CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO 117 OF THE MONETARY POLICY
COMMITTEE MEETING OF TUESDAY 3RD AND WEDNESDAY 4TH APRIL, 2018
Background
The re-constituted Monetary Policy Committee (MPC) held its maiden
meeting, the 260th meeting of the Committee, its first in 2018, on 3rd and 4th
of April, 2018 against the backdrop of strengthening global growth and
improving domestic economic conditions. The Committee assessed the
developments in the global and domestic economic environments during
the first quarter of 2018, including the risks to price stability, financial stability,
and economic growth in the short-to-medium term. Nine members of the
Committee attended the meeting.

Global Economic Developments
The strong headwinds which confronted the global economy in 2017 showed
signs of moderation, giving way to prospects for stronger growth in 2018.
Consequently, global output is projected to grow by 3.9 per cent in 2018 from
3.7 per cent in 2017 on the heels of rebound in investment as a result of
improvements in investor confidence, strengthening commodity prices, rising

aggregate demand and accommodative monetary policy, especially in
some advanced economies. With the sustained recovery in oil prices,
aggregate demand is expected to continue to firm up. Growth in the
advanced economies is projected at 2.3 per cent in 2018, and 4.9 per cent
for emerging markets and developing economies (EMDEs). The Monetary
Policy Committee noted some downside risks to the outlook for global growth
to include: continuing normalization of monetary policy in the advanced
economies; new U.S. trade policy; uncertainties associated with the BREXIT
negotiations; and rising geo-political tensions in the Middle-East and on the
Korean Peninsula.
In the advanced and emerging market economies, inflation is projected at
1.9 and 4.5 per cent in 2018, respectively. However, the broad indication from
the IMF is that over the medium to long term, inflation may rise at a modest
pace as general economic conditions remain subdued. Asset prices and
long-term yields in major financial markets are also on the increase,
confirming the possibility of a future rise in the price level.

Domestic Output Developments
Data from the National Bureau of Statistics (NBS) indicate that real Gross
Domestic Product (GDP) grew by 1.92 per cent in the fourth quarter of 2017,
up from 1.40 and 0.72 per cent in the third and second quarters, respectively.
The economy grew overall by 0.83 per cent in 2017. The main drivers of real

GDP growth were agriculture (1.08%), industry (0.56%) and trade (0.35%). Nonoil real GDP grew by 1.45 per cent in the fourth quarter of 2017 compared
with a contraction of 0.76 per cent in third quarter of 2017, indicating that the
economy is gradually returning to a path of sustainable positive growth.
The Committee also noted the continuous positive outlook based on the
Manufacturing, and Non-manufacturing Purchasing Managers’ Index (PMI),
which stood at 56.7 and 57.2 index points, respectively, in March 2018,
indicating expansion for the twelfth and eleventh consecutive months. The
Committee believes that effective implementation of the Economic
Recovery and Growth Plan (ERGP) by the Federal Government and quick
passage of the 2018 budget will continue to enhance aggregate demand
and confidence in the Nigerian economy.
Developments in Money and Prices
The Committee noted that money supply (M2) grew marginally by 0.07 per
cent in February 2018 (annualised to 0.42%), in contrast to the provisional
growth benchmark of 10.29 per cent for 2018. The development in M2 largely
reflected growth in net domestic credit (NDC) of 4.05 per cent (annualised to
24.30%), emanating majorly from net credit to government, which grew by
19.99 per cent (annualised to 119.94%) against the provisional benchmark of
33.12 per cent. Credit to the private sector also grew by 1.49 per cent
(annualised to 8.94%) in February 2018, compared with the provisional annual
benchmark of 14.88 per cent. Net foreign assets (NFA), contracted by 2.82
per cent, annualized to 16.92 per cent, compared with the provisional

benchmark of -29.31 per cent. Narrow money (M1), also contracted by 2.77
per cent (annualised to 16.62%). The Committee urged the Federal
Government to strongly exercise restraint on domestic borrowing in order to
lower the cost of credit to the private sector.
The Committee noted that the continued low level of lending by banks
remains a constraint to growth of the real sector of the economy. The
Committee advised the Management of the CBN to continue to provide the
required policy impetus to engender improved credit delivery by the deposit
money banks to the economy.
Inflationary pressures in the economy continued to moderate with headline
inflation (year-on-year) receding for the thirteenth consecutive month to
14.33 per cent in February 2018 from 18.72 per cent in January 2017. Monthon-month food inflation fell by 133 basis points to 17.59 per cent in February
2018, and core inflation also declined marginally by 38 basis points to 11.71
per cent during the same period.
Money market interest rates reflected liquidity conditions in the banking
system as the average inter-bank call rate increased to averagely 12.42 per
cent in February 2018 from 9.49 per cent in December 2017. The Open buy
back (OBB) rate also increased to 13.19 per cent in February 2018 from 8.46
per cent in December 2017. The movement in the net liquidity position and
interest rates reflected the combined effects of OMO auctions, foreign
exchange interventions and statutory allocation to state and local
governments.

The Committee also noted the continuous improvement in the level of
external reserves, which stood at US$46.699 billion as at March 29, 2018.
Similarly, the All-Share Index (ASI) rose by 8.5 per cent from 38,243.19 on
December 29, 2017, to 41,504.51 on March 29, 2018. Market Capitalization
(MC) improved by 10.2 per cent from N13.61 trillion on December 29, 2017, to
N14.99 trillion during the same period. The Committee observed that, while
this development may be a reflection of improved investor confidence in the
economy, it cautioned that the Management of the Bank should carefully
monitor the developments and to establish mechanisms for safeguarding the
stability of the foreign exchange market in the event of a sudden capital
reversal. The Committee observed the continued rise in oil prices, but
acknowledged the inherent volatility in commodity prices and urged the
Bank not to relent in building external reserves buffers against any future price
downturns and as a means of sustaining investor confidence in the economy.

The Committee noted the relative stability in the foreign exchange market,
with declining premia across all segments of the market. It observed with
satisfaction, the sustained high level of activity at the Investors’ and Exporters’
(I&E) window of the foreign exchange market. The window continues to
attract more investors, thus boosting foreign exchange supply. Consequently,
total foreign exchange inflow through the central bank increased by 73.00
per cent in February 2018, compared with the previous month. This was
attributed to the increase in receipt of proceeds from Petroleum Profit Tax

(PPT), royalties and crude oil & gas. Total outflow also increased in February
2018 by 15.69 per cent, as a result of higher payments for invisibles, interbank
transactions as well as JVC cash call payments.

2.0. Overall Outlook and Risks
Forecasts of key macroeconomic indicators give a positive outlook for the
Nigerian economy in 2018. This is predicated on the quick passage and
effective implementation of the 2018 budget, improved security, foreign
exchange market stability as well as favourable crude oil prices. On the
downside, the Committee noted the potential impact of the 2019 electionrelated spending, against the weak backdrop of tax revenue efforts,
herdsmen related violence and rising yields in the advanced economies.
Indications in the US and the UK point to higher interest rates in the short to
medium term.

3.0. The Considerations of the Committee
The Committee noted with satisfaction the gradual return to macroeconomic
stability as reflected in the third consecutive quarterly growth in real GDP in
the fourth quarter of 2017. It also noted the continued moderation in all
measures of inflation as well as sustained stability in the naira exchange rate
and urged the Bank to sustain the stability to avoid a mission drift. In
particular, the Committee welcomed the narrowing of the exchange rate

premium between the BDC segment and the Investors’ and Exporters’ (I&E)
window of the foreign exchange market. Overall, the Committee noted that
the recovery of the economy was strengthening, in view of the return to
growth of the Services Sector. As the fiscal sector continues to settle its
outstanding liabilities, it reduces its domestic debt profile, thus increasing the
liquidity of the banking system. However, the Monetary Policy Committee
observed increasing monetization of oil proceeds as evident in the growing
FAAC distribution, relative to the 2017 level of disbursements. The Committee
urged the Government to initiate strong stabilization programmes and to
freeze the growth in its aggregate expenditure and FAAC distributions in
order to create savings; needed to stabilize the economy against future oil
price related shocks.
Notwithstanding the general improvement in macroeconomic conditions,
the Committee noted the rather slow pace of moderation in food inflation. It
also took note of the potential risk of a pass-through from rising global
inflation to domestic prices. Members, however, expressed confidence that
the tight stance of monetary policy would continue to complement other
policies of government in addressing some of the structural issues underlying
the stickiness of food prices. The Committee noted that at 14 per cent, the
policy rate was tight enough to rein-in current inflationary pressures. The
Committee, therefore, reaffirmed its commitment to price stability conducive
to sustainable and inclusive growth.

