Central Bank of Nigeria Communiqué No. 82 of the Monetary Policy
Committee Meeting of Monday and Tuesday March 19 and 20, 2012
The Monetary Policy Committee (MPC) met on March 19 and 20,
2012 with 10 members in attendance to review domestic and
international economic and financial conditions with a view to
addressing monetary policy challenges in the short-to medium-term.
The International Economic Situation
The outlook of the international economic environment has
improved slightly, when compared with 2011. The U.S. economy is
showing signs of recovery and is expected to post over 2 per cent
growth in 2012 compared with 1.7 per cent in 2011. There are,
however, lingering global security concerns, particularly with respect
to the face-off between the Iranian authorities on the one hand and
the governments of the U.S., Europe and Israel on the other. An
escalation of conflict may threaten global energy supplies and
introduce shocks into the current environment. The Eurozone
countries‟ economic outlook remained uncertain, particularly owing
to the loss of momentum in growth by the end of 2011. The Eurozone
countries posted a negative growth of 0.3 per cent in Q4 compared
with gains of 0.2 per cent and 0.1 per cent in the preceding two
quarters. The recent estimate indicated that the Euro area may post
a negative growth of 0.3 per cent in 2012 against the estimated 1.4
per cent in 2011. The sovereign debt problem of the highly-indebted

countries of the Eurozone, however, seems to be coming under
control with supportive actions from creditors, in particular the
European Central Bank (ECB) and the IMF, which also boosted
liquidity and sentiment in the financial markets. The economic
prospects of the United Kingdom also seem to have improved
recently partly owing to the financial support given by the ECB to the
financial markets and partly due to news of the incipient signs of
improvement in the economy of the U.S. The changed monetary
stance of the ECB has clearly provided the short term support
needed to restore confidence and kick-start recovery subject to
improvements in fiscal balance sheets and competitiveness in the
European periphery.
In emerging economies, there is clear evidence of a slowdown.
China posted 8.9 per cent growth in Q4 2011, the lowest since Q2
2009. It is expected that China‟s growth will slow down further in the
current quarter going by the weak industrial production gains in
January and February and the low retail sales. Consequently, China
has revised its growth target for 2012 downward from 8.0 per cent to
7.5 per cent. In India, growth in the quarter ending December 2011
was lower at 6.1 per cent compared with 6.9 per cent in the
preceding quarter. Inflation rose in February 2012 with the result that
inflation in 2011-12 could well be slightly above 7 per cent. However,
the latest official estimate of growth for 2012-13 is 7.6 per cent. This is
partly attributed to expected improvement in the fiscal position and

somewhat relaxed monetary policy. Brazil‟s growth in Q4 of 2011
was 2.47 per cent and is expected to slow down further in 2012. For
the year as a whole, Brazil recorded a mere 2.7 per cent as against
7.5 per cent in 2010. Inflation was 5.8 per cent in February 2012. The
concerns around slowdown in the growth of these leading emerging
market economies are however mitigated by the relatively positive
outlook in the advanced economies.
The Committee noted that oil prices are likely to be stable in the
short-to medium term, with a possibility of volatility induced by any
deterioration of peace conditions in the Middle East. The risk of a
sharp decline in oil price is significantly lower today than it was at the
last MPC. However, there is a need to guard against complacency.
Domestic Economic and Financial Developments
Output
The National Bureau of Statistics (NBS) has revised the data on
national accounts for 2010 and 2011. In Quarter 4 of 2011, real GDP
grew by 7.68 per cent, higher than 7.30 per cent in the preceding
quarter but lower than the 8.60 per cent of the corresponding
quarter of 2010. For the year as a whole, real GDP growth has been
lower for all the quarters in 2011 than in the corresponding quarters
of 2010. The Committee noted that real non-oil GDP recorded a
robust growth of 8.85 per cent in 2011 as against 8.51 per cent in
2010. Crude oil output growth recorded a decline of 0.57 per cent in

2011. In the non-oil sector, agriculture decelerated mildly: its growth
was 5.71 per cent in 2011 compared with the growth of 5.82 per cent
in 2010. The main contributions to non-oil growth in 2011 were
wholesale and retail trade, services, building and construction, and
minerals and manufacturing. In general, the negative growth in the
oil and gas and slowdown in agriculture are pointers to the need for
implementation of the appropriate reforms in the agricultural and
petroleum sectors.

Prices
The Committee noted the resurgence of inflationary threat starting in
January after it had moderated towards the end of 2011. The NBS
data on prices shows that the headline inflation in February 2012
stood at 11.9 per cent, lower than 12.6 per cent in January but
higher than 10.3 per cent in December 2011. Food inflation on year
on year basis was 12.9 per cent in February compared with 13.1 per
cent in January and 11.0 per cent in December. The year-on-year
core inflation was high at 13.5 per cent in February relative to 12.7
per cent in January and 10.8 per cent in December. The
moderation in food inflation has helped to lower headline inflation.
The rise in core inflation, however, must be kept in view in the
formation of inflationary expectations. Given the partial removal of
fuel subsidy in January the moderation in inflation in February is

probably
attributable
to
a
number
of
variables
including:
reallocation of spending by consumers due to higher expenditure on
transport and fuel; the slowdown in monetary aggregates and fiscal
spending; the stable and strengthening exchange rate of the naira;
seasonal effect of food prices and statistical base effects.
Monetary, Credit and Financial Market Developments
The provisional data on broad money supply (M2) for February shows
that it grew by 13.4 per cent on year on year basis compared with
15.4 per cent in 2011. M1 grew at a faster pace of 19.1 per cent on
year on year basis mainly owing to the strong growth of demand
deposits. However, relative to December 2011 levels, both broad
money (M2) and narrow money (M1) declined. Foreign assets (net)
and domestic credit (net) both increased on year-on-year basis.
However, over the December level, net foreign assets grew modestly
by 1.15 per cent whereas the domestic credit declined by 1.9 per
cent. The Committee urged the Central Bank of Nigeria to monitor
closely the credit developments and ensure that the private sector
gets adequate credit from deposit money banks so that the current
growth momentum is not impeded by lack of adequate finance.
The Committee noted that money market rates have been moving
around the upper limit of the corridor. The average OBB rate was
13.91 per cent in January and 13.64 per cent in February. The
average call rates in January and February months were 14.18 per

