CENTRAL BANK OF NIGERIA
MONETARY
MONETARY
POLICY REVIEW
POLICY REVIEW
MONETARY
POLICY REVIEW
AUGUST 2017
AUGUST 2017
AUGUST 2017
Central Bank of Nigeria
33 Tafawa Balewa Way
Central Business District
P.M.B. 0187, Garki,
Abuja
Phone: +234 (0)9 462 36011
Website: www.cbn.gov.ng
E-mail:
ISSN: 2141-6281
©2017 Central Bank of Nigeria
Mandate
§Ensure monetary and price stability
§Issue legal tender currency in Nigeria
§Maintain external reserves to safeguard the international
value of the legal tender currency
§Promote a sound financial system in Nigeria
§Act as banker and provide economic and financial
advice to the Federal Government
Vision
“Be the model Central Bank delivering Price and
Financial System Stability and promoting
Sustainable Economic Development"
Mission Statement
“To be proactive in providing a stable framework for the economic
development of Nigeria through effective, efficient and
transparent implementation of monetary and exchange
rate policy and management of the financial sector"
Core Values

· Meritocracy
· Leadership
· Learning
· Customer - Focus
Central Bank of Nigeria
iii
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CONTENTS
Page
iv
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Table of Contents
Statement by the Governor

ix
Chapter 1
Overview..


Chapter 2
Output in the Domestic Economy
..
..
..

Chapter 3
Price Developments ..


Chapter 4
Monetary Policy and Liquidity Management..
..

Chapter 5
Developments in the Financial Markets..
..
..

Chapter 6
Economic Outlook..


Appendices


List of Tables
Table 3.1:
Inflation Rates, January – June 2017..
..
..

Table 3.2:
Major Components of Headline Inflation (Y-on-Y),


January – June 2017..


Table 3.3:
Major Components of Headline Inflation (M-on-M),


January – June 2017 . ..


Table 3.4:
Major Components of Food Inflation (Y-on-Y),


January - June 2017..


Table 3.5:
Major Components of Food Inflation (M-on-M),


January -June 2016..


Table 3.6:
Major Components of Core Inflation (Y-on-Y)


January – July 2017


Table 3.7:
Major Components of Core Inflation (M-on-M)


January – July 2017.. ..


Table 3.8:
Actual and Seasonally Adjusted Headline Inflation


January -June 2017


Table 4.1:
OMO Bills Auction (January 2016 – June 2017) (N'billion)..

Table 4.2:
CBN Standing Lending Facility (January 2016 – June 2017)


(N'billion)


Table 4.3:
CBN Standing Deposit Facility


(January 2016 – June 2017) (N'billion) ..
..
..

Table 4.4:
Foreign Exchange Supply by the CBN (US$ Million)
..

Table 4.5:
Monetary Aggregates Outcomes


(Growth in % except otherwise stated)
..
..

Table 5.1:
Weighted Average Monthly Money Market Interest Rates


(January – June 2017) ..


Table 5.2:
Average Monthly Spot Exchange Rates


(July 2016 – June 2017) (N/US$)..
..
..
..

Table 5.3:
End-Month Exchange Rates


(July 2016 – June 2017) (N/US$)
..
..
..

Table 5.4:
Nominal and Real Effective Exchange Rates Indices


(January 2016 – June 2017)


Table 5.5:
Monthly Foreign Exchange Flows through the CBN


(July 2015 – June 2017)..


v
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Page
Table 5.6:
Monthly Foreign Exchange Flows through the Economy


(July 2015 – June 2017) (US$ Million) ..
..
..

Table 5.7:
NSE All-Share Index (ASI) and Market Capitalization (MC)


(June 2016 –June 2017)..


Table 5.8:
Policy Rates of Selected Countries January – June 2017

Table 2d:
Selected International Stock Market Indices as at


June 30, 2017..


Table 5.10:
Exchange Rates of Selected Countries


(value in currency units to US$)
..
..
..

Table 6.1
Global Output and Inflation Outlook ..
..
..

List of Figures
Figure 2.1:
Real GDP Growth (%) 2016 Q1 – 2017 Q2 ..

..

Figure 2.2:
Non-oil Sector Performance 2016Q1-2017Q1 ..
..

Figure 2.3:
Performance of the Oil Sector, 2016Q1 - 2017Q2
..

Figure 2.4:
Agricultural Sector Contribution by Activity, 2016Q1-


2017Q2..


Figure 2.5:
Industrial Sector's Contribution by Activity, 2016Q1-2017Q2 12
Figure 2.6:
Services Sub-Sector Contribution, 2016Q1-2017Q2... ..

Figure 2.7:
Quarter Oil Production (2016Q1-2017Q2)..
..
..

