<![CDATA[Hedgehogs.net: Ken Yeadon's connections' blogs]]> http://www.hedgehogs.net/pg/blog/keny/friends/?view=rss http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11424483/egypt-holds-rate-steady-on-contained-inflation-risks Thu, 27 Nov 2014 20:33:08 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11424483/egypt-holds-rate-steady-on-contained-inflation-risks <![CDATA[Egypt holds rate steady on contained inflation risks]]>     Egypt's central bank maintained its overnight deposit rate at 9.25 percent, noting contained upside risks from imported inflation due to lower international food prices while softer growth in emerging markets and challenges facing the euro area could pose downside risks to domestic growth.
    The Central Bank of Egypt (CBE) - which raised its rate by 100 basis points in July to curb inflation after prices rose from the government cut in fuel subsidies - said a rise in October headline inflation to 11.8 percent from 11.2 percent was due to the normal increase in education fees at the start of the school year.
    And while the cost of fresh vegetables inched up, prices of other food items declined further due the fall in international prices, notwithstanding the seasonal pick-up in September, the CBE said.
    Egypt's core CPI eased to 8.47 percent in October from 9.15 percent in September.
    Egypt's economy, which was hard hit by political unrest and the ousting of Hosni Mubarak in 2011, has started to rebound, with Gross Domestic Product up by an annual 3.7 percent in the second quarter, up from a rate of 2.5 percent in the first quarter.
    The expansion was due to an acceleration in manufacturing and real estate along with moderate growth in construction while tourism and petroleum sectors continued to contract.

   
    The Central Bank of Egypt issued the following statement:


"In its meeting held on November 27, 2014, the Monetary Policy Committee (MPC) decided to keep the overnight deposit rate, overnight lending rate, and the rate of the CBE's main operation unchanged at 9.25 percent, 10.25 percent, and 9.75 percent, respectively. The discount rate was also kept unchanged at 9.75 percent.

Headline CPI inched up by 1.71 percent (m/m) in October 2014, following an increase of 1.23 percent (m/m) in September. This brings the annual rate to 11.84 percent in October, after recording 11.12 percent in September. The monthly developments in October came on the back of increases in public and private education fees, which usually coincide with the beginning of the school year. In the meantime while prices of fresh vegetables inched-up, prices of other food items continued to decelerate supported by the decline in international prices, notwithstanding the seasonal pick-up in September due to Eid Al-Adha. On the other hand, core CPI increased by 0.55 percent (m/m) in October, compared to 0.84 percent (m/m) in September. The annual rate eased to 8.47 percent in October from 9.15 percent in September, partly reflecting the decline in food prices and a favorable base effect. Upside risks from imported inflation continue to be contained on the back of lower international food price forecasts in light of global developments.

Meanwhile, real GDP picked up significantly in 2013/2014 Q4, growing by 3.70 percent compared to 2.50 percent, 1.44 percent and 1.04 percent recorded in Q3, Q2 and Q1, respectively. This brought the annual growth rate for the whole FY2013/2014 to 2.2 percent following a similarly sluggish growth rate of 2.1 percent during FY2012/2013. The expansion in economic activity during 2013/2014 Q4 came on the back of the acceleration in manufacturing and real estate activities, along with a moderate growth in the construction sector. This occurred despite the continued contraction witnessed in the tourism and petroleum sectors. In the meantime, investment continues to be below historical levels despite the relative improvement witnessed in the annual growth rate during 2013/2014 Q3 and Q4, following six quarters of contraction. Looking ahead, while investments in domestic mega projects such as the Suez Canal are expected to contribute to economic growth, the downside risks that surround the global recovery on the back of challenges facing the Euro Area and the softening growth in emerging markets could pose downside risks to domestic GDP.

At this juncture, the MPC judges that the key CBE rates are currently appropriate given the balance of risks surrounding the inflation and GDP outlooks.
The MPC will continue to closely monitor all economic developments and will not hesitate to adjust the key CBE rates to ensure price stability over the medium-term."

