CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO 111 OF THE MONETARY
POLICY COMMITTEE MEETING OF 23RD AND 24TH JANUARY 2017.
1.0. Background
The Monetary Policy Committee held its first statutory meeting of
fiscal 2017 on 23rd and 24th January, 2017 against the backdrop of
increased
uncertainty
arising
from
political
and
economic
developments around the world. Over the last few weeks the pillars
of the old order - free trade, multilateralism and globalization have
come under intense pressure, and seemingly giving way to an era of
enlightened national interest in the conduct of international
economic relations. On the domestic front, the economy remains in
recession and inflation pressures have yet to recede. Both external
and domestic conditions have blended to significantly complicate
the policy environment.
In attendance at the meeting were all 10 members of the
Committee. The Committee reviewed the global and domestic
economic and financial environments in 2016 and the outlook for
the short to medium term in 2017.

External Developments

The uncertainty in the external environment persisted owing to a
combination of recent political and economic developments. The
key issues include: Brexit, the rising wave of populist and antiglobalization
sentiments
anchored
by
emerging
bilateralism,
divergent monetary policy stance of the advanced central banks
and disorderly commodity price movements. With global output
growth
improving
sluggishly,
the
outlook
for

remains
unchanged owing to persisting uncertainties in commodity prices
and volatility in the financial markets as well as slowing demand in
the advanced economies and the emerging markets.
The MPC welcomed the modest increase in oil prices following the
last OPEC decision to cut output and noted the increase in the
policy rate of the US Federal Reserve Bank in December 2016 and
the potential implications of that decision for international interest
rates and capital flows. While noting the materiality of the output cut
on oil prices, the Committee cautioned that the effect could rapidly
wane, given the likelihood of a supply glut from non-OPEC members,
low level of global economic activity and weak growth. Emerging
markets and developing economies, in particular, have continued
to confront strong headwinds such as low commodity prices, rising
inflation, currency instability, intractable low aggregate demand
and subdued capital flows.

Overall, the Committee noted that whereas improved commodity
prices may provide modest tailwinds for resource-dependent
economies in 2017, the medium-term outlook continues to be
muffled by stagnation and uncertainty in the prospects for global
trade, subdued investment and heightened policy uncertainty,
especially in some major economies. Nevertheless, the IMF estimates
that these constraints would decline; paving way for mild
improvements in economic growth from 3.1 per cent in 2016 to 3.4
per cent in 2017.
Global inflation commenced a moderate but steady rise on the
backdrop of improvements in oil prices and currency depreciation in
several emerging markets. However, amongst the major advanced
economies, only the U.S Fed has commenced policy tightening1
while the Bank of Japan (BOJ), the Bank of England and the
European Central Bank, all retained their accommodative policy
stance at their most recent meetings.


1 The Federal Reserve raised its benchmark Federal Fund rate by 25 basis points in December 2016, to a range of
0.50 to 0.75 per cent, and also provided indication of rate hikes in 2017

Domestic Output Developments
Data released by the National Bureau of Statistics (NBS) in November
2016 showed that the economy contracted further by 2.24 per cent
in Q3 2016, having slipped into recession following another
contraction in output in Q2, 2016. Although the overall contraction in
Q3 was greater than was observed in Q1 and Q2, the non-oil sector
grew by 0.03 per cent in Q3, driven mainly by agriculture, which
grew by 4.54 per cent. The Committee is of the view that the key
undercurrents i.e. scarcity of foreign exchange, low fiscal activity,
high energy prices and the accumulation of salary arrears - cannot
be directly ameliorated by monetary policy actions. The Committee
hopes that the recent increase in oil prices would be complemented
by production gains to provide the needed tailwinds to sustainable
economic activity. In that regard, the Committee commends the
commitment of the fiscal authorities to step up efforts to fill the
aggregate demand gap through a speedy resolution of the
domestic indebtedness of the federal government to states and
local contractors. The Committee believes that doing so will aid the
effort towards economic recovery.

Developments in Money and Prices
The committee noted that money supply (M2) grew by 19.02 per
cent in 2016, being 8.0 percentage points higher than its
programmed limit. It underscored the necessity of keeping the
economy adequately lubricated in the face of declining output.
Growth in Net Domestic Credit (NDC) was 24.79 per cent at endDecember 2016, being 17.94 per cent above its provisional
benchmark for 2016. Likewise growth in net credit to government, at
58.84 per cent, surpassed its programmed target of 47.4 per cent. In
effect, all the major monetary aggregates exceeded their
programmed provisional benchmarks for fiscal 2016.
Headline inflation (year-on-year) continued to rise, creeping up in
December 2016 to 18.55 per cent from 18.48 per cent in November,
and 18.33 per cent in October, thus sustaining the upward
momentum since January 2016. The increase in headline inflation in
December 2016 was driven by increase in the food component,
which inched up from 17.19 per cent in November to 17.39 per cent
in December. Core inflation, on the other hand, moderated slightly
to 18.05 per cent in December 2016 from 18.24 per cent in
November.
The Committee observed the increases in the month-on-month
inflation rate in November and December, in contrast to successive
declines between June and September 2016. It noted that the

structural factors driving the sustained pressure on consumer prices,
such as the high cost of power and energy, transport, production
factors, as well as rising prices of imports are yet to abate.
Nonetheless, the Committee estimates that the current policy stance
and other measures directed at improving food production would
combine with base effect to usher-in some moderation in consumer
prices in the short to medium term.
Money market interest rates fluctuated in tandem with the level of
liquidity in the banking system. Thus, average inter-bank call rate,
which stood at 15.34 per cent on 21st November 2016, closed at 9.90
per cent on December 30, 2016. Between these periods, the
interbank call rate averaged 13.59 per cent. The average interbank
call rate however, fell to 3.00 per cent on December 9, 2016, due to
an increase in net banking sector liquidity to N495.48 billion on
December 8, 2016, following the payment of statutory revenue to
states and local governments as well as maturity of CBN bills during
the period.
The Committee welcomed improvements in the equities segment of
the capital market as the All-Share Index (ASI) rose by 2.84 per cent
from 25,499.00 on November 21, 2016, to 26,223.54 on January 20,
2016. Similarly, Market Capitalization (MC) increased by 2.5 per cent
from N8.80 trillion to 9.02 trillion during the same period. Relative to
end-December 2016, the capital market indices, however, fell by

2.04 and 2.05 per cent, respectively, reflecting the challenges
confronting the economy.

Total foreign exchange inflows through the CBN increased
significantly by 82.45 per cent in December 2016 owing mainly to the
increase in oil prices. Total outflows, however, spiked during the
same period. The Committee noted that the average naira
exchange rate remained stable at the inter-bank segment of the
foreign exchange market in the review period.

2.0. Overall Outlook and Risks
The medium term outlook based on available data and forecast of
key economic variables indicate a more resilient economy in 2017.
Growth is expected to turn positive in fiscal 2017, as prior policy lags
converge and the fiscal space becomes more accommodative. In
addition, the agricultural sector is expected to play a bigger role in
driving growth, given the expansion of the Anchor Borrower
Program, as well as other developmental initiatives of the
Government. Likewise, the prospects for moderation of price
developments appear to be strengthening on the heels of positive
developments in the food sub-sector.
The Committee identified the downside risks to this outlook to include
the possibility of a slower-than-expected rate of global economic

activity, fluctuating oil prices and production shut-ins due to
vandalism of oil installations.

3.0. Summary of Considerations
The Committee re-assessed the headwinds which confronted the
economy in 2016 and the opportunities for recovery in 2017. In
particular, the MPC evaluated the implications of the rising wave of
nationalistic ideologues across the West, the re-evaluation of trade
agreements
and
the
possibility
of
rapid
monetary
policy
normalization in the United States, with adverse consequences for
other countries, including Nigeria. The uncertainties underpinning the
implementation of Brexit and the apparent retreat from globalisation
and free trade were also important points of reflection.
In recognition of the seemingly inevitable structural shift in the global
economy, the Committee reiterated the need to be more inward
looking and hasten efforts towards economic diversification to
support the domestic economy and improve life for the Nigerian
people. Consequently, members acknowledged the imperative of
sectoral policies and greater coordination of monetary and fiscal
policy.

