Central Bank of Nigeria Communiqué No. 101 of the
Monetary Policy Committee Meeting of Monday and
Tuesday, May 18 and 19, 2015
The Monetary Policy Committee met on 18th and 19th May, 2015
against the backdrop of fragile but moderate growth and
accentuating discrepancies in global output across regions and
intensification of weaknesses in the domestic economy. In
attendance were 11 out of the 12 members. The Committee
reviewed the fragilities in the global economic and financial
environment in the first four months of 2015, and reassessed the short
to medium-term policy options for the domestic economy.
International Economic Developments
The Committee noted that global economic recovery continued at
a modest but uneven pace partly because most countries were just
shedding the deadweights of 2014. The IMF has projected a
marginal increase in global output from 3.4 per cent in 2014 to 3.5
per cent in 2015, although with considerable variation across regions

and major economies. The softening oil prices have continued to
support an uptick in growth of oil importing countries but dampening
growth prospects in major oil exporting economies. Overall,
economic activities have gained some traction particularly in the US,
underpinned
by
sustained
monetary
easing,
ebbing
fiscal
consolidation, improvements in housing market conditions, lower
financing cost, rising private consumption and increase in real
household income. Elsewhere, low commodity prices continued to
boost higher aggregate demand in addition to creating conditions
for accommodative monetary policy especially in Japan and the
euro area where recovery appears to suffer severe setbacks due to
structural bottlenecks and the threat of deflation. For the Eurozone,
however, the massive quantitative programme of the ECB opens a
new growth vista, halting the slide in potential output and
engendering a more solid recovery.

Global growth is expected to accelerate to 3.8 per cent in 2016 but
with significant downside risks. Protracted stagnation in the Euro area

could constrain global trade while the anticipated end of monetary
easing in key industrial countries could limit investment growth. In
addition, stronger currencies in both the US and UK may likely
moderate net exports coupled with lower capital expenditure in the
energy sector due to the softening oil prices. Furthermore, the huge
asset purchase program by the UK Treasury and the Bank of Japan is
an indication of divergent monetary policy stance among key
advanced economies with the attendant widening of long-term
interest rate differentials. We are of the view that with the UK inflation
at -0.1 per cent in April, the size of its asset purchase programme of
£385 billion may be revisited by the Treasury.

For many emerging markets, the outlook for growth is less optimistic,
reflecting cyclical factors, domestic policy tightening, political
tension, and structural factors. In China, growth is expected to
decline below the long run target of 7.0 per cent in 2015 owing to
financial market vulnerabilities,
declining
productivity,
excess
capacity, and weakening domestic demand. It is however,

envisaged that recent policy stimuli by both government and the
Peoples Bank of China would help unwind the excess capacity and
strengthen the financial system with the ultimate goal of restoring
growth to the historical path in the long run.

Developing economies as a group continue to show relative
resilience with growth projected to accelerate from 4.4 per cent in
2014 to 4.8 per cent in 2015. Growth in the developing economies is
also expected to remain uneven in the near term, reflecting the
pattern in the advanced economies. Countries with high trade
exposure to US and UK would likely gain substantial momentum while
those depending on the Euro Area may experience continuing slow
down in export demand in the near to medium-term.

Key risks to growth in the developing countries include the possible
tightness in the global financial markets and the diverging stance of
monetary policy in the advanced economies which portend grave
consequences for capital flows, exchange rate stability, and inflation

expectations. In addition, sudden deterioration in liquidity conditions,
volatility in commodity and financial markets, narrowing fiscal space,
and rising geopolitical tensions are headwinds that could constrain
global output growth. Thus, monetary policy in a number of
developing countries has to contend with the delicate choice
among supporting growth, reining in inflation and stabilizing
currencies and the financial systems.

Global inflation remains benign and is expected to be moderate in
2015-16 due to the tailwinds from the sharp drop in the prices of
crude oil, excess capacity and appreciation of currencies in key
advanced economies.

Domestic Economic and Financial Developments
Output
The deceleration in growth, which commenced in the third quarter
of 2014, intensified in the first quarter of 2015 in the aftermath of
declining crude oil prices. The National Bureau of Statistics (NBS)
estimated Real GDP growth at 3.96 per cent in the first quarter of

2015, which is significantly lower than the 5.94 and 6.21 per cent in
the preceding quarter and the corresponding period of 2014,
respectively. Real GDP growth is projected to decline to 5.54 per
cent in 2015 from 6.22 per cent in 2014. In line with trend, the non-oil
sector remained the main driver of growth in the first quarter of 2015,
recording 5.59 per cent. The key growth drivers in the non-oil sector
during the period were services, trade, and agriculture which
contributed 2.82, 1.27, and 1.05 percentage points, respectively. The
modest improvements recorded in the oil sector in the fourth quarter
of 2014 appear to have been reversed as oil GDP contracted by
8.15 per cent in the first quarter of 2015 compared with an increase
of 1.2 per cent in the preceding quarter.

The Committee expressed concern about the weakening economic
momentum but recognized the relative similarity in the condition to
the evolving economic environment in virtually all oil exporting
economies, suggesting the need for acceleration of various ongoing
initiatives to diversify the economic base of the country.

With the successful completion of the 2015 general elections and the
progress recorded so far in the fight against insurgency, the
Committee was optimistic that the slow pace of economic
momentum would reverse in the near term.
Prices
The Committee noted that the year-on-year headline inflation crept
upwards for the fourth consecutive month in April 2015. The inflation
rate rose from 8.2 per cent in January 2015 to 8.5 per cent in March
and further to 8.7 per cent in April. The increase in headline inflation
in April reflected increases in both the core and food components.
Core inflation rose to 7.7 per cent in April from 7.5 per cent in March,
while food inflation increased to 9.5 per cent from 9.4 per cent over
the same period.
The Committee noted that the uptick in inflationary pressures, yearto-date, was largely traceable to transient factors such as high
demand for transportation, food and energy, especially in the
period around the general elections as well as the Easter festivities. It

also noted the roles played by system liquidity and the pass-through
effects of the recent depreciation of the naira exchange rate. When
the transient causes are isolated, the Committee observed the
decline in month-on-month inflation across all the measures in April
as headline inflation moderated to 0.8% from 0.9% in March; core
inflation moderated to 0.6% from 0.8% and food inflation moderated
to 0.9% from 1.0%.
The Committee reiterated its commitment to price stability noting
that given the already tight stance of monetary policy and the
transient nature of the incubators of the current inflationary trend,
which are outside the direct control of monetary policy, the space
for maneuver remains constrained, necessitating the intervention of
fiscal and structural policies to stimulate output growth.
Monetary, Credit and Financial Markets Developments
Broad money supply (M2) increased by 1.80 per cent in April 2015,
over the level at end-December 2014. When annualized, M2
increased by 5.39 per cent, which is lower than the growth
benchmark of 15.24 per cent for 2015. The modest increase in

money supply reflected the growth in the net domestic credit (NDC)
of 9.66 per cent. Annualized, net domestic credit grew by 28.98 per
cent over the end-December, 2014 level, which was within the
provisional benchmark of 29.3 per cent for 2015. The significant
growth in aggregate credit was traced mainly to Federal
Government borrowing which increased by 177.26 per cent in April
2015 or 531.78 per cent on annualized basis.
In the period under review, money market interest rates were
relatively volatile, reflecting the fluctuations in liquidity in the banking
system. Average inter-bank call and OBB rates, which opened at
11.92 and 10.75 per cent on 2nd March 2015, closed at 15.00 and
13.26 per cent, respectively, on April 17, 2015. Average inter-bank
call and OBB rates for the period were 19.02 and 17.45 per cent,
respectively.
The Committee noted a modest improvement in the equities
segment of the capital market during the review period. The AllShare Index (ASI) rose by 9.3 per cent from 31,744.82 on March 31,
2015 to 34,708.11 on April 30. Similarly, Market Capitalization (MC)

increased by 10.0 per cent from N10.72 trillion to N11.79 trillion in the
same period. However, relative to end-December 2014, the indices
increased marginally by 0.1 and 2.7 per cent, respectively. The
recovery in share prices particularly in April 2015 was largely due to
improvements
in
earnings
and
sentiments,
amid
successful
conclusion of the 2015 general elections.
External Sector Developments
The average naira exchange rate was relatively stable at both the
interbank
and
Bureau-de-Change
segments
of
the
foreign
exchange market during the review period. The exchange rate at
the interbank market opened at N197.80./US$ and closed at
N197.00/US$, with a daily average of N197.04/US$. This represented
an appreciation of N0.80k for the period. At the Bureau-de-Change
segment, the exchange rate opened at N225.00/US$ and closed at
N217.50/US$, with a daily average of N216.75/US$. This represented
an appreciation of N7.50k for the period.
The stability and modest appreciation in the two segments of the
market was largely due to the closure of the rDAS market and the

modified two-way quote trading at the inter-bank segments of the
market. Gross official reserves rose from US$29.34 billion at endMarch 2015 to US$30.05 billion on May 15, 2015.
Committee’s Consideration
The Committee noted the salutary effects of the successful conduct
of the 2015 general elections on the macroeconomic environment.
The Committee expressed optimism that the confidence and
goodwill arising from the successful elections would stem the spate
of capital reversal, reduce pressure in the foreign exchange market
and stabilize the financial markets in the short to medium term. A
combination of the renewed confidence and recent administrative
measures around the foreign exchange market have eased pressure
on the naira, resulting in relative stability in all segments of the foreign
exchange market.
The Committee was concerned about the creeping headline
inflation since January 2015 but noted that the causal factors were
largely transient and outside the purview of monetary policy.
Furthermore, the significant rising trend in credit to government was

regarded as potential headwinds to growth with negative spillovers
to the already elevated lending rates, credit to the private sector
and aggregate domestic investment including inflationary pressures.
The Committee expressed deep concern over the lackluster
performance of the external sector arising from a number of
significant global shocks.
First, the prospects of monetary policy normalization in the US with
attendant increase in global interest rates and accentuating capital
flow reversal which could further exacerbate tightness in global
financial conditions and create further pressure on the naira.
Second, the continued glut in crude oil supplies amidst softening
prices, anchored by sluggish global output expansion could further
threaten foreign exchange earnings and accretion to external
reserves over a much longer period. A near- term rally in oil prices is
further undermined by the diminishing market power of the
Organization of the Petroleum Exporting Countries (OPEC).