cent and 14.29 per cent, respectively. The overall stability in the
money market rates was essentially a reflection of the effectiveness
of monetary policy implementation. The spread between the
average maximum lending rates and the weighted average rate on
all categories of deposits fell marginally from 20.12 percentage
points in December 2011 to 19.94 percentage points in January and
further to 19.70 percentage points in February 2012.
External Sector Developments
Foreign exchange reserves amounted to US$35.43 billion as at March
14, 2012. This is an improvement over the level of US$ 32.64 billion at
end-December 2011. The exchange rate at the wDAS auctions
moved from US$/N158.6205 at the end of January 2012 to
US$/N157.6206 as on March 14, 2012. This partly reflected the
moderation in the demand for foreign exchange due to increased
inflows and reduced demand. The exchange rate at the inter-bank
market appreciated significantly from US$/N161.60 as at end
January to US$/N157.70 as at March 14, 2012. The rate charged by
BDCs also appreciated from US$/N163.00 to US$/N160.00 during the
same period. As a result, the premium between the wDAS rate and
the rates in the other segments of the market declined substantially
over the period.
The Committee held the view that the improvement in the inflow of
foreign exchange partly owing to the current high crude oil prices in

the international markets and the general improvement in the policy
environment to attract capital flows influenced the observed trends
in the external sector. It urged the Central Bank of Nigeria to build up
adequate external reserves to satisfy the genuine needs for foreign
exchange consistent with the increase in the growth in economic
activity and the need to conserve resources and to withstand
external shocks.
The Committee’s Considerations
The Committee noted that the underlying inflationary pressure from
supply shocks would have been more severe had there been no
mitigating factors on the demand side. Currently, aggregate credit
and broad money (M2) have been on the decline and there are
signs of improving fiscal position with some control over expenditure
and no imminent increase in wages. The fiscal stance and the
absence of second-round effects of fuel subsidy removal have
therefore complemented the monetary stance to dampen
demand. The situation is further supported by stable exchange rates
and stable international commodity prices which combine to
moderate imported inflation.
The Committee recognized that in light of increasingly benign global
environment, it is imperative to ensure that the current growth path is
sustained. It noted the relative stability in the foreign exchange
market as well as the modest accretion to external reserves during

the period. In view of the poor accretion to reserves in 2011 and the
need to continue to build buffers for the economy in an uncertain
environment, the Committee strongly endorsed the stance of the
Bank to focus on building reserves, defending the stability of the
currency and providing conditions that are conducive to the inflow
of FDI.
The Committee noted with satisfaction the introduction of some
fiscal and structural measures that could improve the revenue base
of the government as well as enhance the capacity of the domestic
economy to improve the value chain in the production process.
Some of these measures include introduction of cost reflective
electricity tariffs and progress in agricultural transformation initiatives.
Although these measures would have a salutary effect on the fiscal
position, they may, in the short run, put pressure on domestic prices.
Consequently, it is important for both monetary and fiscal authorities
to put in place coordinated measures that would moderate the
increase in the general level of domestic prices in the short to
medium term. The Committee is also concerned about the rising
level of domestic debt and its sustainability, as shown by the
average debt service to revenue ratio of 17.6 per cent in the last
three years. This would likely have a negative impact on domestic
interest rates and the flow of credit to the core private sector,
among others. Although debt to GDP ratio in 2011 stood at 17.8 per
cent, the Committee noted that the percentage of debt service to

government revenue was a high 19.1 per cent in the same year. In
view of the high interest rate environment occasioned by tight
monetary policy stance, a moderation in government borrowing
would be positive not just for the fiscal position but for access to
finance by the private sector. After reviewing the overall fiscal
position the committee commended the fiscal authorities for the
discipline
being
introduced
into
government
spending,
the
tightening of fiscal controls and the renewed focus on spending on
capital projects.
In arriving at its decision, the Committee was faced with a choice
between two options. One option was to consider, in view of the
improving global economic environment, a moderation in headline
inflation, slowdown in monetary aggregates and fiscal spending and
the crowding out effects of high interest rates, a reduction in the
policy rate. This argument was considered but rejected on the basis
of a number of factors. These included persistent underlying core
inflationary pressures, the need to continue supporting the naira and
build up external reserves, the necessity for attracting and retaining
foreign investment and the need for consistency and stability in the
macroeconomic environment. The Bank also needs to maintain its
clear focus on price stability and it is not evident that a moderation
in February is sufficient to establish a trend, and warrant a reversal of
monetary tightening.

Decisions:
In the light of the above, and considering the clear impact of
previous tightening on the rate of inflation and exchange rates up to
February 2012, the Committee unanimously decided as follows:
1. Retain MPR at 12.0 per cent with interest rate corridor of +/- 200
basis points;
2. Retain CRR at 8.0 per cent;
3. Retain minimum liquidity Ratio of 30.0 per cent; and

The Committee also resolved to watch closely developments with
respect to the fiscal stance and to respond appropriately if, and
when, the need arises.


Sanusi Lamido Sanusi, CON
Governor
Central Bank of Nigeria

March 20, 2012

PERSONAL STATEMENTS BY MPC MEMBERS:


1.0
ALADE, SARAH

Although headline inflation moderated to 11.9 percent in February 2012, down
from 12.6 percent recorded in January 2012, inflation still remains a threat as the
full effect of the subsidy removal has not worked its way through the economy.
GDP growth in the last quarter of 2011 was lower than expected at 7.68 percent
against the estimated 8.46 percent, suggesting a moderation in economic
activities. Money market rates indicate tight liquidity conditions as interbank
rates and other interest rates have trended upwards, constraining private sector
growth and hampering job creation. All these would suggest monetary easing.
However, inflation remains a threat as both core and food inflation rose and
further increase is expected as the planting season is about to commence. In
addition, tight monetary policy has contributed to attracting foreign inflow and
created stability in foreign exchange rate market. Therefore, given these
developments I will support a “no change” in monetary policy rate.

Headline inflation decreased slightly in February, although inflation remains a
threat. Inflation stood at 11.9 in February 2012 as against 12.6 percent recorded
in January 2012. This decline in headline inflation suggests that the initial effect of
the partial oil subsidy removal is weaning, therefore foreclosing the fear of
second-round inflationary effect resulting from the policy. Food inflation
increased slightly to 6.3 percent in February from 5.6 percent in January 2012,
reflecting the seasonal effect of food prices in Nigeria. Staff projections indicate
a rise in inflation in the near term due to seasonality in food supply/prices,
consequently, the preemptive tightening stance adopted by the Bank in 2011
calls for a continued pause to allow for the full effect of the policy and to

address declining growth concerns. However, as planting season commence,
the threat of expected heightened inflation should not be overlooked.

