Central Bank of Nigeria Communiqué No. 80 of the Monetary Policy
Committee Meeting, Monday, November 21, 2011
The Monetary Policy Committee (MPC) met with 11 out of the 12
members present on 21st November, 2011 to review domestic
economic conditions up to the early part of Q4 2011 and the
challenges facing the Nigerian economy against the background of
developments
in
the
international
economic
and
financial
environment in order to reassess the options for monetary policy for
the remaining part of the year and Q1 2012.

The Committee noted that international economic and financial
conditions had deteriorated with possible threats of financial shocks
from Europe, making it very difficult to correct the serious imbalances
that have developed in the international economy since the peak of
the global economic and financial crises. Most of the major
industrial economies are at present economically weak and are
expected to remain in recession with high unemployment rates and
large unsustainable fiscal imbalances for an extended period, going
by the recent forecasts of most international institutions. Inflation

rates, with the exception of Japan, are expected to be higher than
in 2010. It is projected at around 3.0 per cent in 2011 in the US, the
Euro-area and the UK compared with 1.9 per cent in 2010. The ratio
of government debt to GDP for the European Union remains high
and has led to a change of governments in Greece and Italy and a
likely election of conservative government in Spain. It has also led to
the adoption of tougher austerity measures including staff
rationalization and privatization. In the case of some countries of the
Euro area, the markets are still not certain that the risk of sovereign
default will be addressed expeditiously and in an efficient manner.
These concerns have opened up issues relating to financial stability,
given the considerable exposures of banks and other financial
institutions to government securities across countries. Consequently,
financial markets have become nervous with their uncertainties
reflected in the volatility of stock, bond and foreign exchange
markets. Current account imbalances are also projected to be high
in 2011 in both the US and the Euro area.
The Committee noted that, with the limited available fiscal space,
the burden of economic adjustment has fallen on central banks in
the industrial economies. However, as the policy rates are close to
zero, the only recourse available to central banks to promote
recovery is through quantitative easing. In resorting to quantitative
easing, the Committee is concerned that central banks, particularly,
in the US and UK, are failing to recognize the limitations of monetary

policy and delaying the difficult but inevitable structural adjustment
required by the developed world to avoid a recession. A significant
amount of sovereign debt needs to be written off, systemically
important banks need to be recapitalized (and if necessary
nationalized) and stronger austerity measures need to be put in
place in the US and the Europe. Concerns over elections in 2012 in
the US, Germany and France seem to be getting in the way of these
tough decisions. Failure to act quickly may lead Europe into a
prolonged recession that could lead to a permanent loss of
competitiveness and economic vibrancy.
Emerging countries are also projected to record lower growth rates
in 2011 than in 2010. Given the high degree of real and financial
integration with the industrial economies, a quick rebound in growth
in 2012 does not seem to be realistic at this point in time. In many
emerging countries, inflation rates are relatively high. There are also
concerns about financial asset prices and the growing nonperforming loans of banks. In China, early signals of a collapse in
property prices have emerged and should the real estate bubble
burst, this will have an impact on China’s growth prospects. Fiscal
imbalances have also been high in many countries.
Growth performance of industrial and emerging economies in 2012 is
vital for Nigeria’s economic performance. Oil demand, in the
Committee’s view, would soften as a consequence of slow global
growth and would necessitate comprehensive and sound policy

actions to help diversify the domestic economy away from oil. The
impact of external developments on the domestic economy working
through the channels of trade, finance and confidence has, in the
Committee’s view, been strong and would need to be addressed
efficiently and expeditiously.

On the domestic front, the Committee observed a mild resurgence
of inflationary pressures at the end of the third quarter and beginning
of the fourth quarter of the year, after they had moderated following
a series of monetary policy tightening measures. The inflation
outlook, however appears mixed, and is complicated by the fact
that the full effects of the recent aggressive monetary tightening
measures are yet to be felt. Latest output growth projections
remained robust, even though lower than earlier projected. The
Committee observed no major threats to financial system stability
and welcomed the conclusion of the banking sector recapitalization
exercise, which places the banks in a strong position to weather
external shocks and also lays the foundation for strong earnings and
credit growth.

Key Domestic Macroeconomic and Financial Developments
Output and Prices

The Committee observed that the robust output growth recorded
since the beginning of the year has been sustained. Real output
growth was estimated at 7.40 per cent in Q III of 2011 as against 7.86
per cent in the corresponding quarter of 2010, according to the
latest estimates of the National Bureau of Statistics (NBS). Non-oil
GDP was estimated to grow sharply by 8.81 per cent in Q III of the
current year as compared with 8.38 per cent recorded in Q III of the
previous year. For the year as a whole, real GDP growth was
projected at 7.69 per cent, slightly lower than the 7.87 per cent
attained in 2010.
The Committee noted with satisfaction that the expected output
performance in 2011 was higher than the average growth of 6.63
per cent recorded since 2004. As investments increase and
productivity improves, real GDP could double in less than ten years
from now if the potential growth is elevated slightly over the average
growth recorded in the last seven years.
The year-on-year headline inflation rate rose to 10.5 per cent in
October 2011 from 10.3 per cent in September. Similarly, food
inflation rose to 9.7 per cent in October 2011 from 9.5 per cent in
September. However, core inflation declined marginally to 11.5 from
11.6 per cent in September.
Coming on the heels of a series of monetary policy measures, and at
a time of global uncertainty, the numbers send mixed signals for

