Here is an excerpts from the meeting communique:

Central Bank of Nigeria
Communiqué No. 78 of the Monetary Policy Committee Meeting, September 19, 2011

The Monetary Policy Committee (MPC) met on 19 th September, 2011 to review domestic economic conditions during the first eight months of 2011 and the challenges facing the Nigerian economy against the backdrop of developments in the international economic and financial environment in order to reassess the challenges facing monetary policy for the rest of 2011.

On the domestic front, the MPC noted that inflationary pressures faced by the domestic economy had slightly moderated following the series of monetary policy tightening measures adopted by the Bank, complemented by a favourable harvest. The output growth remained robust, although the current security challenges could undermine investors’ confidence and output in the near term. Nonetheless, the inflation outlook appears uncertain despite the expected favorable agricultural production, the stability in expectations engendered by the imminent conclusion of the banking sector reforms, and the prospects for a return to a regime of fiscal prudence in the medium-term following the reconstitution of the Federal Government of Nigeria (FGN) Economic Management Team. It is against this backdrop that the Committee considered the monetary policies required to attain the objectives of price and financial stability in the short to medium term.

Key Domestic Macroeconomic and Financial Developments
Output and Prices
The Committee observed that the output growth rate for the second quarter 2011 remained robust. Provisional data from the National Bureau ofStatistics (NBS) indicated that real Gross Domestic Product (GDP) grew by 7.72 per cent in the second quarter of 2011, which is above the 7.69 per cent recorded in the second quarter of 2010. Overall GDP growth for 2011 is projected at 7.85 per cent which is slightly lower than the 7.87 recorded in 2010. The non-oil sector remained the major driver of growth, recording 8.82 per cent growth rate compared with 1.81 per cent for the oil and gas sector in the second quarter of 2011. The growth drivers remained agriculture, wholesale and retail trade, and services, which contributed 2.48, 1.88 and 2.52 per cent, respectively.

Domestic Prices
The Committee noted that the moderation in inflationary pressures, which commenced towards the end of the second quarter of 2011, continuedintothe third quarter. The year-on-year headline inflation rate decreased from 9.4 per cent in July 2011 to 9.3 per cent in August and core inflation decelerated from 11.5 per cent to 10.9 per cent during the same period. However, food inflation rose to 8.7 per cent inAugust 2011, from 7.9 per cent in July. The harvesting of early maturing crops, especially maize, tomatoes, vegetables, potatoes and fruits playeda key role in the moderation of headline inflation. The recently announced government policies and programmes are likely to have asalutary impact on agricultural output, if speedily implemented. These expectations are however currently under threat from anticipated fiscal injections, increased government borrowing to finance the huge fiscal deficit in the 2011 budget, the recent upward revision of electricity tariffs and the anticipated deregulation of petroleum product prices, among other factors.

Monetary, Credit and Financial Market Developments
Broad money (M2) grew by 8.55 per cent in the eight months to August 2011, which annualized to a growth rate of 12.82 per cent. Aggregate domestic credit (net) grew by 14.72 per cent in August 2011 when compared with the level in December, 2010. On annualized basis, the growth in net domestic credit translated to 22.08 per cent compared with the growth rate of 15.0 per centin the corresponding period of 2010.

The growth in aggregate credit was accounted for by increases in credit to the Federal Government and the private sector. Credit to theFederal Government grew by 18.99 per cent, which annualized to 28.48 per cent, close to the indicative benchmark of 29.29 per cent for2011. Similarly, credit to the private sector grew by 10.88 per cent, which annualized to 16.32 per cent, as against the benchmark of 23.34 per cent. With the banking crisis approaching a final resolution with the recapitalization of banks, it is expected that banks will increaselending once integration issues are concluded. Interest rates in all segments of the interbank money market rose in response to the upward review of the MPR at the previous MPC meeting. The Inter-bank and Open Buy Back (OBB) rates both opened at 7.49 per cent onJuly 27, 2011 and rose to 11.0 per cent and 10.36 per cent on September 15, 2011, respectively. The retail lending rates which hadremained relatively high, however, declined during the period. The average maximum lending rate declined to 22.27 per cent in August, 2011 from 22.42 per cent in July. The weighted average saving rate rose to 1.46 per cent from 1.42 per cent over the same period.The consolidated deposit rate declined during the period from 2.42 to 2.30 per cent. Thus, the spread between the average maximumlending rate and the consolidated deposit rate narrowed marginally from 20.0 per cent to 19.97 per cent during the period.