Third, the anemic recovery in the Euro Area and Japan and tepid
growth conditions in China constitute an additional drag on crude
oil exports prospects. Consequently, the decline in trade balance,
which commenced in the second half of 2014, could persist over a
much longer period with further implications for public revenues and
external reserves.
In the light of these developments, the Committee stressed the need
for proactive measures to protect the reserve buffer to safeguard
the value of the domestic currency and engender overall stability of
the banking system. It was, however, noted that monetary policy is
gradually approaching the limits of tightening and would, therefore,
require complementary fiscal and structural policies.
Furthermore,
the
Committee
considered
that
the
current
discriminatory CRR on public and private sector deposits has not only
constrained the policy space but could inspire moral hazard by
private market participants. Consequently, it was recognized that
while additional tightening measures may not be appropriate now
to avoid overheating the economy, a harmonization of the CRR was

imperative in order to curb abuses and improve the efficacy of
monetary policy.
The Committee’s Decisions
In view of these developments, the Committee decided by a
unanimous vote to retain the current tight stance of monetary
policy. One member voted to increase CRR on private sector
deposits from 20 to 25 per cent and retain CRR on public sector
deposits at 75 per cent while another member voted to retain the
CRR on private sector deposits at 20 per cent and increase CRR on
public sector deposits from 75 to 100 per cent. Nine members, voted
to harmonize the public and private sector CRR at 31 per cent. Two
members voted to remunerate a portion of the CRR. All members
voted to retain all other decisions taken at the last meeting of the
MPC while improving the implementation of the CRR regime.
Consequently, the MPC voted to:
(i)
Retain the MPR at 13 per cent with a corridor of +/- 200 basis
points around the midpoint;
(ii)
Retain the Liquidity Ratio at 30 per cent; and

(iii)
Harmonize the CRR on public and private sector deposits at
31.0 per cent.

Thank you.
Godwin I. Emefiele
Governor, Central Bank of Nigeria
19th May 2015

PERSONAL STATEMENT BY THE MONETARY POLICY
COMMITTEE MEMBERS

1.0
ADELABU, ADEBAYO

This Monetary Policy Committee meeting is being held on the
backdrop of increasing external vulnerabilities and intensification of
domestic weakness. The challenges in the external sector, which
commenced in the second half of 2014, are becoming severe and
complicated with the prolonged softness in crude oil prices. Within
the domestic economy, the deceleration in Real GDP since the third
quarter of 2014 is assuming a precarious dimension as the National
Bureau of Statistics (NBS) estimated real growth rate at 3.96 per cent
for the 2015Q1, lower by 1.98 percentage points from the preceding
quarter. Developments in the price level are equally worrisome with
headline inflation accelerating since January 2015, driven by
increase in both food and core components.
The outlook for the medium term is clouded with considerable
degree of risks and uncertainties. In the external sector, a relative

degree of stability has been observed in the foreign exchange
market and by extension, accretion to the external reserves following
the recent administrative measures introduced by the Bank coupled
with the successful conduct of the general elections in March 2015.
Nonetheless, the key fundamentals are still weak.
The anxiety in respect of capital flows reversal from developing
economies may not crystallize in the near term due to the likelihood
of monetary policy remaining in the easing mode in the USA as well
as the ongoing massive asset purchase program of the European
Central bank and Bank of Japan but the development in the oil
market is less optimistic. Although some rally was observed in the
prices of crude oil in April 2015, the prospects of sustaining the trend
is weak on the backlash of rising level of global inventories coupled
with high likelihood of increase in global supply particularly if the
ongoing Iran nuclear deal with the USA scales through. In addition,
protracted softening of economic activities in the Euro area and
leading emerging economies such as China would further

undermine global demand with the attendant negative impact on
prices.
Within the domestic economy, growth prospects are becoming
weaker not only due to adverse developments in oil prices but
equally resulting from deteriorating domestic macroeconomic
conditions. Detailed analysis reveals that the significant slump in GDP
in the first quarter was largely due to the rising intermediate cost as a
result of depreciation of the currency. This suggests that economic
weakness may persist in the near to medium term. Another major
issue of concern is the apparent dollarization of the economy.
Currency substitution index as a measure of store of value is already
above 30 per cent international benchmarking, suggesting the
imperative of measures to halt the trend.
The major issue is the creeping headline inflation with the possibility
of crossing the single digit threshold in the near term and the
attendant credibility issue to monetary policy. This development is no
doubt a trigger of further tightening of the monetary policy stance,
particularly when viewed in isolation of other developments in the

economy. However, there is at least cheering news on inflationary
development, which is the fact of moderation on month on month
basis. Thus, in the context of observed deceleration in growth and
the decline in the month-on-month inflation across all the measures,
the need for some caution becomes strong. Besides, the major
sources of inflationary pressure in the last three months are transient-
increased demand for transportation and food related to political
uncertainties, fuel scarcity, and festivities (Sallah and Easter) which
effects are expected to wane rapidly. In the light of the foregoing, I
am of the view that the current monetary policy measures should be
retained.
Notwithstanding, available money market data in the recent times
shows evidence of liquidity build, which tends to raise issues about
the
efficacy
of
the
implementation of
the
Cash
Reserve
Requirements (CRR). The current discriminatory Cash Reserve
Requirements (CRR) on public and private sector deposit is an
exception rather than the rule. Besides limiting monetary policy
space, it also engenders rent seeking and speculative behavior

among market participants and ultimately reduces the efficacy of
the instrument. Given that CRR is a blunt instrument with the ultimate
objective of draining liquidity from the system, I would like to support
the harmonization of the CRR.
With respect to the perverse incentives associated with heavy
reliance on public sector fund by the banks, the ongoing reform by
the fiscal authority on Treasury Single Account (TSA) could address
the
issue.
Thus,
the
monetary
authority
should
strengthen
coordination with the fiscal authority to accelerate the process of
TSA.
In harmonizing the CRR, however, there is a compelling need to put
the health of the banking system into consideration. Recent results
from the operations of the banks revealed that they are becoming
more dependent on highly volatile non-interest incomes at the
expense of the traditional sources of revenue which is interest
income. Apart from the fact that the new trend is not sustainable, it is
equally at variance with the whole essence of banking which is to
promote financial intermediation. Among others, a principal driving

factor of this phenomenon is high cost of funds due to some of the
subsisting monetary policy measures. With current liquidity ratio of 30
per cent, a substantial high CRR on consolidated deposit would
further increase the cost of funds and ultimately lending rates with
implication for non-performing loans. This, invariably, is an incentive
for the banks to skew their business model against real financial
intermediation. To halt this trend, therefore, I am of the view that part
of the CRR should be remunerated in order to alleviate the burden
of cost on the banks.
In the light of the foregoing, I wish to propose a consolidated CRR
rate of 31 per cent but with a floor of 25 per cent, such that the
excess above the floor will qualify for remuneration.

2.0
ALADE, SARAH O.

Global economic growth has remained moderate with uneven
prospects for different countries and regions, and some momentum
coming from advanced economies. In emerging markets, while
earlier projected risks have diminished, new ones have emerged as
a result of lower than expected inflation in advanced countries,

which will impact output and prices. In the domestic environment,
although stability has returned to the foreign exchange market after
some period of turbulence, the political transition and uptick in
inflation due to seasonal planting period calls for a hold on monetary
policy rate to safeguard the gains made. Based on the above, I
support a hold in Monetary Policy Rate (MPR), and harmonization of
Cash Reserve Requirement (CRR) in both public and private sector
deposits to 31 per cent to safeguard the local economy.
Global economic growth has improved albeit with some downside
risks. Global growth which is projected at 3.5 per cent in 2015 has
remained moderate, with uneven prospects across countries and
regions. The outlook for advanced economies is improving, while
growth in emerging market and developing economies is projected
to be lower, primarily reflecting weaker prospects for some large
emerging market economies and oil-exporting countries. Outlook for
global growth has turned positive on the recovery from the
advanced countries led by United States, United Kingdom and
Germany. In the United States, after a weak first quarter growth, the

momentum in the second quarter has reduced concerns that weak
first-quarter growth represents a loss of economic momentum. In
April about 223,000 jobs were added to the economy bringing
unemployment rate down to 5.4 per cent. While the report
suggested underlying strength in the economy at the start of the
second quarter after a bad stumble, wage growth was tepid and
March payrolls were revised downward, leading financial markets
analysts to push back rate hike by the FED to the last quarter of the
year. In the Euro zone, recovery is expected to continue, with growth
reaching 1.5 per cent in 2015 from 0.9 per cent in 2014. Lower oil
prices, lower interest rates, and euro depreciation, as well as the shift
to a broadly neutral fiscal stance, are projected to boost activity in
2015 into 2016. In emerging market and developing economies,
growth is projected to be mixed. While some commodity exporting
countries, especially oil exporters are expected to see reduced
growth, oil importing countries are expected to see increase in
growth. India is expected to grow to 7.5 per cent in 2015 from 7.2 per
cent recorded in 2014 according to the IMF WEO, April 2015. In view

of these developments, monetary policy is expected to remain
responsive to the policy issues these pose for the Nigerian economy.

