Central Bank of Nigeria Communiqué No. 96 of
the Monetary Policy Committee Meeting, July
21-22, 2014
The Monetary Policy Committee (MPC) met on July 21 and 22, 2014
against the backdrop of continuing QE3 tapering by the U.S Federal
Reserve which has resulted in the slowing of inflows to emerging
markets and frontier economies; and the attendant uncertainties in
the outlook for monetary policy and financial stability in the posttapering period. The meeting was attended by 10 members. A new
member, Prof. Dahiru Hassan Balami, whose appointment had
recently been confirmed by the Senate, was also in attendance. The
Committee deliberated on key external and domestic economic
developments and considered the Banking Stability Report since the
MPC meeting of May 2014 as well as the outlook for the rest of the
year.

The global monetary policy environment appears to be further
complicated by risks posed by continued currency crisis and fragility
in Europe, geo-political tensions in the Middle East and a number of
emerging and developing economies. Domestically, the policy
challenges remain. These include the uptick in inflation, anticipated
increased spending towards the general elections and the possible
effects of US tapering on the domestic market.
International Economic Developments
The Committee noted that the rebound in global economic activity
strengthened in the first half of 2014; although at levels lower than
previously projected. The tapered growth arose mainly from the
emerging and developing economies owing to the rising real interest
rates and geo-political crisis. On the whole, the effects of the global
financial crisis have continued to wane even as the issues of rising
income inequality, unemployment and poverty appear to be
gaining prominence; engaging the attention of the monetary
authorities. These latest projections indicate that the euro area is
gradually coming out of recession, as growth projection for 2014 is

positive for all member countries albeit with significant variation.
Growth is expected to be stronger in the core EU countries while high
debt and financial fragmentation continue to weigh on aggregate
domestic demand in the peripheral countries. For the entire euro
zone, there is a risk of low inflation or outright deflation which could
result in higher real interest rates that may constrain output
expansion.
In the emerging and developing economies, growth is projected at
5.0 per cent in 2014 from 4.7 per cent in 2013, buoyed by stronger
external demand from the advanced countries. The key downside
risks in the developing and emerging economies include: political
uncertainty, exchange rate realignment in response to changing
fundamentals, further monetary tightening to address emerging
currency crisis, and tighter external financing conditions arising from
the rapid normalization of the US monetary policy. Inflation is
projected to remain subdued in 2014 and 2015, partly reflecting the
significant output gaps in the developed economies, weaker
domestic demand in developing and emerging economies, and

sliding commodity prices, especially fuels and food. In the advanced
economies, inflation is currently below target and its return to the
long run trend could take a while due to the slow pace of economic
recovery. Likely depreciation in currencies, domestic demand
pressure, and capacity constraints could pose upside risks to inflation
in the emerging market economies.
The Committee noted that the stance of monetary policy could
diverge across regions over the medium term on account of
variations in risks and other challenges confronting various
economies. The US is expected to commence tightening by the
second half of 2015 as inflation hits the long run target and
unemployment rate falls to the threshold level. The euro area and
Japan are expected to continue with supportive monetary policy
due to low inflation including threat of deflation in some countries,
weak recovery, weakness in bank balance sheets, and strong
demand for their bonds as a result of low sovereign risk.
Majority of the central banks remained cautious with regard to the
stance of monetary policy. While most advanced economies are

likely to maintain an accommodative stance for monetary policy for
the rest of the year to firm up aggregate demand and employment,
the major impetus for monetary policy adjustments in the emerging
markets and developing economies could come from the effects of
the US Fed’s tapering of QE3 on their currencies and the financial
markets.
Domestic Economic and Financial Developments

Output
The National Bureau of Statistics (NBS) reported revised growth
numbers from 2010 to 2013 and the first quarter of 2014, as part of
the GDP rebasing exercise. Accordingly, the estimated growth rate
for 2013 now stands at 5.49 per cent, compared with 5.31 and 4.21
per cent recorded in 2011 and 2012, respectively. Similarly, the
revised estimate of 6.77 per cent for the fourth quarter of 2013 was
an improvement over the 5.17 and 3.64 per cent in the previous
quarter and the corresponding period of 2012, respectively. In the
first quarter of 2014, real GDP growth was 6.21 per cent, which was
higher than the corresponding quarter of 2013. In line with the trend,

the non-oil sector was the main driver of growth in the first quarter of
2014, recording 8.21 per cent growth. The key growth drivers in the
non-oil sector in the first quarter of 2014 remained industry,
agriculture, trade, and services which contributed 1.77, 1.26, 1.26
and 3.15 per cent, respectively. The oil sector continued to record
improvements in performance with its growth rate improving from -
9.36 and -11.40 per cent, respectively, in the fourth and first quarters
of 2013, to -6.60 per cent in the first quarter of 2014.
The Committee welcomed the impressive growth performance but
noted that the country has the potential to do better with
appropriate supportive macroeconomic policies. The Committee,
therefore, stressed the imperatives for monetary policy to sustain
efforts aimed at supporting non-inflationary growth in key sectors of
the economy. The Committee also emphasized the need for
government to sustain and deepen tax revenue and enhance
efforts aimed at fast-tracking the structural transformation of the
economy with a view to making it resilient to adverse shocks as well

as creating the necessary platforms for reducing unemployment,
income inequality, and poverty in the country.