The 2012 budget passed by the National Assembly although higher than the
proposed budget submitted by the Executive, still maintained deficit financing of
less than 3 percent of GDP. The 2012 budget passed recently by the joint session
of the National Assembly has a budget deficit of 2.96 percent of GDP still within
the threshold of 3 percent of GDP stipulated in the Fiscal Responsibility Act of
2007. It also has the crude oil production target of 2.48 bpd, and oil benchmark
of $72 per barrel. Although the budget passed by the National Assembly is
higher than the amount submitted by the Executive, the magnitude of the
increase does not justify an increase in monetary policy rate in the face of
declining growth, stable exchange rate and tight liquidity conditions in the
market. According to World Economic Outlook (WEO), oil price is expected to
remain high in international market on the back of disrupted supply in the
Middle East and renewed recovery in the United States. If the budget is
implemented as passed without further increase, the inflationary pressure
coming from the budget implementation will largely be contained.

Developments in the domestic money market indicate tight liquidity conditions.
Money market rates continue to trend upwards as interbank lending rate
reached 15.97 percent in February 22nd, 2012. Similarly, average OBB rate stood
at 9.6 percent in June increased to 15.5 percent in February 2012. Although the
spread between the average maximum lending rate and the consolidated
deposit rate narrowed by 23 basis points in February 2012, remain elevated at
19.70 percent. This is as a result of tight liquidity conditions in the market, a
consequence of the aggressive monetary tightening stance of the CBN, which
started in 2011. In addition, other monetary aggregates (Broad (M2) money and
Narrow money (M1)) are declining when compared to end 2011 data. Total

credit to the private sector declined by 7.97 percent on an annual basis and
credit to the agricultural sector declined by 11.25 percent. Further tightening
now could increase lending cost to private sector and further constrain
economic activities.

Tight monetary policy stance has helped the country remain competitive in
attracting foreign inflows. The tight monetary policy stance has been
instrumental in attracting foreign exchange inflows and has helped to stabilize
the foreign exchange market. As investors look for higher yield, the attractive
interest rate in Nigeria has made the country an investment destination in a dry
investment climate. Therefore, maintaining the current stance will be helpful in
sustaining the inflow.

Weak growth in Europe is weighing down on global growth. Growth in
advanced economies is projected to decelerate to 1.2 percent in 2012 from 1.6
percent recorded in 2011. While the US economy is showing signs of growth, as
February labor report showed solid recovery and rapid job gain in the
manufacturing sector with an average of 42, 000 jobs in January-February,
against an average of 13,000 in the last quarter of 2011, the story is different in
Europe. Although some resolution of the Greece debt crisis is achieved, the
ripple effect will linger for a while. In such an uncertain global environment,
tightening will not be a good option for now. In the same view, easing monetary
policy could reverse some of the important gains made in stabilizing the foreign
exchange market.

Based on the above, I will recommend a “no change” in monetary policy rate
and Cash Reserve Requirement (CRR). The domestic economic growth
challenges call for a stay of action on policy stance.

2.0
BARAU, SULEIMAN

A.
I today voted for the maintenance of status-quo, in policy (particularly to
hold MPR at 12% within the 2% corridor and CRR at 8%).
B.
Review of Recent Developments
B.1
Inflation – Year-on-Year (YoY) Headline Inflation (HI) moderated to 11.9%
in February compared to 12.5% in January with significant contributions
from Transport, Alcoholic Beverages, Tobacco and Kola, and Health
segments. YoY Food Inflation (FI) also moderated to 12.9% in February
from 13.1% in January. YoY Core Inflation (CI) however increased to 13.5%
in February from 12.7% in January with significant contribution from
Clothing and Footwear.
B.2
Exchange Rate – we have since the last MPC witnessed the appreciation
of the Naira in all segments of the market. In addition, the premium
between the Wholesale Dutch Auction System (WDAS) and Bureau De
Change (BDC) was reduced significantly to 1.51%.
B.3
Interest rates, particularly money market rates, have been volatile but
remained largely within acceptable band. This volatility is largely driven
by Governments‟ fiscal operations.
B.4
Gross Domestic Product (GDP) – the revised figures from National Bureau
of Statistics showed GDP for 2011 at 7.36% compared to 7.98% in 2010. A
further review for the two years showed a consistent decline on quarter by
quarter basis in 2010 compared to 2011. Agriculture, Wholesale and
Trade, and Services Sectors remained the major drivers. The relative
contribution of the Agricultural Sector also shows a decline in 2011
compared to 2010.

B.5
Foreign Reserves – We have recently seen a turn around on the level of
our foreign reserves with reserve levels standing at US $35.44 billion on
March 15th, 2012 relative to US $32.65 billion on December 31st 2011 or
8.59% increase.
C.
Comments
C.1
It is important to observe that the tight monetary regime that we have
witnessed helped in containing the inflationary risk that we faced. Even
though, this is the case, staff estimates for the next six months forecast
increase in HI, CI and FI. In effect, the inflationary pressure is still a risk
further down the line.
C.2
The Appropriation Act just passed by the National Assembly has been
increased in size from N4.67 trillion to over N4.8 trillion. Considerable
improvement has been witnessed in the structure of the budget in efforts
to achieve consolidation. While revenues have been enhanced and
expenditures streamlined, it is still a deficit budget and therefore
expansionary. The risk here is that this may exacerbate the inflationary
pressure, forecast for the economy.
C.3
A significant pressure point also stems from the decline in GDP growth rate
in 2011. Though I have not seen any strong relationship between interest
rate and output growth in Nigeria, the relatively high lending rate
occasioned by our tightening stance may be partially accountable. This
is in my view the key reason to elicit the easing of policy stance. The real
issue however is that GDP growth can only be sustained if we have
fundamental reforms that would ease doing business in Nigeria to address
infrastructural and power challenges, amongst others.
C.4
Under the current policy stance, we have witnessed accretion to foreign
reserves, stable and appreciating Naira, reduction in exchange rate
premium and banking sector stability.
C.5
In view of the gains made under the current policy stance, threats of
inflationary pressures down the line and the fact that growth issues are
better addressed by fundamental reforms of the real sector, I am inclined
to support the maintenance of status-quo. We should however keep the

usual window open for any significant unfavourable development to be
addressed through an emergency Monetary Policy Committee meeting.
D.
Recommendation
Keep MPR at 12%
Maintain the corridor at plus and minus 2%
Keep Cash Reserve Ratio at 8%.