The Committee noted with satisfaction the gradual implementation of the
Economic Recovery and Growth Plan, in an effort to stimulate economic
recovery. In the same vein, the Committee urged quick passage of the 2018
Appropriation Bill by the National Assembly, so as to keep fiscal policy on
track and deliver the urgently needed reliefs in terms of employment and
growth for the citizenry.
The Committee noted the relatively strong balance sheets of the deposit
money banks’ and the stable outlook. This is in spite of the concentration of
non-performing loans in a few sectors, which the Committee observed was
satisfactorily being addressed by adequate mechanisms established by the
Bank to address the phenomenon. The Committee also noted that as
Government pays off its huge contractor debts, a sizeable portion of these
non-performing loans will be addressed. The Committee urged the Bank to
strengthen its supervisory oversight and early warning systems to promptly
identify, monitor compliance with extant prudential regulations, sustain
macro-prudential policy and manage emerging vulnerabilities in the banking
system.
The Committee reiterated the Bank’s commitment to delivery of low interest
credit as evidenced in its bold steps to adopt unconventional monetary
policy to aid credit flow to vulnerable and growth enhancing sectors of the
Nigerian economy. The Committee, therefore, enjoined the Bank to continue
to support and encourage credit delivery at single digit interest rate through
other mechanisms in the interim, while encouraging the banking system to

establish frameworks to increase credit delivery to the employment
generating sectors of the economy. In consideration of available data and
evolving macroeconomic indicators, the Monetary Policy Committee is
committed to revisiting its decisions in the short to medium term as the
fundamentals evolve.

4.0. The Committee’s Decisions
In reaching its decision, the Committee appraised potential policy options in
terms of the balance of risks. The Committee also took note of the gains
made so far as a result of its earlier decisions; including the stability of the
foreign exchange market, the moderation in inflation rate as well as the
restoration of economic growth. The launching of the Food Security Council
by the Federal Government to improve food sustainability is a step in the right
direction. The Committee was concerned about the fiscal distortions
associated with absence of buoyancy between GDP growth and tax
revenue, and urged the fiscal authorities to deploy appropriate corrective
measures to address this phenomenon.
The Committee was of the view that further tightening would strengthen the
impact of monetary policy on inflation with complementary positive effects
on capital flows and exchange rate stability. Nevertheless, it could potentially
dampen the positive outlook for growth and financial stability. However, the
Committee is of the view that loosening would strengthen the outlook for

growth by stimulating domestic aggregate demand through reduced cost of
borrowing. This may, however, lead to a rise in consumer prices, generating
exchange rate pressures on the currency in the process. The Committee also
believes that loosening could worsen the current account balance through
increased importation. On the argument to hold, the Committee believes
that key macroeconomic variables have continued to evolve in a positive
direction in line with the current stance of macroeconomic policy and should
be allowed more time to fully manifest.
In consideration of the foregoing, the Committee decided unanimously by a
vote of all members present to retain the Monetary Policy Rate (MPR) at 14.0
per cent alongside all other policy parameters.
Consequently, the MPC voted unanimously to retain the
(i) MPR at 14.0 per cent;
(ii) CRR at 22.5 per cent;
(iii) Liquidity Ratio at 30.0 per cent; and
(iv) Asymmetric corridor at +200 and -500 basis points around the MPR.
Thank you for listening.
Godwin I. Emefiele
Governor, Central Bank of Nigeria
4th April, 2018

PERSONAL STATEMENTS BY THE MONETARY POLICY COMMITTEE MEMBERS

1.
ADAMU, EDWARD LAMTEK
The April 2018 Monetary Policy Committee (MPC) meeting held against the
backdrop of relatively stable global and domestic economic conditions. The
world economy continues to recover, posting a substantially improved
outlook for economic growth and prices in 2018. It, however, faces a
potentially strong headwind from trade as China and some European
countries brace up to respond to the recent protectionist policies by the
United States. In the domestic economy, recovery remains on course, albeit
slowly. After some quarters of decline, growth has effectively resumed, but far
from recent years’ average. The momentum for growth continues to build
partly on account of the stability in the naira exchange rate, slowing
inflationary pressures and real sector interventions by the Central Bank of
Nigeria.
Nigeria’s stock of external reserves continues to grow on account of reduced
imports, improved inflows from more favourable oil prices, and increased
autonomous inflows through the Investors’ and Exporters’ Foreign Exchange
(I&E) Window. Confidence in the economy is building as the naira exchange
rate continues to be stable and the premium between the BDC and
interbank market segments narrows. The parallel market premium continues
to shrink as legitimate foreign exchange transactions migrate to the formal
market. It does therefore appear that the bold reforms of the Central Bank

on forex policy and in the foreign exchange market in 2016 and 2017 are
paying off. It is gratifying that the benefits of these reforms have stretched
beyond the stability of the naira exchange rate. Some manufacturing outfits
have resorted to using locally available alternatives as raw materials, just as
interest in domestic production of certain classes of food like rice and tomato
products is growing. Likewise, capital market indicators have trended upward
partly in response to positive market sentiments occasioned by the gradual
improvement in the macro-economy.
However, over the short-to medium-term, the domestic economy faces a
number of important risks, particularly to price and financial stability. In
arriving at a decision during the April 2018 meeting of the Monetary Policy
Committee (MPC), the threats to price and financial stability, which I will
highlight shortly, greatly influenced my consideration of the policy options.
Whilst not neglecting the case for pushing economic growth faster, I am
persuaded by the logic that there can be no sustainable growth in an
environment of price instability. In effect, the policy choice reduces to one of
either engendering further price stability or pushing for faster economic
growth.
To start with, the outlook for domestic liquidity, based on expected fiscal
actions and election spending, is worrisome. With an impending Federal
Government budget outlay of over N8.0 trillion and deficit of about N2.0
trillion for 2018, the short-term fiscal outlook appears expansive. The delay in
the passage of the budget could result in substantial injections in the second

half of fiscal 2018 in an attempt to meet planned commitments. The
immediate effect of this, combined with the repayment of local debt by the
government and election spending would be a surge in banking system
liquidity. Monetary policy cannot, at the same time, be expansionary. At
14.33 per cent in February 2018, inflation is still significantly higher than the
Monetary Policy Committee’s preferred range of 6 – 9 per cent.
Second, the economic recovery we have seen so far has benefitted partly
from improved investment inflows. As a direct consequence, the country’s
external reserves’ position has relatively improved, just as confidence in the
economy. Rising yields in advanced economies, following the drift towards
policy normalization as global inflation picks up, poses a significant risk to inbound investments. This threat is mitigated by a stable naira exchange rate
and competitive yields locally. For this purpose, we will need positive interest
rates, as do most emerging markets and developing economies. This means
that inflation needs to moderate further.
Third, there is still work to be done to fully contain banking system fragilities
which increased in the wake of the stagflation in 2015 through 2016. The NPLs
ratio continues to be in excess of the Bank’s desired level. Among other
challenges,
banks
have
had
difficulty
with
their
foreign
currency
denominated liabilities (loans) as the exchange rate moved against
borrowers as from 2015. Therefore, from a financial stability standpoint, any
threat to the naira exchange rate stability must be viewed seriously and
promptly addressed to forestall another exchange rate shock.

If excess liquidity is allowed to build, the demands for foreign exchange could
shoot-up in the second half of 2018 and throw the naira exchange rate out of
equilibrium. Such an adverse scenario must be prevented through proactive
monetary policy. This is justified by the reality that exchange rate stability is
critical to the current recovery in economic growth and the gradual
disinflation. Added to this is that a stable exchange rate should, in the
minimum, prevent further deterioration of foreign currency denominated
assets of the banking system and improve the resilience of the industry.
These concerns surely call for a forward-looking and cautious approach to
policy. I see the need for greater coordination of monetary and fiscal policies
and
continued
engagement
of
critical
stakeholders
to
address
misinformation and better anchor expectations. Having considered all, I
voted to hold the current stance of monetary policy, which in my view is
sufficient to sustain the progress the economy has made in recent months on
inflation, exchange rate stability and economic growth. In addition, I
reckoned that some of the supportive administrative measures put in place
since last year by the Bank need more time to work their way fully through the
economy. I am equally persuaded by the commitment of the Federal
Government to the Economic Recovery and Growth Plan (ERGP), especially
in the area of infrastructure development, which continues to be relevant to
sustaining and deepening growth and development of the country in the
medium to long-term.