Prices
Developments in the aggregate price level suggest an underlying
inflationary pressure since January 2014. The year-on-year headline
inflation steadily inched up marginally from 7.9 per cent in April to 8.0
per cent in May 2014 and further to 8.2 per cent in June. The up-tick
in June was, however, largely attributed to the rise in food inflation
which rose from 9.7 per cent in May 2014 to 9.8 per cent in June
while core inflation, on the other hand, rose from 7.7 per cent in May
2014 to 8.1 per cent in June. The Committee noted that all measures
of inflation have witnessed progressive upward trend since February
2014 and agreed that this trend should be monitored closely to
achieve a reversal.
Monetary,
Credit
and
Financial
Markets’
Developments
Broad money (M2) rose by 1.66 per cent in June 2014 over the level
at end-December 2013, indicating an annualized growth rate of 3.31

per cent. The annualized growth rate was considerably lower than
the growth benchmark of 15.52 per cent for fiscal 2014. For the same
period, net domestic credit increased by 0.88 per cent compared
with the growth rate of 15.39 per cent over the corresponding period
of 2013. When annualized, net domestic credit rose by 1.77 per cent,
compared with the growth benchmark of 28.5 per cent for fiscal
2014. The expansion in aggregate domestic credit was mainly due to
the increase in claims on the private sector which increased by 2.75
per cent in June 2014, which was however, moderated by the
contraction in net credit to Government.
Meanwhile, money market rates remained within the MPR corridor
during the review period. The monthly weighted average OBB rate
was 10.38 per cent in May 2014 but it increased by 14 basis points to
10.52 per cent in June. The uncollaterized overnight rate was 10.50
per cent in June 2014, compared with 10.63 per cent in May 2014.
Overall, both the OBB and overnight call rates were trading closer to
the lower bound of the MPR corridor on account of liquidity surfeit in
the banking system. Activities in the capital market were bullish

during the period with the All-Share Index (ASI) increasing by 2.8 per
cent from 41,329.19 at end-December 2013 to 42,482.48 at end-June
2014. Market capitalization also moved in the same direction.
External Sector Developments
All the segments of the foreign exchange market witnessed a
considerable degree of stability during the period. The exchange
rate at the retail-Dutch Auction System Segment (rDAS) of the
market was flat at N157.29/US$ in the review period. At the interbank market, the selling rate opened at N162.20/US$ and closed at
N162.95, representing a depreciation of N0.75 or 0.46 per cent.
Conversely, at the BDC segment, the exchange rate opened at
N167.00/US$ and closed at N168.00/US$, representing a depreciation
of N1.00 or 0.6 per cent.
Gross official reserves rose to US$40.20 billion by 18 July from US$37.31
billion at end-June 2014. The increase in reserves was mainly due to
increased accretion and moderation in the rate of depletion.

The Committee’s Consideration
The Committee was satisfied with the relative stability in the
macroeconomy as reflected in the impressive growth rates, stable
consumer prices and exchange rate as well as increased external
reserves. It was however concerned about the weak translation of
stability to microeconomic gains in employment and access to
finance especially by small and medium scale businesses. It,
therefore, emphasized the need for the MPC decisions to take into
account the long run impact on employment level, wealth creation
and growth of businesses.
The Committee noted the potential of the power sector to stimulate
output growth through enhanced investment and the spill-over
effect in employment generation if the challenges confronting the
sector are effectively and appropriately addressed. Specifically, it
noted that gas-to-power has remained a binding constraint in
reaping the benefits of the recently-concluded power sector
reforms; urging for the collective efforts of government, private
investors and the banks to resolve. Other pressure points include the

underlying pressure from food/core inflation and the risks that could
emanate from the likely increase in aggregate spending in the run
up to the 2015 general elections. The Committee was also
concerned about the implications of the on-going QE3 tapering for
inflows and external reserves. The Committee recognized the
necessity of sustaining a stable naira exchange even as it has to
deal with the delicate balancing of the need for a low interest rate
regime. The Committee noted that portfolio flows were not
employment generating but were essential in the absence of
adequate fiscal buffers.
The Committee welcomed the moderation in the rate of depletion in
external reserves in recent months, noting that reserves accretion
needed to improve much faster to provide a strong and more
resilient buffer to fiscal operations. The Committee, however, noted
that a gradual reduction in the country’s import bills through
domestic production of some of the major food imports should be a
key element in the overall reserves accretion strategy. It welcomed

the decision of the Bank to collaborate with other stakeholders in this
regard.
The Committee further expressed concern about the liquidity level
and the trending uptick in inflation which may not be unconnected
with the poor harvest in some agricultural producing areas,
particularly in the north eastern and central states of the country. It
however, noted that other reform measures could dampen food
prices in the short to medium term and restore inflation to a
sustainable long-run path. Overall, the Committee noted that the
policy direction of inflation, exchange rate and interest rate must be
seen not only in the context of price and financial stability but also in
enhancing the quality of life of Nigerians and promoting
employment generation.
The Committee’s Decisions
In view of these developments, the Committee decided by a
unanimous vote to retain the current stance of monetary policy with
one member voting for an asymmetric corridor around the MPR.
Consequently, the MPC voted to:

(i)
Retain the MPR at 12 per cent with a corridor of +/- 200 basis
points around the midpoint;
(ii)
Retain the Liquidity Ratio at 30 per cent;
(iii)
Retain the public sector Cash Reserve Requirement at 75.0 per
cent; and
(iv) Retain the private sector Cash Reserve Requirement at 15.0 per
cent.

Thank you.
Godwin I. Emefiele
Governor, Central Bank of Nigeria
22nd July 2014

PERSONAL STATEMENTS BY MEMBERS OF THE MONETARY
POLICY COMMITTEE

1.0
ADELABU, ADEBAYO
Developments in the macroeconomy in the first half of the year
remained broadly positive albeit with cautious optimism about the
outlook for the remaining period of the year. The revised GDP
following the rebasing exercise, as expected, was lower but the
estimate of 5.49 per cent for 2013 could be adjudged robust
particularly when cognizance is taken of the weak global economic
recovery. Stability in the exchange rate appears strengthened in
virtually all the segments of the markets while external reserves
witnessed a modest improvement, relative to the position at the last
meeting.
There are however a number of risks to macro stability over the short
to medium term. First, the evolving trend in price level should give
concern to the monetary authority. Although headline inflation is still
largely subdued at 8.2 per cent in June 2014, there seems to be
considerable degree of underlying pressure given that it has

