Central Bank of Nigeria Communiqué’ No. 103 of the Monetary
Policy Committee Meeting of Monday and Tuesday, September 21
and 22, 2015
The Monetary Policy Committee met on 21st and 22nd September,
2015 against the backdrop of lingering uneven recovery in the
global economy and slowing domestic growth. In attendance were
10 out of 12 members. The Committee reviewed developments in
global and domestic economic and financial environments in the
first eight months of 2015 in order to provide the policy direction for
the rest of fiscal 2015.

International Economic Developments
The Committee observed a divergence in the global economic
environment, with a gradual but steady growth in the United States
and UK but a slowdown in emerging and developing economies.
The underlying drivers of growth in the advanced economies
included improving financial conditions and consumer sentiments,
suppressed commodity prices and favorable labour market

conditions. On the flip side, the slowdown in the emerging and
developing economies is mainly attributable to tight external
financial conditions, mostly a direct consequence of reduced
revenues from weak commodity prices, fragile global demand and
other geo-political factors.

Aided by strong consumer spending, continuous improvement in the
housing and labour markets and wage growth, the United States
continues to benefit from soft energy and other commodity prices
evidenced by the country’s revised second quarter 2015 GDP
growth of 3.7 per cent. Growth outlook in the second half, however,
remains moderate as exports could slow on the heels of a
strengthening dollar and slowing growth in China.

The Bank of Japan maintained accommodative monetary policy
through its asset purchasing program, with monthly injection of ¥6.7
trillion (US$55.48 billion), resulting in stronger than anticipated second
quarter growth. Following its September 3, 2015 meeting, the
European Central Bank (ECB) retained its key policy rate, even as its
asset purchasing program continued, while inflation remained
largely subdued.
In the United Kingdom, the Bank of England also continued its asset
purchase program as the economy maintained a robust growth
path in the second quarter, with a modest uptick in inflation. These

developments have started to trigger the debate over when the
Bank of England (BoE) would start raising its rates.
Mindful of the potential impact of a rate adjustment, particularly on
the emerging markets and considering the sluggish recovery in the
Euro Area and Japan as well as the need to firm up recent growth
and employment gains in the domestic economy, the US Federal
Reserve voted at its September meeting to maintain its key interest
rate, and delay monetary policy normalization. The decision is
expected to strengthen stability in global economy and moderate
volatility in the financial markets, while also consolidating recovery at
home.
In the emerging markets and developing economies, expectations
of low growth continued into the third quarter of 2015, with strong
likelihood of moderate uptick in 2016. Output growth in China at 7.0
per cent in the second quarter of 2015, is expected to moderate
further, due to slower productivity and exports, collapsing assets
value and excess capacity in the manufacturing sector.
Global inflation is expected to remain tepid as the recent temporary
rebound in oil prices and stronger consumer sentiments have mildly
raised consumer prices in the advanced economies. Consumer
price developments were mixed in emerging and developing
economies. Commodity importing economies have continued to
benefit from low global oil and other commodity prices, while others,

especially exporters of primary commodities, are contending with
increased pressure on their currencies and fiscal position; and in
some cases, significant inflation pass-through to domestic prices.

Domestic Economic and Financial Developments
Output
Output growth in the first half of 2015 trended downwards from the
level in the fourth quarter of 2014, mainly on account of softening oil
prices. According to the National Bureau of Statistics (NBS), real GDP
grew by 2.35 per cent in the second quarter of 2015, a significant
decrease when compared with the 3.96 and 6.54 per cent in the
preceding quarter and corresponding period of 2014, respectively.
Real GDP growth is projected by the National Bureau of Statistics
(NBS) to stabilize at 2.63 per cent in 2015, compared with the 6.22
per cent recorded in 2014. The non-oil sector remained the main
driver of growth in the second quarter of 2015, at 3.46 per cent. The
key drivers were services, trade and agriculture, contributing 1.80,
0.95 and 0.82 percentage points, respectively. On the other hand,
Oil and Natural Gas sector declined by 0.73 percentage point an
improvement of 1.13 percentage points relative to the first quarter of
2015.
The overall outlook for economic activity is expected to improve on
account of sustained improvement in the supply of power and
refined petroleum products and progress with counter-insurgency in
the North East axis. The Committee reiterated its commitment to
efforts in support of the various ongoing Federal Government
initiatives to stimulate output growth.

