CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO 112 OF THE
MONETARY POLICY COMMITTEE MEETING OF 20TH AND 21ST MARCH

1.0. Background

The Monetary Policy Committee met on the 20th and 21st March,
2017, against the backdrop of persistent uncertainty in the global
economy,
stemming
from
economic
and
socio-political
developments around the world. On the domestic front, while the
Q4 2016 GDP figure was better than the last two consecutive
quarters, the economy remained in recession with inflationary
pressures continuing unabated. These adverse external and
domestic
conditions
continued
to
complicate
the
policy
environment.

In attendance at the meeting were 10 members of the
Committee. The Committee assessed the global and domestic
economic and financial environments in Q1 2017 as well as the
outlook for the medium-term.

External Developments
The global economy witnessed greater momentum in Q4 2016,
facilitated by gains in both developed, emerging markets and
developing economies which propelled global GDP growth to 2.7
per cent year-on-year in Q4, 2016, a 0.2 percentage point
improvement over Q3 2016.

In spite of this improvement, the external environment continued
to be plagued by political, economic and financial market
uncertainties, with the defining issues being: Brexit, growing
protectionist
and
anti-globalization
sentiments,
divergent
monetary policies of the advanced economies‟ central banks
and volatile commodity price movements. The protectionist
stance of the new U.S. administration could impact negatively on
global trade and economic recovery.

The MPC noted the slip in oil prices against the backdrop of fears
of a supply glut, fuelled by increased activities in US Shale oil
production, which threatens to undermine the rebalancing effects
of the last OPEC decision to cut output. The Committee also noted
the increase in the target range of the US Fed funds rate at the
last meeting of the FOMC and the potential spillover effects on
global capital flows and interest rates, especially given the still
tepid global economic activity and weak demand. Challenges in
the emerging markets and developing economies persist, as they
struggle with strong headwinds from low commodity prices, rising

inflation, currency volatility, receding real income and capital
reversals.

Overall, the Committee noted the dampening effects of
economic stagnation and uncertainty on global trade and
investment. In spite of these constraints, however, the IMF
estimates that the global economy would witness a slight
improvement in growth from 3.1 per cent in 2016 to 3.4 per cent in
2017.

Global inflation continued its moderate but steady rise against the
backdrop of improved oil prices and depreciated currencies in
several emerging markets. Amongst the major advanced
economies, the U.S Fed maintained its tightening stance, with a
further upward adjustment1 in March 2017. Meanwhile the Bank of
Japan (BOJ), Bank of England and the European Central Bank,
maintained the soft policy stance at their most recent meetings.

Domestic Output Developments
Data released by the National Bureau of Statistics (NBS) in
February 2017 showed that the economy contracted marginally
by 1.30 per cent in Q4 2016, effectively remaining in recession
since Q2 2016. Overall, in 2016, the economy contracted by 1.51
per cent, with the contraction in Q4 being the least since Q2 2016.
The non-oil sector grew by 0.33 per cent in Q4, largely reflecting

1 The Federal Reserve again raised its benchmark Federal Fund rate by 25 basis points in March 2017, to a range of 0.75 to 1.00 per cent, having
raised rates by the same margin in December, 2016, and also provided indication of further rate hikes in 2017

the slowdown in the agricultural sector, which decelerated to 4.
03 per cent in Q4 2016 from the 4.54 per cent recorded in Q3
2016. The Committee remains of the conviction that fiscal policy
remained the most potent panacea to most of the key negative
undercurrents
i.e.
stunted
economic
activity,
heightened
unemployment and high inflation.

In spite of the recent moderate recovery in oil prices, the
Committee approached developments in commodity prices
cautiously. It noted that the era of high oil prices was over, thus
making diversification away from oil more imperative today than
ever.

Developments in Money and Prices
The committee noted that money supply (M2) contracted by 5.73
per cent in February 2017, annualized at -34.38 per cent in
contrast to the provisional growth benchmark of 10.29 per cent for
2017. Similarly, Net Domestic Credit (NDC) contracted by 1.41 per
cent in February, 2017, annualized to 8.46 per cent, being
significantly below the 17.93 per cent provisional growth
benchmark for 2017. Likewise, net credit to government
contracted at an annualized rate of 49.74 per cent, representing
82.86 per cent below its programmed target of 33.12 per cent. In
effect, all the major monetary aggregates contracted by endFebruary and underperformed their programmed provisional
benchmarks for fiscal 2017.

Headline inflation (year-on-year), however, declined for the first
time in 15 months, dropping by 0.94 percentage point to 17.78 per
cent in February, from the 18.72 per cent recorded in January
2017, and 18.55 per cent in December, 2016 seemingly reversing
the monthly upward momentum recorded since January, 2016.
The moderation in headline inflation in February, 2017 reflected
base effect as well as decline in the core component, which fell
by 1.90 percentage points from 17.90 per cent in January to 16.0
per cent in February, 2017. The food index, however, rose to 18.53
per cent in February, a 0.71 percentage point increase over the
17.87 per cent recorded in January, 2017.

The Committee, similarly, observed a continuous upward trend in
the month-on-month inflation rate in February, having slightly
moderated between December 2016 and January, 2017. It noted
the sustenance of the structural factors mounting pressures on
consumer prices, such as the high cost of power and energy,
transport and production factors, as well as rising prices of imports.
Nonetheless, the Committee remains optimistic that the adopted
policy stance and other ancillary measures directed at improving
the agricultural and other relevant sectors of the economy would
combine to restart growth and drive down prices in the short to
medium-term.

Money market interest rates moved in tandem with the level of
liquidity in the banking system. Rates were relatively stable during
the review period, the interbank call rates opened at 6.25 per
cent on January 25, 2017 and closed at 13.14 per cent on
February 28, 2017. However, the average inter-bank call rate rose
to 100.00 and 133.84 per cent on January 21 and January 23,
2017, respectively, following the withdrawal of liquidity from the
banking system through the sale of foreign exchange worth
N137.00 billion on February 21, 2017.

The Committee noted the decline in the equities segment of the
capital market as the All-Share Index (ASI) fell by 3.07 per cent
from 26,036.24 on January 31, 2017, to 25,238.01 on March 10,
2017. Similarly, Market Capitalization (MC) decreased by 2.68 per
cent from N8.97 to N8.73 trillion during the same period. Relative to
end-December 2016, the capital market indices, fell by 3.12 and
3.03 per cent, respectively, reflecting the challenges still
confronting the economy.

Total foreign exchange inflows through the CBN decreased by
8.87 per cent in February, 2017 compared with the previous
month, as foreign exchange market receipts were significantly
lower. Total outflows, also declined by 7.32 per cent 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

Available data and forecasts of key economic variables as well as
the newly released Federal Government‟s Economic Recovery
and Growth Plan (ERGP), indicate prospects of output recovery in
2017. The Committee expects that the implementation of this
plan, the new foreign exchange policy as well as the current effort
by the Federal Government to restore peace in the Niger Delta
region would help revive economic growth and stabilize prices.
The Committee identified the downside risks to this outlook to
include the possibility of a slower-than-expected rate of global
economic activity, tight monetary policy stance by the U.S. Fed,
resulting in strengthening U.S dollar, and low oil prices.

3.0. The Considerations of the Committee

The Committee re-evaluated the implications for Nigeria of the
continuing global uncertainties as reflected in the unfolding
protectionist posture of the United States and some European
countries; sustenance of the OPEC-Russian agreement to cut oil
production beyond July 2017; sluggish global recovery and the
strengthening U.S. dollar.

The Committee also evaluated other challenges confronting the
domestic economy and the opportunities for achieving price
stability, conducive to growth in 2017. In particular, the Committee

noted the persisting inflationary pressures; continuing output
contraction; high unemployment rate; elevated demand pressure
in the foreign exchange market; low credit to the real sector and
weakening
financial
system
indicators,
amongst
others.
Nonetheless, members welcomed the improved implementation
of the foreign exchange policy that resulted in naira‟s recent
appreciation. Similarly, the Committee expressed satisfaction on
the release of the Economic Recovery and Growth Plan, and
urged its speedy implementation with clear timelines and
deliverables. On the strength of these developments, the
Committee felt inclined to maintain a hold on all policy
parameters.

Nevertheless, the Committee noted the arguments for tightening
policy which remained strong and persuasive. These include: the
real policy rate which remains negative, upper reference band for
inflation remains substantially breached and elevated demand
pressure in the foreign exchange market. The reality of sustained
pressures on prices (consumer prices and the naira exchange
rate) cannot be ignored, given the Bank‟s primary mandate of
price stability. It noted that the moderation in inflation in February
was due to base effect as other parameters, particularly; monthon-month CPI continued to rise. However, tightening at this time
would portray the Bank as being insensitive to growth. Also, the
deposit money banks may easily reprice their assets which would
undermine financial stability. Besides, the Committee noted the

need to create binding restrictions on growth in narrow money
and structural liquidity and the imperative of macroeconomic
stability to achieving price stability conducive to growth.