consistently trended upwards in the last three months. More
importantly, food inflation is projected to rise beyond single digit in
the second half of the year thereby posing significant risk to the long
term inflation target of the Bank. Apart from structural issues that
could impinge on food inflation, the electioneering activities would
reach the climax in the second half of 2014 cum early period of
2015.
Besides, the development in price level has implications for banking
system stability. The weighted average deposit rate as at May was
6.32 per cent, suggesting that depositors earned negative real
interest rate which may fuel loss of deposit from the banks with the
attendant impact on the banking system stability. As a result,
reduction of the policy rate which could further lead to reduction in
deposit rate without a concomitant reduction in lending rate may
not be appropriate at the moment.
Again, the relative modest improvement in the external reserves
notwithstanding, there has been persistent demand pressure in the
foreign exchange market since January. Cumulative net outflow as

at end- May 2014 was about US$7.5 billion as against cumulative net
inflow of US$3.72 billion in the corresponding period of 2013. The
prospects in the medium term horizon appear dim with the tighter
external financial conditions being a key issue. Unemployment rate
in the US fell to an all-time low of 6.1 per cent in June 2014, a clear
evidence of strong recovery process, which informed the Federal
Reserve to shift the termination of its asset purchase program to the
fourth quarter of 2014 as against the initially planned 2015. Thus,
appropriate monetary policy measures need to be in put place at
least to provide soft landing for the economy during the adjustment
period.
This said, monetary policy environment is facing a difficult dilemma
at this point in time as improvement in the macroeconomy has not
sufficiently translated to impressive socio economic indicators. For
example, statistics on unemployment rate revealed that it has
virtually been trending upwards since 2009, reaching 24.70 per cent
in 2013 against the 5-year (2009-13) average of 23.36 per cent. In the
light of daunting challenges of high unemployment and poverty

confronting the economy, an accommodating monetary policy that
would foster inclusive growth and poverty reduction is desirable.
It is imperative, however, to bring to bear that if stability is not
achieved in the short term, the anticipated long term objective of
growth, unemployment, and reduction in poverty may remain
elusive. It is equally important to recognize the limitations of
monetary policy in addressing most of the fundamental problems
including building reserve buffers. Some of the issues require active
support of the fiscal authority particularly building of external reserves
through accretion from oil earnings. Perhaps, more importantly,
there are a number of deep rooted problems that limit access to
finance by real sector operators which could render reduction of
policy rates by the central bank ineffective. The problems are mainly
due to uncompetitive business environment resulting from poor state
of infrastructure, security challenges, and weak institutions. These
problems require major structural reforms. To this end, I believe a
robust engagement with the fiscal authority is a sine qua non.

On the whole, pending the time the necessary building blocks for
the resilience of the economy would be put in place, it is worthwhile
to maintain stability in the macroeconomy by holding steady the
subsisting monetary policy measures. Consequently, I vote for
retention of MPR at 12%, private sector CRR at 15%, public sector
CRR at 75%, and LR at 30%.
2.0 ALADE, O. SARAH
Global economic growth forecast have backpedalled due to
revision in the first quarter performance of the U.S. economy. The
downward revision in the U.S. is due to severe winter weather
disruptions, subdued consumer spending, construction and industrial
activities. In spite of these developments, growth is expected to
accelerate as the year progresses and is projected to reach 3.4 and
4.0 percent respectively in 2014 and 2015 according to July IMF
WEO. In emerging markets, while earlier risks have diminished, there
are increased geopolitical risks from the Middle East and euro area.
In the domestic environment, the renewed inflationary pressure and
expected fiscal spending as the election year approaches poses

some concern for monetary policy. Based on the above, I support a
hold in policy rate.
While there are some downside risks to global growth, the US
Economy is showing some impressive momentum. Growth in the
United States is showing some momentum with strong consumer
confidence index. U.S. employers accelerated their hiring last
month, adding a robust 288,000 jobs and helping drive the
unemployment rate to 6.1 percent, the lowest rate since September
2008. This is the fifth straight monthly job gain above 200,000 jobs in
the US, although wages are yet to rise significantly. In the Euro zone,
slowing inflation has raised real interest rate which may affect growth
in the zone. Countries in the zone are at different stages of
economic activities as general confidence is waning. These
developments coupled with the effects of the tapering could
dampen domestic conditions, thus the need for monetary policy to
be proactive and guarded.
Headline inflation increased to 8.2 percent in June compared to 8.0
percent recorded in May 2014. Headline inflation increased to 8.2

percent in June, suggesting that inflation may be expected to stay
elevated in the coming months, due to possible food supply
shortage. This is the fourth consecutive month of year-on-year
increases in the Headline index since February. Both food and core
inflation rose slightly. Food inflation increased from 9.7 percent in
May to 9.8 percent in June, while core inflation increased from 7.7
percent in May to 8.1 percent in June. Staff projection suggests that
inflation is expected to exceed the upper bound of the implicit
inflation threshold of 9 percent before the end of 2014, although it
will still remain in the single digit range. This suggest that even with
the anticipated fiscal risk as a result of pre-election and increased
security spending, monetary policy cannot ignore the inflationary
outlook. Based on this, monetary policy should remain cautious to
anticipate the impact of fiscal, security and food supply shocks.
While domestic growth has remained strong, some risks to growth
are evident. The newly rebased GDP forecast for 2014 GDP
remained strong and robust with 2013 fourth quarter growth
estimated at 6.77 percent compared with 5.17 percent in the

preceding quarter. The 2014 first quarter GDP growth rose by 6.21
percent which is higher than the 4.45 percent recorded in the
corresponding period of 2013, but lower than the 6.77 percent in last
quarter of 2014. The rebased GDP show a more diversified economy
that will require a multi-agency coordination for sustaining the
growth momentum and achieving inclusive growth. The sustenance
of this robust growth rate and the achievement of broad-based
growth will require the creation of an environment that is conducive,
competitive and attractive to both foreign and domestic investors.
Monetary policy must therefore continue to ensure the maintenance
of macroeconomic stability.
The risk of fiscal expansion in the run up to the general election is
very likely. There will be pressure to increase the speed of implement
of the budget by both the legislative and the executive as the
general election approaches. In addition, the security challenges
facing the country will also require additional spending to secure the
country and its boarders, while these are legitimate expenses; they
are bound to put upward pressure on both inflation and exchange

