Central Bank of Nigeria (CBN) Communiqué No. 100 of
the Monetary Policy Committee Meeting of Monday
23rd and Tuesday 24th March, 2015


The Monetary Policy Committee (MPC) met on 23rd and 24th March,
2015, against the backdrop of harsh external economic environment
and significant risks in the domestic economy. In attendance were
eleven (11) out of the twelve (12) members, including Dr. O. J.
Nnanna, who assumed duty as Deputy Governor (Financial System
Stability) at the end of January 2015. The Committee analyzed key
developments in the global and domestic economic and financial
conditions as well as the outlook for the rest of 2015.
International Economic Developments
The Committee noted that the pace of global economic recovery
had remained moderate and uneven. In particular, the Committee
noted that lower commodity prices were weighing heavily on output

growth, especially in the oil exporting countries. In addition,
expectations of a rise in US short-term interest rates continue to fuel
capital outflows and currency weaknesses in the emerging markets
and developing countries. Against the backdrop of sustained
weakness in the Euro zone and softening growth in the emerging
markets, global output has remained largely tapered.
During the first quarter of 2015, the United States led the global
impetus to output growth as consumer demand strengthened on the
heels of falling oil prices, lower US oil imports and accommodative
monetary policy. In contrast, in the Euro area, continued output
decline, in the face of positive oil price shocks, made the European
Central Bank (ECB) to introduce a massive €1.1 trillion asset purchase
programme, commencing in March 2015, involving a €60 billion
monthly asset purchase. The programme, although open-ended, is
expected to last at least until September 2016 by which time inflation
may have gained reasonable traction.
The Committee, however, noted a number of important downside
risks to global outlook in 2015 including geopolitical tensions and

conflicts; the negative impact of commodity price declines; weak
external demand and the possibility of Monetary Policy normalization
in the US. Growth could, however, remain subdued in most of the
Euro Area and Japan, in the short-to-medium term. Growth in the
emerging
markets
may
exhibit
wide
variations
with
sharp
deceleration in most of the large emerging market economies,
especially in Latin America and Eastern Europe, due to the
headwinds from softening commodity prices and slowdown in
external demand from the advanced economies. In addition,
country specific risks, such as political crisis, structural factors,
adverse weather conditions, and large swings in currencies may
continue to slow aggregate demand in a number of countries.
Global inflation continues to be low due to declining oil prices and
continuing slack in global output. Core inflation has continued to
sag due amongst other things to the dampening effect of low oil
prices and lack of appreciable wage gains. Average inflation for the
developed economies is projected to remain flat at 1.5 per cent in
2015 due to the increasing output gap, weak recovery, and strong

regional currencies. This development appears to be offsetting the
risk of imported inflation in the emerging and developing countries,
most of which have experienced moderate to severe depreciation
in their local currencies. Developing economies are thus expected
to have moderate inflation in the medium term.
The Committee observed that the outlook for global monetary
policy suggested a predominantly easy stance. The Euro Area and
Japan are expected to remain in the accommodative mode. Even
in countries where growth appears to be strengthening like the US,
UK and Canada, there are indications of delayed switch to tight
monetary policy stance. Owing to currency concerns, however, the
Committee further noted that some emerging and developing
economies may experience moderate tightening in the short to
medium term. Growth in sub-Saharan Africa is projected to average
4.9 per cent in 2015.

Domestic Economic and Financial Development
Output
The National Bureau of Statistics (NBS) estimated real Gross Domestic
Product (GDP) growth rate at 5.94 per cent in Q4 of 2014 lower than
the 6.77 per cent recorded in the corresponding period of 2013 and
the 6.23 per cent recorded in Q3 2014. The Committee noted that
the slowdown in growth resulted mainly from the non-oil sector,
which grew by 6.44 per cent in Q4, 2014 compared with 8.78 per
cent in Q3 2014. Agriculture, industry, construction, trade and
services contributed, 0.89, 1.30, 3.64, 0.87 and 2.45 percentage
points, compared with 1.21, 1.04, 0.36, 1.08 and 2.53 percentage
points, respectively, in Q3 2014. The softening non-oil GDP was partly
traced to the spill over effects of low oil prices which negatively
impacted agricultural output, trade and services.

Oil-GDP on the other hand, grew by 1.18 per cent in Q4, 2014
compared with a decline of 3.60 per cent in the preceding quarter.
The growth in oil-GDP is particularly noteworthy because it came at

a time when the sector was experiencing external negative price
shocks.

Prices
Headline inflation remained within the 6.0—9.0 per cent band
established by the CBN. However, the Committee noted with
concern, the gradual increase in the year on year headline inflation
during the first two months of the year from 8.0 per cent in
December 2014 to 8.2 per cent in January and further to 8.4 per cent
in February 2015. The underlying inflationary pressures came largely
from food (particularly imported food) and the core components.
Food inflation rose from 9.2 per cent in December 2014 to 9.4 per
cent in February 2015 while core inflation increased from 6.2 to 7.0
per cent during the same period. The major risks to inflation, the
Committee noted, include elevated aggregate spending in the runup to the 2015 general elections, the likely higher import prices on
the strength of an appreciating dollar and possible food supply

shocks linked to insurgency and insecurity in some major agricultural
zones of the country.
Monetary, Credit and Financial Markets’ Developments
Broad money supply (M2) declined by 1.70 per cent in February 2014
over the level at end-December 2014. This translated to an
annualized decline of 10.23 per cent compared with the provisional
growth benchmark of 15.24 for fiscal 2015. The decline in M2 primarily
reflected the contraction of 18.14 and 8.22 per cent in net foreign
assets (NFA) and other assets (net), respectively, during the period.
The fall in NFA is attributed to the combined effects of weakening oil
price and reversal of portfolio capital flows. During the period, net
domestic credit (NDC) grew by 9.89 per cent in February 2015,
annualized to a growth rate of 59.31 per cent, compared with a
growth rate 7.89 per cent recorded in the corresponding period of
2014 and an indicative benchmark of 29.3 per cent for 2015. The
credit-to-government (net) component grew sharply by 54.69 per
cent relative to a decline of 21.81per cent at end-December 2014.

The Committee noted that money market interest rates were
relatively volatile in the intervening period but stabilized on average
during the first two months of 2015, as banking system liquidity
fluctuated. Thus, average inter-bank call and OBB rates, which
opened at 10.58 and 10.52 per cent on 5th and 6th January 2015,
closed at 11.00 and 9.23 per cent, respectively, on February 27, 2015.
Average inter-bank call and OBB rates for the period were 15.21 and
18.36 per cent, respectively.
The Committee observed that the bearish conditions in the capital
market continued in the review period. The All-Share Index (ASI)
decreased by 13.1 per cent from 34,657.15 at end-December 2014
to 30,103.81 by February 27, 2015. Market capitalization also moved
in the same direction, falling by 12.5 per cent from N11.48 trillion to
N10.04 trillion during the period. The Committee noted that the
situation, though reflecting current trends globally, needed to be
monitored closely.