    www.CentralBankNews.info


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http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11422975/fiji-holds-rate-notes-risk-from-strong-domestic-demand Thu, 27 Nov 2014 13:13:07 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11422975/fiji-holds-rate-notes-risk-from-strong-domestic-demand <![CDATA[Fiji holds rate, notes risk from strong domestic demand]]>     Fiji's central bank maintained its benchmark Overnight Policy Rate (OPR) at 0.5 percent, saying the current monetary policy stance was in line with its twin objectives for inflation and foreign reserves but the continuing strength in domestic demand could pose a risk.
    The Reserve Bank of Fiji (RBF), which has held the OPR steady since November 2011, said the economy was expected to continue its above-trend growth this year and next, helped by the expansionary fiscal stance in the 2015 national budget along with robust consumption and investment activity, and solid performances in the key sectors of tourism and sugar.
     But Barry Whiteside, RBF governor, cautioned in a statement that continued strength in domestic demand would impact the trade deficit and thus the country's balance of payments position, "and as such may pose risks to the Reserve Bank's twin objectives of monetary policy."
     Fiji's foreign reserves rose to $1.788 billon as of Nov. 27 from $1.785 billion as of Oct. 31, the equivalent of 4.7 months of import cover, and are projected to remain at "comfortable levels" in the near term.
    Fiji's headline inflation remain was stable at 0.3 percent in October and the bank said it was expected to be around 1.5 percent by year-end.
    Fiji's trade deficit widened by 13 percent in the first 10 months due to a similar size increase in both exports and imports, but the central bank said in its October review that the current account deficit was supported by increasing travel and transport receipts and higher inward remittances, which were up by 14.3 percent in the year to September.

    In its October review, the central bank cited a 2.4 percent increase in the Industrial Production Index in the first half of the year, showing higher manufacturing and industrial activity, while visitor arrivals were up 4.2 percent in the first nine months of the year.
    Strong consumer spending was illustrated by an annual rise of 12.1 percent in net value added tax collections in the near to September while new lending for consumption purposes rose by an annual 44 percent, and imports of consumption goods rose by an annual 10 percent in the year to August.

    The Reserve Bank of Fiji issued the following statement:
 

"The Reserve Bank of Fiji (RBF) Board at its monthly meeting on 27 November agreed to maintain the Overnight Policy Rate (OPR) at 0.5 percent.

In announcing the decision, the Governor and Chairman of the Board, Barry Whiteside, stated that “given the buoyant developments to date and the expansionary fiscal stance in the recently announced 2015 National Budget, the domestic economy is expected to continue its above-trend growth this year and in 2015, underpinned by the sustained robust consumption and investment activity and supported by anticipated solid performances in key sectors, such as tourism and sugar.” 

The Governor however, cautioned that the continuing strength in domestic demand has implications on the trade deficit and ultimately the country’s balance of payments position, and as such may pose risks to the Reserve Bank’s twin objectives of monetary policy.

Governor Whiteside further highlighted that “in its current assessment, the Board considered that both objectives of monetary policy remain intact over the near term.” Inflation was unchanged at 0.3 percent in October and is anticipated to be around 1.5 percent by year-end. Foreign reserves were $1,788.0 million as at 27 November, sufficient to cover 4.7 months of retained imports of goods and non-factor services and are projected to remain at comfortable levels in the near term.

The Governor concluded that “while the outlook for foreign reserves and inflation remain stable for now, the Reserve Bank will continue to closely monitor economic developments and will re-align monetary policy accordingly when warranted.” 

    www.CentralBankNews.info


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http://www.hedgehogs.net/pg/blog/skinnercm/read/11422573/its-a-brave-new-world-not-just-for-banks Thu, 27 Nov 2014 08:46:37 +0000 http://www.hedgehogs.net/pg/blog/skinnercm/read/11422573/its-a-brave-new-world-not-just-for-banks <![CDATA[It's a brave new world (not just for banks)]]>

Following on from yesterday’s blog about traditional bank thinking versus digital bank views, there are three slides I use in my presentations that illustrate this big change.  This is the change in banks moving from being trade focused to community focused.

read more...

]]> 11422573 http://www.hedgehogs.net/pg/blog/skinnercm/read/11422442/things-worth-reading-27th-november-2014 Thu, 27 Nov 2014 06:57:00 +0000 http://www.hedgehogs.net/pg/blog/skinnercm/read/11422442/things-worth-reading-27th-november-2014 <![CDATA[Things worth reading: 27th November 2014]]>

Things we're reading today include ...

read more...

]]> 11422442 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11422219/albania-cuts-rate-another-25-bps-to-225 Wed, 26 Nov 2014 14:47:07 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11422219/albania-cuts-rate-another-25-bps-to-225 <![CDATA[Albania cuts rate another 25 bps to 2.25%]]>     Albania's central bank cut its policy rate by another 25 basis points to 2.25 percent following a review of the outlook and economic and monetary developments, the bank said in a brief statement.
    The Bank of Albania has now cut its rate by 75 basis points this year.
    Last month the central bank held its rate steady but said it would ease further if the economy deteriorated more than forecast.
    On Tuesday the International Monetary Fund said Albania's economy was expected to growth 2 percent this year with output below potential and inflation expected to remain low. In 2013 Albania's economy expanded by only 0.4 percent when the central bank cut rates by 100 basis points.
   The IMF also said inflation expectations appeared to be well-anchored and monetary policy should continue to be supportive of economic recovery as credit growth remains low, though recovering, due to high non-performing loans weaknesses in contract enforcement.
    Albania's headline inflation rate eased to 1.4 percent in October from 1.5 percent the previous month while Gross Domestic Product expanded by 0.38 percent in the second quarter from the first for annual growth of 1.73 percent, up from a contraction of 1.31 percent in the first quarter.
   