rate. Therefore all efforts should be made to ensure that excess
liquidity in the system that is not channeled into productive activities
should be sterilized. Thus monetary policy should do all it can to help
contain inflationary pressure and lowering rate at this point may be
counter-productive.
Stability has returned to the Foreign exchange market, though some
risks remain. This has been helped by accretion to the foreign
reserve and sustained inflow in the local bond market. Reserve as at
July 17, 2014 stood at $40.05 Billion. The risk to this stability will be the
impact of the deadline given to the Bureau de change (BDCs) of
July 31, 2014 to recapitalize. However, the resolve to build buffers
would help counter any adverse market reaction to the change. An
added risk is the effect of tapering on the economy as advanced
economies recovery continues. Therefore, global and domestic
events should be monitored to avoid downside risk to the Naira
exchange rate
Money market conditions suggest ample liquidity in the banking
system. Rates at the Interbank and Open Buy Back (OBB) rate have

remained within the corridor at weighted average rate of 10.50 and
10.48 percent, respectively, between May, 2014 and July 18, 204.
These indicate excess liquidity in the system as banks accessed the
Standing Deposit facility (SDF), but were rarely at the Standing
Lending Facility (SLF) window since the last MPC in May. In addition,
prime lending rate was steady at 16.5 percent between May and
June, suggesting that care must be taken to manage the structural
liquidity and the structural impediments to credit growth in the
economy. These developments coupled with anticipated upward
inflationary pressure would suggest that monetary easing at this time
may be counter-productive.
While pressure at foreign exchange has eased, there are some
downside risks. Inflationary pressure has persisted in the last
consecutive four months and the projection is trending upwards. In
an election year coupled with fragile and uncertain global
environment, macroeconomic stability is very important. Based on
these, I vote for a hold on Monetary Policy Rate, the maintenance of
75 percent increase in public sector deposits Cash Reserve

Requirement (CRR) and a 15 percent increase in private sector Cash
Reserve Requirement.

3.0
BALAMI, DAHIRU HASSAN
On the basis of the review of the macro economic data on the
current situation of the economy, I voted to hold the current
monetary policy rate of 12 percent, cash reserve ratio of 75 percent
for public deposit, and 15 percent for private sector deposit with
symmetric corridor of +/-2 percent be maintained.
REASONS
Global Economy
The global economy is fairly establish with favorable growth recovery
in the US and Japan with improving employment figures. Although
the picture in the Euro zone is weaker with only the Germany
economy fairly better. For China, its growth rate at is about 7.5
percent and largely stable. In Africa the growth remains strong for
most of the countries. Some tools to stimulate the European
economy are being put in place. Global prices are subdued to the

fact that inflation is currently lower than policy goals. The implication
of the above is that import inflation is not a problem to the Nigerian
economy for now. However progressive tapering of QE3 in the
United
States
of
America
poses
some
challenges
to
the
management of exchange rate, foreign reserves and the financial
as a whole.
The international price for crude oil has been steady. The threats to
Nigerian oil revenue exist due to share oil and gas from the US and
other countries.
Domestic Economy
The Nigerian economy has witnessed a robust growth of about 6.2
percent in 2014 Q1. The prospects for sustaining the growth are high
because of stable oil price, and other supporting policies in other
sectors of the economy which include agriculture, industrial sectors
and energy. However, the greatest problems to growth in the
economy are: the current insecurity in the north eastern region of
Nigeria; high unemployment rate; oil theft and vandalisation of oil
and gas infrastructure. On a good note is the high level of robustness

of the banking sector in Nigeria; stable prices; exchange rate and
financial sector. However, the gap between private deposits and
lending rate is a source of concern. There are questions that need to
be asked and answered as to the consequences of reducing the
interest rate in the near future. Although high interest kills businesses,
interest cannot be reduced now partly because most banks invest
huge sums of money in providing security, power generations, leases
of operating premises, as well as inflationary pressures. If interest rate
is reduced, the environment may be too harsh for many banks to
operate. There may be out flow of FDI which the economy currently
needs.
CONCLUSION
The prospect of growth in Nigeria remains strong; however the
growth has to be pro job creation. This would reduce the level of
unemployment, inequality and level of poverty in the economy
thereby raising the welfare of the people. The stability in the
financial sector has been achieved at the expense of strategic
sacrifice of monetary policy independence for exchange rate

stability at the risk of medium term macro and financial system
stability. It is not appropriate to cut the interest rate.

4.0
DANIEL-NWAOBIA, ANASTASIA
The performance of the domestic economy has remained
impressive, given the current level of the macroeconomic indicators.
For instance the real GDP grew at 6.21% in the first quarter of 2014;
the year-on-year inflation rate, in spite of the rising trend since
February, 2014 remained at single digit of 8.2% in June, driven largely
by the rise in food prices. The naira exchange rate at the Retail
Dutch Action Spot (rDAS-SPT) segment remained steady at
$/N157.29 between May 20, 2014 and July 18, 2014, while the
external reserves level stood at U$40.20 billion as at July 17, 2014,
which could cover approximately 7 months of imports.

The outlook for domestic output in the coming months is positive,
given the various efforts by the Government to enhance domestic
output such as: the successful implementation of the Growth
Enhancement Scheme (GES) which was designed to guarantee

timely supply of inputs to farmers on a sustainable basis; and
Government’s renewed efforts at curbing crude oil theft, as well as
addressing the challenges of the energy sector. Furthermore, the
continued improvement in global output would have positive
impact on Nigeria’s oil export and public revenue if government
intensifies current effort to curb leakages in the oil sector. However,
increase in US oil output and export may dampen demand for
Nigeria’s crude, especially in Europe.

Staff estimates project a gradual increase in the inflation rate over
the next six months based on: acceleration in food inflation due to
seasonal effect of the expected increase in prices and demand for
staples; expected growth in reserve money and depreciation in the
BDC rate. However, the current efforts by the CBN to sanitize the
BDC segment of the foreign exchange market could minimize the
exchange rate effect on inflation. The year-on-year inflation was
projected to remain within single digit in the next six months.

