Excerpt from the statement by the Central Bank of Nigeria:
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 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 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 nonimport 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.
The Committee noted that the actions taken at the last MPC have served the purpose of helping the naira avoid the fate of other developing-country currencies by keeping it relatively stable. It also noted the continued moderation in inflation and the benign outlook for the next six months. Finally, with the FOMC decision not to begin tapering asset purchases immediately, and the improved outlook for financial stability in Europe after the German elections, the risks of currency instability are significantly reduced. The monetary stance maintained by the US Federal Reserve is positive for international oil prices and portfolio flows.