   www.CentralBankNews.info

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http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11422214/central-bank-news-link-list-nov-26-2014-ecb-may-consider-sovereign-qe-next-quarter-constancio-says Wed, 26 Nov 2014 14:26:39 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11422214/central-bank-news-link-list-nov-26-2014-ecb-may-consider-sovereign-qe-next-quarter-constancio-says <![CDATA[Central Bank News Link List - Nov 26, 2014 - ECB may consider sovereign QE next quarter, Constancio says]]>
Here's today's Central Bank News' link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.



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http://www.hedgehogs.net/pg/blog/skinnercm/read/11422207/take-the-test-does-your-bank-think-like-a-traditional-bank-or-a-digital-bank Wed, 26 Nov 2014 10:51:51 +0000 http://www.hedgehogs.net/pg/blog/skinnercm/read/11422207/take-the-test-does-your-bank-think-like-a-traditional-bank-or-a-digital-bank <![CDATA[Take the test: does your bank think like a traditional bank or a digital bank?]]>

One of the things that is quite clear is that, as we move into a sharing economy, the role of banks is changing.  Banks historically focused upon profit and trade, but they now need to focus upon community and dialogue.  It is no longer good enough to purely focus upon commerce at the expense of community.

read more...

]]> 11422207 http://www.hedgehogs.net/pg/blog/skinnercm/read/11422178/things-worth-reading-26th-november-2014 Wed, 26 Nov 2014 08:27:53 +0000 http://www.hedgehogs.net/pg/blog/skinnercm/read/11422178/things-worth-reading-26th-november-2014 <![CDATA[Things worth reading: 26th November 2014]]>

Things we're reading today include ...

read more...

]]> 11422178 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11422144/hungary-holds-rate-loose-conditions-for-extended-period Wed, 26 Nov 2014 00:33:06 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11422144/hungary-holds-rate-loose-conditions-for-extended-period <![CDATA[Hungary holds rate, loose conditions for extended period]]>     Hungary's central bank left its base rate steady at 2.10 percent, as expected, and confirmed its guidance that it expects to maintain the current loose monetary conditions "for an extended period."
    The National Bank of Hungary (MNB), which ended a two-year easing cycle in July after cutting its rate by 490 basis points, also repeated that disinflationary pressures from the demand side were gradually weakening as economic activity gathers pace so inflation is likely to reach levels around 3 percent - a level that is consistent with price stability - in the second half of the forecast period.
    Hungary's headline inflation rate was minus 0.4 percent in October, down from minus 0.5 percent in September and the central bank said low inflation was likely to persist for an extend period.

    The National Bank of Hungary issued the following statement:

"At its meeting on 25 November 2014, the Monetary Council reviewed the latest economic and financial developments and voted to leave the central bank base rate unchanged at 2.10%.


In the Council’s judgement, Hungarian economic growth is likely to continue. While the pace of economic activity is strengthening, output remains below potential and the domestic real economy is expected to continue to have a disinflationary impact, albeit to a diminishing extent. Despite the pick-up in domestic demand, capacity utilisation is expected to improve only gradually due to the protracted recovery in Hungary’s export markets. With employment rising, the unemployment rate continues to exceed its long-term level determined by structural factors. Inflationary pressures in the economy are likely to remain moderate for an extended period.

Based on the inflation data for October, consumer prices continue to show historically low dynamics. The Bank’s measures of underlying inflation capturing the medium-term outlook still indicate moderate inflationary pressures in the economy, reflecting persistently low inflation in external markets, favourable developments in commodity prices and imported inflation, the degree of unused capacity in the economy, subdued wage dynamics, the fall in inflation expectations and the reductions in administered energy prices implemented in a series of steps. Domestic real economic and labour market factors continue to have a disinflationary impact and low inflation is likely to persist for a sustained period. However, domestic demand-side disinflationary pressures are weakening gradually as activity gathers pace, and inflation is likely to reach levels around 3 per cent consistent with price stability in the second half of the forecast period.

In the Council’s judgement, economic growth is likely to continue even as external demand has weakened slightly. The decline in industrial production in August was partly reversed in September, and the trade surplus rose again, following the decline in the previous month. According to the preliminary data, the dynamics of retail sales were stable in September. In the Council’s judgement, economic growth may continue in a more balanced pattern than previously, with the recovery in domestic demand likely to make a greater contribution to growth. The increasing use of EU funding and the easing in credit constraints also due to the Bank’s Funding for Growth Scheme are expected to sustain the recovery in investment. Household consumption is also likely to grow gradually, mainly as a result of the expected increase in the real value of disposable income and the reduced need for deleveraging. However, propensity to save is expected to remain above levels seen prior to the crisis. Employment increased in the third quarter, with a significant contribution from the rise in the number of those employed under public employment programmes.