External Sector Developments
Following the closure of the Retail Dutch Auction System (rDAS)
window of the foreign exchange market on 18th February 2015, the
foreign exchange market is now unified. Consequently, the naira
exchange rate opened at N180.1/US$ and closed at N198.0/US$,
with a daily average rate of N198.0/US$. This represented a
depreciation of N17.9k or 9.04 per cent for the period.

Considerations
The Committee expressed satisfaction with the impact of the
decisions taken to harmonise the foreign exchange market. As a
consequence of those actions, the interbank exchange rate has
stabilized after an initial adjustment. The Committee, however,
expressed concern about the wide divergence between the
interbank and the bureau-de-change exchange rates, which
provides an avenue for arbitrage and speculative activities in the
market. The Committee noted with concern the phenomenon of
currency substitution and partial dollarization in the economy, a
development which may have significantly fuelled the high demand

for foreign exchange. The Committee, therefore, reiterated that the
naira remained the currency of transaction in the economy and
advised the Bank to take all possible measures to address this
development. The Committee also expressed concern about the
outlook for growth, which had moderated partly due to the effects
of low oil prices, naira exchange rate depreciation, and electionrelated concerns. The Committee was however, optimistic that the
situation would improve once elections were successfully conducted
with the expected improvement in business confidence.
The Committee took note that while adverse developments in
international oil prices had affected government revenues and
reserves accretion and impacted negatively on capital flows, the
financial system remained stable with key banking stability indicators
showing robustness. In the light of this, the Committee directed the
Bank to take all necessary measures to improve the resilience of the
financial system as well as the overall economic environment and
functioning of the financial markets.

The Committee also took note of the administrative measures
implemented by the Bank since the last meeting of the MPC to
achieve stability in the foreign exchange market. The Bank had on
18th February 2015 taken the bold supply management measures to
close the official window of the foreign exchange market in order to
create transparency and minimize arbitrage opportunities in the
foreign exchange market. Furthermore, to deepen the market and
enhance the efficacy of the demand management measures, the
Bank gave specific directives on the effective monitoring and
repatriation of both oil and non-oil export proceeds. In addition, the
utilization of export proceeds has been restricted to eligible
transactions only, to minimize leakages. The Committee enjoined the
Bank to continue to fine-tune demand management measures as
well as implement appropriate supply-enhancing strategies to
ensure effective demand and utilization of foreign exchange in the
country.
The Committee noted the gradual rise in headline inflation, driven
mainly by exchange rate-induced high prices of imported

(processed) food and output supply shocks. However, the
Committee was of the view that the prevailing tight monetary policy
stance and some of the recent administrative measures would
among others help to lock-in inflation expectations and further
stabilize the naira exchange rate.
Decision
In the light of the above considerations, the Committee observed
that its previous decisions needed time for their effects to fully
permeate the economy and therefore, voted to maintain the
current position. Consequently, the Committee decided as follows:
All eleven members unanimously voted to retain the MPR at 13 per
cent; retain the CRR on Private Sector deposits at 20 per cent; retain
CRR on Public Sector deposits at 75 per cent; and retain the liquidity
ratio at 30 per cent.

I thank you all for Listening

Godwin I. Emefiele, CON
Governor
Central Bank of Nigeria

24th March, 2015

PERSONAL STATEMENTS BY MEMBERS OF THE MONETARY
POLICY COMMITTEE

1.0 ADELABU, ADEBAYO

Current
macroeconomic
outcomes
reveal
intensification
of
vulnerability to adverse global and domestic conditions. GDP growth
rate at 5.9 per cent in 2014 Q4 represents the continuation of
slowdown that commenced in 2013 Q4. The IMF has downgraded
GDP growth to 4.8 per cent in 2015, the lowest in the last five years. It
is a little bit comforting that all measures of inflation remained within
the single digit band by end-February 2015, but significant underlying
pressures are mounting, based on acceleration in both core and
food components since January 2015. Developments in the financial
market were more worrisome. Considerable spikes were observed in
the money markets with both the interbank and OBB rates veering
outside the MPR corridor between February and March 2015.
Similarly, the exchange rate at both the interbank and the Bureau
de Change segments witnessed considerable depreciation during
the period.

The medium term outlook is fraught with a number of risk factors. The
continuous slide in the price of crude oil is a major source of concern
in light of the effect on fiscal revenue and external reserves. I am of
the view that the fall in crude oil price is yet to bottom out giving the
rising level of stocks in the US, slowdown in demand in the wake of
economic weakness in the euro area and leading emerging
economies such as China, and the prospect of nuclear deal that
could lift sanction off Iran. The external sector is further undermined
by the likelihood of monetary policy normalization in the US and the
attendant retrenchment of capital flow. It is generally expected
that the effect of the US interest hikes on emerging and developing
economies could be offset by the commencement of additional
US€1.1 trillion monetary stimulus by the European Central Bank (ECB)
but my view is that the economy should be less dependent on
portfolio flows given the numerous long term adverse effects to
developing economies.
The creeping headline inflation, driven mainly by food component, is
a major concern. The trend is suggesting that the threshold of 9 per

cent could be exceeded in the next couple of months with the
attendant credibility issue about monetary policy process. Detailed
analysis revealed that the underlying pressure was from both farm
produce and processed food, indicating switching of consumers to
importation in order to fill supply gap from domestic sources. This,
invariably, suggests the need to effectively manage exchange rate
over the medium term in order to moderate the pass through effect.
Besides, the effect of the recent exchange rate alignment on
domestic price is yet to fully crystallize. The long term effect which
relates to replacement of stock and machine may take quite a while
to manifest. Besides, payments of salaries and wages have recently
suffered acute setback in a number of states, suggesting that
aggregate demand has been relatively suppressed. In addition,
election related expenses and the rising electricity tariffs are
potential headwinds that could accelerate inflation in the medium
term. In essence, significant underlying inflationary pressure still exists
in the horizon.

The wide divergence between the interbank and bureau de
change rates gives cause for concern. The attendant arbitrage and
rent seeking opportunities would continue to fuel speculative
demand and heighten currency substitution and dollarization which
are
becoming
serious
issue
in
domestic
monetary
policy.
Furthermore, low oil prices and the appreciation of the dollar present
specific threats to financial market stability. Like most comparator
countries, the naira has depreciated significantly in the last one
quarter. Following this development, the economy has recorded
sustained net outflow, which size appears to be growing. This is also
showing in the capital market where key indices have lost significant
value. Year to date, the All-Share Index and Market Capitalization
have declined by 15.4% and 14.7%, respectively.
Overall, the pressures on the naira exchange rate and consumer
prices suggest keeping the stance of monetary policy tight.
Therefore, the policy options facing the MPC at this March meeting
appears to be either retention of the current tight stance or further
tightening.

Given the fact that some of the measures taken in the last two
meetings have not completely worked through the system, I would
vote for retention of current measures of monetary policy.