Overall, I voted to retain all the policy parameters at their current levels. That
is:

MPR at 14.0 per cent;

CRR at 22.5 per cent;

Liquidity Ratio at 30.0 per cent; and

Asymmetric corridor at +200 and -500 basis points around the MPR

2.
ADELABU, ADEBAYO
The improvement in macroeconomic conditions, which commenced in the
latter half of 2017, has been reasonably sustained, raising the bar of optimism
to a good height. Of great deal of interest is that the proactive monetary
policy measures put in place to address the various headwinds have
received the endorsement of development partners, notably the IMF, who
confirms in the recently concluded Article IV consultation that the economy
technically exited recession at end-December 2017. Although inflation at
14.33 per cent in February 2018 is still considerably high, it is a pleasant and
welcome development that a deceleration has been consistently observed
in the last 12 months, suggesting that the disinflationary process is well
anchored. Another key benign outcome of recent policy measures is the
bourgeoning resilience of the foreign exchange market, buoyed by rising
accretion to external reserves with the subsequent positive spillover on the
exchange rate. In other words, the extreme volatilities in the exchange rate,
which characterized the entire 2016 and the early part of 2017, has been
sufficiently contained.
The foregoing positive outcomes are indeed quite remarkable, but the
medium term landscape is still strewn with a number of risk factors such that
vulnerability and setback are still imminent. As indicated in my last statement,
the issue at this point in time is not just about sustaining the trend, but a
compelling need to improve upon the trend with a view to building robust
safeguards around the nascent macroeconomic stability. This seems to be

the only pathway through which the improvement in the macroeconomic
indicators could translate to visible progress in development indicators
particularly on employment and poverty level. The task of achieving this
objective appears somehow complicated to the monetary authority
because all of the policy choices: tightening; easing; and holding, present a
good prospect. In other words, the challenge staring us at the face in this
meeting is not a dilemma but more of a trillema in choices.
One of the significant challenges is the fragility of recovery and the inherent
possibility of reversal. For example, GDP recorded a marginal growth of 0.8
per cent at end 2017, while about 2.8 per cent is projected for 2018. Apart
from the fact that these rates are considerably lower than the pre-recession
average, analysis of the structure reveals that it is not broad based. The
growth was basically driven by recovery in price and volume of crude oil,
while the non-oil sector particularly agriculture and manufacturing are still
largely in comatose. A further scrutiny, particularly on the dynamics of oil
price, reveals that the current rally in price is driven from both the demand
and supply sides. On the demand side, the uptick in economic activities in
key advanced economies like the USA, Euro zone, and some emerging Asia
countries have given significant boost to the price of crude oil with the latest
projection indicating that Brent grade may hover in the neighbourhood of
US$73/barrel in the latter part of 2018. While it is not envisaged that the
demand for crude oil may experience adverse shock in the medium term,
the future of the supply side is not that optimistic.

The medium path of supply side may be a little bumpy for at least two
principal reasons. First, potential market level of supply has been restrained by
output cut deal among OPEC members. OPEC, the largest cartel in the
industry, has mounted pressure on its members to cut output since the
second half of 2017, which has been extended to end-2018. The next policy
move to contain glut in the market after the expiration of production cut
deal is not yet certain. On another note, the market may witness an upsurge
in the supply of crude oil as most of the shale oilfields in the US resume
production. A critical mass of shale shut down on the backdrop of nonviability when the price of oil slumped in 2015-16. Financial analysis within the
industry has shown that drilling of shale oil is profitable at a price of
US$60/barrel, suggesting that most of the marginal oil fields hitherto shut
down may resume production if the current oil price regime persists. In the
likelihood of crystallization of this risk therefore, the current hike in the price of
crude oil could slow down or even retreat. The policy implication of the
current crude oil price regime therefore is that this is a most auspicious time to
rebuild fiscal buffer, having virtually depleted the Excess Crude Oil Account
(ECA) in the run up to the 2015 economic recession. With the benefit of
hindsight, this could be a tall order to both the national and sub-national
governments particularly when the forth coming general election is put into
perspective. However, given that this is a non-negotiable instrument for
economic stabilization, necessary engagements with all stakeholders must be
undertaken to obtain their buy-in with a view to facilitating a hitch free takeoff on the scheme.

Besides, given that the bulk of employment is generated in the non-oil sector
of the economy, it should not be much of a surprise that the ongoing
economic recovery may not quickly translate to improvement in key
development indicators. From, policy perspectives, this scenario presents a
picture that supports policy easing, but there is a need to be a little bit
circumspect particularly when inflationary variable is put into the equation.
Against this perspective, some form of structural policies that could eliminate
the bottlenecks on the supply side could be the least cost route to a
sustained recovery. In this regard, it is commendable that the Federal
Government has issued some Executive Orders, particularly the order on local
content, which, if fully implemented, would unleash the potentials in the
manufacturing sector, most notably MSME-led manufacturing, which could
have a significant multiplier effect on employment.
Inflation is receding, but still reasonably above the single digit target of the
Bank. To address this concern, some elements of tightening may be
contemplated, but a diagnosis of the structure of price evolution may
provide further guidance in terms of appropriate policy response. The
structure of inflation reveals that the food component has been consistently
sticky over the past couple of months, apparently due to rising food deficit.
The latest report by the International Federation of Red Cross (IFRC) includes
Nigeria on the list of countries that may continue to experience acute food
scarcity on account of lingering conflicts in the North-East and ravaging
drought, which has been driving pastoralists in search of viable zone. The

point here is that food prices may much likely be at risk and constrains a
downward push in inflation most especially headline inflation. Obviously, this
issue appears to be outside the scope of monetary policy, but further
reinforces the imperative of a well-coordinated structural policies particularly
the likelihood of utilizing strategic grain reserves in the short run as
government continues to address the security challenge in the medium to
long term.
One other issue that is assuming worrisome dimension is the weakening
capacity of the banking sector on the backlash of rising Non Performing
Loans (NPLs). The NPLs turned northwards in the aftermath of the slump in
price of crude oil in 2015 as most of the banks are heavily exposed to the
upstream segment of the sector. The situation was complicated by the
recession, which pushed many businesses particularly small and medium
scale enterprises out of viable zone. Although most of the soundness
indicators are still within the prudential requirement, it is a matter of utmost
concern that these indicators are almost at the threshold of the requirement.
This, invariably, has implication on the capacity of the banks to support the
fledging recovery. For example, credit to the private sector has been
exceptionally weak over the last three years on account of constraints
imposed by rising NPLs, among other factors. Some form of policy easing
may enhance the liquidity condition of the banks as well as enhance the
viability of key sectors such that asset quality could improve. The challenge
however, is that such improvement in liquidity may translate to additional

pressure in the foreign exchange market. With this in mind, I think the
appropriate response is the need to strengthen macro prudential regulation,
while maintaining the status quo on monetary policy.
At the risk of repeating the obvious, but compel by the strategic role of fiscal
management in driving the ongoing recovery, I want to put in focus the
adverse effect of the seemly perennial challenge of the delay in the signing
the Annual National Budget. It is settled in both theoretical and empirical
literature that fiscal multiplier is significantly high in a recessionary phase,
consequently, timely release of capital votes cannot be more important at
any other period of our economic life than now. The 2018 budget is yet to be
passed by the National Assembly, leading to delay in implementation of
capital component. Beside the fact that this challenge could impede the
required expansion in infrastructural base, it also has the tendency to drive
aggregate demand above the equilibrium level, invariably stoking price
level. It is therefore important that all issues impeding the accelerated
passage of 2018 Appropriation Bill be quickly resolved to enable fiscal policy
play its expected role in the ongoing recovery phase.
Conclusively, the balance of risk tends towards maintaining the status quo
ante on monetary policy measures, while advocating for the deepening of
structural policy measures, in keeping faith with the tenets of the Economic
Recovery Programme. I therefore, vote for the retention of all monetary
policy measures in place.

3.
ADENIKINJU, ADEOLA FESTUS
My vote at the April Meeting of the MPC was for a Hold policy option of:
(a)
MPR at 14 per cent
(b)
CRR at 22.5 per cent
(c)
Liquidity ratio at 30 per cent
(d)
Asymmetric corridor of -500 and +200 basis points around the MPR.
Several reasons informed my decisions, after the detailed presentations by
staff of the Bank and extensive discussions and debates on the state of the
economy, potential risks and challenges by the MPC members.
(1)
International Economic Developments
On the optimistic side, there are several positive developments in the
domestic economy, fueled mainly by positive developments in the external
sector, and the monetary policy stance of the CBN that have helped to
move the economy from recession into the recent upswing in key
macroeconomic indicators.
The global economic outlook is largely positive as economic recovery
remains sustained and broad based. The current stability in the global oil
market has been reinforced by both fundamental and transitory factors. The
global economic recovery continues to drive oil demand in China, India and
other parts of the world. OPEC projected that global oil demand will increase
by 1.6 million barrels per day, year on year in 2018. Oil supply quota

agreement by OPEC and a group of non-OPEC members led by Russia
continues to restrict overproduction. However, the rising share of non-OPEC
production, and the potential of economic pressure on Russia by the West
may test the resilience of the current quota agreement in the medium term.
Nigeria is however a beneficiary of the rising oil price and increased domestic
oil production.
Certain dynamics may pose a threat to the pace of global economic
recovery: the threat of possible trade wars between the world’s two largest
economies, the cloud of uncertainty cast by the BREXIT talks on the UK
economy, rise of trade protectionist tendencies as America shifts from
multilateral to bilateral trade negotiations, and the re-awakening of
nationalist sentiments in Europe. Eventually, if the world moves in the direction
of trade restriction, this may stymies the pace of global economic growth.
The increased volatility in the global stock markets in the first quarter of 2018 is
a signpost of the need to continue to monitor global economic recovery.
Trend in global stock market remains an important lead indicator of
economic cycles. Overall, most stock markets indices are higher in the first
quarter than where they were in December 2017.
Other developments in the external market with implications for Nigeria
include the rising inflation rates in the advanced markets and the potential
for interest rates spike, which may affect relative risk-adjusted rate of returns
needed by portfolio investors, who are dominant drivers of capital markets
developments and bonds prices issued by developing countries like Nigeria.