International investor sentiment has been mostly positive in the past month, mainly reflecting the release of buoyant macroeconomic data in the US, monetary easing by the Bank of Japan and the continued decline in the world market price of crude oil. Domestic risk measures improved slightly. Hungary’s persistently high external financing capacity and the resulting decline in external debt have contributed to the reduction in its vulnerability. In the Council’s judgement, a cautious approach to policy is warranted due to uncertainty about future developments in the global financial environment.

In the Council’s judgement, there remains a degree of unused capacity in the economy and inflationary pressures are likely to remain moderate in the medium term. The negative output gap is expected to close gradually at the monetary policy horizon. Looking ahead, therefore, the disinflationary impact of the real economy is likely to diminish and, with current monetary conditions maintained, inflation is likely to move into line with the target over the medium term. The Council judges that, based on available information, the current level of the central bank base rate is consistent with the medium-term achievement of price stability and a corresponding degree of support to the real economy. If the assumptions underlying the Bank’s projections hold, achieving the medium-term inflation target points in the direction of maintaining current loose monetary conditions for an extended period.

The abridged minutes of today’s Council meeting will be published at 2 p.m. on 10 December 2014."




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http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11422139/nigeria-ups-rate-100-bps-crr-500-bps-lowers-fx-target Wed, 26 Nov 2014 00:23:27 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11422139/nigeria-ups-rate-100-bps-crr-500-bps-lowers-fx-target <![CDATA[Nigeria ups rate 100 bps, CRR 500 bps, lowers FX target]]>     Nigeria's central bank raised its benchmark Monetary Policy Rate (MPR) by 100 basis points to 13.0 percent, raised the reserve requirement on private sector deposits by 500 basis points to 20.0 percent, and lowered its target for the naira's exchange rate in what it described as a "bold policy" move to maintain exchange rate stability, stem the decline in foreign exchange reserves and anchor inflation expectations.
   It was the first change in rates by the Central Bank of Nigeria (CBN) since October 2011 and comes against the backdrop of a 10 percent drop in official reserves to $36.75 billion at the end of last month as the central bank has fought to stabilize and defend the naira's exchange rate around the previous target midpoint of 155 to the U.S. dollar.
    The central bank today lowered the exchange rate target midpoint to 168 naira a dollar and widened the band by 200 basis points to plus/minus 5 percent from plus/minus 3 percent. The naira was trading at 177.3 to the dollar today, down 11 percent since the start of the year, with the end of the U.S. Federal Reserve's asset purchases encouraging capital outflows.
    "In the Committee's opinion, a more flexible naira in the face of nonexistent fiscal buffers was the most viable policy option at a time of heightened demand pressure for foreign exchange and falling oil prices," Governor Godwin Emefiele said.

    "The Committee was, therefore, of the view that if it failed in taking the right policy actions now, the market would force the Bank to take more drastic actions in the future with far less foreign exchange reserves," he added.
    Nigeria's headline inflation rate eased to 8.1 percent in October from 8.3 percent, but Emefiele said he was concerned about upside risks in the near term due to increased spending ahead of the 2015 general elections, exchange rate depreciation from falling oil prices and external reserve depletion, and food supply shocks from increased insurgency activity in the major agricultural regions.

    The Central Bank of Nigeria issued the following statement:



"The Monetary Policy Committee (MPC) met on November 24th and 25th 2014 against the backdrop of moderate but uneven growth in the global economy and build up of vulnerabilities in the domestic economy. In attendance were all 11 members, following the expiration of the tenure of Dr. Kingsley C. Moghalu as a Deputy Governor of the Bank on 5th November 2014. The Committee reviewed key developments in the global and domestic economies during the first ten months of 2014 and assessed the short-to-medium term risks to price and financial stability as well as the outlook for the rest of the year up to the first half of 2015.