Conscious of the prevailing market sentiments in favour of a rate cut,
the Committee reasoned that most of its decisions in 2016 were

informed by the need to address the delicate balance between
price stability and growth. Noting that the pressures on consumer
prices were yet to abate and even as the economy continued to be
in recession despite the intervention support by the Central Bank, the
Committee stressed that it was not oblivious of the full ramifications
of the economic challenges facing the country.
The MPC was concerned that the current situation was not
amenable to simplistic analyses and quick fixes such as have found
expression and increased attention at different fora and the media.
The domestic economic challenges which include a chronically
import dependent consumption culture, lack of competitiveness of
many sectors of the economy and yawning infrastructural gap, have
combined with an unfavorable external environment to complicate
the macroeconomic policy environment. The Monetary Authority
had on many occasions, and to the extent feasible, taken extraordinary steps to support other policies as well as compensate for
aspects of structural gaps in the economy even at the expense of its
core mandate.
The Committee specifically noted the positive contribution of
agriculture to GDP in the third quarter, mostly attributable to the
Bank‟s interventions in the sector. The Committee hopes that given
the thrust of the 2017 budget and accompanying sectoral policies,
output growth should resume in the short to medium term. The MPC,
therefore, lends its voice to efforts for an early finalization of the 2017

Federal Budget by the authorities concerned, and the resolve to
pursue a non-oil driven economy, as these will go a long way in
stimulating aggregate demand and restoring confidence in the
economy. The Committee also urged the authorities to seriously
consider using the Public Private Partnership (PPP) model in its
infrastructure development programme as a means of cushioning
any possible shocks to budgeted revenue.
The Committee further noted that Inflationary pressures would begin
to subside as non-oil output recovers and the naira exchange rate
stabilizes. Until then, it stressed, a rate cut would worsen the
inflationary conditions and undermine the current outlook for stability
in the foreign exchange market. The Committee also feels that doing
so would further aggravate demand pressures while undermining
existing income levels in the face of the already expansionary
monetary policy and increasing inflationary pressure which will make
the economy unattractive for foreign and domestic investment.
Given these limitations, the Committee was reluctant to lower the
policy rate on this occasion but remained committed to doing so
when the conditions permit.
From a financial stability standpoint, the Committee noted the
possible impact of the inclement macroeconomic environment on
banking sector resilience. The MPC urged the Management of the
Bank to engage industry operators to discuss likely issues of asset
quality, credit concentration and high foreign exchange exposures.

Given the growth in money supply arising from unconventional
monetary policy operations of the Bank and implications for price
and exchange rate developments, the Committee is committed to
moderating growth in narrow money in the 2017 fiscal year in line
with the Bank‟s monetary growth benchmarks.

4.0. The Committee’s Decisions
The Committee, in consideration of the headwinds in the domestic
economy and the uncertainties in the global environment, decided
by a unanimous vote to retain the MPR at 14.0 per cent alongside
all other policy parameters. In summary, the MPC decided to:
1. Retain the MPR at 14 per cent;
2. Retain the CRR at 22.5 per cent;
3. Retain the Liquidity Ratio at 30.00 per cent; and
4. Retain the Asymmetric corridor at +200 and -500 basis points
around the MPR.
Thank you for listening.
Godwin I. Emefiele
Governor, Central Bank of Nigeria
24th January, 2017

PERSONAL STATEMENT BY THE MONETARY POLICY COMMITTEE
MEMBERS.

1.0
ADELABU, ADEBAYO
To properly navigate the prevailing turbulent macroeconomic
environment, I think it would be in order to, first of all, undertake a
wholesale assessment of issues, as well as measures adopted,
particularly in the preceding year given that this is the first meeting in
2017. Fiscal 2016 ended on a less than satisfactory note for key
macroeconomic indicators. Inflation veered off the single digit track
right from the first quarter and remained not only in double digit but
equally maintained a consistent upward trend throughout the whole
year. For the first time in about three decades, real output recorded
consistent contraction in the last three quarters while the financial
markets experienced greater turbulence particularly in the foreign
exchange markets. In terms of policy reaction, MPR was increased
twice while the CRR was increased once in the course of the year to
send a strong signal in respect of the Committee‟s hawkish stance
on inflation. The Committee, however, did not have much latitude to
lend help to the softness in output due to the inflationary pressure
even though much of the problems are structural in nature.
Against the perspective of rising inflationary pressure, it may be
adjudged expedient to consider upward adjustment in the policy
rate, but I am still of the view that there is no need for such measure.

My position is informed, among others, by the fact that due to
increasing globalization of financial markets, Monetary Condition
Index (MCI) in a particular economy does not depend solely on the
short term interest rate set by the monetary authority. It is now
increasingly being recognized that the long term rates correlate
across countries more than short term rates. In essence, with the
commencement of monetary tightening by the US Federal Reserves,
the rate on long term US bond would increase, which would
invariably generate a spillover on the pricing of domestic bonds in
emerging market economies, such as Nigeria. This correlation, is
indicative that domestic monetary condition might be tighter than
the current level of MPR suggests. Evidence shows that the long term
lending rates in the domestic economy has been trending upward
continuously despite the fact that the last upward adjustment in the
policy rate was in July 2016.
The greatest headwind to the monetary authority was the condition
in the foreign exchange market, which emboldened the Committee
to jettison the managed float exchange rate for a flexible exchange
rate model in the course of the year. Despite the adoption of the
new model, the challenge is still lingering. The Bank has managed to
stabilize the interbank exchange rate at about #305/US$, but the
development at the parallel market is not reflective of such stability
as depreciation in that segment of the market continues unabated,
widening
the
margin
between
the
two
markets
to
an

unprecedented height of about 50 percent. The trend should not
continue for obvious reasons. Firstly, the exchange rate at the BDC‟s
market is used most of the times by economic agents to quote all
transactions, even when it is obvious that the BDC supply a small
proportion of total foreign exchange in the economy. Second, the
widening margin between the markets undermines confidence and
tends to increase speculation. Given the high pass through of
exchange rate to domestic price level, the low level of confidence
would continue to pose upside risk to inflation development. For
example, inflation dynamics in 2016 was principally driven by
upward adjustment in fuel and electricity prices as well as the sharp
depreciation of domestic currency. Between November and
December 2016, the component of inflation that experienced
considerable uptick was food inflation, which on the other hand was
underpinned by imported food component. The point of interest
here is that although headline inflation increased on year-on-year
basis, it decelerated on month-on-month basis, but imported food
inflation increased on both yearly and monthly bases. This dynamics
clearly suggests that the effect of the legacy factors like the
adjustment in fuel and energy prices are waning while the force at
play seems to be the falling price of domestic currency. As such, it
could be reasonably inferred that inflation trajectory in 2017 would
take bearing from developments in the foreign exchange market
but of worrisome dimension is that the current wide margin between

the two forex markets could engender inflation momentum which
would be very difficult to contain.
The challenge in the forex markets may be further aggravated by
the evolving realities in the global political economy. Since the
outcome of the historic referendum that culminated in Brexit in mid2016, the global political economy has started undergoing a new
kind of architecture as it is envisaged that similar referendum may be
in the offing in leading European nations of Italy, France, and
Germany. The unfolding configuration in the global political
economy is further reinforced by the evolving direction of the new
administration in the US. Although details of the foreign trade and
economic policies of the new administration are yet to be unveiled,
it could be clearly gleaned from the inaugural speech of the US
President that the world is entering into a new economic order, in
which nationalism and protectionism would take precedence over
liberal order and globalization. Emerging economies such as Nigeria
may be hard hit as the negative impact on the external sector
would not only be felt on the current account of the balance of
payment but the capital account would equally be affected
through remittances. As a result, the recent modest increase in the
external reserves on account of the rally in the price of crude oil
should be taken with guarded optimism. In essence, a key
consideration at this period is the need to manage developments in
the foreign exchange markets, particularly in narrowing the margin

in rates between the interbank and the BDC markets. Towards the
latter part of last year, some elements of force were applied in
compelling the operators to transact within a specific margin but the
benefit of hindsight has revealed the relative weakness of such a
strategy. In my view, the ongoing challenge may not require a new
policy
measures
from
this
Committee,
but
some
kinds
of
administrative measures which could engender confidence in the
foreign exchange market. Such measures may include deepening of
the market, as well as improving market liquidity.
On the issue of softening level of output, apart from the fact that the
larger part of the slump is from the structural component of output
which monetary policy could rarely influence, I equally have
considerable reservation as regards the efficacy of lax monetary
policy stance to address the slump in the cyclical component of
output under the prevailing macroeconomic condition. For one,
given the rising level of NPLs in the banking sector, it is doubtful if the
sector would be willing to grow its credit exposure at this period as
credit conditions are being tightened with much efforts placed on
recovery. For quite another, empirical results have relatively affirmed
the asymmetric response of credit to monetary policy stance in
developing economies like ours. In other words, a tight monetary
policy stance would automatically restraint credit growth but
loosening of monetary stance does not guarantee automatic
growth in credit particularly to the private sector. In our peculiar

regime, the SDF window of the Bank may become the preferred
investment destination. Still on the challenge confronting output
recovery, it is a welcome development that the FG is recognizing the
need for an expansionary fiscal stance as signaled by the proposed
2017 appropriation Bill. My concern however, is on some of the
underlying assumptions in the 2017/19 MTEF recently passed by the
National Assembly. It appears to me that the benchmark price on
crude oil adopted in MTEF is hinged on the fragile evidence of
recent rally in the oil price. Recent historical trend (past 2 years) does
not lend much support to the adopted benchmark. For a stable
macroeconomic environment that would be less vulnerable to
shocks in the global environment, some degree of conservatism
should underpin revenue projections. The rationale is not just to
minimize unanticipated fiscal deficit but there is also a strong need
to rebuild the fiscal buffer, which has been completely depleted. In
this regards, I would throw my weight for the retention of the US$42/b
benchmark proposed by the Executive. Still on the proposed
response of the fiscal authority to current recession, the MTEF for
2017-19 is expected to be financed by borrowing of about N2.3
trillion from both external and domestic sources. Domestic borrowing
is estimated at N1.253 trillion, thus increase in the MPR would not only
increase the cost of financing the budget but would also increase
the appetite of banking sector for government risk free assets at the

expense of credit to the private sector which is currently sub-optimal
in performance.
From the perspective of issues highlighted therefore, the balance of
risk suggests that the current level of the MPR remains unchanged.
Given that the banking system liquidity is not much of a threat at this
period, there is equally no serious need to change the level of the
CRR. Consequently, I vote for the retention of all the current
measures of monetary policy.

