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Central bank says Nigerian naira most stable currency

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Central Bank of Nigeria (CBN) Communiqué No. 91 of the Monetary Policy 

Committee Meeting of Monday 23 and Tuesday 24 September, 2013

“The Committee noted that in more than 30 countries surveyed, the Naira exchange rate remained one of the most stable having depreciated by only 2.3 per cent from 
year to date compared with the massive depreciation in the value 
of other currencies such as the Indian Rupee, the Indonesian Rupiah, 
the Brazilian Real, the South African Rand and the Ghanaian cedi.”

The Monetary Policy Committee met on September 23 and 24, 2013,
with all of the 12 members in attendance. The Committee reviewed
the economic conditions and challenges that confronted the
domestic economy up to September, particularly since the last MPC
meeting in July 2013. It re-assessed the short-to-medium term risks to
inflation, domestic output, external balance and financial system
International Economic Developments

CBN Gov, Sanusi

The global economy continued on the slow path to recovery with
financial systems responding swiftly to new and expected risks. The
risks include the possibility of the US FED tapering off its
accommodative monetary policy stance (QE) and higher long-term
interest rates as the economy enters the recovery mode. This move
which has been temporarily postponed portends uncertainties in
external conditions for emerging markets and developing 2
economies, including Nigeria. Meanwhile, the underlying risk of a
recession in the Eurozone, weak domestic demand and slowing
growth in China have created tight financial conditions; which could
easily worsen and reduce global growth prospects by the time
monetary contraction begins in the U.S, Japan and the other
advanced economies. The conclusion of German elections (and
the re-election of Angela Merkel for a third term as Chancellor),
should however open the door to much speedier progress in key
reforms, especially around the common resolution mechanism for
European banks.
In the interim, the IMF has declared that global growth is
strengthening on the back of accommodative monetary policy. The
Fund has further emphasized that though an end to unconventional
monetary policy was certain, its impact would largely depend on
country specific circumstances and the pace of recovery recorded
by various economies.
The Organisation for Economic Cooperation and Development
(OECD) has noted that the momentum in the global economy was3
shifting away from the emerging markets back to the advanced
economies. The pace of business activity increased in the Eurozone,
while an official index of leading economic indicators for the US also
strengthened in August. Consequently, the OECD growth forecasts
for most advanced economies in 2013 have been revised upward to
between 1.5 and 1.8 per cent. The positive outlook in the advanced
economies has compensated for the slowdown of growth in the
major emerging markets. However, the OECD warned that a
prolonged slowdown in major developing countries could have
profound effects on the world economy and translate into weaker
growth for the advanced economies. The IMF had projected global
growth at 3.1 per cent in 2013.4
Domestic Economic and Financial Developments Output
The National Bureau of Statistics (NBS) has reported a slowdown in
the growth rate of real Gross Domestic Product (GDP) in Q1 and Q2
2013 relative to Q4 2012. Growth was estimated at 6.18 per cent in
Q2, down from 6.56 per cent recorded in Q1, 2013. Overall, GDP
growth for fiscal 2013 was projected at 6.91 per cent up from 6.58
per cent in 2012. The non-oil sector remained the major driver of
growth at 7.36 per cent in Q2 (lower than the 7.89 per cent reported
for Q1) in contrast to the oil sector output decline of 1.15 per cent
(worse than the decline of 0.54 per cent in Q1). The drivers of the
non-oil sector growth remained Agriculture; Wholesale and Retail
trade; and Services which contributed 2.14, 1.48, and 3.0 per cent,
respectively. The Committee expressed concern about the
worsening performance of the oil sector, which is principally due to
the reported incidence of growing crude oil theft and significant
revenue leakages in the oil sector. The Committee, therefore, urged
the government to step up efforts aimed at curtailing the 5
malfeasance in the oil sector, and adopting best practice in
establishing strong controls, independent oversight and
transparency in the official oil sector.
Prices Inflationary pressures continued to moderate in response to the tight
stance of monetary policy. Headline inflation declined from 8.7 per
cent in July to 8.2 per cent in August. Food inflation declined to 9.7
per cent in August from 10.0 per cent in July while core inflation, rose
slightly to 7.2 per cent in August from 6.6 per cent in July. The
Committee noted with satisfaction that, overall, headline inflation
has remained below 10.0 per cent for eight (8) straight months and
represented the lowest level achieved over the past 5 years, the
longest such stretch since 2008; and that the six-month inflation
outlook indicates that inflation would remain within single digit
range. The Committee was nonetheless, conscious of the potential
risks on the horizon, including the possibility of pressures coming from 6