Prices
The Committee noted that the year-on-year headline inflation
edged upwards to 9.3 per cent in August, from 9.2 per cent in June
and July, 2015. The increase in headline inflation in August reflected
marginal increases in both the core and food components of
inflation. Core inflation rose to 9.0 per cent in August from 8.8 per
cent in July, while food inflation increased to 10.1 per cent from 10.05
per cent over the same period.
The Committee observed that the uptick in inflation was mainly
traceable to higher energy prices, delayed harvests and pass
through from imports. It however, noted with satisfaction, the
continued moderation in all measures of month-on-month inflation
across all the measures. In August, on a month-on-month basis,
headline inflation rose by 0.59 per cent from 0.69% in July; core
inflation rose by 0.61 per cent, same as in July. Month-on-month food
inflation also moderated to 0.63 per cent in August, from 0.77 per
cent in July. The Committee, while reiterating its commitment to
price stability, noted that the rising inflationary trend was a concern
given the already tight monetary policy stance of the Bank.

Monetary, Credit and Financial Markets Developments

Broad money supply (M2) contracted by 2.23 per cent in August
2015, below the level at end-December 2014. When annualized, M2
contracted by 3.34 per cent, which was significantly below the
growth benchmark of 15.24 per cent for 2015. Net domestic credit
(NDC) rose by 11.00 per cent, which annualizes to 16.49 per cent in
the same period. At that level, NDC was within the provisional
benchmark of 29.30 per cent for 2015. The growth in aggregate
credit was attributable mainly to growth in Federal Government
borrowing which reached 140.13 per cent in August 2015 or 210.19
per cent when annualized.
During the period under review, rates in all segments of the money
market were largely influenced by the level of liquidity in the banking
system. Money market interest rates were relatively volatile,
reflecting fluctuations in banking system liquidity during the period.
Average inter-bank call and OBB rates, which opened at 10.85 and
10.65 per cent in June, 2015, closed at 31.07 and 28.10 per cent,
respectively, in August, 2015. Average inter-bank call and OBB rates
for the period were 14.95 and 17.17 per cent, respectively.
The Committee noted the bearish trend in the equities segment of
the capital market during the review period. The All-Share Index (ASI)
decreased by 9.3 per cent from 33,456.83 on June 01, 2015 to
30,332.68 on September 18, 2015. Similarly, Market Capitalization
(MC) fell by 8.8 per cent from N11.42 trillion to N10.42 trillion during
the same period. However, relative to end-December 2014, the

indices decreased by 12.5 and 9.3 per cent, respectively. The
decline in share prices (year-to-date) was largely due to subdued
sentiments preceding the general elections, which held in March
and concerns for the country’s foreign reserves position due to
declining global oil prices.

External Sector Developments
The average naira exchange rate remained relatively stable at the
inter-bank segment, but significantly volatile in the BDC segment of
the foreign exchange market during the review period. The
interbank exchange rate opened at N196.95/US$ and closed at
N197.00, at a daily average of N196.98/US$ between June 29 and
September 18, 2015 representing a depreciation of N0.5K for the
period. At the bureau-de-change segment, the exchange rate
opened at N224.50/US$ and closed at N211.50. This represented an
appreciation of N13.00k for the period. The relative stability in the
inter-bank market and improvement in the BDC segment were
attributed to the effects of various administrative and policy
measures. Consequently, gross official reserves decreased modestly
from US$31.20 billion at end-July 2015 to $30.63 billion on September
17, 2015.