Headline inflation increased to 8.7 percent in April compared to 8.5
percent recorded in March 2015. Headline inflation increased to 8.7
per cent in April, suggesting that inflation may be expected to stay
elevated in the coming months, as local food supply dwindle at the
start of the planting season. Although a slight increase, it is still within
the Central Bank target of between 6- 9 per cent and the overall
goal of single digit inflation. However, this is the fifth consecutive
month of increase in the headline inflation and the highest rate
recorded for the year. Core inflation rose slightly to 7.7 per cent in
April from 7.5 per cent recorded in March, 2015, while food inflation
increased slightly to 9.5 per cent from 9.4 per cent recorded in the
previous month. The increase in food index is driven mainly by
dwindling local food stocks as planting season commenced;
suggesting that future increase in inflation is to be expected. This
consecutive increase in inflation would suggest a monetary policy
action, however, the sluggish growth recorded suggest a counter

narrative. Increasing monetary policy rate at this time could further
put added pressure on growth. Aside from the seasonal factors
driving inflation, the fiscal shock as a result of dwindling revenue may
help dampen further inflation increase. Based on this, monetary
policy should give consideration to growth and be mindful of the
feedback effect of the fiscal shock and food supply seasonality.

Domestic growth has remained subdued in the first quarter of 2015,
with further downside risks. The forecast for 2015 GDP growth ranged
from 6.5 per cent to 4.9 per cent but there are risks to this projection.
Gross Domestic Product (GDP) grew by 3.96 percent in the first
quarter of 2015. This was lower by 1.98 percentage points from the
preceding quarter and by 2.25 percentage points from the
corresponding quarter of 2014. The lower government revenue as a
result of lower oil prices has affected economic growth. While the
rebased GDP suggest that the economy is now more diversified and
broad-based, sustaining the momentum and creating inclusive
growth is the task all policy makers should take seriously. This will
require creating an environment that is both competitive and

attractive to foreign and domestic investors. The security challenges
in the country has the potential of further impacting growth
negatively, although the recent successes recorded by the
government suggests that the end could be in sight.

Pressure in the foreign exchange market has eased and some level
of stability has returned. Pressure at the foreign exchange market
window has eased as the diligent and coordinated efforts by the
Central Bank to restore stability paid off. This has been helped by the
foreign exchange inflows by foreign investors in the local bond
market and other portfolio flows after the election. Rates at the
Interbank and Open Buy Back (OBB) rate have remained within the
band at 13.54 and 14.29 per cent respectively as at May 15, 2014.
These indicate appropriate level of liquidity in the system as banks
accessed the Standing Deposit facility (SDF) more than they
accessed the Standing Lending Facility (SLF) window since the last
MPC in March. In addition, lending rates remained high at an
average of 21 per cent, suggesting that care must be taken to

manage the structural liquidity and the structural impediments to
credit growth in the economy.

Overall, the monetary policy stance remains appropriate given the
divergent monetary policies on the global scene, rising inflation,
declining growth and lack of fiscal buffers in the domestic front.
Based on this, I vote for a hold on the Monetary Policy Rate, and the
harmonization of Cash Reserve Requirements (CRR) on the public
and private sector deposits to 31 percent.

3.0
BALAMI, DAHIRU HASSAN

GLOBAL ECONOMY
At the global level, growth is expected to be mixed but slightly
higher in 2015 particularly in advanced economies which is likely to
support growth in emerging economies when compared to 2014.The
global growth rate is estimated to be 3.5% in 2015. Advanced
economies to grow at 2.4%, US to grow at 3.1% and Euro Area by
1.5%.

EURO ZONE
Activity growth in the Euro Area was beginning to pick up e.g
Germany’s output has been robust at 0.7% and credit availability
also continue to improve, France (0.12%) and U.K (2.7%) on the
average Euro Zone had grown by 0.3% in fourth quarter of 2014 and
continues into the 1st quarter of 2015, while Japan is to grow by 1.0%.
UNITED STATES OF AMERICA
United States of America is leading the global recovery of output
growth as consumer demand strengthened on the heel of falling oil
price in the 1st quarter of 2015. There is also the possibility of rise in US
short-term interest rate leading to outflow and currency weakness
among trading partners. An increase in US interest rates will lead to
softening growth in the emerging markets like China, Brazil, India and
Argentina.

EMERGING ECONOMIES
A range of emerging markets had seen signs of pick-up in growth in
the fourth quarter of 2014, extended to the 1st quarter of 2015.
However the forecast is that overall growth in 2015 will slow from 4.6%
in 2014 to 4.3%. China is expected to grow at 6.8% this year, lower
than the 7.4% achieved in 2014. Chinese authorities had to reduce
policy rate, reduce the cash reserve requirement ratio in response to
slower growth, falling inflation and tightening in monetary condition
caused by capital outflows and the strong effective exchange rate.
SUB-SAHARA AFRICA
We expect growth in sub-Sahara Africa to average 4.9% in 2015. The
challenges at the global level include geopolitical tension and
conflict, negative effect of commodity price fall, weak external
demand, global inflation that continues to be low. However, there
are other major specific factors such as softening commodity prices,
political crises, adverse weather conditions and large swings in
regional currencies. All the above have implications for the Nigerian
economy.

DOMESTIC ECONOMY
GDP Growth
At the domestic level, Real GDP in 2015Q1 grew at 3.96%, lower than
the 6.21% in the corresponding quarter of 2014. The growth
performance was affected by contraction of nominal GDP and
decline in consumption, fixed investment and net exports. The IMF
has marked down Nigeria’s growth in 2015 to 4.8% from 6.3%
previously.

Inflation

Inflation currently stands at 8.7% in April 2015 from 8.2% in January
due partly to exchange rate depreciation reflecting the passthrough to higher domestic prices from imports. Note that Nigeria is
a highly import dependent economy. However, food inflation rate
inched up to 9.4% from 9.38% in March 2015. Headline inflation
remains a single digit. Nigeria may not enjoy the effect of cheap oil
prices because it is oil exporting country and import dependent.

Foreign exchange
For foreign exchange market stability, the monetary policy put in
place is working. However, the Naira Debt card policy is currently
being used in a manner they are not supposed to be used. Hence,
reason for reducing the maximum limit of $150,000 per annum.
Financial Sector
We tested the financial sector soundness of banks using some major
indicators of performance. The results show that Capital Adequacy
Ratio of 17.03%; Non-Performing Loans of 3.97%; Liquidity Ratio of
39.78%; Return on Equity of 19.24% and Return On Asset of 2.42%. The
overall performance of the Nigerian banking industry remains sound
and stable.

The interbank average rate ranges from 12.7% in March to 24.35% in
April 2015. The increase was due to tight monetary policy measures
adopted in the review period.

The external reserves
The external reserves stood at US$29.83 billion, estimated to cover
about 6.57% monthly imports, as at the end of April 30 2015
compared to US$37.1 in April 2014 due to low oil price that
decreased the total exchange inflows into the economy.

Challenges

The current challenges facing the Nigerian economy include:
Decline in industrial output growing slowly due to higher cost, high
interest rate, and depreciation of the naira leading to cost growing
faster than output. Producers are not able to pass all their costs to
consumers because the purchasing power is low, and in some cases,
some state governments are not able to pay salaries for months,
thereby affecting the purchasing power of households.
There is the need to carry out more research on the source of
liquidity, optimal liquidity, currency substitution and possible effect of
rise of interest rates in the US. There is a need to develop a
comprehensive
monetary
policy
framework,
to
pursue
the

implementation of the Treasury Single Account (TSA) programme as
well as improve coordination between the monetary and fiscal
policies. We need more information to take certain decisions,
particularly because of the likelihood of US raising their rate of
interest.
Recommendations
Based on the review of these happenings in the economy I voted to
i. Retain the MPR at 13%,
ii. To harmonise the CRR on private sector deposits of 20% and
public sector deposits of 75%with a minimum of 31% CRR
total bank deposits of both sectors.
This is because the current CRR has led to the re-pricing of loan by
banks. This could affect the capacity of obligors to repay their debt.
iii. Maintain a symmetric corridor of +/- 200 basis points around the
MPR and

iv. Retain the net open foreign exchange trading position at
1.00%.


4.0
BARAU, SULEIMAN

Introduction:
This MPC meeting is holding on the heels of intensification of
weakness on key macroeconomic indicators and significant level of
uncertainty in both the global and domestic macroeconomic
environments. In the global environment, considerable degree of
uncertainty surrounds the timing of commencement of monetary
policy normalization in the US as well as the direction of crude oil
prices in the medium term. Within the domestic economy, there is
the conundrum of slowing GDP and rising inflation while the process
of transiting to another government is ongoing.
Relative stability appeared to have been achieved in the exchange
rate but a lot of pressure still exists in the market, based on the huge
demand which consistently outstripped supply. In the face of rising

uncertainty therefore, it is logical to maintain the subsisting stance of
monetary policy pending the time a clear picture would emerge.
There is however a new dimension of challenge which, in my view,
requires an immediate action otherwise, the modest achievement of
the last two months in terms of fair stability in the foreign exchange
market stands the risk of being reversed. Liquidity build up in the
banking system is assuming a new height and becoming structural in
nature, suggesting that the existing framework for implementation of
the CRR is ineffective.
Thus, while I am voting for the retention of most of the subsisting
measures of monetary policy particularly on the basis of the ongoing
political transition, the discriminatory CRR should be harmonized to
give the desired potency to the instrument.
Key Developments
GDP
Issue around real output is not just about weakness, but the
magnitude of the slump is equally a cause for concern. Real output

growth which was 6.23 per cent in 2014Q3 declined to 5.94 and 3.96
per cent in 2014Q4 and 2015Q1, respectively, representing a
cumulative decline of 2.27 percentage points during the period.
Apart from the challenges in the oil sector, available data shows that
critical sector like manufacturing is also experiencing slow down.
This, invariably, suggests that the entire economy is facing
challenges with implication for employment and poverty. Addressing
the challenge, definitely, requires heavy support from structural and
fiscal policies but monetary policy should be expected to equally
play a complimentary role in terms of ease of policy.
Inflation
There has been consistent threat to general price level from January
2015 up to April 2015, as headline inflation gradually inched up from
8.2 to 8.7 per cent during the period. The uptick in price cut across
the two measures of food and core inflation with the potential of
taking the headline inflation beyond single digit target of the Bank in
the near term with the attendant credibility issue. This, in essence,
suggests some measures of tightening but detailed analysis indicates