2.0
ALADE, SARAH O.

This first MPC of 2017 is coming at a period of increased uncertainty
in the global economy, as domestic and external conditions weigh
heavily on the domestic economic environment. While the January,
2017 World Economic Outlook (WEO) is projecting a pick-up in global
growth in 2017 and 2018, especially in emerging market and
developing economies, this projection will depend hugely on the
policy stance of the new U.S. administration and its global
ramifications. On the domestic front, the economy remains in
recession, and inflationary pressure remain elevated although it is
starting to trend downwards. These uncertainties coupled with
domestic
vulnerabilities
is
complicating
monetary
policy
environment in Nigeria. Under these conditions monetary policy
must remain steady to overcome challenges in the domestic
economy.

The global growth is improving but uncertainty remains. Economic
activity
in
both
advanced
economies
and
Emerging
and
Developing Economies (EMDEs) is forecast to accelerate in 2017–18,
with global growth projected to be 3.4 percent and 3.6 percent,
respectively, unchanged from the October 2016 WEO forecasts.
Advanced economies are now projected to grow by 1.9 percent in
2017 and 2.0 percent in 2018. However, this forecast is particularly

uncertain in light of potential changes in the policy stance of the
United States under the new administration. Growth projections for
2017 have also been revised upward for Germany, Japan, Spain,
and the United Kingdom, mostly on account of a stronger-thanexpected performance during the latter part of 2016 but revised
downwards for Italy and Korea. These coupled with the rising wave
of
populist
and
anti-globalization
sentiments
and
divergent
monetary policy stance of the central banks in advanced
economies will have impact on the Nigerian economy.

Gross Domestic Product (GDP) growth continues on a negative path:
Output growth in the third quarter of 2016 continued on a steep
decline as previous two quarters of the year. Third quarter GDP
growth contracted by -2.24 percent compared to a -2.06 and -0.36
percent recorded in the second and first quarters respectively. The
effect of energy shortages, high electricity tariffs, fuel price hikes,
scarcity of foreign exchange and depressed consumer demand
continued to dampen growth throughout the year. The negative
growth
in
GDP
under
normal
circumstances
would
have
necessitated a reduction in monetary policy rate, however
recognizing that the conditions which precipitated the current
economic downturn were not sensitive to monetary policy
interventions and rising inflation and the reversal of capital flows
requires that the stance of monetary policy remains tight. The

challenge for the committee as in 2016 is how to address growth
concerns without escalating inflationary pressures. Furthermore, the
medium term outlook based on available data and forecast of key
economic variables indicate a more resilient economy in 2017.
Growth is expected to turn positive in fiscal 2017, as prior policy lags
converge and the fiscal space become more accommodative.
Efforts to spur economic growth will therefore require the
cooperation and collaboration of monetary and fiscal policy and
delicate balancing of both global events and domestic risks.

Inflationary pressure continued unabated and ended the year at
upper double digit. Headline inflation ended 2016 at 18.55 per cent
in December from 18.48 per cent in November, and 18.33 per cent in
October, thus sustaining the upward momentum since January 2016.
Core inflation, on the other hand, moderated slightly to 18.05 per
cent in December 2016 from 18.24 per cent in November, while food
inflation increased to 17.19 per cent from 17.39 between November
and December 2016.

Inflationary pressure is being driven partially by excess liquidity in the
system. All monetary aggregates grew in 2016 above targeted
levels. Money supply (M2) grew by 19.02 per cent in 2016, an 8.0
percentage points higher than its programmed limit of 11.02
percent. This is as a result the many CBN intervention intended to
keep the economy adequately lubricated in the face of declining

output and dry up credit to the private sector. Growth in Net
Domestic Credit (NDC) stood at 24.79 per cent at end- December
2016, being 17.94 per cent above its provisional benchmark for 2016.
In addition, growth in net credit to government, stood at 58.84 per
cent, surpassing its programmed target of 47.4 per cent. The
increase in monetary aggregates is helping to push inflationary
pressures up. It is therefore important to reduce liquidity injection by
rolling back some of the intervention programs and refocus
monetary policy on price stability by lowering inflation. In addition
Increasing inflationary pressures will continue to pose problem in the
months ahead since the structural factors driving the sustained
pressure on consumer prices, such as the high cost of power and
energy, transport, production factors, as well as rising prices of
imports are yet to abate. Therefore, the committee must keep a
close eye on inflation to avoid it overshooting and further eroding
purchasing power of the poor.

The drying up of capital inflow and the existence of multiple
exchange rates requires further reform in the interbank foreign
exchange market to allow for transparency and price discovery in
line with the policies released in June 2016. This will attract the much
needed capital into the economy and liquidity into the market.
Therefore, in an effort to maintain the delicate balance of price
stability and economic growth, at this time, I support the retention of

the current stance of monetary policy. I vote for no change in
Monetary Policy Rate at 14 percent, retain Private Sector Cash
Reserve Requirement (CRR) at 22.5 percent, and retain Liquidity
Ratio at 30 percent to address both growth and macroeconomic
concerns.

3.0
BALAMI, DAHIRU HASSAN

Despite downside risks to global economic activities such as low
commodity prices, increased financial market vulnerabilities and
China‟s Rebalancing and the spill-over effects to key economies,
growth in 2017 is expected to be more prosperous at 3.4 percent
than 2016 which stands at 3.1 percent. In addition, the global
economy will be faced with uncertainties in 2017 due to policies to
be expected from President Trump of the USA, which may have
negative consequences on the Nigerian economy. At the domestic
level, the contents of the Federal Government Annual Budget, MTEF
and to a large extent, the Recovery Reform Plan are on the table.
The annual budget was formulated on the basis of several
assumptions such as crude oil output production of 2.2 mbd, crude
oil prices of $45.0 pb, exchange rate of #305.00 per dollar, inflation
rate of 15.3 percent and a growth rate of 3.5 percent. Government
has put this budget in order to help drive the economy out of the
current recession and subsequently, to the path of growth. The
critical question is the role of the monetary policy in assisting the
economy achieve its growth target set by the government. The CBN
has to identify and analyse the current challenges of the economy
such as recession, shrinking level of growth in the economy, high
level of unemployment, rising inflation, pressure on the exchange
rate, particularly in the parallel market and infrastructural decay as

well as increasing poverty and raising level of misery index. The
domestic economy is also faced with high interest rates thereby
denying the real sector of the economy access to credit.
However, addressing the above challenges, the CBN should to a
greater extent work within the mandate establishing it. A review of
the performance of the economy in 2016 has shown that revenue
side of the budget collapsed because of several developments, like
falling oil production and lower crude oil prices in the early days of
2016, before stabilising around $55 per barrel. Militancy in the Niger
Delta, and vandalism leading to reduction in the performance of the
Nigerian oil sector. With the above scenario, the CBN is expected to
do things differently if is to expect different results. To halt the
economy from shrinking, the CBN should do the following:
-Make sure that where it is unable to reduce or lower interest rates
because of the current structural rigidity in the economy facing the
DMB‟s, it should continue to expand its development objectives
within a planned framework such as the Anchor Borrower‟s
Programme at single digit interest rate. This can be extended to
SMEs.
-It should work towards reducing the raising level of inflation rate
currently at 18.55 downward. This could be achieved partly by
reducing and monitoring the level of the release of M1 in to the
economy, raising the level of productivity and output. This is so

because
inflation
represents
rising
cost
that
reduces
the
competitiveness of the economy. There should be the introduction
of maximum retail price in the market by adopting the Indian case.
In 2017 the CBN should advice Government to raise their IGR rather
than bail out.
-It should educate the public to understand the components of
interest rate which includes three critical elements such as risks,
administrative charges and Profits margin. Interest rate has been
high because of the Structural problems in the economy affecting
DMB‟s such as Infrastructural deficit, energy, security, fraud and
robbery etc. Primarily, low interest rate promote business investment,
however, no Central Bank reduces interest rates if inflation is
ravaging and growth is stagnant. It should be noted that current
data does not support the reduction of interest rates in the
economy. The role of government of not settling the contractors
particularly, those that have been financed by DMB‟s is also a major
problem constraining the banks from advancing further credit and
the rising level of NPLs .
-The CBN should strengthen its Banking and Supervisory role in the
financial sector to see that DMB‟s reduce their NPLs to an
acceptable or manageable level so that their capital base is not
threatened.