The Committee also considered the arguments for loosening the
stance of monetary policy, noting its desirability in stimulating
aggregate demand if credit increased with lower rates of interest.
It noted the arguments that loose monetary policy was capable
of delivering cheaper credit, making it more attractive for
Nigerians to acquire assets, thus increasing wealth and stimulating
aggregate spending and confidence by economic agents, which
would eventually lead to lower Non-performing loans in the
system. However, the counterfactual arguments against loosening
were anchored on the upward trending month-on-month inflation
and its impact on the exchange rate. Loosening would thus
worsen the already negative real interest rate, widen the interest
rate spread and reverse the positive outlook for the current
account position.

On outlook for financial stability, the Committee noted that the
banking sector was becoming less resilient as a result of the
adverse macroeconomic environment. Nevertheless, the MPC
reiterated its resolve to continue to pursue financial system
stability. To this end, the Committee enjoined the Management of
the Bank to work with DMBs to promptly address rising NPLs,

declining asset quality, credit concentration and high foreign
exchange exposures.

The Committee also noted the benefits of loosening at this time
which will be in line with the needs of fiscal policy to restart
growth. The MPC, however, noted that loosening would
exacerbate inflationary pressures, worsen the exchange rate and
further pull the real interest rate into negative territory. Since
interest rates are sticky downwards, loosening may not necessarily
transmit into lower retail lending rates.

The Committee noted the consecutive positive contribution of
agriculture to GDP in Q4 2016, a development partly traceable to
the Bank‟s interventions in the sector. The Committee remains
optimistic that, if properly implemented, the newly released
Economic Recovery and Growth Plan (ERGP) coupled with
innovative, growth-stimulating sectoral policies would help fast
track economic recovery.

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 9 out of 10 members to retain the MPR at 14.0 per
cent alongside all other policy parameters. One member voted to
raise the MPR. In summary, the MPC decided 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 corridor at +200 and -500 basis points
around the MPR

Thank you for listening.

Godwin I. Emefiele

Governor, Central Bank of Nigeria

21st March, 2017

PERSONAL STATEMENT BY THE MONETARY POLICY COMMITTEE
MEMBERS
1. ADELABU, ADEBAYO
Following the resolution at the last meeting to correct the wide
distortion in the foreign exchange market, a remarkable
improvement has been recorded as evidenced in the narrowing
of the margin between the two markets. This is as a result of the
new foreign exchange policy which now accommodates certain
items previously excluded from the interbank market. From the
real sector side, inflation at 17.78 per cent in February is still
elevated but it is somehow soothing that a fair level of
deceleration could be observed in contrast to the upward trend
that persisted throughout fiscal 2016. The contraction in GDP
continued up to the last quarter of 2016 but gradual recovery is
anticipated in the current fiscal year given the increase in
agricultural activities most especially rice production.
From a policy perspective, as it has always been due to the
multidimensional nature of the challenges, the issue is not that
straightforward given that the risk to the medium term outlook are
from both the financial and real sectors. From the financial side,
the major risk is the state of the foreign exchange market with the
exchange rate occupying the front burner. Some degree of
stability has been achieved in the last one month owing to the
new measures introduced by the Bank but certain developments
portend the capacity to trigger new pressures in the market.

Among others, the US Fed Reserve increased the policy rate at
their meeting last week while analysts are of the view that further
increases could still take place in the course of the year given the
expansionary fiscal stance of the new administration in the US. This,
in essence, could trigger capital outflow from emerging
economies and ultimately strengthen the US dollar further against
other currencies. Besides, I doubt if the issue of demand pressure in
the foreign exchange market has been completely dealt with.
The recent rally in the value of the Naira at the BDC‟s market is not
necessarily due to reduction in demand for forex but mainly on
account of increase in supply by the Bank, which to some extent
has affected the rate of reserves accretion. The point here is that
apart from transactions demand for forex, which the Bank is trying
to meet through increased intervention, it is not unlikely that
demand for forex as a store of value is equally increasing. This
phenomenon could have only resulted from lack of confidence of
economic agents with respect to the sustainability of the current
appreciation in the value of the domestic currency, given that the
US dollar is currently appreciating against most global currencies.
Thus, some level of speculation could still heighten demand
pressures and possibly lead to depreciation of the domestic
currency. In light of the fact that much of the inflation in the last
couple of months has been driven by the pass through effects of
exchange rate depreciation, then, it could be reasonably
assumed that inflation dynamics may still face upside risks in the

medium term. This, invariably, should require some tightening
measures.
Another emerging threat on the financial side is the rising NPLs of
the banking sector. The sector has been severely hit by the
combination of high lending rate, exchange rate risk, and
contraction in economic activities, resulting in significant rise in the
level of defaulting portfolios. Although it is comforting that the
soundness of the banking sector has not been eroded to the level
experienced in the aftermath of the 2007-9 global financial crisis,
which elicited the CBN intervention, such level of erosion is a likely
possibility if the trend in the last couple of years continues. The
sector therefore deserves some form of attention. In as much as
the three risk factors to the sector highlighted above are very
important, the interest rate appears to be the only one under the
complete control of the Bank. As such, I am of the view that the
need to build a safeguard against the risk of another round of
instability in the banking sector demands that the interest rate
path should be closely guided.
From the real side, the contraction in output is projected to
bottom out in the current year but not without some challenges.
Most of the banks are wary of booking new credit as much effort is
now placed on recovery. Obviously, credit growth, particularly to
the private sector may slow down considerably thereby stifling the
recovery process. This should naturally elicit easing of credit
condition from the policy side. This position is further reinforced by
a casual analysis of inflation dynamics. Core and food inflation

remained fairly stable up to 2015 but the two of them trended
upward in 2016 despite the fact that growth of agricultural GDP
remained positive during the period. This, in essence, suggests that
the current inflation trajectory is more of a cost-push phenomenon
and less of demand pull, invariably, requiring easing of conditions
in the business environment. On the other hand, gradual recovery
from the recession is expected in 2017 but this would largely be
propelled by agriculture as considerable drag could still be
observed in some key sectors. Available statistics revealed that
key sectors like mining and manufacturing contracted by 21.64
percent and 4.38 percent, respectively, in the third quarter of
2016. Going by the magnitude of contraction in these sectors, it
would definitely take a while for the sectors to recover and in the
light of the fact that these are major employment generating
sectors, the impact of recovery on employment would be highly
diminished. As a result, monetary policy still needs to play a critical
role in propelling growth particularly in job enhancing sectors.
Other key challenges are the developments in the fiscal sector.
The fiscal 2017 Appropriation Bill of about N6.0 trillion with about 26
percent allocated to capital project is a good step towards
enhancing the recovery process. However, the key challenge
remains the delay in passing the Bill into law. Under this condition,
the constitution permits that certain portions of recurrent
expenditure could be spent while no portion of capital
expenditure is permitted. The implication is that the component of
expenditure that could shift the supply curve to the right is

impeded while the component that shifts aggregate demand to
the right is not constrained thereby stoking inflation. This, invariably,
shows that apart from the need to strengthen coordination
between fiscal and monetary policies, all the various arms of
government including the legislature need to work in concert in
the
process
of
addressing
the
current
macroeconomic
imbalance.
From the foregoing, the risks to the outlook appears fairly
balanced, suggesting that further tightening or loosening may be
a
sub-optimal
choice
in
the
prevailing
circumstance.
Consequently, I would like to opt for retention of the current
measures of monetary policy which specifically means that both
the MPR and CRR be maintained at 14 and 22.5 percent,
respectively. In addition, strong complementarity is required from
fiscal and structural policies while both the executive and
legislature need to deepen their relationship particularly on
matters revolving around macroeconomic management.

2. ALADE, SARAH O.
This MPC meeting is taking place at a period of uncertainty in the
global economy, stemming from economic and socio-political
developments around the world, amid fragile domestic economic
environment. While the domestic economy experienced a better
2016 fourth quarter GDP figure than the last two consecutive
quarters, the economy remained in recession with inflationary
pressures not moderate as expected. These adverse external and
domestic conditions are continuing to complicate the policy
environment in Nigeria, and would require delicate balancing to
achieve both growth and stability in the country.