that the key drivers are transient factors such as fuel scarcity,
transportation, festivities as well as some elements of seasonality. In
addition, all the measures of inflation decelerated on month-onmonth basis, suggesting that the uptick on year-on-year could have
been largely due to base effect. Following this, monetary policy may
not need to respond to avoid overheating as well as time
inconsistency issues
Exchange Rate and External Reserves:
Following the closure of the rDAS segment of the foreign exchange
market in February 2015, relative stability has been observed in the
remaining two segments of the foreign exchange market. The
exchange rate at the interbank opened at N197.80/US$ on March 2
2015 and closed at N197.00/US$ on April 24, representing a
depreciation of mere N0.8 or 0.4 per cent. Similarly, at the Bureau de
change market, exchange rate opened at N225/US$ and closed at
N227/US$, representing a depreciation of N7.50 or 3.33 per cent
during the period. The stability in both markets could have also
benefited from reduction in political risk premium following the

successful conduct of the general elections. In tandem with
developments in the foreign markets, the external reserves increased
moderately from US$ 29.34 billion at end-March 2015 to US$30.23
billion on May 8, 2015. These seemly positive developments
notwithstanding, considerable degree of pressure still exist in the
market in light of high rate of demand compared with supply.
Global Developments
Two key developments in the global economy weighed heavily on
domestic macroeconomic environments in the first four months of
the year. The first is the sluggish and uneven global growth
particularly in the Euro zone, Japan, and some leading emerging
economies, with severe implication for export demand in developing
economies including Nigeria. The second is the softening crude oil
prices. Brent crude oil price recorded a marginal gain of
US$1.30/barrel in April 2015 over US$62/barrel in December 2014,
representing 2.09 per cent increase. Compared to July 2014
however when the price was at an average of US$112/b, the level in

April 2015 represented a dip. This, in essence, has implication for both
fiscal revenue and accretion to external reserves.
Issues and Pressure Points
A number of key issues would affect macroeconomic environment
and by extension define the path of monetary policy in the near to
medium term. Beginning from the positive side, the successful
conduct of the 2015 general elections has significantly reduced
political risk premium which is expected to have salutary impact on
investment particularly the pricing of risk in the financial markets.
Similarly, the European Central Bank has just commenced massive
asset purchase program estimated at about €1.1 trillion with a view
to averting the possibility of recession in the zone.
It could be argued that the impact of monetary easing of Euro zone
on global financial condition would be moderated by the
anticipated normalization of monetary policy in the US but my take is
that the normalization may not commence in the near terms.
Development in price level in March 2015 revealed that inflation has
moved to negative territory in the US while the currency is also

appreciating. Thus, the Federal Reserve would likely be constrained
particularly when export demand and labor market condition are
factored into consideration. This would likely provide some comfort
in terms of capital flow for emerging and developing economies,
including Nigeria, thus aiding accretion to external reserves and
stability of the exchange rate. The downside risk however is the
likelihood of another round of bubble in the equities market with
implication for asset quality in the banking system which however
could be addressed by the existing macro prudential framework.
A key concern is the softening GDP, traceable to both domestic and
global factors. Protracted stagnation in the Euro zone and leading
emerging economies like China would constrain export demand,
particularly crude oil export. Oil GDP contracted by 8.15 per cent in
2015Q1 compared with an increase of 1.2 per cent in the preceding
quarter, thus requiring urgent remedial action. From the domestic
side, the slowdown in GDP in 2015Q1 was partly due to rising cost
which significantly reduced the net value addition to output. This
invariably suggests the need for policy easing.

Another important concern is the medium term outlook of crude oil
prices. Brent futures in April 2015 recorded the highest monthly rally
since 2009 by rising to US$66.78 per barrel, representing an increase
of 25 per cent relative to the preceding month. Sustainability of the
trend is however confronted with significant downside risks. Further
uptick in price could provide the incentives to reactivate some of
the shale rigs that had hitherto been withdrawn on cost
consideration while the prospects of Iran nuclear deal with the US
could boost global supplies. Thus oil prices are expected to remain
lower than its three-year average in 2015 with severe consequence
for balance of trade, government revenue, external reserves, and
inflation.
External reserves stood at US$30.23 billion on May 8, 2015,
representing a decline of 11.73 per cent from US$34.25 billion at endDecember 2014. The prospect of building reserve buffer to pre 2014
level in the near term is extremely weak in view of the fundamentals
in the global space. A major consequence of the weak external
reserve buffer is the waning confidence which is reflected in the

rising level of dollarization. Presently, currency substitution index as a
measure of store of value and medium of transaction has crossed
the 30 per cent international threshold. This, invariably, creates
perverse incentives for the banking system which has started
jettisoning the traditional source of revenue, which is interest incomes
in favor of non-interest incomes, comprising mainly of volatile foreign
exchange transactions. The net effect is that real financial
intermediation is being relegated to the background with adverse
consequence for the already tapered growth.
Arising from the fall in government revenue is the renewed upsurge
in credit to government, which increased by 187.57 per cent at endMarch 2015, translating to annualized growth rate of 750.28 per cent.
This development is a potential headwind with a negative spillover
to private sector credit, growth and ultimately inflation.
A fundamental concern is the perennial liquidity surfeit in the
banking system. Optimal liquidity is a sine qua non for effective
monetary policy. Development in the money markets revealed that
both the interbank and OBB rates were below the floor of the policy

rate from the later part of April, 2015 reflecting a breakdown of
monetary policy transmission mechanism. My concern is not just
about the liquidity surfeit but the apparent structural nature of the
problem despite the subsisting tight stance of monetary policy.
My sense is that the current implementation framework of the CRR is
ineffective. CRR is a blunt monetary policy instrument with the
cardinal objective of draining liquidity from the banking system,
regardless of the sources of such liquidity. Attempt to segregate
liquidity into public and private sector deposit amounts to placing
too
much
burden
on
monetary
policy,
which
may
be
counterproductive. More fundamentally, enforcement of Treasury
Single Account (TSA) by the fiscal authority would eliminate the need
for discriminatory CRR.
Key Considerations
The overarching consideration for my vote in this meeting is the need
to leverage on the reduction in political risk premium by ensuring a
stable macroeconomic environment that could provide the required

resilience to the adverse conditions in both the global and domestic
environments.
Some of the specific considerations are as follows:
The need to halt the creeping headline inflation and prevent it
from crossing the single digit threshold in order to effectively
anchor expectation of economic agents
The need to build external reserve buffer by making the
economy competitive for capital investments such that the
adverse impact of continuous softening of crude oil prices on
exchange rate and inflation is moderated
The need to permanently address the structural liquidity in the
banking system by improving the efficacy of the CRR
The need to address currency substitution which is assuming a
dangerous dimension
The need to enable the financial system particularly the banking
sector focus on core intermediation

It needs to be stressed that reversing the deceleration in growth
through easing of monetary condition is equally imperative but there
is the more urgent need of stabilizing price level, building external
reserve buffer, and stabilizing the exchange rate in order engender
confidence which would ultimately foster growth in the long run.
Recommendations
I have therefore decided to vote as follow:
Retain the MPR at 13%
Maintain the symmetric corridor at +/_2%
Maintain the LR at 30%
Harmonize the CRR on private and Public sector’s deposit at
31%
5.0
DANIEL-NWAOBIA, ANASTASIA

1. The global economy continues to face the risk of deflation as
international oil prices remain well below their June 2014 prices.
Capital reversals from the Nigerian financial market remains a

source of concern as conditions in the US are on average, looking
upwards. With the elections in Nigeria concluded, there is
renewed expectation of inward capital flows from the European
Central Bank (ECB)’s ongoing quantitative easing program as
earlier perceived sovereign risk may have mostly dissipated.
However, oil exporting countries like Nigeria, Ghana, Russia etc.
are expected to face severe revenue shortfalls as oil export
proceeds may likely remain well below post-June 2014 values.
2. The Nigerian economy is expected to continue on its growth path
as the year progresses, although with less robustness than it did in
2014. The NBS projected GDP growth rate of 5.54 per cent for 2015
as against 6.3 per cent in 2014. The relatively tepid growth outlook
is based largely on the relatively sluggish crude oil markets.
However, growth is expected to gain some momentum in the
second quarter, due to a mild recovery in the global crude oil
markets, as well as the inception of the rainy season that is
expected to boost agricultural activities.

3. Headline inflation keeps trending up, but remained in single digits
since January, 2013, confirming the effectiveness of sustained
tight monetary policy of the Bank. The year-on-year headline
inflation increased to 8.7 per cent in April from 8.5 per cent in
March, 2015. Projections indicate that the year-on-year headline
inflation is expected to rise to 8.32 and 9.05 per cent in May and
June, decline to 8.99 per cent in July before accelerating
thereafter to 10.16 and 10.11 per cent in September and October,
2015, respectively. The observed continued impact of exchange
rate depreciation on imported food; and food supply shortages
emanating from the north-eastern part of the country are some of
the factors expected to influence the rise in the headline inflation
during the year. However, the continued effort by Government to
increase food production is expected to impact positively on
inflation.
4. Consequent to the current CBN exchange rate policy regime,
exchange rate stability has returned in the foreign exchange
market. However, concerns still remain as net foreign exchange

inflow remains low. The demand pressures have also not abated,
posing threats of further depreciation.
5. Information from the capital market suggests a recovery ahead
for the economy. Projections based on the All Share Index (ASI)
indicate improved performance in the next six months and thus
suggests gradual dissipation of investors’ concerns about the
fragility of the global economy.
6. Developments in the international oil market in recent months
witnessed a considerable rally in the price of Bonny Light crude
(and other crude oil prices) This is largely attributed to the
decrease in the level of output by the U.S. as a result of previous
bearish market trend that discouraged further fracking in the U.S.
shale oil industry. However, the current upward trend in global oil
prices is not expected to last, especially, as OPEC is still reluctant
to curb production.
7. The key challenges to monetary policy still remain: Excessive
liquidity in the banking system, pressure on the exchange rate and
the continuous decline in external reserves.

