Central Bank of Nigeria Communiqué No 110 of the Monetary Policy
Committee Meeting of Monday and Tuesday 21st and 22nd
November, 2016.

The Monetary Policy Committee met on 21st and 22nd November
2016, amidst relatively subdued global and domestic economic and
financial conditions. The Committee evaluated the global and
domestic macroeconomic and financial developments as well as
the challenges to the domestic economy up to November 2016, and
the outlook for the first quarter of 2017. In attendance were 10 out of
12 members.

International Economic Developments
The Committee acknowledged the tapered growth in global output,
stemming from relatively unbalanced risks to the global economic
outlook. Global recovery
remains fragile in the advanced
economies while the emerging markets and developing economies
(EMDEs) continue to struggle against strong headwinds, including
low commodity prices, slowing demand and instability of capital
flows. The path to the modest improvements in the advanced

economies has increasingly turned fragile owing to persistent
uncertainties. While still being expected to unravel, the BREXIT shocks
have been rapidly followed by the outcome of the U.S. Presidential
Elections; a development which has created its own uncertainties.
Accompanied by the planned referendum in Italy, and general
elections in France and Germany, the global political environment
could not be more uncertain. In effect, current judgments about
growth prospects in the first half of 2017 could be overly optimistic.
The IMF’s current outlook for global growth for 2016 which was
revised to 3.1 per cent in July and retained in October could be
missed by a significant margin. The World Bank has been more
cautious in retaining its June 2016 global output growth projection of
2.4 per cent. Headwinds to global growth prospects are also
emanating from weak trade and financial conditions. The OECD’
Economic Forecast, September 2016 Update, emphasized that both
elements underpin the current low-growth trap facing the global
economy. The United States (US) economy exceeded it’s growth
expectation in Q3 2016, growing at an annual rate of 2.9 per cent, a
significant uptick from the average growth rate of 1.1 per cent in H1
2016. The enhanced performance of the economy was attributed
largely to the growth of inventories and robust surge in exports,
coupled with improved consumer spending, even as the mining
sector recorded a pull back. Japan’s economy grew at a seasonally
adjusted annualized rate of 0.2 per cent in Q2 of 2016 compared

with 1.7 per cent in Q1 of 2016. The moderation in growth was largely
attributed to weak wage growth and a strong yen. The Bank of
Japan (BoJ) in a rare move at its September MPC meeting set a
target for government bond yields and introduced an inflationovershooting commitment. The Bank voted to apply an interest rate
of minus 0.1 per cent to the policy rate on balances in current
accounts held by financial institutions. The Bank also announced a
plan to purchase Japanese Government bonds up to JPY 80 trillion
(approximately USD788 billion), among series of policy measures
taken towards achieving the price stability target of 2 per cent. The
government had, in August, approved a fiscal stimulus of ¥13.5 trillion
(US$132 billion) in a spirited attempt to jumpstart the economy. Real
GDP in the Euro area is expected to maintain or outperform its Q2
growth rate of 0.3 per cent in the third quarter. While short-term
downside risks from the Brexit vote have largely subsided, the
longterm potential economic impact remains uncertain. As such, the
zone’s growth path remains challenged. At its October 20th, 2016
meeting, the Governing Council of the European Central Bank
decided to retain its key interest rates on refinancing operations, the
marginal lending facility and the deposit facility at 0.00, 0.25 and -
0.40 per cent, respectively. The Council also reaffirmed its
commitment to sustain its quantitative easing programme of monthly
asset purchases of €80 billion (US$85.6 billion) until March 2017 and
beyond, as economic conditions dictate. The growth outlook for the

UK in 2016 was upgraded to 1.8 per cent from 1.7 per cent, although
that for 2017 was downgraded to 1.1 per cent from 1.3 per cent. The
Bank of England (BoE), at its November 2nd meeting, decided to
leave its benchmark interest rate unchanged at 0.25 per cent as
part of its earlier commitment to support output recovery in the
aftermath of the Brexit vote. In addition, the Committee voted to
continue its quantitative easing programme of £435 billion. Whereas
some Emerging Market and Developing Economies (EMDEs)
continue to contend with low capital inflow and unstable
macroeconomic environment, the prospects for their recovery look
more promising. The IMF (WEO October 2016 Update) projected
growth rate of 4.2 per cent, an upward review from 4.1 per cent
projected in July 2016 for the EMDEs. The marginal improvement in
growth outlook is expected to be powered by improvements in India
and China. Global inflation rose moderately in response to rising
prices in the advanced economies due to the modest recovery in oil
prices. However, their central banks are expected to stay the course
on accommodative monetary policy. Following the Brexit vote and
the recent outcome of the US Presidential Elections and uncertainties
surrounding both events as well as the regime of negative interest
rates and heavy fiscal and monetary stimuli in Japan and elsewhere,
we expect a resurgence of aggregate demand and even higher
price increases.

Domestic Economic and Financial Developments Output
Data released by the National Bureau of Statistics (NBS) in August
showed that the economy slipped into recession following a second
consecutive contraction in Q2, 2016. Domestic output contracted in
the quarter by 2.06 per cent. The latest release in November 2016 by
the NBS shows that real income actually worsened in Q3, 2016 as
output contracted further by 2.24 per cent relative to its level in the
previous and corresponding quarter of 2015. The non-oil sector grew
by 0.03 per cent, driven by Agriculture which grew by 4.54 per cent,
following the 0.38 per cent contraction in Q2 2016,. The MPC noted
that the key undercurrents – shortage of foreign exchange, low fiscal
activity, high energy prices and the accumulation of salary arrears,
especially at the sub-national levels of government – continued in
the third quarter of the year. Members also noted that those
conditions could not have been ameliorated directly with monetary
policy instruments. It, however, recognized the need to continue to
engineer monetary policy in such a way as to enable fiscal policy
the required space to improve public investment in infrastructure.

Prices
The Committee noted that headline inflation (year on-year)
continued to rise in October 2016 to 18.3 from 17.9 per cent in
September and 17.6 per cent in August, 2016, thus maintaining the
upward momentum since January 2016. The increase in headline

inflation in October reflected increases in both the food and core
components of inflation. Core and food inflation increased from 17.7
and 16.6 per cent in September to 18.1 and 17.1 per cent,
respectively, in October, 2016. The Committee also noted the less
rapid movement in the month-on-month CPI between September
and October. Headline inflation index (month-on-month) rose by
0.83 per cent in October, from 0.81 per cent in September,
contrasting the successive declines since May 2016. Similarly, the
core index has been increasing at a slower pace since May when it
rose by 2.7 per cent. It moderated to 0.75 per cent in October from
0.96 in September. A similar pattern is noted with the food (monthon-month) index which rose by 0.86 per cent in October from 0.81
per cent in September. The MPC observed that the incessant
pressure on consumer prices continues to come from structural
factors including high cost of power and energy, transport,
production factors, as well as rising prices of imports.
Monetary, Credit and Financial Markets Developments
Broad money supply (M2) grew by 10.50 per cent in September,
2016, compared with the 8.08 per cent in August, 2016. When
annualized, M2 grew by 14.0 per cent in September 2016, above the
growth benchmark of 10.98 per cent for 2016. Net domestic credit
(NDC) grew by 21.88 per cent in the same period, annualized at
29.17 per cent. At this rate, the growth rate of NDC was above the
provisional benchmark of 17.94 per cent for 2016. The development

in NDC, essentially reflected the relative growth in credit to the
private sector of 20.69 per cent in September, annualized to 27.59
per cent. Credit to government grew by 29.57 per cent in the review
period, which annualized to a growth of 39.43 per cent compared
with the growth benchmark of 13.28 per cent for fiscal 2016. The
growth in government borrowing was largely to compensate for the
continued decline in oil receipts. Money market interest rates
oscillated in tandem with the level of liquidity in the banking system.
Thus, average inter-bank call rate, which stood at 11.50 per cent on
11th October 2016, closed at 15.02 per cent on November 17, 2016.
Between these periods the interbank call rate averaged 11.68 per
cent. However, the average interbank call rates fell to 10.00 per cent
on October 24, 2016, following net government financing of N149.00
billion between October 18 and 28, 2016 and the payment on
October 24th 2016 from statutory revenue allocation of N174.00
billion. The Committee noted a decline in the equities segment of
the capital market as the All-Share Index (ASI) fell by 7.33 per cent
from 27,839.93 on September 19, 2016, to 25,797.88 on November 16,
2016. Similarly, Market Capitalization (MC) declined by 7.11 per cent
from N9.56 trillion to 8.88 trillion during the same period. In addition,
relative to end- December 2015, the capital market indices fell by
9.93 per cent and 9.85 per cent, respectively, reflecting the
challenges facing the economy.