inflationary expectations in spite of the uptick in year-on-year
headline inflation. For instance, all broad measures declined on a
month-on-month basis. Headline inflation declined by 0.9 per cent in
October compared to an increase of 1.4 per cent in September. This
was a result of a month-on-month decline of 0.8 and 0.7 per cent in
food and non-food inflation compared to increases of 1.9 and 0.9
per cent, respectively, in the preceding month.
On the fiscal front, the Ministry of Finance continued to stress its
commitment to a tighter fiscal stance and has already indicated a
reduction in the benchmark price of oil from US$75.0 per barrel to
US$70.0 per barrel. It has also adopted an exchange rate
assumption consistent with the current stance of monetary
authorities. Although, the Sovereign Wealth Fund is subject to
continuing political negotiations between States and Federal
Governments, it would appear from public statements on both sides
that a positive resolution would be reached very soon. The risk to
inflation from removal of fuel subsidy is ever-present. However,
whenever the policy becomes effective, the Central Bank stands
ready to react to any second round effects of a price adjustment.
As a matter of policy, the Central Bank will not respond to first-round
shocks, as tightening money supply in such a circumstance will be
pro-cyclical. Finally, in view of the external developments above,
any softening in oil prices will impact negatively on government
revenue receipts. Given the concerns over the budget deficit, such

a development would lead to a forced adoption of belt-tightening
measures, thus, providing the much-needed fiscal support in the
effort to rein in inflation. In such a circumstance, further tightening
may also turn out to be pro-cyclical, especially, as the full effects of
recent measures are still working their way through the system. Given
the cost of borrowing in current tight monetary conditions, the
Committee projects that in the face of revenue shocks, the likely
reaction of the authorities will be a reduction in non-essential
spending, rather than an increase in public debt.

Monetary, Credit and Financial Market Developments
Provisional data indicate that aggregate domestic credit (net) grew
by 24.57 per cent in October 2011 over the end-December 2010
level, and by 29.48 per cent when annualized, which was below the
indicative benchmark of 32.58 per cent for 2011. The growth in
aggregate credit (net) in October 2011 was due to increases in
credit to the private sector as well as State and Local governments.
Credit to the private sector grew by 24.24 per cent (29.09 per cent
on annualized basis) which was higher than the indicative
benchmark of 23.34 per cent for 2011. However, credit to the
Federal Government which fell by 21.65 per cent (25.98 per cent on
annualized basis), was below the indicative benchmark growth rate
of 29.29 per cent for 2011. This was due to the fiscal surplus of N307.84

billion in July 2011 following the sharing of the arrears of budget
augmentation (January-April, 2011) which reduced the need for
government borrowing.
Rates at the interbank money market moved in tandem with the
upward reviews of the MPR at the MPC meetings during the period.
The average interbank call and Open buy back (OBB) rates rose
from 11.38 and 11.16 per cent before the extra-ordinary MPC
meeting, held in October 2011, to 15.00 and 13.70 per cent,
respectively, after the meeting, reflecting the spike in the MPR. In
addition, the upward review of the CRR and the sterilization of the
funds helped to push up inter-bank rates to a high of 18.06 per cent
on October 14, 2011. The Interbank and OBB rates, which opened at
10.74 and 10.63 per cent on September 19, 2011 rose to 17.09 and
14.00 per cent on October 31, and closed at 14.30 and 13.26 per
cent, respectively, on November 15, 2011. Other factors responsible
for the upward movement in rates included the various OMO
auctions conducted to mop-up excess liquidity, as well as the low
level of liquidity in the banking system following the deadlock at the
Federation
Accounts
Allocation
Committee
meeting
which
culminated in the late release of statutory revenue to the three tiers
of government. However, the purchase of AMCON bonds by the
Bank and the injection of funds, moderated rates in the market.
The Committee also noted that deposit money banks have
improved the rates on fixed-term deposits. Thus, the average

weighted three-month deposit rate has gone up to 7.06 per cent in
October from 5.49 per cent in September. Also, the rates on
deposits for 12 months increased from 4.47 per cent in September to
4.90 per cent in October, 2011. The average weighted interest
bearing deposit rate stood at 4.93 per cent in October compared
with 4.02 per cent in September. This increase in rates had been
anticipated by the Committee and is likely to continue especially as
we approach the December 31, 2011 deadline for the removal of
the CBN guarantee on the interbank market. Lending rates have
also gone up in response to tighter conditions in the money market.
The Committee observed that the bearish performance of the
Nigerian capital market continued for most of the year. The All-Share
Index (ASI) decreased by 18.0 per cent on a year-to-date basis from
24,770.52 at end-December 2010 to 20,311.51 on November 18,
2011. Market Capitalization (MC) also declined, by 19.2 per cent,
from N7.91 trillion to N6.39 trillion over the same period due partly to
the delisting of acquired banks. The bearish market is consistent with
the trends globally in a very uncertain world where fund managers
have resorted to a flight to safety. High yields on fixed income
securities and subdued activity from investors in the wake of the Euro
Zone crisis should advise against undue optimism for a rally in stocks
in the short-term. However, strong earnings and fundamentals mean
that the market is at present very attractive to long-term investors
but not speculators.