Hence, internationally, the optimism of current economic developments must
be discounted by the rising uncertain economic environment that may affect
the price of oil, the key driver of Nigeria’s recent recovery and fluidity of
portfolio investment. For a country like Nigeria, where the fortune of the
economy is closely tied to a volatile commodity market, our history shows
that adequate economic buffer is very important for economic stability. The
recent accretion in foreign reserves should not dull our memory of the past
nor the current mono-structure of the Nigerian economy.

(2)
Domestic Economic Developments
Since the last MPC meeting, the Nigerian economy continues to show steady
recovery of major economic indicators. Foreign reserves rose by 18.5 per cent
from US$39.35 billion at end-December 2017 to US$46.63 billion by end of
March 2018. Naira exchange rates remain stable in all the foreign exchange
markets, with small appreciation across the various windows. Amount spent
by the CBN to stabilize the market has declined remarkably as the investors’
and exporters’ (I&E) window continues its remarkable improvement.
Inflation rates continues on its downward trend as headline inflation declined
from 15.13 per cent in January 2018 to 14.33 per cent in February 2018, core
inflation fell to 11.71 per cent in February 2018 from 12.10 per cent in January
2018 and food inflation also declined from 18.92 per cent in January 2018 to
17.59 per cent in February 2018. However, while the pace of the decline has
picked up recently, the rate of decline is still relatively sluggish and sticky.

Several factors such as the increased tension between farmers and
herdsmen, rising insecurity in several parts of the country, high diesel prices,
and rise in global inflation rates are contributory factors to high rate of food
inflation.
In the first quarter of 2018, the PMI and investors sentiments’ improved, the
poor state of domestic infrastructure and security issues continue to affect
the supply response capacity of many sectors of the economy.
In my view, and comparing Nigeria with economies like South Africa, Kenya,
and Ghana, where MPR have been lowered within the past 12 months,
inflation rates are not only lower than Nigeria, real interest rates are in the
positive territory. However, in Nigeria, the MPR at 14 per cent is below the
inflation rate of 14.33 per cent, keeping real interest rates for many market
instruments in the negative territory. In the long term, negative real interest
rate is bad for savings and investments which are long time drivers of
economic growth. Nigeria savings-GDP, as well as investment-GDP ratio
remain lower than long term trend and lower than rates in several
comparator countries.

Conclusion
Nigeria economy rides on the back of a highly volatile commodity - oil. At the
same time, with rising international oil price, subsidy on consumption of
refined
products
continues
to
grow,
with
implications
on
budget

implementation. While the shift to external debt will likely provide a breather
to the domestic investors who have been crowded out of the credit market,
the rise in external debt comes with its own risks to the economy, especially
for commercial debts. The share of interest debt payments in 2017 budget
and 2018 appropriation bill is significant and higher than allocations to some
human capital development sectors. The continued depletion of the excess
crude account, the monetization and sharing of oil revenues, and foreign
debts without any effective stabilization fund should be of concern to policy
makers. Added to this is the potential spike in domestic spending that is a
regular feature of past electoral cycles in Nigeria. All of these factors, plus the
rising debt profiles of the government, increases inflationary outlook for the
economy.
Hence to put Nigeria on the path of low-inflation induced economic growth,
the following steps are important: the fiscal authority must do more to ensure
the synchronisation of fiscal and monetary policies in Nigeria, commitment by
fiscal authority to sustain an effective, functional and well resourced
stabilization account that will provide needed buffer for the economy,
increase in non-oil tax-GDP ratio, horizontal and vertical diversification of the
oil sector, speedy passage of the 2018 budget, payment of contractors’
debts to reduce the NPLs of banks, provision of more credit to the economy
by the banking sector, reduction in the maximum lending rates by banks and
the maintenance of adequate foreign reserves as a hedge against reversal
in portfolio investments and cyclicality of the global oil market.

4.
AHMAD, AISHAH
It was a privilege to contribute at the maiden Monetary Policy Committee
(MPC) meeting for 2018 following my confirmation as Deputy Governor at the
Central Bank of Nigeria (CBN). The MPC is an important platform for setting
appropriate monetary policy that ensures fulfilment of the CBN’s core
mandate; promoting price and monetary stability. MPC members have a
sacred responsibility, which must be discharged with utmost independence,
diligence and care given the very real consequences of their decisions for
Nigerian households, businesses, the financial system, the investment
community and other stakeholders.
Decision
At the April meeting, I voted to maintain the current monetary policy stance,
holding rates constant - MPR at 14 per cent; Cash Reserve Ratio at 22.5 per
cent; Liquidity Ratio at 30 per cent and Asymmetric corridor at +200 and -500
basis points around the MPR. My decision was predicated on some
important international and domestic economic developments, summarised
below, which have implications for financial and macroeconomic stability in
Nigeria.
Strong global growth, with recovery expected to persist in 2018
Global output growth was positive and remained resilient through 2017 driven
by continued monetary easing in advanced economies and gradual
recovery in commodity prices. The IMF projects global growth in 2018 at 3.9

per cent, up from 3.7 per cent for 2017, reflecting optimism that improved
investor confidence, stronger commodity prices and rebound in trade and
investment will sustain this global economic momentum in the immediate
term.
These positive growth prospects and likely renewal of the OPEC production
cap agreement is expected to support increased aggregate demand and
higher prices for crude oil. This is good for Nigeria, given the significant impact
of oil prices on our economic fortunes. Indeed, rising crude oil prices through
2017 and in Q1 of 2018. Bonny Light prices which rose from US$65.40/b in
December 2017 to US$69.11/b in March 2018 have helped to grow the
reserves and stabilize the exchange rate.
A few downside risks to global growth however have mixed implications for
the Nigerian economy, so also are the uncertainty over the BREXIT
negotiations, tensions over North Korea, US protectionist trade policy and the
brewing trade war, growing investments in shale oil production and monetary
policy normalization in the advanced economies.
Positive GDP growth strengthens domestic recovery prospects
Following its exit from recession in Q2 2017, the Nigerian economy grew by
0.83 per cent in 2017 compared with -1.57 per cent contraction recorded in
2016, due to improved crude oil production and rising prices, deliberate
macro-economic stimulus and a relatively stable naira. This is further
supported by the positive outlook for the Nigerian economy with World Bank

and IMF projections of 2.5 per cent and 2.1 per cent GDP growth in 2018,
respectively.
However, it is important to note that GDP per capita continues to decline,
given higher population growth compared with output growth rates. Other
potential headwinds for output growth include insecurity, farmer/herdsmen
conflicts, low implementation of the capital budget and delay in the
approval of the 2018 Appropriation Bill.
Inflationary pressure continued to moderate with headline inflation declining
to 14.33 per cent in February 2018 from a high of 18.72 per cent in January
2017. Progressively improved harvest, relative stability in the exchange rate,
increased local production and tight monetary policy stance has helped to
moderate prices. Although inflation remains above the CBN preferred
benchmark of 6-9 per cent, coupled with current negative real rates of return
over the policy rate, the steady rate of disinflation is a positive indicator for
growth and wider monetary policy options in the near future.
The naira exchange rate was relatively stable across the segments of the
market, on account of transparency in the foreign exchange (FX)
management through the Investors’ and Exporters’ Window, recovery in
crude oil prices and stability in domestic crude oil production. Improved
liquidity and transparency in the FX market provided confidence for foreign
portfolio investors helping to boost capital flows and accretion to reserves
from a low of US$23billion in October 2016 to over US$46billion as of March