3.0
GARBA, ABDUL GANIYU

Decision
I vote for:
1. Holding the MPR at 12%
2. Maintaining the subsisting Corridor for SLF and SDF
3. Holding CRR at 8%

Background
At the January MPC, I voted to hold MPR at 12%; CRR at 8% and to maintain the
symmetric corridor for SDF and SLF at
to:
1. allow the menu of tightening policies of 2011 to work through the
economic system;
2. provide investors policy stability as they plan their investment strategies for
2012 and beyond; and
3. incentivize the fiscal authorities to undertake the fiscal and associated
fundamental reforms required to change the incentive system, begin to
build the infrastructural system that will make the economy competitive in
oil and gas, solid minerals, industry and agriculture so as to create the jobs
needed to reverse the trend of unemployment.
I also expressed concern about:

1. The growing levels of unemployment from 12.3% in 2006 to 23.9% in 2011
even when GDP growth averaged 6.8% in the period.
2. The persistent hemorrhaging of investible capital through rising net
outflows to pay for foreign services and net payments of investment
incomes. As a result, the economy on aggregate under invests and under
consumes to pay for foreign services and to pay foreign investors in flows
that significantly exceed inflows of portfolio and FDI investments.
3. The structural and competitiveness failures linked to (1) the composition of
output and exports that are dominated by primary products and (2) the
misalignment of Nigeria‟s aggregate demand to its aggregate supply.
4. The size of the fiscal deficit and public debt and its crowding-out effects
on credit to the private/real sectors of the economy.
5. The persistence of the episodic “FAAC effect” which unsettles the money
market causing the MPC operating targets (obb and interbank rates) to
exhibit FAAC related volatilities.
6. The poor performance of the capital market exemplified by a loss of N2.2
Trillion Naira in 2011 with Banking Stocks the worse hit.
Developments in the Economy

Since the January 2012 MPC Meeting:
1. Recent sets of data released by the National Bureau of Statistics (NBS)
indicate:
i. An unexpected decline in month of month headline inflation from
3.35% in January to 0.28% in February that suggests among other
things that the real budget effects of the PMS Price shock in January
may have counteracted the aggregate supply effects.
ii. A significant rise in the incidence of poverty from 54.4% in 2004 to
69% in 2010 indicating that 112.47 million Nigerians were living under
$1 a day in 2010. In addition, the NBS projected arise to 71% in 2011
and growth in income inequalities (class, state and regional). These
data reinforce a view that the budget effects of the PMS Price
shock moderated the inflationary effects but, most likely at the cost
of forgone living standards of more than 69% of Nigerians.
iii. The GDP slowed in 2011 (7.38%) relative 2010(7.98%) with the
contributions of agriculture and manufacturing also significantly
lower in 2011 relative to 2010. A slowing down of growth does not

augur well for job creation and a reduction in unemployment which
was already almost a quarter of the workforce.
2. The key monetary aggregates (M1, Demand Deposit, Savings Deposit,
Time Deposit, M2, Net Domestic Credit and Credit to the Private Sector) all
contracted significantly in February continuing a trend from January for
most. The operating targets (obb and call rates) were volatile around the
target rates of 14% with the usual “FAAC Effect” a strong causal force. The
prime (16.92%) and maximum (23.32%) lending rates remained high
interest while the savings deposit rate remained very low at 1.43%. As a
result, the interest rate spread remained very wide: averaging 6.28%
between maximum and prime and, between 17.5% and 21.1% for
maximum relative to savings deposit rate. The structure of banking system
loan portfolio remains highly concentrated and biased against agriculture
and other real activity and significant exposure to FGN Bonds and
Treasury Bills.
3. The forex market was relatively stable as demand slowed significantly
most likely, a fallout of the public hearings on subsidy programme by the
National Assembly. The decline in demand has the beneficial effects of
stabilizing the exchange rate also, enabling a buildup of external reserves.
4. The capital market continued its downward trend in 2012 with a loss of
0.45% and 0.6% in the All Share Index and Market Capitalization
respectively by March 16, 2012 relative to December 2011.
5. The data on Federal Fiscal operations indicated a sharp fall in revenue
(48.3%) and expenditure (76%) generating a surplus of N106.76 in January.
Though “unusual circumstances” including the “subsidy strike‟ may explain
the fiscal performance in January. It does show that the scope for
expenditure reduction and, for a more efficient deployment of national
revenue is significant.
6. Finally, the data on the external account indicates a continuing of the
hemorrhaging of investment capital in the form of net outflows on services
and investment income in the fourth quarter of 2011 to the tune of 1.638
Trillion compared to net inflows of portfolio and FDI of 415.6 billion Naira. In
2011, the sum of the net outflow on the services and investment income
accounts was 6.37 Trillion. Just a 10% decline in the outflow (637 billion)
would have built at least four $1billion cement plants!

Deciding Issues
1. I gave greater weights to the domestic developments and, evidence on
the asymmetrical nature of rate cuts and rate increases in reaching my
decision to hold.
2. The data indicating slowdown in GDP, rising unemployment, declining
and concentrated structure of credit to the private sector, underperformance of the Capital market and, poverty on the one hand and,
the goals of the 2012 Federal Budget (fiscal consolidation, inclusive
growth and job) on the other, make a powerful case for easing.
3. The deciding argument against a rate cut at this point are:
a. unless fiscal responsibility measures become effective, reduce
government spending, deficit and public debt particularly, treasury
bonds and treasury bills significantly, deposit money banks will have
no incentive to lend to the real economy when rates are cut;
hence,
b. the pass through effects of rate cuts will neither be instantaneous
nor significant to achieve desired reallocation in net domestic
credit to real activity (agriculture, manufacturing, exports and
public utilities) which accounted for only 17.8% of total credit to the
private sector.
4. Holding gives the fiscal authorities the opportunity to accelerate the
process of full compliance with FRA 2007 and to enhance the productivity
of government spending, reduce spending, deficit, borrowing and the
public debt. It also gives the fiscal authorities an incentive to accelerate
what they call fiscal consolidation because it (fiscal consolidation if it
means more efficient allocation, reduction in wasteful expenditure, deficit
and public debt) is; a precondition for inclusive growth and job creation.
This is because the evidence is very strong that government debt crowds
out the type of private investment that adds values, creates jobs and
includes more people in the growth or value creating processes. It is also
important to begin to wind down the entrenched system of financial
subsidy through appropriate administrative actions.
The argument for sustaining the January 2012 trend of fiscal operations
throughout 2012 through a greater compliance with the fiscal rules in the
Fiscal Responsibility Act 2007 including that on Borrowing is very
compelling. This is because at 6.5 Trillion Naira, the total Federal Debt is
already 0.3 Trillion Naira higher than the pre-Paris Club level in 2004 and
4.1 Trillion Naira above the post-Paris Club level in 2006 suggesting that in