International Economic Developments
The global economic space continued to be dominated by strong downside risks to growth, including the softening commodity prices, rising geo-political tensions, and heightening threats to financial markets in the emerging and frontier economies in the aftermath of the termination of Quantitative Easing by the US Federal Reserve at the end of October 2014. Developments in the international oil market have intensified the risks and vulnerabilities faced by oil exporting countries in the wake of a new episode of falling oil prices. The uncertainty is complicated by the absence of clear signals on how far and how long this episode would last. While the revenue impact of falling oil prices was severest on the oil exporting countries, it was largely positive on the oil importing countries led by the United States, which has also emerged as a major oil exporter.
With considerable divergence across regions, global growth picked up in the second half of 2014 at a lower than predicted pace. In view of the perceived vulnerabilities and associated risks, the International Monetary Fund (IMF) has recently downgraded its global growth forecast for 2015 to 3.3 per cent from an earlier projection of 3.7 per cent. The expected tepid performance in 2015 reflects the impact of the strong headwinds arising from the negative spillover effects of the unwinding of the US monetary stimulus, deteriorating geo-political tensions in many regions, uncertainty about the direction of the US-led economic sanctions on Russia; a development which in combination with the shale oil revolution has created a glut in the oil market at below long run price trends, unsustainable fiscal stance and absence of fiscal buffers in a number of countries and declining aggregate demand in others. These risks were, however, moderated by the expansionary monetary stimulus of the European Central Bank and the Bank of Japan which has led to increased consumption, particularly in the wake of falling oil prices.
Growth in the advanced economies is projected at 1.8 per cent in 2014 compared with 1.2 and 1.4 per cent in 2012 and 2013, respectively. The US is estimated to grow at 2.2 per cent in 2014, driven by strong private consumption, export growth, and contraction in imports. A stronger dollar, softening global growth, and sharp financial market correction could, however, undermine confidence and favorable terms of trade. In addition, the growth could be met by rising wage demands, obviating the Federal Reserve’s early normalization of monetary policy with negative impact on global interest rates.
In the United Kingdom, at 3.2 per cent in 2014, output has remained above its long run average compared with 0.3 and 1.7 per cent in 2012 and 2013, respectively. The Euro area performance, however, seem to be at variance with the trend in other key advanced economies. Fundamental fiscal headwinds, high unemployment, and weak bank lending extended into Q3 of 2014, reflecting largely the failure of its comprehensive assessment program designed to reduce financial fragmentation. The Committee observed that the monetary stimulus of the ECB has neither stimulated aggregate demand nor restored growth to a sustainable long run path as the prospects of a deepening recession looms large. A key for the ECB is that decoupling the euro zone from the US monetary conditions would create its own shocks but the impact would be even more severe when the Federal Reserve commences monetary policy normalization. An uptick in global demand, a weakening euro and the ECB’s monetary stimulus could create a benign environment for growth. The depth of the slowdown, however, suggests that the ECB may need to implement full quantitative easing to return the Euro area to its long run growth path.
The emerging markets and frontier economies remain constrained by limited macroeconomic space to implement demand- enhancing monetary stimuli. A retrenchment of portfolio flows has already begun following the end of Quantitative Easing by the Federal Reserve, thus scaling up exchange rate pressures. Thus, growth has been revised downwards to 4.4 per cent in 2014 with China facing its lowest growth of 7.4 per cent since 1990 due to the cooling of its property market. The divergence in the monetary policy stance of the US, China, and Japan has further heightened risk in most emerging economies, elevating financial market fragility and currency risk in the balance sheet of banks and corporate bodies.
In Sub-Saharan Africa, growth was revised downwards to 5.1 per cent in 2014 from the earlier projection of 5.4 per cent to reflect the ongoing sluggish global growth and declining commodity prices. In addition, political crisis, infrastructural challenges, and of late the Ebola outbreak in Guinea, Liberia and Sierra Leone have moderated earlier robust growth outlook. The key risks remain declining aggregate demand, falling commodity prices, delayed recovery and potential intensification of the euro zone financial stress, sharp adjustment in the bonds and equities markets in the US, and muted growth in China.

Domestic Economic and Financial Developments Output
Available data from the National Bureau of Statistics (NBS) has indicated that the domestic economy remains strong and resilient in the face of strong global headwinds. Nevertheless, key vulnerabilities are emerging. Real Gross Domestic Product (GDP) was estimated at 6.23 per cent for the third quarter of 2014. Although lower than the 6.54 per cent in the preceding quarter, it was higher than the 5.2 per cent achieved in the corresponding period of 2013. The non-oil sector remained the major driver of growth recording 7.5 per cent in contrast to the oil sector, which contracted by 3.6 per cent. Overall, output is projected to grow at about 7.0 per cent in 2014, compared with the 4.2 and 5.5 per cent, recorded in 2012 and 2013, respectively. The Committee noted that the robust expansion in domestic output in the third quarter of 2014 against the tepid growth in the global economy was anchored by the improved performance in services, agriculture, trade, and industry.
The Committee welcomed the impressive output growth performance but cautioned that the continuing insurgency in the North East of Nigeria in combination with other risks could adversely affect the growth outlook. The Committee noted with concern the continued decline in the contribution of the oil sector to growth and urged the political authorities for the speedy passage of the Petroleum Industry Bill to halt the trend. The Committee commended government’s efforts to sustain the tempo of the power
sector reforms, especially the amortization of the legacy debt owed to major stakeholders in the power value chain and enjoined the political authorities to fast track the implementation of other complementary measures that would improve power generation and distribution.