8. In order to enhance the effectiveness of liquidity management,
particularly the implementation of the CRR, I support the
harmonization of the public and private sector CRR. Furthermore,
there is need for enhanced co-ordination and collaboration
between the fiscal and monetary authorities to ensure the full
implementation of the Treasury Single Account (TSA). This will
enhance public financial management as well as ameliorate the
problem of excess liquidity in the banking system.
9. In view of the above, it is advisable to sustain the current tight
monetary policy stance of the Bank in order to consolidate the
relative stability achieved thus far.
Consequently, I vote as follows:
(i) The Monetary Policy Rate (MPR) to be retained at the
current level of 13% and corridor of +/- 2% for the intermeeting period.
(ii) The differential CRR should be removed and replaced with a
single rate of 31 per cent.
(iii)
The liquidity ratio should be retained at 30 per cent.

6.0
GARBA, ABDUL-GANIYU

Background
The global economic outlook is tenuous. There is widespread
nervousness about how the United States will normalize its expanded
balance sheet which like that of many central banks has been
bloated with toxic assets mopped up during the various phases of
quantitative easing. There is also nervousness and uncertainties
about the timing of the impending hikes in interest rates by the US
Federal Reserve. These concerns added to the precarious state of
Greece and the delinking of Eurozone and the United States
monetary policies point to more difficult times ahead for most
economies particularly, emerging economies. Many of these
economies including Nigeria are still challenged by the negative
commodity price shocks and by the reverse flows of portfolio
investments.

The macroeconomic data for the first quarter highlights the high
sacrifice ratio of the high interest rate trap that many emerging

nations including Nigeria have walked themselves into: declining
GDP growth, high unemployment and rising inflation. Though, crude
oil prices have risen by over 30% from the under $50 in January 2015,
the nervousness about the global economy does not support
confidence that the recovery would continue through to the end of
the year. Other macroeconomic risks include the continuing pressure
on the Naira and the fiscal vulnerabilities. Expectations about the
future path of fiscal policy appear to be positive. If monetary-fiscal
cooperation and coordination are prioritized and produce a
comprehensive and consistent strategy, the effects on Nigerian
financial markets including government securities and exchange
rate may be positive.

The Strategic Options
I do not subscribe to the view that monetary policy is short termed
and should focus on short term stability. The conventional wisdom is
that economic agents are forward looking. It is obvious that key
global and national players in the financial markets are highly
sophisticated and strategic. It follows that if players are forward

looking but monetary authorities are backward looking, the players
will always be several steps ahead of policy makers. It is established
that such dis-connects have negative effects on the effectiveness of
policy. In addition, the action lags for necessary structural and
institutional challenges will be longer than necessary. Such problems
are not desirable for any economy in these tenuous times. There is
sufficient evidence of such failures past and more recent history. The
extent and scope of the failures that culminated into the global
financial and economic crisis (the great recession) should make all
policy
makers
who
have
responsibility
for
protecting
their
commonwealths to be proactive and continually alert to ensure that
markets are working to be effectively allocative, aid discovery and
stimulate creativity.
I have no doubt that the primary strategic/policy challenge is to
develop a comprehensive strategic framework that integrates
economic policy, micro-prudential policy and macro-prudential
policy compatible with macro objectives, financial system stability
and effective market functioning. It is hard enough for monetary

authorities to be effective in a global economy characterized and
shaped by asymmetries, market power and strategic behaviours
(legal and illegal) by dominant players as they struggle to sustain
their advantages.
One of the enduring lessons of the global financial crisis and its
aftermath is that monetary authorities must be more proactive and
act timely and decisively to prevent the prohibitive costs of illegal
activities of financial institutions who in their determination to
maximize profit opportunities undermine market functioning. The
exposure of the Libor fixing scandal in 2012 revealed the roles key
British and American global financial players played in fixing Libor
rates between 2005 and 2009 to secure unfair advantages and to rig
the money market. Later revelations have exposed the rigging of
the global foreign exchange markets by six of the largest global
players some of whom were involved in the sub-prime mortgage
crisis and the Libor fixing scandal.

Building consensus on the need for a strategic shift to a forward
looking and comprehensive framework is necessary if the CBN is ‘’to
be proactive in providing a stable framework for the economic
development of Nigeria’’ which is the mission statement of the bank.
I am convinced that given the multiple principal objects of the CBN
as provided for in Section 2 and the dual mandate of the MPC as
provided for in Section 12 (1) of the CBN Act of 2007, a feasible
framework for coordinating fiscal and monetary policy with macro
and micro prudential policies is the top priority. Section 12 (1)
provides that the MPC was established to facilitate the attainment of
the objective price stability and to support the economic policy of
the Federal Government’. I had no doubts whatsoever, that the top
priority issue for the May 2015 MPC was improving on the monetary
framework in ways that strengthen the transmission mechanism of
monetary policy and also provides for a non-passive monetary
policy stance.

The concern with liquidity is appropriate. However, given the
tightening regime from September 2010, the sacrifice ratio of the
‘deflationary policies’, the exposures to portfolio flows and its
consequences, the expansion in balance sheets of the Central Bank
and Deposit Money Banks during and after the completion of
AMCON ‘cleaning of bank balance sheets’ in 2010-2014, it was
necessary to be clear about the real causes of the persistence of the
problem of excess liquidity so that we could effectively control it
without sacrificing growth and jobs or financial system stability.
Otherwise, MPC meetings will consistently be either about tightening
or passivity. I have consistently alluded to a high interest rate trap
that MPC has to deal with in contrast to the low interest rate trap
that many global central banks that deployed aggressive
quantitative easing to stimulate their economies have to deal with.
Decision
I vote to maintain the discriminatory CRR: 75% on public deposit and
25% on private sector deposit (an increase of 500 basis points). When
I voted in favour of discriminatory CRR in July 2013 it was not a

frivolous decision. I feel obliged to reproduce part of my justifications.
I had concluded that ‘’a 50% CRR on government deposit in the first
instance is necessary to start the process of correcting market and
state failures in a concrete and effective way. The very short-run
effects and the likely reaction functions of key players have also
been well analyzed and anticipated. The right institutions to support
the policy are also clear and well within the capacities of the
Banking Supervision Department of the Central Bank.’’

The market and state failures led to ‘’the paradox of substantial
government deposits in Deposit Money Banks (DMBs) and high
government borrowing from the DMBs. As at June 13, 2013, the three
tiers of government had N2.384 Trillion in the DMBs out of which
about 90% are in zero interest bearing Current Accounts. To mop up
the liquidity at 14% will cost N301.33 billion which is more than the
annual budgets of most states. Clearly, governments are overborrowing, are wasteful in the management of public resources and
are undermining the competitiveness of the DMBs. This corporate

welfare, transfers or subsidy is clearly wasteful and costly. In addition,
it undermines and corrupts the public sector and makes public
resources to generate inefficient outputs and ineffective outcomes.
Improving the market and the state demands the correction of the
causes of distortions.’’
As I wrote, ‘’I voted for a 50% CRR on government deposit as a
necessary first step in the process of correcting market and state
failures in a concrete and effective way. I expected that a 50% CRR
will (i) eliminate the highly profitable repeated game of lending to
government its deposit; (ii) compel banks to adapt to new realities,
change their business models and become more efficient; (iii)
incentivize banks to seek for deposits from the private sector and, to
lend to the private sector, (iv) encourage the Federal government to
proceed quickly to the Treasury Single Account (TSA), all
governments to better manage public resources, cut down wastes
and unnecessary costs and (v) reduce the levels and costs of
government borrowing, the crowding-out effects of public sector
borrowing and, the cost of implementing monetary policy. In

addition, I expected (i) some portfolio adjustments in the structure of
DMBs’ assets and liabilities, (ii) short lived rise in the operating targets
of the monetary policy transmission mechanism (OBB and Call rate)
and (iii) decline in liquidity ratios from the very high levels that
prevailed in the last one year.’’
My initial assessment of the policy in my personal statement of
September 2013 was: ‘’the data shows significant changes in the
ownership and instrument structure of the deposits of DMBs in favour
of growth in government deposit and a more efficient use of
financial instruments by the government . . . between June and
August, Federal Government Naira deposit with DMBs rose by almost
N1.5 Trillion. By corollary, private deposits declined by N1.077 trillion.
As a result, total public sector Naira deposit rose to N3.73 Trillion in
August 2013 from N2.384 Trillion in June 2013 while private sector
Naira deposits fell to N8.7 Trillion from N9.78 Trillion in the same period.
In addition, a significant part of the increase in Federal government
Naira deposit (81%) was held in Time Deposit in August 2013. These
changes are positive signs that the 50% CRR on government deposit

is a game changer for the government deposit. Also, that the
efficiency of both money markets and public finance are likely to
improve. Second, though, there was an increase in the average
Open Buy Back (OBB) and interbank rates, the rates trended
downwards between August 20 and September 3, 2013. . . The short
term interest rates (intermediate targets) were on average flat: the
Maximum Lending Rate (MLR) declined on average by 16 basis
points and the Prime Lending Rate (PLR) rose by just 8 basis points.
Third, the exchange rate was relatively stable even as the currencies
of most emerging markets lost value against the US$. In addition, the
inflation maintained the downward trend, and government
borrowing, OMO, Treasury Bills Rate and OMO costs, Liquidity ratio all
trended downwards.’’