just five year, the total debt had tripled! The idea that the debt to GDP
ratio is below some arbitrary threshold is a very bad and unwise idea. Two
of the key principles in economics are (a) the trade-off principle and (b)
that rational decisions are made on the margin. At 19% of total revenue in
2011, the debt service to revenue ratio is already too high in terms of the
opportunity costs (forgone infrastructures and, education and health
capacities and so on). Rationally or wisely thinking at the margin requires
a case by case economic evaluation of borrowing plans as provided for
in the FRA 2007. The idea that government debt should be used to
deepen the bond market is also, a very bad and a most unwise decision
especially in the context of the sovereign debt crisis in Europe.
5. Holding also gives the forward looking monetary policies of 2011 time to
work through the economic system. This is necessary particularly, because
the factors that caused headline inflation to ease in February and, forex
demand to ease in January and February such as the contraction in
spending and in monetary aggregates may not be sustained in the
second quarter.
6. Finally, holding reinforces the commitment to price and exchange rate
stability and, to a stable policy environment for more effective business
planning in 2012.


4.0
LEMO, TUNDE

Macroeconomic outcomes have been mixed between January and March 14,
2012 (Review period). Headline inflation, which moderated to 10.3 per cent at
end-December 2011 from 11.80 per cent at the comparable period of 2010,
increased to 12.6 per cent in January 2012, before moderating to 11.9 per cent
at end-February 2012. Projections indicate that it would still continue in the
upward direction in the next couple of months in response to the partial removal
of subsidy on PMS and some other upside risks, including seasonal factors. On
the positive side, however, estimated growth in output at 7.68 per cent in the
fourth quarter of 2011 could be adjudged robust enough in the face of the
security challenges and weakened public infrastructure. Projection on output for

the review period is in a similar trajectory, despite the loss of output to national
strike in January.
On the external sector, there are quite a number of cheering news. First, there
was a modest appreciation of the naira exchange rate in all the segments of
the foreign exchange market during the review period. Second, the premia
between the rates at the WDAS and the interbank and between the WDAS and
the BDCs narrowed towards the end of the review period, suggesting, among
others, reduction in speculative demand in the market. Third, there was a
modest accretion to external reserves, rising by US$2.8 billion during the review
period, with reserve level currently above US$36 billion.
Given the fact that the positive outcomes seem to outweigh the negative ones
and against the background that the MPC has pursued aggressive tightening
measures over a period of about six quarters, it could be a little bit safe to
commence expansionary stance, at least in the light of procyclical nature of
policy. Furthermore, it could also be argued that there is a need to strike
appropriate balance between immediate monetary policy goal of moderating
inflation and some other long-term developmental objectives such as reduction
of unemployment and alleviation of poverty. A survey by the National Bureau
of Statistics (NBS) estimated the national poverty rate to be 71.5 per cent in 2011
from 69.0 and 54.4 per cent in 2010 and 2004, respectively. Monetary policy
should be seen to contribute to the goal of fighting this hydra-headed scourge
by reducing the cost of credit with a view to promoting investment and
employment over the medium- to-long term.
More importantly, the global economy remains fragile in spite of the
intervention of the European Central Bank in lending long-term funds to the
financial institutions as well as USA‟s slight increase in GDP growth. The global
economy still expects major growth from most of the emerging markets.

The foregoing notwithstanding, I think there are still some major considerations
which need to be put in the front burner before making our decision. First, in the
light of various structural rigidities in our domestic economy, monetary policy
impulses take about 18-24 months lag to transmit to the real economy. Pursuing
monetary easing at this point may look counterproductive as the effects of the
tightening measures adopted in the last one and half year are yet to be fully
transmitted to the economy. Second, there are still some other serious pressure
points in the course of the year. Although the fiscal authority has announced
commitment to fiscal retrenchment and consolidation, the budget of about
N4.8 trillion recently passed by the National Assembly is still expansionary. The
states might mount additional pressure to deplete excess crude account as their
budgets are based on US$75 per barrel.
In addition, despite the high lending rates, the real rate of interest on savings
deposit is still negative, thereby acting as a disincentive to long term saving
deposit mobilization and by extension, funds for long term investment. An
expansionary monetary stance would exacerbate the problem and make
Nigeria less competitive for the much needed foreign capital inflow.
Finally, there is a need to sustain the present gain in the foreign exchange
market particularly with respect to building robust external reserves. Relaxing
monetary policy stance could provide avenue of arbitrage activities in the
money market in which the foreign exchange market could be at the receiving
end.
In the light of the above, I propose that the existing monetary policy measures
should be retained by holding MPR at 12.0 per cent.

5.0
MOGHALU, KINGSLEY CHIEDU


The policy options before this meeting of the Monetary Policy Committee are to
hold the Monetary Policy Rate steady at 12% or to reduce the MPR. I vote to
hold the MPR at the present 12%, and as well to maintain the current interest
rate corridor and the Cash Reserve Ratio.
That headline inflation in February 2012 has reduced to 11.9% year-on-year from
12.6% in January is significant. A combination of sustained, aggressive
tightening by the MPC and the contractionary impact of the partial fuel subsidy
removal (FSR) on disposable income is without doubt a major contributory factor
to this situation.
While this is a welcome development indicating that the inflationary impact of
the FSR ultimately might not be as large as has been feared – and here one
must take some comfort in the evident efficacy of the work of the MPC – it does
not predict the future and thus should not form a basis for a premature rate cut.
Staff estimates show that core inflation grew 1.5% month-on-month in February,
and that more broadly, underlying inflationary pressures remain.
Furthermore, the inflation expectations of consumers remain significant, largely
as a result of the FSR. While it is important to manage these expectations based
on rational projections of monetary policy makers, it is also a wiser course of
action to hold the MPR steady for now – and, in fact, for the near to medium
term – while the year 2012 runs its course and the monetary policy measures
adopted by the MPC continue to work their way into the economy. Moreover,
the MPC should be mindful of the stated intention of the political authorities to
complete the removal of subsidy on Premium Motor Spirit (PMS).
Finally, we should note the significance of market expectations that the MPC will
maintain the MPR at 12% at this meeting. While market expectations are not a
decisive factor for this Committee, where they align with the preponderance of
economic indicators, as in the present case, both market stability and policy
consistency will be enhanced by holding the policy rate steady at this time. It
would be counter- productive to reduce rates at this time only to increase them
again in the short term in response to inflationary or other pressures. This is
especially so when the evidence points to the likelihood that such a rate cut will
not necessarily make more credit available to the real sector in the short term

owing to factors such as the crowding-out effect of increasing domestic
borrowing by the Government, and the fact that needed structural economic
reforms are still at a nascent stage.
For these reasons, in addition to others advanced by several other members of
the Committee, I believe we should maintain the current position on our MPR.