The growth momentum is improving for the global economy;
however, more needs to be done to sustain the momentum. The
global economy witnessed greater momentum in Q4 2016,
facilitated by gains in both developed, emerging markets and
developing economies which propelled global GDP growth to 2.7
per cent year-on-year in Q4, 2016, a 0.2 percentage point
improvement over Q3 2016 with the United States economic
recovery. The Federal Reserve raised its key interest rate by 0.25
percentage point on Wednesday, March 15, 2017 on the back of
strong jobs report and Fed confidence about the pace of growth
in the U.S. economy. The Fed placed its key interest rate at 0% in
December 2008 to resuscitate the collapsed housing market. But a
little over eight years later, the U.S. economy is in much better
shape and has grown, albeit slowly. The IMF estimates that the

global economy would witness a slight improvement in growth
from 3.1 per cent in 2016 to 3.4 per cent in 2017. However, this
forecast will be determined by a number of factors including the
rising wave of populist and anti-globalization sentiments and
divergent monetary policy stance of the central banks in
advanced economies which will ultimately impact the Nigerian
economy.
Gross Domestic Product (GDP) is still negative although with
marginal improvements: The most recent data indicated that the
economy contracted marginally by 1.30 per cent in the fourth
quarter of 2016, effectively remaining in recession since second
quarter of 2016. The contraction in the fourth quarter growth was
the least for the year, as the economy contracted by 1.51 per
cent overall in 2016. The non-oil sector grew by 0.33 per cent in the
fourth quarter largely reflecting the slowdown in the agricultural
sector, which recorded a 4. 03 per cent growth down from 4.54
per cent recorded in third quarter of 2016. The cumulative 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, a cut in policy rate would not be appropriate at this
time. Therefore, given the rising inflation and the reversal of capital

inflows the current stance of monetary policy should remain at
current level to reverse the situation. Money supply (M2)
contracted by 5.73 per cent in February 2017, representing an
annualized growth of 34.38 percent against the provisional growth
benchmark of 10.29 per cent for 2017. Similarly, Net Domestic
Credit (NDC) contracted by 1.41per cent in February, 2017, with
an annualized growth of 8.46 per cent and significantly below
the17.93per cent provisional growth benchmark for 2017.
Although growth in monetary aggregates contracted at endFebruary, excess liquidity still remain in the system, making
monetary policy stance not as tight as the policy rate would
suggest. The challenge for the committee as in 2016 is how to
address growth concerns without escalating inflationary pressures.
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 slowed marginally, but still at upper double
digits. Headline inflation declined by 0.94 percentage point to
17.78 per cent in February, from the 18.72 per cent recorded in
January 2017, and 18.55 per cent in December, 2016. This marked
the first time in 15 months, that headline inflation has declined
reversing the monthly upward momentum recorded since
January, 2016. The moderation in headline inflation is as a result of
base effect as well as decline in the core component, which fell
by 1.90 percentage points from 17.90 per cent in January 2017 to

16.0 per cent in February, 2017. However, food inflation rose to
18.53 per cent in February, from 17.87 per cent recorded in
January, 2017. While some structural factors such as the high cost
of power and energy, transport, production factors, as well as
rising prices of imports are responsible for the high inflation,
inflationary pressure is also being driven by excess liquidity in the
system. Against this background, it is necessary to start the rolling
back of some of the intervention programs of the Bank and
refocus monetary policy on price stability by lowering inflation.
Monetary policy must keep a close eye on inflation to avoid it
overshooting and further eroding purchasing power of the poor.

Better management of the foreign exchange policy and the
unification of multiple exchange rates is required. Further reform in
the interbank foreign exchange market is needed 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 and unify the multiple
exchange rates.

Therefore, based on the above, 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. BALAMI, DAHIRU HASSAN
The data available at the March MPC meeting revealed a
deteriorated situation of the financial system stability in Nigeria
with capital adequacy ratio of 13.36 percent; NPLs of 13.59
percent; and liquidity ratio of 46.61 percent all lower than the last
month‟s figures depicting poor performance of the Nigerian
financial sector. The „‟big elephant in the room‟‟ is the foreign
exchange rate in the market. Ordinarily, the parallel/black foreign
exchange market is where the forces of demand and supply
determine the exchange rate. However, in Nigeria, the black
market which constitutes only about 5% of the total size of the
foreign exchange market is the most quoted. The black foreign
exchange market has been a threat to the stability of the Naira
exchange rate particularly at BDC‟s. Evidence shows that the
exchange rate for the Naira to the dollar has stabilised around
N305-N307 for the months of February and greater part of March
2017 at the interbank rate. However, the black markets have been
witnessing price discoveries ranging from N445-N 505 between the
same period. The parallel market in Nigeria is seen as the 5%
„‟noisy market‟‟ because even at the official level, the
stakeholders quote black market rate as the most realistic rate.
The rate is not determined by the forces of demand and supply
and that is why the value of the naira was undervalued to date.
This has created instability in both the foreign exchange market
and prices in the commodity market leading to inflationary
pressures in the economy. The black market rate does not reflect

any market mechanism as the naira is currently undervalued
leading to distortion thereby affecting growth and encouraging
round tripping. However, in Nigeria, the stakeholders continue to
accept the black market rate as the naira exchange rate
between the dollar and the naira. The formalisation of the market
would appreciably facilitate the channelling of available foreign
exchange to productive sectors of the economy as well as
promoting price stability in the economy. The black market rate
and the depreciation of the naira have indeed distorted price
stability and economic growth.
To achieve this, there is need or it is expected to trace the
historical development of the foreign exchange market in Nigeria.
The pertinent questions are: Who are the economic agents that
patronise the market? What role had the 1995 Foreign exchange
management Act played in promoting the black market? Is there
need to repeal the act? What has been the role of the black
market
in
promoting
and
facilitating
cross-border
trade
particularly in the Eastern sub-region of West Africa including
Nigeria and her immediate neighbours? How is price determined
in the black market? How can the black market be reduced to its
barest minimum to facilitate release of foreign exchange for
productive purposes and also to stabilise the economy? To answer
these questions, it is important to trace the origin of black forex
market in Nigeria.
The black market in Nigeria began operating largely after Nigeria
moved from the pound sterling era which was convertible to a

non-convertible currency (i.e. the naira) during the civil war. This
led to some documentation which was introduced in order to
allocate the foreign exchange. Those who could not access the
foreign exchange began to create their own market. The major
customers or clients are cross-border traders, students and parents
for BTA and oversea school fees, medical tourism settlements, and
those who want to avoid documentation. Today the exchange
rate in the black market is usually not determined by the
interaction of the forces of demand and supply but by order that
control huge amount of “unearned income.” The CBN can help
create a market to take care of the customers of black market
where there are price discoveries. For the market to be effective,
the CBN should fund the window effectively by also reducing the
level of documentation to create confidence and credibility in
the market. In managing the foreign exchange rate, there is need
to re-examine the role of the BDCs in exchange rate
management in the economy. This will help achieve price stability.
If exchange rate is stable, it would boost growth. It should be
noted that depreciation of the naira affects inflation and that
inflation hurts growth and promotes poverty in the economy.
Monetary policy can assist in regulating inflation partly through
managing the exchange rate. The pathway to price stability
which is conducive to growth is necessary. Since partly inflation
has been triggered by exchange rate volatility, rising level of
M1,and other structural factors like increase in the price of
PMS,AGO, and LNG, Electricity tariffs, the CRR should not be

released into the economy through the back door due to its
inflationary effect. Adjustment is needed in the management of
the economy. At the international level, hike in interest rates in the
US, uncertainty in the oil market and increasing level of
protectionist policies by major trading partners will impact on the
economy. The challenges at the domestic level include the
following:
output
contraction,
weakening
financial
system
indicators, increased demand pressure in the foreign exchange
market and external uncertainties and possible capital flight due
to hike in interest rates at the international market. However, the
recession is backtracking; inflation has shown some slowdown for
the month of February 2017. The balance sheet of the CBN needs
to be appropriated and this requires that the ways and means of
funding government should be resisted to safe guard the
economy. Given the above scenario to protect the economy, i
proposed to hold and allow the operation of the previous actions
such as new FX policy, to support output growth and to bring
down the ratio of NPLs closer to the prudential threshold.
I therefore vote to hold the following:
i. Retain the MPR at 14 per cent ;
ii. Retain the CRR at 22.5 per cent;
iii. Retain the Liquidity ratio at 30 per cent ; and
iv. Retain the Asymmetric Window at +200 and -500 basis points
around the MPR.