2018. The continued improvement in the external reserves position gives the
Bank greater flexibility in managing the exchange rate; a fact which has
aided the observed sustenance of stability in the foreign exchange market.
Risks to capital flows, exchange rate and macro-economic stability
Notwithstanding the foregoing positive developments, the economy remains
exposed to potential global economic headwinds, whilst high lending rates
and low private sector credit growth threatens the fragile recovery in
domestic output.
Approaching monetary policy normalization in advanced economies, as
inflation rises to long run targets, have potential negative implications for
capital inflows as the competition for international investment flows intensifies.
For instance, the US has raised rates twice already in the last one year, from
0.75 - 1.00 per cent in May 2017 to 1.25 - 1.50 per cent in August 2017 and
1.50 -1.75 per cent in March 2018, with more rate hikes expected in 2018.
Despite the relatively strong balance sheets of deposit money banks and the
stable outlook, the high and rising non-performing loans concentrated in a
few sectors is worrisome. Whilst macro prudential measures being
implemented by the CBN are helping to proactively manage this risk, a
stronger and resilient economic recovery remains crucial to reversing this
trend.
Nigeria’s exposure to volatilities in crude oil prices remains a concern -
Building fiscal buffers and sustained efforts at revenue, economic and export

diversification remains paramount in view of volatilities in crude oil prices. This
underscores the importance of ongoing efforts of the fiscal authorities
towards economic and revenue diversification, such as the recent
inauguration of the National Food Security Council and the implementation
of Voluntary Asset and Income Declaration Scheme(VAIDS).
The anticipated huge fiscal spending for the proposed 2018 budget and
preparations ahead of the 2019 elections may also have inflationary effects.
This in itself would obviously call for a proactive and cautious monetary policy
response to ensure there is no upward pressure on inflation. Thus, I would
encourage quick passage of the 2018 Appropriation Bill by the National
Assembly, to keep fiscal policy on track, boost investment, employment and
economic output for the benefit of the citizenry.
Competing priorities and limited monetary policy options
It is my opinion that monetary policy considerations at this time should
prioritize reduction in the general price level, exchange rate stability, and
sustaining the fragile economic growth. We must - while we still can -
encourage the positive momentum in capital flows and accretion to
reserves, while accelerating the downward inflation trajectory.
In view of the preceding arguments and in the light of economic and
financial data made available to the Committee, I support maintaining the
current policy stance; holding rates at earlier defined levels.

5. ASOGWA, ROBERT CHIKWENDU
Decision:
At this meeting of the Monetary Policy Committee, I vote to hold all
parameters as they are:
Retain the MPR at 14.0 percent
Retain the CRR at 22.5 per cent
Retain the Asymmetric Corridor at +200/-500 basis points and
Retain Liquidity Ratio at 30.0 per cent
In reaching this decision, I have carefully considered three key influencers (a)
the current levels and forecasts of domestic inflation (b) the current levels
and forecasts of domestic GDP and (c) the official interest rate changes and
its expectations in some other countries. I have also taken into consideration
other key macroeconomic pressure points that can either facilitate or
threaten expected gains of any policy decision reached at this meeting.
First, are the current domestic inflation and the expectations in the coming
months. It is clear that the inflationary trend has continued to moderate for
several months now with headline inflation decreasing from 15.37 per cent in
December 2017 to 15.13 per cent in January 2018 and further to 14.33 per
cent in February 2018. While CBN staff estimates show further possible
moderation in the coming months of 2018, the anticipated spending towards
the 2019 election raises huge expectation of a possible hike in inflation in the

latter months of 2018. With inflation still above the CBN target, real interest
rates still at the negative band, and higher chances of further climb
associated with elections spending and other fiscal injections by the
government in 2018, retaining the MPR at its current level will be key to
dampening the possible inflationary trend in the future. At the global level
also, inflation is expected to moderate on average in 2018 as both the spot
and future prices of crude oil and other commodities have shown signs of
improvement in recent times. For Nigeria therefore, keeping exchange rate
on track will be increasingly difficult if domestic inflation persistently outpaces
inflation abroad.
Second, domestic output at current levels appears to be gradually
strengthening following exit from recession. The 2017 fourth quarter GDP
growth was 1.92 per cent, while for the whole year 2017, a growth rate of 0.83
per cent was recorded. The IMF estimates a 1.9 per cent growth in 2018, the
World Bank and CBN Staff estimate 2.5 per cent and 2.4 per cent growth,
respectively in 2018. These estimates indeed look realistic as both the current
and forecast of the manufacturing and non-manufacturing Purchasing
Managers Index (PMI) in the first quarter of 2018 indicates expansion in the
economy. These are positive signs even while some gap still exists between
the current levels and the estimated levels for 2018 which ordinarily would
have necessitated a reduction in the monetary policy rate. Since the
expected growth enablers in 2018 are also not predicated on an
expansionary monetary policy, suggestions of a rush to MPR cut will certainly

be counterproductive at this time. There is however, some evidence of low
domestic credits to the private sector, which may partly be attributed to the
perceived high interest rates, but given the credit market conditions that exist
in Nigeria, monetary policy expansion may not perfectly yield a seamless
expansion in private sector credit. Short term explicit interventionists support
(credit and non-credit) for such non-oil sectors as industry and services yet to
recover from the economic recession will be worthwhile now as long as such
support conforms to the rationale for current monetary policy decisions.
Third, relates to the official interest rate changes abroad now and as
expected in the future. Given that CBN also targets exchange rate, watching
the international interest rates keenly is important especially as the rise in
foreign portfolio investments in the recent past largely contributed to the
prevailing exchange rate stability. For now, increasing the level of foreign
portfolio investments or at least avoiding any possible reverse flight of capital
outside the country will be key for exchange rate management in 2018
especially in the short term. This is moreso as uncertainty in the oil market as
well as the potential for more restrictive trade policies in advanced
economies and the rising international geopolitical tensions may likely
introduce new surprises. CBN Staff data show that most advanced and
emerging economies who are either potential sources or recipients of
portfolio investments have either increased policy rates (as in the US) or
maintained rates (as in UK, Euro Area, China, Russia, Japan, India, Brazil).
While data also show that Kenya, Ghana and South Africa reduced policy

rates recently, a MPR reduction in Nigeria now could reverse the flow of
capital and possibly in vast amounts which may threaten the recent modest
gains in exchange rate management. While interest rate induced foreign
capital inflow will remain attractive in the short term, the historical risks
associated with its volatility makes it a tricky long term solution for developing
and emerging economies.
Other key economic pressure points
While developments in the external sector and the capital market show
positive impetus for macroeconomic strengthening, recent developments in
banking industry and the fiscal sector may yet drag down the process of
economic recovery thus further limiting the expected maximum impact of
monetary policy rules.
Generally, key indices of the external sector including inflow of foreign
exchange and rate stability, external reserves position all look good at the
moment which are clear signs of success with recent CBN measures in the
sector especially the Investors’ and Exporters’ FX Window. CBN Staff data
show that apart from the increasing levels of foreign exchange inflow, source
diversification has also been very revealing. Between January 2017 and
February 2017, CBN dominated as the source of foreign exchange inflow to
the economy, but the scenario seems to have changed between January
2018 and February 2018, when other sources of inflow dominated the CBN
sources. Consequently, external reserves have increased rapidly reaching
over $45 billion as at end of February 2018. The exchange rates have also

looked stable for the greater part of 2017, while the premium between BDC
rates and interbank rates which appeared too high in the early period of
2017 has since narrowed considerably.
Particularly worrisome is the emerging signs of banking sector fragility. Besides
the reported increases in non-performing loans, which by CBN staff report
had increased to about 16.21 per cent in February 2018 (arguably still at
moderate levels for now), the rise in average daily request of deposit money
banks from the Standing Lending Facility (SLF) window and the continued
reliance of many banks on operations in the government debt market to
remain solvent are all early warning signs of future threats in the banking
industry. While the gradual recovery from economic recession may rectify
some of the causes of the increases in non-performing loans, the current
preference of banks for SLF not only sends public signals of interbank fear and
caution, but also introduces constant volatility in the interbank rates, and
when unchecked may unnecessarily be expanding the balance sheet of the
Central Bank. Increasing arbitrarily the rates on the SLF as a strategy to
discourage banks from utilizing the window may also not be a good policy as
this would unjustifiably expand the margin between the rates on SLF and that
of the SDF. A significant reduction of MPR at this time could even further
weaken the solvency position of these deposit money banks.
Closely related to the fragility of the banking system, is the banking sector
credit to the private sector, which has recorded an abysmally poor growth in
recent times, coupled with the widening gap between lending and deposit

interest rates. My earlier expectation was that with the economic recession
over in 2017 and with current recovery signs, credit to the private sector will
just naturally pick up in the early parts of 2018, but this has not been so. The
popular belief now amongst manufacturers and other analysts is that the
current stance of the MPR is the major limiting factor for the growth of credit
to the private sector. Unfortunately, this may not practically be so given the
peculiarities and imperfections of the credit market in Nigeria and indeed
other parts of Sub-Sahara Africa where evidence has consistently shown that
low interest rates, whilst increasing somewhat the demand for credit, does
not necessarily lead to increases in the supply of bank credit. While
addressing these credit market imperfections may be a reliable long-term
solution, such short-term measures as the current CBN development financing
support to few sectors can suffice in the interim and simply preparatory for a
return to a longer-term market based solution for private sector financing by
deposit money banks. A realistic long-term ambition is to have the bank
credit to the private sector grow considerably faster than GDP.
On the fiscal sector, the major threat remains the growing public debt in the
midst of declining government revenues. With continued decline in oil and
non-oil revenue, government has desperately relied on domestic and
external borrowing to finance the increasing budget expenditure targets.
With the addition of Green Bond and FGN Sukuk to the expanding FGN Bonds
and FGN Savings Bond, the stock of domestic debt increased significantly
between June 2017 and December 2017. The same scenario happened with

external debt which had increased significantly partly due to additional
Eurobonds sale. While the government may have commenced a debt
substitution plan of refinancing maturing domestic debt with proceeds of
Eurobonds, this approach (yet invisible in the market) may also be short lived
as long as domestic revenue consistently falls below planned budget
expenditure with a wide margin. The consequences of the burgeoning public
debt growth not only for monetary policy but for entire macroeconomic
growth and stability are really well known and have been elaborated
extensively at previous MPC meetings.