6.0
OLOFIN, SAM

The newly released figures on headline, core and food inflation for the month of
February by the National Bureau of Statistics are reassuring. Even though the
noticeable decline in level of inflation may not be trending towards single digit
levels, it is indicative of the fact that inflationary impact of the partial removal of
subsidy on PMS undertaken in January may not be significantly different from the
trend pattern observable in the past. The usual pattern has always been for an
initial spike in general level of prices to be followed by a tapering off effect in
the medium term, rather than resulting in sustained inflationary pressure. While
this may be welcome development, staff reports indicate that the observed
decline may be a temporary phenomenon especially in respect of decline in
food inflation, made possible by various factors including weak demand
occasioned by the partial subsidy removal and the usual seasonal favourable
factors among others. The threat to the realization of single digit inflation on the
fiscal side may still be very much with us due to a number of reasons. Most
important among these is the fact that as much as the fiscal authorities appear
determined to pursue the path of fiscal prudence, and shifting emphasis from
recurrent to capital expenditure, the N4.88 trillion 2012 budget may still be
inflationary in several respects. In addition, the long awaited new electricity
tariffs are yet to come into effect and further upward adjustment in PMS price in
pursuit of zero subsidy policy cannot be totally ruled out.
As far developments in the external sector are concerned, the gradual recovery
in the US economy and the definite moves towards further enhancement of
fiscal policy coordination in Europe have considerably reduced the risk of
double dip global recession. These measures have also brightened the
prospects of a recovery that may strengthen the demand from the country‟s
major trading partners, and sustain current levels of earnings from oil exports.

There are also strong indications that the new Petroleum Industry bill may soon
be passed, further enhancing the prospects of increased revenue from oil. As
much as it may be difficult to predict what impact the Iranian factor may have
on oil prices, in the worst case scenario of the breaking out of hostilities, there
appears to be no strong basis for expecting that this would harm the prospects
of stable government oil revenue significantly. If anything at all it may result in
some measure of windfall gains.
Our policy of maintaining a stable exchange rate continues to hold. Speculative
demand for foreign exchange has been significantly reduced by the high cost
of borrowing for this purpose, as well as the reduction in the level of demand for
foreign exchange for subsidized import of petroleum products. There has also
been noticeable accretion in the level of foreign reserves. The current level of
positive interest rates may still not be as competitive enough as to result in
significant increases in net inflow of FDI. However there are noticeable
improvements in the level of inflow of portfolio investment.
The projection in overall GDP growth rate though still robust suggest some
measure of decline in 2011 and 2012 compared with 2010. There are however
no strong indications that this is attributable to decline in the level of activity in
the real sector particularly in manufacturing. Structural constraints appear to be
more limiting to growth prospects in the productive sectors of the economy than
the high cost of borrowing. Consequently an accommodating policy by way of
reduction of the MPR may not necessarily impact significantly on the amount of
credit flowing to the real sector.
In view of the foregoing developments, it would therefore appear that there are
no immediate compelling reasons for the committee to relax its monetary policy
tightening stance adopted over the last couple of meetings. This was meant to
proactively tackle whatever inflationary pressures might result from various
ongoing fiscal policy measures and those that are yet to materialize. While weak
arguments can be made for some measure of quantitative easing to boost
output, a stronger case can be made for maintaining the status quo, and
watching for any domestic or external developments that may warrant
appropriate policy interventions in the short to medium term. There is however
the need to further tighten the various administrative measures that have been
put in place to discourage speculative demand and running down of foreign
reserves. A healthy level of foreign reserves remains the country‟s major defense

mechanism against any exogenous disturbances in a global economy that is still
fragile and only beginning to show signs of slow and weak recovery.


7.0
OSHILAJA, JOHN

I voted at the conclusion of today‟s meeting to keep the Monetary Policy Rate
at 12% pa with a symmetric 2% pa band for the Central Bank‟s Standing Deposit
and Lending rates, for retention of the Cash Reserve Requirement at 8%, and for
continuation of the current +/- 3% band around the CBN‟s targeted mid-point
exchange rate of N 155.00/USD. This represents no change in Policy adopted
since last November, and I see no justifiable reasons for policy modifications at
this time.
Recall that the MPC decided in January not to react to first-order effects of
recent sharp increases in domestic petrol prices; in order to take the full measure
of market supply and demand adjustments before contemplating corrective
actions. These adjustments appear to be still playing out, principally through an
attendant shock to aggregate demand being transmitted to the economy
through fiscal and bank credit channels.
On the fiscal side it is encouraging to note that Government‟s share of Net
Domestic Credit has been dropping quite impressively, against a tight money
background with attendant CBN liquidity management operations. I believe
the decline in the Federal Government‟s use of short term credit for fiscal
operations signals auspicious beginnings on redoubled efforts on Fiscal
Consolidation, and an earnest attempt to more credibly align fiscal and
monetary policies with oft-stated development objectives of the country;
notably maintaining macroeconomic stability, while promoting job-growth and
income diversification. However, notwithstanding an emerging shift in emphasis
from Consumption to Investment spending, the FGN‟s rationalization of its
borrowing needs also appears to be having a dampening effect on aggregate
Demand. In retrospect, this should be expected – in the short term. It remains to
be seen how effectively the nation‟s supposedly highly liquid banks react to the
larger credit spaces being created. Thus far, observed behavior leaves much
room for improvements.