In January 2014, I voted for the CRR on public deposit to be raised to
75%. I justified my vote on the need to ‘’speed up the process
towards the Treasury Single Account (TSA) which I have consistently
argued is “indispensable (i) to avoiding a high interest rate trap and

(ii) to preparing the economy to soften the likely adverse effects of
the imminent implosion of the low interest rate trap.” I also anchored
my vote on the premise that with “a more efficient and effective
cash management that a Treasury Single Account.’’ I also expected
less dependence of the DMBs on government securities; improved
efficiency in the pricing and allocation of credit; transition from
crowding-out effects of borrowing to crowding-in effects of
government lending; rise in money multiplier through increased
intermediation by DMBs; (v) potentially lower interest rates; less
dependence on portfolio flows; more efficient pricing and allocation
of financial assets and reduced risks of financial contagion.”

I have absolutely no reason at this MPC meeting to vote for a
harmonization of CRR. I have listened to and contemplated all the
arguments put forth. But I am not convinced. It was clear to me
based on available data that it was not valid to claim that the policy
was not successful. What was clear was that the policy particularly
from December 2014 was being undermined by deliberate

reclassifications that needed to be penalized. The right solution was
enforcement of the rules of the game not changing the rules. The
claim that discriminatory CRR was fiscal policy is not valid and as
revealed by Staff Reports, discriminatory CRR is being effectively
implemented in Brazil to achieve their peculiar objectives. The CBN
Act gives MPC the responsibility of attaining price stability and
supporting the Federal Government to achieve its economic
objectives. What is more, the fifth principal object of the Central
Bank is to act as banker to the Federal Government and provide
economic and financial advice to the federal government.’’ It is
important and necessary for policy success that the CBN is able to
be an effective banker and economic and financial adviser to the
Federal Government and that the Federal Government supports the
CBN to fulfill its responsibilities.

In voting for a rise in private CRR to 25%, I am acted on analysis
provided by Bank Staff that there was a need to sterilize about half a
trillion Naira to reduce the pressure on the Naira. I vote to hold all

other policy variables: MPR at 13% with the symmetric corridor of ±2%
and Liquidity Ratio at 30%. The challenge I remain convinced is
about developing a forward looking and coordinated policy
framework. It is important that a new era of monetary-fiscal policy
coordination is ushered in urgently to improve the effectiveness of
both fiscal and monetary policies.


7.0
LAWSON, I. STANLEY


The Global Economy
The global economy continues to be characterized by moderate
but uneven recovery and diverging monetary policy among the
world’s major economies. The IMF has projected a marginal increase
in global output from 3.4 per cent in 2014 to 3.5 per cent in 2015.
Against the backdrop of sustained weakness in the Euro zone and
softening growth in the emerging markets, global output has
remained largely tapered. A possible growth path has however
been opened by the recently introduced massive quantitative
program by the European Central Bank. It has to some extent halted

the slide in potential output and engendered a clear recovery path.
This notwithstanding, growth in most of the Euro area and Japan is
likely to remain subdued in the short to medium term due to
structural bottlenecks and the threat of deflation. Growth In China is
also expected to decline below the long run target of 7.0 per cent in
2015 owing to financial market vulnerabilities, declining productivity,
excess capacity, and weakening domestic demand. The historical
upward trend in growth may however be restored by recent policy
stimuli introduced by both government and the Peoples Bank of
China in an attempt to unwind the excess capacity and strengthen
the financial system.

The US economy continues to remain a bright spot in the global
economy. During the first quarter of 2015, the United States led the
global impetus to output growth as consumer demand
strengthened, unemployment figures improved and the housing
market conditions improved all on the heels of falling oil prices, lower
US oil imports and accommodative monetary policy. The disparity in

the economic fundamentals of the major economies of the world
has resulted in an increasing divergence in their monetary policies.
Further worsening the strained global macroeconomic picture are
the on-going geopolitical conflicts in the Middle East and RussiaUkraine. These trends pose downside risks, particularly with respect to
volatility in financial markets as interest rates in major economies rise
on varying timelines. Average inflation for the developed economies
is projected to remain flat at 1.5 per cent in 2015 due to the
increasing output gap, weak recovery, and strong regional
currencies. Emerging and developing countries on the other hand
have mostly experienced moderate to severe depreciation in their
local currencies and are thus expected to have moderately rising
inflation in the medium term. In spite of this, developing economies
continue to show relative resilience with group growth projected to
move up slightly from 4.4% in 2014 to 4.8% in 2015 while global growth
is expected to ramp up to 3.8% in 2016.

Domestic Economy
On the domestic scene, Nigeria continues to witness a deceleration
in growth. This deceleration which commenced in the third quarter
of 2014, intensified in the first quarter of 2015 in the aftermath of
declining crude oil prices. The National Bureau of Statistics (NBS)
estimated Real GDP growth at 3.96 per cent in the first quarter of
2015, which is significantly lower than the 5.94 and 6.21 per cent in
the preceding quarter and the corresponding period of 2014,
respectively.
Real Gross Domestic Product (GDP) growth is expected to decline to
5.54% in 2015 from 6.22% in 2014. As is typical, the non-oil sector
comprising services, trade, agriculture and construction was the
major contributor to growth. Industry growth was negative at -1.02%
in Q1 2015.
Headline inflation continued to edge higher to 8.7% in April from 8.5%
in March 2015. Year-on-year food inflation rate inched up marginally
to 9.49% from 9.38% in March2015, while the core sub-index recorded
an increase to 7.7% (year-on-year) from 7.5% in March 2015. The rise

in food inflation may be due to the gradual crystallizing impact of
the recent devaluation on imported food prices as well as escalating
transportation costs. This, to my mind, calls for concern and requires
serious monitoring and pre-emptive administrative actions.
In the money market, interest rates continue to be volatile, mirroring
the fluctuations in the liquidity position of the deposit money banks.
Average inter-bank call and OBB rates, which opened at 11.92 and
10.75 per cent on 2nd March 2015, closed at 15.00 and 13.26 per
cent, respectively, on April 17, 2015.
Following the unification of the foreign exchange market on
February 18th, there has been significant stability in the foreign
exchange market with the Naira consolidating around the N198/US$
level. The widening gap between the interbank and bureau-dechange exchange rates however continues to raise serious concerns
in my mind as it continues to fuel arbitrage and speculative activities.
The heightened rate of currency substitution and partial dollarization
of the economy is also a source of immense pressure on the
exchange rate. Low oil prices have continued to take a toll on

Nigeria’s foreign reserves. The latest official foreign reserve figures
show a slight increase from $29.827 billion on 30th April to $30.181
billion as at May 14, 2015
Conclusion
To my mind, the global outlook has remained largely unchanged
over the last two months. On the domestic front, the major cause for
concern is the steadily creeping headline inflation over the last five
months. It is however worthy of note that the causal factors are
largely transient. Also of concern is the wide divergence between
the interbank and the bureau-de-change exchange rates, which
continues to provide an avenue for arbitrage and speculative
activities which invariably puts undue pressure on the exchange
rate. The issue of excess liquidity in the system, though contentious,
has also come up severally for discussion. A differential CRR regime
has been applied severally to mop up liquidity from the system.
Though adverse developments in international oil prices have
affected government revenues and accretion to reserves, the
financial system has remained stable with key banking stability

indicators showing robustness. It is imperative to ensure that this
banking stability is maintained and therefore any administrative
action that is likely to impinge on, or dampen the resilience of the
financial system and the functioning of the financial markets should
be promptly reviewed.
With the peaceful conclusion of the elections, it is my belief that
some of the distortions that prevail in the market today will begin to
self-moderate after the transition from the outgoing to the incoming
government as a lot of confidence will be restored in the market.
Nevertheless, I am mindful of the importance and the need to
carefully and continuously monitor the domestic risk factors
confronting the economy with a view to taking preemptive and
timely monetary measures and administrative actions as and when
they become necessary. Consequently, I am inclined to vote as
follows:
1. Retain the MPR at 13% with a corridor of +/- 2% around the
midpoint;
2. Retain the liquidity ratio at 30%; and

3. Harmonize the CRR on public and private sector deposits at 31%.
8.0
NNANNA, O. JOSEPH

Global macroeconomic conditions remain cautiously optimistic
amid fragile external headwinds in advanced economies and
emerging markets. At the domestic front, the upside effect of the
peaceful outcome of the elections contributed to a relatively stable
exchange rate of the Naira and macroeconomic stability.
Output and Prices
The decline in output growth, combined with an uptick in inflation
which was recorded in Q1 transmitted mixed signals: The National
Bureau of Statistics (NBS) reported a 3.96 percent decline in GDP in
Q1 of 2015 against a projected growth rate of 5.5 percent as
compared to 5.94 percent and 6.12 percent in corresponding
quarters of 2013 and 2014 respectively. The decline in output growth
was attributed largely to the decline in credit to the economy, even
though, liquidity in the banking system was considerably high. Based
on available data, the private sector was crowded out by the public
sector, as public sector credit significantly rose by 531.78 percent (

annualized) in April 2015 vis-à-vis 7.95 percent ( annualized) growth
for the private sector in the same period. The overall decline in GDP
growth during the first quarter of 2015 was consistent with seasonal
expectations.
Creeping inflation uptick remains a major challenge in the near term
as monetary policy approaches its limits in anchoring stability in the
absence of complimentary structural and fiscal policies: Headline
inflation (Y-on-Y) accelerated to 8.7 percent in April 2015 up from 8.2
percent and 8.5 percent in January and March respectively. The
trend was replicated in other components of food and core inflation.
While food inflation increased from 9.49 percent from 9.39 in March,
core inflation marginally increased from 7.50 percent (Y-on-Y) in
March to 7.70 percent in April 2015. Though, headline inflation
remained within policy bench mark of single digit at 8.7 percent, the
upward pressure experienced in recent months could push inflation
above the upper limit of 9.0 percent in the near term. In order to
mitigate inflationary pressures, the need for complimentary fiscal
and structural policies cannot be overemphasized.