6.
BALAMI, DAHIRU HASSAN
Global Level

The global economy is expected to register positive growth of 3.9 per
cent slightly higher than 2017 growth rate of 3.7 per cent. A number of
countries like Russia, Brazil and South Africa have exited from recession.
However, the global economy is still facing enormous challenges. For
example the downside factors such as difficulties with BREXIT negotiations,
new US trade policies and likely global trade war, nationalistic sentiment in
Italy, tensions in the Middle East and North African countries such as Saudi
Arabia and Iran as well as Libya and Sudan. Normalisation of the US
economy and the rising of the interest rate from 1.50 to 1.75 per cent and the
expectation of higher rates in 2018 and it's consequent implications on the
emerging and developing economies. In terms of inflation, the highly
industrialised nations such as US, Japan, Germany, UK, and France were
caught up in low inflation trap, while emerging and developing countries
such as Nigeria, Ghana etc. are caught up in high inflation trap which has
implications for growth.

Domestic Level
Although Nigeria has exited from recession due largely to rise in crude
oil exports and price. Early recovery should be the main goal of both
monetary and fiscal policy before other considerations. I believe the exit is
very fragile as the vital sectors of the economy have not fully recovered.
Therefore, recovery is expected to be achieved through implementation of

the Economic Recovery and Growth Plan (ERGP) and the Medium Term
Expenditure Framework (MTEF). Similarly, the current growth rate (0.83%) is not
impressive enough, because Nigeria's population growth rate is about 2.72
per cent. The challenges of growth include the following: non-approval of the
2018 budget by the Nigeria National Assembly (NASS), high interest rate,
problem of high inflation rate (14.33 per cent), poor and deterioration of
infrastructures such as roads, poor electricity supply and distribution, rising
levels of NPLs and non-existence of stabilization programme in place to assist
sustainability of growth. This requires a sound call on government to build a
stabilization programme through increasing oil output, food security
programme and see how investment can be channelled to employment
enhancing sectors of the economy such as the agricultural sector,
manufacturing, and other sectors of the economy.

Banking Sector

The key risk factors in banking industry include the followings: credit
default, credit concentration, solvency and liquidity risks, outstanding
approval of 2018 budget, which has halted development in the economy for
most part of 2018. It should be noted that CBN's mandate includes price
stability, exchange rate stability, and development functions. In the
economy, the CBN has successfully achieved relative stability in the foreign
exchange market. The exchange rate at the inter-bank segment remained
around N305.0/US$1 in the period under consideration.

The stability in the foreign exchange market has been achieved through
CBN's intervention policies, creation of various windows such as the Investors’
and Exporters’ Window as well as the accretion to reserves from US$39.35
billion at end-December 2017 to US$46.63 billion as at March 28, 2018. The
maintaining of policy on 41 commodities has greatly assisted in stabilizing the
foreign exchange market. This has helped increase the level of investor
confidence in the economy, which in turn has increased the level of foreign
direct investment (FDI) and foreign portfolio inflows.

Financial Soundness Indices
The financial soundness indicators for 2018 showed that Capital
Adequacy Ratio (CAR) has improved from 10.23 per cent in December 2017
to 11.43 per cent in February 2018 due to capitalisation of 2017 profits. The
liquidity ratio (LR) has also improved slightly from 45.66 per cent in December
2017 to 46.40 per cent in February 2018. However, the non-performing loans
(NPLs), the return on equity (ROE) and return on asset (ROA) have slightly
declined from 14.80 to 16.21 per cent, 19.5 to 11.76 per cent and 2.17 to 1.28
per cent, respectively from December 2017 to February 2018. This clearly
shows that a lot of efforts and strategies need to be put in place to improve
the banking sector performance. However, the poor indices have partly
been low due to negative contribution of some outlier banks. The LR is above
the prudential requirement of a minimum of 30 per cent for commercial
banks and 20 per cent for merchant banks. On the other hand, the CAR for
banks with international authorisation is 12.7 per cent, while commercial

banks with national authorization is 7.63 per cent. Both fall below the
prudential requirements of 10 per cent and 15 per cent respectively. It should
be noted that outlier banks constitute only a small proportion of the whole
banking industry. All necessary efforts are being put in place by the CBN to
assist in stabilising them.

Requirements for Banking Sector Stability
-
Expected improved oil output and prices
-
Increased liquidity in the foreign exchange market which enhances the
ability of the obligor to repay.
-
Profitability in the 2017 financial year which is expected to improve the
industry capital after audit and capitalization.
-
Commercial
banks
should
be
closely
monitored
against
the
vulnerability and appropriately guided in their operations.
-
NPLs can partly be reduced by the three layer of government by
redeeming their contractor debts.

Achievements
Under the current economic policies put in place by the CBN, the
macroeconomic environment had flourished. The Purchasing Managers
Index (PMI) for manufacturing and non-manufacturing showed a further
improvement in economic activities in the first quarter 2018; All Share Index
(ASI) increased by 13.3 per cent; headline inflation dropped to 14.33 per cent
in February 2018; there has been increased inflow of FDI and FPI; high

accretion pushed external reserves to US$46.63 billion as at March 28, 2018;
and foreign exchange market is relatively stable due to the strategies
employed by CBN.

Policy Choice
On the basis of the data available, tightening of MPR is more
appropriate for increased growth. However, 14 per cent is sufficiently high
enough to stabilize the economy through encouraging FDI inflows and
reducing inflation in the economy. Primarily the interest rate which is
anchored on the MPR has no correlation with lending rate, but partially with
inter-bank rate. The factors that influence interest rates overtime include the
following: economic growth, expected inflation, government budget, and
increased foreign exchange supply and loadable funds in securing price
increase, primarily easing of the interest rate would help to reduce the cost of
borrowing as well as cost of production and other economic activities. This
will help to enhance the business environment, promote sustainability,
discourage vulture investors as well as generate jobs through enhancing
Small and Medium Enterprises (SMEs) access to affordable funds. It would
promote investment to further drive economic recovery. Moreover, it will be
inflationary and can destabilise the foreign exchange market. For the CRR,
evidence based on available data showed that the utilisation of the standing
lending facility (SLF) has been increased by some of the commercial banks.
However, the current rate be retained at 22.5 per cent because loosening
would mean more available liquidity to the big banks, which can be used to

hit the foreign exchange market and possibly destabilising it. Primarily, it is
difficult in both theory and empiricism to lower price, interest rate and
exchange rate simultaneous particularly at the exiting phase of the recession
and recovery.
On the basis of the above analysis, I vote to hold, therefore, to retain the
(I) MPR at 14.00 per cent;
(Ii) CRR at 22.50 per cent;
(Iii) Liquidity ratio at 30.00 per cent, and
(Iv) Asymmetric corridor at +200 and -500 basis points around the MPR.

7.
NNANNA, OKWU JOSEPH
Nigeria’s growth although fragile continues to gather momentum due to
improved oil prices, oil production and a substantial increase in foreign
exchange liquidity. Real GDP grew by 1.92 per cent in Q4 of 2017 up from
0.72 per cent and 1.4 per cent in Q2 and Q3, respectively. In 2017 growth
stood at 0.83 per cent relative to a contraction of 1.58 per cent in 2016. Nonoil real GDP grew by 1.45 per cent in Q4 2017 compared with a contraction
of 0.76 per cent in third quarter of 2017. In the non-oil sector, the major drivers
of real GDP growth were Agriculture (4.23%), Construction (4.14%) and Trade
(2.07%). Manufacturing, and Non-manufacturing Purchasing Managers’
Index (PMI) stood at 56.7 and 57.2 index points, respectively, in March 2018,
indicating expansion for the twelfth and eleventh consecutive months.
However, structural headwinds remain a drag to growth in the non-oil sectors
as the manufacturing and construction industries continue to be constrained
by infrastructure deficits - mainly, erratic power supply and poor
transportation networks.