The anemic growth in credit to the Private Sector, experienced over the period
2010-11 figuratively fell off a cliff in January 2012, and is now squarely in
contraction territory. Simply stated, other than lending to Government, Nigerian
banks simply aren‟t lending in meaningful ways to other entities. It is perhaps
also no coincidence that exchange rates for the Naira have been strengthening
on the back of lower aggregate demand, driven by fiscal and banking sector
retrenchment. Recent GDP growth trends would appear to corroborate such
developments. Available credit data shows a flurry of activity amounting to an
increase in Net Private Credit of N2.4 Trillion in the 4th Quarter. However this
appears to be explained by Central Bank actions taken to release liquidity
trapped in bank holdings of government securities, notably AMCON bonds.
Such action was understandably critical in underpinning money market stability;
especially ahead of the expiration of the CBN‟s blanket guarantees of the
settlement of all interbank transactions on December 31.
Dramatic reductions in the general availability of credit likely prompted
significant degrees of inventory liquidation, especially of perishable and shortlived stock, just as spending capacities of cash-strapped consumers were being
reallocated in favor of priority items – notably food, and transportation costs.
Since Nigerian inflation indices are heavily weighted by food items, these
demand and supply dynamics most likely account for the lower than expected
inflation rates observed for February.


8.0
SALAMI, ADEDOYIN

The raft of data published in the run‐up to this meeting of the Monetary Policy
Committee (MPC) while providing room for optimism about our primary
mandate of inflation management, they also raise concerns which will doubtless
require attention by both the Central Bank and the Fiscal Authorities.

Improving optimism about the global economic environment means that the
perennial concern about the impact its impact on oil prices has receded. The
concern, on this occasion is focused on domestic issues. Reported, by the
National Bureau of Statistics (NBS), at 11.9percent, the increase in Headline

Inflation rate in February, 2012, was, perhaps unexpectedly, slower than the 12.6
percent increase recorded the previous month. It is noteworthy that unlike
Headline Inflation, the rate of increase in the non‐food components of
consumer basket accelerated – rising 13.5percent in February compared with
12.7percent the previous month. Food constituents of the „consumer basket‟
rose 12.9percent – lower than the 13.1percent in January, 2012.

The inflation data for February certainly provide a basis for raising and reflecting
on whether it is too early to conclude that our fears, expressed in the
Communique issued at the end of our last meeting, as to the inflationary impact
of higher fuel prices were, perhaps, overstated. In other words, is the inflation
rate for February, the proverbial single Swallow which doesn‟t make a summer?
It is perhaps too early to draw any conclusions – especially as CBN Staff estimate
that inflation will, after a further deceleration in March, rise steadily for the rest of
the H1 2012. In other words, while the slowdown in the rate of increase in
Headline rate of inflation offers only a brief respite and doesn‟t constitute a
trend.

Available data about other elements of the economy clearly provide a basis for
understanding the slower rate of price increase recorded in February.
Specifically, 2 factors are worthy of being highlighted: appreciation in the
exchange rate; and slower demand.

The appreciation in rates across the various markets for FOREX, ranging from
0.6percent to 2.5percent at the WDAS and the Bureau de Change segments
respectively, since the beginning of this year has provided support for
moderation of price pressures. The hope with respect to the exchange rate is
that
(i) the high opportunity cost of holding US Dollars; (ii) reduced demand for
FOREX for importation of petroleum products as demand for petrol eases and
malpractices associated with the importation of fuel products are reduced; and
(iii) Central Bank action to curb speculative demand will keep exchange rates
close to the midpoint of the „band‟.

Demand is expected to weaken in the aftermath of raised fuel prices. While the
absence of Expenditure side data from the National Income Accounts
precludes any authoritative comment on demand conditions, Output data for
the period pre‐dating the reduction in subsidy already points to weakening
demand. The NBS shows that growth in non‐oil activity rose to 8.85percent in
2011 – an improvement over the 8.51percent the previous year. However, the

data also shows that activity in the oil sector shrank in 3 of the 4 quarters in 2011.
Furthermore, growth in the output of manufacturing, real estate, building and
construction sectors output was lower than in the previous year. The implications
of slowing growth in these key sectors – oil and manufacturing – have adverse
implications for unemployment, poverty, and government revenue. That Federal
Government‟s fiscal operations in January 2012 resulted in a surplus – in contrast
to a deficit for the same period last year ‐ provides further support of a
tightening in fiscal and thus demand conditions.

On the monetary side, credit growth remains anemic. Excluding lending by the
Central Bank, which was largely AMCON related, growth in lending by the
Deposit Money Banks (DMBs) – measured on a month-on‐month basis ‐ in the
past 6months has, on average shrunk by approximately 1percent each month.
In addition to shrinking volume, access to credit is also becoming more difficult
as concentration rises.

Whilst it is doubtless tempting to ease Policy interest rates, especially given the
sense of weakening demand, it is not clear that such a reduction in interest rates
will be transmitted to the „real‟ sector and not simply end up boosting bank
profitability! In addition, there is need to establish a trend for inflationary
pressures, it is difficult, on the basis of a single observation, to conclude that
inflation is on a downward trajectory – especially as Staff estimates indicate that
inflation will pick‐up in April. Furthermore, it is noteworthy that despite the
passage of the FGN budget for 2012 by the National Assembly, it is not clear
how its implementation will affect liquidity. Although at US$72 per barrel, the
budget benchmark price of crude oil is slightly higher than in the budget
proposals, this budget represents an attempt at fiscal consolidation when
compared with the 2011 budget which was based on US$75 per barrel.
However, the Excess Crude Account remains accessible to the sub‐national tier
of government.

Given the foregoing, I vote to maintain the status‐quo.


9.0
UCHE, CHIBUIKE

At the October 10, 2011 emergency meeting of the MPC, the MPR was raised by
275 basis points from 9.25 to 12.0 percent. This hike was, at least in part, a

consequence of the speculative attacks on the Naira. It is for instance generally
accepted that the promotion of real interest rates deprive currency speculators
of cheap funds which can be used to attack currencies purely for speculative
gains. The above move, no doubt, is responsible for the current relative stability
of the Naira in the foreign exchange market.
Another major argument in favour of such a high MPR is the view that it is
needed to counterbalance the inflation rate in order to encourage local and
foreign investments in the country. Theoretically, increased capital account
inflows should help reduce the pressure on the local currency. While such
double digit MPR may be good for the price stability objective of monetary
policy, especially in our peculiar context, it also has shortcomings. One major
flaw of this policy is that it limits credit to the real sector of our economy. It is for
instance generally agreed that high interest rates disadvantage the real sector
by making it unprofitable for businesses in this sector to borrow. It is therefore not
surprising that the liquidity level in the Nigerian banking system remains high. As
at the end of February 2012, for instance, the industry liquidity ratio stood at
almost 70 percent. Surplus funds that ideally should be intermediated to help
promote growth in the real sector end up being used to fund government fiscal
expansion. It is instructive that over 70 percent of the liquid assets of Nigerian
commercial banks are invested in Government Treasury Bills, AMCON Bonds and
FGN Bonds. The rentier nature of the Nigerian economy has no doubt
encouraged the practice of government borrowing purely on the anticipation
of future oil rents.
Based on the above, it is not surprising that the Nigerian economy has witnessed
little, if any, growth in the real sector. Lack of strategic planning has ensured that
most of the economic growth in the country has come from agriculture. The
pedestrian view that improvements in rainfall have been the main driver behind
the growth in this sector (what I refer to as the “rainfall theory”) reign supreme.
More troubling however is the fact that there are early signs that even the
agricultural sector may have joined some of the other economic sectors in
contracting. In terms of their contribution to GDP, for instance, agriculture,
building and construction, wholesale and retail trade and industry all recorded
declines across most quarters in 2011 when compared with 2010. Under such a
scenario, it is legitimate to argue that the utility value of the foreign investments
that these positive interest rates are supposed to attract is at best dubious.