The bearish performance of the stock market continued during the review period as the All-Share Index (ASI) decreased by 15.5 per cent from 24,980.20 at end-June, 2011 to 21,106.67 on September 16, 2011. Market Capitalization (MC) decreased by 15.7 per cent from N7.99 trillion to N6.73 trillion during the same period. Despite the bearish performance, the equity market was more or less fairly valued as reflected in the NSE Price-Earnings (PE) ratios of 10.82 in August 2011, which was close to the 10-year 8-month median of 11.57. Moreover, the performance of the NSE during the review period is consistent with the performance of other stock markets around the world, and reflects lingering risk aversion and deleveraging on the part of foreign institutional investors who are key players on the NSE.

External Sector Developments
At the wDAS, the exchange rate, during the period (July 27 – September 15, 2011) opened at N150.00/US$ and closed at N153.52/US$, representing a depreciation of N3.52 or 2.35 per cent. At the inter-bank segment, the selling rate opened at N151.80/US$ andclosed at N156.30/US$, representing a depreciation of N4.50 or 2.96 per cent during the period. The exchange rate recorded a modest appreciation at the BDC segment where the selling rate opened at N163.00/US$ and closed at N158.00/US$, representing an appreciation ofN5.00or 3.07 per cent. The appreciation recorded in the BDC segment of the market was attributed to the increased supply of foreignexchange by the CBN and the removal of ceilings on DMBs’ sales to BDCs. The Committee noted that the premium between the rates at the WDAS and the interbank stabilized towards the end of the review period, while that of the BDCs narrowed significantly, suggesting the need to sustain existing measures to improve the efficiency of the market.

The Committee also noted the modest accretion to external reserves during the period. Gross external reserves stood at US$34.85 billion on 15 th September, 2011, representing an increase of US$1.12 billion or 3.32 per cent above the level of US$33.73 billion attained on July 21, 2011. The increase was mainly accounted for by increased inflows of royalties into the federation account, reflecting the upward trend in international oil prices and stable oil production in the Niger Delta. Besides, foreign direct and portfolio investments increased over the last eight months. Foreign capital inflows for the first eight months of 2011 stood at US$5.66 billion which is US$1.06 billion or 23.04 per cent higher than the US$4.60 billion recorded in the corresponding period of 2010.

The Committee’s Considerations
The key concerns noted by the Committee were:
1. Continuing expansionary fiscal stance and high component of recurrent expenditure;
2. Liquidity surge expected from AMCON intervention, following conclusion of bank recapitalization;
3. Sharp rise in month-on-month headline inflation rate despite falling headline inflation rate on year-on-year basis;
4. Need to have positive real interest rates; and
5. Persisting demand pressure in the foreign exchange market, driven by significant liquidity injections and reflecting structural deficiencies that have perpetuated the import dependence of the economy.

The Committee considered that given the difficult and uncertain international environment, it is important to ensure that the current trends in growth are sustained and price stability is maintained. The recent data on inflation showed that the headline inflation rate has been maintained within single digit for two consecutive months. However, concerns remain about sustaining the present inflation trend. The Committee viewed the rise in the monthly headline inflation rate in August which, while justifiable from the point of view of the large household expenditures on account of festivities, was sharp and out of line with the trend in the preceding 11 months. Besides, the anticipated high liquidity in the near future would have a bearing on inflation. The fiscal stance continues to be expansionary. The announcement of a target of one (1) per cent annual reduction in government recurrent spending when viewed in the context of the anticipated injections associated with the implementation of the new national minimum wage, suggests that thefiscal retrenchment is likely to be drawn-out. In addition, there is the weight of structural factors such as the announced hikes in electricity tariffs and the expected removal of petroleum subsidy.

Moreover, the AMCON injection of N3.0 trillion is going to add to liquidity surge with attendant adverse impact on prices. It is forthese reasons that the Committee felt the need for further tightening of monetary policy. On the other hand, the Committee noted that rates have been increased in the last four consecutive MPC meetings and that high lending rates increase the cost of finance for SMEs and this has an adverse consequence for growth and job creation. However, having considered the arguments for and against tightening, the Committee voted for maintaining the stance of tightening in the short term. The Committee emphasized that for monetary policy to be effective it would need to be complemented by other policies, both structural and fiscal. Monetary policy can onlyaddressthe monetary aspects of inflation while fostering growth and financial stability. The need for accelerating fiscal retrenchment and structural adjustment can therefore not be overemphasized.
Decisions:
In the light of the above considerations the Committee decided as follows:
1. A majority of 8 to 3 members voted for a tightening of monetary policy.
2. Seven (7) members voted for a 50 basis-point increase in MPR from 8.75 to 9.25 per cent. One (1) member voted for a 100- basis-point increase in MPR. The 3 remaining members voted to maintain the MPR at the current rate.
3. A Unanimous decision to:
a. maintain the current symmetric corridor of +/-200 basis points around the MPR; and
b. retain the current CRR of 4.0 per cent