External Sector Developments
The average naira exchange rate weakened at the inter-bank
segment of the foreign exchange market during the review period.
The exchange rate at the interbank market opened at N305.00/US$
and closed at N305.90/US$ between September 1st and October 27,
2016. The Committee observed that total foreign exchange inflows
through the CBN decreased by 31.85 per cent, from US$1,404.84
million in September to US$957.37 million in October 2016. The
decrease was due to lower crude oil and other government
revenues in the period under review. In spite of the resumed Joint
Venture payments in October, total outflows also continued to
decrease, dropping significantly by 58.68 per cent from US$2,456.86
million to US$1,015.08 million during the same period. The Committee
also implored the Management to continue to direct more focus at
making
foreign
exchange
available
to
agriculture
and
manufacturing sectors of the economy by enforcing its policy
directing DMBs to allocate 60 per cent of the FX available to these
sectors. The MPC believes that the Security agencies should sustain
their checks on the activities of illegal foreign exchange operators in
order to bring sanity to that segment of the market. The Committee
reiterated that the extant foreign exchange regulation outlaws the
trafficking of currency on the streets as some unlicensed operators
currently do. Thus, to evolve an appropriate naira exchange rate

that stabilizes the foreign exchange market, BDC operators must
strictly observe the terms and conditions of their license.

The Committee’s Considerations
The Committee assessed the fragile macroeconomic conditions and
the strong headwinds confronting the economy. In particular, the
Committee considered the implications of the twin deficits of current
account and budget deficits, the rise of nationalist sentiments across
the West and implications for national elections in France and
Germany as well as the forthcoming referendum in Italy. Other
considerations include the yet to be unveiled long term uncertainties
of Brexit and expectations of significant shifts in US economic policy.
The
Committee
reaffirmed
the
urgency
of
prioritizing
the
diversification of the economy given the emerging gloomy
protectionist outlook of the global economy. The Committee also
evaluated the impact of its July and September 2016 actions on the
macroeconomy noting that while foreign exchange inflows into the
economy had improved significantly in July and August, it declined
after the September MPC meeting, leading to rising inflation and
increasing negative real interest rates. However, outflows significantly
dropped, lending credence to the propriety of the decisions of the
July and September MPC meetings. The MPC reiterated the
limitations of monetary policy in reversing the current stagflationary
condition in the economy, which it traced to supply and demand
shocks. Members stressed the need for a robust and more keenly

coordinated macroeconomic policy framework that would restart
output growth, stimulate aggregate demand and rein in inflation
expectations.
Consequently,
the
MPC
welcomes
efforts
at
resuscitating planning, noting the progress made in developing the
medium term economic recovery plan. The MPC urged the Federal
Government to urgently assess the extent of its indebtedness to
domestic economic agents and develop a framework for
securitizing the debts in order to settle its outstanding domestic
contractual obligations which cuts across all sectors of the economy.
These accumulated debts have slowed business activities of
economic agents; most of who are indebted to the banking system,
thus compromising the integrity of the financial system. It also
advised the Bank to commit to greater surveillance and deployment
of early warning systems in managing the banking system. Overall,
members called for an enrichment of fiscal and other sector
initiatives and interventions towards resolving the growth challenges
in the economy in order to promptly revive confidence in the
economy.
Outlook
Available data and forecasts of key economic variables indicate
that the outlook for growth and inflation in the medium term
continues to be challenging. Growth is expected to remain less
robust given the absence of sufficient fiscal space while the current
tight stance of monetary policy and improved agricultural harvests

are expected to contain further price increases and moderate price
expectations as the trend has already revealed.

The Committee’s Decisions
The Committee assessed the relevant risks to the global and
domestic economy and concluded that the risks to the economy
remained highly elevated on two fronts (price and output).
However, considering the importance of price stability, and being
mindful of the limitations of monetary policy in influencing output
and employment under conditions of stagflation, the Committee
decided unanimously in favour of retaining the current stance of
monetary policy, thus keeping the MPR at 14.0 per cent alongside all
other policy parameters. In summary, all 10 MPC members voted to:

(i).
Retain the MPR at 14 per cent;
(ii).
Retain the CRR at 22.5 per cent;
(iii). Retain the Liquidity Ratio at 30.00 per cent; and
(iv). Retain the Asymmetric Window at +200 and -500 basis points
around the MPR
Thank you for listening.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
22nd November 2016

PERSONAL STATEMENT BY THE MONETARY POLICY COMMITTEE
MEMBERS

1.0
ADELABU, ADEBAYO

The condition of key macroeconomic indicators at this meeting has
not significantly altered from the position at the last meeting. This,
however, should not be construed in terms of loss of potency of
monetary policy measures but largely a manifestation of the drag
from legacy factors cum the lag in transmission of monetary policy
impulses to the real economy. Besides, there are some new shocks
from the global environment with the latest one being the outcome
of the recent US presidential election. These shocks have somehow
exacerbated the fragility in both the real and financial sides of the
domestic economy. From the real sector side, the upward trending
inflation dynamics since the beginning of the year is still much at
play, with the headline inflation accelerating to 18.3 percent in
November, while the contraction in output has occurred for three
consecutive quarters. From the financial sector side, the pressure in
the FX market is still unabated, culminating in some level of
depreciation of the exchange rate at the parallel market although
the rate at the interbank market has been fairly anchored around
N305/US$. The money market rates of OBB and IBR have equally
displayed a high level of volatility, reflecting swings in liquidity
condition.

Against this background, it may seem expedient to introduce some
new measures particularly to address new shocks from the global
environment but I would like to vote for a hold in this meeting in light
of the following considerations. Firstly, an analysis of the current
inflation dynamics shows that while the October headline inflation at
18.3 percent on year-on-year basis could still be adjudged
significantly high, the month-on-month basis at 0.83 percent
represents considerable deceleration. It may therefore be plausible
to assume that the current elevated year-on-year headline inflation
is to a large extent reflective of base effect and therefore the
current explosive trend may revert to single digit by mid-2017 as the
effect of legacy factors begins wane.
Secondly, as recognized in most of my previous statements, the
challenge posed by structural factors has equally played a
dominant role in inflation dynamics. It is without doubt that the
influence of monetary policy in reversing recession is limited. Recent
experience from Japan has lent further credence to this assertion.
The Bank of Japan has been doing monetary stimulus since 2013 to
wade off recession but the impact has been very minimal until the
Treasury embarked on massive injection estimated at US$132 billion
in fiscal measures in August 2016. The latest IMF WEO indicates that
Japan is now on the path of exiting recession. The lesson here is the
need for fiscal stimulus to jump start activities in critical sectors of the
economy.

Thirdly, with respect to the contraction in output, the critical mass of
the challenge lies in the supply side of the economy, in which
monetary policy has limited impact. It is commendable that the
Federal Government is making efforts to boost aggregate demand
particularly through the release of another tranches of bailout funds
of about N388.3 billion to alleviate the burden of salary payments by
the sub-national governments but there are some critical private
agents whose operations are crippled by debts owned by
government parastatals and agencies. There are reports that the
power market is becoming highly illiquid on the heel of massive
unpaid bills by Ministries, Departments, and Agencies (MDAs) of
governments to electricity distribution companies (Discos) who in
turn find it difficult to meet their commitments to the generating
companies (Gencos), crippling their operations. Recent statistics
revealed that the Egbin power terminal has lost output by about 74
percent on account of acute financial strain. Against this
perspective therefore, settlement of these debts would not only
improve the demand side of the economy but it would considerably
improve the production environment and invariably ease supply
side.
It is however pertinent to recognize the limitation imposed on the
fiscal space by resource constraint due to dwindling revenue from oil
and the fact that borrowing from the domestic market is almost
crossing the sustainable bar. It is in this regards that I would like to

advocate for innovative financing options such as the securitization
of the debt to the contractors in order to provide some leeway to
stimulate economic activities from both the demand and supply
sides. Although the domestic debt is very high, total public debt at
less than 10 percent of the GDP still suggests room for borrowing. It is
in light of this that I would like to reiterate my support, initially
canvassed in my September’s statement, for the proposed external
debt of about US$30 billion which the Federal Government has
submitted to the National Assembly and hope the Assembly would
expeditiously consider the request.
While my support for new external loans is unequivocal, I strongly
oppose loan facilities that could create spectre of debt overhang
similar to the pitfall of the eighties. Consequently, the terms and
conditions of the new loans must be concessionary but it needs to
be recognized that such facilities are only available for countries
that have put credible macroeconomic policies in place. Against
this perspective therefore, I would like all the relevant agencies of
government to expedite actions on the proposed Medium Term
Expenditure Framework and Fiscal Strategy Paper and secure the
endorsement of world class monetary and financial institutions like
the
International
Monetary
Fund
(IMF).
Obtaining
such
endorsements, in my view, should not be difficult in light of the fact
that a reasonable components of expected reform measures such
as elimination of unproductive fiscal transfers like fuel subsidy,