External Sector Developments
The Committee observed some restoration of stability in the Foreign
exchange market since the last MPC meeting. The average
exchange rate appreciated at all three segments of the market
during the period. At the wDAS market, the exchange rate opened
at N158.48/US$ (including 1% commission) on October 11, 2011 and
closed at N156.05/US$ on November 18, 2011, representing an
appreciation of N2.43k or 1.53 per cent within the period. At the
inter-bank segment, the selling rate opened at N158.90/US$ and
closed at N158.62/US$, representing an appreciation of N 0.28k or
0.17 per cent. At the BDC segment, the selling rate opened at
N165.00/US$
and
closed
at
N160.00/US$,
representing
an
appreciation of N5.00k or 3.03 per cent for the period. The external
reserves position has continued to improve, closing at US$34.38 billion
of international reserves as at November 17, 2011.
The Committee felt that external developments have in general
responded favorably to monetary policy stance adopted in the last
MPC meeting in October. It urged the Central Bank to be vigilant
with respect to the developments in the foreign exchange market
and maintain its stance in favour of stable exchange rates, and send

clear signals that will help anchor the expectations of investors,
manufacturers, and policy makers in the short-to-medium term.

The Committee’s Considerations
The Committee reviewed its decisions over the course of 2011 and
their impact on the Bank’s core mandate of maintaining price
stability. It noted that Nigeria had been ahead of all other African
countries in anticipating the impending danger of inflation and
started its monetary tightening cycle at a time other African Central
Banks were still holding or reducing policy rates. It noted that these
decisions have helped in controlling pressures on the general price
level and in maintaining a relatively stable equilibrium in the foreign
exchange markets. Where this equilibrium is disturbed by external
factors, the ability to respond rapidly has succeeded in quickly
restoring stability. The Committee also noted the mixed signals sent
by inflation numbers for October 2011. The slight uptick in headline
inflation year-on-year represents only a 20 basis-point increase from
a high base of 10.3 per cent, and it is important not to exaggerate its
significance. The index of all items except food declined marginally
year-on-year, and all three broad indices (headline, food and core)
showed a month-on-month decline in October, against month-onmonth increases in the previous month.

On the fiscal side, a moderated oil benchmark price coupled with
very strong public statements of commitment to fiscal consolidation
by the fiscal authorities, give rise to optimism about long-awaited
support on the fiscal side. Global headwinds may lead to a softening
of commodity markets, thus reducing the resources available to
fiscal authorities and contributing to a disinflationary process.
The Committee noted the continuing demand pressures in the
foreign exchange market and the slow rate of reserve accretion as
indicators that liquidity conditions may still need further tightening.
On the other hand, lending rates are already high and having
impact on the real sector, and global headwinds may make further
tightening counter-productive and pro-cyclical should oil price fall
significantly. Also, a combination of small fiscal adjustments and
moderate depreciation in the exchange rate of the naira should
compensate for maintaining current interest rate stance. Finally, the
Committee noted that December is usually a period of muted
economic activity, and an appropriate time to pause and assess the
full impact of the recent tightening decisions after a lag.
Decision
The Committee decided as follows:
1. By a unanimous vote to retain the MPR at 12.0 per cent and the
symmetric band at +/-200 basis points.
2. To retain the CRR at 8.0 per cent.

3. To adjust the mid-point of target official exchange rate from
N150.00/US$1.00 to N155.00/US$1.00 and maintain the band of
+/-3.0 per cent. This means that the naira should float roughly
within a range of N150.00/US$1.00–N160.00/US$1.00, unless
extraordinary shocks necessitate a change in stance.
4. To encourage the CBN to continue to seek convergence
between wDAS and interbank rates to reduce arbitrage
opportunities, avoid speculative attacks, and the emergence
of a multiple-exchange rate environment.

Sanusi Lamido Sanusi, CON
Governor
Central Bank of Nigeria

November 21, 2011

PERSONAL STATEMENTS BY MPC MEMBERS:
1.0
ALADE, SARAH
This Committee meeting is coming on the hills of October meeting which
saw policy rate increased by 275 basis points and Cash Reverse
Requirement (CRR) doubled. Although headline inflation remain elevated
at 10.5 percent in October from 10.3 recorded in September, 2011, there is
need to allow the impact of the last policy decisions in October to work its
way into the economy. Since monetary policy operates with a lag, the
cumulative impact of the policy actions in October is yet to be fully
transmitted into the economy. Based on this, I am inclined to support a no
change in monetary policy rate and CRR to help address the growth
concerns in the economy.
Headline inflation increased moderately to 10.5 percent in October,
reflecting global economic environment and commodity price volatility.
Both headline and food inflation increased moderately in October. While
headline inflation increased from 10.3 percent in September to
10.5percent in October, food inflation increased from 9.5 percent to 9.7
percent. The impact of sustained monetary tightening by the Central
Bank is helping to contain inflationary pressure, however seasonal
spending during the Christian and Muslim holiday season may have been