Committee’s Considerations

The Committee noted that the overall macroeconomic environment
remained fragile. The economy further slowed in the second quarter
of the year, making it the second consecutive quarterly less-thanexpected performance. The Committee noted that growth had
come under severe strains arising from declining private and public
expenditures. In particular, it noted the impact of non-payment of
salaries at the state and local government levels as a key
dampening factor on consumer demand. Year-on-year headline
inflation continued to trend upwards, although the month-on-month
measure moderated. Demand pressure in the foreign exchange
market remained significant as oil prices continued to decline.
Arising from these developments, there were indications that some
of the banking sector performance indicators could be stressed if
conditions worsen further. Specifically, the Committee noted that
liquidity withdrawals following the implementation of the TSA,
elongation of the tenure of state government loans as well as loans
to the oil and gas sectors could aggravate liquidity conditions in
banks and impair their financial intermediation role, thus affecting
economic growth, unless some actions were immediately taken to
ease liquidity conditions in the markets.
Having seen two consecutive quarters of slow growth, the
Committee recognized that the economy could slip into recession in
2016 if proactive steps were not taken to revive growth in key sectors
of the economy.

In
the
face
of
prevailing
circumstances,
the
Committee
acknowledged that synergy between monetary and fiscal policies
remained the most potent option to sustainable growth. The
Committee further observed that the impact of the persistent
decline in global crude oil prices on the fiscal position of
Government continues to reflect in rising credit to government. The
Committee also noted that the initial market reaction to the decision
by JP Morgan to exclude the country from its Government Bond
Index for Emerging Economies (GBI-EM) had largely dissipated as
yields soon adjusted to their pre-announcement levels’ adding that
there may be second round effects over the next two months as the
economy adjusts to that decision. The Committee reiterated its
unwavering commitment to naira exchange rate stability despite the
pressures. Mindful of the possibility of diversion of any extra liquidity to
the foreign exchange market, the Committee urged the Bank to
closely monitor the nature and sources of demand pressure in the
foreign exchange market to ensure that funds were not diverted to
demand for foreign exchange but applied to specific growthenhancing asset creation lending by banks. It further noted that
sectors such as agriculture and MSMEs were sectors for rapid
generation of productive employment and wealth creation, and
must therefore, be painstakingly encouraged.
On inflation, the Committee was optimistic that as harvests progress
in the coming months, pressure on food prices would gradually

recede, while growth enhancing measures would over the medium
term have some moderating effect on food prices.
Overall,
the
Committee
expressed
optimism
that
business
confidence would continue to improve as the Government
continues to unfold its economic plans. In addition, some of the
reassuring measures of the administration including efforts aimed at
resolving fiscal challenges at the sub-national levels, and the fight
against corruption and improving the business environment would
unlock the inflow of foreign direct investment. The Committee also
underscored the imperative of growing and protecting the country’s
foreign reserves and building fiscal buffers in the process of
strengthening confidence in the economy, which is essential for
promoting growth and stability. The MPC also observed that despite
the TSA, banking system liquidity ratio remained moderate.
Consequently, the Committee advised on the urgent imperative of
banks to aggressively support the efforts of government at job
creation by channeling available liquidity into target growth
enhancing sectors of the economy such as agriculture and
manufacturing. This is with a view to promoting employment creation
through conscious efforts aimed at directing lending to the growth
enhancing sectors of the economy. The Committee considered that
the Bank and deposit money banks, must strive to reverse the
slowing GDP trajectory by actively stepping up their efforts in

catalyzing the economy with substantial new loans to the target
sectors earlier highlighted.
The Committee’s Decisions
In consideration of the underlying fundamentals of the economy,
particularly the declining output growth, rising unemployment,
evolving international economic environment as well as the need to
properly position the economy on a sustainable growth path, the
MPC decided by a vote of 7 to reduce the Cash Reserve
Requirement (CRR) from 31 per cent to 25 per cent while 3 voted to
hold. By a unanimous vote, the MPC voted to retain the MPR at 13
per cent.
In summary, the MPC voted to:
(i)
Reduce the CRR from 31 to 25 per cent;
(ii)
Retain the MPR at 13 per cent;
(iii)
Retain the symmetric corridor of 200 basis points around the
MPR; and
(iv)
Retain the Liquidity Ratio at 30 per cent.
Thank you.
Godwin I. Emefiele
Governor, Central Bank of Nigeria
22nd September 2015