The relative stability in the official foreign exchange market is
expected to subsist through the third quarter of 2014 with sustained
intervention by the CBN. The current effort by the Bank to tackle
foreign exchange volatility with increased capitalization of the BDC
and curtailing retail currency importation would enhance the
stability of the exchange rate in the market.

Pressure points to note, however include: sustaining the stability of
the naira exchange rate; managing capital flows, especially the
volatile portfolio investments and potential reversals as tapering
nears its end in September, 2014; high lending rates and wide interest
rate spread; election related expenditure in 2014/15 which could
heighten the liquidity profile in the economy; and building of fiscal
buffers to insure against global shocks.

In spite of the concerns expressed above, the current relative
impressive performance of the economy as well as the outlook in the
near to medium term confirm the effectiveness of the current tight

monetary policy stance, particularly in keeping inflation within single
digits as well as maintaining stability in the foreign exchange market.
It is, therefore advisable to sustain the current policy stance.

Consequently, I vote as follows:

(i)
The Monetary Policy Rate (MPR) to be retained at the
current level of 12% and corridor of +/- 2% for the intermeeting period.

(ii)
The Private sector CRR should also be retained at 15 per
cent, given the current banking system liquidity profile.

(iii)
The current policy on foreign exchange (mid-point and
exchange rate band of N155/US$1 +/- 3%) should be
retained, while the CBN continues to intervene to stabilize
the rates, when necessary. The Federal Government is
already making efforts at rebuilding the fiscal buffers
required to sustain the stability of the exchange rate. It is
my strong belief that the fiscal and monetary authorities
will
continue
to
work
closely
to
sustain
the
macroeconomic and price stability that will engender
growth and create jobs.

5.0
GARBA, ABDUL-GANIYU
I vote:
to maintain MPR at 12%;
to maintain Private Sector CRR at 15% and Public Sector CRR at
75%
to maintain Liquidity Ratio at 30%
for asymmetric corridor of -5% (Standing Deposit Facility) and
+2 (Standing Lending Facility).
This implies that I am voting for the same policy set I voted for at the
last meeting in May 19-20, 2014. Maintaining MPR, CRR (private), CRR
(public) and Liquidity Ratio at current levels takes due cognizance of
(1) the trend of key macroeconomic indicators (growth, inflation,
unemployment, fiscal deficit and public debt, external reserves,
capital flows, money survey, oil price, etc.); (2) the economic report
and inflation forecast by Bank Staff for the last two quarters of 2014;
(3) expectations of economic actors and (4) open economy
macroeconomic analysis of Nigeria’s current policy regimes. The
vote also takes due cognizance of the global economic outlook for
2014 particularly, the risks associated with the US Fed’s tapering and,
the high likelihood of transition from inflationary to deflationary policy
by the US Fed and the Bank of England as price levels begin to rise.

In the short term, keeping MPR, CRR on private sector deposit, CRR
on public sector deposit, Liquidity Ratio and the SLF rate unchanged
offer some relative stability for economic agents to implement their
economic plans for 2014. It also provides the MPC with the
opportunity to develop forward looking medium term strategy to
adapt seamlessly to a post quantitative easing phase and to repair
the transmission mechanism of monetary policy which has been
weakened by the changes in the global economy after the 2007-8
crisis and the global policy responses to the crisis.
Market functioning efficiency is a key link in the transmission
mechanism that needs to be fixed. In the current monetary policy
regime, the interbank market is critical. Yet, in the last few quarters,
activities in the interbank market have slowed down. I have argued
previously that AMCON effects do not fully explain the slowdown in
the interbank market. My argument draws support from the relatively
high volumes of activities in the Special Deposit Facility (SDF) and
OBB windows as well as the very low spread between SDF and OBB
rates. It is clear to me that the incentive and trade-off principles are

in play. Consequently, changing the game and strengthening the
interbank market requires changing incentives. An asymmetric
corridor of -5 (SDF) and plus 2 (SLF) is good starting point. It will
however, be necessary to complement an asymmetric corridor with
a creative mix of instruments, directives and institutional changes
that will progressively reduce the extent of market segmentation,
concentration and asymmetries in key markets: money, equities and
forex
markets.
Market
segmentation,
concentration
and
asymmetries significantly distort the pricing and allocation functions
the markets while generating a set of avoidable opportunity costs.
Without significantly improving market functioning, it will be difficult
to repair the transmission mechanisms which have been undermined
by dysfunctions in global financial markets. I remain convinced of
the need for a forward-looking monetary policy regime anchored in
(1) a creative mix of policies and institutional changes; (2) effective
monetary-fiscal policy and strategic coordination system and (3)
sound macro-prudential and micro-prudential regulations.

6.0
MOGHALU, KINGSLEY CHIEDU
I believe the policy choices facing the MPC at this meeting are
whether to leave the Monetary Policy Rate unchanged at this time
or to further tighten monetary policy in the face of an uptick in
inflation.
With year-on-year headline inflation having increased to 8.2 per cent
in June 2014 from 8 per cent in May, food inflation recording a
marginal increase to 9.8 per cent from 9.7 per cent in May, and with
core inflation at 8.1 per cent in June from 7.7 per cent in May – an
unquestionably sharp increase – the questions are:
(a)
What do we do in the face of a seeming reassertion of
inflationary trends?
(b)
How can the trilemma be resolved between the present
levels of inflation that may ultimately break out of the MPC’s
previously declared inflation target of single digit-inflation, the
desirability of reducing the MPR in order to further support
economic growth, set against the need to maintain price
stability (without which, in any event, there will be no real
growth in a situation of monetary instability), if need be with
further monetary tightening.
In my mind, the goal of monetary easing is a medium to longer-term
one. It was never the expectation that monetary policy would

remain permanently tight or even so for any longer than is necessary.
But there is no rational basis or data that would support a reduction
in the MPR at this time. The Committee’s main course of action
should be to hold rates where they are for now, because inflation
figures, while a cause for some concern, are not one for alarm
either. The MPC should monitor the monetary horizon carefully and
be prepared to act as required should inflationary trends not be
reversed, or at least contained, in the months ahead.
Taking a forward view, monetary policy will likely be challenged by
the trilemma indicated above in the last quarter of the year if
inflation levels continue to rise, liquidity in the system remains high (in
particular given the anticipated redemption of Asset management
Corporation of Nigeria (AMCON) bonds held by private creditors, in
October 2014), and the United States Federal Reserve bank ends its
quantitative easing program in that period as the Fed has indicated.
The present and near-term scenario is counter-balanced somewhat
by the fact that there are possible options besides increasing the
MPR, for example increasing the private sector cash reserve ratio.