The CBN should also push more for the cashless system to be
expedited to facilitate easier transaction by reducing the cash
carrying habit.
Primarily for any Central Bank to be effective it has to take certain
decisions, even if unfavourable to some economic agents in order to
protect the economy and to drive its growth and price stability
objectives. The way forward for the Monetary authorities is to review
the important monetary Policy events of 2016. To assess what lessons
have been learnt from the review, and make clear statement and
strategy on how the Bank intends to move the economy forward,
particularly in issues relating to rising the level of liquidity in the
economy, inflation targeting, shrinking of the economy, anchors
expectation and the level of confidence in the economy, so as to
attract both domestic and foreign investors.
On the basis of current challenges in the economy and the earlier
policies put in place by the CBN in July, September and affirmed in
November 2016, I vote to hold to enable earlier policies work
through. Hence
-Retain MPR at 14 percent.
-Retain CRR at 22.5 percent.
-Retain liquidity ratio at 30 percent.
-Retain the symmetric window at +200/-500 point around the MPR.

4.0
BARAU, SULEIMAN
Background
The performance of key macroeconomic indicators like inflation, real
output growth and nominal exchange rate is still outside the comfort
zone but I would like to opt for a hold on all measures of monetary
policy at this meeting. As pointed out in my last statement, I believe
that the subsisting measures are reasonably sufficient to mitigate the
risks from both the global and domestic environments. The current
outcomes are partly due to the drag in the transmission mechanism
and the fact that we are already reaching the limit of monetary
policy.
It is however, equally important to note that a number of risk factors
particularly in the global environment have not been accurately
calibrated because it has been fairly difficult to dimension them.
Consequently, one tends to run a high risk of time inconsistency in
policy by putting measures in place to mitigate such risks. These
issues include the likely direction of US foreign and economic policies
under the new administration and the pace at which both Brexit and
monetary policy tightening by the US Federal Reserve (the Fed)
would proceed.

Pressure Points
Global Environment
The recovery in the global economy is beginning to firm up on the
heel of significant improvement in the US, the continuous upward
trajectory in the Euro zone as well as the massive fiscal stimulus in
Japan which is propelling that economy out of recession. The IMF
has projected global growth at 3.4 per cent for 2017, up from
estimated 3.1 per cent for 2016. This development, under normal
circumstances, should convey hope to emerging and developing
economies from the viewpoint of anticipated improvement in export
demand. In my opinion, however, such optimism should be taken
with caution in the light of three principal risk factors. The first one is
the direction of the US economic and foreign policies under the new
administration. The inaugural speech of the new President clearly
suggests a restrictive trade and economic policies with potential for
considerable negative spillover across world economies, most
especially emerging and developing economies. Under that
condition, global growth may falter and it would not be much of a
surprise if the current projection on global growth is revised
downward in due course.
Secondly, the Fed increased its policy rate by 0.25 percent at its
December meeting in a process which most analysts believed to be
the commencement of gradual tightening. Given that inflation has

been inching towards the threshold of 2 percent since the beginning
of the second half of 2016, the delay in the commencement of the
tightening regime could probably have been informed by the need
to wait for the direction of policy of the new government. In light of
the fact that the policy stance of the new administration is
becoming clearer and tending towards expansionary fiscal stance, it
should be expected that the pace of monetary tightening by the
Fed could proceed much faster than anticipated with implication for
further strengthening of the US dollar against emerging countries‟
currencies.
A key consideration is the development in the oil market. It is a
pleasant
development
that
crude
oil
price
witnessed
an
improvement in the second half of 2016 with an average price of
US$53/barrel for the period. This has partially impacted positively on
the level of our external reserves as net inflows between August and
December 2016 was positive. For me however, the sustainability of
the new rally in oil price is still much a subject of contention. It is
worth noting in this context that the entire 2016 average price was
about US$44/pb, about 20 per cent lower than the second half
average. The critical driver of the uptick in price in the second half of
last year was the negotiation and eventual agreement by the OPEC
to cut production with effect from January 2017. It is however
expected that the US, most especially in light of the direction of
economic policies under the new regime, would respond to the cut

in oil output in the latter half of 2017 and this may invariably constrain
the continuous upward pressure in the price of crude oil.
Domestic Environment:

A number of key challenges confronting the domestic economy in
the last couple of months are still lingering. Some of the major
pressure points are as follows:
While
monetary
policy
appears
restrictive,
it
is
in
reality
accommodative as demonstrated by growth in both broad and
reserve money. This remained a key challenge in policy formulation
and the efficacy of implementation. The above fact should ideally
commend an upward adjustment of the policy rate in order to signal
further tightening. However this fact has to be tampered by the
reality that growth during this period of recession, also remains a
consideration. These considerations made a compelling case for
me to recommend a hold in policy for now.
There remain substantial pressure points coming from the fiscal side.
While accretion to reserves, have improved as a result of calming of
militant activities and the increase in oil price due to OPEC driven
production cuts, they are still below optimal levels. Government
revenues are also far below budgets deficits as percentage of GDP
have understandingly widened to 4.6% of GDP though admittedly,
the levels of capital expenditure provisions have also increased. Key
concern remains the growing percentage of debt service to total

revenues. A lot of work therefore remains in the area of revenue
generation and fiscal consolidation.
The Margin between the Interbank and the BDCs Exchange Rates:
The margin between the interbank and the BDCs‟ exchange rates
was about 35 per cent in the third quarter of 2016 while it is currently
estimated at about 50 percent. This shows that the margin is not just
high but it is equally widening, depicting serious malfunctioning of
the markets that needs to be addressed inspite of current efforts in
this direction.
Threat to Inflation: Inflation at 18.55 percent at end-December 2016
has veered off the set target for the Bank and obviously raise the
issue of credibility for monetary policy which would ultimately make
the recovery process difficult. The major challenge to inflation is that
the drivers are from both core and food components. For example,
headline inflation increased from 17.85 to 18.55 percent between
September and December 2016 while core and food increased from
17.67 and 16.62 to 18.05 and 17.39 per cent respectively. The food
inflation is not only driven by imported food but farm produce
contributed significantly to the uptick. The issue therefore is that while
monetary policy measure could be used to address the issue on the
core component, the challenge on food component, particularly
the imported component could still pose substantial threat to
inflation in 2017.

Banking Stability Concern: The banking sector has been severely hit
by the ongoing headwinds of slump in the oil price as well as the
falling value of the domestic currency. The immediate impact of the
headwinds include deterioration in the balance sheet of households
and firms with far reaching consequence on the quality of assets of
the banking system. The NPLs of the banking system has shown
considerable rise since 2015 and the evolving trend does not suggest
that the adjustment in the balance sheet of economic agents has
ended.
Way Forward
Need to Build Confidence in the Forex Market: The adoption of
flexible exchange rate model in the latter half of last year was a
remarkable step towards enhancing monetary autonomy and
perhaps in making adjustment to the dynamics in macroeconomy
more direct and less costly. This notwithstanding, exchange rate
flexibility has its challenges particularly in less developed financial
system such as ours. One of the critical issues is the modus operandi
of transition from managed float to a flexible rate model.
Experiences in over half of the countries that have changed from
fixed or managed float to flexible model reveals that the transition
process is always marked with lack of orderliness as evidenced by
the current wide margin between the interbank and the BDCs‟ rates.
Some of the key components of the transition strategy in those
climes where the transition has been successful include measures

that could enhance confidence in the market. As such, the Bank
should continue to fine tune the flexible exchange rate model with
confidence enhancing measures like a deep and highly liquid forex
market, robust policy guiding the Bank‟s intervention in the forex
market, and a good model for assessing and controlling the
vulnerability of the public and private sector to exchange rate risk,
among others.
Ultimately any measure in successful migration to full flexibility must
address swings and direction of the BDC/parallel market rates given
the impact of these markets on sentiments in the interbank market. If
distortions that are created by the systemic/structural liquidity as well
as illicit flows, as well as sustained dollarization are addressed, then
the pressure and emerging rates in the BDC/parallel markets will be
moderated, and the normal rational activities of arbitrageurs will
close the gap between the official/parallel markets and nominal
exchange rate will come closer to the real effective exchange rate
and the real economy will ultimately not be shortchanged. To
embark on full flexibility in an atmosphere of pervasive distortion,
warped sentiments, faulty fundamentals due to oil production and
price challenges will not necessarily bring the so called confidence
in the market and will also negatively affect the real economy
probably beyond the current scenario.
Partnership with Credible Financial and Development Institutions: The
2017 budget proposal shows the determination of the Federal

