The Central Bank recently held the regular Monetary Policy Committee meeting and the first chaired by the new Governor, Lamido Sanusi. Two of the key outcomes of the meeting were the lifting of restrictions on FOREX trading and the cutting of the key interest rate by 200 basis points (from 8% to 6%) in order to boost credit growth. The other key points from the meeting are:

1. The monetary policy framework which has the corridor interest rate system as an important component is hereby restored. Consequently, the Monetary Policy Rate (MPR) would be reduced from 8.00 per cent to 6.00 per cent per annum. The corridor of interest rates would be +/- 200 basis points, with the rate on the standing lending facility at 8.00 per cent and the rate on the standing deposit facility at 4.00 per cent.

2. In order to ensure that the inter-bank market is rendered efficient and to reduce counterparty credit risk, the CBN would provide a temporary guarantee from July 08 to March 31, 2010. The Bank would also impose a limit on the total volume of gross inter-bank loans extended to an individual institution. A guarantee fee will be charged if the guarantee crystallizes at 5 percentage points above the interest rate at which the loan was contracted.

3. Coinciding with (2) above and in order to foster financial stability, banks are expected to publish their accounts with sufficient disclosure to allow for risk assessment and analysis by creditors and investors by the end of March 2010.

4. In view of the fact that the high lending rates would not be consistent with the objectives of growth, inflation control and financial stability, the
CBN would encourage banks to bring down the lending rates in line with the economic realities. It is also important that the yield curve is normal with long term yield rates carrying reasonable premium over the short term market rates. The inter-bank foreign exchange market would be liberalized

5. completely with wDAS replacing the rDAS with a view to improving the supplies of foreign exchange in the economy.

You can download the communique and Sanusi’s remarks below:
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