diff --git "a/dedup/cb_requests/369e535f8492d33df71dde22e7c99937.json" "b/dedup/cb_requests/369e535f8492d33df71dde22e7c99937.json"
new file mode 100644--- /dev/null
+++ "b/dedup/cb_requests/369e535f8492d33df71dde22e7c99937.json"
@@ -0,0 +1 @@
+{"doc_id": "369e535f8492d33df71dde22e7c99937", "text": "CENTRAL BANK OF NIGERIA\nMONETARY \nMONETARY \nPOLICY REVIEW\nPOLICY REVIEW\nMONETARY \nPOLICY REVIEW\nFebruary 2014\nFebruary 2014\nFebruary 2014\nCentral Bank of Nigeria\n33 Tafawa Balewa Way\nCentral Business District\nP.M.B. 0187, Garki, \nAbuja\nPhone: +234 (0)9 462 36011\nWebsite: www.cbn.gov.ng\nE-mail: info@cbn.gov.ng\nISSN: 2141-6281\n©2012 Central Bank of Nigeria\n \nCBN Monetary Policy Review \n \nMandate\nEnsure monetary and price stability\nIssue legal tender currency in Nigeria\nMaintain external reserves to safeguard the international \nvalue of the legal tender currency\nPromote a sound financial system in Nigeria\nAct as banker and provide economic and financial \nadvice to the Federal Government\nVision\n“By 2015: Be the model Central Bank delivering Price and \nFinancial System Stability and promoting \nSustainable Economic Development\"\nMission Statement\n“To be proactive in providing a stable framework for the economic \ndevelopment of Nigeria through effective, efficient and \ntransparent implementation of monetary and exchange \nrate policy and management of the financial sector\"\nCore Values\n \nMeritocracy\n Leadership\n Learning \n Customer - Focus\nCentral Bank of Nigeria\niii\n \nCBN Monetary Policy Review \n \nACRONYM\n \nMEANING\n \nQE3\n \nQuantitative Easing 3\n \nMPC\n \nMonetary Policy Committee\n \nDMB \nDeposit Money Banks \nCRR \nCash Reserve Ratio \nrDAS \nretail Dutch Auction System \nMPR \nMonetary Policy Rate \nOMO \nOpen Market Operation \nNOP \nNet Open Position \nGDP \nGross Domestic Product \nTSA \nTreasury Single Account \nIMF \nInternational Monetary Fund \nNBS \nNational Bureau of Statistics \nPIB \nPetroleum Industry Bill \nMSMEs \nSmall Scale Manufacturing Enterprises \nDH \nDiscount Houses \nSLF \nStanding Lending Facility \nMC \nMarket Capitalization \nFED \nUS Federal Reserve Bank \nOECD \nOrganization For Economic Cooperation and Development \nASI \nAll-Share Index \nECA \nExcess Crude Account \nSDF \nStanding Deposit Facility \nM2 \nBroad Money Stock \nRM \nReserve Money \nNDC \nNet Domestic Credit \nCg \nCredit to the Government \nCp \nCredit to the Private sector \nNFA \nNet Foreign Assets \nIFEM \nInterbank Foreign Exchange Market \nLCCI \nLagos State Chamber Of Commerce and Industry \nMYTO \nMulti Year Tariff Order \nwDAS \nWholesale Dutch Auction System \nOBB \nOpen Buy Back \nNIBOR \nNigeria Interbank Offered Rate \nBDC \nBureau de Change \nOTC \nover-the-counter \nBoE \nBank of England \nBoJ \nBank of Japan \nECB \nEuropean Central Bank \n \niv\n \nCBN Monetary Policy Review \n \nCONTENTS\nPage\nv\nTable of Contents \n \n \n \n \n \n \nStatement by the Governor \n.. \n.. \n.. \n.. \n.. \n.. \nix\nChapter 1 \nOverview \n.. \n.. \n.. \n.. \n.. \n.. \n1\nChapter 2 \nDomestic Price Developments and the Real Economy \n5\nChapter 3 \nMonetary Policy \n.. \n.. \n.. \n.. \n.. \n15\nChapter 4 \nDomestic Financial Markets \n.. \n.. \n.. \n.. \n27\nChapter 5 \nEconomic Outlook \n.. \n.. \n.. \n.. \n.. \n49\nList of Tables \nTable 2.1: \nReal GDP Growth \n.. \n.. \n.. \n.. \n.. \n6\nTable 2.2: \nInflation Rate (December 2012 – December 2013) \n.. \n8\nTable 2.3: \nQuarterly Consumer Price Developments\n \n \n(November 2009=100) .. \n.. \n.. \n.. \n.. \n8\nTable 2.4: \nContribution of Selected CPI Components to Food Inflation \n \n \n(Year-on-Year) July – December 2013 \n.. \n.. \n9\nTable 2.5: \nContribution of Selected CPI Components to Core Inflation \n \n \n(Year-on-Year) July – December 2013 \n.. \n.. \n9\nTable 3.1: \nMPC Decisions, July – December, 2013 \n.. \n.. \n18\nTable 3.2: \nOMO Bills Auction (N million) \n \n \nJanuary 2009 – December 2013 \n.. \n.. \n.. \n20\nTable 3.3: \nCBN Standing Lending Facility (N'billion) \n \n \n(January 2009- December 2013) \n.. \n.. \n.. \n21\nTable 3.4: \nCBN Standing Deposit Facility (N billion) \n \n \n(January 2009- December 2013) \n.. \n.. \n.. \n22\nTable 3.5: \nForeign Exchange Supply by the CBN US$ million \n.. \n23\nTable 3.6: \nPerformance of Monetary Aggregates \n \n \n(H2: 2012 and 2013) \n.. \n.. \n.. \n.. \n.. \n24\nTable 4.1: \nWeighted Average Money Market Interest Rates (%) \n \n \n(June 2012 – December 2013) .. \n.. \n.. \n.. \n27\nTable 4.2: \nAverage Monthly Spot Exchange Rates (N/US$) \n \n \n(July 2012 – December 2013) .. \n.. \n.. \n.. \n31\nTable 4.3: \nEnd-Month Exchange Rates Movements, \n \n \nJuly 2012 – December 2013 (N/US$) .. \n.. \n.. \n33\nTable 4.4: \nNominal and Real Effective Exchange Rates Indices \n \n \n(July 2012 – December 2013) .. \n.. \n.. \n.. \n34\nTable 4.5: \nForeign Exchange Demand and Supply \n \n \n(US Dollar Million) \n.. \n.. \n.. \n.. \n.. \n36\nTable 4.6: \nCBN Monthly Foreign Exchange Flows (US$ million) \n \n \n(July 2012 – December 2013) .. \n.. \n.. \n.. \n38\nTable 4.7: \nMonthly Foreign Exchange Flows through the Economy \n \n \n(US$ million) (Jan 2012 – December 2013) \n.. \n.. \n40\nTable 4.8: \nNSE All-Share Index (ASI) and Market Capitalisation (MC) \n \n \n(December 2012 – December 2013) .. \n.. \n.. \n42\nTable 5.1: \nGlobal Output and outlook (2011 – 2014) \n.. \n.. \n52\n \nCBN Monetary Policy Review \n vi\nPage\nList of Figures\nFigure 2.1: \nY-o-Y Headline, Core and Food Inflation Rates \n \n \nDecember 2012 – December 2013) .. \n.. \n.. \n6\nFigure 2.2: \nY-o-Y Headline Inflation \n \n \n(December 2012 – December 2013) .. \n.. \n.. \n7\nFigure 2.3: \nY-o-Y Headline (Jul 2013 - December 2013) .. \n.. \n7\nFigure 2.4: \nContribution of Selected CPI Components \n \n \nto Core Inflation (Year-on-Year) \n \n \nDecember 2012 – December 2013 \n.. \n.. \n.. \n10\nFigure 2.5: \nActual and Seasonal - Adjusted Headline Inflation \n \n \n(July 2013 – December 2013) .. \n.. \n.. \n.. \n10\nFigure 2.6: \nBonny Light Crude Oil Price \n \n \n(December 2012 – December 2013) .. \n.. \n.. \n12\nFigure 3.1: \nThe Performance of M2, M1 and RM (H1: 2011 - 2013) \n24\nFigure 3.2: \nThe Performance of NDC, Cg and Cp \n \n \n(H1: 2011 – 2013) \n.. \n.. \n.. \n.. \n.. \n25\nFigure 4.1: \nWeighted Average Money Market Interest Rates (%) \n \n \n(June 2013 – December 2013) .. \n.. \n.. \n.. \n28\nFigure 4.2: \nDaily Interbank Call Rates (%) \n \n \n(June 2013 – December 2013) .. \n.. \n.. \n.. \n28\nFigure 4.3: \nDaily Open Buy Back (OBB) Rates (%) \n \n \n(June 2013 – December 2013) .. \n.. \n.. \n.. \n29\nFigure 4.4: \nDaily Exchange Rate (June 2013 – December 2013) .. \n30\nFigure 4.5: \nEnd-Month Exchange Rate (July 2012 – Dec 2013) \n.. \n32\nFigure 4.6: \nNominal and Real Effective Exchange Rates Indices \n \n \n(July 2012– December 2013) .. \n.. \n.. \n.. \n35\nFigure 4.7: \nDemand and Supply of Foreign Exchange at wDAS \n \n \n(July 2012 – December 2013) .. \n.. \n.. \n.. \n37\nFigure 4.8: \nForeign Exchange Flows Through the CBN \n \n \n(July 2012 – December 2013) .. \n.. \n.. \n.. \n39\nFigure 4.9: \nForeign Exchange Flows through the Economy \n \n \n(July 2012 – December 2013) .. \n.. \n.. \n.. \n41\nFigure 4.10: \nNSE ASI and MC (December 2012 – December 2013).. \n42\nFigure 4.11: \nNSE ASI and MC (June 2013 – December 2013) \n.. \n43\nFigure 4.12: \nNSE Market Capitalisation by Sector as at End-June 2013 \n44\nFigure 4.13: \nVolume and Value of FGN Bonds Traded in \n \n \nthe OTC Market (H2:2011 – H2:2013) .. \n.. \n.. \n45\nFigure 4.14: \nYields on Nigeria's 10-Year U.S. Dollar-denominated \n \n \nBond (December 1, 2012 – December 31, 2013) \n.. \n46\nFigure 4.15: \nFGN Bonds Yield Curves (End-June 2013 vs. \n \n \nEnd-December 2012 vs. End-December 2013) \n.. \n46\nFigure 5.1: \nFan Chart for Headline Inflation (%) \n.. \n.. \n.. \n54\n \n \n \n \nList of Boxes\nBox 1: The Effects of Climate Change on the Nigerian Economy \n.. \n13\nBox 2: Effects of US QE3 Tapering on Emerging Markets and Policy Levers \n26\n \nCBN Monetary Policy Review \n \nPage\nvii\nAppendices\nCommuniqué No. 90, July 22 and 23, 2013 \n.. \n.. \n.. \n.. \n55\nCommuniqué No. 91, September 23 and 24, 2013 \n.. \n.. \n.. \n60\nCommuniqué No. 92, November 18 and 19, 2013 \n.. \n.. \n.. \n65\n \nCBN Monetary Policy Review \n ix\nSTATEMENT BY THE GOVERNOR\nThe monetary Policy environment in the review period was benign with the \ncontinued moderation in consumer price inflation to single digit, indicating the \neffectiveness of the sustained tight monetary policy stance of the Bank. This was \nagainst the background of several key challenges including the planned tapering \nof QE3 announcement by the US Federal Reserve Bank; anticipated increase in \ngovernment spending in preparation for the 2015 general elections; and the \ndepletion of fiscal buffers required to sustain exchange rate stability. Domestic \noutput growth remained resilient in the face of a weakening global economy; \nalthough some of Nigeria's major trading partners including the US, Europe and \nChina were gradually returning to a long-run growth path. Accordingly, the thrust of \nmonetary policy in the second half of 2013 remained the sustenance of the relative \nprice stability achieved in the first half of 2013. \nThe conclusion of the banking sector reforms afforded the MPC a clearer view of \nfinancial stability to detect a creeping perverse incentive problem reflected in the \nbuild-up in excess liquidity in the banking system, alongside sluggish growth in \nprivate sector credit and rising cost of liquidity management; all traced to DMB's \nappetite for cheap public sector funds and purchase of government securities. The \nCRR on private sector deposits was retained at 12.0 per cent, while CRR on public \nsector deposit was raised to 50.0 per cent to address the effects of the buildup in \nexcess liquidity on the banking system as well as stem the pressure on the exchange \nrate. \nThe performance of the monetary aggregates was largely below the indicative \nbenchmarks for the period. The naira exchange rate continued to enjoy relative \nstability. The strategic intervention of the Bank in the foreign exchange market \nincluding the re-introduction of the retail Dutch Auction System (rDAS) helped in \nstabilizing the market. Market real interest rates remained positive, against the \nbackdrop of moderating inflationary pressures which sustained the flow of \ninvestment into the economy.\nForecasts of both the international and domestic environments suggest a clouded \nfiscal and external sector outlook in the near to medium term. However, the \nmonetary authorities would continue to respond to the various challenges with a \nview to fostering a stable and robust macroeconomic environment.\nDR. (MRS.) Sarah O. Alade \nAg. Governor,\nCentral Bank of Nigeria\nFebruary 2014\n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 1 \n \nCHAPTER 1 \nOVERVIEW \n \nMonetary policy in the second half of 2013 aimed primarily at sustaining the \nalready moderated rate of inflation which was achieved in the first half of 2013. \nThe benign headline inflation rate of 8.0 per cent at end-December 2013, from 8.4 \nper cent at end-June 2013, is evidence of the effectiveness of the policy. Besides, \nmonetary policy also aimed at limiting pressure on the exchange rate, boosting \nthe external reserves position, sustaining stability in the money market and \nreducing the spread between lending and deposit rates. These goals were largely \nachieved through a mixed-grill of a number of instruments, which helped to \nstrengthen investor confidence in the economy. \n \nThe Monetary Policy Rate (MPR) was the principal instrument used to control the \ndirection of interest rates and anchor inflation expectations in the economy. The \nother intervention instruments included Open Market Operations (OMO), Discount \nWindow Operations, Cash Reserve Ratio (CRR) and foreign exchange Net Open \nPosition (NOP). \n \nOpen Market Operations (OMO) was the other major tool for liquidity \nmanagement in the second half of 2013; achieved through the issuance of CBN \nbills. The sale of CBN bills declined by 52.8 per cent in the second half compared \nwith the first half. In the second half, the volume of transactions of the standing \nlending facility window rose by 30.66 per cent, while that of standing deposit \nfacility window rose by 53.6 per cent, compared with the first half. \n \nThe Monetary Policy Committee (MPC) held three regular meetings during the \nreview period, and the MPR was successively maintained at 12.0 per cent with a \nsymmetric corridor of +/- 200 basis points. The MPC introduced a higher Cash \nReserve Ratio (CRR) for public sector deposits with the Deposit Money Banks \n(DMBs), in order to further tighten money supply. \n \nBeside the change in the CRR on public sector deposits, other existing policies \nwere retained, and complemented with administrative measures. The Net Open \nPosition (NOP) limit was sustained at 1.0 per cent, Liquidity Ratio (LR) at 30.0 per \ncent and the mid-point of the exchange rate at N155/US$ +/-3.0 per cent. The \ndecision of the MPC to retain most of the existing measures was to assure the \nmarket of the continuity of the tight monetary policy regime. \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 2 \n \nMonetary policy continued to contribute significantly to the robust performance of \nthe economy after the shock of the global financial crisis in 2008 (on the one hand \nand the domestic banking crisis of 2009 on the other). In spite of these \ndevelopments, output remained relatively high while inflation decelerated in 2013. \nMost measures of inflation moderated throughout the period in response to the \npolicy measures implemented by the Bank. Year-on-year headline inflation \ndecreased to 8.0 per cent in December 2013, from 8.4 per cent in June 2013 and \n12.0 per cent in December 2012. Food inflation also declined marginally to 9.3 per \ncent from 9.6 per cent over the same period. However, core inflation rose from 5.5 \nper cent to 7.9 per cent between June and December 2013. \n \nDomestic output growth remained resilient despite the weaknesses in the global \neconomy. Data from the National Bureau of Statistics (NBS) showed that GDP \ngrew by 6.81 per cent in the third quarter of 2013 compared with 6.18 per cent \nattained in the previous quarter of that year and to 6.48 per cent in the \ncorresponding quarter of 2012. The non-oil sector, particularly agriculture, \nwholesale and retail trade and services were the major drivers of growth. \n \nIn the second half of 2013, the financial market remained stable and active. In the \nmoney market, government securities and CBN OMO bills were actively traded. In \nthe foreign exchange market, the CBN continued its intervention in order to \nmaintain the exchange rate within the policy corridor. The capital market \nimproved in performance compared with the first half of the year and the \ncorresponding period in 2012. Foreign portfolio investment and improved \ncorporate earnings helped fuel growth in the sector. \n \nThe outlook for domestic inflation suggests that the threshold of 6 – 9 per cent \ncould be realized in the near-to-medium term. Inflation dynamics are expected to \nbe driven by growth in output and fiscal policy and by the existing monetary \npolicy regime. In its forecast, the International Monetary Fund (IMF) expects an \naverage inflation rate of 7.8 per cent for Nigeria in 2014 to be supported by fiscal \ndeficits that would remain below 3.0 per cent of GDP. The growth outlook for the \ndomestic economy is strong given improvements in recovery in the advanced \neconomies which could lead to higher demand for Nigeria’s crude oil. Both the \nIMF and the Lagos Chamber of Commerce and Industry (LCCI) have projected \ngrowth above 6.0 per cent (IMF projects 7.4 per cent). Domestic output growth is \nexpected to be driven by high crude oil price, robust domestic demand and \nincreasing trade and investments from the emerging economies. However, the \nunderlying risks to the outlook include potential increases in fiscal spending in 2014 \nand 2015 for election-related activities. Also, the US$10 billion a month tapering of \nthe Fed bond buying programme could weaken the financial sector and limit \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 3 \n \nforeign credit availability. The tight monetary policy regime is expected to remain \nin place in the near-to-medium term to address the potential impact of the \nidentified risks. \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 4 \n \nÓ \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 5 \n \nCHAPTER 2 \nDOMESTIC PRICES AND THE REAL ECONOMY \n \nInflationary pressures moderated in 2013, due in part to the sustained deflationary \nmonetary policy. Moderation in inflationary pressures was augmented by the \nrelative stability in the exchange rate of the naira. During the review period, the \ndomestic output growth gained momentum compared with the preceding period \nof 2013 and the corresponding period of 2012. \n \n2.1 \nDomestic Economic Activity \nDomestic output growth improved, driven largely by the performance of \nagriculture and the building and construction sectors. Overall, growth in 2013 was \nestimated at 6.87 per cent, up from 6.58 per cent in 2012, signalling a steady \ngrowth in the economy. Real GDP estimate at the end of the period stood at 7.67 \nper cent, up from 6.18 and 6.99 per cent at end of the preceding period of 2013 \nand corresponding period of 2012. The 8.73 per cent growth in non-oil real GDP in \nQ4 2013 was higher than the 8.22 per cent in the corresponding period of 2012. In \ncontrast, the oil sector in Q4 2013 grew marginally by 0.04 per cent. \n \nThe oil sector contributed