2.0 ALADE, SARAH O.

Headline inflation edged up to 8.4 in February from 8.2 percent
recorded in January. Growth has been downgraded from an earlier
projection of 5 percent to 4.8 percent for 2015 according to the IMF
Article IV report. On the global scene, while outlook remains positive,
threat of geopolitical tension poses great challenge to growth in
2015. The United States is showing strong signs of recovery on the
back of stronger consumer spending, an uptick in new home
building and improved unemployment figures. In the emerging
market economies, growth remains moderate as oil prices
recovered some of the ground lost in February, providing some
cushion for oil producing countries. These developments suggest that
monetary policy requires a delicate balance and caution in

managing both domestic and global events; therefore I will support
a hold on Monetary Policy Rate and Cash Reserve Requirement.
Headline inflation edged up to 8.4 percent in February reflecting a
combination of the currency devaluation and seasonal effect as all
categories of prices increased during the period. Headline inflation
edged up to 8.4 percent in 2015, from 8.2 percent recorded in
January. Core inflation increased to 7 percent from 6.8 percent
recorded in January, while food inflation rose to 9.4 percent from 9.2
percent in the previous month. These suggest the pass-through
effect of Naira devaluation on prices. Even with this increase, all
major inflation index, headline, core and food inflation still remain
within single digit. However, the increase should be monitored to
ensure that inflationary pressure is contained, although staff
projection suggests a benign outlook in inflation in the coming
months, but cautioned on inflation reaching double digits by the
end of the year. Therefore, in the short to medium term inflationary
pressure is not a major concern but should be monitored.

The pace of Gross Domestic Product (GDP) growth will be affected
by lower international oil price. The declining oil price and the
negative impact on government revenue poses downside risk for
domestic GDP growth in 2015 as growth has been downgraded to
from 5 percent to 4.8 percent according to the IMF. This is because
revenue measures to mitigate the negative impact of oil price
decline will include cutting back on growth-enhancing capital
expenditures and instituting austerity measures, including increase in
VAT tax rate. These developments suggest that both global events
and domestic challenges pose huge challenge to growth in the
coming months. Policies should be mindful of the impact of the
fallout of decline of government revenue on growth and
development, and therefore, efforts at economic diversification
should be intensified.
The Naira exchange rate is stabilizing on the back of CBN action to
unify the exchange rate market. The Central Bank’s action that
closed the rDAS CBN window and channeled all foreign exchange
demand to interbank market has done a lot in stabilizing the Naira

exchange rate. This has unified the foreign exchange market and
reduced arbitrage opportunities. Exchange rate which reached
above N200 has now stabilized at below N199 on average as
pressure has abated.
Global growth has remained moderate and uneven. While the USA is
experiencing
increased
growth
and
winding
down
its
accommodative monetary policy stance, the euro area is
commencing its accommodative monetary policy stance. In some
oil exporting countries, lower oil prices continued to drive increased
consumer spending and higher growth. However, for most
commodity exporting countries, low commodity prices are having
adverse effect on revenue and output growth. In addition, the
expectation of rise in short term interest rate by the Federal Reserve
in the United States is fueling capital outflow and currency
weaknesses in emerging market economies. These developments
are having a dampening effect on global growth. Under these
uncertain conditions, monetary policy should be focused at restoring

confidence in the domestic economy, stabilizing foreign exchange
and conserving reserve.
Against this background, I vote for no change in Monetary Policy
Rate at 13 percent, Private Sector Cash Reserve Requirement (CRR)
at 20 percent, Public Sector Cash Reserve Requirement (CRR) at 75
percent and Liquidity Ratio at 30 percent to address both growth
and stability concerns.

3.0 BALAMI, DAHIRU HASSAN

Global Outlook
At the global level mixed signals do exist among Nigeria’s trading
partners- there is divergence in the rate of growth and recovery
being positive in the United States of America, however, the
opposite in the Euro-zone and Japan such that the US is recovering
but Euro zone (1.5 growth rate only) and Japan are not. Monetary
divergence will broaden between the Feds impending hikes versus
low rates and quantitative easing in Europe and Japan. China’s

growth rate is estimated to be 1.8% averaging 7.2% for the year 2014;
however, the economy is estimated to grow at 7% in 2015.
There is divergence of interest rate in Europe and United States of
America. Further fall in oil price exporting countries and low price for
non-oil commodities like iron ore.

At the global level the major challenges include the following:
political uncertainty associated with elections in Greece and her
debt rescheduling, the war against ISIS in Syria, Iraq, and Libya and
reaction of countries like Egypt and Turkey, the increasing tension in
Ukraine. The implication of the global outlook on the Nigerian
economy is significant:

-The level of inflation has been low in most oil importing
countries.

The consequence of lower oil price will depend on the level
and the time it last. It will have the following:

(i) Dropping of Nigeria’s external reserve due to the drop in
crude oil revenue. This has translated into weak external
buffers and fiscal vulnerabilities which have cause a wide
budget deficit in most oil exporting countries.
(ii) Depreciation of the Naira against the international counter
parts currencies
(ii) The impact on foreign exchange reserve and import
financing channel because Nigeria is highly dependent
on foreign exchange that is most entirely on oil that in turn
finances imports.
-The plunge in oil price is reflected in inflationary pressure
thereby reducing consumer purchasing power’
-Jetting out of “hot money” inform of capital outflows.

Domestic Economy
The growth rate in the economy is estimated at 6.2% in the year
2014. However, it is expected that the growth rate in the economy is

likely to be slightly below 5.4% due to the various challenges
affecting the economy in 2015.

The following are the domestic challenges to the economy in 2015:
- Falling crude oil prices
- Continued depreciation of the Naira due to pressure from
N168 to N198, closure of the rDAS and the wDAS by Friday
27/2/2015. The interbank rate is N202.72 and N226at the BDC
- Election period in 2015 and the shifting of the date from
14/2/2015 to 28/3/2015.
- Insecurity in the North east region of Nigeria( Borno,
Adamawa, Yobe, and of recent Gombe)
- Increasing political pressure, fear and uncertainty
- Increasing attack on oil and gas facilities
- Increasing gap between lending rate (28%) and Deposit rate
(7%).
- Increasing level of non- performing loans

- Depletion in the level of external reserve from December 19
2014, $35.13 billion to $32.3 billion on19th February due to:
drop in crude oil revenue; depreciation of the naira against
international counter- part; the CBN has used large of chunk
to safe guard the value of the naira in various intervention
programmes;
and
increased
funding
of
the
foreign
exchange.

The CPI which measures inflation rose to 8.2 & (year on year) 0, 2%
point from 8% recorded in December 2014 and 7-9 recorded in
November. Headline inflation is heading upwards in the last three
months.

The Naira is suffering from structural risks, plunging of oil prices and
currency wars.

All ratios on the banking sector showed that the Capital Adequacy
Ratio, Levels of liquidity, Profitability and asset quality remained

satisfactory. This is a clear indication that Nigerian banks are sound
and resilient despite the headwinds.

Total banking industry impaired loans or non-performing loans (NPL)
increased by 16.3% to N400.57 billion in August 2014 from N344.2
billion in August 2013 of which 66.84% or N267.74 billion in loan loss
provision had been made by banks at the review period.

Using the Capital Adequacy Ratio, the Liquidity Ratio, profitability
and Quality of asset test shows that all banks have met the
prudential minimum requirement of 30% liquidity ratio as at August
2014.

Taking the current situation into consideration in the economy, I vote
to hold as follows:

Retain the MPR at 13%.