flexibility in the exchange rate, efficiency in public resource
management, and commitment to good governance through fight
against corruption are already in place. It needs be clarified that the
proposal here is not to secure IMF loans, which terms may not
necessarily align with the development aspirations of many
developing countries, but to secure an endorsement like Policy
Support Instrument (PSI) which the country undertook between 2005
and 2007.
One other issue that cannot be discounted in the overall
macroeconomic policies framework is the likely direction of US
foreign policy from 2017 when the President-elect formally takes
over. Going by some key appointments in the transition team of the
incoming US President, the direction of economic policy is becoming
fairly discernible. Issues of trade restriction against some notable
emerging economies like China may not be completely ruled out
with severe implication for global growth and export demand of
many developing countries like Nigeria. Consequently, it may not be
unlikely that the softening global demand for crude oil may continue
with implication of prolonged dampening price. Although it is
expected that that the forthcoming OPEC meeting would lead to
cut in output, most analysts are highly critical about the likely success
of the meeting in view of the huge magnitude of output freeze
required to equate demand to supply. Bringing this to perspective
therefore, the urgency of structural reforms that would reduce the

dependence of the economy on crude oil export cannot be
overemphasized. Still on the external sector, with the US election
over, the US Fed may see a clear coast to commence hikes in the
policy rate which in essence would further strengthen the US dollar
against most currencies. As argued in my immediate past statement,
I do not subscribe to the need to hike interest rate with a view to
competing for portfolio capital for beefing up external reserves. My
view is further strengthened by push and pull theory of capital flow
which posits that interest rate adjustment as a means of attracting
capital to developing economies is only effective if there are
sufficient factors which push out the capital from developed
countries. In other words, interest rate could only be used to allocate
capital flowing out of developed economies among competing
developing economies but not potent enough to solely push the
capital out of the developed economies.
In light of the foregoing, I would like to propose for the retention of all
the monetary policy measures currently in place in anticipation that
the fiscal authority would continue to address some of the binding
constraints on the path of aggregate demand particularly the issue
of debts owed key economic agents.

2.0
ALADE, SARAH O.

A combination of domestic and external events will have profound
influence on monetary policy in most emerging economies in the
coming months and Nigeria is no exception. The election of Donald
Trump as the President of United States and his policies for United
States will affect the world economy. Global recovery remains fragile
in advanced economies while the emerging markets and
developing economies (EMDEs) continue to struggle against strong
headwinds, which ranged from low commodity prices, slowing
consumer demand to instability of capital flows. The United States
(US) economy grew at 2.9 percent in the third quarter of 2016
exceeding growth expectation. However, growth is projected to
decline if Donald Trump implements some of the policies that he has
campaigned on. These will have spillover effect on most emerging
markets including Nigeria. Therefore monetary policy should be
ready to act in the event of adverse impact on the economy. On
the domestic front, foreign exchange scarcity will continue to
impact growth negatively and keep inflationary pressure elevated.
Since the policy direction is still fluid, I will support a hold on monetary
policy rate.

The election of Donald Trump as president has heightened global
uncertainty: Although the policy direction of a Trump presidency is
still being formed, some of the promises made during the

campaign are bound to have a huge effect on the global
economy. Mr. Trump has criticized the monetary-policy choices of
the current Federal Reserve and could push the Federal Reserve in
a significantly more hawkish direction, leading to a quicker than
expected increase in interest rate. The rate increase will impact
many emerging market economies negatively especially with the
lower commodity prices and depressed consumer spending.
According to the research firm Oxfam, “If Mr. Trump is able to fully
implement his plans to impose tariffs on goods from China and
Mexico and force large numbers of undocumented immigrants to
leave the United States, the United States economy would begin to
stall by 2019”. Their research also show that economic expansion
would also slow globally as weakness in China and the United
States spread to their trading partners. In the wake of such
development, Emerging Market and Developing economies that
are already experiencing weak aggregate demand and low
commodity prices will see output decline resulting in more difficult
economic and business environment. Depressed commodity
prices will continue to pose downside risk to growth in emerging
markets, especially on commodity exporting countries, thus,
dampening prospects for near term economic and financial
recovery in these economies.

Gross Domestic Product (GDP) growth continues on a negative
trajectory: Output growth in the third quarter declined further to 2.24
percent. The effect of energy shortages, high electricity tariffs, fuel
price hikes, scarcity of foreign exchange and depressed consumer
demand continue to dampen growth in the second quarter. In
addition, the implementation of the 2016 budget remained slower
than expected affecting the speed of economic activities at a time
when fiscal policy is needed to complement the efforts of monetary
policy to spur growth. According to the Minister of Budget and
Planning, “The Federal Government has spent about N3.577 trillion as
at September 2016 out of the full year budget of N6.06 trillion for the
2016 fiscal year. This translates to a 59 percent performance of the
prorated budget for the first three quarters. The decline of -0.18
percentage points in output from the second quarter numbers
revealed that the recession is bottoming out. The policies being put
in place, including the different government schemes in agriculture
and the plan by the government to come up with economic
recovery plan is expected to impact growth positively. In the face of
rising inflation and drying up of capital inflow, monetary policy
should still be focused on its core mandate of price stability,
especially given the possibility that the United States Federal Reserve
will quicken its rate rising plan under a Donald Trump Presidency.
Monetary policy should therefore focus on achieving stability at
home and creating the environment necessary to attract foreign

inflows to cushion the loss on revenue from low oil price. In addition,
policies to expand internal revenue base should be pursued
vigorously.

Headline inflation has remained elevated during the period.
Headline inflation further increased to 18.3 percent in October 2016,
from 17.10 percent recorded in July. The increase in headline
inflation in August reflected increases in both food and core
components of inflation. Core and food inflation have increased
from 16.93 and 15.80 per cent in July to 17.2 and 16.43 per cent,
respectively, in August 2016. However the rate of increase is
declining, headline inflation index rose by 1.0 per cent in August from
1.3 per cent in July, 1.7 per cent in June; and 2.8 per cent in May
2016. Similarly, the core index has been increasing at a decreasing
rate since May when it rose by 2.7 per cent. It moderated to 0.85 per
cent in August from 1.22 per cent in July and 1.83 per cent in June.
The rising inflationary pressure can largely be attributed to structural
factors, including high electricity tariff, high transport cost as a result
of higher fuel prices, high cost of inputs, low industrial activities as
well as higher prices of both domestic and imported food products.
In addition, the effects of increase in monetary aggregates cannot
be ignored. Broad money and Narrow money supply has been on
increase showing a correlation between their growth and inflation.
The persistent upsurge in inflation calls for balanced monetary and

fiscal policy intervention to mitigate the effect on the poor. High
inflation hurts the poor as it erodes their purchasing power and
affects investment decisions negatively, policy middle ground to
achieve the objective of lower inflation and growth should be
pursued.

The recently adopted foreign exchange regime is having less than
expected outcome requiring the fine tuning of the implementation
framework. After a period of restriction in the foreign exchange
market, a new market driven approach was adopted in June,
2016. This was supposed to result in price discovery and greater
participation in the market. To achieve this, the implementation of
the framework needs to be fine-tuned to attract inflows and
harmonize exchange rates in the different segments of the market.
This will not only increase confidence in the market, but will also
ensure continuation of economic activities, and reversal of the
negative growth path. At this time therefore, monetary policy
should be focused on restoring confidence in the domestic
economy and increasing supply of foreign exchange to attract
inflows.

Against this background, I support policy continuity by voting for a
hold on the policy rate to gradually bring inflation under control
and bring interest rate to a less negative territory. I therefore

support the retention of Monetary Policy Rate at 14 percent, the
retention of Private Sector Cash Reserve Requirement (CRR) and
Liquidity Ratio at 22.5 percent and 30.00 per cent respectively; and
retention of the Asymmetric Window at +200 and -500 basis points
around the MPR to help attract capital inflow and spur growth.