Employment
The November 2014 national unemployment survey by the National Bureau of Statistics (NBS) revealed that a total of 349,343 new jobs were created in Q3 of 2014 compared with 259,353 jobs in the preceding quarter. The Central Bank of Nigeria’s development initiative under the N200 billion Commercial Agriculture Credit Scheme (CACS) has created 166,790 jobs since inception in September 2009. The Committee noted with satisfaction that the reforms in the power sector and other complementary policies if followed through; would promote investment and create the needed jobs for inclusive growth and development.

Prices
Inflationary pressure moderated across the three measures of inflation during the review period. Consequently, headline inflation (year-on-year) declined further to 8.5, 8.3 and 8.1 per cent in August, September and October, respectively. Core and food inflation decelerated from 6.28 and 9.68 to 6.25 and 9.34 per cent in September and October, respectively. The deceleration in food inflation was traced to the decrease in the prices of both processed foods (from 4.4 to 4.3 per cent) and farm produce (from 5.3 to 5.0 per cent). The Committee noted with satisfaction that all the measures of inflation were within single digit. The Committee, however, recognized the upside risks to inflation in the near-term to include increased spending in the build up to the 2015 general elections, depreciated exchange rate arising from the falling oil prices accompanied by external reserves depletion, and food supply shocks arising from the increased insurgency activities in the major agricultural belts of the country. The Committee was satisfied, as indicated by Staff forecasts that headline inflation would remain well anchored at single digit within the band at year-end if the necessary macroeconomic policy actions were taken.

Monetary, Credit and Financial Markets’ Developments
Broad money supply (M2) grew by 4.17 per cent in October 2014 over the level at end-December, 2013, which annualized to 5.01 per cent. The annualized growth rate reflects an improvement over the decline of 6.16 per cent achieved in the corresponding period of 2013 but lower than the growth benchmark of 15.02 per cent for 2014. Net domestic credit grew by 9.09 per cent in October relative to the end-December 2013 level. On annualized basis, net domestic credit rose by 10.91 per cent compared with the benchmark level of 28.5 per cent for 2014. The sluggish growth in broad money was largely due to Net Foreign Assets, which contracted by 18.74 per cent in October 2014. The tapered growth in money supply also helped in moderating inflationary pressures. 

Interest rates in all segments of the money market showed further moderation between September and October 2014, reflecting persisting liquidity surfeit in the banking system. Average interbank call rate moderated from 10.96 to 10.81 per cent while the collaterised Open Buy Back (OBB) rate moderated from 10.76 to 10.48 per cent during the period. Both rates hovered around the lower band of the MPR during the period. The Committee, however, noted that the structure of rates at the retail end of the credit market did not significantly reflect banking system liquidity conditions as both the prime and maximum lending rates remained largely elevated. The maximum lending rate declined marginally from 25.77 to 25.75 per cent between September and October while the prime lending rate on the other hand increased from 16.44 to 16.48 per cent. The high interest rates notwithstanding, credit to private sector rose by 7.75 per cent during the period. To improve the efficiency of monetary policy, the Committee, urged the Bank to ensure that credit levels reflected liquidity conditions in the banking system.
The bearish conditions in the capital market continued as the equities market indicators trended downwards in the review period. The All-Share Index (ASI) declined by 17.9 per cent from 41,329.19 to 33,962.18 between December 31, 2013 and November 21, 2014. Also, Market Capitalization (MC) decreased by 20.1 per cent from N13.23 trillion to N11.24 trillion during the same period. The decline in equities market performance was largely due to increased capital outflows, as some foreign investors sold off, amidst concerns over currency depreciation in the face of the steady declines in external reserves and international crude oil prices.

External Sector Developments
Developments in the external sector since September 2014, manifested in a buildup of pressures in the foreign exchange market. While the Bank sustained its efforts to maintain the stability of the naira exchange rate at the rDAS window, a considerable degree of weakening was recorded at both the interbank and Bureau de Change (BDCs) segments.
The exchange rate at the rDAS window during the review period opened at N157.31/US$ and closed at N157.32/US$, reflecting a marginal depreciation of N0.01k. To maintain and stabilize the exchange rate at that level, gross official reserves declined from US$40.7 billion on 17th September, 2014 to $36.75 billion at end- October 2014. From year to date, substantial currency depreciation has occurred in comparator oil exporting countries but the naira has depreciated by only 1.74 per cent.
At the interbank segment, the naira depreciated by N1.75 or 1.06 per cent to $/N165.55 from $/N163.80. In the same vein, the exchange rate depreciated by N1.00 or 1.19 per cent from US$/N169.00 to $/N170.00 at the BDC segment. The depreciation at both the interbank and the BDC segments largely reflected recent demand pressures arising from the falling oil prices and dwindling external reserves. As part of the demand management measures,the Bank in two recent circulars excluded certain import items from the rDAS window. Despite the tight measures, the high demand for foreign exchange has continued unabated. This demand does not seem to have any bearing on the genuine foreign exchange needs of the country, which the Bank stands ready and has the capacity to meet. The current level of external reserves provides approximately 7 months of imports cover.