approximately 11.73 per cent to real GDP growth in Q4 \nof 2013, lower than the 12.90 per cent in Q2. The decline was due to disruptions in \ncrude oil production, caused by oil bunkering and illegal refining as well as \ndeclines in prospecting; because of the uncertainties surrounding the fiscal regime \nin the Petroleum Industry Bill (PIB). \n \nOf the major components of the non-oil sector in Q4, agriculture, wholesale and \nretail trade, and services contributed 1.64, 2.34, and 2.66 per cent respectively to \nGDP growth (Table 2.1). The robust domestic growth given the sluggish global \neconomic recovery was a consequence of favourable domestic conditions for \nagricultural production, complemented by strong macroeconomic management. \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 6 \n \nTable 2.1 \n \n \n2.2 \nTrends in Inflation \nInflationary pressures remained benign, helped largely by consumer price \nmoderation, which started in Q4 of 2012. This was attributed largely to the tight \nmonetary policy of the Bank. \n \n \n0.00\n5.00\n10.00\n15.00\nDec\nJan\nFeb Mar Apr May Jun\nJul\nAug Sep\nOct Nov Dec\nFig 2.1\nHeadline, Core and Food Inflation Rate \n(Dec 2012-Dec 2013)\nHeadline Y-Y\nCore Y-Y\nFood Y-Y\n \n \n \nHeadline inflation (year-on-year) at end-December 2013 dropped slightly to 8.0 \nper cent from 8.4 and 12.0 per cent at end-June 2013 and end-December 2012, \nrespectively (Fig 2.2 and Fig 2.3). The main drivers of headline inflation were food \nand non-alcoholic beverages, housing, water, electricity, and transport. \n \nFood inflation (year-on-year) continued to moderate at 9.3 per cent end-\nDecember 2013, down from 9.6 and 10.2 per cent in end-June 2013 and end-\n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 7 \n \nDecember 2012, respectively. The declines in transportation and processing costs \ndue to improved fuel and electricity supply accounted for the improvements in \nfood inflation during the period. \n \nCore inflation (year-on-year) increased to 7.9 per cent at end-December 2013 \nfrom 5.5 per cent at end-June 2013, but down from 13.7 per cent at end-\nDecember 2012. The rise could be attributed to increase spending during the end-\nyear festive periods. \n \n \n0.0\n2.0\n4.0\n6.0\n8.0\n10.0\n12.0\n14.0\nDec\nJan\nFeb Mar Apr May Jun\nJul\nAug\nSep\nOct\nNov Dec\nFig 2.2 \nHeadline Inflation \n(Dec 2012 - Dec 2013)\nHeadline Inflation\n \nSource: NBS \n \n \n7.2\n7.4\n7.6\n7.8\n8.0\n8.2\n8.4\n8.6\n8.8\nJul\nAug\nSep\nOct\nNov\nDec\nFig 2.3 \nHeadline Inflation \n(Jul - Dec 2013)\nHeadline Inflation\n \n Source: NBS \n \nThe core and food components of the consumer price index rose to 153.0 and \n154.3 end-December 2013 from 145.5 and 147.5 at end-June 2013 (Table 2.2). Thus \nthe index of food increased by 6.8 percentage points, that of core inflation by 7.5 \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 8 \n \npercentage points. This suggests that the core component of inflation exerted \ngreater pressure on headline inflation than the other components. Quarterly trend \nduring the review period revealed a similar pattern (Table 2.3). \n \nTable 2.2 \nInflation Rate \n(Dec 2012 – Dec 2013) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nTable 2.3 \nQuarterly Consumer Price Developments \n (November 2009=100) \n \n2013 \n2013 \n \nMarch \nJune \nSeptember \nDecember \n \nY-on-Y \n12MMA \nY-on-Y \n12MMA \nY-on-Y \n12MMA \nY-on-Y \n12MMA \nHeadline \n8.60 \n11.40 \n8.40 \n10.40 \n8.00 \n9.50 \n8.00 \n8.50 \nCore \n7.20 \n13.00 \n5.50 \n10.70 \n7.40 \n8.90 \n7.90 \n7.70 \nFood \n9.50 \n11.00 \n9.60 \n10.40 \n9.40 \n10.10 \n8.00 \n8.50 \nSource: NBS \n \nIn the second half of 2013, the major components of food inflation contributed to \nits moderation. The contribution of processed food decreased from 4.5 per cent at \nend-July, 2013 to 4.1 per cent at end-December 2013. Also, meat, fruits, and \ntubers declined from 0.94, 0.45 and 1.25 per cent to 0.84, 0.38 and 1.18 per cent, \nrespectively (Table 2.4). \n \n \nHeadline Inflation \nCore Inflation \nFood Inflation \n \nCPI \nY -on-Y \n12 \nMMA \nCPI \nY-on-Y \n12MMA \nCPI \nY-on-Y \n12MMA \nDec \n141.10 \n12.00 \n12.20 \n141.80 \n13.70 \n13.90 \n141.20 \n10.20 \n11.30 \nJan \n141.90 \n9.00 \n11.90 \n143.80 \n11.30 \n13.70 \n142.30 \n10.10 \n11.10 \nFeb \n143.00 \n9.50 \n11.70 \n143.80 \n11.20 \n13.70 \n142.30 \n11.00 \n11.20 \nMar \n144.00 \n8.60 \n11.40 \n144.80 \n7.20 \n13.00 \n144.60 \n9.50 \n11.00 \nApr \n144.80 \n9.10 \n11.10 \n144.50 \n6.90 \n12.30 \n145.60 \n10.00 \n10.80 \nMay \n145.80 \n9.00 \n10.80 \n145.20 \n6.20 \n11.50 \n146.40 \n9.30 \n10.50 \nJun \n146.60 \n8.40 \n10.40 \n145.50 \n5.50 \n10.70 \n147.50 \n9.60 \n10.40 \nJul \n147.40 \n8.70 \n10.00 \n147.20 \n6.60 \n10.00 \n148.40 \n10.00 \n10.20 \nAug \n147.80 \n8.20 \n9.80 \n149.10 \n7.20 \n9.40 \n149.20 \n9.70 \n10.20 \nSep \n148.90 \n8.00 \n9.50 \n150.00 \n7.40 \n8.90 \n150.40 \n9.40 \n10.10 \nOct \n150.00 \n7.80 \n9.20 \n150.90 \n7.60 \n8.60 \n151.60 \n9.20 \n10.00 \nNov \n151.10 \n7.90 \n8.80 \n151.80 \n7.80 \n8.10 \n152.90 \n9.30 \n9.80 \nDec \n152.30 \n8.00 \n8.50 \n153.00 \n7.90 \n7.70 \n154.30 \n9.30 \n9.70 \nSource: NBS \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 9 \n \nTable 2.4 \nContribution of Selected Components of CPI to \nFood Inflation (Year-on-Year) \n (Jul – Dec 2013) \nDate \nJul-13 \nAug-13 \nSep-13 \nOct-13 \nNov-13 \nDec-13 \nFood \n10.00 \n9.70 \n9.40 \n9.20 \n9.3 \n9.3 \nProcessed Food \n4.50 \n3.90 \n4.60 \n4.20 \n4.8 \n4.1 \nMeat \n0.94 \n0.91 \n0.89 \n0.82 \n0.84 \n0.84 \nFruits \n0.45 \n0.44 \n0.42 \n0.43 \n0.41 \n0.38 \nYams, Potatoes \n& Other Tuber \n1.25 \n1.25 \n1.19 \n1.19 \n1.21 \n1.18 \nSource: NBS \n \nThe composition of the core inflation index shows that the combined sub-indices \nfor housing, water, electricity, gas and other fuels fell from 1.89 to 1.40 per cent \nbetween July and December 2013. Transport; furnishings, household equipment & \nhousehold maintenance; and education all increased from 0.53, 0.35 and 0.20 to \n0.54, 0.42 and 0.29 per cent, respectively (fig 2.4). Therefore the increase in core \ninflation witnessed during the period can only be attributed to the other major \ncomponents of core inflation. \n \nTable 2.5 \nContribution of Selected Components of CPI to Core Inflation \n(Year-on-Year) \n(Jul – Dec 2013 \n Date \nJul-13 \nAug-13 \nSep-13 \nOct-13 \nNov-13 \nDec-13 \nCore \n6.60 \n7.20 \n7.40 \n7.60 \n7.75 \n7.87 \nHousing, Water, \nElectricity, Gas & Other \nfuel \n1.89 \n1.68 \n1.50 \n1.40 \n1.43 \n1.40 \nTransport \n0.53 \n0.50 \n0.56 \n0.55 \n0.59 \n0.54 \nFurnishings, Household \nEquip. & HH Maint. \n0.35 \n0.33 \n0.38 \n0.40 \n0.42 \n0.42 \nEducation \n0.20 \n0.20 \n0.28 \n0.27 \n0.29 \n0.29 \nSource: NBS \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 10 \n \n \n Source: NBS \n \n2.3 \nActual and Season-Adjusted Headline Inflation \nIn the second half of 2013, the MPC maintained the tight monetary policy regime \nwhich began in 2011. With the exception of July, season-adjusted inflation was \nhigher than the actual inflation rate (Fig 2.6). Both actual and season-adjusted \ninflation had downward trends between July and October 2013, reflecting the \neffectiveness of monetary policy at the time. However, the actual inflation began \nan upward trend in October, overtaking the season-adjusted inflation in \nDecember 2013. The actual inflation was favourable between July and October \nbecause of better-than-expected domestic food harvest, stable exchange rate, \ndeclines in global food prices and reduction in processing costs. In the period \nOctober – December 2013, the sequence of religious festivals coupled with \npressure on the exchange rate arising from increased demand, resulted in an \nupward trend in actual inflation. \n \n7.0\n7.5\n8.0\n8.5\n9.0\nJul\nAug\nSept\nOct\nNov\nDec\nFig 2.5 \nActual and Season-Adjusted Inflation \n(Jul - Dec 2013)\nActual\nSeason-Adjusted\n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 11 \n \n2.4 \nKey Factors of Domestic Price \nDuring the last quarter of 2013, the year-on-year headline and food inflation was \nmoderate, complemented by an upward trend in core inflation compared with \nthe previous period. These developments can be attributed to both domestic and \nglobal conditions. Furthermore, there were unfavourable dynamics in both \ndemand and cost factors in the domestic sector. \n \n2.4.1 Demand Factors \nThe tight monetary policy helped to moderate inflationary pressures. In addition to \nretaining the MPR at 12 per cent, the Bank undertook aggressive liquidity mop up \noperations and raised CRR on public sector deposits by 38 percentage points to \n50 per cent in order to mitigate inherent inflationary pressures arising from cheap \npublic sector deposits in the deposit money banks (DMB’s). \n \nOn the fiscal side, although overall government spending in 2013 was marginally \nhigher than 2012, capital budget releases were restrained during the period, \nculminating in system liquidity and inflationary pressures. \n \n2.4.2. Cost Factors \nGovernment and banking sector reforms were designed to stimulate real sector \nactivities such as in agriculture, oil and gas, aviation and medium and small scale \nmanufacturing enterprises (MSMEs); helped to lower industrial costs. The \nrehabilitation and construction of new roads as well as improvement in the \nnationwide supply of fuel tempered energy costs. The power sector reforms, as \nwell as increased water supply at the hydro-power stations boosted power supply \nin the second half of 2013, leading to lower production costs. Developments in the \nnaira exchange rate stabilized the cost of imported intermediate and final goods, \nresulting in a moderating effect on the general price level. \n \n2.4.3. Other Factors \nLow global inflation and the relatively stable exchange rate of the naira checked-\nmated the potential impact of imported inflation on domestic prices. In a number \nof our major trading partner countries such as the USA, the UK, Japan and China \ninflation remained generally low. Also, favourable international oil prices (Figure \n2.7) helped the buildup in foreign exchange reserves, which provided the \nnecessary import cover to sustain exchange rate stability and sustained \nmoderation in domestic prices. \n \nThe government’s commitment to reducing fiscal deficit was sustained. It was a \nnet financier of the banking system during much of the review period, culminating \nin slower rate of expansion in money supply. This orientation in fiscal policy \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 12 \n \ncomplemented the sustained tight monetary policy to rein-in inflation \nexpectations. \n \n \n90.00\n95.00\n100.00\n105.00\n110.00\n115.00\n120.00\nPrice (US$ per barrel\nFig 2.6\nBonny Light Crude Oil Price\n(Dec 2012 – Dec 2013)\n \n \nSource: Bloomberg \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 13 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nBox 1 \nThe Effects of Climate Change on the Nigerian Economy \n \nClimate change refers to changes in the local, regional, and global climatic patterns and weather \nconditions including temperatures, precipitation, extreme heat and wind, caused by the \ngreenhouse effect (International Energy Agency, ). Excessive buildup of greenhouse gases, over \ntime, induces change to the earth's climate and damages natural ecosystems with dangerous \neffects on human health and welfare. The majority of atmospheric greenhouse gases are emitted \nfrom the burning of fossil fuels to produce energy, although smaller amounts also come from \ndeforestation, industrial processes, and agricultural practices. The primary effect of climate change \nis observed in global warming. \n \nThe United States Environmental Protection Agency (USEPA) warned that the earth's average \ntemperature is rising. The small changes in the average temperature of the planet result in large \nand potentially harmful shifts in climate and weather patterns over time. Shifting weather patterns \nand climatic conditions threaten food production through increased unpredictability of \nprecipitation, rising sea levels that contaminate coastal freshwater reserves and increase the risk of \ndevastating flooding, and warming of the atmosphere \n \nMost parts of Nigeria have been subjected to occurrences of unusual climatic events including \nfloods and droughts, which have resulted in crop failures, loss of livestock, wide spread shortage of \nfood products and displacement of population. The floods in the second half of 2012 considerably \nreduced food output in the country. Other effects include: \n \n1. \nImpact on Population: Loss of arable lands, forests, water and fishery resources have resulted \nin Increased human migration and social conflict. Changing rainfall patterns would force \nlivestock farmers into extended periods of nomadism. Other consequences include scarcity \nof water and firewood due to increased loss of surface water and forests. \n2. \nImpact on Agriculture: Agriculture in Nigeria is largely seasonal and rain-fed and therefore \nvulnerable to climatic changes. Thus climate change poses a risk to about 40 per cent of the \ngross domestic product (GDP) and 60 per cent of employment, which are dependent on \nagriculture. Climate change would also have considerable impact on agricultural systems by \nchanging the crop calendar and the length of growing seasons. \n3. \nImpact on Economic Infrastructure: Climate change is often accompanied by greater \nvariability in rainfall, temperature, atmospheric conditions, resulting in floods, wind and dust \ncovers that damage economic infrastructure such as bridges, dams, air transportation \nfacilities, roads, houses among other. These require increased budgetary outlays for \nrehabilitation and reconstruction. \nImplications for Policy \nClimate change has serious implications for output, employment and price developments. It is, \ntherefore, important for policy makers to be aware of these implications in order to formulate \nappropriate policies and interventions including insurance, strategic grain reserves and clean \ndevelopment mechanisms to ameliorate the impact of climatic changes on economic activities \nand price stability. \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 14 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 15 \n \nCHAPTER 3 \nMONETARY POLICY \n \nAt the beginning of the second half of 2013, volatility was observed in the foreign \nexchange market and there were concerns about the consequence of the \nunwinding of the US Federal Reserve bond-buying programme. Another cause of \nconcern was the build-up in excess liquidity in the banking system and the \nassociated costs of liquidity management. The banking system environment \nshowed signs of growing dollarization. Globally, the U.S., U.K., the Euro Area and \nJapan experienced modest recovery, which signalled the possibility of capital flow \nreversal. Broadly, these developments provided the background for and \ndominance of monetary policy decisions in the second half of 2013. \n \n3.1 \nHighlight of Monetary Policy Measures \nThe Bank retained the tight monetary policy during the second half of 2013 with \nthe MPR at 12.0 per cent. The continuous use of the policy regime was to sustain \nthe stability of the exchange rate and moderate potential inflationary risks arising \nfrom excess liquidity in the system. The liquidity surfeit, occasioned by the hike in \noil-price budget benchmark to US$79 per barrel in the 2013 budget up from US$75 \nper barrel in 2012, resulted in higher fiscal spending. The other major factors that \nengendered liquidity surfeit were the availability of public sector deposits in DMBs \nin the face of the lingering implementation of the Treasury Single Account (TSA) \npolicy as well as inflow of short-term capital. \n \nThe MPC at the July 2013 meeting introduced a separate CRR of 50.0 per cent on \npublic sector deposits, and retained that of the private sector at 12.0 per cent, to \nfurther constrain liquidity in DMBs. The dual CRR regime was maintained \nthroughout the period along with the NOP at 1.0 per cent and the mid-point of the \nexchange rate at N155.00/US$1.00 with a band of +/- 3.0 per cent. The policies \nwere designed to sustain the stability and value of the domestic currency, attract \nforeign investments and build up external reserves. \n \n3.2 \nDecisions of the Monetary Policy Committee \nMPC decisions in the second half of 2013 were based on major developments in \nthe domestic and global economies. The key global challenges during the period \nincluded, but not limited to, the continued sluggish recovery in the global \neconomy, threats to international commodity prices, and the exacerbation of the \nEuropean debt crisis. Whereas the key domestic challenges were financial market \nfragility and fiscal weakness, a lack-lustre output growth, high unemployment, \ncapital outflow volatility and anticipation of speculative attacks on the naira. \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 16 \n \n3.2.1 July 2013 MPC Meeting \nIn general, the Committee was satisfied with the prevailing macroeconomic \nstability, characterised by single digit inflation, stable banking system, exchange \nrate stability, favourable output growth, capital market recovery and growth in \nexternal reserves, which helped to sustain internal balance and external sector \nviability. Members observed the volatility in the foreign exchange market, and \nreaffirmed the commitment of the Bank to preserve stability of the currency (given \nthe capital flow reversals) in order to stem further depreciation. Consequently, the \nBank succeeded in sustaining the dual objectives of financial and price stability. \n \nThe Committee further noted the build-up in excess liquidity in the banking