3.0
BALAMI, DAHIRU HASSAN

At the global level, estimated growth rate in 2016 was downgraded
to 3.1% by the IMF and World Economic Outlook from 3.2% preBrexit estimate. This is in addition to the risks highlighted in my
September personal statement: the election of Donald J. Trump,
the apostle of America’s first as U.S president, political tensions and
inward looking policies. Although crude oil prices are stabilising
around $48.0-$50.0 per barrel, it is considered very low by crude oil
exporting countries’ growth expectations in their economies. Apart
from the US economy, global growth has been generally sluggish
including emerging economies like China. Inflation at global level
has slightly inched up in advanced economies and some emerging
markets. However, the global events have not impacted much in
stimulating growth in LDCS such as Nigerian.

At the domestic level, the summary of statistics shows that the
Nigerian economy had a turbulent year 2016. The economy
consecutively registered negative growth rates of -0.36, -2.06, and -
2.24% in the first, second and third quarters of 2016 respectively. The
low level of growth was not unconnected with low level of
productivity which is supported by low level of aggregate demand
in the economy. Primarily, movements in output come from
movement in demand for goods. What matters when it comes to

aggregate output is the supply side, such as how much the
Nigerian economy can produce? What role will monetary policy
play to promote growth?

It should be noted that from January to November 2016, the
following factors have not favoured the aggregate growth of
output in the economy: poor economic and social infrastructure;
bad roads network, poor communication and transportation,
erratic power supply, scarcity of investable funds, insufficient
portable water; unstable educational and health systems. Other
challenges include insecurity such as Boko Haram, Niger Delta
militancy, armed banditry, cattle rustling, clashes between
herdsmen and farmers; weak economic institutions; poor corporate
governance and endemic corruption. It should be noted that
domestic debt to government contractors is running into more than
1.7 trillion naira, a threat to stimulating growth in the economy
because it affects the financial system stability. This is so because
the contractors owed the banks thereby contributing to the rising
level of non-performing loans (NPLs) which is threatening the
capital base of the DMBS.

There is also the high interest rate charged by the DMBs. The high
interest rates do not promote new investment in the real sector of

the economy. The transmission mechanism of the DMB is not
functioning as expected.

From December 2015, the level of inflation had risen from a single
digit of 9.55% to a double digit of 18.74% by mid of November 2016.
The rising level of inflation in the economy was caused mostly by
structural factors including the PMS fuel subsidy removal and the
depreciation of the naira at the interbank rate as a result of the
liberalisation of the foreign exchange market leading to increased
pressure on the foreign exchange market. Insecurity has also
affected agricultural production in the North-eastern part of
Nigeria, especially Borno and Yobe states. It should be noted that
the technology sophistication of the Nigerian economy depends
on its ability to innovate and introduce new technology. The size of
the economy’s capital stock is very low. The wide gap between the
interbank and the parallel rate is not a healthy development,
because it encourages round tripping. The current sharing Formula
requesting that 60% of allocation by the DMB’S goes to
manufacturing while the remainder to other sectors seems to be
inadequate. The monitoring strategy of the share and utilisation of
the foreign exchange that goes to the manufacturing sector is
inadequate. I had earlier argued for the adoption of an integrated
approach to managing the scarce foreign exchange by customs
and excise Department to play a critical role in making sure that

foreign exchange allocated to the manufacturers are properly
utilised in bringing in the inputs and put it to use in the production
process. What monetary policy tools do we put in place to revamp
the economy out of the recession as we move to 2017? The various
levels of government are encouraged to settle the domestic
contractors who are also indebted to help reduce the rising level of
NPLS which is stifling the activities of the banks in the disbursement
of further credit to the economy. This is necessary because price
stability is the core mandate of the CBN. There is need for
government to signal the downward trend in the interest that banks
charge customers. Demand also could be assisted through the
development banking of the CBN such as the Anchor Borrower’s
Programme (ABP). Unenlightened Nigerians should be educated to
understand that MPC is required to take the best decisions on
behalf of the country. For example it does not make sense to
reduce MPR to less than 14% when inflation is about 18.74% in
November 2016. The Nigerian government should as a matter of
urgency pay the amount of electricity consumed to the power
sector. The power sector also needs to be diversified by optimising
the utilisation of other sources of energy which include the
following: coal, solar dam construction, and wind as alternatives.
The government can issue service bonds to domestic contractors
so that they can continue to pay the banks they owed. It is a
process of securitisation of federal government bonds.

My current position is that both monetary and fiscal policies need
proper coordination to complement each other to stimulate the
economy to grow out of this current recession. This justifies my
thinking that given the current economic situation and the earlier
polices put in place, I vote to hold so as to allow earlier policies put
in place to work out. Hence:
(i) I Retain the MPR at 14 percent
(ii) Retain the CRR at 22.5%
(iii)
Retain the liquidity ratio at 30%, and
(iv) Retain the symmetric corridor at +200 and -500 basis
points around the MPR.

4.0
BARAU, SULEIMAN

Background
My vote is to hold at this meeting, partly based on the need to allow
for the full transmission of the policies agreed at the July meeting
and partly due to the need to remain cautious in the face of rising
uncertainty in the global environment. Within the domestic
environment, the upward trend in general price level continued
albeit at a declining rate in the month of October even as demand
in the foreign exchange market remained elevated, exerting
pressure on the exchange rate. The contraction in output, which has
occurred for three consecutive quarters, is most likely to persist to the
end of the year on the backlash of shocks from both demand and
supply sides. Within the global economic space, recovery remains
soft on the backdrop of emergence of new shocks with the latest
being the outcome of the recent presidential election in the US. The
outcome of the election may likely escalate the level of uncertainty
in the global economic arena as investors anticipate drastic shift in
policy stance and invariably elicit a wait and see attitude on the
part of investors. Although the immediate outcome of the election
has had some favorable impact on emerging market economies
with the dollar shedding some weights, sustainability of the trend
should, at best, be taken with guarded optimism.

Overall, the balance of risk tilts towards upside in the domestic
economy and invariably suggests the need for a proactive policy
action. However, given that current inflation pressure is largely due
to supply shocks in addition to the fact that transmission of the
impulses of recent hike in the policy rate is still ongoing, I will opt for
retention of all the existing monetary policy measures in place.
Pressure Points.
Global Environment
The global political economy is yet to revert to the steady state in
the aftermath of Brexit which occurred in the mid-year and
consequently reinforced existing shocks like the rebalancing model
in China and persisting adverse terms of trade for commodity
exporting countries. While the impact of these shocks is yet to wane,
the global risk profile appears to have become elevated again on
the backlash of the outcome of the recent US presidential election.
With respect to the outcome of the US election in particular, the fact
that the incoming ruling party is also in firm control of the Congress
has heightened controversy around socio economic policies like the
climate change, health insurance, immigration, NATO trade deals,
taxes, and the whole gamut of US foreign policy. As such, investors
may likely make cautious moves in near term until the outlook of the
US economic policies becomes clearly discernible. This view is
supported by the latest IMF statistics which reveals that the

estimated global growth for the first half of the year was below
projection on account of loss of momentum by the US economy.
When this development is added to the fragility in the euro zone as
well as the recession in emerging economies like Brazil and Russia,
global output gap is much likely to widen with dire consequence for
the external sector of emerging and developing economies.
Although global growth is expected to pick up in the medium term
due to increased weight attached to fast growing economies, this
should not be much of a good news for countries such as Nigeria
because the prospect of export demand is much linked to
systemically important countries.
Another issue of serious concern in the global environment is the
development in the crude oil market. Oil prices witnessed
considerable rally in the month of October, moving close to
US$50/barrel. Current global output is about 33.6million bpd against
market clearing output of 32.5 million bpd. To balance the supply
side therefore, output cut must be in the neighborhood of 1 million
bpd, a huge magnitude that has made most analysts skeptical of
the success of the forthcoming November meeting of the OPEC.
The implication for the domestic economy becomes extremely
grave in the light of the fact that current domestic production is
equally below projection due to production shutdown in the Niger
Delta area.