responsible for the elevated inflationary pressure in October. The outlook
going forward is that this temporary pressure will be contained as the full
effect of the last monetary policy is transmitted into the economy.
Available forecast points to continued decline in both food and headline
inflation through the first quarter of 2012.
Global growth prospect has become more uncertain with high
unemployment and elevated inflationary pressure. Developments in the
global economy over the past few weeks are a matter of serious concern.
Growth momentum is weakening in the advanced economies amidst
heightened concerns that recovery may take longer than earlier
expected. Most major industrial economies are experiencing high inflation
and high unemployment rates making recovery harder to achieve.
Additionally, the Euro zone countries are grappling with the sovereign
debt crisis which has resulted in the change of government in two
countries (Greece and Italy). Most analysts are uncertain that the risk of
sovereign default will be addressed expeditiously and this loss of
confidence is reflecting in market transactions. Although Nigeria’s exports
have performed well in the recent period, this trend is unlikely to be
sustained in the face of weakening global demand. This suggests that risks
to the growth projection for the next few months are on the downside
and further tightening could dry up domestic economic activities.
While there are still pockets of downside risks in the domestic banking
sector, the resolution action taken by the Central Bank is helping to restore
confidence in the banking sector. The return in confidence needs to be
enhanced by giving the banks some space to consolidate their position

and cater to the needs of their customers. Another policy hike could
further tighten liquidity conditions in the market with adverse impact on
economic activities.
Based on the above, I will recommend a “no change” in monetary policy
rate and Cash Reserve Requirement (CRR). Furthermore, the deceleration
in global growth and increased volatility in commodity prices all call for
prudent monetary policy stance to maneuver the fragile economic
environment.

2.0
BARAU, SULEIMAN
A.
Developments since the last MPC meeting
A.1
I entered the Monetary Policy Committee meeting today convinced
that having recently “front loaded” policy actions to contain the
possible impact of excess liquidity and speculative attack on
inflation and exchange rate respectively, I would vote for statusquo. The rationale for this position is obvious.
A.2
In the first place, although Year-on-Year (YoY) Headline and Food
Inflation rates inched up marginally from 10.3% to 10.5% and 9.5% to
9.7% in September and October respectively, Month-on-Month
(MoM) rates for Headline and Food Inflation actually declined by
0.92% and 0.7% respectively during the same period.
A.3
Year-on-Year Core Inflation rate however actually declined
marginally from 11.6% in September to 11.5% in October. Therefore
while Year-on-Year measures showed a mixed but stable trend, the
Month-on-Month rates witnessed a marginal decline. This, for me, is
an indication that the recent rather aggressive tightening measures
adopted by the MPC are beginning to bear fruits.

A.4
In spite of the fact that market rates and lending rates in general
have trended upwards in response to the recent increase in MPR,
the economy recorded a robust growth as GDP grew by 7.40% in
Quarter Three (3). Even though this is a decline when compared to
7.72% recorded in Quarter Two (2), it is an impressive improvement
over the 6.64% recorded in Quarter One (1). This further supports my
view that at present, no direct relationship has been established
between liquidity tightening measures, credit and GDP growth.
Even if there is, it is substantially a lagged relationship. Significantly,
Staff estimates are that Quarter Four (4) GDP growth is expected to
be 9.05%, riding on good growth projections from Agriculture,
Wholesale and Retail Trade, and Services sectors. Overall GDP
growth rate is estimated to be 7.69% for 2011.
A.5
The level of foreign reserves actually rose by 8.32% from $31.7 billion
in September to $34.3 billion in October in reflection of the various
liquidity tightening and administrative measures adopted by the
CBN.
A.6
Market interest rates were volatile but all trended upwards in
response to the upward adjustment of the Monetary Policy Rate
(MPR) to 12%.
A.7
We witnessed mild appreciation of exchange rates. In the WDAS
segment we witnessed 1.5% appreciation while 0.18% and 3.03%
appreciation were recorded in the Interbank and BDC segments,
respectively.
A.8
The Euro Sovereign Debt problem and possible banking crises
worsened. This had led to change in leadership in Greece, Italy and
Spain. The US deficit problem continued as the congressional super
committee that is negotiating possible deficit reduction agreement
failed to reach a deal. Meanwhile, GDP growth rate slowed down
in Brazil, India and China with India recording the lowest growth rate
in Quarter Two (2) since 2009.

A.9
Overall, we recorded moderate success in keeping inflation and
exchange rate stable while recording modest GDP growth rate and
some foreign reserves accretion.