system, \nand was concerned about the rising costs of liquidity management. The liquidity \nsurfeit was due largely to the availability of public sector deposits with DMBs \nbecause of the delays in the implementation of the TSA policy. The inflationary \noutlook for the rest of the year was considered benign. However, risks remained \nprimarily due to the expansionary fiscal policy and rising deficits, excess liquidity in \nthe banking system and risks to the exchange rate due to depletion of fiscal \nbuffers in the Excess Crude Account (ECA). Despite the potential risks, the \nCommittee voted to hold the MPR at 12 per cent, maintain the symmetric corridor \naround the MPR at +/-2 per cent and to retain the CRR at 12 per cent for private \nsector deposits. The Committee, however, introduced a 50 per cent CRR on public \nsector deposits applicable to Federal, State and Local Government deposits to \nrein-in on widespread systemic liquidity. \n \n3.2.2 September 2013 MPC Meeting \nThe Committee was impressed with the continued positive developments in the \neconomy, especially moderation in inflation and stability in the domestic financial \nmarkets. It was also noted that output growth continued to be robust with strong \ngrowth forecast by the National Bureau of Statistics for Q3 and Q4. The \nCommittee, however, observed that certain economic fundamentals, which \nnecessitated the July MPC policies had not changed substantially. In particular, \nthe strong demand pressures in the foreign exchange market and the risk of \ncapital flow reversal still remained potential threats. \n \nThe Committee was therefore faced with three policy options. The first was the \noption to increase the MPR in response to pressures in the foreign exchange \nmarket. However, it was rejected because there were no major inflationary \nconcerns at the time. The second was to reduce the rates in the light of \nmoderating inflation and slow GDP growth to avoid sending wrong signals of a \npremature termination of the tightening cycle. The third was to maintain the \nexisting policy regime and to give it enough time to impact the system. After due \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 17 \n \nconsideration of all options and issues, the Committee retained the MPR at 12.0 \nper cent with the symmetric corridor of 200 basis points. The 50.0 per cent CRR on \npublic sector deposits and 12.0 per cent on private sector deposits were also \nretained. Liquidity ratio was retained at 30.0 per cent with the NOP at 1.0 per cent. \n \n3.2.3 November 2013 MPC Meeting \nThe MPC meeting of November 2013 considered many issues that have significant \nimplications for monetary policy. In the global economy, the expected \ncommencement of QE3-tapering (Box 2) in the US in 2014 and the continued \neconomic recovery in the US and the Euro area were expected to bring about a \nrise in interest rates, with downside risks to exchange rate and stock prices in the \ndomestic economy. Furthermore, there was the envisaged 2014 fiscal expansion, \narising from pre-election expenditure. The MPC believed that it was premature to \nchange the existing policy regime in view of the identified underlying risks. The \nCommittee further noted the significance of portfolio funds relative to the total \nexternal reserves, and the implications of the extreme fragility of the domestic \nfinancial market and vulnerability to external shocks. \n \nWith hindsight of the potential headwinds in 2014 and the Banks’s inflation target \nof 6.0-9.0 per cent, alongside the need to retain portfolio investments, the \nCommittee decided to retain the MPR at 12.0 per cent with a corridor of +/- 200 \nbasis points. In support of the tight monetary stance, the Committee also retained \nthe CRR on private sector deposits at 12.0 per cent and that of the public sector \nat 50.0 per cent. Liquidity Ratio and NOP were also retained at 30.0 per cent and \n1.0 per cent, respectively. \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 18 \n \nTable 3.1 \nMPC Decisions \n(July – November, 2013) \nItems \nJuly \nSeptember \nNovember \nMPR \nRetain the MPR at \n12% \nRetain the MPR at \n12% \nRetain the MPR at \n12% \nMPR Corridor \nMaintain +/- 200 \nbasis points \nMaintain +/- 200 \nbasis points \nMaintain +/- 200 \nbasis points \nSDF Rate \nMaintain at 10% \nMaintain at 10% \nMaintain at 10% \nSLF Rate \nMaintain at 14% \nMaintain at 14% \nMaintain at 14% \nCRR \nIntroduced 50% \nCRR for Public \nSector Deposits \n \nRetained 12% CRR \nfor Private Sector \nDeposits \nRetained 50% \nCRR for Public \nSector Deposits \n \nRetained 12% \nCRR for Private \nSector Deposits \nRetained 50% \nCRR for Public \nSector Deposits \n \nRetained 12% \nCRR for Private \nSector Deposits \nLR \nRetain at 30% \nRetain at 30% \nRetain at 30% \nNOP \nRetained at 1% \nRetain at 1% \nRetain at 1% \nFX Rate Mid–Point \nRetain at N155/US$1 \nRetain at \nN155/US$1 \nRetain at \nN155/US$1 \nFX Band \nMaintain +/-3 per \ncent band \nMaintain +/-3 per \ncent band \nMaintain +/-3 per \ncent band \n \n \n3.3 \nMonetary Policy Instruments \nThe MPC deployed a number of instruments to achieve the objectives of \nmonetary and price stability. The prime instrument, the MPR, was complemented \nby CRR, Open Market Operations (OMO) and Discount Window Operations. The \nchoice of instruments \nwas \nguided by \nthe \nneed \nto \nmaintain overall \nmacroeconomic stability. \n \n3.3.1 Monetary Policy Rate (MPR) \nThe Bank’s benchmark policy rate, the MPR, continued to be the major instrument \nfor monetary policy, and was complemented by the interest rate corridor \n(standing lending/deposit facility rates) and CRR. The Committee kept the MPR \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 19 \n \nunchanged at 12.0 per cent with a symmetric corridor of +/- 200 basis points \nduring the three regular meetings held in the second half of 2013. \n \n3.3.2 Open Market Operations (OMO) \nOpen Market Operations (OMO) remained the major medium for liquidity \nmanagement. CBN Bills were the main securities for OMO transactions during the \nperiod, with total amount of N4,670.0 billion offered, while subscription was \nN5,377.0 billion. Actual sales, however, amounted to N3,348.39 billion in the \nsecond half of 2013, compared with N7,099.54 billion in the first half of 2013, and \nN2, 795.58 billion in the corresponding period of 2012. This represented a decrease \nof 52.83 per cent in the second half and an increase of 153.95 per cent in the first \nhalf, respectively. The decrease in OMO sales was probably due to the increase in \nCRR on public sector deposits and exclusion of speculative bids. \n \n3.3.3 Reserve Requirements \nThe Bank did not only retain reserve requirements (Cash Reserve and liquidity \nratios), but also introduced an asymmetric Cash Reserve Ratio (CRR) for public \nand private sector deposits to complement OMO and other instruments to ensure \nsound liquidity management. The asymmetric CRR was introduced to contain the \nliquidity threat posed by increasing government deposits in the DMBs and its \nimpact on financial asset prices. Thus, the Cash Reserve Ratio for private sector \ndeposits was retained at 12.0 per cent, while that of government was increased to \n50.0 per cent. The liquidity ratio was unchanged at 30.0 per cent in the second \nhalf of 2013. \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 20 \n \nTable 3.2 \nOMO Bills Auction \n(January 2009 – December 2013) \n(N’million) \nDate \n2009 \n2010 \n2011 \n2012 \n2013 \n% Change over the \nPrevious Period \nJan \n115.47 \n149.83 \n205.59 \n246.64 \n1,756.66 \n \nFeb \n80.11 \n100.22 \n216.92 \n297.70 \n1,351.59 \n \nMar \n80.00 \n65.00 \n284.06 \n491.59 \n1,265.25 \n \nApr \n101.36 \n160.49 \n215.07 \n304.18 \n1,516.69 \n \nMay \n120.22 \n100.22 \n204.60 \n363.13 \n1,27.40 \n \nJun \n120.00 \n158.70 \n340.24 \n14.12 \n81.95 \n \n1st Half \n617.16 \n734.46 \n1,466.48 \n1,717.35 \n7,099.54 \n153.95 \nJul \n125.36 \n250.91 \n209.74 \n0.05 \n508.14 \n \nAug \n105.22 \n141.16 \n218.92 \n4.50 \n91.72 \n \nSep \n91.76 \n206.57 \n280.57 \n318.42 \n150.51 \n \nOct \n170.26 \n167.01 \n309.95 \n882.80 \n1,206.86 \n \nNov \n120.22 \n205.93 \n242.93 \n939.54 \n791.09 \n \nDec \n162.56 \n297.91 \n319.91 \n650.27 \n599.47 \n \n2nd Half \n775.38 \n1,269.49 \n1,582.02 \n2,795.58 \n3,348.39 \n-52.83 \n \n \n \n \n \n \n \nCumulative \nFigure \n1,392.54 \n2,003.95 \n3,048.50 \n4,518.18 \n10,447.93 \n \n \n3.4 \nStanding Facilities \nThe DMBs and Discount Houses (DH) actively accessed the standing facilities \n(lending/ deposit) in the second half of 2013. There was a marginal increase in the \ncumulative volume of transactions at the CBN standing lending facility (SLF) \nwindow during the period. Requests for SLF amounted to N6, 923.86 billion \ncompared with N5, 248.70 billion in the first half of 2013, and N7, 733.53 billion in the \ncorresponding period of 2012. In the second half of 2013, the volume of SLF \nrepresented an increase of 30.7 per cent relative to the first half of the year but a \ndecrease of 10.5 per cent compared with the second half of 2012 (Table 3.3). The \nrelative increase in the volume of SLF transactions was traced to the 38 \npercentage points hike (12.0 to 50.0 per cent) in the CRR on public sector deposits \nwith the DMBs. \n \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 21 \n \nTable 3.3 \nCBN Standing Lending Facility \n(January 2009- December 2013) \n(N'billion) \nDate \n2009 \n2010 \n2011 \n2012 \n2013 \n% change over the \npreceding/corresponding \nperiod \nJan \n846.18 \n135.5 \n565.51 \n939.16 \n669.75 \n-28.69 \nFeb \n3,457.57 \n- \n1,369.60 \n1,060.90 \n1,115.64 \n5.16 \nMar \n4,592.69 \n- \n3,425.47 \n2,053.62 \n993.47 \n-51.62 \nApr \n3,875.48 \n- \n3,328.35 \n1,875.31 \n778.7 \n-58.48 \nMay \n2,581.43 \n270.97 \n3,722.41 \n1,472.21 \n796.89 \n-45.87 \nJun \n3,691.75 \n21.7 \n5,217.30 \n3,320.24 \n894.25 \n-73.07 \n1st \nHalf \n19,045.10 \n428.17 \n17,628.64 \n10,721.44 \n5,248.70 \n-51.04 \nJul \n4,675.02 \n55.76 \n3,334.91 \n3,322.49 \n793.07 \n-76.13 \nAug \n3,733.78 \n0 \n2,714.70 \n2,235.59 \n2,465.79 \n10.30 \nSep \n2,287.90 \n73.1 \n7,698.83 \n979.61 \n2,407.54 \n145.77 \nOct \n1,231.61 \n983.44 \n6,675.79 \n319.72 \n263.36 \n-17.63 \nNov \n537.58 \n1374.8 \n2592.94 \n355.79 \n314.22 \n-11.68 \nDec \n1,022.60 \n853.5 \n2,057.10 \n520.33 \n679.88 \n30.663233 \n2nd \nHalf \n13,488.49 \n3,340.60 \n25,074.27 \n7,733.53 \n6,923.86 \n-10.469604 \nTotal \n32,533.60 \n3,768.77 \n42,702.91 \n18,454.97 \n12,172.56 \n21.582726 \n \n \nThere was also a significant increase in the cumulative volume of transactions at \nthe CBN Standing Deposit Facility (SDF) window. The cumulative volume of SDF \nstood at N26,862.21 billion in the second half of 2013, compared with N17,484.79 \nbillion in the first half of 2013, and N9,885.25 billion in the corresponding period of \n2012. The volume of SDF at end-December 2013 represented 171.74 per cent \nincrease over that of the corresponding period in 2012 (Table 3.4). The observed \nincrease in the use of the SDF window was a reflection of the insignificant trading \nactivities in the interbank market in the review period, compared with the \ncorresponding period of 2012. \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 22 \n \nTable 3.4 \nCBN Standing Deposit Facility \n(January 2009- December 2013) \n(N'billion) \nDate \n2009 \n2010 \n2011 \n2012 \n2013 \n% Change over the \npreceding/corresponding \nperiod \nJan \n- \n5,622.63 \n1,864.84 \n868.1 \n2,132.70 \n24.93 \nFeb \n- \n6,101.90 \n721.62 \n788.26 \n3,047.91 \n42.91 \nMar \n- \n9,413.45 \n325.75 \n352.85 \n6,101.42 \n100.18 \nApr \n- \n6,853.06 \n49.65 \n201 \n2,817.00 \n(53.83) \nMay \n- \n1,735.45 \n73 \n1,242.50 \n1,718.53 \n(38.99) \nJun \n- \n5,563.64 \n97.18 \n275.25 \n1,667.22 \n(2.99) \n1st Half \n- \n35,290.13 \n3,132.04 \n3,727.96 \n17,484.78 \n369.02 \nJul \n162 \n4,055.52 \n- \n294.95 \n6,341.59 \n76.07 \nAug \n1,453.38 \n6,849.71 \n- \n980.55 \n5,282.96 \n-20.04 \nSep \n1,058.75 \n4,224.80 \n- \n2,130.35 \n2,905.72 \n-81.81 \nOct \n3,106.30 \n1,117.30 \n422.5 \n2,408.70 \n8,328.91 \n65.08 \nNov \n1,050.59 \n443.78 \n436.47 \n2,363.53 \n5,321.54 \n-56.37 \nDec \n1,797.92 \n1,191.78 \n576.85 \n1,707.17 \n4,003.03 \n-32.94 \n2nd \nHalf \n8,628.94 \n17,882.89 \n1,435.82 \n9,885.25 \n26,862.21 \n171.74 \nTotal \n8,628.94 \n53,173.02 \n4,567.86 \n13,613.21 \n44,346.99 \n \n \n3.5 \nForeign Exchange Intervention \nTo sustain the stability of the naira achieved in the first half of 2013, the Bank \ncontinued its intervention in the foreign exchange market during the review \nperiod. The total supply of foreign exchange by the Bank was US$17,728.04 million \ncompared with US$13,869.92 million during the first half of 2013 but lower than the \nUS$23,458.70 million in the corresponding period of 2012 (Table 3.5). The increase in \ntotal foreign exchange supply compared with that of the preceding half-year was \nprimarily due to the demand pressure. The Bank re-introduced the Retail Dutch \nAuction System (rDAS) as part of measures to address speculative demand. \n \n \n \n \n \n \n \n \n. \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 23 \n \nTable 3.5 \nForeign Exchange Supply by the CBN \n (US$ million) \n \n3.6 \nPerformance of the Monetary Aggregates \nThe sluggish growth in the monetary aggregates continued in the second half of \n2013 owing partly to the tight monetary policy by the Bank. Broad money stock \n(M2) changed from N15,483.85 billion to N15,668.95 billion, a marginal increase of \n1.2 per cent between end-December 2012 and end-December 2013, compared \nwith 16.39 per cent increase in the corresponding period of 2012 and with end-\nDecember 2013 benchmark of 15.20 per cent. Narrow money (M1) declined by \n5.50 per cent to N7,012.83 billion at end-December 2013 from N7,420.95 billion at \nend-December 2012, compared with the growth of 9.59 per cent in the \ncorresponding period of 2012 and the benchmark of 17.44 per cent for end-\nDecember 2013. Reserve Money (RM) increased by 77.92 per cent to N 5,361.37 \nbillion at end-December 2013 from N3,013.32 billion at end-December 2012. The \nend-December 2013 RM volume was 7.02 per cent (N351.49 billion) higher than \nthe benchmark of N5,009.88 billion for the fourth quarter 2013. \n \n \n \nYEAR \n2011 \n2012 \n2013 \n \n \n \nSales to \nwDAS \nSales to \nBDC \nTotal \nSupply \n(wDAS + \nBDC) \nTotal wDAS \nsales \nSales to \nBDC \nTotal \nSupply \n(Total \nwDAS + \nBDC) \nSales to \nwDAS \nSales to \nBDC \nTotal \nSupply \n(wDAS + \nBDAC) \nJan \n1,461.75 \n429.17 \n1,890.92 \n2,000.00 \n135.54 \n2,135.54 \n1,640.65 \n365.73 \n2,006.38 \nFeb \n1,838.85 \n279 \n2,117.85 \n1,794.85 \n300.04 \n2,094.89 \n1,942.18 \n720.59 \n2,662.77 \nMar \n1,582.02 \n482.19 \n2,064.21 \n3,274.38 \n330.53 \n3,604.91 \n1,452.75 \n698.16 \n2,150.91 \nApr \n1,841.07 \n306.05 \n2,147.12 \n2,385.58 \n322.26 \n2,707.84 \n891.52 \n492.76 \n1,384.28 \nMay \n2,707.47 \n277.34 \n2,984.81 \n2,825.19 \n392.03 \n3,217.22 \n1,487.00 \n625.52 \n2,112.52 \nJun \n2,283.95 \n657.49 \n2,941.44 \n2,894.96 \n347.32 \n3,242.28 \n3,000.00 \n544.81 \n3,544.81 \n1st \nHalf \n11,715.11 \n2,431.24 \n14,146.35 \n15,174.96 \n1,827.72 \n17,002.68 \n10,414.10 \n3,447.57 \n13,861.67 \nJul \n1,835.20 \n741.16 \n2,576.36 \n2,895.51 \n398.15 \n3,293.66 \n3298.09 \n575.30 \n3873.39 \nAug \n1,948.52 \n450.84 \n2,399.36 \n3,172.69 \n504.28 \n3,676.97 \n2,166.99 \n466.52 \n2633.51 \nSep \n3,593.54 \n613.77 \n4,207.31 \n4,161.90 \n995.65 \n5,157.55 \n2,625.22 \n480.45 \n3105.67 \nOct \n2,342.08 \n478.71 \n2,820.79 \n3,406.03 \n716.76 \n4,122.79 \n2,387.28 \n598.35 \n2985.63 \nNov \n1,561.68 \n280.21 \n1,841.89 \n3,260.91 \n795.37 \n4,056.28 \n2,404.32 \n522.70 \n2927.02 \nDec \n1,839.13 \n341.11 \n2,180.24 \n2,475.80 \n675.65 \n3,151.45 \n1,998.02 \n404.80 \n2402.82 \n2nd \nHalf \n13,120.15 \n2,905.80 \n16,025.95 \n19,372.84 \n4,085.86 \n23,458.70 \n14,679.92 \n3,048.12 \n17,728.04 \nTotal \n24,835.26 \n5,337.04 \n30,172.30 \n34,547.80 \n5,913.58 \n40,461.38 \n25,591.05 \n6,495.69 \n32,086.74 \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 24 \n \nTable 3.6 \nPerformance of the Monetary Aggregates \n(H2: 2012 and 2013) \n \nMonetary \nAggregate \n2012 (Percentage Growth) \n2013 (Percentage Growth) \nChange \n \nBenchmark \nActual \nend-\nDecember. \n(H2: 2012) \nDeviation \n(Actual – \nBenchmark) \nActual \nend-\nJune. \n(H1: \n2013)) \nBenchmark \nActual \nend- \nDecember. \n(H2: 2013)) \nDeviation \n(Actual – \nBenchmark) \nOver end-\nDecember \n2012 \nOver \nend-\nJune \n2013 \nM2 (N’b) \n16,577.53 \n15,483.85 \n-1,093.68 \n \n17,232.01 \n15,668.95 \n-1,563.06 \n185.10 \n15,668.95 \nM2 (%) \n24.64 \n16.20 \n-8.44 \n \n15.20 \n1.20 \n-14.00 \n-15.00 \n-14.45 \nM1(N’b) \n9,117.64 \n7,420.95 \n-1,696.69 \n \n8,097.56 \n7,012.83 \n-1,084.73 \n-408.12 \n7,012.83 \nM1 (%) \n34.71 \n9.58 \n-25.13 \n \n17.44 \n-5.05 \n-22.49 \n-14.63 \n-10.20 \nRM (N’b) \n3,013.32 \n3,704.48 \n691.16 \n \n5,009.88 \n5,361.37 \n351.49 \n1,656.89 \n5,361.37 \nRM (%) \n8.23 \n33.05 \n24.82 \n \n35.24 \n77.92 \n42.68 \n44.87 \n70.53 \nNDC (N’b) \n18,873.49 \n12,698.20 \n-6,175.29 \n \n17,032.01 \n15,040.70 \n-1,991.31 \n2,342.50 \n15,040.70 \nNDC (%) \n52.17 \n-7.22 \n-59.39 \n \n23.58 \n18.45 \n-5.13 \n25.67 \n14.90 \nCg (N’b) \n-204.66 \n-2,453.56 \n-2,248.90 \n \n754.81 \n-1,468.78 \n-2,223.59 \n984.78 \n-1,468.78 \nCg (%) \n61.47 \n393.81 \n332.34 \n \n44.22 \n40.14 \n-4.08 \n-353.67 \n43.77 \nCp (N’b) \n19,078.15 \n15,151.76 \n-3,926.39 \n \n17,786.82 \n16,509.47 \n-1,277.35 \n1,357.71 \n16,509.47 \nCp (%) \n47.50 \n6.82 \n-40.68 \n \n17.52 \n8.96 \n-8.56 \n2.14 \n5.39 \nNFA (N’b) \n7,654.56 \n9,043.68 \n1,389.12 \n \n10,561.41 \n8,513.27 \n-2,048.14 \n-530.41 \n8,513.27 \nNFA (%) \n6.60 \n26.68 \n20.08 \n \n16.78 \n-5.86 \n-22.64 \n-32.54 \n-7.20 \n \nFig 3.1 \nThe Performance of M1, M2 and RM \n(H1: 2011 - 2013) \n \n-15\n-10\n-5\n0\n5\n10\n15\n20\n25\n30\n35\nM2(%)\nM1(%)\nRM(%)\nM2(%)\nM1(%)\nRM(%)\nM2(%)\nM1(%)\nRM(%)\nH:2011\nH1:2012\nH1:2013\nBenchmark\nActual\n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 25 \n \nNet domestic credit (NDC) increased by 18.45 per cent to N15,040.69 billion at \nend-December 2013 from N12,698.21 billion at end-December 2012, compared \nwith the benchmark of 22.98 per cent for 2013. The improved performance was \npartly due to less reliance of the FGN on issuance of bonds for public financing, \nthereby freeing up resources for the private sector. \n \nNet Credit to Government (Cg) declined by 40.14 per cent to stand at N1,468.78 \nbillion at end-December 2013 from N2,453.56 billion in December 2012, compared \nwith the indicative benchmark of 18.27 per cent for end-December 2013. Thus, the \nFGN continued to be a net creditor to the banking system during the review \nperiod. \n \nFig 3.2 \n The Performance of NDC, Cg and Cp \n(H1: 2011 – 2013) \n \n \n-300\n-250\n-200\n-150\n-100\n-50\n0\n50\n100\nNDC(%)\nCg (%)\nCp (%)\nNDC(%)\nCg (%)\nCp (%)\nNDC(%)\nCg (%)\nCp (%)\nH1:2011\nH1:2012\nH1:2013\nBenchmark\nActual\n \n \nCredit to the private sector (Cp) rose by 8.96 per cent to N16,509.47 billion at end-\nDecember 2013 from N15,151.76 billion at end-December 2012, compared with \nthe benchmark of 19.39 per cent for end-December, 2013. Net foreign assets \n(NFA) declined by 5.86 per cent to N8, 513.27 billion at end-December 2013 from \nN9, 043.68 billion at end-December 2012, compared with the benchmarks of 16.78 \nper cent for end-December 2013. \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 26 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nBox 2 \n Effects of US QE3 Tapering on Emerging Markets \n \nQuantitative easing (QE) is an unconventional monetary policy tool used by central banks to \nstimulate the economy when standard monetary policy instruments have become ineffective. \nMany central banks around the world embarked on QE in the wake of the global financial and \neconomic slowdown. The U.S is currently implementing its third round of QE codenamed QE3, \nwhich commenced in the third quarter of 2012 with monthly bonds purchase of US$85 billion as \nthe main component. \n \nThe indication by the US Fed to commence tapering its bond buying programme under QE3 in \nJanuary 2014, has expectedly begun to have some adverse effects in emerging markets and \ndeveloping economies that benefited from cheap foreign resources in stimulating growth. The \nplanned scale-back of QE3 has set in motion a process of reversal of some or all of the earlier \ngains in the economies of those countries. The proposal, coupled with economic recovery in the \nadvanced economies, has the potential to raise interest rates and yields in the US. Given this \nscenario, foreign investors have started to move funds back to source countries. As a result, asset \nprices, especially, exchange rate, stock and bond prices have come under pressure due to \nreduced inflows or flow reversals in a number of countries including Mexico, Argentina, Turkey, \nSouth Africa, India and Ghana. For instance, the Istanbul BIST100 Index declined by about 2.2 % \nand the South African ASI by 0.5% in the review period. In terms of currencies, the Rand, Ruble, \nPeso and Lira have all weakened against the Euro and the US dollars in the review period. This \nsequence of events could hurt growth, employment and domestic price level. Financial markets \nin Emerging Market Economies (EMEs) could face challenges as banks lose their ability to raise \nnew debt and external credit lines dry up. In addition, corporate foreign debt could become \nmore expensive to service if local currencies depreciate substantially. Furthermore, prolonged \nmonetary tightening by central banks to defend their currencies in the face of sustained \nrecovery in the advanced economies could be counter-productive in the long run. \nQuantitative easing in advanced economies contributed to the recovery of the Nigerian stock \nmarket and added to reserve accretion. However, tapering and continued recovery in \nadvanced economies would leave monetary policy with limited options. Like most emerging \nmarkets, economic managers in Nigeria have to admit that the days of easy money from \nexpansionary monetary policy in advanced countries are ending slowly especially as most are \nnot likely to move policy rates to pre-crisis level in the short- to medium-term. Given these risks, \nNigeria appears to enjoy some levers: flexible exchange rate regime; a current account surplus; \nnaira dominated public debt and a sizeable level of external reserves. There are, however, \nvulnerabilities the Bank would have to respond to by keeping domestic rates moderately high in \norder to stem the negative impact of rapid capital reversal. In addition, the Bank needs to make \neffective use of communication and forward policy guidance to sustain investor’s confidence. \nHowever, there is a limit to the role monetary policy alone can play. Thus, rebuilding fiscal buffers \nand consolidation, coupled with sound monetary policy has the potential to contribute to \nsustainable macroeconomic stability as the tapering unfolds in the medium- to long- term. \nNevertheless, there is a possible repatriation of foreign funds before the close of the year, as QE is \ngradually withdrawn and as Nigeria gradually moves closer to her electioneering year. \nTherefore, Nigeria should be prepared for the a potential shock waves engendered by the \ncomplete withdrawal of the QE Policy, because it will have severe impact on its economy, as \nwell as on the rest of the global economy. \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 27 \n \nCHAPTER 4 \nDOMESTIC FINANCIAL MARKETS \n \n4.1 \nMoney Market \nThe money market remained active in the second half of 2013 with government \nsecurities and CBN OMO bills being actively traded. Market activities were largely \ninfluenced by liquidity conditions as well as the implementation of administrative \nmeasures such as the introduction of 50.0 per cent CRR on public sector deposits, \nprohibition of concurrent dealings in wDAS and the Bank’s standing lending \nfacility. Interbank interest rates remained largely locked-in within the corridor of +/- \n200 basis points around the MPR of 12.0 per cent. However, occasional spikes were \nobserved, particularly during periods of temporary liquidity shortfalls and at the \nimplementation of the 50.0 per cent CRR on public sector deposits. \n \n4.1.1 Developments in Short-Term Interest Rates \nStabilizing short-term interest rates around the policy rate remained a challenge \nfor monetary management during the review period. This was because the \nmonthly allocation of federally-collected revenue among the three tiers of \ngovernment created system-wide liquidity swings in short-term interest rates (Figure \n4.1). The average interbank call rate ranged from 10.63 to 16.22 per cent, while \nthe open buy-back (OBB) rate ranged from 10.46 to 18.18 per cent in the second \nhalf of 2013. \n \nTable 4.1 \nWeighted Average Money Market Interest Rates \n(June – December 2013) \n (Per cent) \n \nMonth \nMonetary \nPolicy Rate \nOvernight Interest Rates \nTenored \nCall Rate \nOpen Buy-\nBack \nNIBOR 30-Day \nJun-13 \n12.00 \n11.59 \n11.19 \n11.00 \nJul-13 \n12.00 \n10.63 \n10.46 \n11.75 \nAug-13 \n12.00 \n15.24 \n13.77 \n12.46 \nSep-13 \n12.00 \n16.22 \n18.18 \n11.38 \nOct-13 \n12.00 \n11.08 \n10.99 \n11.75 \nNov-13 \n12.00 \n11.15 \n11.00 \n11.38 \nDec-13 \n12.00 \n10.75 \n11.24 \n11.13 \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 28 \n \nFig 4.1 \nWeighted Average Money Market Interest Rates \n(June – December 2013) \n(Per cent) \n8.00\n10.00\n12.00\n14.00\n16.00\n18.00\n20.00\nJun-13\nJul-13\nAug-13\nSep-13\nOct-13\nNov-13\nDec-13\n%\nWeighted Average Money Market Interest Rates\nMonetary Policy Rate\nCall Rate\nOpen-Buy-Back\nNIBOR 7-Day\nNIBOR 30-Day\n \n \n(i) \nInterbank Call Interest Rate \nThe average (weighted) interbank call rate dropped to 10.75 per cent in \nDecember 2013 from 11.59 per cent in June 2013. During the intervening months, \nthe rate rose to 15.24 and 16.22 per cent in August and September 2013 \nrespectively. Over the second half of 2013, interbank rates dropped by \napproximately 84 basis points in contrast to an increase of 29 basis points between \nDecember 2012 and June 2013. On a year-on-year basis, the weighted average \ninterbank (call) rate declined by 113 basis points (Figure 4.2). \n \nFig 4.2 \nDaily Interbank Call Rates \n(June 2013 – December 2013) \n(Per cent) \n -\n 5.00\n 10.00\n 15.00\n 20.00\n 25.00\n 30.00\n 35.00\n 40.00\n 45.00\n28/06/2013\n05/07/2013\n12/07/2013\n19/07/2013\n26/07/2013\n02/08/2013\n09/08/2013\n16/08/2013\n23/08/2013\n30/08/2013\n06/09/2013\n13/09/2013\n20/09/2013\n27/09/2013\n04/10/2013\n11/10/2013\n18/10/2013\n25/10/2013\n01/11/2013\n08/11/2013\n15/11/2013\n22/11/2013\n29/11/2013\n06/12/2013\n13/12/2013\n20/12/2013\n27/12/2013\nDaily Interbank Call Rates\n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 29 \n \n(ii) Open Buy-Back Rate \nThe average (weighted) open buy-back (OBB) rate rose to 11.24 per cent in \nDecember 2013 from 11.19 per cent in June 2013 (Figure 4.3). Over the first half of \n2013, the OBB rate rose by approximately 5 basis points compared with a decline \nof 54 points between December 2012 and June 2013. On a year-on-year basis, the \naverage OBB rate declined by 49 basis points. \n \n Fig 4.3 \nDaily Open Buy-Back (OBB) Rates \n(June 2012 – December 2013) \n(Per cent) \n -\n 10.00\n 20.00\n 30.00\n 40.00\n 50.00\n28/06/2013\n05/07/2013\n12/07/2013\n19/07/2013\n26/07/2013\n02/08/2013\n09/08/2013\n16/08/2013\n23/08/2013\n30/08/2013\n06/09/2013\n13/09/2013\n20/09/2013\n27/09/2013\n04/10/2013\n11/10/2013\n18/10/2013\n25/10/2013\n01/11/2013\n08/11/2013\n15/11/2013\n22/11/2013\n29/11/2013\n06/12/2013\n13/12/2013\n20/12/2013\n27/12/2013\nDaily OBB Rates\n \n \n(iii) Nigeria Interbank Offered Rate (NIBOR) \nNigeria Interbank Offered Rate (NIBOR), the traditional reference rate for tenured \ntransactions, remained relatively stable in the review period. The average \nweighted 30-day NIBOR, which was 12.96 per cent in December 2012 moderated \nto 11.00 per cent in June 2013, but rose marginally to 11.13 per cent at the end of \nthe second half of 2013 (Table 4.1 and Figure 4.1). \n \nThe general decline in short-term rates during the period was due primarily to \neasing of liquidity conditions partly engendered by OMO bill maturities, \nredemption of AMCON bonds and government’s fiscal operations. \n \n4.2 \nForeign Exchange Market \nThe policy thrust of the Central Bank remained primarily to maintain a stable \nexchange rate of the naira. This informed the Bank’s interventions in the market \nwere to stabilize the exchange rate around the mid-point of N155/US$ +/- 3.0 per \ncent. The second half of 2013 had stable exchange rates, but there were some \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 30 \n \nspikes between October and December 2013 due to the introduction of the policy \nof payment of inward remittances in the domestic currency on the one hand and \nshort-term capital outflows, on the other. On the average, the exchange rate was \nfairly stable at N157.32/US$ in the period under review, similar to that of the \npreceding period at N157.30/US$ and to the corresponding period of 2012 at \nN157.35/US$ (Figure 4.4). \n \nFig 4.4 \nDaily Exchange Rate \n(June 2013 – December 2013) \n \n \n4.2.1 Average Exchange Rate \nThe w/rDAS spot rate depreciated mildly to an average of N157.32/US$ in the \nsecond half of 2013 from N157.30/US$ in the first half of 2013 but appreciated \nwhen compared with N157.35/US$ in the corresponding period of 2012. This \nrepresented depreciation and appreciation of 0.01 and 0.02 per cent \nrespectively. \n \nAt the interbank foreign exchange market (IFEM), the naira exchange rate \naveraged N160.32/US$ in the second half of 2013 compared with N158.18/US$ in \nthe first half of 2013, a depreciation of 1.35 per cent. Similarly, relative to \nN158.37/US$ in the second half of 2012, the exchange rate at the interbank \nmarket depreciated by 1.23 per cent. The rate at the BDC segment averaged \nN165.19/US$ in the second half of 2013 in contrast to N159.66/US$ in the \npreceeding period and N160.49/US$ in the second half of 2012. This represented \ndepreciations of 3.46 and 2.93 per cent, respectively. \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 31 \n \nThe mild depreciation in average exchange rates across all segments of the \nforeign exchange market was attributed to decreased supply of forex and in the \nface of increased demand pressure (Table 4.2). \n \nTable 4.2 \nAverage Monthly Spot Exchange Rates \nJuly 2012 – December 2013 \n(N/US$) \n \nCBN \nIFEM \nBDC \nJul-12 \n157.43 \n161.33 \n163.32 \nAug-12 \n157.38 \n158.97 \n162.24 \nSep-12 \n157.34 \n157.78 \n159.8 \nOct-12 \n157.32 \n157.24 \n159 \nNov-12 \n157.31 \n157.58 \n159.32 \nDec-12 \n157.32 \n157.33 \n159.26 \n2012: H2 Average \n157.35 \n158.37 \n160.49 \n2012 Average \n157.50 \n158.84 \n160.86 \nJan-13 \n157.3 \n156.95 \n159.13 \nFeb-13 \n157.3 \n157.5 \n158.68 \nMar-13 \n157.31 \n158.37 \n159.8 \nApr-13 \n157.31 \n158.2 \n159.81 \nMay-13 \n157.3 \n158.02 \n159.57 \nJun-13 \n157.31 \n160.02 \n160.98 \n2013: H1 Average \n157.30 \n158.18 \n159.66 \nJul-13 \n157.32 \n161.12 \n162.43 \nAug-13 \n157.31 \n161.15 \n162.00 \nSep-13 \n157.32 \n161.96 \n163.14 \nOct-13 \n157.42 \n159.83 \n165.00 \nNov-13 \n157.27 \n158.79 \n167.19 \nDec-13 \n157.27 \n159.04 \n171.35 \n2013: H2 Average \n157.32 \n160.32 \n165.19 \n2013 Average \n157.31 \n159.58 \n163.01 \n \n4.2.3 End-Period (Month) Exchange Rate \nThe naira appreciated in the w/rDAS segment of the foreign exchange market at \nend-December 2013, but depreciated at the Interbank and significantly so at the \nBDC segment when compared with end-June 2013. At the w/rDAS, the naira \nappreciated by 0.03 per cent to N157.26/US$ from N157.31/US$ at end-June 2013. \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 32 \n \nYear-on-year, the naira appreciated by 0.04 per cent at end-December 2013 \n(Table 4.3). \n \nAt the interbank segment, the naira exchange rate fell to N159.90/US$ from \nN160.60/US$ at end-June 2013, an appreciation of 0.40 per cent. However, relative \nto end-December 2012 rate of N157.25/US$, the naira depreciated marginally by \nabout N2.65 or 1.69 per cent. At the BDC segment, the naira depreciated by 6.17 \nper cent to N172.00/US$ at end-December 2013, from N162.00/US$ at end-June \n2013. The depreciation can be attributed to the yuletide season during the review \nperiod. Relative to the end-December 2012 rate of N159.00/US$, the exchange \nrate of the naira at the BDC segment, however, depreciated by 8.18 per cent \n(Table 4.3 and Figure 4.5). \n \nThe depreciation in rates across all but one segment of the foreign exchange \nmarket was explained by the decreased supply of foreign exchange; particularly, \nthe introduction of a cap on purchases by BDCs from authorised dealers, \nrestriction on importation of foreign currency bills without prior approval of the \nBank and stringent returns requirement on forex utilization. \n \n \n \n140\n145\n150\n155\n160\n165\n170\n175\nJun-12\nJul-12\nAug-12\nSep-12\nOct-12\nNov-12\nDec-12\nJan-13\nFeb-13\nMar-13\nApr-13\nMay-13\nJun-13\nJul-13\nAug-13\nSep-13\nOct-13\nNov-13\nDec-13\nUS$/N\nFig 4.5 \nEnd-Month Exchange Rate \n(Jul 2012 - December 2013)\nCBN\nIFEM\nBDC\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 33 \n \nTable 4.3 \nEnd-Month Exchange Rates Movements \n(July 2012 – December 2013) \n(N/US$) \n \nCBN \nIFEM \nBDC \nJul-12 \n157.40 \n160.75 \n164.00 \nAug-12 \n157.36 \n158.17 \n161.00 \nSep-12 \n157.34 \n157.24 \n159.00 \nOct-12 \n157.27 \n157.06 \n159.00 \nNov-12 \n152.32 \n157.40 \n159.00 \nDec-12 \n157.33 \n157.25 \n159.00 \nJan-13 \n157.30 \n157.20 \n159.00 \nFeb-13 \n157.31 \n158.05 \n158.50 \nMar-13 \n157.31 \n158.63 \n160.00 \nApr-13 \n157.31 \n157.90 \n160.00 \nMay-13 \n157.30 \n158.10 \n159.50 \nJun-13 \n157.31 \n162.60 \n162.00 \nJul-13 \n157.32 \n160.55 \n162.00 \nAug-13 \n157.32 \n161.90 \n162.00 \nSep-13 \n157.31 \n160.65 \n162.00 \nOct-13 \n157.36 \n158.85 \n166.00 \nNov-13 \n157.28 \n158.40 \n169.00 \nDec-13 \n157.26 \n159.90 \n172.00 \n \n4.2.4 Nominal and Real Effective Exchange Rate \n \nThe Nominal Effective Exchange Rate (NEER) appreciated by 0.31 per cent to \n96.10 at end-December 2013 from 96.40 at end-June 2013. On comparison with \nthe end-December 2012 rate of 98 per cent, the NEER appreciated by 1.94 per \ncent. The Real Effective Exchange Rate (REER) appreciated slightly by 0.23 \npercent at end-December 2013 from 76.50 at end-June 2013 and by 3.09 per cent \nabove end-December 2012 rate (Table 4.4 and Figure 4.6). \n \nOn the average, both the NEER and REER decreased at end-December 2013, \nwhen compared with their end-December 2012 figures, indicating exchange rate \nappreciation in both nominal and real terms relative to the currencies of Nigeria’s \nmajor trading partners. \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 34 \n \nTable 4.4 \nNominal and Real Effective Exchange Rates Indices \n(July 2012 – December 2013) \n \n \nNEER \nREER \nJul-2012 \n98.00 \n79.40 \nAug-2012 \n97.90 \n78.90 \nSep-2012 \n98.60 \n78.80 \nOct-2012 \n98.20 \n77.80 \nNov-2012 \n97.80 \n77.00 \nDec-2012 \n98.00 \n76.70 \n2012: H2 Average \n98.08 \n78.10 \n2012: Average \n98.90 \n80.20 \nJan-2013 \n99.00 \n77.90 \nFeb-2013 \n98.80 \n77.50 \nMar-2013 \n98.60 \n76.60 \nApr-2013 \n98.80 \n77.70 \nMay-2013 \n97.20 \n75.50 \nJun-2013 \n96.40 \n74.50 \n2013: H1 Average \n98.13 \n76.62 \nJul-2013 \n96.10 \n74.30 \nAug-2013 \n94.80 \n73.50 \nSep-2013 \n96.10 \n74.40 \nOct-2013 \n96.50 \n74.60 \nNov-2013 \n96.00 \n74.30 \nDec-2013 \n96.34 \n72.34 \n2013: H2 Average \n95.93 \n74.24 \n2013: Average \n97.03 \n75.43 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 35 \n \nFig 4.6 \nNominal and Real Effective Exchange Rate Indices \n(July 2012 – December 2013) \n \n \n \n4.2.5 Demand and Supply of Foreign Exchange \nThe total demand for foreign exchange at the w/rDAS during the review period \nincreased by 74.23 per cent to US$18,727.85 million from US$10,748.71 million in the \nfirst half of 2013. On a year-on-year basis, the demand for foreign exchange \nincreased by 115.12 per cent in 2013 compared with the second half of 2012. The \ndevelopment was attributed to the high demand for foreign exchange associated \nwith the end of the year festivities and increased capital outflows following foreign \ninvestors’ divestment of their portfolio holdings in flight to safety. The total supply of \nforeign exchange at the w/rDAS in the second half of 2013 increased by 38.93 per \ncent to US$14,880.32 million, compared with US$10,711.03 million recorded in the \nfirst half of 2013. It also rose by 26.94 per cent when compared with end-December \n2012 (Table 4.5 and Figure 4.7). \n \nFurthermore, a number of policy measures were undertaken to complement \nexisting ones in order to moderate the demand pressure for foreign exchange. \nThese included the re-introduction of the rDAS, prohibition of importation of foreign \ncurrency bills by authorized dealers without prior CBN approval, cap on purchases \nby BDCs from authorised dealers and stringent returns requirement on forex \nutilization. In addition, the degree of intervention was increased, leading to \nrelative stability in the exchange rate of the domestic currency. \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 36 \n \nTable 4.5 \nForeign Exchange Demand and Supply \n(July 2012 – December 2012) \n(US Dollar Million) \n \nw/rDAS Demand \nw/rDAS Supply \nJul-12 \n2,166.32 \n2,280.00 \nAug-12 \n1,646.41 \n1,780.00 \nSep-12 \n1,549.18 \n1,590.00 \nOct-12 \n1,112.89 \n1,250.00 \nNov-12 \n1,236.98 \n1,250.00 \nDec-12 \n993.81 \n1,020.00 \n2012: H2 Total \n8,705.60 \n9,170.00 \n2012: Total \n19,668.75 \n19,920.00 \nJan-13 \n836.39 \n713.50 \nFeb-13 \n1,164.28 \n1,072.82 \nMar-13 \n1,911.29 \n1,801.54 \nApr-13 \n2,156.22 \n2,154.47 \nMay-13 \n2,019.20 \n2,018.70 \nJun-13 \n2,661.33 \n2,650.00 \n2013: H1 Total \n10,748.71 \n10,711.03 \nJul-13 \n3,325.56 \n3,298.09 \nAug-13 \n2,179.38 \n2,166.99 \nSep-13 \n2,660.13 \n2,625.22 \nOct-13 \n3,541.93 \n2,387.28 \nNov-13 \n3,095.32 \n2,404.72 \nDec-13 \n3,925.53 \n1,998.02 \n2013: H2 Total \n18,727.85 \n14,880.32 \n2013: Total \n29,476.56 \n25,291.35 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 37 \n \nFigure 4.7 \nDemand and Supply of Foreign Exchange at rDAS \n(July 2012 – December 2013) \n \n0.00\n500.00\n1,000.00\n1,500.00\n2,000.00\n2,500.00\n3,000.00\n3,500.00\n4,000.00\n4,500.00\nUS$ 'Million\nDemand and Supply of Foreign Excahnge at rDAS\n \n \n4.2.6 Foreign Exchange Flows \n \n4.2.6.1 Foreign Exchange Flows through the CBN \nGross foreign exchange inflow through the CBN increased by 7.98 per cent from \nUS$19,747.38 million in the first half of 2013 to US$21,322.87 million in the second \nhalf, an increase of about 8 per cent. Relative to the corresponding period of \n2012, gross foreign exchange inflow declined by 13.36 per cent from US$24,611.59 \nmillion. Foreign exchange outflow rose by a whopping 24.64 per cent from \nUS$18,813.70 million in the first half of 2013 to US$23,456.94 million in the second half \nof 2013. It, however, rose by 48.13 per cent in second half of 2013 from \nUS$15,835.23 million in the same period in 2012. \n \nDuring the period under review, foreign exchange flows through the CBN resulted \nin a net inflow of US$-2,134.07 million compared with US$933.77 million and \nUS$8,776.36 million in the first half and corresponding period of 2012, respectively \n(Table 4.6). \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 38 \n \nTable 4.6 \nCBN Monthly Foreign Exchange Flows \n(July 2012 – December 2013) \n(US$ million) \n \nINFLOW \nOUTFLOW \nNET FLOW \nJul-2012 \n4,132.09 \n3,006.72 \n1,125.37 \nAug-2012 \n5,953.41 \n2,796.59 \n3,156.82 \nSep-2012 \n3,358.57 \n2,277.44 \n1,081.13 \nOct-2012 \n3,576.35 \n1,960.37 \n1,615.98 \nNov-2012 \n4,272.42 \n3,794.48 \n477.94 \nDec-2012 \n3,318.75 \n1,999.63 \n1,319.12 \n2012: H2 \n24,611.59 \n15,835.23 \n8,776.36 \n2012 Total \n46,782.34 \n35,190.67 \n11,591.67 \nJan-2013 \n3,320.75 \n1,538.09 \n1,782.66 \nFeb-2013 \n3,681.07 \n2,103.40 \n1,577.67 \nMar-2013 \n3,302.64 \n2,671.54 \n631.1 \nApr-2013 \n3,238.83 \n3,369.37 \n-130.55 \nMay-2013 \n3,095.50 \n3,233.67 \n-138.17 \nJun-2013 \n3,108.60 \n5,897.63 \n-2,789.04 \n2013: H1 \n19,747.39 \n18,813.70 \n933.67 \nJul-2013 \n5,778.32 \n4,891.28 \n887.04 \nAug-2013 \n3,132.99 \n3,467.97 \n-334.98 \nSep-2013 \n2,946.03 \n4,308.07 \n-1,362.04 \nOct-2013 \n3,175.31 \n3,177.74 \n-2.43 \nNov-2013 \n3,125.45 \n3,837.85 \n-712.4 \nDec-2013 \n3,164.77 \n3,774.03 \n-609.26 \n2013: H2 \n21,322.87 \n23,456.94 \n-2,134.07 \n2013 Total \n41,070.26 \n42,270.64 \n-1,200.40 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 39 \n \nFigure 4.8 \nForeign Exchange Flows through the CBN \n(July 2012 – December 2013) \n (4,000.00)\n (3,000.00)\n (2,000.00)\n (1,000.00)\n -\n 1,000.00\n 2,000.00\n 3,000.00\n 4,000.00\n 5,000.00\n 6,000.00\n 7,000.00\nUS$ 'Million\nForeign Exchange Flows\nNET FLOW\nINFLOW\nOUTFLOW\n \n \n4.2.6.2 Foreign Exchange Flows through the Economy \nGross foreign exchange inflow to the economy rose to US$73,822.74 million in the \nsecond half of 2013 from US$72,277.13 million in the first half of 2013, and \nUS$63,466.93 million in the second half of 2012, an increase of 2.14 and 16.32 per \ncent, respectively. Gross foreign exchange outflow rose by 25.16 per cent to \nUS$23,798.15 million from US$19,014.82 million in the first half of 2013. Similarly, it \nincreased by 41.47 per cent from US$16,822.06 million in the corresponding period \nof 2012, again, indicating upward trends in foreign exchange outflow in the \neconomy. \n \nDuring the second half of 2013, foreign exchange flows resulted in a net inflow of \nUS$50,024.60 million compared with US$53,378.26 million in the first half of 2013 and \nUS$46,644.90 million in the second half of 2012 (Table 4.7). The reduction in the net \ninflows was attributed to the relative increase in capital reversal due to the US \nquantitative easing programme in the review period. \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 40 \n \nTable 4.7 \nMonthly Foreign Exchange Flows through the Economy \n (July 2012 – December 2013) \n(US$ million) \nDescriptor \nTotal \nInflow \nInflow \n(CBN) \nInflow \n(Autonomous) \nTotal \nOutflow \nOutflow \n(CBN) \nOutflow \n(Autonomous) \nNet Flow \nNet Flow \n(CBN) \nNet Flow \n(Autonomous) \nJan. 2012 \n8,518.24 \n4,307.02 \n4,211.22 \n3,027.16 \n2,945.80 \n81.36 \n5,491.08 \n1,361.22 \n4,129.86 \nFeb. 2012 \n9,859.56 \n3,546.16 \n6,313.40 \n3,998.38 \n3,902.27 \n96.11 \n5,861.18 \n-356.11 \n6,217.29 \nMar. 2012 \n9,812.73 \n4,266.63 \n5,546.10 \n3,060.67 \n2,912.43 \n148.24 \n6,752.06 \n1,354.20 \n5,397.86 \nApr. 2012 \n9,973.15 \n3,242.89 \n6,730.26 \n1,895.22 \n1,754.89 \n140.33 \n8,077.93 \n1,488.00 \n6,589.93 \nMay. 2012 \n9,550.02 \n3,627.10 \n5,922.92 \n3,392.09 \n3,256.97 \n135.12 \n6,157.93 \n370.13 \n5,787.80 \nJun. 2012 \n7,834.38 \n3,180.94 \n4,653.44 \n4,831.11 \n4,583.13 \n247.98 \n3,003.27 \n-1,402.19 \n4,405.46 \nTotal H1 \n2012 \n55,548.08 \n22,170.74 \n33,377.34 \n20,204.63 \n19,355.49 \n849.14 \n35,343.45 \n2,815.25 \n32,528.20 \nJul. 2012 \n8,865.39 \n4,132.10 \n4,733.29 \n3,187.15 \n3,006.74 \n180.41 \n5,678.25 \n1,125.37 \n4,552.88 \nAug. 2012 \n12,416.40 \n5,953.41 \n6,462.99 \n2,938.76 \n2,796.56 \n142.20 \n9,477.64 \n3,156.85 \n6,320.79 \nSep. 2012 \n9,945.14 \n3,358.57 \n6,586.57 \n2,542.85 \n2,277.44 \n265.41 \n7,402.29 \n1,081.13 \n6,321.16 \nDec. 2012 \n10,474.61 \n3,318.75 \n7,154.99 \n2,109.62 \n1,999.63 \n47.29 \n8,364.99 \n1,319.12 \n7,107.70 \nTotal H2 \n2012 \n63,466.93 \n24,611.59 \n38,854.47 \n16,822.06 \n15,835.21 \n924.14 \n46,644.90 \n8,776.40 \n37,930.33 \nTotal 2012 \n119,015.01 \n46,783.20 \n72,231.81 \n37,026.69 \n35,253.41 \n1,773.28 \n81,988.35 \n11,529.82 \n70,458.53 \nJan. 2013 \n12,154.31 \n3,320.75 \n8,833.56 \n1,561.22 \n1,538.09 \n23.13 \n10,593.09 \n1,782.66 \n8,810.43 \nFeb. 2013 \n10,972.73 \n3,681.07 \n7,291.66 \n2,130.08 \n2,103.40 \n26.68 \n8,842.65 \n1,577.67 \n7,264.98 \nMar. 2013 \n11,141.76 \n3,302.64 \n7,839.12 \n2,712.82 \n2,671.54 \n41.28 \n8,428.94 \n631.10 \n7,797.84 \nApr. 2013 \n12,149.85 \n3,238.83 \n8,911.02 \n3,430.09 \n3,369.37 \n60.72 \n8,719.76 \n-130.55 \n8,850.30 \nMay. 2013 \n13,264.85 \n3,095.50 \n10,169.35 \n3,252.13 \n3,233.67 \n18.46 \n10,012.72 \n-138.17 \n10,150.89 \nJun. 2013 \n12,593.63 \n3,108.60 \n9,485.03 \n5,928.48 \n5,940.05 \n31.62 \n6,781.10 \n-2,831.45 \n9,454.18 \nTotal H1 \n2013 \n72,277.13 \n19,747.39 \n52,529.74 \n19,014.82 \n18,856.70 \n201.89 \n53,378.26 \n891.26 \n52,328.62 \nJul. 2013 \n15,980.59 \n5,778.32 \n10,202.27 \n4,941.04 \n4,891.29 \n49.75 \n11,039.54 \n887.02 \n10,152.52 \nAug. 2013 \n10,007.30 \n3,132.99 \n6,874.31 \n4,020.74 \n3,467.97 \n552.77 \n5,986.57 \n-334.97 \n6,321.54 \nSep. 2013 \n12,506.86 \n2,946.03 \n9,560.83 \n4,397.01 \n4,308.08 \n88.93 \n8,109.85 \n-1,362.05 \n9,471.90 \nOct. 2013 \n11,704.38 \n3,175.31 \n8,529.07 \n3,236.64 \n3,177.75 \n58.89 \n8,467.74 \n-810.00 \n9,277.74 \nNov. 2013 \n12,025.74 \n3,125.45 \n8,900.29 \n3,880.79 \n3,837.85 \n42.94 \n8,144.95 \n-2.44 \n8,147.39 \nDec. 2013 \n11,597.87 \n3,261.68 \n8,336.19 \n3,321.93 \n3,304.33 \n17.60 \n8,275.95 \n634.78 \n7,641.17 \nTotal H2 \n2013 \n73,822.74 \n21,419.78 \n52,402.96 \n23,798.15 \n22,987.27 \n810.88 \n50,024.60 \n-987.66 \n51,012.26 \nTotal 2013 \n146,099.87 \n41,167.17 \n104,932.70 \n42,812.97 \n41,843.39 \n1,012.77 \n103,402.86 \n-96.40 \n103,340.88 \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 41 \n \nFigure 4.9 \nForeign Exchange Flows through the Economy \n(July 2012 – December 2013) \n \n \n \n4.3 \nCapital Market \nThe capital market witnessed improved performance in the second half of 2013, \ncompared with the first half and the corresponding period of 2012. This \ndevelopment was due largely to improved earnings and increase in foreign \nportfolio investments driven by improved investor confidence in the economy. \n \n4.3.1 \nEquities Market \nThe All-Share Index (ASI) rose by 14.28 per cent to 41,329.19 at end-December \n2013, from 36,164.31 at end-June 2013, and by 47.19 per cent relative to the same \nperiod in 2012. Market Capitalization (MC) for equities also increased by 15.75 per \ncent to N13.23 trillion at end-December 2013 from N11.43 trillion at end-June 2013, \nand by 47.49 per cent when compared with the N8.97 trillion recorded at end-\nDecember 2012 (Table 4.9 and Figure 4.10). \n \nThe ASI’s 47.19 per cent year-to-date increase was driven mainly by the strong \nperformance in the financial services sector, primarily banking and insurance. The \nBloomberg NSE Banking Index rose by 31.94 per cent, while the Insurance Index \nincreased by 29.80 per cent relative to 2012. In particular, the Bloomberg NSE \nConsumer Goods and the Bloomberg Oil and Gas indices also rose by 31.14 and \n122.25 per cent, respectively, in 2013 relative to 2012. \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 42 \n \nTable 4.8 \nNSE All-Share Index and Market Capitalization \n(December 2012 – December 2013) \n \nDate \nASI \nMC (Equities) \n(N’ Trillion) \nDec-12 \n28,078.81 \n8.97 \nJan-13 \n31,853.19 \n10.19 \nFeb-13 \n33,075.14 \n10.58 \nMar-13 \n33,536.25 \n10.73 \nApr-13 \n33,440.57 \n10.69 \nMay-13 \n37,794.75 \n12.08 \nJun-13 \n36,164.31 \n11.43 \nJul-13 \n37,914.32 \n12.01 \nAug-13 \n36,248.53 \n11.50 \nSep-13 \n36,585.08 \n11.65 \nOct-13 \n37,622.74 \n12.02 \nNov-13 \n38,920.85 \n12.45 \nDec-13 \n41,329.19 \n13.23 \nSource: NSE \n \nFigure 4.10 \nNSE ASI and MC \n(December 2012 – December 2013) \n \n0\n5\n10\n15\n0\n10,000\n20,000\n30,000\n40,000\n50,000\nDec\n2012\nJan\n2013\nFeb\n2013\nMar\n2013\nApr\n2013\nMay\n2013\nJun\n2013\nJul\n2013\nAug\n2013\nSep\n2013\nOct\n2013\nNov\n2013\nDec\n2013\nASI\nMC (Equities) (N’ Trillion)\n \nSource: NSE \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 43 \n \nFigure 4.11 \nNSE ASI and MC \n(June – December 2013) \n10\n11\n12\n13\n32,000\n34,000\n36,000\n38,000\n40,000\n42,000\nJun 2013\nJul 2013\nAug 2013\nSep 2013\nOct 2013\nNov 2013\nDec 2013\nASI\nMC (Equities) (N’ Trillion)\n \n \nSource: NSE \n \n4.3.2 Market Turnover \nAggregate stock market turnover in the second half of 2013 decreased by 17.38 \nper cent to 48.20 billion shares, valued at N451.76 billion, in 616,780 deals, \ncompared with 58.34 billion shares valued at N591.56 billion, in 763,974 deals in the \nfirst half of 2013. Relative to the second half of 2012, market turnover increased by \n12.01 per cent from 43.03 billion shares valued at N340.58 billion, in 528,299 deals. \n \n4.3.3 Sectors and Equities Market Capitalization \nThe building materials sub-sector was the most capitalized sector in the review \nperiod. Its share in overall market capitalization rose to 31.6 per cent at the end of \nthe second half of 2013 from 30.4 per cent in the first half. Other leading sub-\nsectors were banking, breweries, and food, beverages and tobacco, with \nrespective market shares of 22.2, 13.1 and 12.6 per cent, at end-December 2013 \n(Figure 4:12). \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 44 \n \n \nFigure 4.12 \nNSE Market Capitalisation by Sector as at End-June 2013 \n \n \nBreweries \n13.1%\nBanking\n22.2%\nFood & \nBeverages\n12.6%\nConglomerates\n2.3%\nInsurance\n1.3%\nOil and Gas\n3.4%\nBuilding \nMaterials\n31.6%\nOther Sectors\n13.4%\nNSE Market Capitalisation by Sector as at December 31, 2013\n \nSource: NSE \n \n4.3.4 Bonds Market \nThe fixed income securities market in Nigeria continued to be dominated by the \nFederal Government of Nigeria (FGN) bonds. Sub-national government bonds \nhave witnessed some activity but the corporate bonds segment has the least \nshare of the market by volume. \n \n 4.3.4.1 Federal Government of Nigeria Bonds \nTotal transactions in FGN Bonds in the over-the-counter (OTC) market in the \nsecond half of 2013 was 2.61 billion units valued at N3.08 trillion in 17,582 deals. This \nperformance was dwarfed by 4.89 billion units valued at N5.77 trillion in 28,840 \ndeals achieved in the first half of 2013 and by a turnover of 4.22 billion units valued \nat N4.32 trillion in 24,082 deals in the second half of 2012 (Figure 4.13). The \noutstanding FGN bonds were valued at N3, 941.59 billion as at December 2013. \nThe increase in activities in the FGN bonds market was as a result of continued \nimprovement in investor confidence following various reforms in the Capital \nMarket and increased short-term capital inflow; resulting from the implementation \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 45 \n \nof unconventional monetary policy in various jurisdictions as well as the tight \nmonetary policy stance that drove up yields on FGN bonds. \n \nFigure 4.13 \n Volume and Value of FGN Bonds Traded in the OTC Market \n(H2:2011 – H1:2013) \n1.00\n2.00\n3.00\n4.00\n5.00\n6.00\n0.00\n1.00\n2.00\n3.00\n4.00\n5.00\n6.00\n2011:H2\n2012:H1\n2012: H2\n2013:H1\n2013:H2\nVolume (Billions)\nValue (N'Trillions)\nBillions\nTrillions\n \n \nSource: NSE \n \nFGN Eurobond \nThe Federal Government of Nigeria issued two (2) additional Eurobonds during the \nreview period: US$500M Jul 2018 5.125% and US$500M Jul 2023 6.375% issued on \nJuly 12, 2013. As at end-December 2013 the outstanding FGN Eurobond \namounted to US$1.5 billion compared with US$0.5 billion at end-June 2013. Yields \non dollar-denominated assets declined on account of the strengthening of the US \ndollar. Consequently, the yield on the FGN Eurobond dropped to 5.33 per cent at \nend-December 2013 from 5.83 at end-June 2013. However, the yield remained \nabove that of end-December 2012 at 4.04 per cent (Figure 4.15). \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 46 \n \nFigure 4.14 \nYields on Nigeria’s 10-Year U.S. Dollar-denominated Bond \n(December 1, 2012 – December 31, 2013) \n \n0\n1\n2\n3\n4\n5\n6\n7\n3-Dec-12\n18-Dec-12\n2-Jan-13\n17-Jan-13\n1-Feb-13\n16-Feb-13\n3-Mar-13\n18-Mar-13\n2-Apr-13\n17-Apr-13\n2-May-13\n17-May-13\n1-Jun-13\n16-Jun-13\n1-Jul-13\n16-Jul-13\n31-Jul-13\n15-Aug-13\n30-Aug-13\n14-Sep-13\n29-Sep-13\n14-Oct-13\n29-Oct-13\n13-Nov-13\n28-Nov-13\n13-Dec-13\n28-Dec-13\nYield (%)\n \n \nSource: Bloomberg \n \n4.3.4.3 Yields on Federal Government Bonds \nThe FGN bonds yield curve at end-December 2013 trended downwards by 60 \nbasis points relative to end-June 2013, and upwards by 89 basis points compared \nwith the end-December 2012 (Figure 4.16). This development reflected \nimprovements in inflation expectations arising from sustained tight monetary policy \nstance, justified by the single digit inflation between January and November, 2013, \nalong with the broad-based macroeconomic stability. \n \nFigure 4.15 \nFGN Bonds Yield Curves \nEnd-December 2012 vs. End-June 2013 vs. End-December 2013 \n \n0.00\n2.00\n4.00\n6.00\n8.00\n10.00\n12.00\n14.00\n16.00\n0.00\n2.00\n4.00\n6.00\n8.00\n10.00\n12.00\n14.00\n16.00\n18.00\n20.00\n22.00\nYields (%)\nTerm to Maturity (Years)\nFGN Bond Yield Curves Dec 31, 2012 vs Jun 28, 2013 vs Dec 31, 2013\nDec 31, 2013\nDec 31, 2012\nJun 28, 2013\n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 47 \n \n4.3.4.4 State/Local Government Bonds \nThere were increased activities in the sub-national bonds market. The total value \nof outstanding state/local government bonds at end-December 