Committee’s Consideration
The Committee noted with satisfaction the deceleration in all the three measures of inflation since September 2014; a development which has provided headroom for policy flexibility and maneuver. The robust output expansion amidst strong headwinds arising from a weakening of the international oil market gives credence to the efficacy of our macroeconomic policy. The Committee also noted that unlike in previous episodes, the current downturn in oil prices is not transitory but appears to be permanent; being a product of technological advancement. Currently, the US which use to be Nigeria’s former major oil export destination now meets on average 80 per cent of its domestic oil demand from local shale oil retorting technology production and exports over 8 million barrels of crude oil daily.
The Committee found credence in the permanency theory of current oil price dynamics in the fact that the political restiveness in the Middle East and North Africa (MENA) region has not created
uncertainty in oil supplies as both Libya and Iraq (Southern) have open and strong supply lines in the market. A nuclear deal with Iran could further complicate the situation, opening up the supply space for new oil supplies from Iran.
Available data shows that a number of 6-month oil futures are currently signed at below US$70/barrel while improvements in technology have driven down the break-even cost of shale oil production to an average range of US$52-US$70 per barrel. In the light of this development, the Committee is of the view that the oil price benchmark of US$73/barrel proposed in the 2015 Federal Government budget may be overly optimistic, requiring considerable caution on the budget’s revenue projections. A weak public finance may impinge adversely on growth prospects as it shows up in reduction in critical public and private consumption and investment spending.
Without prejudice to this position, the Committee is of the view that the softening crude oil prices could provide necessary leverage for the fiscal authority to reduce budgetary outlays on fuel subsidy and channel such savings to growth enhancing sectors of the economy. The Committee took note of the supportive fiscal stance in this regard and public commitment to take advantage of the low oil price to reduce fuel subsidy spending and liberalize prices as in many emerging economies. Furthermore, the Committee expressed satisfaction with the recent demand management measures announced by the fiscal authorities to contain pressure in both the goods and money markets and provide some respite in the near term.
Notwithstanding, efforts should be geared towards addressing the binding supply side constraints such as the insecurity, infrastructural, and institutional challenges. The Committee also noted the gradual improvement in labor market conditions which resulted in the additional employment of 349,343 in the third quarter of 2014. The dominance of the informal sector in the new jobs profile, suggests the preponderance of underemployment over the unemployment phenomenon, requiring intensification of reforms to unlock the growth potential of the formal sector.
Given the not too impressive fiscal revenue outlook, the Committee challenged the sub-national governments to seize this unique opportunity to reduce reliance on allocations from the Federation Account in funding their operations. To this end, the Committee commended the efforts of some states which recorded unprecedented growth in Internally Generated Revenues (IGRs) in 2013. Consequently, the Committee enjoined other states of the Federation to emulate these states by strengthening their IGR mechanisms with a view to minimizing reliance on FAAC allocations with attendant disruptions to their budget implementation arising from dwindling oil revenues.
A major issue considered by the Committee, however, was the declining level of external reserves, which arose from demand and supply constraints. On the supply side, the falling oil price has considerably reduced the accretion to external reserves thus constraining the ability of the Bank to continually defend the naira and sustain the stability of the naira exchange rate. The supply side is further weakened by the commencement of normalization of monetary policy by the US Federal Reserve following the termination of the third quantitative easing on 29th October, 2014; a development which has accentuated capital outflows. These developments are against the backdrop of considerable loss of fiscal space following from our inability to build sufficient reserves during the boom days.
On the demand side, the pressures in the foreign exchange market were aided mostly by the excess liquidity conditions in the banking system and speculative activities. It has become increasingly worrisome that improvement in liquidity conditions in the banking system, designed to enhance the resilience and stability of the banking system, has not translated to increased credit expansion to the real sector to engender inclusive growth and boost employment. Rather, it has led to an upward pressure in the foreign exchange market and Standing Deposit Facility window of the Bank while banks continually exercise a cautious approach to lending.

