing the
competitiveness of the Nigerian economy through upgrades in infrastructures
and in the delivery of sound public services. To reiterate a point the MPC has
always made, there is a limit to the set of economic outputs and economic
outcomes that monetary policy could deliver without the support of fiscal
policy to engineer the necessary structural transformations of the economy. It
is important now more than ever that fiscal policy complements monetary
policy to deliver price stability, growth and employment given the fragility of
the global economy and its susceptibility to volatilities and financial crisis. It is
important that government resists the strong domestic/international lobby
and, temptation to expand sovereign debt on a ratio or threshold argument
which is logically and empirically unsound and totally lacking in wisdom or
understanding. The paths of Nigeria in 1978-2006, Greece, Ireland, Portugal,
Spain, Italy, Cyprus and, the Euro-zone post 2007 are indicative of what lies
ahead if growth in public debt is not aligned to the long term stability of the
economy.

4.0
LEMO, TUNDE
Arriving at policy decision at this meeting seems a little bit complex. Current
macroeconomic
conditions
suggest
a
benign
environment,
including
moderation in inflation with all the measures now in single digit. The foreign
reserve level has increased to a fairly comfortable level with demand pressure in
the foreign exchange market fairly subdued. In addition, the money market
rates have shown good degree of stability while investors‟ confidence in the
economy has increased, evidenced by the declining yields on long term bonds.
The important question, however, is whether the economy has reached a
steady state that could allow relaxation of the current tight stance. I am a little
bit cautious to affirm this. Although inflation has moderated, the path is less
discernible as it has shown fair degree of swings since January 2013, although still
in single digit.
It could also be observed that there are some latent underlying inflationary push
factors which should be properly managed before the effects fully crystallize.
The likelihood of an increase in public expenditure in the remaining quarters of
the year may result in the projected fiscal deficit level being exceeded with
implication for further government borrowing as well as depletion of excess
crude account. On a related note, weakness in the euro area may weigh on
external demand for crude oil with implication for crash in the price of crude oil.
When this precarious condition is combined with declining oil output at home,
the impact would not only be felt on government revenue but also in the
foreign exchange market and accretion to reserves. Invariably, widening fiscal
deficit and pressure on exchange rate could still stoke inflationary pressure.
The structure of the broad money supply (M2) further revealed the salutary
effects of the subsisting tightening stance on inflation environment. Provisional
data show that narrow money (M1) declined by 1.90 per cent between end-

December 2012 and end-April 2013 while quasi money grew by 9.86 per cent
during the same period or 29.58 per cent on annualized basis. This development,
if sustained, implies that a reasonable portion of aggregate money supply
would not be immediately available to fuel demand pressure but retained
within the banking system to support its stability.
With respect to real output, current level of growth, in the face of various
challenges, could be adjudged impressive as the economy recovers from flood
related disruptions of 2012. This notwithstanding, the space for monetary policy
to stimulate output growth seems diminished as the binding constraints on
growth;
supply
bottlenecks,
weak
infrastructural
condition,
and
multidimensional threats to security have persisted. Except a broad measure of
reform that addresses these concerns are urgently put in place, sole reliance on
monetary policy as a tool of macroeconomic stabilization may be less effective
by the day.
In the light of the above, the monetary policy measures outlined in the March
2013 meeting still remain relevant. In other words, I propose that both the MPR
and the CRR be retained at 12 per cent.

5.0 MOGHALU, KINGSLEY CHIEDU
The question before the Monetary Policy Committee is whether the time has
come to start easing monetary policy. The answer is that, considering all the
circumstances, not yet. It is true that, although headline inflation increased from
8.60 per cent in March 2013 to 9.05 per cent in April 2013, it is still in the single
digits, and stable inflation is projected over the next six months. The argument
has also been made about the need to reduce rates in order to spur growth.

But there are still some risks in the horizon, and strong arguments for the MPC to

hold rates steady at this time. First, with overall GDP growth for 2013 projected at
6.91 per cent, growth has remained rather robust and thus is not a factor that
should outweigh all the other risks that remain the horizon.