Finally, unfolding scenarios have clearly signaled that the much
anticipated hike in the US Fed Fund rate would commence soonest.
The US Fed Chair confirmed to the Congressional Joint Economic
Committee last week that the labor market has improved
considerably, while inflation is equally inching towards the target
rate of 2 percent. The major reason delaying the commencement
of the hike in rate is the need to factor into consideration the
direction of the policies of the incoming government particularly the
promised increased spending and massive tax cut.
In essence, the above highlighted global issues will in the first round
severely affect both the external and fiscal sectors of the domestic
economy while the spillover effect would aggravate the imbalances
in the real sector through the second round effect.
Domestic Environment
The risk profile in the domestic environment has generally been
elevated and there is the likelihood to further tilt upside due to new
shocks from the global environment. The rising price spiral since the
beginning of the year continued with headline inflation accelerating
to 18.3 percent in October, on the backdrop of the second round
effect of upward adjustment in the prices of electricity and refined
petroleum products as well as sharp swings in the exchange rate.
Staff forecast indicates that inflation will revert to single path
trajectory by mid-2017 on the assumption that new shocks do not

emerge in the economy. It is however very likely that the medium
term inflation forecast would be altered by both demand and
supply shocks. From the demand side, the Federal Ministry of
Agriculture has recently put the nation on alert of imminent famine
from the early part of next year as a result of new trend of trans
border movement of grains to the detriment of supply to local
markets particularly in the northern part of the country. This should be
fairly expected as it reflects re-allocation of resources in response to
the depreciation of the local currency which makes exports
exceedingly attractive. From the supply side, it is a welcome
development to note that normalcy is gradually returning to the war
ravaged north eastern part of the country, but it may take a while
for full economic activities to resume in this region. Given the
contribution of this region to agricultural production, the output gap
would still filter into the general price level.
With respect to output contraction, there are three major risks. The
first one is from the global environment, particularly due to the
emergence of a new government in the US in which the direction of
foreign trade particularly to Africa is still pretty clouded. The US is the
major importer of crude oil from Nigeria and in the event of reversal
of key items of US foreign policy against emerging economies, the
export of crude oil could suffer significantly with implication for the
already shrinking oil GDP. The second issue is also related to crude oil
and this has to do with declining level of production due to the rising

wave of militancy in the Niger Delta area. My view is that the
situation is far from being normal in the region and this position is
largely premised on available statistics on crude oil production.
Current statistics show that the average crude oil production in the
year is in the neighborhood of 1.6million bpd against the projection
of about 2.2 million bpd in 2016 budget outlay. The third issue is
about the entire production environment as indicated by both the
real sector and monetary condition indices. The production
environment is still highly challenged mainly on account of high
infrastructural deficit particularly in the power sector. In one of the
recent briefings by the Honorable Minister of power, it was indicated
that attainment of steady power supply is contingent upon adding
new generation capacities to the grid but this is highly constrained
by paucity of funds. The 2017 appropriation bill is yet to be released
but it is doubtful if considerable positive deviation could be
achieved in terms of availability of funds for critical projects in light of
binding constraints imposed by revenue shortfall. With respect to
monetary condition index (MCI), the two major variables namely the
interest rate and exchange rate have been high and the need to
keep to the primary mandate of monetary authority in terms of price
stability could not offer the comfort to relax MCI in the near term.

Way Forward
Manage Inflation Expectation: It needs to be recognized that
economic agents particularly in our type of economy are generally
backward looking in terms of forming expectation about the future.
With inflation being in double digit territory in the last 10 months, the
likelihood of inflation persistence could be high not necessarily due
to
macroeconomic
fundamentals
but
from
self-reinforcing
inflationary process on account of backward looking nature of
economic agents. A most reliable way to reduce the backward
looking habits of economic agents therefore is for the monetary
authority to come out strongly in its resolve to address inflation
concerns. With this in mind, I am of the view that the current tight
MCI, particularly the level of the policy rate, should not be altered
while some special credit schemes are put in place to mitigate the
adverse impact of the MCI on output gap.
Innovation in Public Expenditure: The constraint imposed on fiscal
profile on account of dwindling revenue is a clarion call for
innovative approach to finance government expenditure. It is
commendable that the Federal Government has devised an
alternative approach to managing expenditure on importation of
refined petroleum products through crude oil swaps. This approach,
to a lot of extent, would not only ease pressure on fiscal authority but
would equally reduce the pressure in the FX market. It should

however be borne in mind that the ultimate goal of improving the
capacity of domestic refineries should be pursued to a logical end.
In addition, the fiscal authority should explore innovative means such
as debt securitization to offset its indebtedness to domestic
economic agents particularly the contractors in order to keep
economic activities on track.
Concessionary External Debts: The Keynesian approach in respect of
macroeconomic response to swings in business cycle is still much
relevant at this critical point particularly in addressing the output
gap. Inflation concern has definitely imposed constraint on the
capacity of monetary policy to assume an expansionary stance. The
fiscal authority, however, could still use the instrument of government
expenditure
to
stimulate
the
economy
by
building
critical
infrastructure. Given the high domestic debt with implication for
credit to the private sector, it becomes compelling for government
to seek for alternative means for financing capital projects. Within
this context therefore, I am inclined to support the proposed external
debt of about US$30 billion by the fiscal authority but contingent
upon the fact that the terms and conditions should be as
concessionary as possible. Given this, I hope that both the Executive
and the National Assembly would quickly resolve all grey areas in
respect of the proposal such that the parliament would give the
required approval.

Seek new Markets for Exports: The US is the major importer of
Nigerian crude oil, accounting for over 60 percent of oil demand
from the country. It is not unlikely that the incoming US government in
January 2017 would pursue a highly restrictive trade policies, if the
campaign promises would be translated to reality. Nigeria, for
example, should take cue from the Mexican authority which has
been working assiduously on the best approach to manage the
likely adverse impact of the immigration policy of the incoming US
government. Nigeria should equally begin to explore alternative
export destination to avoid being caught napping in the event of
unfavorable trade policies. It needs to be underscored that the
prospects of such adventure hinges on credible structural policies
that seek to add value to the crude oil before exporting it. Again, this
brings to the fore the imperativeness of making the local refineries
functional.
Decision
As highlighted above, the primacy of stability in the macroeconomic
environment cannot be compromised. Nevertheless, given that the
transmission of impulses of the hike in the policy rate at the July
meeting is still ongoing coupled with the fact that significant drivers
of current inflation pressure is largely structural as well as high
uncertainty in the global environment, I will opt for retention of all the
existing measures of monetary policy.

5.0 OKWU JOSEPH, NNANNA
Global Macroeconomic developments have remained relatively
fragile in Q3 of 2016, reflecting continued uncertainties in the
economic environment since 2015. Major headwinds acting as push
factors in the previous quarters of the year remained largely
unchanged in the period under review. Overall, global growth
performance has been uneven across board as advanced
economies recorded weaker- than- expected growth, compared to
a slight rebound in the emerging markets and stagnation in Euro
Zone.
At the domestic front, GDP growth continued to contract from -2.06
percent in Q2 to -2.24 percent in Q3 due largely to the decline in
aggregate demand, infrastructure deficits, foreign exchange
scarcity, weak commodity prices and dwindling investor confidence.
In this context, over reliance on monetary policy per se, to reverse
current stagflation may prove ineffective without complementary
fiscal and structural policy initiatives.
Though the flexible exchange rate management regime has assisted
in mitigating the hemorrhage in external reserves, the subsisting
challenge has remained forex illiquidity, rising fiscal gap and
financial system instability.

Monetary policy in the quarter, was expansionary, arising from the
quasi-fiscal operation of the Central Bank. However, the observed
monetary expansion in the period under review is attributed to the
increase in Central bank’s intervention in the real sector without
which increased food production would not have been achieved. In
the context of the foregoing, the question before the MPC was how
to address the challenge of the stagflation facing the economy and
restoring financial system stability. In this regard, 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 rising number in the non-performing loans in
the banking system mitigated.
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.

6.0
GARBA, ABDUL-GANIYU
Context
This last MPC meeting of 2016 offers us an opportunity to take stock
and to consider the outlook for 2017 as guide to policy choice. The
expected path of fiscal policy and the domestic economy as well as
the crystallization of “Brexit effects” and “Trump effects” in 2017 are
key in analysis of possible paths of the national and global political
economy. Because, the 2017 Budget proposal is not yet presented,
we draw inferences from its path in 2016.
Taking stock allows us to gain insights into how successful the MPC
has been. In addition, it could make clearer the strategic and policy
options. The Mandate of the Central Bank is the right benchmark for
stock taking. The CBN Act 2007 in Section 2 provided that the
principal objects of the Bank are to: (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 available official data show significant deviations from
“mandate expectations”. The inflation rates between 2015:12 and
2016:10 have risen sharply by 61.3% (Food), 91% (headline) and 108%
(core) and the goal of single digit inflation was unrealized for nine