Maintain a symmetric corridor of +/-200 basis points around the
MPR.
Retain the CRR on private sector deposits at 20.oo percent.
Retain the public sector CRR at 75.o percent.

4.0 BARAU, SULEIMAN
Introduction
I voted to hold policy actions during the previous MPC meeting on
the basis of the fact that the response to developments in the
financial markets needed to be strategic rather than tactical. I have
today also voted to maintain my position i.e. that MPC current
decisions should be maintained.

Review of Key Developments
GDP Growth Rate
GDP growth rate of 6.22% in 2014 was robust. However, there are
signs that the growth is slowing down with 2015 growth estimated at
5.44%. Real GDP was 5.9% in Q4 2014 compared to 6.2% in Q3.

Growth continued to be driven by non-oil sectors which were
estimated at 6.4%. The drivers of non-oil GDP are crop production,
trade, textile, apparel/footwear and real estate sectors.
Inflation
Headline Inflation (YoY) trended marginally upward from 8.2% in
January to 8.4% in February. Headline Inflation, consistent with
outlook, assumed an upward trajectory. Core Inflation (YoY) also
rose from 6.8% in January to 7.0% in February. Food Inflation
increased from 9.2% to 9.4% in January and February respectively.
Imported Inflation also increased from 8.4% to 8.9% respectively
during the same periods.
Foreign Reserves
The reduction in oil price coupled with aggravated demand for
foreign exchange in the last few months, has led to a decline in the
level of our foreign reserves. Foreign Reserves level is currently at
approximately $30 billion compared with $32 billion as at the end of
February. Other significant factors that influenced the level of

foreign reserves included reversal of foreign portfolio flows,
speculative demand, and external developments particularly in the
USA.
Exchange Rate
The closure of the rDAS window on February 18, was no doubt a
major positive decision taken to enable future efforts to be targeted
at intervention in the Interbank market. The combination of
sustained increase in demand for foreign exchange, the reduction
of supply due to the decline in oil receipts and the ultimate closure
of the rDAS window, drove the Interbank rate to close at N197/USD
on March 20, a depreciation of 8.52%, year to date. The element of
speculative demand largely pushed demand to a record level of
$9.13 billion as at March 15, reporting date, compared to $6.9 billion
during corresponding period in February, leading to the reduction in
the level of foreign reserves. However, the radical measures taken by
the CBN has brought stability to the interbank market with the rate
stabilizing at N196 – N199/USD band.

Liquidity
Liquidity in the banking system, at 39%, continued to be healthy. In
spite of the sustained demand for foreign exchange in the interbank
market, my view is that industry liquidity levels could not possibly be a
source of concern for policy at the moment. With Capital
Adequacy Ratio at 15.95%, Return on Equity at 24.98% and Return on
Assets at 2.29%, the banking industry remains well capitalized, liquid
and profitable inspite of external shocks and the impact of various
tightening measures taken by the MPC.
Global Scene
Global recovery remains fragile. Global GDP is forecast to be 3.5% in
2015, compared to 3.3% recorded in 2014. In the advanced
economies, strong recovery has only been witnessed in the USA with
Europe and Japan still struggling. Forecast growth for the advanced
economies is 2.4% in 2015 indicating that global growth will be
proppelled by stronger growth from the Emerging and Developing
Economies. The forecast growth for Emerging Economies in 2015 is
4.3%, with forecast for the Sub-Saharan Africa of 4.8% for 2015,

significantly influencing that. As a consequence of the slower than
expected recovery, the European Central Bank recently launched a
sovereign bonds purchase programme in order to elicit a faster
recovery. The recent strengthening of the US dollar against other
currencies and the decline in crude oil price below $60 per barrel for
the UK Brent Futures will no doubt positively impact on growth of
some economies. Lower oil price during review period has also
impacted global inflation.

Outlook and Pressure Points
Low oil price continued to impact negatively on revenues,
foreign reserves and exchange rate. With Brent Crude Futures
trading at $58.40/barrel (27/3/15), we have witnessed some
strengthening of price in the last few days from the lower $50
per barrel. However, the domestic fiscal space will continue to
come under pressure until the needed adjustment in
expenditure to reflect revenue realities, are done.

Reduced inflow from monetization of oil receipts will continue
to put pressure on the level of foreign reserves. Various
measures adopted by the CBN have kept the reserves at about
$30 billion. The measure in place will continue to elicit stability.
Exchange Rate: The closure of the rDAS window on February
18, 2015 following the huge arbitrage window created by the
wide and growing premium between rDAS and Interbank rates
at that time is no doubt unprecedented. The containment of
the ensuing depreciation in the interbank exchange rate is also
unprecedented. The pent up demand for foreign exchange
that we witnessed since the collapse of oil price was largely
speculative and was supposedly due to the liquidity in the
system and uncertainty created by the impending March 2015
elections. Exchange rate management is still a potential
pressure point in spite of the current stability, given uncertainties
in crude oil price. This calls for the sustenance of the measures
taken by the MPC and CBN that brought the current stability.

Inflation: There exist upside risk to inflation according to staff
estimates. Headline inflation is expected to accelerate due to
acceleration
in
Food
Inflation
and
Exchange
Rate
depreciation. The Core Measure is also expected to
accelerate due to the heightened political activities, among
other factors, while the Food Inflation measure will be
influenced by anticipated rainfall challenges and Imported
Inflation.

Conclusion
In spite of reviewed developments and outlook, I’m of the firm
view that we should keep policy measures where they are at the
moment for the following reasons;
Consistent with my earlier position, I believe that the space
for tactical prescription of policy measures is currently
limited;
That our prescriptions must be strategic for us to be
effective. We need to look critically at issues of liquidity

management including the determination of the level of
liquidity and what impacts on it. We need to also put in
place measures to contain the level and swings in system
liquidity particularly relating to the implementation of the
Treasury Single Account, FAAC disbursements and how to
use Open Market Operations to contain them. Various
measures have been taken to bring stability in exchange
rate and level of reserves but any long term solution to
pressure points coming from these two areas must seek to
De-dollarize the Nigerian economy.
There is currently substantial stability. There is also the
commitment on the part of the CBN to maintain stability in
foreign reserves and exchange rate. There is no imminent
risk that can threaten this commitment.
On the external scene, it is unlikely that the Fed will increase
short term interest rate earlier than June or at least before
the May MPC. In addition, oil prices have been above
$50/barrel and indeed have been trending towards

$60/barrel in the last few days. In addition, the most mobile
segments of our foreign portfolio clients have already
streamed out.
The level of banking system liquidity is optimum. We must
therefore look for other measures to contain pressure points
without impacting negatively on financial stability.

Recommendations
It is in view of the foregoing that I voted to maintain;
MPR at 13%
Private Sector CRR at 20%
Public Sector CRR at 75%
Symmetric Corridor at minus and plus 2% around the MPR for
SDF and SLF respectively.

5.0 DANIEL-NWAOBIA, ANASTASIA

The global economy continues to face the risk of deflation as
international oil prices remain well below June 2014 prices.
Developed economies have recorded mixed performances but
inflation is significantly lower than the target of most monetary
authorities. The current situation indicates that a substantial output
gap still exists across several developed and emerging economies
even though unemployment rate in the US has maintained a
downward trend in recent months. Nigeria is not benefitting from the
global decline in inflation as we are a commodity exporter and the
recent depreciation in the exchange rate has further increased the
likelihood of an inflation pass-through from the price of imported
consumer goods.