B.
Challenges/pressure points
In spite of the successes recorded the following are possible pressure
points which we must keep in view.
B.1
Continued demand pressure for foreign exchange due to the fact
that the system is still very liquid which could support sustained
speculative demand. The measures taken to adjust the WDAS
exchange rate to N154.5 per USD has done little in eliminating the
effect of these factors. There is the obvious need to embark on
further liquidity mop up that is consistent with our tightening stance
and on further administrative measures.
B.2
It is unlikely that the fuel subsidy would be removed before the next
MPC meeting. It is still a possibility though and the inflationary
impact of such a decision is a risk to keep in mind in spite of the
expected positive fiscal and foreign exchange market impact of this
decision.
B.3
Year-end festivities usually put pressure on inflation via excessive
fiscal and consumer spending. This is a source for concern as such a
development may erode whatever gains we have made in
containing inflationary pressures.
B.4
The Euro area sovereign debt and possible financial crises should be
of keen interest to us. We should be hopeful that the contagion
would not radically impact on Italy any further given the potential
consequence of such on the fortunes of Nigeria via second round
effects.
C.
Recommendation

Having reflected deeply on the foregoing, I have no doubt that any
immediate further tightening measures at this time may be
unnecessary. I therefore recommend the following:
C.1
Monetary Policy Rate should be maintained at 12%
C.2
Cash Reserve Ratio should be maintained at 8% with Symmetric
Corridor of plus and minus 2%.
C.3
Continue to tighten liquidity based on normal open market
operations
C.4
Further administrative measures to check wastages associated with
foreign exchange demand. This should be complemented with
active participation in the interbank market by the CBN in order to
contain divergence in rates at the various segments of the foreign
exchange market.


3.0
GARBA, ABDUL GANIYU
Decision
I vote for:
I. Holding the MPR at 12.0%
II. Maintaining the Asymmetric Corridor for SLF and SDF at ±2%
III. Maintaining CRR at 8%

Basis of Decision
1. To allow for the effects of previous policies to be fully realized.
2. To allow for more active implementation of policies.
3. To allow for more effective implementation of institutional changes
that change the incentive system against “rouge players” whose

motives and behaviors undermine the efficient functioning of the
financial markets particularly money and foreign exchange markets.


4.0
LEMO, TUNDE
The recent monetary tightening stance of the Monetary Policy Committee
has assisted a great deal in reducing the demand pressures in the foreign
exchange market, resulting in modest accretion to the Gross External
reserve which stood at USD 34.38billion on November 17, 2011. The
decision has also made Nigeria more attractive to foreign investors as the
MPR, for the first time in October 2011, turned positive in real terms.
The above notwithstanding, developments in the domestic economy
suggest that the inflationary pressures may persist till the end of the year as
headline and food inflation rose marginally in October. The slight
reduction in core inflation may not be sustained in the run up to the yearend due to the impact of increase in consumption pattern at this time of
the year. These pressures are however not strong enough for serious
concern, especially as the political negotiations necessary for the removal
of fuel subsidy may not be concluded in the near-term.
The global economic recovery remains fragile. While the threat of double
dip recession has decreased in USA, unemployment still remains high.
Europe continues to grapple with sovereign debt crisis, mounting market
tension and risk of banking crises, while expected growth in China may
slow down considerably as the housing market is already showing sign of
a possible crash. These external developments may have negative
impact on global demand for crude oil and therefore result in significant
shortfall in government revenue and money supply.
I am therefore of the opinion that MPC needs to watch these domestic
and foreign developments in the next few months as further tightening

may be pro cyclical in the event of a major slowdown in global and
domestic economies. Furthermore, additional time is also required to
monitor the full effects of MPC decisions taken on October 18, 2011.
In view of the foregoing, I recommend the following:
a. Maintenance of the MPR at the current rate of 12%
b. Retention of the current symmetric corridor of +-2%
c. Current Cash Reserve Requirement of 8% to remain unchanged,
and
d. Achieve a convergence of the Wholesale Dutch Auction (WDAS)
and Interbank rates.

5.0
MOGHALU, KINGSLEY CHIEDU


Several indicators, in particular a mild resurgence of inflationary pressures,
would, on the face of it, argue for a continuation of monetary tightening
at this meeting of the Monetary Policy Committee. The year-on-year
headline inflation rate rose from 10.3 per cent in September 2011 to 10.5
per cent in October 2011. Food inflation also rose from 9.5 per cent in
September to 9.7 per cent in October.
However, there are also important factors and developments that,
without prejudice to the need for the Central Bank of Nigeria to maintain
its strong anti-inflation stance in the medium to long term, point to the
conclusion that is wiser to adopt a pause-and-see stance and hold the
policy rate steady at this review by the MPC.
These factors include:
Research indicators that, despite the mild increase in price levels
and increases associated with year-end consumption patterns, it
is likely, perhaps even probable, that there will be price declines
in the first half of 2012.