Second, the monetary policy stance of the MPC over the past one year has
delivered strong results. These include reduced inflation, a stable exchange rate,
and real interest rates, in short, price stability overall. If that policy has worked
thus far, it may not be helpful to reduce rates prematurely and risk a rise in
inflationary trends that have not diminished to an extent that establishes a clear
trend and argues for a rate cut. It is important to note that price stability is the
primary mandate of the MPC. I have in previous statements addressed the
notion that a reduced Monetary Policy rate will bring about increased lending
to small and medium enterprises and other parts of the real economy. The
evidence of the lending behaviour of banks does not support this position, and I
have continued to emphasize the importance of the success of structural
economic reforms that are underway before we can see a real behaviour
change in the lending profile of banks.

Third, there remains a continuing threat of falling oil revenues, especially as a
result of reduced oil output from crude oil theft. This poses a continuing threat to
the stability of the exchange rate and the foreign reserves.

Fourth, the security situation in the Northeast region of the country has resulted in
the declaration of a state of emergency which, while undoubtedly necessary
and appears to have the broad support of opinion across the country,
nevertheless has implications for monetary policy that the MPC must factor in.
For one, it has led to reported price increases in parts of the country. For
another, it may lead to significantly increased spending by the Federal

Government, increasing liquidity pressures. Moreover, there have been
significant drawdowns on the excess crude account and further claims on the
Federal government since December 2012. Together, these two factors account
for about 2 trillion naira, posing a clear continuing liquidity risk.

A consumer expectations survey conducted for the MPC indicates that, while
inflation
is
trending
downward
from
a
statistical perspective,
inflation
expectations remain high. Over 50 per cent of Nigerians surveyed expect price
increases in the next 12 months. Asked in a survey whether they would rather
have interest rates high and inflation down, over 43 per cent of respondents
would rather have rates high and inflation down if faced with a choice, while
16.8 per cent would prefer higher prices with lower rates.

In conclusion, it is welcome that inflation appears to be trending down, precisely
because of the tight monetary policy formulated by the MPC. If this is the case,
it appears necessary to avoid a reversal of the inflation trends at this time. It
would be better to continue to maintain a tight monetary stance at this time in
a forward looking manner that factors in the threats indicated above. It is also
necessary to maintain real interest rates.

For all these reasons, I vote to maintain the MPR at 12 per cent and all the other
monetary aggregates at their present level.

6.0 OSHILAJA, JOHN
I voted that the CBN continues to maintain its current Policy stance, leaving all
operating instruments unchanged. The MPC‟s latest decision means that the
CBN‟s Monetary Policy Rate (MPR) remains unchanged at 12% p.a., with a 2%
p.a. symmetry around its Deposit and Lending Rates. The Reserve Requirement

also remains unchanged (i.e. CRR, at 12% flat), as do the Liquidity Ratio (30%),
and the Net Open FX Position limit of Nigeria‟s banks (1%).

Keen observers of recent price trends will pretty much parse available data as
we did and note, with relief, the continuing decline in inflation at Headline and
Core levels. Current Bank forecasts suggest that these trends can be
maintained over the next two quarters at least. At this stage, we could begin
arguing that the MPC merits high marks for the role it‟s playing in promoting
macroeconomic stability.

We have gotten our Policy Transmission functions back to normal working
condition (with the CBN having broadly stabilized the banking system). We are
also maintaining suitable monetary conditions for attracting and nurturing
inbound investment flows. This is most directly observable in the relative stability
of Naira exchange rates. And, while we freely acknowledge that the
composition and structure of these flows should be better, Foreign Portfolio
Investment (FPI) flows are helping to rebuild the nation‟s currency reserve
buffers. Furthermore, unlike counterparts in Heavily Indebted Developed
Countries (HIDC), Nigerian portfolio investors no longer have to contemplate
diverse ways of escaping financial repression. Real rates of return are
increasingly available through marketable fixed income securities.

Price stability appears within sight, in addition to which the economy‟s growth
rates are moderating; reflecting continuing weaknesses in the economies of
major trading partners – China, the EU, and the US. So why is the MPC, which
looks like it‟s taming inflation, not signaling intentions to begin loosening Policy?

For me, the pressing concern is the emerging possibility of continuing erosions in
growth, with steadfast high unemployment, accompanied by rebounds in
inflation. In a word, stagflation.