Government to address the recent slump in economic activities as
the budget signals an expansionary fiscal stance. One major area
that requires critical assessment, however, is the ability of
Government to source the loans required to bridge the resource
gap. The MTEF/FSP for 2017-2019, provides for total borrowing of
N2.32 trillion in which domestic and foreign borrowings amount to
N1.253 trillion and N1.067 trillion, respectively. In as much as external
borrowing is ideal due to huge financing costs at the moment, it may
be quite challenging to obtain such a huge amount from global
financial
institutions
at
a
concessionary
rate
without
the
endorsement of credible organizations like the International
Monetary Fund (IMF). It is in this regard that I would suggest we seek
as an option the endorsement of global financial institutions in
respect of the domestic macroeconomic policy such that the
Federal Government may access facilities in the global financial
markets at concessionary terms, provided that our overriding
national interest is not compromised.
Robust Peace Framework in the Niger Delta Area: As pointed out
above, the 2017-2019 MTEF/FSP is predicated on oil output of 2.2
million barrel per day (mbpd), when actual production in the last
two years hovered around 1.65 mbpd. It is commendable that in
passing the MTEF/FSP document into law, the National Assembly, at
least identified this risk factor and therefore recommended the need
for a robust peace framework in the Niger Delta area with a view to

actualizing the revenue projections. The country‟s ability to quickly
exit the current recession and elicit price and exchange rate stability
must be premised on good fortunes coming from the oil sector via
good oil price and high but stable production and exports.
Accelerated Passage of the 2017 Appropriation Bill: Theoretical
evidence right from the evolution of Keynes theory as well as
practical evidence has shown the potency of fiscal instruments in
addressing recession. On this basis, I would like to commend the
accelerated passage of the MTEF/FSP document. In recognition of
this issue, it is of utmost importance that similar urgency be extended
to the 2017 Appropriation Bill as this would facilitate easy planning,
monitoring as well as avoid the bunching of expenditure in the latter
part of the year, which could be counter-productive.
Strengthening of Macro Prudential Regulation in the Banking System:
The banking system has had a fair share of the challenge from the
imbalances in the macroeconomy. The adoption of a more flexible
exchange rate in particular, has created adverse condition on the
balance sheet of firms including both financial and non-financial
corporates. One of the major challenges in the banking system is a
gradual build up in the level of NPLs which could trigger systemic
crisis if not timely nipped in the bud. Given that the imbalances are
due to vulnerability to exchange rate risk, macro prudential
measures that could target currency mismatch and policies that

target types of funding that are susceptible to global liquidity
condition should be explored.
Decision
In the light of current market developments, easing of policy does
not appear to be a wise prescription at the moment. Further
tightening may also affect the modest efforts at economic recovery
negatively. Therefore in due recognition of the foregoing and
arguments earlier canvassed in my personal statement after the last
MPC, I‟m convinced that the rational thing to do is to hold policy
prescriptions at current levels.
I therefore vote to HOLD.

5.0
GARBA, ABDUL-GANIYU
Context
In my last personal statement I emphasized the need to take stock of
the monetary policy and outcomes of the year 2016. I believe that
we could gain insights into how successful the MPC had been in
2016 and that this will help us think clearer about the strategic and
policy options for 2017 in the light of the global outlook that may be
dominated by the crystallization of “Brexit effects” and “Trump-win
effects”.
The mandates of the MPC since 2007 are legally given and nondiscretionary: (a) ensure monetary and price stability; (b) issue legal
tender currency in Nigeria; (c) maintain external reserves to
safeguard the international value of the legal tender currency; (d)
promote a sound financial system in Nigeria; and (e) Act as banker
and provide economic and financial advice to the Federal
Government. The right stock taking is obviously one that is guided by
the mandate of the CBN.
Of the three elements of a sound policy analysis - a sound
framework, credible data and credible analysis – arguably the least
controversial is the data. The data relevant to the mandate of the
MPC are inflation, exchange rate, interest rate, GDP, employment,
fiscal and external balances and structures.

The headline, food and core inflation rates were 9.55%, 10.59% and
8.73% respectively for December 2015. The respective rates for
December 2016 were 18.55%, 17.79% and 18.55%. These imply that
December 2016 headline index, food index and core index were
respectively, 1.94, 1.68 and 2.1 times their respective levels in
December 2015. Put another way, headline inflation index almost
doubled in 2016, food inflation index rose by almost 70% in 2016 while
core inflation index more than doubled in 2016. Clearly, one could
not rightly conclude that the MPC achieved its primary mandate in
2016. Inflation eroded the value of the Naira and hurt citizens on
fixed incomes and the majority who are on less that $1 a day. It is
well established that inflation has the widest possible impacts on the
population compared to unemployment and low growth. The
budget effects of such high inflation as witnessed in 2016 tend to
repress demand and cause involuntary accumulation of inventories
that may hurt investment, real growth and employment. It is thus not
surprising that the GDP figures are not only negative in the first three
quarters of 2016, the economy declined at a growing rate. Also, the
unemployment rate was also increasing. Fiscal operations was
characterized by revenue shortfalls, rising public deficit, debt stock
and debt service.
The high inflation could also adversely affect international value of
the Naira. Official data indicate that the exchange rate spread
between the Interbank and BDC per 1 US$ was an average N3.33 or

2.4% in 2010:01-2014:10. After the devaluation of November 2014, the
spread rose to an average of 6.2% in 2014:11-2015:02 (when the
RDAS window was closed). Between the closure of the RDAS window
and the “flexibility policy” in June 2016, the spread rose to an
average of N60.5 (30.7%)! In the “flexibility policy” period to
December 2016, the spread averaged N117 (40.2%)! Indeed the
spread for December was N150 or 49.2%! Given that spread is an
indicator of pricing and allocation inefficiencies, it follows that the
extant exchange rate allocation mechanisms have significant
inefficiencies. Such inefficiencies adversely affect the current
account balance and capital inflows which remained negative. The
economic risks of such inefficiencies are a great dis-incentive to
trade and capital inflows.
As the spread has risen, so has the depreciation of the currency. In
the first five months of 2016, the Naira lost 30% of its US$ purchasing
power in the BDC market. After the “flexibility policy” it lost a further
35% of its purchasing power. Thus, in 2016 relative to its purchasing
power in December 2015, the Naira lost 76% of its purchasing power
in the BDC segment. In the Interbank segment, the yearly loss of
purchasing power was 30.5%. From both market analysis and
macroeconomic analysis, the Nigerian foreign exchange market
and policy at best needs urgent re-design to make it more efficient
in pricing and allocation to ensure stem the loss of value of the
Naira.

In 2016, the MPC raised the MPR twice in March (1%) and May (2%).
Yet, money supply (M1) rose by 34.4% an increase of about N2.95
trillion. This increase came after a 37.1% growth (about N2.32 trillion)
in fiscal year 2015. Such growth in money supply is not compatible
with increase in interest rates. The classic quantity theory of money
(M = κP) indicates clearly that the inflation in 2015 and 2016 were
caused mainly by growth in money supply. A decline in transaction
activities meant that price must rise more than proportionately to the
rise in money supply.
The growth in money supply is arguably, partly the cause of the loss
of the international purchasing power of the Naira. If this is true, there
is no economic justification for raising MPR: it can neither reduce the
inflation rate nor stabilize the international value of the Naira. High
inflation expectations, widening exchange rate spreads and sharply
declining value of the Naira are strong dis-incentives to real
investments and financial inflows. The premiums required to bring in
“tapeworm flows” is simply too disruptive to be a viable policy
option.
The phenomenal rise in headline, food and core indexes in 2016 is
proof-positive that the loss of domestic and international purchasing
power of the Naira is caused mainly by growth in M1! Clearly, the rise
in CRR in March by 2.5% did not counter the growth in M1. Like the
rise in MPR in 2016, it was an ineffective tool is restraining the
declining domestic and international value of the Naira.