Exchange Rate Developments.
Current relative stability in the exchange rates could be sustained as
portfolio inflows improves and efforts to reduce excess liquidity in
the system and build-up reserves buffer are sustained: The Naira
Exchange rate depreciated by 9.44 percent and 15.14 percent in
the interbank and Bureau –de- Change ( BDC) market segments
respectively from January to May 15 2015. Between end-April and
15th may 2015, the Naira exchange rate remained stable at N197.00
and N221 /US$ at the interbank and BDCs segments respectively. This
represented a marginal appreciation of 0.02 percent over the end
April rates, but the premium between the interbank and BDC rates
continued to widen largely due to speculation. The CBN intervention
strategy in the interbank forex market has continued to gain traction,
as speculative bidding by forex dealers have moderated.

Liquidity Management
Liquidity management in the banking system has produced positive
results in recent times: The combination of Open Market Operations

(OMO) and Cash Reserve Requirement (CRR) to control banking
industry liquidity in the short term was relatively successful. It was
obvious that liquidity returned to the system as a result of the
temporary suspension of CRR implementation as evidenced by:
First, interbank short term interest rates which dropped from 12
percent to about 9 percent on the average. Second, the return of
demand pressures in the forex market further confirmed the efficacy
of the flow method of CRR calculation as opposed to stock method.
Based on these observations, going forward, the harmonization of
the CRR ( Private/ public deposits of 20% and 75% respectively) into
a unified CRR of 31% on DMBs deposit liabilities will, all things being
equal, lead to a more efficient control of excess liquidity in the
banking system and more stability in the forex market. I therefore,
voted to merge the private sector and public sector CRR to produce
a single CRR rate of 31 percent. Such a merger will discourage
misreporting of liquidity conditions by DMBs and equally serve as a
direct cushion on liquidity conditions that may impact on forex
market.

Against the foregoing background, I therefore, voted to maintain the
MPR at 13 percent, Liquidity Ratio at 30 percent and a merged CRR
at 31 percent. I believe that maintaining the current monetary policy
stance will allow recent policy decisions to run its course while
sustaining prevailing macroeconomic stability in the economy.
9.0
UCHE, CHIBUIKE U

In my opinion, the most contentious issue that was considered at this
MPC meeting was the proposal to abolish the differential CRR
charged on public and private sector deposits. I am personally not
convinced that this is the right policy at the present time. My position
on this matter is based on some important factors.
In the first place, it is pertinent to note that charging CRR on public
sector deposits is an anomaly. This is because by law, the CBN is the
banker to government and as such, it is expected that all
government deposits should be domiciled in the CBN. In practice,
this legal requirement has arguably been subverted for a long time
now because of personal interests of government operatives and
policy makers. Although the Federal Government has for over a

decade been mouthing its determination to operationalize the TSA,
it is obvious that it is yet to muster the political will to do so.
The policy of charging a high CRR (75%) on public sector deposits
was adopted because of the need to sterilize some of the money
that should legally be in the CBN coffers. In other words, MPC simply
decided to force the Government to comply to a reasonable extent
with the laws of the land with respect to ensuring that at least most
of the government monies are removed from the banking system. It
is also erroneous, in my humble opinion, to argue that the
operationalization of a TSA is purely a matter for the fiscal authorities.
This is because the anomaly of banking government monies with
commercial banks also has profound consequences for monetary
policy.
At another level, I am also not convinced by the argument that the
Central Bank of Nigeria has been unsuccessful in monitoring banks in
order to ensure that they do not take advantage of the arbitrage
opportunities that fraudulently reclassifying public sector deposits as
private sector deposits could present. I am of the opinion that if

existing penalties do not provide enough disincentives for such
fraudulent practices to be curbed, then the penalty for such acts
should be stiffened. For the avoidance of doubt, it is important to
assert that sabotaging monetary policy because of micro interests
has grave repercussions for the nation’s economy. It is therefore
important for the Central Bank to do all in its power to discourage
economic agents from undermining its policies.
Furthermore, it is important to point out that the adoption of the
discriminatory CRR regime sent a clear message to banks to begin to
reduce their dependence on public sector deposits. This should be
considered a welcome development considering the serious danger
such dependence poses to financial sector stability. In order to
elaborate on this point, one will only have to think of what will
happen to banks that are heavily dependent on public sector
deposits should government suddenly decide to do the right thing
by recalling all its deposits from commercial banks and placing them
in the Central Bank?

A very positive outcome of the discriminatory CRR policy is that
many banks have now started to reduce their dependence on
public sector deposits. Suddenly abolishing the existing discriminatory
CRR policy will therefore simply punish the banks that have bought
into our risk reduction strategy, perhaps at great costs, while unjustly
rewarding the banks that have failed to materially reduce their
dependence on government deposits. Surely this unintended
consequence of the proposed policy will erode trust between the
banks and the regulator. I am also particularly concerned about the
timing of this decision. This is so because with the expected change
of government on May 29, there is a real chance that the TSA will
swiftly be implemented by the incoming administration.
It is on the basis of the above factors that I have come to the careful
conclusion that it would be an error to harmonize the current
discriminatory CRR on public and private sector deposits at the
present time.
With respect to banking sector stability, I am troubled by the
increasing dollarization of the balance sheet of Nigerian banks. One

of the possible causes of this dangerous trend is the fact that we
currently do not charge CRR on domiciliary account balances in
these banks. By this practice, the CBN may be inadvertently
encouraging banks to increasingly hold their savings in dollars. This
kind of practice however will likely lead to a mismatch between the
assets and liabilities of Nigerian banks. This is so because given the
increasingly assertive stance of the CBN in making the Naira the sole
transaction currency in Nigeria, commercial banks will increasingly
have to depend on Naira revenues to offset their foreign currency
deposit liabilities. This means that Nigerian commercial banks will
have to increasingly deal with exchange rate risks which, as a
consequence of the above scenario, is now firmly entwined with
their base intermediation function.
In consideration of the immediate economic realities of rising
inflation, increasing pressure on the Naira exchange rate and
declining reserves, an ideal option demands for some form of
immediate tightening of monetary policy. It is in the light of the
above that I will support an increase in CRR on public sector deposits

from 75 percent to 100 percent. In addition to reducing the
inflationary pressures on our economy, it will also have the additional
effect of sabotaging the current anomaly (and the various
underlying interests responsible for such) of keeping government
deposits outside the Central Bank. No doubt, such tightening may
also adversely affect our GDP growth rate that is already shrinking.
The alternative of allowing higher inflation and further depreciation
of the Naira is in my view more dangerous.
In summary therefore, I hereby vote as follows: (1) to retain MPR at 13
percent with interest rate corridor of + 200/- 200 basis points; (2) to
retain CRR on private sector deposits at 20 percent; (3) to increase
CRR on public sector deposits from 75 percent to 100 percent; and
(4) to retain Liquidity Ratio at 30 percent.
10.0 YAHAYA, SHEHU

I vote to maintain the MPR at 13%, along with the symmetric corridor
of +/-2%; and the liquidity ratio at 30%. However, I support the

harmonization of CRR for public and private sector deposits at 31%;
the reasons for my position are outlined below.
Global Economy
The current global situation is characterized by: a recovering US
economy, though with uncertainties as to when monetary policy will
be tightened; weak recovery in the Eurozone and Japan; prospects
for lower, if still robust economic growth in China and higher growth
in India.
The growth rate in Africa is overall at a respectable level, but with
mixed prospects for oil exporting and importing countries, exporters
of metals (which show a downward trend), as well as countries with
persistent political instability and conflict.
Global prices still look flat, below monetary policy targets in US and
the Eurozone area. Oil prices have been rising over the last three
months, but there is little evidence that this can be sustained over
the medium term- indeed there are more credible arguments for a
reversal of the gains.

Developments in the global economy therefore pose some
challenges for the Nigerian economy and financial system with
respect to demand for oil and non-oil exports and metals,
uncertainties over timing and pace of monetary tightening in the US
and its effect on capital inflows and the exchange rate. Imported
inflation is however not expected to pose any difficulties, except
through the possible inflationary effects of exchange rate changes.
The Domestic Economic and Financial System
In the Nigerian economy, growth prospects have dimmed as
indicated by a relatively low GDP growth rate of 3.96% in Q12015,
largely due to low oil prices (contribution of the oil sector to GDP
dropped by 9.3% as compared to Q42014) and a sharp decline in
manufacturing output. Meteorological forecasts of a relatively
shorter rainy season this year, continuing uncertainly in the oil sector
compounded with exchange rate issues and reverse capital flows
throw up significant challenges for the economy. Major efforts need
to be applied in the areas of energy, power, manufacturing revival
and reforms in service delivery to sustain rapid growth levels. A

substantial increase in the share of capital to total government
expenditure is also needed to support growth.
Domestic price levels have increased year-on year, slowly but
consistently in the last few months- headline, core and food inflation
figures have all moved upwards and there are prospects for further
rises in the course of the year.
One important change is that, although the budget deficit is still
projected to be just around 1.1% of GDP, there has been a big rise in
government deficits in the last few months, a substantial increase in
credit to the government and a rise in domestic debt. This is largely
due to a significant rise in government revenue.
By all the relevant indices, the financial system is still sound, although
efforts have to be made to prevent lending concentration and to
carefully manage foreign currency exposures. There is also some
evidence that liquidity in the banking system and in the economy
needs to be continued to be well monitored to prevent excessive
pressure on prices and the Naira exchange rate. In this regard, the

efficacy of the CRR to help manage liquidity needs to be
strengthened.
At the exchange rate market, some relative stability has been
restored due to a suite of measures introduced by the Central Bank
and due to post-election adjustments. External reserves, although
lower than in Q12014 and the first month of 2015, have remained
stable over the last three months.
Conclusion
Policy responses are complicated by the combination of declining
growth and slowly rising inflation. Unemployment figures have
lowered largely because of the change in the way in which
unemployment is currently calculated by the FBS. Also, the effects of
the election on the economy are winding down. A new government
has been elected into power and a transition process is in place.
Under the circumstances, it is preferable to maintain much of the
current monetary stance for now. Nevertheless, changes to the CRR,
especially in the way they are being calculated, are essential to
ensure a fairer and more credible policy stance. I therefore vote to

maintain the current liquidity ratio, MPR, the symmetric corridor at
the same level. However the CRR should be harmonized at 31%.
11.0 EMEFIELE, I. GODWIN, GOVERNOR OF THE CENTRAL
BANK OF NIGERIA AND CHAIRMAN, MONETARY
POLICY COMMITTEE