Today‟s voting pattern reflected two broad issues. First, was the desire – given
sub-optimal real sector conditions – to signal continuing awareness and concern
about the composition of the Capital Accounts. Especially when viewed
against voluntary, but inherently transient, FPI flows as the dominant source of
funding. Second, were perceived threats of Fiscal Risks signaled by run-rates in
Government spending to date. The rate and character of financing operations
raises concerns when viewed against backgrounds of elevated oil export
performance and market risks. The majority of members believed the weight of
Fiscal Risks be significant enough to warrant further caution; particularly given
what appear to be increasingly political dimensions around oil theft.

Upon evaluating aggregate stocks and flows of credit in the economy, we
found a striking shift in financing operations of the Federal Government (FGN).
For much of 2012, with improved export performance, high oil prices, and its
enactment of Fiscal Consolidation measures, the FGN was a net creditor to the
economy. Today, we find the FGN becoming a net debtor.

At the end of last year the government had gross credit balances vis-à-vis the
economy totaling N 4.1 Trillion. As roughly N 2.8 Trillion of this amount constituted
borrowed monies, the Government‟s net position vis-à-vis the economy, by
December 2012, was a net credit balance of N 1.3 Trillion. Fast-forward to the
end of last month and we find the gross credit balance falling to N 2.7 Trillion; of
which borrowed monies (notably via Treasury bill and bond markets) constituted
N 3.5 Trillion. Thus, according to the CBN‟s provisional calculations for April 2013,

the FGN became “overdrawn” with respect to the economy by approximately
N 800 billion; i.e. a net debtor.

From the difference in net credit balances, it is clear that approximately N 2.1
Trillion, or 42% of the Government‟s roughly N 5.0 Trillion Budget for 2013 has
been expended. Is this improved Budget Execution? Or is this accelerating
Fiscal Expansion? I am most concerned with the latter because of its likely
detrimental impact as surges of fiscally sponsored liquidity. Such developments
would upset the somewhat delicate macroeconomic balances the MPC tries to
influence. In this event, the CBN would have to vigorously attempt to restore
equilibrium, using interest and exchange rates.

It may be argued that there are seasonal patterns to annual government
spending; in which case borrowing, to smoothen out uneven but expected cash
flows, is reasonable. The FGN‟s normal expenditure profile may be seasonal in
nature but (unless Nigeria now farms oil fields) government revenues are most
definitely not. However, the financing of recent flows against prevailing and
anticipated economic and political backdrops raises concerns.

The bulk of the funds (N 1.1 Trillion) were drawn from Federation revenue
accounts, suggesting that the covered expenditures were recurrent in nature. A
further N 0.7 Trillion of new debt was incurred for purposes we presently do not
know (covering petroleum subsidies, perhaps), and the balance of N 0.3 trillion
may likely have been raised from asset sales or other non-debt sources.
Nonetheless, the FGN‟s revenue trajectory shows clear signs of sliding, while that
of its expenditures does not. A continuation of this trend would make the
approved Budget more expansionary than it was designed to be. Factor in
required further spending to address deepening National Security issues, and
then add likely extra-Budgetary spending relating to the upcoming Election

Cycle; which is expected to begin by the end of this year at the earliest. These
were calculations I made to arrive at my voting decision.

The latest MPC decision could also be taken constructively, as a desire to not
store up problems for the future. I see little value in the Committee encouraging
premature notions of a likely easing in Policy, only to have us abruptly reverse
course, as events threatened to overtake us. The available evidence on
balance suggested that if we started easing today, well before the government
spending picture is clarified, we would likely have to reinstate tightening policies
sooner, rather than later.

7.0 SALAMI, ADEDOYIN
Though inflation rose slightly, its rate of increase has, for the fourth consecutive
month, remained within its „single digit‟ target band. Furthermore, Staff forecasts
for the rate of price rises over the next six months show Headline inflation
continuing to fall – declining from 8.9percent in May, 2013 to 7.2percent in
October. Indeed the outlook for inflation provided by Bank staff also shows Core
inflation steadily falling from 7percent in May to 6.1percent six months later.
Credit continues to grow relatively slowly whilst external reserves have continued
to increase – albeit slower than at the same period a year ago.