2013 was N626.25 \nbillion compared with N526.75 billion in the first half. Two new sub-national \ngovernment bonds were issued in the review period: the N12 billion 5-year bonds \nissued by Niger State Government and N87.5 billion 7-year bonds issued by Lagos \nState Government in November 2013. This compared with one sub-national \ngovernment bond of N10.0 billion issued by Osun State with a 7-year tenor in the \nfirst half of 2013. \n \n4.3.4.5 Corporate Bonds \nIn the second half of 2013, the value of outstanding corporate bonds was N571.24 \nbillion, compared with N563.66 billion recorded in the first half of 2013. Two new \ncorporate bonds were issued in the review period compared with four corporate \nbonds issued in the preceding period. FSDH SPV Plc. issued a 3-year bond of N5.53 \nbillion on October 25, 2013 while NAHCO issued a 7-year bond of N2.05 billion on \nDecember 5, 2013. \n \nIn July 2013, First Bank of Nigeria Plc. issued a US$300 million Eurobond callable in \n2018 but maturing in 2020. Also, on November 4, 2013, GTBank issued a 5-year 7.0 \nper cent Eurobond at a yield of 6.125 per cent and 469 basis points (bps) spread \nover United States Treasuries (UST). The issue, the second, under GTBank’s Medium \nTerm Notes (MTN) programme, had an approved limit of US$2-3 billion. Beside First \nBank and GTBank, two other banks, Access and Fidelity had previously issued \nEurobonds. The two issues in the review period brought the total value of \nEurobonds issued by Nigerian banks and outstanding at the end of 2013 to US$1.85 \nbillion. Of this amount, US$1 billion was issued in 2013, out of which US$800 billion \nwas issued in the second half of the year. \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 48 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 49 \n \nCHAPTER 5 \nECONOMIC OUTLOOK \n \n5.1 \nOverview \nThe global economy accelerated more in the second half of 2013 than the first \nhalf according to IMF World Economic Outlook (WEO, January 2014). World output \ngrowth for the year was estimated at 3.0 per cent, up from an earlier estimate of \n2.9 per cent in October 2013. The up-tick in activity was attributed to broad \nexpansion in final demand in the advanced economies and rebound in exports in \nemerging market economies. Other contributors to global output growth in the \nreview period included increased domestic demand in China and easing of \nfinancial conditions in the advanced economies despite the announcement by \nthe U.S. Federal Reserve on December 18 that it will begin tapering its quantitative \neasing in January 2014. \n \nThe global economy experienced a structural adjustment in its growth trajectory in \nthe advanced and emerging market and developing economies. Outlook for \nglobal growth in 2014 is 3.7 per cent. With the advanced economies recovering at \nfull steam, the pre-crisis growth momentum is anticipated in the region, which is \nexpected to grow by 2.2 per cent in 2014 up from 1.3 per cent in 2013. Similarly, \nthe emerging market and developing economies are projected to grow at 5.1 per \ncent in 2014, compared with 4.7 per cent in 2013. For Sub-Saharan Africa, growth \nwas projected to rise to 6.1 per cent, from 5.1 per cent in 2013 and the Fund \nestimated growth of 7.4 per cent for Nigeria, up from 6.2 per cent in 2013. \n \nGlobal inflation remained low during the year 2013, averaging 3.1 per cent. In the \nadvanced economies, the average headline inflation rate was 1.4 per cent while \nfor emerging market and developing economies, it averaged 6.1 per cent. \nHeadline inflation in sub Saharan Africa in 2013 settled at 7.8 per cent while the \nend period inflation was 8.0 per cent in Nigeria. \n \nIn the advanced countries, monetary policy remained easy, with policy rates of \nthe Fed, the BoE, BoJ and ECB ranging from 0 – 0.5 per cent so as to boost output \ngrowth and employment in those countries. In the emerging and developing \neconomies, however, policy rates were much higher as a means of moderating \ninflation and currency volatility. Nigeria retained its policy rate at 12.0 per cent \nthroughout 2013. \nThe outlook for inflation and output in Nigeria in the first half of 2014 is positive on \nthe back of strong oil price performance and sustained recovery in the advanced \neconomies. \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 50 \n \n5.2 \nOutput1 Growth \n5.2.1 Global Output and Outlook \nOverall, global economic growth was estimated to have dropped slightly to 3.0 \nper cent in 2013 from 3.1 per cent in 2012. Provisional data from the IMF WEO \nJanuary 2014 Update indicated that the annual output growth for 2013 in the \nadvanced economies was 1.3 per cent; emerging markets and developing \neconomies (EMDEs), 4.7 per cent and sub-Saharan Africa, 5.1per cent (Table 5.1). \nGlobal output growth in the second half of 2013 was stronger than July forecast \nwith much of it coming from the advanced economies, due to a rise in inventory \ndemand. Notably, UK’s growth forecast projected at 1.4 per cent in October 2013 \nended at 1.7 per cent during the review period. \n \nGrowth outlook in the near term is positive, following the momentum gained in the \nreview period. In a report by Credit Suisse on its outlook for 2014, progress in the \nglobal economy was forecast to be anchored largely on improvements in the \nEuro Zone, scaling back on debt by the U.S private sector and enhancing \neconomic policies by Japan. On the other hand, growth in the emerging \neconomies would slow down. The reasons for the weaker growth differed across \nemerging market and developing economies, and included tightening capacity \nconstraints, stabilizing or falling commodity prices, less policy support, and slowing \ncredit growth after a period of rapid financial deepening. \n \nThe IMF opined that the impetus to global growth was expected to come largely \nfrom the United States given that monetary conditions remain supportive and \nfiscal consolidation continues to ease. In addition, the US economy as a result of \nsharp fiscal tightening was characterised by a gradual recovery of the real estate \nsector, increased wealth of households and easier bank lending conditions. \n \nAccording to the IMF, business confidence indicators in the Euro Zone suggested \nthat economic activities were stabilizing in the core economies in the region as a \nresult of the reduction in the pace of fiscal tightening. However, growth in the \nregion for 2014 was estimated at only 1.00 per cent due to the tight credit \nconditions in the peripheral states. \n \nExports, underpinned by strong growth as well as increased consumption driven by \nlow level unemployment in the advanced economies are expected to support \nactivities in emerging markets and developing economies. Growth is expected to \nremain modest, against the backdrop of supply-side impediments, including \n \n1 Quarterly and half year data obtained from Bloomberg, annual data from the IMF WEO \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 51 \n \ninfrastructure bottlenecks and capacity constraints, although the recent \nstabilisation of financial market conditions should provide overall support to the \neconomic recovery in the short term. \n \nOn the fiscal side, polices are expected to be neutral and investment is predicted \nto increase in the region; however, conditions for external funding have become \nmore constricted. In China, it is anticipated that the authorities would settle for \nlower growth which is in line with their transition to a more balanced and \nsustainable growth path and this slow growth is expected to cut across \ndeveloping Asia in 2014. \n \nGrowth in sub-Saharan Africa is expected to be supported largely by commodity-\nrelated projects while that of the Middle East, North Africa, Afghanistan and \nPakistan is expected to be motivated by a modest recovery in oil production. \n \nThe global outlook is shrouded by substantial uncertainties and the balance of risks \nremains skewed to the downside. Furthermore, developments in global funds and \nfinancial market conditions as well as their related uncertainties may have the \npotential to negatively affect economic conditions. \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 52 \n \nTable 5.1 \nGlobal Output and Outlook \n(2012 – 2015) \n \nSource: IMF World Economic Outlook, Update, January 2014 \n \n5.1.2 Domestic Output Growth and Outlook \nOverall domestic growth rate for 2013 is projected at 6.87 per cent up from 6.58 \nper cent in 2012. Provisional data from the NBS indicated output growth of 6.64 per \ncent in the second half of 2013 compared with 6.36 per cent in the second half of \n2012. The non-oil sector remained the major driver of growth in the review period \nand the agricultural, wholesale and retail trade and services sub sectors had the \n \n2012 \n2013 \n2014 \n2015 \nA. World Output \n \n \n \nWorld Output 3.1 \n3.0 \n3.7 \n3.9 \nAdvanced Economies 1.4 \n1.3 \n2.2 \n2.3 \nUSA 2.8 \n1.9 \n2.8 \n3.0 \nEuro Area -0.7 \n-0.4 \n1.0 \n1.4 \nJapan 1.4 \n1.7 \n1.7 \n1.0 \nUK 0.3 \n1.7 \n2.4 \n2.2 \nCanada 1.7 \n1.7 \n2.2 \n2.4 \nOther Advanced Economies 1.9 \n2.2 \n3.0 \n3.2 \nEmerging & Developing \nEconomies \n4.9 \n4.7 \n5.1 \n5.4 \nCentral and Eastern Europe 1.4 \n2.5 \n2.8 \n3.1 \nCommonwealth of \nIndependent States \n3.4 \n2.1 \n2.6 \n3.1 \nDeveloping Asia 6.4 \n6.5 \n6.7 \n6.8 \nLatin America and the \nCaribbean \n3.0 \n2.6 \n3.0 \n3.3 \nMiddle East, North Africa \nAfghanistan, and Pakistan \n4.1 \n2.4 \n3.3 \n4.8 \nSub-Saharan Africa 5.5 \n4.9 \n5.0 \n6.0 \nB. Commodity Prices (US' Dollars) \n \n \n \nOil 1.0 \n-0.9 \n-0.3 \n-5.2 \nNon-fuel -10.0 \n-1.5 \n-6.1 \n-2.4 \nC. Consumer Prices \n \n \n \nAdvanced Economies 2.0 \n1.4 \n1.7 \n1.8 \nEmerging & Developing \nEconomies \n6.0 \n6.1 \n5.6 \n5.3 \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 53 \n \nbest growth performance. The outlook for growth remains positive as the IMF has \nprojected a 7.4 per cent growth compared with 6.2 per cent in 2013 (WEO, \nOctober 2013). Growth performance would be driven by high oil prices, \nimprovements in infrastructure and robust domestic demand. According to the \nLagos Chamber of Commerce and Industry (LCCI), growth in 2014 will exceed 6 \nper cent and the major drivers would be telecommunications, building and \nconstruction, hotel and restaurants and solid minerals. Key risks to the growth \noutlook include slow economic recovery in major trading partner-countries, \ncontinuing security concerns, oil production losses, exchange rate instability and \nloss of oil export markets to shale oil production and new crude producers in \nAfrica. \n \n5.3 \nInflation Trend \n5.3.1 Global Inflation and Outlook \nGlobal inflation fell to 3.10 per cent in the second half of 2013 from 3.53 per cent in \nthe second half of 2012. In the advanced economies, inflation averaged 1.33 per \ncent in the second half of 2013 as against 1.73 per cent in Q4 of 2012. Consumer \nprice inflation was estimated at 6.54 per cent in the second half of 2013 up from \n6.27 per cent in Q4 of 2012. Similarly, sub-Saharan Africa recorded average \ninflation rate of 8.36 per cent in December 2013 as against 10.53 per cent in Q4 of \n2012. \n \nGlobally, price inflation will remain subdued even as activities in the advanced \neconomies pick up because there’s still a huge output gap to be filled. Improved \nsupply and lower demand growth in key emerging market economies for \ncommodities, coupled with the fall in prices should help to moderate global prices \nin 2014. In the advanced economies, inflation is projected at 1.7 per cent in 2014 \nand an average of 5.6 per cent in the emerging and developing economies in the \nsame period. Moderation in non-oil commodity prices, good agricultural harvests \nand appropriate macroeconomic policy mix are expected to reduce inflation in \n2014 to below 6.3 per cent. \n \n5.3.2 Domestic Inflation Outlook \nInflation continued to moderate in the second half of 2013, falling to 8 per cent in \nDecember 2013 compared with 12.0 per cent in the corresponding period of 2012. \nAlso, both core and food inflation decreased significantly to 7.9 and 9.3 per cent \nin December 2013, compared with 13.7 and 10.2 per cent in December 2012, \nrespectively. \n \nStaff projections suggest that headline inflation would lie between 8.00 and 9.30 \nper cent in March and June 2014, respectively. On a higher confidence, headline \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 54 \n \ninflation could lie between 8.6 and 9.9 per cent in March and June 2014, \nrespectively. The expected moderation in inflation is anticipated to be driven by \ngrowth in output and the use of appropriate monetary policy tools. The major \nupside risks to the projections are increases in aggregate spending by the \ngovernment in the run-up to the 2015 elections, pressure on the exchange rate \ndue to capital outflows caused by QE tapering in the US and rising interest rates in \nEurope. \n \n5.4 \nOutlook for Monetary Policy in 2014 \nNigeria’s monetary policy environment in the second half of 2013 was stable; \noutput was robust, inflation moderated throughout the period, fuel supply \nremained steady, and agricultural production enjoyed favourable weather \nconditions. The sustained tight monetary policy contributed immensely to the \nmaintenance of macroeconomic stability. In particular, the tight monetary policy \nhad a salutary impact on portfolio investments, which helped to drive the \nrecovery of asset prices on the Nigerian Stock Exchange and also enhanced \nexternal reserves. \n \nIt is expected that the monetary stance in the first half of 2014 will continue to be \ntight as the US commences QE tapering in January in addition to increased \nelection spending in the domestic economy. \n \n \nFigure 5.1 \n Fan Chart for Headline Inflation \n(Per cent) \n \nSource: Research Department \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 55 \n \nAPPENDICES \nAPPENDIX 1 \n \nCentral Bank of Nigeria Communiqué No. 90 of the Monetary Policy \nCommittee Meeting of Monday and Tuesday, July 22 and 23, 2013 \n \nThe Monetary Policy Committee met on July 22 and 23, 2013 with 10 out of the 12 \nmembers in attendance. A new member, Mr. Stephen O. Oronsaye, who is a \nBoard member, replaced Professor Sam Olofin whose tenure as a Board member \nhad expired. The Committee reviewed the economic conditions and challenges \nthat confronted the domestic economy in the first half of the year, particularly \nsince the last MPC meeting in May 2013. It also re-evaluated the short-to-medium \nterm risks to inflation, domestic output, external balance and financial stability. \n \nInternational Economic Developments \nGlobal economic recovery remained weak, as new risks have emerged including \nthe possibility of a further slowdown in growth in the emerging market economies. \nThe old risks of a recession in the Eurozone have persisted alongside slowing \ngrowth in China and the possibility of tighter financial conditions when central \nbanks gradually exit from their current monetary accommodation stance. \n \nConsequently, global growth prospects have not improved. Blaming weaker \ndomestic demand and slower growth in several key emerging market economies, \nas well as a more protracted recession in the euro area, the IMF in July 2013 \nreviewed downward its global growth forecast. It also reviewed downward its \ngrowth forecast for the US and China to 1.7 and 7.8 per cent, from 1.9 and 8.0 per \ncent in April 2013, respectively, but raised the forecast for the UK from 0.7 per cent \nto 0.9 per cent in the same period. For the Eurozone which has seen its longest \nrecession since monetary union, the IMF projects a further contraction of 0.6 per \ncent in 2013, which more or less doubled the earlier forecast in April. The IMF has \nalso cut the growth forecast for Brazil, South Africa, India and Russia to 2.5, 2.0, 5.6 \nand 2.5 per cent from 3.0, 2.8, 5.8 and 3.4 per cent, respectively. Japan’s growth \nrate forecast is projected at 2.0 per cent, up from a forecast of 1.5 per cent. \n \nThe slowdown in global growth is likely to impact on commodity prices and thus, \nadversely impact oil exporting countries like Nigeria. In addition, continued fragility \nin financial markets continues to generate bouts of capital flow reversals and \ninflows that are potentially disruptive to emerging and transition markets. \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 56 \n \nDomestic Economic and Financial Developments \n \nOutput \nThe National Bureau of Statistics (NBS) estimated the real Gross Domestic Product \n(GDP) growth at 6.72 per cent for Q2 2013, slightly higher than the 6.56 per cent \nrecorded in Q1, and 6.39 per cent in Q1 of 2012. Overall, GDP growth for fiscal \n2013 was projected at 6.91 per cent up from 6.58 per cent in 2012. The non-oil \nsector remained the major driver of growth recording 7.91 per cent in contrast to \nthe growth rate of -0.68 per cent for the oil sector during the second quarter of \n2013. The drivers of the non-oil sector growth remained agriculture; wholesale and \nretail trade; and services which contributed 1.72, 1.47, and 2.90 per cent, \nrespectively. The Committee noted the continued decline in the contribution of \nthe oil sector to overall GDP and the underlying factors responsible for this state of \naffairs. These factors include; sustained oil theft which has led to a decline in \noutput volumes in the face of an uncertain international oil market and price \nsignals, weak infrastructure, and downside risks due to discovery of shale oil and \nthe emergence of other African oil exporters competing for Nigeria’s traditional oil \nmarket. \n \nPrices \nInflationary pressures continued to moderate partly in response to the tight \nmonetary policy