4. BARAU, SULEIMAN
Background
One of the key resolutions in the last meeting was the imperative
of improving the condition in the foreign exchange market
particularly in narrowing the premium between the interbank and
the BDCs markets. A giant stride has been taken in this regard
through the new foreign exchange policies which makes provision
for the funding of certain excluded activities from the interbank
market. These measures have fairly eased the pressure in the
markets and I think it is worth commending. Equally impressive is
the gradual reduction in the imbalances of the external sector as
the current account of the balance of payment recorded a
surplus in the latter half of 2016 as against trade deficit of the
preceding two halves. Although inflation is still elevated, it is
somehow comforting that a downward trend was recorded in
February relative to the upward trend that persisted in fiscal 2016.
These positive developments notwithstanding, the well-known
challenges are still lingering. The softness in output has not shown
any noticeable improvement while the pressure in the foreign
exchange market is still relatively elevated. The risks in the global
environment have equally shown no sign of waning. The new
administration in the US continues to forge ahead with its
protectionism and nationalism policies as major EMEs countries
continue to grapple with different kinds of challenges such as
geo-political strife even as an array of non-economic factors
continue to pull a drag on growth prospects in many regions. On

the whole, the balance of risks appears to skew domestic growth
downward but my vote is to hold at this meeting, mainly informed
by the need to maintain the prevailing tight stance of monetary
policy which is germane to sustaining the modest gain in the
foreign exchange market and by extension, the stability in the
overall macroeconomic environment
Pressure Points
Global Environment
Based on the latest projection of the IMF, global economy would
expand by 3.4 percent in 2017, representing substantial
improvement over the less than satisfactory outturn of 2016. The
projection equally suggests a steady recovery in the global
economy after the slump of about three years ago due majorly to
recession in Euro area. In my view, I may subscribe to the likelihood
of improved global economic activities in 2017 but I hold a great
deal of reservation about the magnitude of expansion as currently
projected. My view is hinged on the ground that there has been
no significant alteration to the risk matrix in the global environment
since the latter half of 2016 rather a little more complication has
evolved. Among others, the new administration in the US
continues to show unwavering commitment to its protectionism
and nationalistic polices. With the spate of executive orders on
travel ban in recent times and the attendant rising global
resentment, it is without doubt that I submit that the world may
need to contend with a new challenge relating to immigration,

refugees, and increased social tension with potential negative
spillover to global trade. Besides, most EMEs are still grappling with
quite a number of non-economic challenges, including geopolitical conflict in the Middle East. For me, the current global
growth projection seems not to have captured these risks and
therefore appears highly vulnerable to downward revision. When
these issues are put in context, it is much likely that the external
sector of the domestic economy may still face considerable
pressure.
Another major issue in the global arena is the financial market
condition with particular reference to the strengthening US dollar.
The new trend in the value of the dollar would be much more
bolstered by the anticipated stance of the US Fed‟s policy in the
near to medium term. The short term interest rate was increased
by 0.25 points by the US Fed in December 2016 and
complemented by another increase at their last week‟s meeting.
The increase was not much of a surprise to me but an unusual
dimension to the process was the uncommon consensus over the
decision as some avowed dovish members dramatically turned
hawkish. This phenomenon, on its own, is a strong signal to the
market which is a likelihood of additional two or three hikes in the
current year. My view is informed by the body language of most
members, suggesting that a one-time hike is not enough to
stabilize the dual variables of inflation and unemployment around
their long run trend. Besides, there is another compelling reason
which is the strong desire to revert to normal monetary policy. The

current Fed Balance sheet of over US$4 trillion is excessively out of
normal and most officials have expressed strong concern in
respect of this. Certainly, the current level of policy rates, even
with the current increase, is not enough to contract the balance
sheet to the normal size. In light of these anticipated
developments, the US dollar may consistently strengthen over
major currencies particularly the EMEs currencies. These
developments point to the fact that recent improvement in the
external sector of the domestic economy particularly the
improvement in accretion to external reserves require maximum
protection.
Domestic Environment
A number of positive developments have been observed in the
domestic environment but the medium term outlook is still fraught
with some risk factors, notably, the following.
Inflation Risk: Headline inflation at 17.3 percent in February 2017
represents a deceleration in contrast to consistent upward trend
which prevailed through the entire 2016. This, to some extent,
could be interpreted as the commencement of a downward
trend but I am of the view that the seeming improvement should
be celebrated cautiously. This is based on the fact that the monthon-month inflation still showed semblance of acceleration as at
February, suggesting that the year-on-year deceleration was due
to base effect. A month-on-month increase in inflation is indicative
of
persisting
underlying
pressure
with
the
only
plausible

explanation being the dynamics of the exchange rate, given that
this is the only variable that has been less stable in recent times.
The concern here is that in as much as actual depreciation of the
Naira would trigger inflation pressure, the expectation of
economic agents in terms of the ability of the Bank to maintain
stability in the exchange rate could act faster on inflation
dynamics than the actual movements in exchange rate. To say
the least, the confidence of economic agents in the ability of the
Bank to maintain the current exchange rate is still at the lowest
ebb.
Possible Resumption of Pressure in the Foreign Exchange Market:
As noted above, the pressure in the foreign market has eased
considerably with the margin between the two markets narrowing
to about 29 percent from as high as 60 percent. Although the
new trend is a significant milestone, the margin is still high with the
likelihood of getting higher if not well managed. A likely risk factor
is the evolving stance of the US Fed which would significantly
increase the flow of capital to the US to the detriment of most
emerging economies. Presently, the US dollar has commenced a
rising trend against most currencies with little regards to countries
or regions as notable currencies like Euro and Pound Sterling are
falling relative to the US dollar. With respect to Nigeria, the recent
measures by the CBN may ease pressure on the dollar from the
perspective of reduction in transaction demand but the demand
for dollar as a store of value could still show considerable

elevation in view of the new direction of monetary policy in the
US.
Reduced Banking Sector Resilience: The banking sector has been
extremely challenged by a number of risk factors which are not
likely to diminish in the near term. The benchmark interest rate has
been fairly high for a relatively long period and this, invariably, has
started taking its toll in the asset quality of the banking system.
Besides, the rapid depreciation in domestic currency has
triggered another risk in terms of currency mismatch as a number
of domestic firms with foreign currency denominated liabilities find
it increasingly challenging to meet their repayment obligations.
Another major issue is the huge indebtedness of the public sector.
Recently, the electricity distribution companies (DISCOs) have
raised alarm about the rising rate of default, most especially from
the public sectors as most government agencies are owing the
DISCOs. This has equally affected the ability of these companies to
meet their contractual obligations to numerous contractors who in
turn depend on the banking sector. The cumulative effect of
these issues is reduction in resilience and increase in vulnerability
of the banking sector.
Way Forward
Sustain Liquidity in the Forex Market: One important parameter
that determines the direction of price in the foreign exchange
market is the level of confidence by economic agents, which in
turn depends critically on the level of liquidity in the market. The

Bank has recorded significant progress in the last one month with
the rates in the two markets moving towards convergence zone.
This has been possible on account of increased funding of the
interbank market as well as the re-admission of certain activities
for eligibility in the interbank market. Any event that leads to
reduction in the level of liquidity support for the interbank market
could be wrongly construed by economic agents as lack of
capacity on the part of the Bank to meet the demand in the
market with severe consequence of erosion in the level of
confidence. As such, appropriate framework should be in place
to ensure timely intervention in the market in order to eliminate
undue friction from insufficient liquidity.
Maintain the Current Tight Monetary Policy Stance: It is remarkable
that monetary policy has started recording some gains notably in
the areas of slight moderation in inflation and modest rally in the
exchange rate. It is fairly obvious that these indicators are still far
from the comfort zone and thus the key issue at this meeting is not
just sustaining the gain but to improve on them. This could only be
achieved by striking the relevant balance with the issues in both
the domestic and global environments. The issues in the domestic
economy are threefold, namely, output stimulation, exchange
rate stability and moderation in inflation. Based on the structure of
domestic economy, exchange rate stability is critical to both
output stimulation and inflation control. If stability of the exchange
rate is paramount, then easing of monetary policy stance could
be counter-productive as some arbitrage outlets would be

created in the financial markets. In other words, economic agents
can borrow cheaply in the domestic money markets and invest
such fund in the foreign exchange market, heightening the
pressure in that market. Furthermore, exchange rate stability is
equally dependent on the level of capital flow. In the light of the
fact that the effect of globalization on monetary policy is being
strengthened on daily basis and viewed within the prism of the
famous concept of Trilemma which posits that the three variables
of capital account liberalization, domestic interest rate, and
exchange rate stability could not be held by domestic monetary
authority simultaneously, I think it would be in order, under our
present circumstances, to allow interest rate to move in tandem
with developments in the global economy. This would logically
require an increase in the MPR but in order to strike a balance
between output concern and financial sector stability, I would
prefer that the current level of the policy rate be maintained.
Strengthen Prudential Measures in the Banking Sector: A number
of issues such as the elevated interest rates have increased
vulnerability and reduced resilience in the banking sector. In as
much as easing monetary policy stance does not appear a
desirable option at the moment, measures need to be taken to
overcome some of the anticipated negative consequences.
Apart from pressure on banking system stability through elevated
interest rate, other issues in the global environment constitute
significant challenges. One major evolving source is currency
mismatch. As such, I would strongly advocate for increased

regulatory surveillance on the banking sector. Special attention
needs to be paid to issues bordering on risk of currency mismatch
as well as loan concentration particularly in weak and vulnerable
sectors.
Decision
Concern for the lingering softness in output as well as reduction in
resilience of the banking sector probably suggest reduction in the
policy rate while the issues of inflation and exchange rate may
demand increase in the policy rate. To strike a balance, I would
opt for retention of the Monetary Policy Rate at the subsisting 14
per cent as well as other monetary policy measures currently in
place.