A combination of marginal reduction in core inflation to 11.5 per
cent in October 2011 from 11.6 per cent in September 2011 and
staff projections that the effects of recent extensive monetary
tightening measures agreed at the extraordinary meeting of the
MPC on 10 October 2011 have yet to be fully transmitted into the
economy.
Global economic crisis, especially the debt crisis of the Eurozone
and its far-reaching potential consequences if not contained,
could create recessions that will impact Nigeria’s economy
through possible effects on crude oil prices and the exposures of
Nigerian banks and require a return to a more accommodative
monetary stance. The dark clouds hovering over the global
economy call for proceeding cautiously with monetary tightening
at this point in time.
There are now questions over the timing of a previously
anticipated deregulation of petroleum product prices as the
Federal Government of Nigeria seeks to build political consensus
in support of the proposed policy change.
The utilization of other measures, including an adjustment of the
mid-point of the naira, to ensure the stability of the currency,
ensures that the monetary policy rate is not the sole means for
managing exchange rate policy.
On the basis of the foregoing, I vote for:
(1) Holding the monetary policy rate steady at 12.0 per cent.
(2) Maintaining the symmetric corridor at +/- 200 basis points
(3) Maintaining the Cash Reserve Ratio at 8.0 per cent.
(4) Adjusting the mid-point target of the naira to N155 to the dollar.

6.0
OLOFIN, SAM

It is gratifying to note that some of the proactive policy measures put in
place at the extraordinary meeting held in October 2011 to forestall an
unwarranted attack on the Naira are beginning to yield the desired
results. The observed turbulence in the foreign exchange market and
excessive speculative hedging against the Naira which partly warranted
the emergency meeting appears to have abated and stability has been
restored to the foreign exchange market albeit at a moderately higher
rate of $1: N155. This may be suggesting the need for a more elastic band
other than the plus or minus 3 percent around the $1:N150 rate that has
prevailed in the market over the last three to four quarters. Even though
there has been a mild resurgence of inflationary pressure, the year-onyear headline inflation has only risen by insignificant percentage points
from 9.3 percent in September 2011 to 10.3 in October 2011. Projections
by the NBS indicate that real GDP growth rate is likely to remain
significantly positive at a projected rate hovering around 8 percent for the
year 2011.
Despite the phenomenal jerking up the MPR by over 200 basis points at
the last meeting, aggregate domestic credit continues to grow even
though at a slightly lower annualized rate of 19.5 percent compared with
23.72 percent recorded over a similar period in 2010. For the first time in
recent months the country has a positive real interest rate even if this is at
the moment at a rate that still leaves the country less competitive in
attracting the much desired foreign capital inflows when compared with
Ghana and South Africa. The outlook on the fiscal front remains essentially
a potentially inflationary one even if the much awaited deregulation in
the petroleum sector and removal of subsidies appears not to be coming
into effect as quickly as has been anticipated in the period immediately
following the April elections. The potentials for major exogenous
disturbances impacting negatively on commodity prices particularly oil,
on which government revenue and foreign exchange earnings largely
depend remains high.
The foregoing notwithstanding, one does not at the moment see an
overriding need to tinker with the various monetary policy tightening

measures and related administrative measures that were put in place at
the October 2011 extraordinary meeting. Some of these measures need
to be monitored over a longer period, taking into account their
respective implementation and impact lags before evaluating the extent
to which they have been effective or otherwise. There is however the
need for effective monitoring of their implementation to ensure their
effectiveness. There is need to pay particular attention to the
administrative measures that are aimed at minimizing the speculative
component of the growing demand for foreign exchange and the
pressure this exerts on the value on the Naira as well as on the rate of
inflation. Given the present overall outlook and projections of this into the
short to medium term, one would vote for maintaining the status quo until
the end of the fourth quarter of the year, except if unforeseen exogenous
disturbances warrant any emergency meeting(s) to re-evaluate our
current stance.

7.0
OSHILAJA, JOHN
Data-points reviewed at today’s meeting of the MPC prompted a
unanimous decision to hold the Policy and derived CBN interest rates at
current levels. This is to say that, notwithstanding varying perspectives on
the information provided, the MPC broadly agreed to maintain its current
tight policy stance. On this occasion, however, the CBN also chose to
reiterate the MPC’s position by formally adopting part of the exchange
rate adjustment that had already occurred in the marketplace. The MPC
also agreed to keep recently adopted administrative measures at current
levels, and to let these continue working through their various channels.
Finally, we agreed on the need for the MPC to remain prepared to use all
available tools to preemptively strike against significant threats to general
price stability; i.e. inflation.
External and internal risk factors were fully considered. These ranged from
possibilities of a harder than generally expected economic landing in

China, a deep and prolonged recession in the European Monetary Union
(EMU), the likely inability (under renewed crisis conditions) of US Authorities
to globally stimulate growth in the customary manner, to the risks these
and other key domestic factors pose on Nigerian fiscal revenues and
macroeconomic balances. We also recognize that, even as domestic
inflation seems to be flagging, prospects for achieving meaningful fiscal
consolidation in Nigeria are likely to be weak in the short and possibly
intermediate term. As such, the effective fiscal stance of Nigerian
governments justifies continuing MPC vigilance. That said, global market
developments and their impact on Nigeria could end up vindicating the
government’s current posture – even if only reviewed in retrospect.
In my view, today’s MPC decision to hold represents an opportunity for
local market players to pause, reflect and reassess. Domestic institutions
might well use this largely unanticipated breather to reassess core views
on interest and exchange rates for the Naira; against a global backdrop
of increasing economic and political uncertainties. I also see further
exciting opportunities in today’s decision for the Monetary Authorities.
Here are three examples:

Liquidity Management
There remains considerable scope for improved performance in Liquidity
Management.