The Nigerian economy is expected to continue on its growth path as
the year progresses, albeit with less robustness than it did in 2014. The
NBS projected GDP growth rate of 5.5 per cent for 2015 as against
6.3 per cent in 2014. The relatively tepid growth outlook is based

largely on the bearish crude oil markets. Nevertheless, continuous
implementation of the economic reforms through the Federal
Government transformation agenda is expected to continue to
stabilize and support various growth activities. The continued
implementation of the power sector reform, especially, given the
recent liquidity injection into the sector by the CBN, as well as bullish
investors’ sentiments in the sector is expected to improve power
generation and distribution, a very potent economic growth driver.

Inflation performance remains encouraging at single digit since
January, 2013, confirming the effectiveness of sustained tight
monetary policy of the Bank. However, the year-on-year headline
inflation rose from 8.0 per cent in December, 2014 to 8.2 and 8.4 per
cent per cent in January and February 2015, respectively. Staff
projections also indicate gradual increase in the inflation rate over
the short to medium term, driven largely by acceleration in food
inflation; depreciation of the exchange rate; and to a certain extent,
election spending. The capital reversals, low international oil price
and other related risks have imposed considerable pressure on the

exchange rate with the likelihood of significant pass through to
domestic inflation. The Bank should therefore collaborate with the
Federal Ministry of Agriculture and Rural Development to implement
policies and programs that would boost local production of food
crops in order to contain the expected increase in food inflation.

The exchange rate market remains weak due largely to weak
infusion of foreign currencies into the market as a result of the official
foreign echange window closure. Nevertheless, the Naira is
expected to stabilize in the near term as foreign exchange demand
pressure is managed through the appropriate intervention of the
Bank whenever deemed appropriate.

Developments in the international oil market in recent time witnessed
continuing decline in the price of Bonny Light crude and other crude
oil prices. This is largely attributed to the observed increase in the
level of output by the U.S. as a result of the shale boom, OPEC’s
continuous refusal to cut production and the weakening demand of
crude oil from major economies, especially, China. These have led to

the significant fall in global oil prices and pose a threat to the growth
of oil revenue in Nigeria, especially in the medium to long term.
Government drive to accelerate the diversification of the economy
is beginning to yield fruit, such as the spike in tax revenue. The
continuous support through intervention programmes to the real
sector by the Government is also crucial to the diversification effort.

The key challenges to monetary policy currently include: managing
inflation and exchange rate expectations; building of fiscal buffers to
insure against global shocks; managing capital flow reversal; and
safeguarding financial system stability.

In view of the above developments and the policy response by the
CBN which has engendered some level of stability in the macroeconomy, it is advisable to sustain the current tight monetary policy
stance of the Bank. This will help to consolidate the relative stability
achieved thus far.

Consequently, I vote as follows:

(i) The Monetary Policy Rate (MPR) to be retained at the current
level of 13% and corridor of +/- 2% for the inter-meeting
period.
(ii) The Private sector CRR should also be retained at 20 per cent,
given the current banking system liquidity profile. The policy
relating to 75% CRR on public sector deposits should also be
sustained in order to discourage banks’ reliance on such
deposits.
(iii)
The liquidity ratio should be retained at 30 per cent.

6.0 GARBA, ABDUL-GANIYU

I cast a holding vote for the set of policies decided at the January
2015 meeting of the MPC. My key reason for holding is that it is not
strategic just four days before a defining election to make any
strategic or policy changes. Therefore, the best short term option in
my view is to hold, watch the markets and prepare for the medium
to long term.

In taking my decision, I took due account of (1) vulnerabilities in the
real economy (slowing growth, rising unemployment, the massive
supply shock and rising inflation); (2) fiscal vulnerabilities (negative
effects of oil price shocks on revenue, fiscal deficits and rising public
debts and servicing costs); (3) changes in ratings of the economy;
(4) the closure of the RDAS window and its implications for the
exchange rate corridor; (5) the breaches of the interest rate corridor
after November MPC and (6) the fundamental changes in policy
framework.
The first three are medium to long term issues. The closure of the
RDAS window a key factor in the sustenance, deepening and
widening of the ‘’Bernanke effects’’ in Nigeria has eliminated the
“arbitrage gap” between the RDAS and Interbank market Naira/US$
exchange rates that promoted collusion, currency substitution,
speculation, arbitrage and volatility in demand and rates. It is not
surprising that the combination of the closure of the RDAS window
(to promote entry through the door of the Inter-bank market) and
appropriate administrative actions have helped to stabilize the

interbank rate. Much could still be achieved through administrative
actions in the short run. It has become imperative to support market
functioning in the foreign exchange market by shutting down the
remaining subsidy window: the ‘’Bureau De Change subsidy’’. The
continuing subsidy of the BDC cannot be justified on the grounds of
efficiency or equity. The proliferation of BDCs mirrors the proliferation
of petrol stations in the PMS subsidy game. Both types of proliferation
undermine efficient allocation of resources by promoting rent
seeking behaviours. It is obvious that the interbank-BDC rate spread
is not driven by market fundamentals or the needs for efficient
allocation of forex to real sector activities. It is simply part of the
games of rent seeking and appropriation.
Thinking medium to long term, a comprehensive strategic framework
for monetary policy, financial system stability and operations is
imperative. For one, the goal post has shifted and the contexts of the
relevant games have changed. The closure of the RDAS windows
has effectively closed the ‘’exchange rate corridor’’. In the postNovember 2014 MPC set of decisions, the ceiling of the interest rate

corridor has suffered sustained and significant breaches. In addition,
(1) the money multiplier has fallen from its peak level of 3.9 in 2010:09
when the tightening regime began to just 1.06 in 2015:02 and (2) the
rate of currency substitution has progressed very fast from 14.2% in
2010:09 to about 30% in 2015:02. With 30% of M2 in Foreign Currency
Deposits (FDC) and with the shrinking of M1 from its most recent peak
of 7.42 Trillion Naira in 2012:12 to about 6.05 Trillion Naira in 2015:02, it
is clear that informal dollarization has become a danger to policy
effectiveness and to stability (financial and macroeconomic).
The ‘’effective closure of the exchange rate corridor’’ and the
sustained breaching of the ceiling of the interest rate corridor imply
that a major shift from the ‘’two corridor’’ monetary framework that
hitherto prevailed has taken place since the last MPC meeting. The
implications of this change and of the two additional structural
changes (collapse of the money multiplier and growth in informal
dollarization) must be fully understood as part of a new strategic
framework for monetary policy. I have no doubts that a new
comprehensive strategic framework for monetary policy in Nigeria is

long overdue and further delay is not in the best interest of the
economy. I am also convinced that in the challenges that face the
Nigerian
economy
lay
opportunities
for
restoring
the
two
cooperative legs of macroeconomic policy and complementing
them with the twin policies for financial system stability (macroprudential policy and micro-prudential policy).