Figure 2.8:
Monthly Bonny Light Price, January – June 2017
..

Figure 3.1:
Headline, Core and Food Inflation Rates


(January – June 2017)..

..
..
..

Figure 3.2:
Major Components of Headline Inflation (Y-on-Y),


January – June, 2017 ..


figure 3.3:
Major Components of Headline Inflation (M-on-M),


January – June, 2017 ..


Figure 3.4:
Major Components of Food Inflation


(Y-on-Y), Jan - Jun 2017..

..
..
..

Figure 3.5:
Major Components of Food Inflation (M-on-M),


Jan - Jun 2017.


Figure 3.6:
Major Components of Core Inflation (Y-on-Y)


Jan – Jul. 2017 ..


Figure 3.7:
Major Components of Core Inflation(M-on-M)


Jan – Jul. 2017..


Figure 3.8:
Actual and Seasonally Adjusted Headline Inflation


January - June 2017.. ..


Figure 4.1:
OMO bills Auction (January - June 2017)
..
..

Figure 4.2:
Standing Lending Facility (January 2016 – June 2017)..

Figure 4.3:
Standing Deposit Facility (January 2016 – June 2017)


(N'billion)


Figure 4.4:
Total foreign exchange supply (including Foward Sales)


January - June 2017


Figure 4.5:
Money Supply (M1) and (M2)


(January – June 2017, 2017).. ..
..
..
..

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Figure 4.6:
Growth in Money Supply (M1) and (M2)


(January - June 2017) ..


Figure 4.7:
Net Domestic Asset (NDA) (January – June 2017)
..

Figure 4.8:
NDA, NDC and Other Assets (net) (January – June 2017)

Figure 4.9:
Domestic Credit to Private Sector (January – June 2017)

Figure 5.1:
Weighted Average Monthly Money Market Interest Rates


(Jan.–Jun. 2017)..


Figure 5.2:
Daily Interbank Call Rate (July – December 2016)
..

Figure 5.3:
Daily Open Buy Back Rate (January-June 2017)
..

Figure 5.4:
Daily Naira/US Dollar Exchange Rate


(January - June 2017) ..


Figure 5.5:
Nominal and Real Effective Exchange Rates Indices


(January 2016 – June 2017)


Figure 5.6:
Monthly Foreign Exchange Flows through the CBN


(Jul 2015 – Jun 2017) ..


Figure 5.7
Monthly Foreign Exchange Flows through the Economy


(Jul 2015 – Jun 2017) (US$ Million)
..
..
..

Figure 5.8:
NSE ASI and MC (June 2016 – June 2017)
..
..

Figure 5.9:
NSE ASI and MC (December 2016 – June 2017)
..

Figure 5.10:
Portfolio Inflow (May 2016 – May 2017)
..
..

Figure 5.11:
NSE Market Capitalisation by Sector as at End-


December 2016


Figure 5.12:
NSE Market Capitalisation by Sector as at End-June 2017

Figure 5.13:
Warren Buffett Valuation of Nigerian Equities Market ..

Figure 5.14:
10-Year U.S. Dollar-denominated Bond Yield for Nigeria


(June 30, 2016 – June 30, 2017)
..
..
..

Figure 5.15:
FGN Bonds Yield Curves: end-Dec. 2016 vs. end-


March 2017 vs. end-June 2017
..
..
..

Figure 5.16:
Structure of the Nigerian Capital Market (June, 2017)

Figure 5.17:
Indices of Primary Commodity Prices


December 2016 – June 2017 (2005=100 US$) ..
..

List of Boxes
Box 2.1
The Economic Recovery And Growth Plan Of The Federal


Government of Nigeria


Box 3.1
Executive Orders and Economic Growth in Nigeria ..

Box 4.1
Tax Effort And Economic Growth: The Voluntary Asset


and Income Declaration Scheme (vaids)
..
..

Box 5.1
Restoring Foreign Exchange Stability: The Investors' and


Exporters' Foreign Exchange Window
..
..