In 2017, the anomalous relations between M1 and MPR and
between M1 and CRR must be corrected. MPR should not rise when
M1 is growing so fast and vice versa. Neither should CRR be raised
when M1 is driven to rise so fast. It is conventional wisdom that the
demand for money and interest rates are inversely related hence, a
rise in money supply should cause the interest rate to fall and vice
versa. A rise in CRR signals tightening while growth in M1signals
accommodative monetary policy. To grow M1 and raise CRR at the
same time is conflicting and inconsistent. Therefore, policy
consistency demands that tightening of prices be supported by
tightening of quantities while loosening of prices be supported by a
loosening of quantities. Where a mix of tightening of prices and
loosening of quantities are designed and implemented, the
consequences as the data has clearly demonstrated would be high
inflation, rapid exchange rate depreciations and exchange rate
spreads that transfer wealth and undercut real activities, real GDP
growth and employment.
Outlook for 2017
Year

will
be
very
challenging
for
macroeconomic
management globally and for global markets because of
heightened uncertainties due mainly to political and associated
economic risks. The new Trump administration has signaled an
“intimidate and beggar my neighbor” strategy that may unsettle

global trade, commodity prices and financial markets and prices
and financial flows. The elections in France and Germany may also
throw up surprises like “Brexit” and “Trump-win”. Staff Report also
highlights uncertainties about the price of crude oil, slowdown in
both advanced and emerging economies as key headwinds.
The domestic outlook indicated by the fiscal deficit, the structure of
expenditure, revenue shortfalls, high levels of public debts and the
crowding-out effects of public debt service and public borrowing on
private sector investments and current account deficits make for a
difficult 2017. The challenges of sourcing credit within and outside
the Nigerian economy may exert pressures on the growth in money
supply. Yet, as 2015 and 2016 clearly show, it would be damaging for
the credibility of monetary and fiscal policy to allow M1 match the
growth of previous years. It would significantly damage the
purchasing power of the Naira domestically and internationally and
destabilize the economy. There is also, the challenge of twin deficits
(fiscal and current account) and ensuring financial system stability to
contend with.
It is important in 2017 therefore, to rein-in growth in money supply to
ensure that monetary policy is credible. It is also important to ensure
that in 2017 the foreign exchange allocation mechanisms are
designed to eliminate the spreads that is destroying the international
and domestic purchasing power of the Naira. The framers of the
CBN Act, 2007 were right in making safeguarding the international

value of the Naira a key mandate of the Central Bank. The last two
years have shown how important safeguarding the international
value of the Naira is to macroeconomic stability as well as to
financial system stability. Clearly therefore, capping the growth of
money supply and eliminating price and allocative efficiencies of
the extant foreign exchange mechanisms are critical to the success
of monetary policy in 2017 and indeed; to the overall health of the
economy.
Unresolved Issues
I shall keep reiterating a number of longer term issues which remain
unresolved: (a) the lack of forward looking medium to long term
strategic macroeconomic management framework for Nigeria as
the context for policy analysis and choice; (b) the conversion of rent
havens in both the real and financial sectors to efficiency and
effectiveness centres; (c) the shift from a present hedonistic
orientation to a longer term perspective; and (d) eliminating the
strategic vacuums for policy analysis and choice. The extent to
which these issues are appropriately addressed in the economic
recovery programme being drawn remains to be seen.
Decision
I vote to hold. As in November 2016 MPC, I considered voting for
reducing the monetary policy rate for the purpose of policy
credibility and consistency. However, I became convinced to align

myself with a consensus position to cap the growth in M1 in 2017 as
the better option in the short term. A cap on money supply may
resolve the primary source of the monetary policy credibility problem
of the last seven years – excess high powered liquidity. This rulesbased option is compatible with the rules-based fiscal policy
envisaged in the Fiscal Responsibility Act of 2007. I am convinced
that a cap on the growth of money supply would free monetary
policy to be more effective and (a) limit the costly mop-ups that
generate excessive rise in interest rates; (b) reduce the pressures on
the domestic and international value of the Naira and (c) minimize
the negative effects of loss of international value of the Naira on
domestic activities and financial system stability.

6.0
NNANNA, OKWU JOSEPH
Global macroeconomic developments were fragile throughout 2016
as growth was revised downwards from 3.2 percent to 3.1 percent. In
2017, a marginal improvement to 3.4 percent is envisaged. The push
factors are mixed; the uncertainty surrounding the Brexit, the populist
and protectionist tendencies of President Trump, characterize the
downside risks, while the slight pickup in commodity prices and
prospects for growth in emerging and frontier markets are the
upsides to recovery in 2017.Overall, the asymmetric growth in
advanced economies is likely to remain subdued, while growth in
emerging and frontier markets are expected to rebound after five
years of consecutive decline.
At the domestic front, macroeconomic trends are mixed, but
worrisome; as the recession persists amid rising price levels, widening
twin deficits and declining productivity. According to the National
Bureau of Statistics, GDP contracted by -2.06 percent in Q2 and -2.24
in Q3 respectively. And is expected to further decline in Q4 of 2016;
driven largely by weak aggregate demand, infrastructure deficits
and sustained pressure on the Naira Exchange rates. These
developments further underpin the point that monetary policy needs
urgent support from fiscal and structural policy initiatives without
which progress in reversing current recession will be prolonged and
tortuous.

Monetary policy in the quarter was expansionary, arising from the
quasi-fiscal operations of the Central Bank and exacerbated by the
widening fiscal operations of the government. However, it is
noteworthy that the CBN‟s targeted interventions in the real sector
have produced salutary outcome in the agricultural sector,
especially, the noted increase in rice production.
The need for closer monetary and fiscal policy coordination cannot
be overemphasized. A quick win would be for the fiscal authorities to
securitize all domestic (Federal, state and local) government debts
owed to contractors and sundry suppliers of government services to
ensure that economic activity is jump started and the quantum of
the non-performing loans in the banking system reduced.
Conclusion:
Against this backdrop, I voted to:
Retain the MPR at 14.00 percent,
Retain the CRR at 22.5 percent,
Retain the Liquidity Ratio at 30 percent; and
Retain the asymmetric window at +200 and -500 basis points
around the MPR.

7.0 SALAMI, ADEDOYIN
At the end of this meeting, I voted with colleagues to maintain the
status-quo with respect to all monetary policy parameters –
Monetary Policy Rate (MPR), Cash Reserve Ratio (CRR), and Interest
Rate Corridor.
In terms of the data releases which shaped the run-up to this first
meeting of the year, Aggregate Inflation, at 18.5percent for
December 2016, rose for the 14th consecutive month. The average
for 2016 was thus 15.7percent which compares unfavourably with
9percent the previous year. Whilst Core Inflation marginally declined
to 18.05percent at year-end, Food prices, at 17.39percent,
continued to rise.
The increase in liquidity which I had noted in my Statement after the
Meeting in November continued to rise sharply. Data for December
showed M1 rose between November and December 2016 by
10percent! On a year-on-year basis, the increase was 34percent.
Narrow Money stock had thus increased 72percent since October
2015.
The Banking Sector Stability Presentation by Bank Staff showed NPL
Ratio, at 12.8percent, remaining well above the regulatory
maximum. The trends in credit allocation show sharp concentration
with 4 sectors – Oil & Gas, Manufacturing, Governments and Power –

accounting for 85percent of the increase in credit over the past
12months.
Ahead of this meeting, there was a lot of noise around the Central
Bank of Nigeria (CBN) Purchasing Managers‟ Index (PMI) which was
reported to have increased to 52.0 in December 2016 – thus
suggesting „green shoots‟ of output recovery from recession. A closer
inspection of the PMI shows that whilst manufacturing PMI had
indeed risen as reported, the Non-Manufacturing PMI remained
below the threshold of 50.0. In other words, tis perhaps too early to
see the „green shoots‟ of recovery.
Notwithstanding the reduction in the value of oil export revenue from
US$42.4bn in 2015 to US$28.045bn in Nov 2016, the FOREX Reserves
showed a slight decline from US$28.28bn to US$26.99 in the same
period. The various measures to manage FOREX are doubtless
responsible for the „healthy‟ state of the Reserves! Unsurprisingly, the
premium between Official and BDC rates for the Naira had
worsened from N61.3 at the end of 2015 to N150.04 a year later!!
Taken together, the available indicators show an economic
environment little changed from our meeting in November – in other
words, a very difficult environment. The loss of confidence was
further illustrated by the ratings downgrade awarded by Fitch –
Nigeria was downgraded to B+ with a negative outlook. The

principal concern being focussed on access to Forex. As the Fitch
Statement noted -
“Access to foreign exchange will remain severely restricted
until the Central Bank of Nigeria can establish the credibility of
the interbank foreign-exchange market and bring down the
spread between the official rate and the parallel market rates”
Rumbling in the background to this meeting were the consideration
of the Federal Government (FG) 2017 Appropriation Bill by the
National Assembly and the on-going efforts to articulate and publish
an Economic Recovery and Growth Plan (ERGP). Both Fiscal Side
documents will doubtless shape the direction of Monetary Policy.
Having argued in my Statement at the end of the previous meeting
in November that Monetary Policy had become internally
inconsistent by sharply raising both liquidity and interest rates, I had a
choice to make between insisting on policy credibility and waiting
for the clarity around the fiscal side policies. While insistence on
Policy credibility would have required I vote for a formal easing of
policy by reducing in the Monetary Policy Rate (MPR), waiting for
clarity around fiscal side measures would dictate voting to hold.
While in the end, I voted to hold, I am clear that going forward
policy
credibility
and
internal
consistency
will
be
major
considerations in determining my support for policy proposals. In my

view it is now imperative that we restore credibility of the Central
Bank of Nigeria.