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1. To Retain the Monetary policy Rate (MPR) at 6.25 per cent.
2. To adjust the corridor to +/- 200 basis points, implying Standing Lending Facility (SLF) rate of 8.25 per cent, and Standing Deposit Facility (SDF) rate of 4.25 per cent.
3. Maintain the policy stance of a stable exchange rate.
4. Continue to monitor inflationary trends with a view to taking appropriate steps as and when necessary.
5. On the stance of monetary policy in the year ahead, the Committee reaffirmed that monetary policy would seek to exert pressure on aggregate demand, thereby helping to lower inflation expectations.

The report is below:

Central Bank of Nigeria Communiqué No. 73 of the Monetary Policy Committee Meeting,Nov. 22-23, 2010

The Monetary Policy Committee (MPC) met on 22nd and 23rd November, 2010 to review domestic and international economic and financial conditions in order to reassess the options for monetary policy for the rest of the year and beyond. On the global scene, the Committee noted with concern the continued slowdown in global economic recovery, especially in the US against the backdrop of the huge US trade deficit, requiring both domestic and external rebalancing of demand.

On the domestic front, the MPC noted the high economic growth rate and the progress made towards restoring stability in the banking sector. It, however, observed with concern the continued high inflation rate and reiterated the urgent need for fiscal consolidation and the continuation of comprehensive economic and structural reforms to remove supply-side bottlenecks.

Key Domestic Macroeconomic and Financial Developments
Output and Prices:
The Committee observed the sustained impressive output growth recorded thus far in 2010. Provisional data from the National Bureau of Statistics (NBS) indicates that real Gross Domestic Product (GDP) is estimated to grow by 8.29 per cent in the fourth quarter of 2010, up from 7.86 per cent recorded in the third quarter. Overall GDP growth for 2010 is projected at 7.85 per cent compared with 6.96 per cent recorded in 2009. The non-oil sector remained the main driver of overall growth.

The Committee, however, cautioned that the recent slowdown in economic activity in some major advanced economies could have adverse effects on commodity-producing economies like Nigeria, notwithstanding the expected high crude oil prices in the international markets. While urging greater efforts at diversifying the economy, the Committee stressed the need for policy reforms to address the binding growth constraints on the domestic economy, especially, infrastructural inadequacy. The Committee noted with satisfaction the progress made thus far on the power sector front, but stressed the need for renewed focus on the petroleum and agricultural policy sectors. The continued dependence of the country on imported food and energy, which is totally avoidable, is one of the main sources of erosion of our foreign reserves.

The year-on-year headline inflation (rebased) stood at 13.4 per cent in October 2010 relative to 13.6 per cent in September 2010. Food inflation was 14.1 percent in October, down from 14.6 per cent in September. However, core inflation rose to 13.2 per cent in October from 12.8 per cent in September. The persistence of high inflation remains a major challenge, when viewed against the relatively good harvests, improved supply of petroleum products and weak expansion of credit to the private sector. This reality further underscored the need for addressing supply-side constraints in the medium to long term, and the urgent need to restrain debt-financed government spending in the short term.

The MPC reiterated its earlier position on the threat of inflationary pressure arising from high inflation expectations, calling for stronger fiscal prudence to support the monetary policy stance. This is particularly critical for improving the dynamics of policy coordination. Nevertheless, the Committee would continue to monitor price developments with a view to taking appropriate policy measures to stem any inflation threat and ensure that the upside risk to growth is minimized.

Monetary, Credit and Financial Market Developments:
Provisional data showed that relative to end-December 2009, broad money (M2) grew by 4.25 per cent in October 2010, which, when annualized represented a growth of 5.10 per cent. Reserve money (RM), which stood at N1,653.86 billion at end-December 2009, fluctuated downward and by November 15, 2010, stood at N1,4449.95 billion.