straight months. The paths of domestic prices have been closely
linked to the pass through effects a 35.5% loss of the value of the
Naira relative to the US$ and a rising market spread from N61.3 in
2015:12 to per each US$ to N156.8US$ in October 2016. Clearly, the
mandate of price stability was unmet and the deviation from
announced policy target has been widening for eight months.
External reserves which had been trending downwards since its peak
value in September 2009 of US$62.08 declined further from US$28.28
billion in December 2015 to US$23.81 billion –a decline of
US$4.47billion. In contrast, Money supply rose by N2.97 trillion
between November 2015 (N6.98 trillion) and October 2016 (N9.95
trillion), a rise of 43% (about 71% accounted for by growth in Central
Bank’s demand deposit). The phenomenal expansion in money
supply is key to explaining the phenomenal rise in domestic prices,
the loss of value of the domestic currency and the inefficiencies in
the forex market indicated by the rising spreads between segments
of the forex markets. The stock market continued to be bearish with
a loss of 9.9% between September 30 2016 and November 18 2016!
The macro-economy receded further and the unemployment
problem worsened in the first three quarters of 2016. The economic
decline also expanded to most critical sectors of the economy: oil
and gas, manufacturing, constructions, services and trade. The
resulting unemployment therefore is more structural than frictional.
From an annual positive GDP growth of 2.79% in 2015, for the first

three quarters of 2016, the GDP growth rates were negative (-0.34, -
2.06 and -2.24 respectively). It is also worth noting that the size of the
negative growth is trending up.
The economy also faces the twin deficit problem: a rising budget
deficit and current account deficit. In addition, the size of the public
debt which stood at N10.975 trillion in December 2015 rose sharply to
N16.297 trillion in June 2016! A significant part of the growth is
attributable to the significant loss of value of the Naira and the
upward revaluation of external debt as well as the rise in interest
rates in 2016. The crowding out effects of debt services on non-debt
government expenditure has returned to the pre-Paris Club exit days.
Overall, the paths of key structural and policy variables foreshadow
a very difficult 2017.
The global economy conditions are also unlikely to be favourable to
Nigeria. The effect of Brexit on the UK economy so far, is visible in the
loss of value of the British Pound by 16.05% in 2016. With the frosty
relationships between the EU and the UK political authorities and a
possibly acrimonious and long drawn out split, the regional
economic implications are dire. Already many international financial
institutions are threatening to relocate from London. When President
Trump takes office on January 20th 2017, the greatest danger is like
to be his unpredictability and the uncertainty and high risks of
conflicts and instabilities within the United States political systems and
between the United States and its neighbours on one hand, and

China on the other. Heightened risks and uncertainties would have
adverse effects on global trade and financial flows which are highly
sensitive to the psychological states of “investors”. The global
economic recovery in the worst case scenario; may be reversed or
slowed down. Such reversals or slow down would hurt commodity
exporters such as Nigeria.
Overall, the domestic and foreign outlook portends a very difficult
year for Nigeria and other vulnerable commodity exporters.
Unresolved Issues
I shall keep reiterating a number of longer term issues which remain
unresolved and whose resolution is critical to both the path of policy
and of the political economy. The first is the issue urgently
“harnessing, directing and putting to effective use the best available
intellectual and political resources to” develop a forward looking
medium to long term strategic macroeconomic management
framework for Nigeria with the wellbeing of Nigerians as its principal
end. This assignment could not be ceded profit making organisations
that have never developed an economy because it is not their
business to do that. Similar contracts in the past were doomed by
the disconnections between “designers” and “implementors”. The
second issue is the need to convert rent havens in both the real and
financial sectors to efficiency and effectiveness centres. The
economy cannot thrive with rent havens distorting access, pricing

and allocation and undermines growth and employment generating
innovations and transferring wealth from a majority to a few rich.
Three, the present hedonistic orientation that dominates economic
policy and discourse put the future at great risks and is the source of
the dangerous quick fixes that frankly have damaged institutions
and done great harm to the future capacity of government and
citizens to leverage on endowments to build sustainable value
adding economic systems. The fourth issue is the conduct of
economic policy within strategic vacuums and present hedonistic
perspectives. The economic and welfare costs of the non-resolution
of the issues are growing every second and with the headwinds
expected in 2017, the costs could easily become prohibitive and
non-reversible.
Decision
I vote to hold. I considered voting for reducing the monetary policy
rate for the purpose of policy credibility and consistency. In my view,
the expansion in money supply between November 2015 and
October 2016 conflicts with and undermines whatever impacts the
hike in monetary policy rates in May and July MPCs could have had
in stabilizing prices and the exchange rate. Rather, I am convinced
beyond all reasonable doubts that the expansion of money supply is
causal to the pressure on the Naira, the rise in domestic prices and
the spillover effects on financial system stability and rising costs of

public debt and, the obvious crowding out effects of debt service
on non-debt expenditure.
However, I vote to hold because resolving the four issues above is far
more fundamental and second, the effects of lower interest rates
are countered by the interest rate asymmetries institutionalized by
deposit money banks who pass-on lower rates to borrowers with high
interest rate elasticities (the big ticket borrowers who account for
most of borrowed funds) and pass-on higher interest rates quickly to
borrowers with low interest rate elasticities (retail borrowers who have
higher output and employment elasticities). In the process, the
favoured sectors which are the rent havens (oil and gas, general
commerce, utilities, etc.) suck-in all the benefits of a lower interest
rate. The reality of the Nigerian policy environment and the dire
outlook for 2017 is that there are no quick fixes, a magic policy bullet
that will automatically resolve all the structural, strategic and policy
issues. I am convinced that a longer term perspective is critical to
the right environment for thinking and choosing more efficient and
more effective policies.

7.0
UCHE, CHIBUIKE U

These are indeed difficult times for monetary policy in Nigeria. With
the economy deep into recession and inflation inching up, the
dilemma for MPC is whether to support growth by easing or to fight
inflation by tightening monetary policy. Because of the peculiarities
of our economy, both options have severe pitfalls.
Tightening at the present time is likely to further depress our economy
that is already in recession. Perhaps more worrying is the fact that it
will likely lead to a banking crisis. With NPLs now tottering around the
double digit boundary, it is clear to me that tightening monetary
policy now will be an error. I am of course aware that some
international investors may want to see a higher Monetary Policy
Rate as an encouragement to keep their investments in the country.
I am however convinced that doing this will be to the detriment of
our national economy.
The argument that increasing MPR at the present time will help our
economy by attracting more foreign investors makes little sense. This
is so because high cost of capital can only discourage real sector
investors. Only speculators can find such rates attractive. As I have
argued in previous meetings, speculative capital- like short term
foreign portfolio flows- end up causing more problems in an
underdeveloped economy like ours. In my view therefore, only long

term foreign capital, which target the real sector, can aid economic
and industrial development in the long run.
Loosening monetary policy at the present time will also have severe
consequences. It could for instance exacerbate the inflation that is
already in double digit territory and which is still rising. At another
level, it could promote financial sector disintermediation by
encouraging diversion of deposits from the banking sector. Any
policy that will result in the deepening of the negative real returns
bank customers currently earn can only help discourage bank
intermediation.
Perhaps more important is the fact that loosening could further add
to the pressure on the value of the Naira. It is my reasoned opinion
that our current foreign exchange crisis is the elephant in Nigeria’s
economic space. Since oil rents still provide most of our foreign
exchange earnings, there is no easy way out of this crisis in the short
run. Of course the obvious exception will be the miraculous recovery
of international oil prices to golden days of $100+ a barrel level. This
may however be wishful thinking. With our love for most things that
are foreign and our disdain for most things that are local, there are
few viable paths out of the current economic hole that we are in, at
least in the short run.
While it is essential to honour existing foreign exchange needs of
citizens and businesses, the time has come for Government to adopt

and
operationalize
a
clear
economic
and
developmental
programme that will help to curtail the current craze for foreign
goods and services and encourage local production. What we must
however do in the short run is to drastically reduce the variances
between the parallel, Bureau de Change and official market
exchange rates for the Naira. The current levels of arbitrage that
exist in the foreign exchange market in Nigeria, if unchecked, will
end up sabotaging the integrity of our banks, regulators and entire
economy.
From the above, it is obvious that in the medium and long term, our
economy can only get succor if we are able to reverse its current
overdependence on oil rents. In this direction, there is little monetary
policy can do on its own. Extensive cooperation with the fiscal
authorities is required. As already stated, there are no painless
options. It is for instance obvious to all that the size of Government
must come down if any meaningful investments are to be made in
infrastructure, which is essential for economic and industrial
development. The bailouts and interventions by the CBN clearly has
its limitations and cannot be the solution to our infrastructural
problems. To the contrary, it may actually be adding to the problem
of inflation and exchange rate devaluation. Also worrying is the fact
that such interventions have the potentials to weaken the financial
health of our Central Bank.

CBN interventions aimed at guaranteeing the payment of salaries to
Government workers is even more dangerous. For the avoidance of
doubt, I am not necessarily advocating mass sack in the civil service.
Rather, a strict embargo on employment and adopting policies that
support willing civil servants to become entrepreneurs may also
achieve meaningful results even in the medium term.
Based on the above very difficult scenarios, I have come to the
conclusion that the best line of action for MPC at the present time
will be to maintain status quo. Although this may not be the solution
to our current economic quagmire, it is in my view the least
destructive option.
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.