The depletion of the country’s external reserves appears to have
been stanched by a number of measures taken by the CBN to
sanitize the bureau de change segment of the market, as well as
improved collaboration between the monetary and fiscal authorities
and a gradual rebuilding of fiscal buffers.
Accordingly, I believe the MPC should continue to hold its powder
dry, for now, in relation to a shift either towards loosening or
tightening policy should monetary conditions so warrant.
I therefore vote to:
Hold the MPR at 12 per cent
Maintain the minimum liquidity ratio at 30 per cent
Maintain a symmetric MPR corridor of plus/minus 200 basis
points
Maintain the CRR on public sector deposits at 75 per cent and
that on private deposits at 12 per cent.

7.0
SALAMI, ADEDOYIN
The Research Forum which preceded this meeting of the MPC
provided, as usual, an opportunity for a stimulating and wide ranging

discussion of background issues relevant to Monetary Policy decision
making in the short and medium term. Perhaps the most significant
take-away from this session for me is a reinforcement of my view that
we are heading into a period when some very significant changes
will have to come if the objectives of keeping inflation suppressed
and the exchange rate stable without compromising growth is to be
realized. Some very important but difficult choices will have to be
made – indeed, as I had written in my Statement at the conclusion
of the previous meeting, there will be few occasions in the future
when we will have the luxury of voting to keep policy unchanged.

To begin with, recent trends in inflation data and the outlook for the
rate of increase in prices provided by Bank Staff point, in the short
term, to the balance of probabilities tilting towards tighter monetary
policy as Headline inflation is projected to rise to 9.4percent at the
end of the year. Whilst Headline Inflation remains within the band of
6-9percent announced for this year, the recent upward trend across
all definitions of inflation would ordinarily be a cause for concern.
However, 6mth ahead projections by Bank Staff suggest that the

rate of increase in prices of non-food items will decline continuously
from the 8.1percent in June to close the year at 6.5percent. In
contrast, the price of Food items is projected to rise to 11.6percent
by year end.

Perhaps a bigger worry in the short-term continues to be the pressure
on the Currency. The banks continue, thanks to AMCON
disbursement and slow growth in credit, to be awash with liquidity –
witness Interbank Call rates remaining below the MPR and the
absence of activity in the interbank markets. It is increasingly difficult
to escape the conclusion that bankers are/maybe up to the usual
game of running rings around the regulator! Despite a NOP limit of
1percent, at the end of H1-2014, consolidated commercial bank
foreign currency assets exceeded their liabilities by approximately
30percent. The questions around and risks of this position are selfevident.

Beyond the banks and despite the US$1.9billion increase in accretion
to forex reserves that took the reserves slightly past US$40bn in July

2014, there continues to be an uneasy feeling about the Naira
abroad - see the seemingly relentless increase in private holdings of
foreign currency at the expense of Naira deposit.

The real issue on which to reflect is whether the time for a change of
monetary policy regime is appropriate and what conditions must
hold for such a change to be sustainable.

To begin with there are now serious data challenges which need to
be resolved. The World Bank in its document – Nigeria Economic
Report, released immediately after the MPC challenges the notion of
an unemployment rate in excess of 20percent. If, as the report
suggests, unemployment is less than 10percent, a key pillar for easing
monetary policy will need to be rebuilt.

I have also followed with interest the media discussion about the
possibility of creating additional intervention funds to deal with issues
in sectors as diverse as Power, Health and Rice. I am not sure if I am
alone in wondering whether the balance sheet of the Central Bank

can bear the additional strain that such intervention will impose. I
had hoped that rebuilding the Balance sheet of the Central Bank
would be a major task to be accomplished in the relative calm that
has followed the crisis in 2009/2010. It appears to that the discussions
have lost sight of the rationale for the creation of intervention funds.
With banking sector crisis and locked credit markets, the Central
Bank of Nigeria (CBN), like many other Central Banks, intervened
directly to make credit available to the economy. Though
unconventional, the measure, as I recollect the MPC discussion at
the time, was intended as one-off!

Intervention funds, such as were created, are essentially fiscal policy
instruments. Indeed, I seem to recollect the vilification of the CBN at
the time for straying into the domain of fiscal policy! It appears that
having acquired a taste for ‘intervention’, how do we wean
ourselves off this? In my view there are other market-based
instruments that can serve the intended purpose just as well –
perhaps better! A significant shock in the near future will find us denuded and unable to respond meaningfully! Let us be clear, the

banking sector intervention fund, which is what I regard AMCON to
be, has shown issues and thrown up challenges which we need to
understand carefully before proceeding further in this direction.

The clamour for lower interest rates, which I understand are already
forming the basis of market expectation in various post-election
scenarios - also require some reflection. The desirability of lower
interest rates is not at issue – at the very least, it reduces costs,
enhances competitiveness and can provide a boost to job creation
and the economy. Movement towards lower interest can happen
sustainably in either of the following circumstances: (i) when our
forex buffers are rebuilt – however, question is what level of reserves
will afford that capacity to reduce interest rates without creating
more difficulty; (ii) when we revise our present forex distribution
arrangements – key question here is having become used to
subsidized access to foreign currency at the R/WDAS window, are
we ready to wean this economy away from subsidy. Revising our
forex distribution method will doubtless have implications for value
and perhaps volatility.

As I indicated at the top of my comments, difficult decisions lie
ahead. Whilst our present circumstances allow me, on this occasion,
to vote to hold policy parameters unchanged, I think we are
heading into a period when we will have limited options but to
confront the hard choices ahead.