5. GARBA, ABDUL-GANIYU
Context
The MPC held after a fruitful MPC retreat in which for the first time,
members of the MPC met with Ministers of the key Economic
Ministries (Budget and Planning, Finance and Trade and
Investment). I believe we agreed on the principles for fiscalmonetary policy coordination: humility, sincerity and integrity. I
also believe it was clear to us that monetary, fiscal and prudential
policies are organically linked and that there are grave dangers of
costly policy errors if we act as if they were independent. Finally, I
believe that we recognized that a pathway to price stability with
growth and employment is a medium to long term one and
success depends on pathways to fiscal prudence and sustained
financial system stability.
A historical analysis of the data and national experiences of
recurring recessions and stagflation makes it clear that a return to
price stability and growth takes several quarters and that a return
to “normal employment targets” takes even longer. Further, the
costs of adjustments depend on the timeliness and effectiveness
of fiscal and prudential policies. Economic history teaches us that
effective policy coordination minimizes the response lag and the
associated costs.
The mandates of the MPC since 2007 remains 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. Unless these are changed, confidence in Nigeria‟s
macroeconomic management could not be restored if monetary
policy
is
detached
from
the
enabling
legislations
to
accommodate incompatible levels of expansions in spending and
balance
sheets.
Conversely,
the
confidence
in
Nigeria‟s
macroeconomic management would be much enhanced if fiscal
policy is strongly rooted in the Fiscal Responsibility Act of 2007 and
a pathway to fiscal prudence and discipline and effectiveness is
found in the shortest possible time.
The current national and global challenges are significant enough
to warrant greater attention to enabling legislations and the
unfolding global political economy. How the global political
economy continually affects the economy as well as expectations
about how it will evolve influences Nigeria‟s policy options –fiscal,
monetary and prudential. Macroeconomic management has to
contend with (i) four quarters of negative growth; (ii) price inflation
that is more than twice above the upper bound of the target of 69%, (iii) exchange rate pressures, (iv) AMCON liquidity, “liquiditymop- up liquidity (each round of tightening expands liquidity by
the rate of returns on treasury bills) and “monetization liquidity”; (v)
destabilizing effects of “FAAC Effects” on the call money and
open buy back rates and (vi) fiscal challenges: efficiency and
effectiveness, growing public debt and its financing implications

for structure of expenditure (debt service is crowding-out nondebt expenditure) and (vii) current account deficit.
It is important particularly given the expansion in the Consolidated
Balance sheets of the financial system to significantly limit the
“noisy liquidity” particularly, the monetization of oil revenue and
other fiscal liquidity. I believe there is consensus on the right
strategies and the macroeconomic benefits particularly with
regards to enhancing confidence in the macroeconomic
management and prudential policy of the monetary and fiscal
authorities.
The global outlook remains tenuous. The crystallization of “Brexit
effects”, “Trump-win effects” and the unfolding “discontent votes”
across the world and the mavericks they are turning up are more
likely to heighten uncertainties as well as political and economic
risks worldwide. Already, the rising interest rates in the United States
and rise in global inflation may cause an expansion in deflationary
policies (more central banks raising rates). Higher US rates may
strengthen the US$ and alter financial flows further in favour of the
US. Monetary policy pivoted on portfolio flows is not realistic.
Neither is it appropriate. There is a greater chance of attracting
flows through the appropriate incentives for our nationals that
have surpluses to remit back home. However, beyond attracting
the flows, the issue of appropriate use of such flows is important. It
is wasteful to use them for consumption or to create rent for
currency traders.

Unresolved Issues
A number of longer term issues which remain unresolved that
need urgent resolution to enhance policy efficiency and
effectiveness include (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
continuing malfunctions in the credit market which tends to
allocate credit to sectors with traditionally high NPLs and low
output and employment elasticities as well as a tendency to
restrict access and to charge maximum rates on credit to sectors
and economic agents with traditionally lower NPLs and higher
output and employment elasticities; (c) the conversion of rent
havens in both the real and financial sectors to efficiency and
effectiveness centres; (d) a shift from a present hedonistic
orientation to a longer term commonwealth-oriented perspective;
and (e) the elimination of strategic vacuums for policy analysis
and choice that increase costs of policy failures.
There is also the debate about (a) what level of inflation is good
for the economy (the threshold debate); (b) what cost can the
economy bear to pursue deflationary policies (the sacrifice ratio
debate) and (c) whether inflation is caused by monetary or
structural factors.
I see inflation as a problem of rising prices because of its effects on
relative prices, income, aggregate demand and aggregate
supply even if it is a one period change. Therefore, it is desirable
that inflation is kept as low and as infrequent as possible. The

target of 6-9% remains the target for monetary policy and it is
important to have a clear path to price stability. I also am
convinced based on discussions at the retreat that a pathway to
price stability passes through the pathway to fiscal prudence,
efficiency and effectiveness as well as a sustainable pathway to
financial system stability.
The pursuit of deflationary policy has negative real effects which
has crystalized into the negative growth in 2016. The data is clear
that the economic slow-down began many quarters before
2016:Q1. Even before then, unemployment had been increasing
even before the aggregate economic slow-down because
industry and other real sectors particularly construction and oil
and Gas had slowed long before the recession began. Part of the
slow-down is accounted for by private and public dis-savings and
the effects of the dis-savings on growth in “available capital
stock”. The decline in public and private income and savings has
had long-term adverse effects on capital accumulation. The
adverse effects are visible in the degeneration in the quality and
quantity of public infrastructures and private capital. Such
degenerations
have
dire
consequences
for
investment,
employment, growth and macroeconomic stability.
A careful analysis of the data on inflation, monetary survey and
real variables (GDP, unemployment, fiscal and external balances)
using macroeconomic frames and general equilibrium frames will
caution against categorical statements such as: (i) inflation is

always a monetary phenomenon or (ii) inflation is purely a
structural phenomenon in Nigeria.
I believe based on historical evidence that both categorical
statements are false and misleading! The historical data and its
analysis show that monetary and structural factors affect inflation
in Nigeria but not always in equal proportion at all times. The
structural factors work mostly on the supply-side. Yet, since 2015,
we have seen moderating structural effects on the demand side
with the non-payment or delayed payments of the salaries of
many civil and public employees. Despite the forced dis-savings
and borrowing, expenditure adjustments have been necessitated
by the uncertainties in income flows and the budget effects of
inflation. Thus, the repression of demand is having a moderating
effects on inflation (with adverse welfare consequences) while the
leftward shifts in real supply caused by the cost push effects of
exchange rate depreciation on production costs and supply
prices is driving prices up and driving down investments, growth
and employment. It is obvious that the cost effects have been
stronger than the repressed demand effects.
A plot of monthly M1 and monthly inflation rate with appropriate
base, one observes a high co-variation between December 2012
and October 2015 (fairly flat) and between November 2015 and
February 2017 (significantly positive growth of 62% (M1) and 99%
(Inflation rate). Clearly, it would be unwise to discount the data
and argue without empirical foundation that a rapid expansion in
M1 is not inflationary especially when output and employment are

receding and when the economy faces exchange rate pressures;
twin deficits (fiscal and current account), rising public debt
problem and is proposing a highly leveraged expansionary fiscal
spending.
As the monetary and fiscal authorities consolidate on the
foundations laid at the retreat, it would become clearer to both
sides that “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.” Also, that
agreeing on clear paths to fiscal prudence, discipline, efficiency
and effectiveness is foundational in building a growth path that
creates decent jobs and good value-additions for Nigeria and
Nigerians. It is also important to learn the right lessons from the
three
metaphors:
“medical
diagnostic”,
“tapeworm”
and
“recovering addict”.
Decision
I vote to hold. As in my previous votes to hold at MPC meetings in
November 2016 and January 2017, I considered voting for
loosening the monetary policy stance to ensure that monetary
policy is consistent and credible: an expansion in money supply
should always be followed by reduction in the MPR and vice
versa. However, voting to hold is based on the consensus to work
out a clear path to price stability conducive to growth which is the
goal of MPC consistent with its mandate.