8.0
YAHAYA, SHEHU
The International Context
The election of Donald Trump as President of the United States is the
major recent development that may impact significantly on Nigeria,
given the importance of the US as a trading partner and its overall
influence on the world economy. While there is some uncertainty
regarding the extent to which his pronouncements during the
election campaign will actually be translated into practice, there
are some outcomes which appear likely to have a significant effect
on Nigeria. Firstly, it appears that stronger incentives will be provided
for US domestic oil producers. This might increase the supply glut and
weaken prices, even as shale oil producers continue to make efforts
to improve production efficiency and reduce their break-even price
level.
Secondly,
the
vaunted
prioritization
of
infrastructure
improvement might generate a fiscal stimulus and lead to a rise in
both price levels and interest rates in the US. This might encourage
capital outflow from developing and emerging markets including
Nigeria. Thirdly, if some of the trade protectionist policies promised
by the incoming President are implemented, it might have some
contractionary effect on global output as other countries respond or
adjust. However, these effects are for the medium term. In the short
term, even though GDP growth rate has doubled in the US in Q3,
unemployment has reduced marginally and prices have ticked up a

bit in October, it is highly unlikely that policy rates will be adjusted
until the new administration has settled in.
Growth in China, while still strong, is slowing down a bit, mainly due
to structural changes. In the Eurozone, output, prices and
employment levels have remained more or less at the same level as
compared to the Q2 2016. While the effects of BREXIT are still muted
in the UK, partly due to uncertainties of the exit timing, the Japanese
economy is still in dire straits, despite a long period of fiscal stimulus,
negative interest rates and a significant debt level. Growth forecasts
for Africa, Asia and Sub-Saharan Africa for 2016 are all being revised
downwards.
In general therefore, there is unlikely to be a significant boost to
growth in Nigeria from external demand, while downward pressures
on oil prices loom. Imported inflation, however, is not expected to be
a significant issue in the short run.
The Domestic Economy
Unsurprisingly, GDP growth rate in Q3 2016 has fallen to a new low of
-2.24% the third consecutive quarterly fall in GDP. This decline was
mainly propelled by a 22% contraction of the oil sector, due mainly
to sabotage of oil and gas pipelines. Non-oil GDP for the first time in
the year experienced a positive, albeit tiny growth of 0.03% in Q3,
largely due to an increase of 1.22% in Agricultural output, the highest
achieved in the last 15 quarters. Both Industry and Construction

experienced negative growth rates for the fourth quarter in a row.
Manufacturing output in particular experienced a sharp fall. Trade
also fell. It is clear that the support being provided to Agricultural
production is bearing some fruit, and needs to be intensified and
institutionalized, so that it constitutes an important element in a
broader strategy for economic diversification and domestic
investment.
The significant fall in GDP growth rates also resulted in an increase in
both unemployment and underemployment to 13.3% and 19.3%
respectively.
The combination of falling growth and rising prices continue to stalk
the Nigerian economy. Headline inflation rose to 18.33% in October
2016, compared to 17.85% in September (YOY), and by 0.83% monthon-month, which is slightly higher than the MoM growth in
September, yet the second lowest MoM increase since May 2016.
Both food and Core inflation rose in October, with Food and NonAlcoholic beverages making the strongest contribution to the
inflationary pressure. It should also be noted that imported Rice was
the single most significant contributor to food price increases in
October.
In the external sector, external reserves rose slightly to US$25.21 in
November 2016. However, it is unlikely that this trend can be
sustained due to the sharp fall in foreign inflows. Also, the trade

balance has deteriorated sharply to the lowest level this year. While
the Naira exchange rate at the inter-bank market has remained
steady for a while, there are still pressures in the unofficial market,
and there continues to be a wide gap between prices at the two
markets.
The fiscal operations of the government up to September this year
indicated a substantial gap between budgeted and actual revenue
of about 25%, with a corresponding gap in expenditure of about
20%. The objective of reflating the economy to get out of recession
has therefore been undermined. On the other hand, the relatively
low fiscal operations may have helped to slightly dampen the
inflationary pressure in the short term.
The financial sector has continued to come under pressure mainly
arising from the negative growth rates in the economy and the Naira
depreciation effect. Hence banking sector profitability, ROE and
ROA have all declined, while NPLs have risen. Given the dominance
of the oil sector, this outcome is to be expected, as is indeed
happening to many other oil-exporting developing and emerging
economies. Steps are being taken by the DMBs and the monetary
authorities to adequately respond to these challenges.
Conclusion and Recommendations
It is becoming increasingly clear that the path to economic recovery
and social progress in Nigeria has to come from sustained internal

efforts. It does not appear that there would be much succor to the
economy from international economic developments- such as
strong demand stimulus, sharp and sustained recovery in oil prices or
significant and enduring increases in capital inflows. The role of
monetary policy is also increasingly narrowing. The significant
increase in agricultural output seen is an encouragement to intensify
efforts to boost output in this sector. Even the evident contribution of
imported rice to the inflation figure highlights the opportunity to
redouble efforts to boost local rice production.
One of the bigger challenges though is that the manufacturing
sector has been experiencing a sharp fall in output and capacity
utilization, despite increased lending by the DMBs to the sector. This is
mainly due to inadequate access to foreign exchange. However,
the foreign exchange scarcity is unlikely to abate soon. The need for
a structural shift in manufacturing output to focus more on local
inputs is therefore imperative.
One of the lessons recently learnt, in my opinion, is that raising the
MPR is not likely to have an appreciable and enduring effect on
capital flows right now, as we have argued earlier. This is because
the macroeconomic and policy environment is not very supportive,
and oil output remains uncertain.
Consequently, tightening monetary policy will not at the moment
lead to a substantial increase in the supply of foreign currency. Of

course, inflation remains a serious challenge, which is eroding the
purchasing power of income earners and therefore deepening
poverty. We have argued earlier though, that the current inflationary
pressure has largely emanated from Naira depreciation, utility tariffs,
PMS and supply bottlenecks and will therefore not be appreciably
affected by monetary policy tightening. In addition, despite the
central mandate of the CBN and the MPC for price stability, it would
be difficult to justify a tightening of monetary policy when the fiscal
authorities are trying to provide fiscal stimuli to address the negative
growth rate. Moreover, tightening will substantially complicate the
challenges facing the financial sector. At the same time, loosening
monetary policy is not appropriate at the time of surging inflationary
pressure.
In consideration of the circumstances described therefore, I vote to
maintain the current monetary stance with respect to the MPR, CRR,
liquidity ratios.

9.0 ADEDOYIN SALAMI

The data releases ahead of and during this meeting made for sober
reflection on how much self-harm we continue to inflict on ourselves.
With Headline inflation for October 2016 recorded at 18.3 percent –
a further increase from 17.9 percent the previous month – and
Output growth, measured by quarterly GDP figures, at -2.24 percent
for Q3 2016 showing, a further deepening of the recession, our
national economic situation thus continues to worsen.
In voting at this meeting, it was clear there was no real option other
than to hold. Any measures to tighten monetary conditions would
worsen the recession. Easing conditions will only exacerbate
inflationary conditions and continue to stoke the pressure in the
FOREX market. Furthermore, we still await fiscal proposals for 2017.
As I noted in my comments at the end of our previous meeting,
contracting output and rising costs create a major dilemma for
policy-making. What should be the priority and which measures
should we adopt? Simply stated, should we reduce interest rate to
stimulate investment and subsequently output; or should inflation be
the primary focus of monetary policy – in which case we should raise
interest rate and curtail liquidity growth. Any hope that base effects,
which should apply early in 2017, will help with the prioritization is at
best feeble. It is already clear that inflation will continue rising for the
rest of this year and into the new year.

Clarity requires stating that this has been a bad year for monetary
policy! As is clearly shown in liquidity data, both money supply and
demand deposits have risen quite sharply in the past year. At the
same time as we have sharply raised liquidity, largely through an
almost unceasing flow of liquidity from intervention funds and
lending to government, Monetary Policy has pretended to tighten
by raising the MPR – which now stands at 14 percent. The use of
monetary policy to achieve objectives best attained through fiscal
policy measures – fiscalisation of monetary policy – must now stop.
It is therefore in my view, important to note that the regime
intervention funds may now be distorting the dynamics of markets
and competition within the Nigerian Economy. To remind those, who
have forgotten, these funds were created in response to the
imminent failure of some key banks in 2010. They were not intended
to be perpetual. The distortions they now engender imply that we
MAY make their beneficiaries unable to compete in their absence. In
my view, if this regime is to be sustained, it would be useful to inject a
large dose of transparency. In other words, declare the size of the
funds, the criteria for their creation and perhaps even the
beneficiaries – afterall, we do publish the beneficiaries of FOREX
sales (arguably a more scarce resource).