8.0
UCHE, CHIBUIKE U
During periods of economic recession, there is always the temptation
to loosen monetary policy in order to engender economic growth.
While this may be a useful strategy under certain circumstances, I
am convinced that adopting such a strategy in Nigeria at the
present time will be counterproductive. This is so because of a
number of reasons. These include the fact that inflation, which is
currently in double digit territory, is still rising. Loosening the current
monetary policy stance will only add fodder to this unfortunate
scenario. This is at least in part because it will help to further put
pressure on the exchange rate of the Naira. Our inability to reduce
our dependence of foreign goods or to diversify the income base of
our economy away from oil rents makes this outcome inevitable.

At another level, fixation of MPC on inflation at the present time will
put pressure on us to further tighten the current monetary policy
stance. The argument that MPC should focus solely on price stability
(inflation) is very popular in some circles within MPC. Some have also
argued that raising MPR will also help to attract the much needed
foreign investments into our economy. This will, among others, help to
curtail the pressure on the Naira exchange rate. It is my view that
adopting the above strategy, in the context of our current peculiar
circumstances, will also be an error. In fact, it may even help to drive
our fragile economy further into recession.

Whatever we do, it is important for all of us to appreciate the fact
that price stability cannot be an end in itself. Rather, its main
essence is to help promote economic growth and development. The
above point is important especially given the fact that tightening
monetary policy at the present time will further endanger the health
of the Nigerian banking system. With the banking industry NPL ratio
already in double digit territory, it would be an error for MPC to take
any action that will contribute to the further deterioration of banking
system stability in Nigeria. The impact of such an action on local
businesses, which are already struggling, will also be negative.

As I have argued above and in previous meetings, the idea of raising
MPR simply to attract foreign investments is both unhelpful and
dangerous. Economic history teaches us that such a strategy can
only attract economic speculators whose main objective will be to
exploit the unstable exchange rate of the local currency to their
advantage. Under no circumstance should such short term
speculative portfolio investors be encouraged to flourish at the
detriment of our economy. Whatever reliefs they bring can only be
temporary. The idea of capital account liberalization clearly makes
no sense in a mono product oil rent economy like ours.

From the above, it is clear that there is a limit to what monetary
policy alone can do to help salvage our country's ailing economy.
Other stakeholders have to play their own part for any meaningful
progress to be made towards diversifying and revamping our ailing
economy. It is as a consequence of the above that I believe that the
time has come for the management of the CBN to begin to robustly
resist the ever increasing pressure (and temptation) to intervene in
diverse sectors of our economy. Under the current mono product oil
rent scenario, where national expenditure has far outpaced national
revenue, there is a limit to what the CBN can do to help. Ignoring
such constraints will- paraphrasing Jack Fisher- simply turn the CBN
into a “machine for inflation.”

At another level, I will also urge the management of CBN to rethink
its current foreign exchange policy with the aim of curtailing the
number of exchange rates that currently exist for the Naira. At the
very least, this will help enhance the confidence of both internal and
external economic players in our economy. Equally important is the
fact that this will also help reduce the arbitrage opportunities such
scenarios create. The existence of such arbitrage opportunities has
the potential to sabotage the integrity of our entire financial system.
Curtailing such arbitrage leaks will also enhance the revenue
available to Government to pursue its developmental programmes.

The fiscal authorities also have their role to play. They should
specifically focus on adopting policies that engender economic
growth. The logical first step in this direction will be to rethink the
current Government expenditure template. Allocating the bulk of
the national budget to recurrent expenditure makes little sense. This
is even more so especially given the dearth of basic infrastructure
across the country. The idea that the concentration of Government
expenditure on recurrent items can be sustained by borrowing
should be discouraged.

Based on the above analysis of our current very difficult economic
circumstances, I have come to the careful conclusion that the least
destructive policy action MPC can take at the present time is to do
nothing.

I therefore vote as follows: (i) to retain the MPR at 14.00 per cent; (ii)
to retain the CRR at 22.50 per cent; (iii) to retain the Liquidity Ratio at
30.00 per cent; and (iv) to retain the Asymmetric Window at +200
and -500 basis points around the MPR.

9.0
YAHAYA, SHEHU
I vote to maintain the current monetary policy stance. I provide
below the reasons for my position.
The International Context
2016 has generally been a year of slow growth or stagnation in much
of the world economy. The end of the year however witnessed a
fairly strong recovery in the US, a better than expected performance
in the UK, some cautious optimism emerging in Russia, Japan and
even Brazil. Economic re-structuring in China has not significantly
slowed economic growth there, and India is still managing to
maintain its high growth rate. Dragged by Nigeria, GDP growth rate
in Sub-Saharan Africa has dipped significantly during the year,
despite the creditable performance of Ghana and Cote D‟Ivoire.
While many commodity prices remained depressed, the price of
crude oil recovered towards the end of the year, buoyed by OPEC
and non-OPEC quota agreements. Global prices remained low,
even though there was the beginning of an uptick in the UK, Europe
and particularly the US.
The prospects for 2017 are uncertain. In particular, elections in some
of the major European countries at a time of economic stagnation
may combine with the approach of the new government in the US
to heighten the risks of economic nationalism. This will pose a number

of challenges to policy making in developing economies. The
apparently imminent normalization of interest rates in the US, starting
from the raising of the Federal Funds rate in December 2016, will also
require a careful consideration of its implications for capital flows for
the EU area as well as for emerging and developing markets: will the
rock bottom interest rates in Europe and Japan serve to ameliorate
the outflow of capital from emerging markets to the US or will the
uncertainties in these economies prove to be too much of a
disincentive?
The Domestic Economy
2016 Q4 GDP figures are not yet out. However, the expectation is
that growth rates would be negative, even if hopefully better than
Q3. Supporting economic recovery and re-generation therefore
remains a top priority for the national economy. There have been
some substantial efforts made to boost agricultural output for some
key commodities. Infrastructure is also being given a boost. Oil
output has improved due to efforts to douse militancy in the Niger
delta. Moreover crude oil prices have improved to about US$53-55
per barrel towards the end of the year. Combined with the progress
being made to restore peace and security in the North east, there is
a
reasonable
expectation
of
gradual
economic
recovery,
considering that many of the current efforts will only affect growth
rates with a lag period and need to be better coordinated and
sustained in order to have a medium term impact.

Price levels are still going up, as both headline, food and core
inflation have risen in November. Headline and food inflation have
also risen in December 2016, but core inflation has somewhat
subsided in December due to declining prices of processed food,
clothing and transport. Housing, water, gas and other fuels prices are
still rising. Headline inflation for December is 18.55% up from 18.48% in
November 2016. Month on month increase between November and
December 2016 is down to 0.28% (based on annual data). It appears
that the exchange rate effect is still the major driving force behind
the rising price levels, although the effect appears to be diminishing
a bit. Monetary factors may also have contributed as both M1 and
M2 have risen substantially in the course of the year. M1 growth rate
more than doubled between August and September 2016 and
again more than doubled between October and December. M2
growth rate has also been rising throughout the year and particularly
between November and December. This may complicate the task
of combating inflationary pressures in the first quarter of 2017.
One of the most significant increases experienced is with respect to
external reserves, which have climbed to US$27 billion by end of
December 2016 (and further to $28.89 billion by the third week of
January 2017) as compared to slightly over $25 billion in the third
week of November 2016. This is the highest achieved since 2015 and
is mainly attributable to loans, FDI and portfolio investments. It is
hoped that increased earnings from the sale of crude oil in the short

term and some capital flows in the medium term will continue to
increase the size of the reserves. However, while the inter-bank
exchange rate of the Naira remained steady at 305 Naira to the US
dollar, the value of the Naira has depreciated at the BDC. Hopefully
this is a short term phenomenon and the rising level of reserves will
begin to exert a calming effect on the foreign exchange market.
With respect to the fiscal operations of the government, both
revenue and expenditure were substantially under-achieved in the
period January- October 2016, both in comparison to 2015 and the
budget. As of that period, the budget deficit was 1.65% of GDP. It is
necessary to make additional efforts to increase expenditure,
particularly capital spending, in order to help revive economic
growth. The additional challenge is to do it in a way that does not
generate an inflationary spiral.
The banking system is working to weather the storm of recession.
Capital adequacy, liquidity, Return on Equity, Return on Assets and
earnings are lower than for 2015 and NPLs much higher. However,
there seems to be the beginnings of a recovery on CAR and ROE in
December 2016 as compared to October, and NPLs are marginally
better. Also, lending has slightly picked up in Q4.