and base effect. The year-on-year headline inflation decelerated \nto 8.4 per cent in June from 9.0 per cent in May. Also, core inflation declined \nsignificantly to 5.5 per cent in June from 6.2 per cent in May and 6.9 per cent in \nApril. Food inflation, however, rose to 9.6 per cent in June from 9.3 per cent in May \n2013. Notwithstanding the moderation in headline inflation, there are benign risks \non the horizon, including the possibility of accelerated fiscal releases in the later \npart of the year and the effects of the upward review in electricity tariffs in line \nwith the MYTO following the implementation of the full deregulation of the energy \nsector. \n \nThe six-month inflation outlook indicates that inflation would remain within single \ndigit territory due to base effect and tight monetary policy. However, the current \nstate of government finances is likely to generate increased borrowing. The key \nrisks to the outlook, therefore, remain fiscal operations, increased pressure on the \nexchange rate due to excess structural liquidity in the banking system and the \npossibility of a capital flow reversal in the medium term. \n \nMonetary, Credit and Financial Market Developments \nBroad money supply (M2) grew by 0.71 per cent as at end-June 2013 over the \nlevel at end-December 2012. When annualized, M2 grew by 1.42 per cent, \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 57 \n \ncompared with the growth of 2.70 per cent in the corresponding period of 2012. \nThus, M2 growth was also significantly below the growth benchmark of 15.20 per \ncent for 2013 and 7.60 per cent for Q2 of 2013. \n \nInterest rates in the interbank money market moved in tandem with the level of \nliquidity conditions in the banking system. The average liquidity ratio was 67.79 per \ncent compared with the prudential requirement of 30.0 per cent. Thus, the \naverage inter-bank call and open-buy-back (OBB) rates, which opened at 12.07 \nand 11.91 per cent on May 20, 2013, closed lower at 10.42 and 10.29 per cent, \nrespectively, on June 28, 2013. However, the average inter-bank call and OBB \nrates for the period were 11.80 and 11.46 per cent, respectively. \n \nThe recovery in the Nigerian capital market continued, as equities market \nindicators were upbeat in the review period. The All-Share Index (ASI) increased by \n28.8 per cent from December 2012 to June 2013, while the equities Market \nCapitalization (MC) increased by 27.3 per cent from N8.97 trillion on December 31, \n2012 to N11.43 trillion on June 28, 2013. Improved earnings and investor \nconfidence in the economy contributed to the up-swing in stock prices. The \nequities market median price-earnings ratio rose above the long-run median by \n9.0 per cent in June 2013 indicating that share prices were recovering faster than \nearnings and investor assessment of future returns was good. \n \nExternal Sector Developments \nAt the Wholesale Dutch Auction System (wDAS), interbank and the BDC segments \nof the foreign exchange market, the exchange rate depreciated to N157.32/US$, \nN161.25/US$, and N163.00/US$ on July 19, 2013 from N157.30/US$, N158.30/US$, \nand N159.50/US$ on 21st May, 2013. The Committee noted the depreciation \nrecorded in all segments of the foreign exchange market in the review period on \nthe back of a general sell-off by portfolio investors in emerging and frontier \nmarkets following guidance by the US Federal Reserve Bank (FED) with respect to \nits quantitative easing programs. It also observed that the experience in Nigeria \nwas not unique, as the spike in the US yields negatively impacted financial markets \nglobally. However, calm has since returned to the financial markets following \nfurther clarifications by the FED that exit from quantitative easing is not imminent \nand does not necessarily mean monetary tightening. Thus, the Nigerian capital \nmarket has seen a rally, while the demand pressure in the foreign exchange \nmarket has somewhat moderated. The Committee, however, noted the build-up \nof structural excess liquidity in banks balance sheets, which poses risks to the \ninflation and exchange rate outlook. \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 58 \n \nThe Committee noted the increase in external reserves to US$47.99 billion as at July \n18, 2013 from US$43.83 billion at end-December, 2012, representing a rise of \nUS$4.16 billion or 9.49% year-to-date. This level of reserves provides cover for \napproximately 11 months of import. \n \nThe Committee’s Considerations \nThe Committee was satisfied with the prevailing macroeconomic stability \nachieved during the period, including the single digit inflation, stable banking \nsystem, exchange rate stability, favourable output growth, capital market \nrecovery and growth in external reserves, thus sustaining internal balance and \nexternal viability. The Committee also noted the recent volatility in the foreign \nexchange market and also recognized that the commitment of the Bank to \ndefend the currency in the face of capital flow reversal and significant revenue \nattrition has stemmed the depreciation of the naira. Consequently, the Bank has \nbeen able to sustain the objectives of financial and price stability. \n \nThe Committee observed the build-up in excess liquidity in the banking system, \nand expressed concern over the rising cost of liquidity management as well as the \nsluggish growth in private sector credit, which was traced to DMB’s appetite for \ngovernment securities. This situation is made more serious by the perverse \nincentive structure under which banks source huge amounts of public sector \ndeposits and lend same to the Government (through securities) and the CBN (via \nOMO bills) at high rates of interest. \n \nThe Committee expressed strong concerns about the risks posed to government \nrevenues from oil theft, less than expected production, new discoveries of shale \noil, the fast increasing number of African oil exporters, the dwindling market for \nNigerian crude as well as the inevitability of a fall in global oil prices as well as \ncapital flow reversal, which may impact the current global (dollar) carry trade, for \nwhich Nigeria has been a major beneficiary. \n \nThe Committee commended the Federal Government on its sustained efforts \ntowards fiscal consolidation in 2012 and stressed the need to reverse the loose \nfiscal stance of 2013. The Committee articulated the monetary policy risks of \ndwindling fiscal revenues to include: the crowding out effect of government \nborrowing, depletion of excess crude savings and pressure on the exchange rate. \nAvailable data indicates that capital expenditure is the first casualty of dwindling \ngovernment revenues as available resources are channeled into funding non-\ndiscretionary recurrent expenditure. \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 59 \n \nThe Committee considered the inflationary outlook for the rest of the year as \nbenign. However, principal risks remain largely due to the loose fiscal stance and \nrising deficit, excess liquidity in the banking system and risks to the exchange rate \ndue to a combination of revenue shocks and external developments. \n \nDecisions \nHaving considered all the above factors, the Committee decided: \n1. \nBy a vote of 9 to 1 to hold the MPR at 12 per cent. One member voted for \na 50 basis points reduction; \n \n2. \nBy a vote of 9 to 1 to maintain the symmetric corridor around the MPR at \n+/-2 per cent. One member voted for an asymmetric corridor; \n \n3. \nUnanimity to retain the CRR at 12 per cent; and \n \n4. \n9 to 1 to introduce a 50 per cent CRR on public sector deposits. This will be \napplied on Federal, State and Local Government deposits and all MDAs. \nFor other deposits CRR will remain at 12 per cent. \n \nThank you. \n \nSanusi Lamido Sanusi, CON \nGovernor \nCentral Bank of Nigeria \n23rd July, 2013 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 60 \n \nAPPENDIX 2 \n \nCentral Bank of Nigeria Communiqué No. 91 of the Monetary Policy Committee \nMeeting of Monday 23 and Tuesday 24 September, 2013 \nThe Monetary Policy Committee met on September 23 and 24, 2013, with all of the \n12 members in attendance. The Committee reviewed the economic conditions \nand challenges that confronted the domestic economy up to September, \nparticularly since the last MPC meeting in July 2013. It re-assessed the short-to-\nmedium term risks to inflation, domestic output, external balance and financial \nsystem stability. \n \nInternational Economic Developments \nThe global economy continued on the slow path to recovery with financial \nsystems responding swiftly to new and expected risks. The risks include the \npossibility of the US FED tapering off its accommodative monetary policy stance \n(QE) and higher long-term interest rates as the economy enters the recovery \nmode. This move which has been temporarily postponed portends uncertainties in \nexternal conditions for emerging markets and developing economies, including \nNigeria. Meanwhile, the underlying risk of a recession in the Eurozone, weak \ndomestic demand and slowing growth in China have created tight financial \nconditions; which could easily worsen and reduce global growth prospects by the \ntime monetary contraction begins in the U.S, Japan and the other advanced \neconomies. The conclusion of German elections (and the re-election of Angela \nMerkel for a third term as Chancellor), should however open the door to much \nspeedier progress in key reforms, especially around the common resolution \nmechanism for European banks. \n \nIn the interim, the IMF has declared that global growth is strengthening on the \nback of accommodative monetary policy. The Fund has further emphasized that \nthough an end to unconventional monetary policy was certain, its impact would \nlargely depend on country specific circumstances and the pace of recovery \nrecorded by various economies. \n \nThe Organisation for Economic Cooperation and Development (OECD) has noted \nthat the momentum in the global economy was shifting away from the emerging \nmarkets back to the advanced economies. The pace of business activity \nincreased in the Eurozone, while an official index of leading economic indicators \nfor the US also strengthened in August. Consequently, the OECD growth forecasts \nfor most advanced economies in 2013 have been revised upward to between 1.5 \nand 1.8 per cent. The positive outlook in the advanced economies has \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 61 \n \ncompensated for the slowdown of growth in the major emerging markets. \nHowever, the OECD warned that a prolonged slowdown in major developing \ncountries could have profound effects on the world economy and translate into \nweaker growth for the advanced economies. The IMF had projected global \ngrowth at 3.1 per cent in 2013. \n \nDomestic Economic and Financial Developments \n \nOutput \nThe National Bureau of Statistics (NBS) has reported a slowdown in the growth rate \nof real Gross Domestic Product (GDP) in Q1 and Q2 2013 relative to Q4 2012. \nGrowth was estimated at 6.18 per cent in Q2, down from 6.56 per cent recorded \nin Q1, 2013. Overall, GDP growth for fiscal 2013 was projected at 6.91 per cent up \nfrom 6.58 per cent in 2012. The non-oil sector remained the major driver of growth \nat 7.36 per cent in Q2 (lower than the 7.89 per cent reported for Q1) in contrast to \nthe oil sector output decline of 1.15 per cent (worse than the decline of 0.54 per \ncent in Q1). The drivers of the non-oil sector growth remained Agriculture; \nWholesale and Retail trade; and Services which contributed 2.14, 1.48, and 3.0 per \ncent, respectively. The Committee expressed concern about the worsening \nperformance of the oil sector, which is principally due to the reported incidence of \ngrowing crude oil theft and significant revenue leakages in the oil sector. The \nCommittee, therefore, urged the government to step up efforts aimed at \ncurtailing the malfeasance in the oil sector, and adopting best practice in \nestablishing strong controls, independent oversight and transparency in the official \noil sector. \n \nPrices \nInflationary pressures continued to moderate in response to the tight stance of \nmonetary policy. Headline inflation declined from 8.7 per cent in July to 8.2 per \ncent in August. Food inflation declined to 9.7 per cent in August from 10.0 per cent \nin July while core inflation, rose slightly to 7.2 per cent in August from 6.6 per cent in \nJuly. The Committee noted with satisfaction that, overall, headline inflation has \nremained below 10.0 per cent for eight (8) straight months and represented the \nlowest level achieved over the past 5 years, the longest such stretch since 2008; \nand that the six-month inflation outlook indicates that inflation would remain within \nsingle digit range. The Committee was nonetheless, conscious of the potential risks \non the horizon, including the possibility of pressures coming from the fiscal activities \nof the government in the later part of the year, and in the run up to the 2014 \nelections. \n \nMonetary, Credit and Financial Market Developments \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 62 \n \nBroad money supply (M2) contracted by 5.58 per cent in August 2013 over the \nlevel at end-Decemberember 2012. When annualised, M2 contracted by 8.37 per \ncent, compared with the growth of 3.51 per cent in the corresponding period of \n2012. M2 growth rate was also below the benchmark of 15.20 per cent for 2013. \nThis is to be expected, given the tight monetary policy stance. Aggregate \ndomestic credit (net) grew by 3.85 per cent in August 2013 which annualises to a \ngrowth rate of 5.78 per cent over the end-Decemberember 2012 level, compared \nwith the contraction of 3.56 per cent in the corresponding period of 2012. The \nannualised growth rate in aggregate domestic credit (net) at end-August 2013 of \n5.78 per cent was below the provisional benchmark of 22.98 per cent for 2013. \n \nReserve money (RM) rose by 30.64 per cent to N4,227.61 billion at end-August 2013 \nfrom N3,236.15 billion by end-Junee. At that level RM was N343.06 billion or 8.83 per \ncent above the 3rd quarter, 2013, indicative benchmark of N3,884.55 billion. \n \nInterest rates in all segments of the money market moved in tandem with the tight \nlevel of liquidity in the banking system. The inter-bank call and OBB rates, which \nopened at 10.69 and 10.22 per cent on July 29, 2013, closed at 15.67 and 14.92 \nper cent, respectively, on September 20, 2013. The average inter-bank call and \nOBB rates for the period were 14.86 and 13.93 percent, respectively. \n \nThe recovery in the Nigerian capital market continued, as equities market \nindicators all trended upward during the period under review. The All-Share Index \n(ASI) increased by 28.9 per cent from 28,078.81 on December 31, 2012 to 36,188.72 \non September 20, 2013. Market Capitalization (MC) increased by 28.4 per cent \nfrom N8.97 trillion to N11.53 trillion over the same period. Improved earnings and \ninvestor confidence in the economy contributed to the rise in stock prices. \n \nExternal Sector Developments \nThe naira exchange rate remained stable at the wDAS segment of the foreign \nexchange market. The exchange rate at the wDAS-SPT during the review period \nopened and closed at N157.32/US$(including 1% commission). The average wDAS \nexchange rate during the period was N157.31/US$. At the interbank segment, the \nnaira exchange rate opened at N160.75/US$ and closed at N161.47/US$, \nrepresenting a depreciation of N0.72/US$ or 0.45 per cent. The average interbank \nexchange rate during the period was N160.78/US$. At the BDC segment, the \nselling rate opened at N162.50/US$ and closed at N163.00/US$, representing a \ndepreciation of N0.50k/US$ or 0.31 per cent. The average BDC exchange rate for \nthe period was N162.14/US$. The stability of the exchange rate reflected the \ncommitment of the Bank to supporting the currency at a time of massive \ndepreciation in the currencies of emerging and frontier countries. This \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 63 \n \ncommitment was underscored by the policy of intervention to improve supply \nconditions, and the very tight monetary conditions maintained since the last MPC \nmeeting. \n \nThe Committee noted the decline in external reserves to US$45.27 billion as at \nSeptember 19, 2013. External reserves, however, still increased by US$4.08 billion or \n9.91 per cent, year-on-year, compared with US$41.19 billion at end-September \n2012. However, the Committee noted that this level of accretion is too low given \nthe relatively high price of crude oil and further underscores the need for much-\nneeded reform of the oil sector. \n \nThe Committee’s Considerations \nThe Committee noted with satisfaction the positive developments in the economy, \nespecially, the moderation in inflation, stability in the financial system and currency \nmarkets. It also noted the strong growth forecast by the National Bureau of \nStatistics for Q3 and Q4 on the back of relatively slow growth in Q2. It observed \nthat the actions taken by the Bank since the last MPC yielded their intended effect \non stabilizing the exchange rate while maintaining inflation within its target range. \nThe Committee also noted that the fundamentals in the economy which \nnecessitated the July MPC measures had not changed substantially; except that \nthe US Federal Reserve had provided clearer insight into the tapering off of its \nasset purchase programme - Quantitative Easing3. The Committee noted that in \nmore than 30 countries surveyed, the Naira exchange rate remained one of the \nmost stable having depreciated by only 2.3 per cent from year to date compared \nwith the massive depreciation in the value of other currencies such as the Indian \nRupee, the Indonesian Rupiah, the Brazilian Real, the South African Rand and the \nGhanaian cedi. \n \nThe clarifications provided by the Fed over its QE3 policy brought substantial relief \nto the financial markets globally and initiated a reversal of the trend in capital \noutflows from the country. However, the Committee noted the existence of strong \nforeign exchange demand pressures coming domestically and which are not \nnecessarily linked to an increase in the import of goods. This non-import related \ndemand was attributed to the buildup in political activities in the country and \nincreasing resort to dollarization of the economy by the political class. The \nCommittee charged the Bank to ensure the stability of the currency in the face of \nthese challenges, and to fast-track plans for adopting new regulations aimed at \ncombating money laundering in the BDC segment. \n \nThe Committee considered the developments in money market rates which rose \nastronomically to peak at 40.0 per cent on 18th September 2013. However, these \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 64 \n \ndevelopments were temporary, arising from the postponement/stalemate in \nsharing the monthly Federation Account Allocation Committee Revenues. Banks \nwhich participated in the wDAS widow expressed a preference for paying high \ninterbank rate for one day rather than their borrowing from the CBN at 14.0 per \ncent and being barred from the wDAS window. In any case, the Committee noted \nthe continued dependence of the banking sector on monetised oil revenues for its \nliquidity and stressed the need to keep pushing banks into altering their business \nmodel to reduce vulnerability. \n \nDecision \nThe Committee noted that the actions taken at the last MPC have served the \npurpose of helping the naira avoid the fate of other developing-country \ncurrencies by keeping it relatively stable. It also noted the continued moderation \nin inflation and the benign outlook for the next six months. Finally, with the FOMC \ndecision not to begin tapering asset purchases immediately, and the improved \noutlook for financial stability in Europe after the German elections, the risks of \ncurrency instability are significantly reduced. The monetary stance maintained by \nthe US Federal Reserve is positive for international oil prices and portfolio flows. \n \nIn consideration of all the issues, the Committee decided by a vote of 11 members \nto hold the MPR at 12.0 per cent. One member voted to reduce the MPR by 50 \nbasis points. 