Subsisting disinflation path continues to reflect the lower-than-expected
liquidity conditions in the money market on account of the tight stance of
monetary policy and the weak effect of exchange rate pass-through on
domestic prices. Headline inflation (year-on-year) fell for the thirteenth
consecutive month to 14.33 per cent in February 2018 from 18.72 and 15.13
per cent in January 2017 and 2018, respectively. Food and core inflation
similarly declined to 17.59 and 11.71 per cent from 18.92 and 12.09 per cent,

respectively, in January 2018. However, structural factors, including
dysfunctional transport infrastructure, absence of a vibrant manufacturing
sector, high cost of energy, insurgency and insecurity in the North East; and
increasing cases of herdsmen violence constitute upside risks to inflation.

Psychological factors such as risk aversion remain a constraint to the granting
of credit to the real sector. Money market interest rates reflected rising NPLs
and liquidity conditions in the banking system as the average inter-bank call
rate increased to 12.42 per cent in February 2018 from 9.49 per cent in
December 2017. The Open buy back (OBB) rate also increased to 13.19 per
cent in February 2018 from 8.46 per cent in December 2017. The movement in
the net liquidity position and interest rates reflected the combined effects of
Open Market Operations (OMO) auctions, foreign exchange interventions
and statutory allocation to state and local governments. Crowding out of the
private sector persisted although credit to the private sector rose marginally
by 1.49 per cent in February 2018, while net credit to government rose by
19.99 per cent relative to December 2017. The All-Share Index (ASI) rose by
8.5 per cent from 38,243.19 on December 29, 2017, to 41,504.51 on March 29,
2018. Market Capitalization (MC) improved by 10.2 per cent from N13.61
trillion on December 29, 2017, to N14.99 trillion during the same period of
2018. Although, this reflected improved investor optimism on account of
positive real economy indicators including moderating inflation and
increasing PMI, the downside remains is the potential for reversal of portfolio
flows. I note the weakening banking industry soundness indicators as the non-

performing loans (NPLs) remain elevated, but I agree that adequate countercyclical and corrective measures are well in place to address isolated cases
of vulnerabilities and systemic spill-overs. Despite these concerns, banking
assets remain positive, recording an increase of 9.2 per cent in February 2018
over the corresponding period of 2017.

Global economic activity remains positive in 2018. The IMF and World Bank
forecast the global economy to expand by 3.9 and 3.0 per cent respectively
in 2018, higher than 3.7 and 3.0 per cent estimated for 2017. The upward
growth momentum in the US economy remains positive, while much of the
slack in the in the euro area labour market is being absorbed. China is on
course to managing its slower growth, while Japan is determined to further
bolster its growth. Despite the efforts by the Organization of the Petroleum
Exporting Countries (OPEC) to keep oil prices on the upward trend by
extending the existing production-cut deal alongside Russia until the end of
2018, offsetting effects largely from US shale production are expected. Higher
commodity prices arising from strong aggregate demand from developed
markets will spur emerging-market and developing economies with growth
projected at 4.9 per cent in 2018. I note however that already 2018 is
characterised by monetary policy normalisation and may portend
challenging credit conditions in emerging markets and potential for capital
reversal.

On the fiscal front, non-oil revenue buoyancy has remained non-existent,
while fiscal buffers remain weak. However, in a pre-election year, added to
the country’s unique fiscal federalism of total sharing of funds from the
Federation Account on a monthly basis, fiscal surprises maybe inevitable. I
expect that current efforts to broaden the tax base and adjustment in the
VAT rate together with the adoption of the “sin” tax on alcohol and tobacco
should improve government revenue. Overall, the need to enhance fiscal
buffers cannot be overemphasised.

External sector remains viable, supported by improved oil production, crude
oil prices, and effective foreign exchange management. The Nigerian
Autonomous Foreign Exchange (NAFEX) and the Investors’ and Exporters’ FX
Window have continued to engender transparency in the FX market. The
arbitrage premia across all segments of the market have narrowed
substantially. I note with satisfaction the increase in the external reserves
buffers.

Overall, staff estimates indicate positive and stable macroeconomic outlook
for the economy in 2018. I also note the recent interest rate hikes in some
climes and possible impact on portfolio flows in the frontier market. On the
balance of risks, it is important to sustain the current disinflationary policies.
Against this backdrop, I vote to retain the current monetary policy stance.

8.
SANUSI, ALIYU RAFINDADI

Decision:
On the strengths of the analyses of the available macroeconomic data,
developments in the global and domestic economic environments as well as
the outlook for global output, inflation and monetary policies in the
advanced and emerging market economies, keeping the current tight
monetary policy stance, in my opinion, is the best policy option for delivering
price stability and supporting the current output recovery. I have, therefore,
voted to leave the current policy stance, which I consider to be just tight
enough to keep domestic inflation trending downwards towards the singledigit long-run target, and not too tight for the current upward trend in output
to continue.

Background and Justification
2.1
Global Economic Developments
Global Economic Developments present opportunity for improved exports
revenues and capital inflows needed to sustain the current rate of reserves
accretion for sustained exchange rate and price stability. The global output is
projected to grow by 3.9 per cent in 2018, mainly due to expected rise in
investments, strengthening commodity prices, rising aggregate demand as
well as sustained recovery of international oil price. As at March 23, 2018,
Bonny Light sold for $70.21 per barrel compared with US$67.02 per barrel as at
January 2, 2018. The OPEC production cut, which was to end by March 2018,

has just been extended to the end of the year. Interest rates in most of the
advanced countries remain close to the zero lower bound. However, there is
an increasing pace of monetary policy normalization, following price
developments, in the US and UK, which raises financial yields in these
jurisdictions. In the US, for instance, the policy rate was raised five times
consecutively between December 2016 and March 2018, and is expected to
further rise by June 2018. There was a moderate hike in the repo rate in the UK
in November 2017 and the ECB has significantly reduced the amount of its
monthly asset purchases of its quantitative easing programme (to € 30billion,
or by 50%) following positive price movements in some parts of the Euro area.
Asset prices and long-term yields are expected to rise in major financial
markets.

2.2
Domestic Economic Developments
Domestic Economic Developments and outlook present opportunity for policy
to sustain the current disinflation process without stifling the fragile output
recovery. Domestic output growth is strengthening following sustained
quarterly rise for the fifth quarter since 2016Q3. Real output grew at the rates
of 0.72 per cent, 1.4 per cent and 1.92 per cent in the 2nd, 3rd and 4th quarters
of 2017, respectively. For the year 2017, therefore, output grew at a positive
rate of 0.83 per cent, mainly driven by the non-oil sector, compared with the
contraction of 1.58 per cent experienced in 2016. The upward trend is
expected to continue in 2018, on the account of expected improvements in

the oil and non-oil sectors (as oil production increases and foreign exchange
supply to the growth stimulating manufacturing, light industries and
agricultural sectors continues to improve). The aggressive implementation of
the Economic Recovery and Growth Plan (ERGP) is also expected to support
output growth. All forecasts suggest that output in 2018 will grow faster than it
did in 2018, ranging between 1.9 per cent (IMF’s) to 2.5 per cent (World
Bank’s).

Although the rate of growth of credit (Y-o-Y) to the private sector has
remained positive since December 2017, the increase of 1.75 per cent
achieved in February 2018 is still fragile. However, when compared with the
0.54 per cent achieved in January 2018, the improvements in February is
encouraging. The retail lending rates of the DMBs have remained high and
the spread between average lending rate and weighted average deposit
rates hovered around 25 per cent and has slightly widened during the period.
However, given the empirical evidence of the link between the policy rate
and retail rates of the DMBs, addressing the structural issues that are
responsible for the wide spread are likely to be more effective in raising the
flow of credit to the private sector. To support the up-trending output
development, therefore, the Central Bank should continue to improve the
effectiveness of its various credit interventions aimed at increasing credit
delivery to the growth-inducing sectors at single-digit interest rates.

Domestic headline inflation, which stood at 14.33 per cent (year-on-year) as
at February 2018, has been declining since December 2016, when it peaked
at 18.72 per cent. Indeed, the pace of the decline has increased since
November 2018. This downward trend is forecasted to continue, and will hit
the lower double-digit mark by the July 2018. Although the trend in Core
Inflation (which excludes the volatile components of the CPI basket) has
been sticky-downward between May 2017 and November 2018, it has
declined faster since December 2017 from 12.4 per cent (Y-o-Y) to 12.09 per
cent and 11.71 per cent in January and February 2018, respectively. Food
inflation, which has been on the decline since November 2018, is also
forecasted to continue to fall over the medium term. Analysis of the impact
different possible evolutionary paths of the core and food inflation as well as
price of PMS show that the decline in headline inflation is still fragile in the
short-term.