Available data showed that in October 2010, aggregate domestic credit (net) grew by 19.69 per cent over the December 2009 level, and by 23.63 per cent when annualized. Credit to government (net), which grew substantially by 53.35 per cent over end-December 2009 (or 64.02 per cent on annualized basis), was the major source of expansion in aggregate credit. Credit to the private sector, grew marginally by 3.22 per cent (or 3.86 per cent on an annualized basis). In general, the growth in monetary and credit aggregates remained below the long term trends.

The interest rates at the interbank segment of the money market responded to the increase in the Monetary Policy Rate (MPR) effected at the last meeting of the MPC in September in line with policy expectation. Consequently, in October 2010, the average inter-bank call and open-buy-back (OBB) rates rose significantly to 8.45 and 7.53 per cent, respectively, representing increases of 526 and 461 basis points from the 3.19 and 2.92 per cent recorded in the preceding month.

Developments in market interest rates indicated that the retail lending rates were still relatively high. The average maximum lending rate moderated slightly to 21.85 per cent in October from 22.20 per cent in September while the average prime lending rate stabilized at 16.66 per cent.

The weighted average savings deposit rate remained relatively stable while the consolidated deposit rates increased to 2.31 per cent in October from 2.07 percent in September. Thus, the spread between the maximum lending rate and the consolidated deposit rate narrowed marginally to 19.54 per cent in October from 20.14 per cent in September.

The domestic capital market continued to show some signs of recovery. The All-Share Index (ASI) increased from 23,050.59 at end-September to 25,301.34 as at 15th November, 2010, or by 9.8 per cent. Market capitalization (MC) – equities only, increased by 43.1 per cent from N5.65 trillion to N8.08 trillion over the same period. The number of deals increased by 21.6 per cent, while the volume and value of shares traded decreased by 38.5 and 62.7 per cent, respectively. The increase in ASI and MC was principally due to the share price increases in the Banking, Food & Beverage, insurance and Oil/Gas sectors, and new and supplementary listings of shares on the exchange. The Committee believes that the effective take-off of the Asset Management Corporation (AMCON) and progress made on resolution of the banking system crisis have been major contributions to this improvement in sentiment.

External Sector Developments:
The foreign exchange market remained relatively stable. The total foreign exchange inflow in October was US$2.38 billion, representing a decrease of US$0.32 billion or 11.85 per cent below the US$2.70 billion recorded in the preceding month. Total outflows or payments in October amounted to US$3.46 billion, a decrease of US$1.62 billion or 31.89 per cent compared with US$5.08 billion recorded in the preceding month. Consequently, the net outflow during this period was US$1.09 billion.

Inflows from autonomous sources in October were US$10.43 billion compared with US$7.55 billion in September. Cumulatively from January-October 2010, total foreign exchange inflows to the market amounted to US$ 88.32 billion comprising funds from the CBN (US$21.15 billion) and from autonomous sources such as oil companies, international institutions and home remittances (US$67.17 billion). The Committee noted with satisfaction the complementary role of autonomous inflows in moderating demand pressure in the foreign exchange market.

In October, the WDAS average closing rate was N151.25/US$ compared with N151.07/US$ recorded in September, representing a depreciation of 18 Kobo (0.12 per cent). On November 15, 2010, the WDAS exchange rate was N150.29/US$ compared with N151.25/US$ for October, representing an appreciation of 96 kobo (0.64 per cent) At the interbank segment, the average buying and selling rates for October, were N151.68/US$ and N151.78/US$, compared with N152.51/US$ andN152.61/US$ respectively recorded in September, representing an appreciation of 83kobo (or 0.54 percent). On November 15, 2010 the corresponding rates were N150.65/US$ and N150.75/US$ as against N151.68/US$ and N151.78/US$, in October, registering an appreciation of 103 kobo (or 0.68 per cent) .

At the BDC segment, the average buying and selling rates in October wereN151.98/US$ and N153.98/US$ respectively, compared with N152.30/US$ andN153.80/US$ in September. The buying rate represented an appreciation of 32kobo (0.21per cent) while selling rate represented a depreciation of 18 kobo (or0.12 percent). The buying and selling rates on November 15 were N151.50/ US $and N153.50/ US$ compared with N151.98/US$ and N153.98/US$ for October,represented an appreciation of 48 kobo (or 0.31 per cent). Thus, the stability of the naira exchange rate since the first half of 2009 continued into 2010. The MPC believes that the relative stability in the foreign exchange market is likely to be sustained in the near term. The Committee would continue to monitor developments in the market to ensure that measures are taken to eliminate speculative demand and exchange rate volatility.