Box 6.0:
Climate Change and the Trend Towards


Renewable Energy


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STATEMENT BY THE GOVERNOR
D
uring the first half of 2017, the focus of monetary policy was shaped by
developments in the global and domestic economic environments. The key
challenges to monetary policy-formulation on the global front were: the
rising wave of protectionist sentiments in major advanced and emerging market
economies, increasing monetary policy divergence in the advanced economies,
and resumption of monetary policy normalization in the US with its spillover effects on
global capital flows. In addition, commodity price movements remained disorderly,
with tepid recovery in crude oil prices. These developments pressured the domestic
economic environment considerably, manifesting in weak fiscal positions, low
reserves accretion and a liquidity-challenged foreign exchange market.
The key domestic vulnerabilities were reflected in weak economic activity, persisting
liquidity surfeit in the banking system, weakening financial stability indicators,
contraction in private sector credit, expansionary fiscal policy and the rising debt
profile of the general government. In the face of still low commodity prices and
accretion to external reserves, the challenges in the foreign exchange market
intensified in the review period, necessitating both policy and administrative
measures to rein-in demand pressure and stabilize the exchange rate. As a result,
the Bank introduced several complementary measures to fine-tune existing foreign
exchange management practices. The measures were: the Investors' and Exporters'
(I&E) Foreign Exchange Window for willing buyers and sellers of foreign currency,
increased foreign exchange sales to BDCs, and special foreign exchange auctions
to targeted sectors, among others. Following these measures, speculative
practices were curbed and the depreciation of the naira moderated with
favourable pass-through to consumer prices. Thus, headline inflation moderated
during the period to 16.10 per cent in June 2017 from 18.72 per cent in January 2017,
although it remained above the Bank's benchmark of 6-9 per cent. Also, with 1.0
improved foreign exchange supply, and the lowering of fiscal uncertainties
following the launching of the Economic Recovery and Growth Plan and approval
of the 2017 Federal Government Budget, the economy gradually exited recession
towards the end of the review period. The economy grew by 0.55 per cent in the
second quarter of 2017, after five successive quarters of output contraction. The
modest growth reflected expansions in both the oil and non-oil sectors. The growth
of the oil sector resulted from the moderate firming up of crude oil prices and
restoration of production levels, while non-oil expansion was traceable to efforts at
economic diversification and various real sector interventions of the Bank.
Monetary policy during the review period was designed to address the foregoing
challenges, stimulate the economy out of recession, and achieve overall
macroeconomic stability. The Bank sustained its tight monetary policy stance by
vii
maintaining the Monetary Policy Rate (MPR) at 14.0 per cent and the associated
asymmetric corridor of +200/-500 basis points as well as the Cash Reserve Ratio (CRR)
and Liquidity Ratio (LR) of 22.5 and 30.0 per cent, respectively.
Amidst cautious optimism, the short-to-medium term outlook for the domestic
economy indicate further deceleration of inflation trends, although achieving the
Bank's single-digit inflation objective is still far-fetched. Near term threats to inflation
would include: high energy prices and supply; disruption of production and
distribution chains in the economy arising from insurgency and farmer-herdsmen
conflicts; liquidity injections from the expansionary 2017 Federal Government
budget, and underlying threats to exchange rate stability. Monetary policy would,
however, remain proactive to minimizing these threats.
GODWIN I. EMEFIELE
GOVERNOR, CENTRAL BANK OF NIGERIA
viii


CBN Monetary Policy Review

CHAPTER ONE

1.0
OVERVIEW
onetary policy in the first half
of 2017 was influenced by a
number of challenges in the
global and domestic economic and
financial environments. On the global
front, the key challenges included: the
persistence of uncertainties in major
advanced
and
emerging
market
economies such as the rising wave of
populist and protectionist sentiments,
aggravated by new United States
policy direction, and the trigger of
Article 50 of the Lisbon treaty in March
2017 to kick start BREXIT. Others were:
divergent monetary policy stance in
the advanced economies; increased
US
Shale
oil
production,
despite
Organisation of Petroleum Exporting
Countries (OPEC)’s decision to cut
output;
weakening
international
cooperation
following
antiglobalization sentiments as well as
disorderly
commodity
price
movements, culminating in sluggish
global output growth. In the emerging
market and developing economies,
the challenges were: continuing low
commodity
prices,
rising
inflation,
currency instability, weak aggregate
demand and subdued capital flows.
At the domestic scene, the economy
witnessed
a
more
promising
development
as
the
recession
bottomed out into growth. There was
also moderation in domestic price
developments
following
measures
taken to stabilize the foreign exchange
market.
Consequently,
headline
inflation declined from 18.72 per cent
in January to 16.10 per cent in June
2017, principally on account of the
moderation in the core component of
inflation,
although
the
food
component remained the key driver of
prices
in
the
consumer
basket.
Notwithstanding
this
development,
monetary policy was still plagued by
persisting liquidity surfeit in the banking
system, weakening financial stability
indicators, contraction in private sector
credit, expansionary fiscal policy and
rising debt profile of the general
government, including the emergence
of the unhealthy phenomenon of
accumulation of salary arrears by subnational governments.
The Nigerian economy exited the
recession which began in the first half
of 2016. The development was due to
improvements
in
fiscal
receipts
occasioned by the firming up of crude
oil and other commodity prices as well
as increased oil production owing to
relative peace in the Niger Delta
region. The increased fiscal receipts
and accretion to external reserves
resulted in improved fiscal activities
including spending on infrastructure
and payment of salary arrears by subnational governments. In addition, the
increased supply of foreign exchange
aided the importation of intermediate
M