8.0
UCHE, U. CHIBUIKE
The data presented at the 239th MPC meeting show that the
economic and financial outlook of the Nigerian economy continues
to be mixed. On the negative side, all the main measures of inflation:
food, headline and core, have inched upwards albeit slightly. Also,
our banking system, although stable has come under increasing
pressure thus the number of banks that failed at least one of the
safety ratio tests have increased marginally. Arguably the most
troubling development and perhaps the greatest threat to financial
system stability in Nigeria is the increasing dollarization of the banking
system. This creates structural risks especially given the fact that there
is an increasing dysfunction between interest earnings and interest
expenses risks in most of the culprit banks. The exchange rate of the

Nigerian Naira, although stable has continued to lie outside the
officially allowed band margins and with the imminence of the 2015
elections, there are concerns that increased government spending
will add fodder to the already existing pressure on the Naira
exchange rate.
On the positive side, our reserves have been inching upwards albeit
marginally while the growth rate of our newly rebased economy
continues to be in positive territory. In the light of some of the above
pressures, some may argue that there is need for further tightening of
monetary policy in order to proactively curtail inflation and promote
monetary stability. At the current time, however, I have come to the
careful conclusion that such a policy move will be an error. This is in
part because monetary stability is not an end in itself. Rather, its
principal objective is to help promote real sector development.
Tightening money supply at the present time will only lead to the
crowding out of the real sector in the credit market by the public
sector which, at least currently, has less restraint when it comes to
demand for borrowing. This insatiable demand by the Nigerian

public sector for credit has, at least in part, created the unfortunate
circumstances that have encouraged foreign portfolio flows to
prosper and flourish unabated in Nigeria. While in the short run such
inflows have been an important pillar in our ability to reasonably
maintain exchange rate stability in Nigeria, I am convinced that the
consequences of such uncontrolled short term portfolio inflows will
greatly harm our economy in the medium term. Given the general
but gradual movement towards tapering by the key Western country
that has been at the centre of global credit expansion, for instance,
it is logical to expect that some material outflows of foreign portfolio
investments may occur in Nigeria in the near future. Since the
movement of foreign portfolio flows in Nigeria is not entirely within our
control, it makes little sense to allow such investments unfettered
access to our economy.
In the light of the above, I believe the time has come for us to begin
to develop policies that will gradually encourage future portfolio
inflows to take a long term position in our economy. I have
specifically recommended that we target future portfolio inflows so

as not to ignite unnecessary panic amongst existing investors. A
more radical change of policy will certainly not be in the interest of
our fragile economy. While the measure proposed above may not
be easy, to do nothing will only further increase the powers of such
foreign portfolio flows in the Nigerian economy. This will no doubt be
to the detriment of our economic development and growth.
Admittedly, our economy’s addiction to foreign portfolio flows has
immense short term benefits especially in the area of assisting the
exchange rate stability of the Naira. Unfortunately, addiction to
foreign portfolio flows mimics all the characteristics of drug addiction
and thus can never lead to a happy ending unless the dependence
is ended.
Although I am reluctant to propose further tightening of our current
monetary policy stance at the present time, I believe that there is still
much we can do administratively to enhance the availability of
credit to the real sector of our economy at reasonable rates. In this
direction, I am particularly worried about the increasing margins
between deposit and lending rates of commercial banks. While this

may have been responsible for the relatively handsome profits banks
continue to declare in Nigeria, it will, in the long run harm the
intermediation process which is the primary basis and foundation of
banking business. Convincing the banks that continued exploitation
of the imperfect markets in which intermediation currently take
place will in the long run be self-destructive should not be too
difficult to achieve. Protagonists of the view that market forces are
the main explanatory variable for the widening gap between
deposit and lending rates in Nigeria have since lost their audience.
With respect to the need to achieve stability in the exchange rate of
the Naira, there are unfortunately no easy options in a mono
product import dependent economy. It is for instance public
knowledge that should, for instance, the international price of oil
collapse, the relative stability that the Naira exchange rate has been
experiencing for some time now will disappear. This clearly shows
that in a fiscally dominant environment, there are limits to what
monetary policy can do. I am, however, convinced that as our
democracy develops and deepens, the balance of power in our

governance structure will gradually shift to the advantage of the
electorate. When this happens, any government that is unable to
diversify our mono product economy will be severely punished by
the electorate during elections. There will therefore be a natural
incentive for governments to reduce the dependence of the
Nigerian economy on crude oil. Until that time, all we can do is to
encourage government to adopt fiscally prudent economic policies.
In the light of the above factors, I hereby vote as follows: (1) to retain
MPR at 12 percent with interest rate corridor of + 200/- 200 basis
points; (2) to retain CRR at on private sector and government
deposits at 15 percent and 75 percent respectively, and; (3) to retain
Liquidity Ratio at 30 percent.

9.0
YAHAYA, SHEHU
I vote to hold the MPR at its current level of 12%, along with the
symmetric corridor of +/-2%, the CRR on public sector deposits at the
current level of 75% and 15% for private deposits.
My decision is based on the following considerations:

Trends in the Global Economy
The predominant features of the global economy at the moment
are the fairly established growth recovery in the US, with improving
employment figures; some recovery in Japan; weak growth in the
Eurozone area, with Germany in a slighter better situation. China’s
growth has been largely stable with a slight downward cast. Growth
remains strong in most of Africa, although slightly lower than in 2013.
QE3 continues be rolled back in the US, monetary easing is being
maintained in the UK and the ECB is deploying some tools to
stimulate the European economy. In all these areas, inflation is
currently lower than policy goals and global prices are also
subdued.
While imported inflation from our main trading partners is not an issue
at the moment, the progressive tapering of QE3 in the US poses
considerable challenges to the management of foreign reserves,
exchange rate and banking/financial systems

