Monetary Policy

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Monetary Policy Decisions

200th MPC Meeting of Tuesday, 4th December, 2007

1. The MPC decided to raise the MPR by 50 basis points (i.e. from 9.0 per cent to 9.5 per cent) to signal a tightening of policy stance
2. Issue new primary instruments to mop up a significant portion of the anticipated excess liquidity in the system
3. Continue with the regular open market operations (OMO)

• The MPC anticipated imminent fiscal surge and continuing increased capital inflows
• Desire to drive down core inflation to single digit level
• Sustain inflation along its present path

199th MPC Meeting of Wednesday, 3rd October, 2007

Background to MPC Decisions
As at September 17, 2007 , reserve money was N919.7 billion compared with the target of N880.0 billion for end-September, 2007. The major driver of the growth in reserve money in the third quarter was currency in circulation, which increased from N719.2 billion at end -August, 2007 to N735.4 billion on September, 17, 2007

1. The MPC decided to raise the MPR by 100 basis points (i.e. from 8.0 per cent to 9.0 per cent). The new MPR rate would also double as the repo rate-the rate at which the CBN would lend to banks
2. Continue the sale of foreign exchange for purposes of liquidity management
3. Embark on active open market operations
4. DMB deposits with the CBN would seize to earn interest .

1. The MPC decided to leave the MPR unchanged at 8.0 per cent
2. Approve increased sale of financial securities to mitigate the impact of increased liquidity arising from anticipated fiscal injections

• MPC anticipated continuing rise in headline inflation in the third quarter of the year
• Challenges arising from increased capital inflows and an appreciating naira exchange rate
• Other important sources of pressure/risk to low inflation include:
  • virement of the capital vote to finance recurrent expenditure
  • distribution of part of the excess crude oil account
  • FForecast growth path of M2 was expected to be within anticipated limits to end year if monetary policy remained on course

197th MPC Meeting of Tuesday, 5th June, 2007

Background to MPC Decisions
The Bank sustained its market driven approach to ensure that the reserve money targets under the Policy Support Instrument ( PSI ) program were achieved in the first half of 2007. Reserve money rose from N841.25 billion in March, 2007, to N902.40 billion in May 2007, showing an increase of N61.15 billion and excess liquidity of N42. 40 billion. However, at end-June, 2007, reserve money was N858.20 billion compared with the target of N860 billion. The attainment of the program target in the second quarter reflected the effect of the intensive liquidity mop-up operations through the use of both the money market and foreign exchange instruments.

1. The MPC decided to reduce the MPR by 200 basis points (i.e. from 10.0 per cent to 8.0 per cent)
2. Introduce tenured repo at MPR
3. Reduce the width of the interest rate corridor from +/-300 to +/- 250 basis points. The combined implication of (1) and (2) is that the deposit facility now stands at 6.5 per cent while the lending facility is 10.5 per cent, both down from 7.0 and 13.0 per cent, respectively.
4. Both the lending and deposit facilities are expected to be used as a last resort. Consequently, the frequent usage of these facilities will attract a penalty.
5. Increase the issuance of primary market instruments to mop up about N100.0 billion from the system
6. Authorise the inclusion of inter-bank placements as part of deposits in the computation of banks' liquidity ratio; and
7. Approved the continuation of Open Market Operations (OMO) for purposes of liquidity management.
   

• Although inflation had moderated significantly, the downside risks remained
• Challenges in achieving the exist PSI reserve money target by June, 2007
• Rising autonomous foreign exchange inflows
• Risk of over appreciation of the naira/dollar exchange rate
• Strong upside risks such as continued stability of the exchange rate and external reserves
• Robust economic outlook in the medium term

1. The MPC decided to leave the MPR unchanged at 10 per cent
2. Release the 8 per cent special Cash Reserve Requirement ( CRR ) invested on behalf of the banks by the CBN to the Deposit Money Banks (DMBs) on maturity to enable the DMBs utilize the amount of reserve money released for regular operations
3. Keep the CRR unchanged at 3 per Central Bank of Nigeria
4. Maintain the liquidity ratio at 40 per Central Bank of Nigeria Allow the collaterized placements among deposit money banks to count as liquid assets, for purposes of liquidity ratio computations; and
5. Exclusion of domiciliary deposit accounts from the definition of broad money (M2) and the computation of banks' CRR .

• High downside risks to low inflation during fiscal 2007
• Rising autonomous private inflows which is expected to lead to persistent excess liquidity in the system
• Anticipated high election spending
• Falling prices of crude oil
• Impact of these adverse developments were expected to unwind after the elections
• Robust economic outlook expected in the medium term