11 members voted to retain the symmetric corridor of 200 basis points \naround the MPR while one member voted for an asymmetric corridor of 200 basis \npoints above the MPR and 400 basis points below the MPR. All members voted to \nretain the 50.0 per cent Cash Reserve Requirement (CRR) on public sector funds, \nand 12.0 per cent CRR on private sector deposits. \n \nThank you. \n \nSanusi Lamido Sanusi, CON \nGovernor \nCentral Bank of Nigeria \n24th September, 2013 \n \n \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 65 \n \nAPPENDIX 3 \n \nCentral Bank of Nigeria Communiqué No. 92 of the Monetary Policy Committee \nMeeting of Monday 18 and Tuesday 19 November, 2013 \n \nThe Monetary Policy Committee (MPC) met on November 18 and 19, 2013 against \nthe backdrop of widespread uncertainties and risks of deflation in the global \neconomy but stable domestic macroeconomic conditions. Eleven (11) out of the \ntwelve (12) members were in attendance. The Committee reviewed the global \nand domestic economic environment from January to October 2013 and re-\nassessed the short- to medium-term risks to inflation, domestic output and financial \nstability and the outlook for the rest of the year. \n \nInternational Economic Developments \nThe global economy is currently adjusting structurally to the evolving growth \ndynamics in the advanced and emerging market economies. While growth in the \nadvanced economies has resumed, growth in the emerging economies has \nslowed down. Global growth averaged 2.5 per cent in the first half of 2013, same \nas in the second half of 2012. The United States (US), Japan and a few European \ncountries just emerging from recession are helping to drive the current growth. \n \nImprovement in US output is anchored by enhanced industrial production buoyed \nlargely by strong private demand and extra-ordinary accommodative monetary \npolicy. The political standoff over fiscal sustainability, which led to a shutdown of \nthe US Government in October, 2013, was moderated, however, by discretionary \nspending during the period. Strong signs of growth resumption have emerged from \nsome euro area economies, especially Portugal and Greece. Given the changing \nglobal growth dynamics, the International Monetary Fund (IMF) revised its global \neconomic growth forecast in October to 2.9 per cent in 2013 and 3.6 per cent in \n2014. \n \nGlobal inflation is estimated to fall from 3.75 per cent in 2012 to 3.0 per cent in \n2013, but could rise marginally in 2014. Food and fuel prices continued to positively \nmoderate global consumer price inflation. In the light of these developments, \nmost central banks responded by either maintaining current policy stance or \nmoderately easing the policy rate in the last three months. The financial markets \nexpect monetary conditions to remain easy through the first quarter of 2014. \nIndications to this came from the Fed Chairman-designate during her Senate \nscreening. In addition, the Bank of England has given signals that its quantitative \neasing would continue to late 2014 while the Bank of Japan has also indicated \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 66 \n \nthat its quantitative easing would continue until inflation reaches a 2.0 per cent \ntarget. \n \nDomestic Economic and Financial Developments \n \nOutput \nThe National Bureau of Statistics (NBS) estimated that real Gross Domestic Product \n(GDP) grew by 6.81 per cent in the third quarter of 2013, which was higher than \nthe 6.18 per cent in Q2, and 6.48 per cent Q3 of 2012, respectively. Overall, growth \nfor 2013 was projected at 6.87 per cent, up from 6.58 per cent in 2012, indicating \nthat the economy is remaining on its steady growth trajectory. \n \nThe non-oil sector remained the major engine of growth recording 7.95 per cent \ncompared with a decline of 0.53 per cent for the oil sector in the third quarter of \n2013. Agriculture, wholesale and retail trade, and services continued to be the \ndrivers of non-oil sector growth contributing 2.50, 1.96, and 2.82 per cent, \nrespectively. The relatively strong domestic growth forecast in an environment of \nsluggish global growth and sturdy signs of deflation reflected the continuing \nfavourable conditions for increased agricultural production and incentives for \nstrong macroeconomic management. \n \nPrices \nThe moderation in consumer price inflation, which began in the fourth quarter of \n2012, continued in the third quarter of 2013. The year-on-year headline inflation \nmoderated to 7.8 per cent in October 2013 from 8.0 per cent in September. Also, \nfood inflation declined to 9.2 per cent in October from 9.4 per cent in September \n2013. Core inflation, however, rose to 7.6 per cent in October 2013 from 7.4 per \ncent in September. Thus, the decline in headline inflation reflected the moderation \nin food prices. The Committee observed with satisfaction that in the last four \nmonths, all the three measures of inflation continued to be within the single digit \ninflation target. However, the Committee noted the potential risks to inflation of \nincreased aggregate spending in the run-up to the 2015 elections. \n \nMonetary, Credit and Financial Market Developments \nBroad money supply (M2) contracted by 6.16 per cent in October 2013 over the \nlevel at end-Decemberember 2012. When annualised, M2 contracted by 7.39 per \ncent, in contrast to the growth of 8.24 per cent in the corresponding period of \n2012. M2 was also below the growth benchmark of 15.20 per cent for 2013. \nAggregate domestic credit (net), however, grew by 7.32 per cent in October \n2013, which annualised to a growth rate of 8.78 per cent over the end-\nDecemberember 2012 level, in contrast to the contraction of 3.30 per cent in the \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 67 \n \ncorresponding period of 2012. The annualised growth rate in aggregate domestic \ncredit (net) at end-October 2013 of 8.78 per cent was below the provisional \nbenchmark of 22.98 per cent for 2013. The decline in M2 was traced mainly to \ndecline in net credit to Federal Government and Net Foreign Assets and other \nassets (net). \n \nOverall, Government spending in the 2nd Half of 2013 has been more moderate \nthan it was in the earlier part of the year. The erosion of the fiscal buffers through \nthe depletion of the ECA has further exposed the economy to vulnerabilities while \nthe fall in oil revenue has left capital inflows as the only source of external reserves \naccretion. The Federal Government debt has also risen phenomenally along with \nits deposits at the deposit money banks, showing the Government as a net \ncreditor to the system. This underscores the urgent need for the immediate \nimplementation of the Treasury Single Account. The continued delay in returning \ngovernment accounts to the Central Bank is adding to the huge cost of \ngovernment debt due to poor cash flow management. \n \nReserve money (RM) declined marginally by N138.48 billion or 2.98 per cent to \nN4,511.51 billion at end-October 2013, from N4,649.99 billion at end-September \n2013. The level of RM at end-October 2013, was below the fourth quarter \nindicative benchmark of N5,009.88 billion by N498.37 billion or 9.95 per cent. \n \nInterest rates in all segments of the money market reflected the tight liquidity \nconditions in the banking system. The weighted average inter-bank call and OBB \nrates opened at 17.99 and 16.92 per cent on September 25, 2013 but closed at \n12.50 and 11.73 per cent, respectively, on November 15, 2013. \n \nThe capital market continued its rally with the equities market providing the lead. \nThe All-Share Index (ASI) increased by 34.9 per cent from 28,078.81 on December \n31, 2012 to 37,883.53 on November 15, 2013. Market Capitalization (MC) increased \nby 35.0 per cent from N8.97 trillion to N12.12 trillion in the review period. Improved \nearnings and investor confidence in macroeconomic management and \nsubstantial portfolio inflows (as foreign investors took advantage of the favourable \ndomestic economic environment) accounted for the upswing in capital market \nactivities. Generally, equity market valuations remained close to their long run \nmedian suggesting that equity prices were fully valued and the stock valuations \nwere close to economic fundamentals. \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 68 \n \nExternal Sector Developments \nThe naira exchange rate remained stable at the w/rDAS and inter-bank segments \nof the foreign exchange market. The exchange rate at the w/rDAS-SPT during the \nreview period opened at N157.31/US$ (including 1% commission) and closed at \nN157.63/US$, representing a depreciation of N0.32k. The average official \nexchange rate during the period was N157.38/US$. The inter-bank selling rate \nopened at N160.00/US$ and closed at N158.65/US$, averaging N160.15/US$, \nrepresenting an appreciation of N1.35k for the period. However, at the BDC \nsegment of the foreign exchange market, the selling rate opened at N162.00/US$ \nand is hovering around N167US$ at present, reflecting the impact of reduction in \ndollar supply to the segment-as part of the CBN anti-money laundering measures. \n \nThe Committee noted the increase in external reserves to US$45.37 billion as at \nNovember 15, 2013, representing an increase of US$1.26 billion or 2.85 per cent \nabove the level of US$44.11 billion at end- September 2013. External reserves \nincreased by US$0.95 billion or 2.14 per cent on a year-on-year basis over the \nUS$44.47 billion at end-November 2012. The Committee continued to express its \ndisappointment at the low rate of reserve accretion in spite of strong oil prices; \nwhich is a result of the absence of fiscal savings. \n \nThe Committee’s Considerations \nThe Committee recognized the importance of taking into consideration not just \nthe static indices at the point of meeting but overall strategic objectives and \ntargets, as well as the outlook for the domestic economy and the external \nenvironment, especially with this being the last meeting for 2013. \n \nThe Committee noted the decline in inflation and the benign outlook going into \nthe first half of 2014. It further noted the positive impact of monetary policy in \nengendering a stable exchange rate regime and attracting portfolio investment \nthus driving the strong recovery of asset prices on the Nigerian Stock Exchange. It \nalso noted that global monetary conditions were likely to remain loose going into \nQ1:2014 for a number of reasons. First, in the U.S.A, it is clear that the incoming \nFederal Reserve Chairperson, Janet Yellen, does not see tapering as imminent \ngiven the on-going disputes around the budget and the weakness of economic \nrecovery. \n \nIn England, although recovery appears to be firmly on track, the BoE is clearly not \ngoing to consider raising rates until unemployment falls to 7%, probably in late \n2014. The BoJ is likely to continue with QE until inflation reaches its 2% target which \nis a long way off, and the ECB has just lowered its benchmark rate to avert the risk \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 69 \n \nof deflation. For these reasons, the Committee does not anticipate any major \ninternal or external shocks before its next meeting in January 2014. \n \nThe MPC also noted that AMCON is expected to reduce its debt by N1 trillion in \nDecember 2013. The CBN has directed that AMCON redeem its Bonds for \ncancellation by exchanging them for FGN Treasury Bills on its books. Consequently, \nthe only impact of the repayment is that the Balance Sheet of AMCON (and the \ncontingent liability on the FGN from its guarantee of AMCON Bonds) will shrink by \nN1 trillion. This is positive for the economy and the credit rating of the FGN and the \nbanking industry. Its impact on the markets will be minimal given that only \nAMCON’s Balance Sheet is affected significantly and AMCON is not a player in \nthese markets. \n \nThe outlook for 2014, however, portends some potential headwinds that may lead \nto further tightening in monetary conditions. It is expected that 2014 will be the \nyear for QE- tapering in the US and interest rate rises in Europe, both of which will \nlead to some pressure on the exchange rate and stock prices due to the impact \non capital flows. It is also the year in which election spending is likely to take place \ndomestically, thus bringing more pressure to bear from the fiscal side. As a result, \nthe MPC is of the view that we are not yet at the end of the tightening cycle and \nmay need to tighten further in response to these eventualities next year. \n \nThe Committee also noted that, while Federal Government spending overall in \n2013 has not been significantly higher than in 2012, oil revenues have continued to \ndecline in spite of the relative stability in oil price and output when compared with \npreceding years. As a result, Excess Crude savings have fallen from about $11.5b \nat year-end 2012 to less than $5b on November 14. External Reserves have \nremained in excess of $45billion only because of a massive inflow in portfolio funds. \nThe implication of this is that financial markets are extremely fragile and \nsusceptible to external shocks. The MPC again calls on the Fiscal Authorities to \nrebuild buffers in the excess crude account, and this can be done by blocking \nfiscal leakages in the oil sector and increasing oil revenues. Clearly, the major risk \non the fiscal side at present is not one of escalation of spending but loss of \nrevenue from oil exports. \n \nFinally, the Committee formally adopted an inflation target of 6-9% in 2014. It also \nnoted that ECOWAS Heads of State have set a 5% target at the Convergence \nCouncil. The MPC reaffirmed its commitment to moving Nigeria firmly into being a \nlow-inflation environment in the medium term. However, the MPC recognizes the \nhigh cost of rapid adjustment and plans to make the transition gradually. \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 70 \n \nDecision \nHaving considered the success of Monetary Policy in attaining price and \nexchange rates stability; the potential headwinds in 2014; the ultimate goal of \ntransiting to a truly low – inflation environment; and the need to retain portfolio \nflows in view of the erosion of fiscal reserve buffers, the committee decided as \nfollows: \n1. \nNine (9) members voted to keep MPR at 12% +/- 2%; private sector CRR at \n12%; public sector CRR at 50% and Liquidity Ratio at 30% \n \n2. \nOne (1) member voted for a 0.5% reduction in MPR and an increase in \npublic sector CRR from 50% to 75% \n \n3. \nOne (1) member voted for 0.5% reduction in MPR and an increase in public \nsector CRR from 50% to 100% \n \nThe Committee has therefore decided by a majority vote of 9 to 2, to hold all rates \nat current levels. \n \nThank you for Listening \n \nSanusi Lamido Sanusi, CON \nGovernor \nCentral Bank of Nigeria \n19th November, 2013 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 71 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n CBN Monetary Policy Review \n \n \n 72", "source": "CBN", "stratum": "cb_requests", "fetch_date": "2026-05-11", "url": "file:///CBN/Monetary_Policy_Review/MPR FEBRUARY 2014.pdf"}
\ No newline at end of file