Evidence that the injection of liquidity has overwhelmed any efforts
at tightening is manifested in continued slide in the Naira’s rate of
exchange and rising inflation. Worst of all, this position has resulted in
almost complete erosion of the Central Bank’s credibility.
This situation throws up a new challenge which must be addressed in
2017. Irrespective of any inconsistencies between fiscal and
monetary policy, there may now be appearing a gap between
Central Bank Management, which has sole responsibility for
Intervention Funds and the Monetary Policy Committee. Whilst MPC
has either held or tightened, the easing of liquidity conditions has
arisen largely out of management decisions.
Beyond ensuring consistency between management decisions and
that of MPC, the Central Bank must, in 2017, address the challenges
in the FOREX market. Multiple FX rates don’t help in any way. Having
agreed to FOREX Market liberalisation at the meeting in May, I doubt
if any of us on the MPC foresaw the current position. A fragmented
market with price discovery only in parallel market was hardly what
was envisaged. In my view, the energy and effort devoted to
‘managing’ the Naira would perhaps have been more fruitful if the
paradigm for currency management shifts from managing the
volume of US Dollars available to managing Naira liquidity.

In addition, it becomes imperative, going forward, to define the role
of exchange rate management in stimulating the productive
capacity of our economy. As I have argued before, exchange rate
policy must coherently be deployed with other measures to
stimulate production. Whilst continued devaluation of the currency
will achieve nothing beyond rising prices, a well-thought-out policy
for managing the forex rate consistent with well-defined national
economic priorities begins to restore credibility and thus confidence.
Ironically, the Purchasing Power Parity (PPP) value for the Naira is
estimated at between N315-329/US$. The gap between this figure
and the N455/US$ at which the currency trades in the parallel
market, as we hold this meeting, represents a 40percent
undervaluation of the currency. This provides a proxy for the cost of
loss of confidence.
I have in the past consistently drawn attention to the challenge
posed by the deteriorating quality of bank risk assets. Whilst is it
understandable in the context of a shrinking economy, I remain
concerned as to whether we have a good grip on this issue. Data
shows Non-Performing Loans of Banks to have further risen to
13percent at the end of Oct., 2016. Perhaps because of my limited
knowledge of Accounting, I remain worried about whether we have
a truly comprehensive picture of the situation.

For the avoidance of doubt, I am clear in my mind that monetary
policy must address inflation, whilst fiscal policy must be deployed to
create incentives for private sector deployment of investment
capital. Rising cost, which increasing prices represent, amongst
others undermines our national economic competitiveness thus
exporting jobs abroad. Furthermore, rising prices hit the poorest
segments of our society hardest. This cannot be a recipe from
creating socio-economic conditions wherein our citizens can thrive
and national cohesion achieved.
We can argue that monetary policy has reached its limits only
because it has been wrongly deployed. Perhaps it is time for a
thorough-going review of policy frameworks.

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

With rising populism in many countries – especially in the aftermath
of categorical votes for Brexit in the UK and Donald Trump in the US,
and the impending polls in Germany, France and Italy – the
reverberations
of
the
global
political
landscape
restrained
economic outcomes in 2016 and undermined the modest recovery
previously projected for 2017. Consequently, vis-à-vis the 3.2
percent recorded in 2015, global growths for 2016 and 2017 may fall
short of the 3.1 and 3.4 percent forecasted by the IMF. This reflected
the increased uncertainty heralded by the populist votes and the
continued fragilities in both advanced and developing countries.
Among advanced countries, the US economy has so far
strengthened in 2016 while performances in the Euro area, the UK
and Japan remained colourless. The slowdown of the Chinese
economy and the cowed outcomes in key emerging markets also
provided a bidirectional drag on global economy performance.
Still to recover from the recent oil price shock, the Nigerian
economy is braced for further global shocks in 2017 as results of the
populist votes are implemented in the US and UK. Consequently, the
expected recovery of the Nigerian economy may be delayed as
the recession elongates. So far in 2016, the domestic economy has

experienced three consecutive quarters of contraction. Data from
the NBS indicates that GDP growth fell to -2.24 percent in quarter 3
from -2.06 percent in quarter 2. Though oil and manufacturing GDP
continued to contract, the positive growth of non-oil GDP in the
third quarter is salutary and could signal the turning point towards
recovery. This is particularly remarkable as the economy sustains its
efforts
to
disentangle
from
oil
dependence
and
diversify
completely. More encouraging is the 4.54 percent growth in
agriculture GDP which could signal the imminent moderation in
food inflation in the near term.
At 17.9 and 18.3 percent in September and October 2016 vis-à-vis
17.6 percent in August, inflation rate maintained its upward trend
throughout the year from a single-digit rate of 9.6 percent in
January. This continued to reflect the rise in both the food and the
core components of inflation which, respectively, rose to 17.1 and
18.1 percent in October from 16.6 and 17.7 percent in September.
During the same period, the month-on-month headline rate also
rose, albeit marginally, from 0.81 to 0.83 percent. The rising
inflationary trend is predominantly underlain by lingering passthrough from exchange rate and high energy prices. It is my
expectation that as the base-effects taper out and the impact of
recent policy adjustments permeates the system, inflation rate will
begin to moderate by the first quarter of 2017.

Analyses of liquidity conditions indicate monetary expansion as
annualised growth rate of broad money supply increased to 14.0
percent in September from 12.1 percent in August relative to a
target of 10.9 percent. This was driven by growing domestic credits
as both private and public sector credits, at annualised rates of 27.6
and 39.4 percent, expanded beyond their respective benchmarks
of 13.4 and 13.3 percent. Correspondingly, money market rates
eased during the review period as average interbank call rate fell
from 25.0 percent between July and August to 11.7 percent
between 11 October and 17 November 2016. I reiterate the
importance of channelling credits to MSMEs, the agriculture sector
and other productive real sector ventures in the economy. It is
imperative that efforts continue to be directed, at this time, to
labour-intensive sectors that can boost employment, stimulate
domestic demand and engender import substitution. I believe that
the reduced exchange market pressure therefrom would generally
lessen uncertainty in the economy, especially as the naira-dollar
exchange rate stabilised around ₦305.00/US$ in September and
October 2016.
Though the poor economic performance which emerged in 2016Q1
lingered into 2016Q3, there is potential for an early recovery in 2017
if the much needed structural, trade and social policies are
undertaken.
Throughout

we
have
seen
economic
contractions,
rising
inflation,
rising
unemployment,
persistent

exchange market pressure, and growing non-performing loans.
These reflected the enduring effects of the lower oil prices
transmitted through foreign exchange scarcity and constricted
fiscal space. I note that the weakened domestic demand which
continued in quarter three is directly linked to the accumulated
payment arrears for public sector workers and contractors. This is
gleaned from the steady decline in household consumption, a
significant component of our aggregate demand. Furthermore, the
effect of the domestic energy price shocks, in electricity and fuel,
which occurred earlier in the year continued to ripple through the
system affecting not only productivity but also inflation rate.
I note that regardless of further economic contraction in 2016Q3,
the positive growth in non-oil GDP, especially in agriculture GDP are
upbeat for the overall recovery of the economy. Nonetheless, this
may be wishful thoughts if definite structural policies that are
required to rectify the deep-seated aggregate supply deficiencies
and improve productivity are not put in place. I note again that
monetary policy alone cannot lift the economy out of the present
predicaments. While we will continue to fine-tune instruments within
our remit, we require other economic policymakers to be proactive
and strategic.
Near-term prospects of the economy suggest a cautious outlook for
growth in the first half of 2017, especially as Brexit negotiations begin

and Donald Trump is inaugurated. Nonetheless, it may be untimely
and counterproductive, at this time, to undertake a pre-emptive
rate cut. The latent economic benefit of lowering policy rate at this
time is non-positive, given that even a dramatic cut in rate is not
enough to guarantee a positive growth while inflation rate will
concurrently skyrocket. However, a hike may also not guarantee
substantial fall in inflation given the prominence of structural factors
in the inflation dynamics. Besides, even at the current rates, we
have observed a rise in the systemic liquidity which is adequate to
support the growth process. I am of the view that an impulsive
adjustment of policy may be detrimental and sub-optimal. It is
pertinent to allow the effects of past policy decisions to fully
percolate the system in order to avert the dual problems of time
inconsistency and indeterminacy.
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