The path requires a cap on money supply, a resolution of the
“AMCON liquidity” problem, a reduction in “mop-up liquidity” and
end to monetization of the crude export income as well as
moderation of “FAAC effects” on the stability of Call rate and
OBB. A rules-based option to money supply growth and indeed to
exchange rate determination is compatible with a rules-based
fiscal policy envisaged in the Fiscal Responsibility Act of 2007. I
remain “convinced that a cap on the growth of money supply
would free monetary policy to be more effective. It would help to
limit the costly mop-ups that generate excessive rise in interest
rates, create new liquidity proportionate to the interest rate,
reduce the pressures on the domestic and international value of
the Naira and minimize the negative effects of exchange rate
volatility on real activities and on financial system stability.
I am also convinced of a need to harness and put to effective use
the best Nigerian minds and talents in the analysis of national and
global political economy from a diverse set of perspectives and
skills sets to arrive at the best dynamic strategic context for
macroeconomic management in Nigeria compatible with our
national aspirations.

6. NNANNA, OKWU JOSEPH
Macroeconomic developments in 2016 and during the first quarter
of 2017 were generally fragile. In Nigeria, the fragility was caused
by both external and internal economic headwinds, of which the
decline in commodity price, fiscal drag and foreign exchange
illiquidity were the major contributing factors.
Global growth was revised upwards by the International Monetary
Fund (IMF), from 3.1 percent in 2016 to 3.4 percent in 2017; despite
the downside risks of Brexit uncertainties and the USA protectionist
policy stance.
Overall, it is expected that the global economy will, all things
being equal, leverage on the anticipated near-term fiscal stimulus
in the advanced market economies and the marginal recovery in
commodity prices. However, global growth was projected to
remain largely asymmetrical in the short-term in the advanced,
emerging and frontier economies in 2017.
At the home front, macroeconomic development has started
showing positive signs, as the deep decline in output growth of -
2.24 percent in Quarter Three has slightly improved to -1.30
percent in Quarter Four of 2016. Similarly, inflation has also
declined to 17.8 percent, in February 2017, from 18.72 percent in
January.
Fiscal surprises have continued to undermine the effectiveness of
monetary policy, to wit, the economy is yet to witness an effective

coordination of fiscal, monetary and structural policies that will
drive sustainable non-inflationary growth.
Empirical studies have confirmed that the pass through effect of
exchange rate depreciation on domestic price level is very severe
and disproportionate. Consequently, the need to bring stability in
the foreign exchange market cannot be overemphasized. The FX
market is in need of liquidity, while a call for fiscal consolidation
may not be politically appealing during the period of deep
recession, nevertheless, monetary financing of the twin deficits, will
not produce the desired quick fix; in the absence of
complimentary structural reforms and targeted expenditure
aimed at addressing the palpable infrastructure deficits. We are
optimistic that the Nigerian economy shall surely rebound with
proper coordination of fiscal, monetary and structural policies, in
2017.

Conclusion
Against this backdrop, I voted to:
1) Retain the MPR at 14.0 percent
2) Retain the CRR at 22.5 percent
3) Retain the Liquidity Ratio at 30 percent and,
4) Retain the asymmetric corridor at +200 and -500 basis points
around the MPR

7. SALAMI, ADEDOYIN
This meeting comes in the wake of publication of our national
Economic Recovery and Growth Plan (ERGP) and on the eve of
publication of the IMF‟s report in respect of its Article IV
Consultation earlier in the year. This meeting was preceded by a
retreat at which MPC members and other stakeholders reflected
on the possible role of Monetary Policy in resolving challenges
facing the Nigerian economy.
At the end of the meeting, I voted in a minority to raise interest
rates. In voting as I did, I am clear in mind that it is time to tighten
Monetary Policy. The following reasons which I will discuss shortly
inform my view: (i) loose policy which we had pursued had
yielded only higher prices and shrinking output; (ii) the adverse
impact of inflation on the most vulnerable should not continue to
be ignored; (iii) the threshold beyond which rising prices lead to
shrinking output has been exceeded.
Ahead of discussing the reasons which guided my vote, it is
pertinent to emphasise the attention which the MPC, in its
communique, drew to the declining resilience of the Banking
Sector. I have in many of my personal statements expressed
unease about the Banking Sector. The Report provided by Bank
Staff at this meeting did little to assuage my unease. NonPerforming Loan Ratio (NPL) which had dropped from 13.24 per
cent in Sept., 2016 to 12.80 per cent in December 2016 rose to
13.59 per cent in February 2017. This, as we know significantly

exceed the regulatory maximum of 5 per cent. Whilst Bank Staff
assure that when adjustment is made for „3 Outlier Banks‟ the size
of NPL ratio drops to 7.45 per cent, I remain unease especially
when anecdotal evidence suggests that the figures provided by
the banks are likely to be understatements and we also note that
this is an industry with extensive customer overlaps which heighten
adverse network or contagion possibilities.
Returning to my vote, my assertion that the stance of Monetary
Policy
had
eased
considerably
may
appear
to
be
counterintuitive. After all, the MPC tightened monetary policy by
raising the Monetary Policy Rate (MPR), on two occasions, from 11
per cent in November 2015 to 14 per cent in July 2016 where it has
remained since. As I have noted in a previous MPC Statement,
despite higher MPR, transactions liquidity or the narrow definition
of Money Supply (M1) rose from N6.9trn to N11.3trn in the same
period even though output growth was rapidly weakening.
The seeming satisfaction with slower rate of price increase needs,
in my opinion, to be tempered with a dose of caution. Yes the
data shows that adjusting for seasonality, overall inflation in Feb.
slowed to 17.78 per cent compare with 18.72 per cent and 18.55
per cent in January 2017 and December 2016 respectively. The
slowdown in February being the 1st in more than a year! Better still,
like aggregate inflation, Core inflation also slowed to 16.01 per
cent from 17.87 per cent in the previous month, Food inflation
however continued to rise. In Feb., 2017, food prices rose by 18.53
when compare with the same period in the previous year.

Inflation data however requires reflective interpretation. The
improvements signalled by seasonally adjusted inflation are
disputed by data which shows that between January and
February, prices increased by 1.49 per cent – the highest such rise
between two months since June 2016. Some would argue, with
justification, that recent developments – measured by the monthon-month values – deserve greater attention. Indeed, by this
measure, all three measures of inflation – aggregate, core and
food - continue to increase sharply. What we are seeing in the
year-on-year data is the impact of base effects. Left unattended,
the month-on-month data already points to heightened inflation
in 2018!!
Staff forecasts also don‟t provide much room for comfort. Whilst
the 6mth ahead forecast show Core inflation declining to 12.8 per
cent in August 2017, both aggregate and food inflation will remain
above 16 per cent.
While Economics is clear that low-to-moderate inflation can and
does stimulate output, it is just as unambiguous that there exists a
level, different across countries, beyond which inflation is harmful
to output. When inflation adversely affects production, its effect is
felt in the form of rising unemployment. For Nigeria, various studies
have sought to establish the threshold beyond which rising
inflation adversely affects output. The most recent exercise with
which I am familiar was undertaken by Dr. Sanni Doguwa,
previously of the Central Bank of Nigeria, in 2012. He estimates that

beyond 12 per cent, the effect of inflation serves to reduce
output. We are clearly beyond this threshold.
For me, inflation, at these levels, continues to worsen socioeconomic conditions as it erodes the value of income especially
for the vulnerable. The N18,000 minimum wage announced in the
run-up to the 2011 General Election, is now worth N9,000 when
adjusted for the impact of inflation. Real families and people, least
able to protect themselves, continue to be impoverished by rising
inflation. In other words, by undermining purchasing power of
income, rising prices emasculates and kills the dreams of fellow
citizens. Given the need for social cohesion, this challenge to
moderate inflation is not to be ignored.
Based on the foregoing, I cast my vote to tighten monetary policy
by increasing interest rates and hoping that colleagues on the
management of the Central Bank will resist pressure to continue to
expand liquidity as has happened in the recent past.

8. UCHE, CHIBUIKE U
During the MPC meeting, it was refreshing to note that inflation
had started to inch slowly downwards. Although this is cheering
news, I still think that we are not out of the woods yet. My position
is in part based on the fact that the 2017 budget is yet to be
passed. Government‟s current fiscal policies have also further
complicated the problem.

Government borrowing to supplement dwindling oil rents, has
continued unabated. What is however less clear is whether
indeed these new loans are being applied to develop productive
assets and from which cash flows such debts will be repaid in
future. The result is that the sustainability of Nigeria‟s mounting
debts is increasingly being questioned. The growing agitation for
salary increases across the entire country can only help to
complicate the above scenario. It is also obvious that the
contentious issue of petroleum subsidy reform is yet to be laid to
rest. It is a shame that we seem to have learnt nothing from history.