Against this background, the Committee is of the view that the current challenge requires bold policy moves on both the demand and supply sides of the foreign exchange market. Consequently, bold policy and administrative measures in the management of the nation’s stock of foreign exchange reserves have become inevitable in order to align the market towards its long-run equilibrium path. On this note, the Committee wishes to reiterate that the Bank remains committed to a stable exchange rate within the limits of available resources and would continue to maintain sufficiently strong level of external reserves to meet its short term obligations and other regular balance of payments commitments. Without prejudice to this commitment, our foreign exchange management framework would have zero tolerance for infractions and would penalize economic agents whose primary objective is to speculate in the Nigerian market.
The Committee is fully aware of the short run implications of a tight monetary policy stance on lending and growth. However, available data indicates that banking system liquidity has been lavishly deployed in pursuit of speculative foreign exchange trading at the short-end of the market. While the Committee remains fully committed to the goal of promoting inclusive growth through lower interest rates in the medium- to long-term, banks as agents of financial intermediation have a critical role to play in the nation’s development process. A banking system with an overly high profit motive negates the core tenets of banking and purpose of a banking license. Under the circumstance, monetary policy must be bold and emphatic on the goals macroeconomic management seeks to achieve and encourage the flow of credit along those lines.
The current situation demands that the Bank confronts the issue of declining external reserves head-on in order to strengthen the value
of the domestic currency. Consequently, stabilizing prices and maintaining exchange rate stability and charting a sustainable path for medium to long-term growth are the immediate top priorities. The Committee remains committed to these in order to sustain the credibility of our policies and anchor the expectations of our core stakeholders.
In the Committee’s opinion, a more flexible naira in the face of non- existent fiscal buffers was the most viable policy option at a time of heightened demand pressure for foreign exchange and falling oil prices. The Committee was, therefore, of the view that if it failed in taking the right policy actions now, the market would force the Bank to take more drastic actions in the future with far less foreign exchange reserves. Also, given the level of excess liquidity in the banking system, it becomes imperative for the Bank to address the sources of the foreign exchange demand pressure.
In the light of the above considerations, the Committee was of the opinion that the economy stood to gain by:
a) Further tightening of monetary policy stance to anchor inflation expectations; and
b)Allowing some flexibility in the exchange rate to stem speculative activities and depletion of reserves.
Consequently, the Committee decided as follows: of the domestic currency. Consequently, stabilizing prices and maintaining exchange rate stability and charting a sustainable path for medium to long-term growth are the immediate top priorities. The Committee remains committed to these in order to sustain the credibility of our policies and anchor the expectations of our core stakeholders.
In the Committee’s opinion, a more flexible naira in the face of non- existent fiscal buffers was the most viable policy option at a time of heightened demand pressure for foreign exchange and falling oil prices. The Committee was, therefore, of the view that if it failed in taking the right policy actions now, the market would force the Bank to take more drastic actions in the future with far less foreign exchange reserves. Also, given the level of excess liquidity in the banking system, it becomes imperative for the Bank to address the sources of the foreign exchange demand pressure.
In the light of the above considerations, the Committee was of the opinion that the economy stood to gain by:
a) Further tightening of monetary policy stance to anchor inflation expectations; and
b)Allowing some flexibility in the exchange rate to stem speculative activities and depletion of reserves.
Consequently, the Committee decided as follows:of the domestic currency. Consequently, stabilizing prices and maintaining exchange rate stability and charting a sustainable path for medium to long-term growth are the immediate top priorities. The Committee remains committed to these in order to sustain the credibility of our policies and anchor the expectations of our core stakeholders.
In the Committee’s opinion, a more flexible naira in the face of non- existent fiscal buffers was the most viable policy option at a time of heightened demand pressure for foreign exchange and falling oil prices. The Committee was, therefore, of the view that if it failed in taking the right policy actions now, the market would force the Bank to take more drastic actions in the future with far less foreign exchange reserves. Also, given the level of excess liquidity in the banking system, it becomes imperative for the Bank to address the sources of the foreign exchange demand pressure.
In the light of the above considerations, the Committee was of the opinion that the economy stood to gain by:
a) Further tightening of monetary policy stance to anchor inflation expectations; and
b)Allowing some flexibility in the exchange rate to stem speculative activities and depletion of reserves.
Consequently, the Committee decided as follows:
  1. Increase the MPR by 100 basis points from 12.00 to 13.00 per cent 
  2. Increase the CRR on private sector deposits by 500 basis points from 15.00 to 20.00 per cent with immediate effect 
  3. Move the midpoint of the official window of the foreign exchange market from N155/US$ to N168/US$ 
  4. Widen the band around the midpoint by 200 basis points from +/-3 per cent to +/-5 per cent. 
  5. Retain public sector CRR at its current level of 75.00 per cent 
  6. Maintain a symmetric corridor of +/- 200 basis points around the MPR 
  7. Retain the net open foreign exchange trading position at 1.00 per cent. 
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