7.0 NNANNA, O. JOSEPH

Against the backdrop of strong external headwind, characterized
by sluggish global economy and policy uncertainties in the
advanced and emerging market economies; macroeconomic
conditions in Nigeria was relatively stable in the period under review.
Specifically, on the domestic front, developments in the real sector
(inflation, product and labor markets) were subdued; while
developments in the foreign exchange market were volatile.
Overall, sluggish non-oil sector performance and weak global oil
market remains a challenge for monetary policy. The latest data
from the National Bureau of Statistics ( NBS), revealed a lower GDP

growth rate of 5.94 per cent in the 4th quarter of 2014, vis-à-vis 6.77
percent in the corresponding period of 2013 and 6.23 percent in the
3rd quarter in 2014. The MPC attributed the decline in domestic
output and the observed marginal increases in inflation to the weak
performance of the non-oil sector and the spill-over effects of the
weak global oil market
Though, high and inclusive growth is desirable, but not at the
expense of price stability, especially, as creeping inflation threatens
macroeconomic stability in the near term. To be sure, the uptick in
Headline inflation from 8.0 percent in Q4 2014 to 8.4 percent by endFebruary 2015, although, marginal in absolute terms, still represents a
threat to the hard won macroeconomic stability which the economy
had witnessed in the past. Consequently, the need to rein-in inflation
expectations by pursuing a mix of appropriate demand and supply
management policy measures cannot be over emphasized. With
the national elections coming to close, additional measures in the
near term are needed to mop-up the excess/ incipient liquidity
which might have found its way into the system during the run-up to

the national elections is advised. While achieving high output and
inclusive growth remains a key policy priority, nevertheless, this
cannot be pursued at the cost of price stability. In the circumstance,
I believe that staying the course of maintaining current policy stance
and watching the trend completely unfold in the near term remains
the best option to adopt.
The closure of rDas window will reduce speculative demand in the
Forex market and mitigate the dollarization of the economy. The
Closure
of
rDas
window
by
the
monetary
authorities
is
commendable. Indeed, it represents a bold and appropriate policy
action aimed at addressing the challenges of multiple currency
practice in the economy and curbing the problem of rent- seeking
and arbitrage in the forex market. Going forward, the naira
exchange rate will be determined by the forces of demand and
supply in the inter-bank forex market, with the Central Bank
intervening periodically as the need arises. With the elimination of
the rDas Window, the naira exchange rate trend has been generally
stable against the US dollar. This recent development is in sharp

contrast with the development preceding the closure of the
Window. The speculative demand and dollarization of the economy
which commenced with the tapering of FDI inflows, dwindling crude
oil receipts and heightened political campaign activities seem to
have reduced appreciably. But uncertainties remain.
External Reserves and fiscal buffers are envisaged to be rebuilt as oil
prices gradually stabilize and fiscal adjustments are sustained. Due
to the decline in oil prices and foreign portfolio investment outflows
in recent months, external reserves declined from $32.36billion in
January to $29.88 billion in March 2015. The oil price slump from
$111.70 (US/b) in August, 2013 to $48.47 in January 2015, has been
the major push factor for the decline in reserves and weak fiscal
buffers. Notwithstanding, there has been a recent gradual recovery
in oil price which has inched above $55 bb as at March 20, 2015. It is
expected that supply glut and weak demand that characterize
current international oil market will gradually abet as crude oil futures
have shown significant signs of recovery in the past few weeks.

The decline in revenue as a result of declining oil prices has induced
fiscal readjustment in government 2015 Appropriation Bill. Such
readjustments are expected to boost the rebuilding of fiscal buffers
in the near future, while prioritizing government expenditure to avoid
waste. However, sustained decline in government revenues suggest
that fiscal deficits may widen and government might resort to
borrowing in the domestic money market. The implication will be a
hike in interest rates that might crowd out private sector borrowing.
Against this backdrop, fiscal and monetary policy coordination
becomes a top most priority in the near term.
Developments in monetary aggregates do not suggest a tight
liquidity condition in the banking system and therefore, monetary
easing may be premature and time inconsistent. Aggregate credit
(net) to the economy declined from 10.97 percent in December
2014 to 7.12 percent in January 2015 representing a decline of 3.85
percent (month- on- Month). Aggregate money supply (M2) also
declined from 7.29 in December 2014 to -0.13 percent in January
2015 owing to contraction of 18.14 and 8.22 per cent in Net Foreign

Assets (NFA) and other assets (net) respectively, in the period under
review. While there is a reasonable decline in M2, M1 grew by 1.70
percent due mainly to the rise in currency and demand deposits in
the DMBs. There is no conclusive evidence from provisional monetary
aggregates to suggest that liquidity crunch is a major problem to
warrant monetary easing. Therefore, in my opinion current monetary
policy stance should be maintained, until the demand pressure in
the forex market abets.
Against the foregoing, I, hereby, vote to maintain the status quo and
urge the use of moral suasion and forward guidance to calm the
markets, until the pre- election jitters subsides. I believe that
maintaining the current monetary policy stance will allow current
measures run its course. We should avoid the adoption of time
inconsistent measures.
8.0 UCHE, CHIBUIKE U

In my opinion, the March 2015 MPC meeting was a very difficult one.
This was perhaps because, it brought to the fore the fact that there
are indeed limits with respect to what monetary policy can achieve

especially under our peculiar economic conditions. With concurrent
decline in crude oil prices and foreign reserve, pressure on the Naira
exchange rate, rising inflation, increasing trade imbalances as well
as increasing capital outflows, it has indeed become very clear that
total economic restructuring is an urgent imperative. This will enable
monetary policy to retain its potency as a tool for influencing macroeconomic stability which is a necessary condition for the attainment
of sustainable economic development.
For instance, in recent times we have seen the value of the Naira
depreciate significantly. Unfortunately, the pressures for further
depreciation have not yet abated. The fiscal consequences of the
ongoing national elections will no doubt add fodder to the above
pressures. Although it is natural for some, especially those who
believe that macroeconomic stability is an end in itself, to expect
further tightening of money supply, this is clearly not feasible under
the current circumstances. This is because any move in this direction
at the present time is likely to endanger the health and stability of
the Nigerian banking system. It will also negatively affect the ability

of banks to fund the real sector of our economy which is critical, if
our mono-product economy is to be successfully diversified.
What the current position tends to suggest is that monetary policy
successes in Nigeria, in the past, may have been influenced more by
good fortune (i.e. high oil prices) rather than the nature and
effectiveness of the various monetary policy tools employed. This is
the stark reality of our mono-product economy. In order to make
monetary policy effective therefore, we must begin to explore ways
of using monetary policy to reverse the mono-product nature of our
economy.
An important area of concern that needs rethinking at the present
time is the issue of capital account liberalization. I have consistently
argued that capital account liberalization is most unsuitable for our
type of economy that is heavily dependent on a single rent product.
Capital account liberalization has simply increased the exposure of
the Nigerian economy to the vagaries of the economic policies in
developed economies. For example, excess capital emanating from
such economies which sometimes result from deliberate money

expansion (quantitative easing) policies in such economies find the
Nigerian economy as a profitable temporary home. When such
expansionist policies are tapered, such excess capital are also
withdrawn, without notice (and without penalty).
Although such capital inflows may have in the past helped sustain
the value of our currency, the fact remains that such capital are
unpredictable and therefore destructive to long term planning. It
also distorts the operations of both the money and capital markets in
the country. The fact that most of the foreign capital have now
gone and our reserve is now at a dangerously low level, in my view,
provides an excellent opportunity for us to reset the rules for
welcoming such foreign capital in the future. We can, for instance,
with the use of taxation on capital flows, discourage speculative
capital and encourage long term capital investments in the real
sectors of our economy. Bluntly put, any capital that is incapable of
contributing to the productive base of our economy should not be
encouraged.