In addition, aggregate activity growth, at 6.6percent, appears robust even
though growth in two key sectors ‐ distribution and Telecoms – slowed relative to
the same period last year. Corporate sales performance is perhaps the only „fly
in the ointment‟. Compared to what it had been in the first quarter of the
preceding year, turnover of 49 NSE‐listed firms outside the banking sector, which
had published performance, shrank by 3.2percent in Q1 2013. Time perhaps, to
commence easing monetary conditions. Finally all the „ducks are lined up‟!

Given the forward looking nature of monetary policy, a more relevant
consideration is the nature of threats to the current conditions. In my view, two
broad risks cannot be ignored –fiscal challenges arising from oil sector
conditions coupled with increasing banking liquidity could bring pressure to bear
on the currency with adverse consequences for inflation.

The import of oil sector developments and their implications for fiscal and
currency risks continue to cast a shadow over monetary policy especially in
relation to inflation management. Even though oil prices have eased,
production and export volumes pose a more significant threat to revenues with
possible implications for currency risk. According to a recent Reuters report
“Nigeria looks set for its lowest crude oil exports in nearly four years in June,
shipping lists showed on Tuesday, highlighting how badly theft from pipelines is
affecting Africa's largest economy. The lists indicate that Nigeria will export 1.76
million barrels per day (bpd), the lowest level since August 2009, Reuters data
showed”. Should this position continue, the adverse implications for the Current
Account of the Balance of Payments are clear. The impact of a significant
weakening of the Current Account for our currency and thus for inflation
management are obvious.

A more immediate concern for the inflation outlook is the changing nature of
the relationship between the government and the banking system. In the first 4
months of this year, the Federal Government has transformed from being a net
creditor to being a borrower from the banking system. The size of the swing is
especially noteworthy – from providing savings of NGN1.353trn in Dec., 2012, the
government, by April 2013, had borrowed NGN780bn. A review of its revenue
and spending performance in Q1 2013 sheds light on this transformation.
Relative to Q1 2012, its actual revenues were 12.6 per cent lower while spending
rose by slightly over 15percent.

Available figures continue to show significant liquidity in the banking system. At
the end of April, liquidity stood at 70.4percent – higher than 2012 year end of
68percent. By contrast, lending to the private sector has expanded 1.7percent
in the same period. Stagnant nongovernment lending by the banks in the face
of growing liquidity reiterates the need to urgently find market mechanisms
which encourage intermediation in favour of the private sector.

Beyond these, but undoubtedly related to them, is the continuing trend of rising
proportion of holdings of Domiciliary Account Deposits in aggregate deposits
held by Deposit Money Banks. I track these deposits because, depending on
ownership, they just may (and I stress may) provide an indication of the private
sector appreciation of risks to the currency. Latest data show this category of
deposits have continued to rise and now constitute one‐fifth of bank deposits. If
these holdings were predominantly government holdings, there may be little to
be concerned about. However, with individuals and private companies holding
80percent, it is worth paying attention to developments in that space.
Given the risks on the horizon, I am not convinced that it is appropriate at this
time to ease monetary conditions. I thus voted to maintain the current policy
parameters.

8.0 UCHE, CHIBUIKE
Since the beginning of this year, I have consistently but unsuccessfully argued
that the time has come for MPC to signal an end to its current tight monetary
policy stance. The economic trends we have reviewed in this meeting have
further strengthened my position on the subject matter. The main essence of our

price stability mandate is to encourage the growth of the real sector of our
economy. This remains my overriding concern.
Our current tight monetary policy stance is clearly one of the factors responsible
for the high interest rates Nigerian banks charge borrowers. Admittedly reducing
MPR alone will not be the sole solution to this problem. We must find creative
ways of addressing the issue of the rising spread between deposit and lending
rates. It is for instance no exaggeration to conclude that our current policy of
relying on moral suasion to attain the above objective has failed. The
exploitative and predatory nature of our banking system is further highlighted by
the impunity with which some banks defraud the public through fraudulent
schemes like the overcharging of interest rates. Thankfully, the CBN has already
started to expose such schemes. I however believe that the time has come for
us to create a regulatory regime that will provide a strong economic
disincentive against such practices.
My above position is no doubt supported by the fact that the health of our real
sector is entwined with that of our banking system. The resolution of the banking
crisis without growing the real sector is not sustainable in the long run. The need
to bring down interest rates is further supported by the recent slowdown in our
GDP growth rate. Such a policy move will no doubt ameliorate some of the
factors responsible for the slowdown in our economy including the sluggish
lending to the real sector. Furthermore, the increasing level of our oil theft is
explicit evidence that our current oil rent dependent economy is not
sustainable. We must therefore do all in our power to promote economic
diversification. Thankfully, we are in a relatively strong position to begin to at
least signal a change in direction. The current single digit inflation rate and our
relatively strong reserve position are all favorable pointers to this.