Interbank
interest-rate
volatility
has
been
quite
pronounced in recent years owing principally to larger, less predictable
official transfers. These domestic transfers complicate the Central Bank’s
monetary reserve targeting efforts; to the extent that achieved levels of
bank reserves can vary markedly. In light of such challenges, zeroing-in
on pricing – i.e. influencing market interest rates – becomes a pragmatic
backup strategy. Rate volatility might be further moderated, however,
through the CBN’s faster execution of countermeasures against fiscallyinduced liquidity injections. This capability is going to be even more
valuable when CBN guarantees on interbank obligations are withdrawn
at this years’ end.

Bank Exposures to Sovereign Bond Risks
We have a sizable market for government bonds in Nigeria but for all its
size, the market still lacks meaningful and reliable liquidity. Currently,
indicative secondary market bond prices (when quoted), and their
derived benchmark yields, cannot be relied upon as reasonably accurate
indicators of value. We have a banking sector in Nigeria that is heavily
exposed to these bonds for regulatory reasons, and also possibly in the
mistaken local belief that Naira sovereign bonds are completely risk free.
Indeed, FGN Naira Bonds are credit-risk free, thanks to the Central Bank’s
capabilities as Lender of Last Resort – for Naira. Unfortunately, as is also
the case with their European counterparts, Nigeria’s banks are structurally
over-dependent on local Money Markets to fund Capital Market
investments. This unfailingly gives rise to high levels of market risk
exposures (in the form of price and liquidity risks) that can make banking
sector stability transitory at best, and illusory at worst – even when
anchored by large holdings of sovereign risk. Regulators and bank CEOs
in the Eurozone are presently rediscovering this inescapable financial
market reality.
The CBN did well to boldly intervene against widespread solvency
problems that threatened Nigerian banking with devastating havoc. The
NPLs have been quarantined, and financial disaster was largely averted.
However, sustainable banking sector stability now needs the CBN to play
a further, catalytic role in reducing this unhealthy dependence on
transient bank-investment funding within its jurisdiction. Nigeria does not
have to blunder into the same structural mistake Eurozone market
planners did.

Exchange Rate Policy Articulation
Exchange Rate Policy might also be further articulated to convey key
determinants of midpoints around which desired trading bands are

established. On this occasion, the CBN’s proposed new midpoint for
USD/NGN exchange is roughly the upper limit of the band established
around the old midpoint. To which market participants might be
prompted to wonder whether the CBN has started as it means to
proceed? Will widening or narrowing bands also foreshadow future
exchange rate adjustments? I believe the CBN can publicly clarify the
rules of engagement in such respects, without sacrificing much
operational flexibility. Low visibility, regarding the manner in which official
exchange rates are adopted, is one of the inhibiting factors behind the
poor liquidity and shallowness of frontier securities markets. The latter are
among market features that promote broader international participation;
admittedly this has been lacking in Nigerian financial markets since the
inception of liberalization initiatives adopted in 2007.


8.0
SALAMI, ADEDOYIN

While Headline and Food inflation both rose slightly to 10.5 per cent and
9.7 per cent in October, Core inflation, in contrast, decelerated marginally
to 11.5 per cent. Notwithstanding the fact that these numbers are higher
than our objective of achieving the single digit inflation, and CBN Staff
expectation that prices will breach 11 per cent in November, there is a
sense of calm around many of the key factors which typically give
concern.

Although output growth for 2011 is projected at 7.69 per cent, slightly
lower than the 7.87 per cent achieved in 2010, the rate of increase of
economic activity is acceptable albeit that it is less than potential.
Furthermore, Staff forecasts indicate that all inflation types will moderate
as the year ends and into the first quarter of 2012. Indeed, the forecasts
show that Headline inflation will ease to 8.3 per cent by February 2012.

Painfully slow, if any progress, in government attempt to build a political
consensus around the removal of petrol price subsidies suggests that
higher prices expected to accompany price deregulation is receding into
an uncertain future. It will be interesting to see what the 2012 Federal and

State budgets look like in the event of an ultimately unsuccessful attempt
to build a political consensus – especially, if as anticipated oil prices ease,
however slightly, in the year ahead. The measures with respect to the
exchange rate at MPC’s meeting in October appear to have contained
the pressures.

Notwithstanding the ‘calm’, the continuing high level of banking system
liquidity – despite the measures, especially raising the Cash Reserve Ratio.
My fear remains the possible implications for pressure on the currency of
high liquidity. A combination of slowdown in economic activity as firms
prepare to close over the year‐end holidays and the movement of the
Naira’s midpoint and band give some room for comfort that the risk to the
currency is less than it was before the MPC’s meeting in October.
Furthermore, the combined impact of changes to the administration of
access to foreign currency and adjustment to the midpoint and range of
the Naira’s band, decided upon by the Central Bank, should continue to
keep currency stability required for effective management of inflation.