the fiscal activities of the government in the later part of the year,
and in the run up to the 2014 elections.
Monetary, Credit and Financial Market Developments
Broad money supply (M2) contracted by 5.58 per cent in August
2013 over the level at end-December 2012. When annualised, M2
contracted by 8.37 per cent, compared with the growth of 3.51 per
cent in the corresponding period of 2012. M2 growth rate was also
below the benchmark of 15.20 per cent for 2013. This is to be
expected, given the tight monetary policy stance.
Aggregate domestic credit (net) grew by 3.85 per cent in August
2013 which annualises to a growth rate of 5.78 per cent over the
end-December 2012 level, compared with the contraction of 3.56
per cent in the corresponding period of 2012. The annualised growth
rate in aggregate domestic credit (net) at end-August 2013 of 5.78
per cent was below the provisional benchmark of 22.98 per cent for
Reserve money (RM) rose by 30.64 per cent to N4,227.61 billion at
end-August 2013 from N3,236.15 billion by end-June. At that level RM
was N343.06 billion or 8.83 per cent above the 3rd quarter, 2013,
indicative benchmark of N3,884.55 billion.
Interest rates in all segments of the money market moved in tandem
with the tight level of liquidity in the banking system. The inter-bank
call and OBB rates, which opened at 10.69 and 10.22 per cent on
July 29, 2013, closed at 15.67 and 14.92 per cent, respectively, on
September 20, 2013. The average inter-bank call and OBB rates for
the period were 14.86 and 13.93 percent, respectively.
The recovery in the Nigerian capital market continued, as equities
market indicators all trended upward during the period under
review. The All-Share Index (ASI) increased by 28.9 per cent from
28,078.81 on December 31, 2012 to 36,188.72 on September 20, 2013.
Market Capitalization (MC) increased by 28.4 per cent from N8.97
trillion to N11.53 trillion over the same period. Improved earnings and
investor confidence in the economy contributed to the rise in stock
External Sector Developments
The naira exchange rate remained stable at the wDAS segment of
the foreign exchange market. The exchange rate at the wDAS-SPT
during the review period opened and closed at N157.32/US$
(including 1% commission). The average wDAS exchange rate during
the period was N157.31/US$. At the interbank segment, the naira
exchange rate opened at N160.75/US$ and closed at N161.47/US$,
representing a depreciation of N0.72/US$ or 0.45 per cent. The
average interbank exchange rate during the period was
N160.78/US$. At the BDC segment, the selling rate opened at
N162.50/US$ and closed at N163.00/US$, representing a depreciation
of N0.50k/US$ or 0.31 per cent. The average BDC exchange rate for
the period was N162.14/US$. The stability of the exchange rate
reflected the commitment of the Bank to supporting the currency at
a time of massive depreciation in the currencies of emerging and
frontier countries. This commitment was underscored by the policy of
intervention to improve supply conditions, and the very tight
monetary conditions maintained since the last MPC meeting.9
The Committee noted the decline in external reserves to US$45.27
billion as at September 19, 2013. External reserves, however, still
increased by US$4.08 billion or 9.91 per cent, year-on-year,
compared with US$41.19 billion at end-September 2012. However,
the Committee noted that this level of accretion is too low given the
relatively high price of crude oil and further underscores the need for
much-needed reform of the oil sector.
The Committee’s Considerations
The Committee noted with satisfaction the positive developments in
the economy, especially, the moderation in inflation, stability in the
financial system and currency markets. It also noted the strong
growth forecast by the National Bureau of Statistics for Q3 and Q4 on
the back of relatively slow growth in Q2. It observed that the actions
taken by the Bank since the last MPC yielded their intended effect
on stabilizing the exchange rate while maintaining inflation within its
target range. The Committee also noted that the fundamentals in
the economy which necessitated the July MPC measures had not
changed substantially; except that the US Federal Reserve had 10
provided clearer insight into the tapering off of its asset purchase
programme – Quantitative Easing
 The Committee noted that in more than 30 countries surveyed, the Naira exchange rate remained 
one of the most stable having depreciated by only 2.3 per cent from 
year to date compared with the massive depreciation in the value 
of other currencies such as the Indian Rupee, the Indonesian Rupiah, 
the Brazilian Real, the South African Rand and the Ghanaian cedi.
The clarifications provided by the Fed over its QE3 policy brought
substantial relief to the financial markets globally and initiated a
reversal of the trend in capital outflows from the country. However,
the Committee noted the existence of strong foreign exchange
demand pressures coming domestically and which are not
necessarily linked to an increase in the import of goods.
This non import related demand was attributed to the buildup in political activities in the country and increasing resort to dollarization of the
economy by the political class. The Committee charged the Bank to
ensure the stability of the currency in the face of these challenges,

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