CBN MPC Communique No. 59 - December 2008
Central bank: cbn | Type: statement | Date: 2008-12-11

CENTRAL BANK OF NIGERIA COMMUNIQUE No. 59 OF THE MO NETARY
POLICY COMMITTEE, DECEMBER 11, 2008
The Monetary Policy Committee (MPC) held its 206
th meeting today, December 11,
2008 and reviewed the economic and financial develo pments in the international
scene and the domestic economy. The Committee noted the continued weakening of
the global economy despite the coordinated response by the fiscal authorities and
central banks to the global financial crisis and th e ensuing economic downturn.
Specifically, global unemployment has been on the r ise, shortage of liquidity and
acute scarcity of credit have remained visible in t he financial institutions, while stock
market developments have been marked by a high degr ee of fluctuation and
corporations have continued to post financial losse s. With falling demand by
developed economies, the international crude oil an d other commodity prices have
declined sharply during the preceding three months. Inflation, however, appeared to
have moderated slightly in most developed economies and some emerging market
economies.
The Committee also evaluated the outcomes of the po licy decisions taken at its
Special Meeting on September 18, 2008 and noted tha t the desired macroeconomic
outcomes were largely achieved. Inflation rose fur ther in October contrary to the
seasonal pattern, while the naira exchange rate dep reciated in all segments of the
foreign exchange market since November. In addition , key interest rates rose during
the review period after some moderation in Septembe r through October following the
implementation of the decisions taken at the Specia l Meeting of the Committee. The
MPC also expressed concern on the potential negativ e impact of the rapidly
declining oil prices on the fiscal operations of th e three tiers of Government and the
overall economy. Against this background, therefore , the overall macroeconomic
outlook remains challenging.
KEY MACROECONOMIC DEVELOPMENTS
Inflation
The Committee noted the sharp rise in headline year -on-year inflation in October to
14.7 per cent from 13.0 per cent in September 2008, which is counter seasonal and
driven by both food and non-food components. Simil arly, core inflation rose to 7.9
per cent in October from 6.9 per cent in September. Staff projections indicate that
the year-on-year headline inflation is not likely t o moderate significantly in the
remaining months of 2008.
Output
Aggregate output growth in the third quarter was es timated at 6.83 per cent
compared with 5.23 per cent in the second quarter. The growth was driven largely by
the non-oil sector, which grew by an estimated 9.16 per cent. However, output of the
oil sector declined by 0.81 per cent. Current NBS estimate of real GDP growth for
the fourth quarter of 2008 is 8.69 per cent, while the overall output growth for 2008 is
estimated at 6.77 per cent compared with 6.40 per c ent in 2007.
Money and Credit
Provisional data showed that growth in broad money (M2) moderated in October
2008. M2, which grew by 43.5 per cent, as at end-Oc tober, 2008 which when
annualized translates to 52.2 per cent. The growth in M2 has continued to be driven
mainly by credit to the core private sector, which grew by 52.5 per cent (or 63.0 per
cent annualized) as at end-October, 2008.
Interest Rates
Key interest rates moderated in late September thro ugh October following the
implementation of the decisions of the Special MPC meeting held on September 18,
2008. The rates rose in early November but have sin ce moderated.
Exchange Rate
The sustained stability that has characterized the foreign exchange market in the last
24 months appeared to have come under threat since November 2008 largely due to
the global economic and financial developments. The demand for foreign exchange
at the WDAS has risen sharply since October as priv ate inflows have shrunk and oil
prices softened at the international market.
Banking Sector Performance
The Committee noted with satisfaction that Nigerian banks were largely robust
enough to withstand the effects of the financial tu rmoil. Whereas many banks abroad
have been making loses and faced with potential ban kruptcies, Nigerian banks have
in fact been posting profits. Nonetheless, there is in general a welcome recognition
of the need to enhance regulatory and supervisory e fforts to set up appropriate
information profiles and risk management strategies in the banks. The industry
liquidity ratio declined from 52.95 per cent in Sep tember to 49.22 per cent in October
2008 but rose to 51.55 per cent in November. The Ca pital adequacy ratio continued
to be robust at 22.25 per cent in November, 2008.
External Reserves
The MPC noted with satisfaction the level of extern al reserves at US$58.11 billion as
at December 10, 2008. The Committee also expressed concern about the effect of
the continuing slide in oil prices on the domestic economy and assured that
appropriate policy measures would be adopted to min imize the overall impact on the
wider economy.
ECONOMIC OUTLOOK
The general expectation is that in 2009 highly deve loped economies would post
negative growth rates while emerging market economi es are likely to register sharp
slowdown as a consequence. Other developing countri es are also expected to
decelerate. In the circumstance, the policy respons es of most developed and
emerging economies have tended to focus on growth a nd financial stability.
Overall, the challenges facing the Nigerian economy are in respect of developments
in the international oil market encompassing both s lack demand from advanced
economies and declining oil prices. If the current trend continues, Nigeria’s fiscal and
external payments positions are likely to be furthe r weakened in 2009. It is, however,
expected that the domestic non-oil sector will rise to the challenge to offset to some
extent the slack from the external sector. The opti mism stems from the expected
buoyant agricultural output, improvement in infrast ructure as financial resources flow
to the sector, and other development-enhancing acti vities of the government.
In the light of the above, the Monetary Policy Comm ittee decided as follows:
Leave the MPR unchanged at 9.75 per cent;
2. Reduce banks’ foreign exchange net open position fr om 20.0 to 10.0 per cent
of shareholders’ funds with effect from Monday Dece mber 15, 2008; and
3. CBN to participate actively in the daily inter-bank foreign exchange market by
buying and selling through the two-way quotes.
In conclusion, the Committee noted the anxiety of p articipants in the foreign
exchange market and will like to assure the public that the CBN remains committed
to a stable exchange rate regime and will continue to meet demand for foreign
exchange at market determined rates.
Professor Chukwuma C. Soludo, CFR
Governor,
Abuja
December 11, 2008