Equally troubling is the diverse impact of the current economic
recession on the various sectors of our economy. In this direction,
the banking sector has consistently been of concern to MPC.
Banks are important because not only do they play an important
role in the diverse sectors of our economy, they are, if well
regulated, also a good barometer for measuring the general
health of our economy. This is because banks are primarily

financial intermediaries that intermediate between surplus and
deficit units of the economy. The health of the banking sector, at
least in the long run, is usually entwined with the health of the
entire economy.

Given the current economic situation in the country, it is perhaps
not surprising that there is need for the CBN to continue to closely
monitor these banks. The fact that the NPL ratio for the Nigerian
banking system is already above the threshold of 5 percent and
rising in my view limits the choices MPC can boldly make. It is for
instance, difficult for MPC to recommend monetary policy
tightening at the present stage. This is because such a move will
impact negatively on our fragile banking system.

The impact of any such increase to the manufacturing sector will
also be negative. Admittedly, high interest rates is only one of the
numerous challenges the sector is facing. Without addressing our
country‟s huge infrastructure deficit, governance challenges,
multiple taxation and inconsistent industrial policies, the terrain
ahead for our industrial sector will remain difficult.

I am also aware that the dwindling oil revenues has also put the
CBN under pressure to shore up its reserves. A popular argument is
that such reserves will be needed to protect the value of our
currency. A tempting but dangerous strategy for achieving the
above objective is to raise MPR so as to make our country more

competitive in its bid to attract foreign portfolio flows. Like in every
coin, financial flows have two sides: inflows and outflows. While
inflows can help ameliorate foreign exchange difficulties in the
short
run,
one
must
think
about
the
foreign
exchange
denominated cash flows that will help facilitate the outflows
(which will include interests). It is because of the above that I have
always advocated that at our stage of development, we should
only allow foreign capital inflows that are tied to productive
assets. Unless we do this, we will simply be encouraging the inflow
of speculative capital. Our shallow capital and money market
make us an excellent destination for such speculative capital.

The reality is that we cannot be able to defend the value of our
currency in any sustainable manner if we continue to depend on
oil rents. Unfortunately, I am not convinced that there is a credible
plan in place to change our oil rent dependence trajectory. It
appears, in my opinion, that hoping for a return to the high oil
price days has been prioritized over the need to strategically
diversify our mono product oil rent economy.

Based on the above multiple problems and misplaced priorities,
one can fully understand the pressure on the management of the
CBN to intervene in diverse sectors of our national economy
including paying salaries on behalf government entities some of
which are very poorly run and lack financial transparency. The
reality however is that there is little the CBN can do in the above

direction without either contravening the legal instrument that
established it or flouting national appropriation rules or sabotaging
its own balance sheet. Perhaps more dangerous is the fact that
the action of the CBN can actually undermine its monetary policy
role and weaken the efficacy of its monetary policy tools. It is
therefore, in my humble opinion, prudent for the CBN to do all
within its power to resist any pressure to intervene in diverse sectors
of our economy.

Another CBN practice that I find troubling is the continued
existence of multiple exchange rates. While I appreciate the
argument that such practice are historically not new in Nigeria, it is
however important for us to realize that it is an abnormal and
destructive practice. We should therefore do all in our power to
eliminate it.
In conclusion, I strongly urge the CBN management and the fiscal
authorities to rethink the above issues raised. This will greatly help
to improve the efficacy of monetary policy in Nigeria.

I therefore vote as follows:

(i) To retain the MPR at 14.00 per cent; (ii) To retain the CRR at22.50
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. YAHAYA, SHEHU
I vote to maintain the current monetary stance due to the reasons
provided below
Developments in the Global Economy
The effects of the new Trump government are still unfolding on the
world economic and financial system. GDP growth rate in the US
has slowed down in Q4 2016 to 1.9%, bringing GDP annual growth
rate for 2016 to 1.6% as compared to 2.6% in 2015 and 3.5% in Q3
2016. There were also slight declines in output growth rates in UK,
China, India, France and Japan. Growth in Sub-Saharan Africa fell
to less than half the level for 2015. Overall, the world economy
grew at 3.1%, slightly lower than 2015.
Expectations are that growth will pick up a bit in 2017, especially
with prospects for a higher growth rate in the US due to
announced economic and infrastructure programs and due to
the expected tightening of monetary policy which is likely to
attract substantial investments. On the other hand, the multilateral
system is being weakened; trade protectionism is being promoted
and competitiveness undermined, especially considering, in
addition to the pronouncements of President Trump, the
statement of the G20 to withdraw full commitment to antiprotectionist measures. These factors may have the opposite
effect of undermining growth prospects in the global economy.

Early signs in the first quarter of this year seem to indicate that
inflationary pressures in the global economy are likely to be higher
than for 2016: The US, EU and UK may experience higher
inflationary levels than their policy objectives.
With respect to oil prices: the prospects are more likely to go in the
direction of price weakening in 2017, mainly due to relatively
lower global growth, possibility of higher output from Iran and
Libya and higher stock levels. The rising levels of shale oil
production in the US may also put OPEC production cut
agreements under considerable pressure.
Considering the above, global demand for Nigeria‟s exports,
including petroleum exports, may be uncertain, while prospects
for imported inflation are higher than for 2016. This calls for greater
efforts to be made with respect to policy creativity, better
medium and long term planning
The Domestic Economy
It would seem to appear that the current recession is slowly
bottoming out. GDP fell by 1.3% in Q4 2016 (as compared to a
decline of 2.24% in Q3 2016), bringing the annual figure for 2016 to
-1.5%. Many sectors still recorded negative growth rates. There was
a substantial decline in the output of Petroleum and Natural gas
of 12.4%. Manufacturing, construction, services, trade and the
non-oil sector all experienced negative growth rates. The rate of
decline was moderated by a significant increase in agricultural
production of 4%, mainly led by crop production. Solid minerals,

finance and insurance and Information & Communication had
positive growth rates and helped to moderate the rate of GDP
decline in Q4.
In 2017, there are prospects of gradual recovery as Q1 output of
Petroleum and natural gas is likely to experience some recovery,
while the policy support being provided to crop production, if
accompanied by favourable weather conditions, is likely to
facilitate continued growth in agriculture sector output, which
accounts for about one quarter of GDP.
A big step has been taken by the government to develop the
much awaited medium term plan in the form of the Economic
Recovery
and
Growth
Program
2017-2020.
Despite
some
limitations to the plan and the delay in developing it, and despite
the fact that a coherent implementation strategy is yet to be
articulated, it is still an important positive step and provides a
broad framework within which monetary policy can be situated.
For the first time in more than one year, headline inflation slightly
declined, year on year to 17.78% in February 2016 (from 18.72% in
January). Core inflation contributed relatively more to the
deceleration in CPI, especially imported food, processed food,
clothing and footwear, housing, electricity and transport.
However, food prices have gone up, year on year, despite the
increase in food crop output. This may be due to seasonal factors.
There is an important wrinkle in the story however. The year-onyear fall in CPI is largely attributable to the base effect as the

current inflationary pressure had commenced in February 2016.
Month-on month, the CPI rose by 1.49% in February 2017 as
compared to January 2016, an increase which is even higher than
that of January 2017 over December 2016. Food inflation rose in
February, mainly due to the inflationary effect of farm produce.
Core inflation, month-on-month also rose. This indicates that the
challenge of inflationary pressure is still potent.
The foreign exchange market was also characterized by a
number of positive developments. The value of the Naira at the
inter-bank market has remained stable. External reserves also
increased significantly to over USD30 billion, a level last achieved
in Q4 2014. With the recent injections of dollar liquidity into the
forex market by the CBN and the re-admission of some categories
of demand into the inter-bank market, the inter-bank/parallel
market rates premium have narrowed significantly. This should
have a positive pass-through to help reduce inflationary pressure
in the coming months.
Macro-environmental pressures on the financial sector are still
significant. Capital adequacy, liquidity and non-performing loans
for the DMBs have all deteriorated. Nevertheless, ROE and ROA
have improved as compared to Q4 2016. Total assets and
deposits have been fairly resilient, while credit supply has
increased by around 2.3% over the last year, even after taking into
account the effects of Naira depreciation. The main challenges
that need to be addressed by the DMBs relate to loan
concentration and NPLs. The monetary authorities are taking the

necessary steps to ensure that the challenges are being
adequately addressed to keep the financial sector healthy.
Although the 2017 budget has not yet been approved, the
government has reiterated its intention to pursue an expansionary
fiscal program. This is also encapsulated in the Economic
Recovery and Growth Program. While this should help to reflate
the economy, it will also contribute to expansion of money supply
and put pressure on price levels. The monetary authorities
obviously need to pay attention to this issue.
Conclusion and Recommendations
As discussed above, there are a number of challenges on the
Nigerian economy emanating from developments in the global
economy. Due to the tepid growth rates in most of the major
trading partners of the country, there is little to expect in terms of
increased demand for Nigerian exports. The prospects for
normalization of monetary policy in the US threatens to choke off
foreign portfolio investments to emerging and developing markets
and complicate the task of maintaining stability in the foreign
exchange market. Prices appear to be moving upwards in
Europe, US and UK, raising the possibility of some imported
inflation. Yet, oil price recovery may be undermined by increased
output and stocks. Everything therefore needs to be done to
stabilize or increase production in the country in order to
moderate the possible effects of weak international oil prices.