Since the last Monetary Policy Committee Meeting, which was held
in March 2015, depressed oil prices have continued to support the
recovery in global demand, albeit asymmetrically for oil importing
vis-à-vis oil exporting economies. The favourable tailwinds from
softened oil prices have led to cheaper energy and quickened the
pace of growth in many advanced countries; it had dampened
growth and weakened prospects in many commodity exporting
emerging and developing countries. Global growth in 2015 is
projected to increase by 10 basis points to a modest 3.5 percent
reflecting the brightening prospects in major advance economies.
Among advanced economies, the renewed growth prospects
reflect the robust outlook for the US and the UK economies, which
are projected to expand by 3.1 percent and 2.7 percent,
respectively, in 2015. Especially in the US, this development is largely

attributable
to
strengthened
consumer
demand,
sustained
monetary ease, improving housing markets conditions, moderated
supply costs, and rising real disposable incomes. In the rest of the
advanced economies, predominantly in the Euro Area and Japan,
deflation and stagnation remain imminent due to severe structural
imbalances, irrespective of the cyclical stimulus from cheaper oil
price and loose monetary policy. However, the current asset
purchase programmes of the European Central Bank and Bank of
Japan provide genuine impetuses for re-inflating these economies.
Accordingly, I note that the projected medium-term global growth
of 3.8 percent in 2016 is expected to benefit from a probable faster
recovery in the Euro area and Japan.
Emerging and developing countries accounted for most of the
global growth in 2014; nonetheless, the prospect for growth in the
near- to short-term remains fragile following continued sharp
corrections in the financial markets due to a potential rise the US
yield curve, lower commodity prices and weak demand from
advanced economies. For key emerging market economies, a

slowdown or downright contraction is expected in 2015. For instance,
the modest growths recorded in Russia and Brazil in 2014 is projected
to reverse to contractions of 3.8 percent and 1.0 percent,
respectively, in 2015. In China, growth is projected to decline 60 basis
points to 6.8 percent in 2015, which is lower than the benchmarked
long-term path of 7.0 percent. I note that among these so-called
BRIC economies, only India is projected to gain momentum with
growth rising by 30 basis points to 7.5 percent in 2015. Low-income
developing countries are facing weaker growth prospects as the
group’s GDP growth is expected decline from 6.0 percent in 2014 to
5.5 percent in 2015. Growth prospects in Sub-Saharan Africa remains
austere in the short-term with average growth for the region
projected to decelerate to 4.5 percent in 2015 from 5.0 percent in
2014. The pace of growth among emerging and developing
countries, broadly, is expected to mimic the asymmetric pattern
noticed among advanced economies, depending on whether the
pendulum of trade tilts towards the US and UK or towards the Euro
area and Japan.

On consumer prices, I note that global inflation continued to
decelerate and remained below target in major advanced
economies. This is essentially due to lower energy prices, sluggish
nominal wage changes and moderating financing costs. Among
advanced economies, considerable disinflation of consumer prices
are expected in 2015 as average inflation rate is projected to fall 100
basis points to 0.4 percent from 1.4 percent recorded in 2014. This
reflects the realised and expected deflation experienced in the UK,
Euro area and Japan and is significantly below the 2.0 percent
threshold fixed in many advanced economies. Though the
disinflation in advanced economies cushions the pass-through from
depreciating currencies in many emerging and developing
countries, average consumer price inflation in the latter is projected
to rise from 5.1 percent in 2014 to 5.4 percent in 2015. The immediate
risk to emerging and developing countries is the anticipated
protraction of monetary ease in many advance economies in a bid
to re-inflate prices and growth prospects. I, however, note that
central banks in emerging market and developing economies may

tighten monetary policy in order to mitigate adverse currency
movements.
In Nigeria, short-term growth prospects weakened further as the
pace of economic expansion lost some momentum in the first
quarter of 2015. On an annualised basis, the outlook for 2015 projects
that growth will decelerate to 5.5 percent from 6.2 percent in 2014.
Recently released data from the National Bureau of Statistics (NBS)
indicated that, at 3.9 percent in 2015Q1, economic growth shed
approximately 200 basis points from 5.9 percent recorded in the last
quarter of 2014. This moderate growth was largely attributable to the
5.6 percent expansion in non-oil GDP, which regardless of an
inherent 85 basis points decline, eclipsed the 8.1 percent shrinkage
of oil GDP. The growth in the non-oil GDP reflected growths in the
trade, crop production, construction, telecommunications, and
other services sub-sectors. The contraction in the oil sector was partly
due to strong headwinds from declined oil prices on investment and
productivity in that sector. While the slowing pace of growth is a
concern, it is important to highlight that it is congruent with

developments in most oil exporting countries, and heightens the
need for renewed and intensified drive to reduce the dependence
of the economy on primary commodities, especially crude oil, and
towards value-added products. In the interim, I am of the view that
the outlook will brighten in the near- to short-term following the
reduced uncertainty that accompanied the success at the last
elections and reinforced by the progressive dismantling of
insurgency.
On domestic consumer prices, although headline inflation remained
practically stable, it is creeping towards the upper limit of the Bank’s
tolerance range of 6—9 percent. At 8.7 percent in April 2015, the
successive uptick in the last five months is indeed breeding concern
and needs to be closely monitored. Available NBS data indicates a
gradual increase of headline consumer prices from a growth rate of
7.9 percent in November 2014 to 8.2 percent in January and further
to 8.5 percent in March 2015. The increase in headline inflation
reflected the strengthening inflationary pressure both in food and
core components of consumer prices. Food inflation rose 10 basis

points to 9.5 percent while core prices accelerated by 20 basis
points to 7.7 percent in April 2015. The ascent in domestic prices is
largely due to temporary factor associated with elevated costs of
transportation, energy and food following the general elections and
Easter celebrations. I note that while falling global inflationary
prospects, driven largely by the rapid disinflation in major advanced
economies, could moderate risks of imported inflation, potential
pressure on the exchange rate may pose some upside risks to the
realization of imported inflation.
Liquidity conditions in the domestic monetary, credit and financial
markets remained fairly tight in the review period. Over end-2014
level, broad money supply (M2) rose by 1.8 percent in April 2015
implying an annualised monetary expansion of 5.4 percent, which is
much lower than the programmed growth rate of 15.2 percent in set
for 2015. This growth was attributable to the 9.7 percent expansion in
net domestic credit. In the banking system, liquidity conditions
vacillated sharply, thereby causing relative instability in money
market interest rates. Average interbank call and the OBB rates rose

from 11.9 and 10.8 percent, respectively, at the beginning of March
2015 to 15.0 and 13.3 percent at mid-April. Cumulated over the first
four months of 2015, average interbank and OBB rate stood at 19.0
and 17.5 percent, respectively. At the capital market, moderate
outcomes were recorded as key equity indices improved during the
period under review. Relative to the levels at end-March, the
Nigerian Stock Exchange’s All Share Index rose 9.3 percent to close
at 34,708 at end-April 2015 while market capitalisation increased by
10.0 percent to end the month at ₦11.8 trillion. The rally in the capital
market largely reflected positive spillovers from the successful
conduct of the 2015 General Elections and the attendant
improvements in uncertainty and market sentiments.
I note the continued calm in all segments of the foreign exchange
market during April 2015, following diminished speculative activities
that accompanied the closure of the rDAS window in February 2015.
The interbank exchange rate recorded a marginal appreciation of
₦0.80 from ₦197.80/US$ in March 2015 to ₦197.00/US$ in April. By the
same token, the exchange rate appreciated by ₦7.50 at bureau-de-

change segment to close April at ₦217.50/US$. Besides, since the last
MPC, the gross official reserves have recorded modest accretions
growing from US$29.3 billion at end-March 2015 to US$30.05 billion as
at 15 May 2015. The observed accretion in reserve during this period
was attributable, among other reasons, to the tapered presence of
the CBN in the foreign exchange market with a view to developing
the domestic interbank market.
Overall, I note that the successful conduct of the 2015 General
Elections and the eased political uncertainty represent a significant
boost for the domestic financial markets and the macro economy in
general. The associated improvement in market perceptions,
sentiments and confidence is expected to provide an impetus for
positive net capital inflows and sustain the recent stability observed
in the foreign exchange and capital markets. Given that the
transient drivers of domestic inflation are evidently outside the
influence of monetary policy and given the existing tight stance of
monetary policy, I am of the opinion that conventional monetary
policy is nearing its upper limit and note the potential roles of

complementary
fiscal
and
structural
policies
in
stimulating
aggregate supply and moderating domestic inflation. In addition, I
am of the view that the subsisting discriminatory CRR for public and
private sector deposits could provoke unwholesome practices
among banks with adverse consequences for the aim of liquidity
and prudential management. In this regard, I believe that
harmonisation of the rates will simplify the application and
computation of the CRR and make it a more effective instrument for
monetary policy and prudential management.
In this regard, and given the constrained space for further tightening
of monetary policy, I vote as follows:
1. Retain the MPR at 13.0 percent;
2. Maintain a symmetric corridor of ±200 basis points around the
MPR:
3. Retain the liquidity ratio at 30.0 percent; and
4. Harmonise the public and private sector CRR at a single rate of
31 percent.