Another way of using monetary policy to grow the real sector of our
economy is to adopt policies that will help reduce the interest rates
on loans and advances. In the light of the increasing inflationary
pressures, advocating for a reduction in the Monetary Policy Rate at
the present time will be unproductive. The widening gap between
deposit and lending rates, however, provide us with some room for
manoeuver. In this direction, there is need for us to redouble our
efforts in encouraging banks to curtail this widening gap. One way of
doing this will be to put in place economic incentives that will
encourage banks to reduce their interest rate spread.
Irrespective of what we do with respect to monetary policy, the fact
remains that without fiscal policy compliment, there is not much that
can be achieved in our country. Although the falling oil price is
making the fiscal space more complicated, I believe that there is still
room for improvement. One area that can be easily improved upon
is the reduction of wastages in government finances which is as a
result of poor financial management. By far the greatest single
example of this is the absence of the Treasury Single Account (TSA).

The consequence of the above is that because of the incentive of
corruption, government parastatals keep huge amounts in bank
accounts earning little or no interests while at the same time
borrowing from such banks at double digit market interest rates.
Although Government has for over a decade been stating and
restating its commitment to the TSA, this has not yet been actualized.
It was in the attempt to force the adoption of the TSA that the MPC
introduced the discriminatory Cash Reserve Ratio (CRR) on public
sector deposits. I am aware that this policy is increasingly being
criticized even within the MPC. Such criticisms, in my view, are
erroneous. Although it is true that most countries do not apply
discriminatory CRR, it is also true that imposing CRR on government
deposits is an anomaly. If such monies are in the Central Bank, where
it should be, this clearly will not arise. Ensuring that all the accounts of
government and its agencies are maintained with the Central Bank,
which is the position of the law, is therefore a more sustainable way
of addressing the concerns over discriminatory CRR.

In the light of the above factors and concerns, I hereby vote as
follows: (1) to retain MPR at 13 percent with interest rate corridor of +
200/- 200 basis points; (2) to retain CRR on private sector deposits at
20 percent; (3) to retain CRR on public sector deposits at 75 percent;
and (4) to retain Liquidity Ratio at 30 percent.

9.0 YAHAYA, SHEHU

I vote to maintain the current monetary stance: MPR at 13%, along
with the symmetric corridor of +/-2%; CRR for public sector deposits
at 75%; CRR for private sector deposits at 20%. The reasons for my
position are outlined below.
Global Economy
Growth in global GDP in 2014 is still about the same as in 2013;
growth in the OECD countries is slowly recovering, with US leading
the way. Overall growth in developing countries and in Africa is
lower than it had been in 2013.

Global prices, already low, are trending further downwards,
particularly in the Euro area, where deflation is a palpable threat. In
addition to oil prices, prices of many minerals, metals and food are
also trending downwards.
One significant development is the introduction of quantitative
easing in the Euro area, which is expected to run until September
2016. By keeping interest rates very low, the Euro area QE may help
offset to some extent the effects of anticipated interest rate
increases in the US on portfolio investments, reserves and exchange
rates in developing countries.
Oil prices are not showing any reliable signs of recovery, especially
considering the extremely high levels of storage in the US and global
gluts.
Domestic Economy
The
macro-economy
of
Nigeria
is
still
dominated
by
the
developments in the foreign exchange market, given the 16%
depreciation in the value of the Naira in the first two months of 2015

alone, under pressure from the oil price fall, portfolio reverse flows,
falling reserve levels (currently at US$29.8 billion), the increasing use
of the dollar as a store of value and the uncertainties surrounding the
elections in March and April.
The Naira depreciation is beginning to exert an upward pressure on
price levels. Headline inflation has risen to 8.4% in February 2015 year
on year, driven mainly by prices of imported food (exchange rate
pass through). Forecasts also indicated the likelihood of further prices
increases up to the end of 2015. On the other hand, if oil prices
remain stable and the uncertainties and speculations associated
with the elections dissipate, this may stabilize the exchange rate and
therefore remove any further exchange-rate induced pressures on
domestic price levels
GDP growth at 6.22% in 2014 is higher than 2013. Nevertheless, GDP
growth rate has shown a downward trend for the last three quarters
of 2014, and is projected to slow down to between 4.8% and 5.4% in
2015. Again, the non-oil sector is expected to be the main growth
engine.

The Fiscal Sector
Government spending has been restrained during 2014, resulting in a
budget deficit of less than 1.2% of GDP on federal government
actual fiscal activities. Given the drastic fall in government revenues,
government expenditure and fiscal balance in 2015 will depend
crucially on the evolution of oil prices and output, as well as the
exchange rate. It is clear though, that the government will be
challenged
to
maintain
a
low
deficit/GDP
ratio
in
these
circumstances, especially considering that credit to the government
from the banking sector has already shown a 55.41% increase in the
one-month period up to mid-January 2015. If recurrent expenditure
will be a challenge this year, capital expenditure will be an even
bigger challenge. Concerted efforts must therefore be made by the
fiscal authorities, with the support of monetary authorities to maintain
a healthy level of capital investment in the economy in order to
maintain growth and job creation.
The inter-bank and OBB rates have stabilized after a huge spike and
profitability of the banking system has improved. Given the pressure

on the macro-economy, it is essential that necessary attention be
paid to ensure that monetary policies serve to strengthen rather than
undermine the relative stability of the sector with respect to liquidity,
capital adequacy. Some attention should also be paid to sectoral
lending de-concentration in the sector.
Conclusion
The outcome of the elections is obviously the most significant short
term issue affecting many of the macro-economic variables,
including the exchange rate. The trend in price levels is not clear as
there are credible possibilities of both a rise in price levels and a
post-election stabilization. CRR on private sector and public sector
deposits is already high. Other instruments such as OMIO are being
diligently applied by the CBN to stem liquidity-which is showing a
downward trend within the banking sector. A number of
administrative measures are being deployed by the Central Bank to
address speculative activity and other distortions in the foreign
exchange market, while the effects of the elimination of the WDAS
are still unfolding.

In the light of these considerations, I vote to maintain the current
monetary stance.