I am thus able to support maintenance of the status quo on the Monetary
Policy Rate (MPR), the Standing Deposit and Lending Rates.

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 per cent. This unprecedented
hike was, at least in part, as a consequence of the speculative attacks on
the Naira. Other monetary tightening measures adopted at the
emergency meeting included: the increase of CRR from 4.0 to 8.0 per
cent and the reduction of the authorised dealers’ Net Open Position from
5.0 to 1.0 per cent. In the light of the fact that the Naira exchange rate
has now been fairly stabilised and there are no material changes in the
inflation numbers, I am of the opinion that we should maintain the status
quo at this stage until we get more current data on the impact of the
recent emergency MPC action. In the medium term, however, my
concern remains the fact that hikes in MPR and other monetary tightening

instruments negatively impacts on credit to the real sector. I will therefore
be favourably disposed to revisiting the current MPR with the view of
aiding real sector growth and development in the near future. I am of
course assuming that given the current transformation agenda of the
Federal Government, it is now determined to be more fiscally responsible.

10.0 YAHAYA, SHEHU
I recommend that the MPR is maintained at its current level, as well as the
corridor, CRR. This vote is based on the following considerations.
a) Although the YOY headline inflationary rate has inched up a little bit
to 10.5%, it should be recognized that the increase is quite small,
and core inflation has declined somewhat. Also, while prices may
increase a bit in December due to demand pull factors, these
pressures should subside thereafter.
b) There has been depreciation in the exchange rate of the Naira, but
the rate has appreciated a bit last month. There has also been a
trend towards convergence in rates in the interbank, WDAS and
BDC markets. This trend, within the context of the shift in mid-point,
will appear to be sustainable in the short term, as long as there is no
dramatic fall in crude oil prices.
c) Indeed, taxed on available data, crude oil prices are expected to
remain flat in the near term, which works both ways – probably no
dramatic spike in government revenue and expenditure which
would spoke additional inflationary pressure.
d) External Reserves have increased in the last month, even though
import coverage has reduced.
e) Manufacturing output is projected to decline somewhat, due to the
higher costs induced by higher interest rates and to elasticity of
demand. Moreover, SMEs, even though the data is not adequate,

are bound to be even more strongly affected by the higher interest
rates. It would not be propitious to further overburden them at this
time, particularly if we are to avoid additional risks of job losses.
f) Lastly, the effects of the last MPC decision to raise MPR by 275 basis
points is still playing out and it would be important to watch the
effects before applying additional measures.
It is here recognized that liquidity is still high in the banking system and
this situation may least for a while longer since lending is unlikely to
significantly expand under a higher interest regime until adjustment
takes place. This may pose risks with respect to continuing strong
demand for foreign exchange.
On the basis of the above considerations, I vote for maintenance of
the MPR t the current rate, the retention of the symmetric corridor and
the current CRR.

11.0 SANUSI LAMIDO SANUSI
Governor of the Central Bank of Nigeria and Chairman of the Monetary
Policy Committee
We are meeting today in domestic circumstances that are decidedly
calmer and more stable than they were when we called an extraordinary
meeting in October. At that time the markets were in a panic over the
bad news from Europe and reversal of capital flows from emerging
markets, and several currencies were under pressure, including the naira.
The sharp measures we took in October, significantly raising both MPR
and, CRR, to stem speculative activity, encouraged portfolio allocation,
and restored confidence. Although the naira has settled at a somewhat
weaker level than the previous N150:$1, it has happened in a controlled
and orderly manner consistent with our objective of maintaining
exchange rate stability without resorting to a fixed exchange rate.

Nigeria Bureau of Statistics (NBS) figures for October show continuing
robust growth in (especially non-oil) GDP and a slight up-tick in inflation.
The marginal increase in headline inflation from 10.3 percent to 10.5
percent is driven largely by energy, rent and building materials. Core
inflation fell marginally Year-on Year to 11.5 from 11.6% in September. All
broad indices showed month-on-month declines in October, compared
with increases in the previous month.
The tightening measures adopted at the MPC of October have
actualized their prime objective of calming the markets, encouraging a
portfolio reallocation to naira, raising real interest rates to positive territory
and satisfying the foreign exchange markets.
On the external front, there are heightened concerns over economic and
financial developments in the developed and emerging markets. Fiscal
imbalances, bank solvency risks, higher inflation and unemployment etc.
portend a world in which a new recession cannot be ruled out. A
softening of commodity markets will put pressure on government finances
and reserves with high interest rates. This should moderate government
spending, thus strengthening the support to disinflation from the fiscal side.
I am also less convinced now that fuel subsidy removal is imminent, given
the repeated delays.
My view is that the measures taken in October are working and the
uncertainties in the external environment advise a pause at this point to
avoid further tightening being pro-cyclical. The next MPC is in January
and we can take a decision on further tightening based on the situation
then.
I therefore vote for
1. Retention of MPR at 12% and symmetric corridor of +/- 2%.
2. Retention of CRR at 8%
3. Adopting a target exchange rate band of N155 +/-3%/$1 i.e. N150 –
N160/$1