The gross external reserves stood at US$34.27 billion on 15th November, 2010
compared with US$33.597 billion as at end-October and US$34.59 billion as at
end-September.

The committee noted the elevated demand for foreign exchange at the WDAS which led to an increase in reserve utilization to defend the currency. It also noted recent moderation of demand pressure following Central Bank’s interventions to curtail speculative demand. It, however, stressed that the solution to reserve accretion have to be in implementation of appropriate reforms to industrial and trade policy aimed at reducing import-dependence, and these are beyond the scope of monetary policy.

The Committee’s Considerations
The key concerns noted by the Committee were:

1. The elevated inflation levels;
2. Rising government expenditure and borrowings with the possible crowding out effects on the private sector; and
3. Demand pressure in the foreign exchange market, leading to reduction in external reserves.

The view of the Committee is that the solution requires both fiscal and monetary measures, and reiterated the need to eliminate unnecessary subsidies that add to government expenditure and debt. There is need also for continuing reforms in the economy particularly in the energy and agricultural sectors to curb high import bills through appropriate fiscal policies. The Committee remains conscious of its core mandate and reaffirms its commitment to price stability to engender sustainable economic growth.

The MPC remained committed to exchange rate stability in order to attract foreign direct investment and anchor expectations. The MPC emphasized greater communications with stakeholders to remove speculative demand in the foreign exchange market. It also held that, in view of the low price elasticity of demand for imported necessities, depreciation of the currency would not in itself address the structural problem of import-dependence. The Committee continued to urge greater fiscal responsibility and commitment to reforms that  will enhance the effectiveness of monetary policy.

Overall, members agreed that there is need for tightening, but the discussions centered on the form and the timing of the tightening. After due consideration of the pros and cons of various policy options, the Committee agreed on a majority decision of 6 to 4 members to retain the current policy rate, given the need to retain flexibility and allow the effect of the previous rate increase to work through the system, against the argument for immediate increase in view of the elevated inflation risk. Also, the Committee agreed by a majority of 9 to 1 members to narrow the corridor around the MPR by reintroducing the symmetry of +/- 200 basis points.

Decisions
The MPC’s decisions were therefore:

1. To Retain the Monetary policy Rate (MPR) at 6.25 per cent.
2. To adjust the corridor to +/- 200 basis points, implying Standing Lending Facility (SLF) rate of 8.25 per cent, and Standing Deposit Facility (SDF) rate of 4.25 per cent.
3. Maintain the policy stance of a stable exchange rate.
4. Continue to monitor inflationary trends with a view to taking appropriate steps as and when necessary.
5. On the stance of monetary policy in the year ahead, the Committee reaffirmed that monetary policy would seek to exert pressure on aggregate demand, thereby helping to lower inflation expectations.

In addition, monetary policy would stand ready to provide adequate and timely liquidity to support credit dynamics that would sustain fiscal mechanisms to bolster growth.

Sanusi Lamido Sanusi
Governor,
Central Bank of Nigeria
Abuja
November 23, 2010

You can download the report below:
Communique for MPC Meeting of Nov 22nd -23rd 2010 (69).
DLM Economic Update - MPC Maintains MPR at 6.25% (71)

Against the backdrop of signs of gradual improvement in the external economic environment and the positive outlook for the domestic economy, the Committee felt that policy initiatives are needed to further improve growth without jeopardising price and financial stability. It will, therefore, continue to manage liquidity actively to ensure that credit requirements are taken care of at reasonable interest rates while monitoring the trends in prices. The Committee will also pursue an interest rate policy that is consistent with price and financial stability and supportive of enhancing the levels of economic activity on a higher trajectory.

On foreign exchange, the policy stance remains that exchange rate should be principally market driven, but interventions will be made to mitigate tendencies towards volatility and to counteract speculative attacks on the national currency.

Decisions
In the light of the above, the Monetary Policy Committee decided to:
a) keep the MPR unchanged at 6 per cent per annum;
b) maintain the interest rate corridor at +/- 2 per cent around the MPR; and
c) Approve in principle the establishment of an “Asset Purchase Facility Fund”.

The Central Bank of Nigeria and Federal Ministry of Finance to jointly consider the modalities for setting up the APF Fund for effective liquidity injection and credit easing targeted at specific areas of the economy.