The international price of crude oil has been fairly steady, although
the many conflicts raging in the Middle East, Eastern Europe and the
volatile situation in some North African countries may engender
some volatility in the near future.
Moreover, it should be repeated that there are significant medium
threats to the oil revenues of Nigeria from the rapid expansion in
supply of shale oil and gas from the US and other countries
Domestic Economy
The GDP growth rate in Q1 of 2014 remains robust at 6.21%, despite
the higher base, which is an improvement over 2013. The growth
prospects also remain bright due to the stable oil prices, supportive
policies, particularly in the agriculture, energy and industrial sectors.
Moreover, some of the sub-sectors in the non-oil sector continue to
account for much of the growth momentum.
The most significant challenges to growth prospects relate to the
insecurity in the North-eastern part of the country; the persistently
high level of unemployment (despite some recent improvement in

the numbers), and in particular graduate unemployment; continuing
oil theft and vandalism of oil and gas infrastructure (although there
has been an increase in oil output in June 2014); the risk of political
tensions in the run-up to the general elections in the country;
challenges to the foreign reserve level (despite the improvement in
June 2014). Pervasive corruption continues to undermine growth.
Huge income inequalities also need to be addressed.
The foreign exchange rate has remained stable for about 3 years
significantly due to strong policy intervention, although pressures are
mounting on the rate due to future expectations related to QE3
tapering. The capital and money markets, despite fluctuations, are
currently fairly stable.
Headline inflation, year-on-year, has increased to 8.17% in June 2014,
driven largely by increases in food and non-alcoholic beverages,
clothing and footwear, housing, water, electricity, gas sectors and
transport. Core inflation is the main overall driver for the currently
inflationary hike.

Interest rates, already too high, have risen further in the last month.
The gap between lending and deposit rates, again already high, has
increased slightly. Broadly, the financial system remains stable.
Federal government fiscal operations have generated an overall
surplus in the January-May 2014 period. However, this has largely
been achieved at the expense of significant reductions in capital
expenditure, which will undermine growth prospects in the medium
term.
Conclusion
Growth rates and growth prospects remain strong, although major
efforts need to be made to ensure that growth is accompanied by
improved income inequality, reduction in poverty and substantial job
growth.
While high lending rates are an abiding concern, it is not appropriate
at this time to reduce the policy rate or otherwise ease monetary
policy. This is due to the upward trend in headline inflation and core
inflation in particular, heightened inflation expectations in the next six

months particularly for food prices, increasing pressures on the
foreign exchange rate and the possible threats to foreign reserves if
there is an acceleration of reverse capital flows. There is clearly a
need to keep a close watch on these developments and to respond
effectively at the right time. I therefore vote to retain the currently
tight monetary stance.

10.0 GODWIN EMEFIELE, GOVERNOR OF THE CENTRAL BANK OF
NIGERIA AND CHAIRMAN OF THE MONETARY POLICY COMMITTEE

The 239th meeting of the Monetary Policy Committee was held
against the backdrop of a tentative recovery in the international
economic and financial environment. As the impact of the global
financial crisis have continued to wane, issues of rising income
inequality, unemployment and poverty are becoming the main
focus of the monetary authorities around the world, in line with the
new normal monetary policy. This situation has prompted a rethink of
the entire paradigm of focusing primarily on price stability.
Although
monetary
policy
makers
recognize
the
strong
interconnectedness of economies and the enormous scope for

spillovers, they have been largely influenced in their considerations
by the stability of domestic financial markets and monetary
conditions during these highly uncertain times. The recent projections
show that the euro area is slowly coming out of recession and
growth could restart in 2015. The peripheral countries, on the other
hand are expected to experience low domestic demand due to
high debt and financial fragmentation. Growth is projected at 5.0
per cent in the emerging and developing countries in 2014 from 4.7
per cent in 2013.
Like in most jurisdictions, the US Federal Reserve embarked on a
massive quantitative easing (QE) programme since 2008 primarily to
soothe domestic concerns around output and employment in the
face of obvious failure of traditional monetary policy to stimulate
aggregate demand. The Fed has since begun to scale back its
stimulus package with improving macroeconomic performance.
However, this has important consequences for emerging markets
and
frontier
economies,
including
Nigeria,
which
attracted
significant private capital flows following QE programme. In effect,

the most crucial external consideration for monetary policy makers in
emerging markets and frontier economies today appears to be how
to mitigate the adverse consequences of QE tapering for markets,
currencies and financial flows.
Domestically, the macroeconomy has exhibited relative stability as
shown by the encouraging growth rates, stable consumer prices,
and exchange rate as well as rising external reserves. The latest
figures from the National Bureau of Statistics (NBS) suggest that
economic growth is still comparatively impressive even after the
rebasing exercise. Estimated growth rate for 2013 at 5.5 per cent
compares favourably with 5.3 and 4.21 percent observed in 2011
and 2012, respectively. Similarly, the revised estimate of 6.8 per cent
for the fourth quarter of 2013 represented an improvement over the
5.2 and 3.6 percent in the previous quarter and the corresponding
period of 2012, respectively. The naira exchange rate at the r-DAS
and interbank interest rates has also remained well anchored by
prevailing policies. Inflation has remained contained within the

Bank’s target zone of 6 - 9 percent, though headline inflation inched
from 8.0 percent in May 2014 to 8.17 percent in June.
While I recognize this gradually rising inflationary trend, the
challenges posed by high unemployment and limited access to
credit deserve to be factored into any considerations aimed at
improving the robustness of growth and ensuring the sustainability of
price stability. I also recognize other concerns for monetary policy to
include the on-going QE3 tapering for inflows and external reserves,
likely increase in government expenditure in preparation for the 2015
general elections and balancing the need for low interest rate with
price stability.
Accordingly, the options for monetary policy facing the MPC appear
to me to be either retention of the current stance of monetary policy
while employing other non-conventional means to support a
resolution of the broad development bottlenecks or a reduction in
the policy rate to stimulate credit to the real sector of the economy.
Having considered these developments, I vote as follows:

1. Hold the MPR at 12 per cent with a corridor of +/-200 basis
points
2. Retain liquidity ratio at 30 per cent
3. Maintain the public sector Cash Reserve Requirement at 75.0
per cent; and
Retain the private sector Cash Reserve Requirement at 15.0 per
cent.