2.3
External Sector Developments
External Sector Developments and outlook present opportunity for policy to
sustain external reserves accumulation for exchange rate stability and lower
inflationary pressure. The External value of the naira has remained stable. The
interbank exchange rate hovered around N305 per US$ between May 2017
and February 2018. The BDC rate ranged between N362 and N365 per US$
during the same period. The NAFEX has also stablised at around N360/US$1
between October 2017 and February 2018. The stability of exchange rate,

attributable to the various strategies adopted by the Central Bank, has
significantly helped in easing inflationary pressures during the period. The
positive net foreign exchange inflow has steadily raised external reserves from
US$29.8 million in May 2017 to US$46.699 billion as at March 22, 2018. A
monetary policy stance that encourages or sustains net positive inflow of
foreign exchange and improves the external reserves position would,
therefore, not only sustain the external value of the naira, but will also be
consistent with long-term inflation target.

Implications for Policy
My review of global and domestic economic developments and outlook reveals:
1.
That the headline inflation, which is the overriding objective of
monetary policy, is well above the upper boundary of the target band, fixed
by the MPC in 2012, of between 6 and 9 per cent. It is, however, on a
downward trend suggesting that the current policy stance is “tight” enough
to sustain the current disinflation process, which started in February 2017. This
justifies keeping the current policy unchanged.
2.
The current stability of the exchange rate, which has significant
moderating effect on inflation, was aided by the improved external reserves
position, which enabled the Central Bank to implement the various
interventions and strategies that stabilized the naira. Keeping this position
requires oil prices to remain high and production to rise; and net positive

capital flows to be sustained or reversal prevented. Given the rising yields in
the US and many advanced and emerging markets, reducing the MPR would
be inconsistent with exchange rate stability objective.
3.
The current monetary policy stance not too “tight” for output growth,
given the upward trend in real output, which is also forecasted to rise further.
The FGN Bonds, as at February 28, 2018 exhibit a convex shaped yield curve,
i.e., negatively sloping, therefore signaling that the market expects low future
inflation. Voting for easing in order to increase the rate of output growth
would, therefore, be a classic case of time-inconsistent policy.

Downside Risks
There are a number of risks that are capable of moderating the positive
outlook for global output on the basis of which domestic economic outlook is
hinged. For instance, the rise of protectionism and possible escalation of the
trade war that started between the US and China may deliver a significantly
lower global output growth than expected, hence reducing global demand
for, and price of, oil. There are uncertainties generated by BREXIT, and
continued difficulties of the BREXIT negotiations can further weaken
investments in the UK and Euro area. There are indications from IMF that asset
prices and long-term yields in major financial markets are expected to rise,
increasing the risks of capital movements away from emerging markets as
investors adjust portfolio.

9. EMEFIELE, GODWIN GOVERNOR OF THE CENTRAL BANK OF NIGERIA AND
CHAIRMAN, MONETARY POLICY COMMITTEE
Though I voted, at today’s meeting, to retain monetary policy parameters,
there are two concerns I had related to two potential shocks to the
domestic economy within the short-term. The first of these is the expected
electioneering spending within the next twelve months and its knock-on
effects on systemic liquidity, aggregate demand, the short-term traverses of
inflation and exchange rates. The second set of concerns for me relate to
the latent risks to the domestic economic linked to the rising international
tensions and the probable ‘trade war’ and ‘cold war’, which need to be
mitigated. Our in-house analyses of short-term inflation forecasts suggest a
slow-paced disinflation, barring any shocks. However, as the effects of
previous tightening is still evolving and given the continued improvements in
key macroeconomic variables, it is imperative to not destabilise the ongoing
recovery with impulsive policy shocks.
A review of global economic outlook indicates an upbeat short-term
prospect. According to the IMF, global growth is projected to rise to 3.9 per
cent in 2018 from 3.7 per cent in 2017. Reflecting this upswing, 2017 growth
estimate for advanced economies was marginally revised upwards from 2.2
to 2.3 per cent, while the projection for 2018 was revised from 2.0 per cent to
2.3 per cent. Output growth in emerging markets and developing countries
is also projected to pick-up from 4.7 per cent in 2017 to 4.9 per cent in 2018.
At 3.3 per cent in 2018, growth projections for sub-Saharan Africa rose by 0.6

percentage points vis-à-vis the 2017 estimates. The global growth impetus is
largely attributable to improved financial market sentiments and rising
aggregate demand.
Congruent with the global developments, the short-term outlook for the
domestic economy continues to strengthen. Recently released data by the
National Bureau of Statistics indicates further consolidation of the cyclical
rebound as real GDP growth progressed from a contraction of 0.9 per cent
in 2017q1 to an expansion of 1.9 per cent in 2017q4. This translated to an
annualised expansion of 0.8 per cent for the entire 2017. Driven mainly by
non-oil growth (especially in agriculture, trade, and industry), the short-term
prospects are brightening with in-house 2018 real growth projections at 2.4
per cent. Regardless of this upswing, cautious policy remains sacrosanct as
current rebound is fragile, while per capita income and unemployment rate
are outside desirable levels. I therefore, once again, reiterate the imperatives
of
well-coordinated
macroeconomic
policies
amongst
the
various
policymaking authorities to ensure balanced and optimal outcomes.
Inflation rate maintained a steady decline as the headline rate fell from 18.7
per cent in January 2017 to 15.1 per cent in January 2018 and 14.3 per cent
in February 2018. This pattern of disinflation is also seen in the core sub-index
which fell from 17.9 per cent in January 2017 to 12.1 and 11.7 per cent in
January and February 2018, respectively. Though still relatively high, food
inflation moderated to 17.6 per cent in February 2018 from 17.8 per cent in

January 2017. I note that whereas the downward trajectory of inflationary
pressure is welcomed, the pace is slow, while the rates remain outside the
preferred 6–9 per cent band. There is therefore the need to ensure that the
path of disinflation is not reversed.
The moderating inflation pressure directly reflects the tight money and
financial market conditions as well as the stability in the FX market. Hovering
around NGN360/US$, the exchange rate in the various segments remained
stable, with steady convergent. External reserves rose progressively from
about US$23 billion in October 2016 to over US$39.3 billion at end-December
2017 and US$46.7 billion as at March 29, 2018. This reflected, among others,
growing investors’ confidence as inflows into the economy rose with a
positive spill-over on the domestic capital market. Money market conditions,
however, remained tight during the review period as key short-term interest
rates rose. Relative to its end-December 2017 levels, average inter-bank call
rate and Open Buy Back (OBB) rates, respectively, rose in February 2018 by
2.9 and 4.7 percentage points to 12.4 and 13.2 per cent, respectively.
Furthermore, liquidity conditions showed a 16.6 per cent annualised
contraction of narrow money supply (M1) in February 2018, while the
annualised growth of broad money supply (M2), at 0.4 per cent, was
considerably below the target expansion of 10.3 per cent for 2018.
Annualised expansion of net claims on government, at 119.9 per cent in
February 2018, surpassed the provisional benchmark of 33.1 per cent. Credit

to private sector, with an annualised growth of 8.9 per cent, however, fell
short of the 14.9 per cent programmed target. Given our unrelenting effort to
diversify the economy and entrench financial inclusion, I note with concern
that the low level of private sector credit may undermine our desired
objective. The CBN remains indefatigable in its drive to sufficiently channel
low-priced credit to high impact sectors with a view to bolstering domestic
productivity, creating jobs and reducing poverty.
Overall,
I
note
with
delight
the
continued
improvement
in
key
macroeconomic metrics. The cyclical recovery of real GDP, the steady
pace of disinflation, the sustained stability of the FX market and the
continued accretion to reserves are indeed welcome. Though the short-term
outlook of the domestic economy is bright, we must remain mindful of the
potential shocks ahead and effectively mitigate their immanent risks. With
high unemployment rate, I must also underscore that the current recovery is
yet structurally delicate.
I re-emphasise the need for cautious policy decisions devoid of impulsive
policy shocks, which could destabilise the current recovery trajectory. I am
mindful that inflation rate, though declining, is outside the programmed
band and at a growth inhibiting level. The prevailing macroeconomic
rebound is hugely attributable to the stability in the FX market. Therefore, it is
imperative that FX market stability is sustained in order to safeguard the
ongoing recovery. To increase the pace of disinflation and advance the

stability of the FX market, further tightening of monetary conditions may be
apropos. However, given that the current restrictive stance of policy is
achieving the goals of exchange rate stability and disinflation (albeit at slow
pace), further tightening, which may introduce policy shocks may not be
necessary. I am of the view that the current level of real policy interest rate is
appropriate to balance the objectives of exchange rate stability, price
stability and output stabilisation. Consequently, I vote to:
1. Retain the MPR at 14.0 per cent;
2. Retain the CRR at 22.5 per cent;
3. Retain the asymmetric corridor at +200/–500 basis points; and
4. Retain liquidity ratio at 30.0 per cent

GODWIN I. EMEFIELE, CON
Governor

April 2018