Conclusion and Recommendations
The key priorities in this first quarter of 2017 are to re-generate growth,
create jobs at a much faster rate and lower prices. Growing the GDP
must come primarily from fiscal policy, within the context of a
coherent growth strategy. For the CBN, reducing the inflationary
pressure must involve the effective management of the exchange
rate to ensure stability and predictability. This is also necessary to
enable banking system stability. Sharp rises in money supply must
also be addressed.
At the moment, it is necessary to maintain the current monetary
stance, in order to avoid putting additional constraints to growth
and further burdening the financial system. Credible management
of the exchange rate should also be re-assuring to domestic and
international investors, which should strengthen the positive trend in
the build-up of external reserves. In the next weeks, the monetary
policy approach can be refined to dovetail with the national
budget and the Economic Recovery and Growth Program.
In view of the foregoing, I vote to maintain the MPR, the MPR
corridor, CRR and liquidity ratio at their current levels.

10. EMEFIELE, I. GODWIN, GOVERNOR OF THE CENTRAL
BANK OF NIGERIA AND CHAIRMAN, MONETARY
POLICY COMMITTEE
For many economies, 2016 was a very challenging year especially
as outturns intermittently struggled around the baseline and global
growth performance was less than envisaged. The rising spate of
populism, protectionism and de-globalisation evident in some key
developed countries is heightening global uncertainties and
worsening the vulnerabilities of many emerging markets and
developing countries. Regardless of the ramifications of the
mutating
political
economy,
short-term
forecasts
of
global
economic activities at the outset of 2017 are optimist. In its January
2017 edition of the World Economic Outlook (WEO), the IMF projects
that global growth will rise from 3.1 percent in 2016 to 3.4 percent in
2017 and 3.6 percent in 2018. This is, however, expected to be
unevenly distributed across countries. For instance, while growth is
expected to strengthen in the advanced economies, especially as
the US economy grows from 1.6 percent in 2016 to 2.3 and 2.5
percent in 2017 and 2018, respectively, the Chinese economy is
projected to slowdown from 6.7 percent in 2016 to 6.5 and 6.0
percent over the period. Growth in sub-Saharan Africa, driven
largely by the envisaged rebound of the Nigerian economy, is
projected to accelerate from 1.6 percent in 2016 to 2.8 and 3.7
percent in 2017 and 2018, respectively.

Following the modest recovery of oil prices witnessed in 2016 and
the savoury prospects for the near-term, the Nigerian economy is
designated to exit recession during 2017. Output growth is projected
by the IMF to rise to 0.8 percent in 2017 and 2.3 percent in 2018.
While this outlook is heartening, I note the need to be cautiously
optimistic and pre-emptive of the probable global shockwaves
heralded by the political stance of the new US administration and
the likely impasse in the Brexit negotiations. The year 2016 was
particularly challenging for the Nigerian economy as most
economic indicators went southwards and exchange market
pressures persisted. Economic activity during the year was distinctly
lacklustre. Thus, given a third quarter growth rate of -2.2 percent,
and an average growth rate of -1.6 percent in the first three
quarters of 2016, we expect the 2016 growth rate to lie between -1.0
and -1.8 percent. As in my earlier statements, I reiterate that the
overriding causes of the recession include foreign exchange
scarcity (due to low crude oil receipts and inadequately diversified
economy), constrained fiscal space, high energy prices and
depressed domestic demand (partly attributable to sizeable salary
arrears owed to some civil servants). These factors are largely
structural and exogenous to monetary policy. The rebound of nonoil GDP in the third quarter of 2016 is pleasing and somewhat
indicative of a strengthening domestic economy as Nigeria strives to
diversify and disentangle from oil dependence. More remarkable is

the 4.54 percent growth in agriculture GDP which could signal the
imminent moderation in food inflation in the near-term.
Available data on domestic prices showed inflation ascending to
double-digits in 2016. From a single-digit rate of 9.6 percent in
January 2016, inflation rose persistently to 18.6 percent by
December 2016. The observed rise was largely driven by core
inflation which more than doubled from 8.8 percent in January to
18.1 percent in December 2016 while food inflation rose from 10.6
percent to 17.4 percent over the same period. With the rising
inflationary pressure, it behoves us to tighten the stance of monetary
policy, although the concurrent contraction of the economy
presents a considerable challenge to the MPC at this time. I note
that the current inflation dynamics is propelled by structural factors,
especially the exchange rate pass-through and high energy prices. I
am of the view that, barring further shocks, the extant policy actions
of the MPC, aided by base-effects, could see inflation moderate by
early 2017.
Data on monetary, credit and financial conditions indicated that
broad money supply grew by 19.0 percent in 2016, significantly
surpassing the programmed target of 10.9 percent. This growth
reflected the effort to provide liquidity to strategic aspects of the
economy in the face of the present contractions. Monetary
expansion was underlain by the growth in net domestic credit

(which grew by 24.8 percent), especially as credit to government,
growing
by
58.8
percent,
overshot
its
benchmark
target.
Accordingly, movement in money market rates reflected the
liquidity condition in the system. Average interbank call rate fell from
15.3 percent as at 21 November 2016 to 9.9 percent by 30
December 2016.
It is important to note that this monetary expansion will be pointless
and unproductive for the economy if the underlying credit is not
properly directed to MSMEs, the agriculture sector and other
productive real sector activities. I therefore underscore the various
efforts of the CBN in this regard, as our development finance
interventions have targeted these critical sectors to promote growth
and employment while conserving foreign exchange through
import substitution. In the foreign exchange market, the interbank
rate stabilised around ₦305.00/US$ between September and
December 2016. External reserves began a propitiously noticeable
upturn during this period, rising from US$23.8 billion in September
2016 to US$27.0 billion in December.
On the whole, I note that the effects of the exogenous shocks,
which hit the Nigerian economy in 2014 continued to reverberate
throughout 2016, as weak oil price and fragile global demand
exposed the structural inadequacies of the domestic economy.
Consequently, economic performance for 2016 was dire. The

contraction which began in the first quarter is expected to remain
throughout the year. With rates climbing persistently to double digits
during the year, the poor inflationary outcome is also concerning.
Other macroeconomic indicators, including the exchange rate and
non-performing loans of commercial banks reflect the harsh
undercurrents in the economy. The reduced FAAC allocations due
to low oil revenue, directly depressed domestic demand as the
inability of some State governments to pay workers‟ salaries lingers. I
note that the singular cause of these economic challenges is the
structural
lop-sidedness
which
unsustainably
ties
the
entire
functioning of the Nigerian economy to the availability of foreign
exchange. I am certain that if real domestic productivity is bolstered
and the unwarranted dependence on imported goods is corrected,
the economy will be adequately impervious to global shocks.
With respect to decisions at this MPC, I am not unaware of the
widespread clamour to ease monetary policy stance and, by fiat,
reduce the interest rates of commercial banks to an artificially low
level. While I am sympathetic to this call, I reiterate the dilemma of
policymaking at this time when inflation is rising and our potential
output is falling. I note that no central bank in the world can
unilaterally grow potential output. As I observed previously, Nigeria
needs well-coordinated fiscal, structural, trade and social policies to
reverse the growth trend of recent times. Given the price stability
mandate of the CBN, easing the monetary stance at this time will

be perilously counterproductive as inflation could gallop to
uncontrollable levels. Besides, the clamour to administratively lower
banks‟ interest rates is impracticable. Given the current level of the
risk-free interest rate, inflation and banks‟ costs for individually
providing their own amenities, an artificially lowered interest rate is
rather quixotic. The rates are fundamentally driven by the same
structural problems that are pervading the general economy. It is
imperative that critical infrastructural spending are undertaken to
support domestic production and bolster demand.
Overall, I note that the effects of the past policy decisions are still
permeating the system. Together with the dilemma of policymaking,
given the concurrence of inflation and output contraction, this
suggests the need to maintain status quo so as not to introduce
destabilising policy shocks. I am of the view that the balance of risks
for an impulsive policy adjustment is, at this time, adverse and suboptimal.
Based on the foregoing, I vote to:
1. Retain the MPR at 14.0 percent;
2. Retain the CRR at 22.5 percent;
3. Retain the asymmetric corridor at +200/–500 basis points; and
4. Retain liquidity ratio at 30.0 percent