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

The global macroeconomy continued to be driven by strong
undercurrents
from
significantly
cheaper
commodity
prices,
pervasive geo-political tensions, growing threats to financial markets
in the aftermath of the continued economic sanctions led by the
United States on Russia for its alleged role in the ongoing Ukrainian
conflict, and the effect of the potential monetary policy
normalisation in the US on emerging markets. Although global
growth prospect in the near-term was broadly revised upward, the
outlook indicates modest pace rather than an accelerated
recovery, which remains lopsided across countries and regions. I
note that whereas lower commodity prices have led to cheaper
energy, reduced costs for firms, enlarged real disposable incomes,
and brightened outlook for many OECD countries, it weighed

adversely on real growth and growth prospect of commodity
exporting countries including Brazil and Canada.
In the United States, the economy has been significantly boosted by
strengthened consumer demand on the heels of falling oil prices,
lower US oil imports and accommodative monetary policy. In the
Euro area, the threat of deflation and stunted growth remain in the
horizon, although favourable tailwinds from positive oil price shocks
and massive monetary policy easing are expected to boost overall
outlook in the region. Consequently, the 22 January 2015
announcement by European Central Bank (ECB) of an open-ended
€1.1 billion quantitative easing programme (QEP) is expected to
mildly boost consumer prices and avert a deflation.
I note that global growth continues to be constrained by a number
of
old
and
new
adversities
including
the
aforementioned
undercurrents as well as deteriorating debt and unemployment
profiles in a number of countries. While the favourable commodity
price shocks provides an opportunity for the Euro area and Japan to
recover, such rebound will at best be modest with a real possibility

that growth will remain fragile or subdued in the medium term.
Among emerging markets, growth prospect appear muted
particularly following continued sharp corrections in financial
markets in response to the end of the US QEP, softening commodity
prices and weak demand from advanced economies. Growth
prospect in sub-Saharan Africa remain moderate over the short-term
with average growth projected at 4.9 percent in 2015.
On consumer prices, I note that global inflation continued to
decelerate and remained below target in major advanced
economies. This is essentially due to the reduction in energy prices,
negligible nominal wage rise and weak demand. Among advanced
economies, average rate of inflation is projected to remain perilously
below 2 percent; thus, counterweighing the adverse pass-through
from depreciating currencies in many emerging and developing
countries. In a bid to prop up inflation and strengthen local demand,
major advanced economies are either easing monetary policy or
deferring decisions to tighten policy stance. However, central banks
in emerging market and developing economies may tighten

monetary policy, albeit subtly, in order to assuage emergent
currency concerns.
In Nigeria, data from the National Bureau of Statistics (NBS) indicated
that the economy expanded by 6.2 percent in 2014, although the
quarterly growth rate decelerated 29 basis points from 6.2 percent in
the third quarter to 5.9 in the fourth quarter of 2014. This was due
essentially to the performance of the non-oil sector which sloweddown from 8.8 percent in the third quarter of 2014 to 6.4 percent in
the fourth quarter. More specifically, diminished non-oil expansion is
attributable to the strong headwinds and the adverse spill-over
effects of slipping oil prices on agriculture, trade and services subsectors. Despite tumbling crude oil prices, oil GDP rebounded in the
fourth quarter with a growth of 1.2 percent after a 3.6 percent
contraction in quarter three.
Although inflation rate edged up in February but remained within the
Bank’s single-digit target range of 6.0—9.0 percent. While this single
digit outcome is welcome, the upward trend noticeable in the last
few months is indeed concerning. NBS data indicates a gradual

increase of consumer prices from a growth rate of 8.0 percent in
December 2014 to 8.2 percent in January and further to 8.4 percent
in
February
2015.
This
reflected
the
strengthening
pressure
predominantly from core components of consumer prices and
complemented by imported food prices. Driven by the latent passthrough from a stronger US dollar, delayed rainfall and disruptive
effects of prolonged insurgency in important agricultural zones, food
inflation ascended to 9.4 percent in February 2015 from 9.2 percent
recorded at the end of 2014. Core consumer prices, however,
accelerated from the 6.2 percent in December 2104 to 6.8 percent
and 7.0 percent, respectively, in the first two months of the year. I
note that while decelerating global inflation and the threat of
deflation, especially in key advanced economies, mitigate risks of
imported inflation due from strengthening US dollar, the major upside
risks in the near term are domestic. This includes the amplified
spending ahead of the 2015 general elections and the persistent
insurgence in key agricultural zones.

On domestic monetary and financial development, I note the
relative tight conditions in the market. Liquidity measured by broad
money supply (M2), in February 2015, contracted by 1.7 percent
over the end-2014 level, implying an annualized shrinkage of 10.2
percent vis-à-vis the target expansion rate of 15.2 percent in 2015.
This contraction was driven largely by the 18.1 percent decline in net
foreign assets—due to the dwindling oil receipts and portfolio
reversals—and the 8.2 percent fall in other assets (net). These
declines more than offset the 9.9 percent expansion net domestic
credit, the annualized growth of which at 59.3 percent surpassed the
2015 benchmark of 29.3 percent. Fundamentally, the increase in
domestic credit was supported by the 54.7 percent rise in credit to
government. The tight monetary stance resulted in intermittent surge
in some market interest rate during the period. However, market
rates remained relatively stable in the January and February 2015.
Average interbank call and the OBB rates in the first two months
were 15.2 and 18.4 percent, respectively; having closed at 11.0 and
9.2 percent end-February. At the capital market, bearish outcomes

persisted as key equity indices nose-dived during the period under
review. Year to end-February 2015, All Share Index shed 13.1 percent
to end at 30,103.8 while market capitalisation lost 12.5 percent to
close at ₦10.0 trillion. This trend requires strict surveillance and
necessitates all relevant institutions in the capital market to synergise
in order to rein in the adverse outcomes.
In the foreign exchange market, I acknowledge that the
unfavourable effect of oil price movements lingers although
speculative tendencies became less profound following the closure
of the official market. As a final step in the orderly shutdown, the
rDAS window was merged with the IFEM on 18 February 2015. The
unified IFEM rate, thus, depreciated by 9.0 percent from ₦180.0/US$
in January to ₦198.0/US$ in February. At the BDC segment, the naira
fell 7.9 percent from ₦196.1/US$ at end-January to ₦213.0/US$ in
February. Gross official reserves, at US$29.6 billion in February 2015
contracted by 2.7 percent from US$32.4 billion held at end-January.
The fall in reserve, during this period, reflected the continued decline

in foreign inflows and sustained interventions at the foreign
exchange market to safeguard the value of the domestic currency.

Against the backdrop of the forthcoming general elections, it is
apparent that market confidence and domestic conditions in the
economy are shaped not only by global oil price fundamentals but
also by human instincts and proclivities associated with perceived
political uncertainty. Yet, I am optimistic that Nigeria’s economic
expansion will not decelerate considerably in the near-to-short term.
With falling global inflation and declining energy prices, I expect a
moderating impact on domestic consumer prices that will maintain
inflation rate within the single-digit target range in the near-term. It is
my belief that policy reaction should be delayed to allow “political
noise” dissipate from financial markets and also give room for the
effects of earlier policy actions to permeate the economy. There is,
therefore, no need to act impetuously.
Consequently, I vote as follows:

1. Retain the MPR at 13.0 percent;
2. Retain the CRR on private sector deposits at 20.0 percent;
3. Retain the CRR on private sector deposits at its current level of
75.0 per cent;
4. Retain the liquidity ratio at 30.0 percent; and
5. Maintain a symmetric corridor of ±200 basis points around the
MPR.