In arriving at a decision, I have carefully considered the concerns of my
colleagues who argue that our fiscal future is beclouded with uncertainty thus
making monetary easing premature at the present time. One such argument is
that in the run up to the 2015 elections, politicians must find ways of increasing
public expenditures in other to fund the said elections. This could be done
directly through the monetization of the excess crude account or indirectly
through increased oil thefts, the bloating of oil subsidy expenditures and
indiscriminate award of duty waivers. Another argument is that the country is
currently at war and that there is likely going to be increased fiscal pressures as
a consequence of this.
In my view, the above concerns are exaggerated. I am for instance unable to
comprehend the implied assertion that real sector development should be
sacrificed because of expected increases in government spending associated
with an election that will take place in 18 months‟ time. This is even more so
given the fact that some of the schemes being speculated are clearly
fraudulent. Our increased autonomy as a central bank also comes with the
increased responsibility to politely but explicitly point out such abuses and their
implications in our communiqué. We should never underestimate the corrective
pressure such explicit assertions by an autonomous central bank can bring on
the fiscal system. Furthermore, I am also not convinced that the state of
emergency declared in three states and the issue of excess crude monetization
will materially change our fiscal landscape. These are no new terminologies or
practices in our recent history. The fiscal policy difference that these policies
would cause will therefore be in degree not in kind.
At another level, I am fairly convinced that the current positive noises being
made by the leadership of the national assemble with respect to the need for
the strict implementation of the approved budget and against extra budgetary

expenditures and fiscal abuses will lead to improved fiscal discipline on the part
of Government. It is our duty as a central bank to add fodder to such genuine
pressures.
Finally, as I made explicit in the last MPC meeting 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. FDI makes sense only when it is applied to real sector economic
development. I therefore believe that the time has come for a rethink of our FDI
policies. As a start, we must formulate policies that discourage the inflow of short
term FDI. The possible disruptive impact of such a policy would be minimized if
this is done in a responsible way.
It is in the light of the above I hereby vote as follows: (1) to reduce MPR by 50
basis points to 11.50 per cent with interest rate corridor of +/- 200 basis points; (2)
to retain CRR at 12 per cent; and (3) to retain Liquidity Ratio at 30 per cent.

9.0 YAHAYA, SHEHU
The international economic climate is characterised by persisting recession in
the Eurozone countries, including France and increasing dark clouds for
Germany. The US is showing some signs of recovery in GDP growth, employment
and business confidence. The recovery is however, still tentative. China still
provides a major impetus for global demand, while India and South East Asia

maintain respectable rates of growth. On the whole therefore, global growth is
still anaemic.
Given the weak growth prospects of the global economy, the demand for
crude oil is also weakening at a time when there is a rapid expansion in oil and
gas production in the US and Canada, and production is due to come on
stream in some African countries. The combination of weak demand and
increasing supplies in the oil and gas market obviously have important
implications for the price of crude oil and for the Nigerian economy.
On the other hand, these developments mean that global prices for
manufactured commodities as well as for food are trending downwards in
advanced economies, emerging economies and the global economy as a
whole.
In Nigeria, GDP growth rate of 6.56% in Q1 of 2013, though a bit lower than the
annualized level of growth in Q4 2012, maybe due to seasonal factors, is still
robust and is forecast to increase in the next two quarters of 2013.
One of the major challenges facing the Nigerian economy is the prospect of
significant declines in oil earnings in the medium term, both due to weakening
oil prices and declines in official domestic production occasioned by
production disruptions and leakages. Already, this year, actual retained revenue
of the federal government has been about 24% lower that budgeted. Yet, there
are some concerns that development imperatives and the security situation in
the North Eastern part of the country might lead to substantial fiscal deficits,
necessitate increased government borrowing and generate inflationary
pressures.
On the other hand, the current trend in headline inflation, although showing a
slow upward increase to 9.05% year- on- year in April 2013 as compared to 8.6%