Admittedly, the security situation in the country has not helped matters. The
consequences of the decline in the growth of the real sector include rising
unemployment and poverty levels. In the light of the above, one is tempted to
vote for a reduction in MPR in an attempt to reinvigorate the sagging economy.
I have however chosen to be more cautious on this occasion. This is so for two
main reasons.
First, I still have inflationary concerns. Although year-on-year headline inflation
rate dropped from 12.6 percent in January 2012 to 11.9 percent in February
2012, the projection is that this figure is bound to increase in the coming months.
Although there have been a lot of talk about the improving fiscal prudence of
government, I choose not to judge until the implementation of the newly
approved 2012 budget take off in full force. Furthermore the impact on inflation,
of the commitment of the Federal Government to remove the „remaining
subsidy‟ on petroleum products by the year end, may not be positive.
Secondly, I would like to wait in order to observe if the current down-trending of
the economy will continue. My suspicion is that this may well be, at least to a
large extent, the consequence of the current security and subsidy withdrawal
challenges in the country.
In conclusion, I am of the view that the status quo should be maintained until
the next MPC.

10.0 SANUSI, LAMIDO SANUSI, CON

Governor of the Central Bank of Nigeria and Chairman of the Monetary Policy
Committee
We meet today at a time when the global and domestic economic
environments have changed noticeably from what they were at our last
meeting. In the United States, growth and job numbers are turning out to be
more positive than initial forecasts. In Europe, on the other hand, growth
appears to be still some way into the future. Yet, the bold monetary actions
taken by ECB Governor Draghi (consistent with what, in our view, the ECB ought
to have done over a year ago) have stimulated tentative recovery in the
financial markets. Those monetary easing measures, combined with progress on

resolution of Greek debt crisis, deep haircuts accepted by Bond-holders, strong
fiscal consolidation signals from Spain and Italy and increased bailout funding
from EU countries and the IMF have, at least in the short-term, laid the
foundation for a way out of recession. Progress will still have to be made on the
move to fiscal union or at least a central oversight of the fiscal stance of
individual states, as well as in the area of improved competitiveness, especially
in the European periphery. It is important, nevertheless, that Europe has finally
accepted that half-measures will not work and we are relieved that Governor
Draghi has adopted an approach that is radically different from that of his
predecessor, Governor Trichet.

The news from Emerging markets is not so good, but also not exactly a disaster.
Growth in China and Brazil is expected to slow down in 2012 while India may
grow faster but with a risk of higher inflation. It is very likely, however, that
recovery in Europe and the US will be positive for Emerging markets and ensure
that the BRICS contribute their part in ensuring speedy global recovery.

The principal risk to the Global turnaround seems to be the looming
confrontation between Iran on the one hand and the West and Israel, on the
other. This has implications for global energy supplies, energy prices and peace
and security in the middle-East, especially if Israel carries out its threat to bomb
Iranian nuclear facilities.

On the Domestic front, GDP growth rates remain robust even though growth in
2011 was slower than in 2010. Concerns are mainly around Oil and Gas (which
declined) and Agriculture (which slowed down). Strong growth in Telecoms,
wholesale and Retail Trade and other sectors help push non-oil growth up.
Monetary aggregates have been declining or at best growing sluggishly, and
fiscal spending has also been weak early in the year. Consequently, it would
appear that slackening demand has helped moderate the inflationary impact
of fuel subsidy removal, contributing to the decline in Y-O-Y inflation from 12.6%
in December to 11.9% in January.

Slowdown in food inflation was a major contributor to the moderation in
headline figures. It appears to me intuitively that the removal of fuel subsidy,
without an increase in nominal wages and incomes for the poor, would have
not only shifted the budget-line downward but also forced a reallocation of
expenditure away from Food. This necessarily serves as check on the rate of
increase in food prices and-given the weight of food in the CPI-moderates
inflation.

Staff projections indicate further moderation in March before inflation begins to
rise again in April due to seasonality. In view of the very strong core inflationary
pressures, which are likely to persist with electricity tariff reforms and other
policies, it would seem that the outlook for inflation is far from benign. This is
especially when we add the likely impact of protective tariffs on rice and wheat
which are likely to kick in around July, 2012.

I would be reluctant to support an early and pre-mature easing of monetary
stance in spite of the clamour for this by Government and Business. The tight
regime we put in place since 2010 has started yielding fruit in the form of reiningin runaway inflation, attracting portfolio inflows, encouraging asset reallocation
in favour of naira assets, reducing the pressure on the naira and supporting
reserve accretion. These are necessary in order to provide monetary and
financial stability conducive to growth. I do recognize that stability on its own
will not deliver GDP growth. We need to ensure that the appropriate fiscal and
structural policies around energy, agriculture, industry e.t.c are diligently
implemented. But in the short-term, we must remain focused on delivering low
inflation, stable exchange rates and reserve buffers to absorb external shocks.
Lowering rates prematurely sends the wrong signals to the market, may reverse
the direction of capital flows, exert pressure on reserves and exchange rates,
and undo too quickly everything this Committee has achieved in the past
eighteen months.

I also do not believe that the marginal increase in oil price benchmark for the
2012 budget from $70 to $72 is significant enough to warrant an immediate
response. The increase is largely directed to capital expenditure and there are
also revenue measures aimed at reducing fiscal deficit. In addition, the

proposed benchmark is still lower than the $75 benchmark for 2011. There
remains the risk of drawdown from the excess crude by the States, but it is better
to wait and watch actual developments before considering an appropriate
response.

For all the above reasons my vote is for:
1. A retention of MPR and Corridor at 12%±2%
2. A retention of CRR at 8% and
3. A retention of liquidity ratio at 30%