Nigeria’s external reserves record 3.32 percent increase - Nigeria’s gross external reserves stood at US$ 34.85 billion as at 15 September, 2011, representing an increase of US$ 1.12 billion or 3.32% above the level of US$ 33.73  billion recorded on 21 July, 2011, just as the  foreign capital  inflows for the first eight months of the year also increased, the Monetary Policy Committee (MPC) said in a communiqué Monday after its meeting.

“The increase followed increasing inflow of royalties into the federation account, reflecting the upward trend in international oil prices and stable oil production in the Niger Delta,' said the Communiqué which was posted on the Central Bank of Nigeria (CBN) website and signed by the Governor, Lamido Sanusi.

It continued, “Besides, foreign direct and portfolio investments increased over the last eight months. Foreign capital inflows for the first eight months of 2011 stood at US$ 5.66 billion which is US$ 1.06 billion or 23.04 per cent higher than the US$ 4.60 billion recorded in the corresponding period of 2010.”

The MPC met to review domestic economic conditions during the first eight months of 2011 and the challenges facing the Nigerian economy against the backdrop of developments in the international economic and financial environment in order to reassess the challenges facing the country's monetary policy for the rest of 2011.

On the global scene, the Committee noted that current international developments presented substantial economic uncertainties, clouding the outlook for global growth and inflation.

These developments included the increasingly weak and volatile global financial markets, deepening debt crisis in the Eurozone, global implications of slow growth at a time of limited fiscal flexibility, rising commodity, food prices and costly natural disasters.

“There is a general expectation that there would be a slowdown in almost all advanced economies in the near term, raising fears of a second recession. These developments, in the Committee’s view, affect the domestic economy through trade and financial flows. Also, international financial markets present a very volatile and uneven picture, reflecting a high degree of uncertainty,” the Communiqué said.

On the domestic front, the MPC noted that inflationary pressures faced by the domestic economy had slightly moderated following the series of monetary policy tightening measures adopted by the Bank and complemented by a favorable harvest.

The Committee also observed that the output growth rate for the second quarter of 2011 remained robust. Provisional data from the National Bureau of Statistics (NBS) indicated that real Gross Domestic Product (GDP) grew by 7.72 per cent in the second quarter of this year, which is above the 7.69 per cent recorded in the second quarter of last year.

Overall GDP growth for 2011 is projected at 7.85 per cent which is slightly lower than the 7.87 recorded in 2010.

Surprisingly, the non-oil sector remained the major driver of growth in the Nigerian economy. It recorded 8.82 per cent growth rate compared to the 1.81 per cent for the oil and gas sector in the second quarter of 2011.

The growth drivers included agriculture which contributed 2.48%, followed by wholesale trade, 1.88%, retail trade and services 2.52%.

On domestic Prices and inflation, the Committee noted that the moderation in inflationary pressures, which commenced towards the end of the second quarter of 2011, continued into the third quarter.

According to the Communiqué, ”The year-on-year headline inflation rate decreased from 9.4 per cent in July, 2011, to 9.3 per cent in August and core inflation decelerated from 11.5 per cent to 10.9 per cent during the same period. However, food inflation rose to 8.7 per cent in August, 2011, from 7.9 per cent in July”.

The MPC also noted that the Nigerian capital market continued to experience bearish performance during the period under review. The All-Share Index (ASI) decreased by 15.5 per cent from 24,980.20 at end-June, 2011 to 21,106.67 on 16 September, 2011.

Market Capitalization (MC) also decreased by 15.7 per cent from 7.99 trillion naira to 6.73 trillion naira during the same period (150 naira = US$ 1).

However, despite the bearish performance, the equity market was more or less fairly valued as reflected in the NSE Price-Earnings (PE) ratios of 10.82 in August 2011, which was close to the 10-year, 8-month median of 11.57.

Moreover, the Committee also noted the performance of the NSE during the review period as consistent with the performance of other stock markets around the world.

It noted that the situation in the capital market reflected lingering risk aversion and deleveraging on the part of foreign institutional investors who are key players on the exchange.

In view of the global and local economic situation, the MPC called for a tightening of monetary policy, saying 'For monetary policy to be effective it would need to be complemented by other policies, both structural and fiscal'.

While emphasizing the need to improve the security situation in the country, the Committee considered that given the difficult and uncertain international environment, it was important to ensure that the current trends in growth were sustained and price stability maintained.

Pana 20/09/2011