in March, is still lower than in February 2013. Headline inflation has been below
10% for the whole of the year so far. Core inflation is lower in April as compared
to March, while food inflation has risen to about 10% year-on-year in April,
largely driven by imported food inflation. Even more important for monetary
policy is that headline inflation is forecast to be under 9% in the next six months.
The Naira exchange rate has been quite stable and is expected to remain so in
the near term due to the healthy levels of external reserves and active open
market operations by the monetary authorities. Concerns remain however that
declines in oil earnings may exert a downward pressure on the external reserves,
which may trigger reverse portfolio flows and thereby put some downward
pressure on the value of the Naira. These twin pressures may point in the
direction of maintaining a tight monetary policy stance. However, should they
materialize, it would be necessary for the government to make adjustments in
expenditure. The Central Bank would also need to, in that case, be compelled
to deploy instruments to mop up excess liquidity and dampen threats to price
stability.
Taking all these factors into accounts, we consider the relative weight of the
arguments to favour a slight easing of the monetary policy stance with a view to
influencing a reduction in lending rates. This will align with initiatives being
deployed by the Government and the Central Bank to increase financial access
to SMEs, manufacturing and agricultural sectors and thereby strengthen growth,
generate jobs and provide a stronger basis for financial and price stability.
We therefore vote to reduce the MPR by 50 basis points and to maintain the
CRR at its current level.

10.0 SANUSI, LAMIDO SANUSI, GOVERNOR OF THE CENTRAL BANK OF NIGERIA
AND CHAIRMAN OF THE MONETARY POLICY COMMITTEE

The principal discussions leading up to our Monetary Policy Committee Meeting
by economists, analysts, the business community and Government revolve
around the advocacy in many quarters for monetary easing. Those who make
these proposals point out, with good reason, the fact that inflation has remained
on target for four consecutive months, the sluggish growth in credit to the
private sector and very high intermediation spreads in the credit markets.
The merit in these arguments notwithstanding, I am not convinced that
monetary conditions are at the moment too tight, and am also concerned
about the outlook in the short – to- medium term. The principal driver of liquidity
appears to be Government spending. With the increased rate of monetization
of oil revenues and Excess crude savings we have pumped in over N2 trillion
through the three tiers of Government. At the level of the Central Government
alone, fiscal deficit at end of Q1:2013 was about N235b compared with about
N85b in Q1:2012. Also, we have seen a huge reduction in savings and deposits
of Central Government and its agencies with the CBN and the Banking System
between December and April. All indicators studied suggest that, while the
official stance of a commitment to fiscal consolidation remains, the fiscal stance
in 2013 is in reality less tight than in 2012.
In addition, there are other factors which increase the risk of even higher
spending. There is an on-going military operation in the North-East of the
country aimed at bringing to an end the uprising and terrorist attacks of radical
groups. The prosecution of the war, and the consequent need to invest in
reconstruction and rehabilitation as the country deals with the humanitarian
situation, are likely to be costly. Secondly, as we approach 2014 and the
nationwide election, political spending is bound to rise. While, to some, it may
seem too early to worry about election spending, it is clear to me that

developments such as the Nigerian Governor‟s Forum Chairmanship fiasco and
the forging of alliances among opposition parties are indicative of the earnest
commencement of horse-trading and grand-standing among politicians. The
process has therefore commenced.
The Global environment does not appear to pose a higher risk now than it did
two months ago. The fundamentals of a three-speed global recovery remain,
with Europe continuing to make tortuous progress towards resolving its crisis. The
principal risk to oil revenues seems to be the theft of oil, production closures and
other domestic leakages rather than external developments, even though a
gradual decline in oil price is projected into the medium term. The output and
revenue shock will have an impact on reserve accretion and add pressure to
the exchange rate.
Conclusion
I am of the view that in terms of what we set out to achieve, Monetary Policy
has thus far been extremely successful. Principal risks to inflation on a forward
looking basis lie in increased Government spending and a weaker currency due
to oil revenue shocks. Easing money at this point will add impetus to these
inflationary impulses. Indeed, we need to monitor these two risks and be
courageous enough to tighten money if they materialize and threaten to
undermine stability.
In the light of the above considerations, my vote is to hold.