Price developments in the Nigerian economy will appear to
support a policy of monetary tightening. This is because, despite
the slight dip in the CPI in February, the rate of inflation is still too
high- impacting negatively on real incomes, undermining growth
efforts and business confidence. In addition, month on month
prices are still rising.
However, this is not the right direction to take at this time. The
inflationary pressure is essentially emanating from four sources-
structural (such as infrastructure deficits); policy induced (such as
reduction or elimination of subsidies on petroleum price, increase
in electricity tariffs); Naira depreciation pass-through effect; and,
liquidity in the economy.
Structural and policy induced sources are the purview of the fiscal
authorities. The exchange rate issue is being tackled by the
monetary authorities through the injection of dollars into the
market- which is already succeeding in reducing the margin
between the inter-bank and parallel markets. It would be
important to find a way of stabilising the supply of foreign
exchange and maintaining a robust level of reserves in the face of
challenges to the price of oil. It would be necessary to manage
the demand for foreign exchange so as to facilitate access for
uses which will enhance and support the growth and job creation
strategy, since it would be extremely difficult to provide unfettered
access to everybody in such an import-dependent economy and
yet maintain exchange rate stability. Excess liquidity in the
economy can be curtailed through better management of ways

and means advances and rationalizing interventions. We also
support various schemes aimed at providing incentives, through
the creative use of Cash Reserve Requirements, to DMBs to give
greater support to the more productive sectors of the economy in
line with the extant medium term plan. These are the areas to
which the efforts to control inflationary pressures should be
directed, which can have a much bigger impact than raising the
MPR, and yet be able to support the growth impetus.
On the other hand, much as loosening monetary policy may
appear to help support growth, it is also not the right thing to do.
The
reasons
have
been
adequately
explained
in
the
Communique from the MPC meeting and it is not necessary to
repeat them here. What is important is to build on the positive
collaboration between the monetary and fiscal authorities which
has been promoted at the highest level in the last week, maintain
constant communication, interaction and collaboration so that
the twin objectives of equitable growth and financial stability can
be attained.
I therefore vote to maintain the current policy stance with respect
to the MPR, corridors, liquidity ratios and CRR, while some
additional thinking is being undertaken to find an optimum way of
deploying the CRR in such a way as to provide an incentive for
DMBs to lend a larger proportion of their portfolio to sectors that
are critical to growth, employment generation and improved
productivity.

10.
EMEFIELE, I. GODWIN, GOVERNOR OF THE CENTRAL BANK OF
NIGERIA AND CHAIRMAN, MONETARY POLICY COMMITTEE
I note with some reassurance the benign developments in the
Nigerian economy as GDP growth, though still negative, seemed
to have turned the corner during the last quarter of 2016 while
inflation, which remained high at double digit, slowed somewhat
in February 2017. In the same vein, the ongoing tapering premium
between the interbank and the BDC exchange rates, which
started within the last few weeks, is indeed heartening. Barring
any further adverse global shocks, and if the recent rallying
continues into the future, we expect the prevailing inclement
domestic economic conditions to dissipate within the short-term.
However, global macroeconomic outlook remained hazy in the
near- to short-term, with escalating uncertainties and elevated
risks. Whereas global output growth accelerated by 0.2
percentage points to 2.7 percent in 2016q4 vis-à-vis 2016q3, the
changing
political
dynamics
underlined
by
increased
protectionism, populism and distrust threatens the prospect of a
full global recovery. These, in conjunction with volatile commodity
prices and divergent monetary policy among key advanced
economies, are heightening financial market vulnerabilities
especially in emerging markets and developing economies.
Recent data indicate a softening of crude oil prices as Bonny
light dropped from US$57.2 per barrel on 21st February 2017 to
US$50.7 per barrel as at 21st March 2017. This has implications for

inflows into the fiscal treasury and the FX reserves even as the
Nigerian economy remains set to exit the recession in 2017. On
domestic output, the 1.3 percent contraction in GDP in 2016q4
relative to the 2.1 percent and 2.2 percent contractions in the
preceding two quarters is a turning point somewhat indicative of
an impending rebound. With overall GDP growth at -1.5 percent
for the entire 2016 vis-à-vis the 2.8 percent recorded in 2015, the
agriculture GDP exhibited the strongest outturn with a growth rate
of 4.1 percent in 2016 from 3.7 percent in 2015. Accordingly, the
Nigerian economy remains on track to grow by 0.8 percent in
2017 and 2.3 percent in 2018 as projected by the IMF. In
furtherance, the Nigerian Government, in its newly released
Economic Recovery and Growth Plan (ERGP), projects enhanced
growth rate of 7 percent by 2020. To insulate Nigeria‟s recovery
plan from emerging global dynamics, it remains imperative that
the ERGP is assiduously implemented.
I reiterate once again that Nigeria‟s economic challenges are
essentially driven by 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, which are largely structural
and exogenous to monetary policy, permeate the trajectory of
domestic prices. Consequently, inflation rate, at double digit,
continued to be high and outside the CBN‟s tolerance range.
Available data on domestic prices indicate a high but slightly

moderated inflation outcome as the rate slowed from 18.7
percent in January 2017 to 17.8 percent in February 2017; the first
decline in 15 months. A breakdown indicates that, during the
same period, core inflation declined by 1.9 percentage points to
16.0 percent while food inflation ascended 0.7 percentage points
to 18.5 percent.
The recent inflationary trend, though largely structural, is
reinforced by the outcomes of monetary aggregates. Broad
money supply (M2) shrank by 5.7 percent in February 2017 away
from the 10.3 percent expansion targeted for 2017. This was
underpinned by the contraction in net domestic credit, which
decreased by 1.4 percent as against the programmed growth of
17.9 percent. Accordingly, the relative tight condition reflected in
money market interest rates which rose from 6.3 percent as at 25
January 2017 to 13.1 percent by 28 February 2017.
Against the backdrop of the foregoing, I note that the Nigerian
economy may already be on the course of recovery, though
much still needs to be done. I am staunchly of the stance that
macroeconomic policies should not just concentrate on shortterm goals of overcoming the current challenges; but should
rather be instituted to correct the structural imbalances that
undermined the resilience of the economy. In this regards, the
outlook of the ERGP is a step in the right direction. The monetary
policy committee and indeed the CBN will continue to ensure
that policy decisions are delicately balanced to support

Government‟s growth objectives without jeopardising price
stability.
I note in this respect the need for increased credit to strategic
private sector ventures. In my previous statements, I asserted the
imperativeness of ensuring that critical funding is directed to
labour-intensive high employment elastic real sector ventures. This
is because the marginal benefit of an extra fund will generate
more employment in this sector than in others. With the high
marginal propensity to consume in Nigeria, the extra income due
to the increased employment will boost domestic demand,
support aggregate supply and quicken our exiting the prevailing
recession. I therefore continue to enjoin banks to provide credits
to strategic real sector activities.
With respect to decisions at this MPC, I recognise the constraint
within which we operate. We will nonetheless continue to pursue
our price stability mandate with a renewed vigour at ensuring
exchange rate stability. Although the heartening outcomes of
GDP growth and inflation rates as well as the narrowing of the
interbank-BDC exchange rate premium could be considered as
arguments for easing the monetary stance. Yet, the fact that
these metrics remain outside acceptable levels provides reasons
for further tightening. In our decisions, we must position ourselves
to
brace
impending
global
shocks
both
politically
(as
protectionism and anti-globalisation rhetoric increase) and
economically (as the US Fed is poised for another rate hike).

Conjointly with the volatile crude oil price, these will affect FX
inflows to the country. We must not only mitigate these risks, our
decisions must also not distort the wide-ranging recovery of the
Nigerian economy.
In consideration of both global and domestic developments, and
given that the effects of the past policy decisions are still
unfolding, it is my view that the current position is maintained.
Decisions to adjust any of the policy variables might just be too
soon and may destabilise the traverse of economic recovery.
Such adjustment, at this time, will be impulsive, detrimental and
will lead to indeterminate outcomes.
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