CBN Monetary Policy Review

goods and other productive inputs for
manufacturers, with attendant positive
effects on overall production activities
in the economy. Accordingly, the
economy grew by 0.55 per cent (yearon-year) in the second quarter of 2017,
from contractions of 0.91 and 1.49 per
cent in the first quarter of 2017 and the
corresponding quarter of 2016. The exit
from recession was largely due to the
improved performance of both the oil
and non-oil sectors. The oil sector grew
by 1.64 per cent in the second quarter
compared with contractions of 15.60
and 11.63 per cent in the preceding
quarter of 2017 and the corresponding
period of 2016. Similarly, the growth of
the non-oil sector remained positive at
0.45 and 0.72 per cent in the second
and first quarters of 2017, up from the
contraction of 0.38 per cent in the
corresponding quarter of 2016.
The
challenges
in
the
foreign
exchange
market
intensified,
warranting the Bank to implement a
cocktail
of
both
policy
and
administrative
measures
to
rein-in
demand pressure and stabilize the
exchange
rate.
These
measures
included: the introduction of Investors’
and Exporters’ (I&E) Foreign Exchange
Window for willing buyers and sellers of
foreign currency, increased foreign
exchange
sales
to
BDCs,
special
foreign exchange auctions to targeted
sectors,
introduction
of
foreign
exchange
sales
for
small
scale
importation, reduction of import and
export documentation requirements
and processing timelines as well as
reduction of the tenor of forward
foreign exchange transactions from
180 to 60 day cycles. Others were: the
directive to all banks to open foreign
exchange retail outlets in major airports
across the country as well as increase
in the Foreign Exchange Net Open
Position (NOP) limit of banks to 10.0 per
cent. In addition, the Bank continued
the implementation of existing policies
and administrative measures such as:
the restriction of access to foreign
exchange for some 41 items, the use of
bank verification number (BVN) in BDC
transactions, as well as the restrictions
on the use of naira debit cards
abroad. As a result of these measures,
speculative activities were curbed and
the
depreciation
of
the
naira
moderated in all segments of the
market.
The
Nigerian
financial
markets
continued to be influenced by a
number
of
global
and
domestic
developments.
The
key
global
developments
included:
the
persistence of uncertainties in major
advanced
and
emerging
market
economies such as the rising wave of
populist and protectionist sentiments,
actions by the UK government to
trigger BREXIT negotiations and the Left
Wing electoral victory in France. The
divergent monetary policy stance in
the advanced economies, low global
commodity
prices
and
increased
investment in U.S. shale oil production
also influenced market activities. In


CBN Monetary Policy Review

order to moderate the impact of these
uncertainties on global growth and
ensure
the
resumption
of
the
momentum of economic activities,
monetary policy in the advanced
economies
remained
broadly
accommodative in the review period.
However,
emerging
markets
and
developing
economies
reacted
differently
to
these
global
uncertainties, in view of the need for
monetary accommodation for those in
recession or suffering from sluggish
recovery;
while
others
that
had
experienced
severe
currency
depreciations from recent oil price
shocks, required improved yields on
domestic
assets.
Accordingly,
domestic
money
market
rates
fluctuated
with
occasional
spikes
reflecting the level of liquidity in the
banking system.
The Bank continued to deploy the
instruments in its toolkit to conduct
monetary policy in the review period,
with
the
objective
of
price
and
macroeconomic
stability.
The
key
instruments were: the Monetary Policy
Rate (MPR), the Cash Reserve Ratio
(CRR), the Liquidity Ratio (LR), Open
Market
Operations
(OMO)
and
Discount
Window
Operations.
In
addition, interventions in the foreign
exchange market were sustained. The
MPR was kept unchanged at 14.0 per
cent, with the asymmetric corridor
around the MPR retained at +200 and -
500 basis points throughout the period.
The Bank sustained its reliance on
Open Market Operations (OMO) for
managing system liquidity as total
OMO sales increased by 66.17 per cent
to N3,871.27 billion in the first half of
2017 compared with N2,329.75 billion
recorded in the corresponding period
of 2016. It was, however, 29.99 per cent
lower than the sale of N5,529.87 billion
in
the
preceding
half
year.
The
increase in OMO sale was traceable to
liquidity surfeit in the banking system as
a result of maturing government bills
and the disbursement of Paris debt
refund to sub-national governments.
The monetary aggregates contracted
and generally performed below their
indicative
benchmarks.
The
development was largely on account
of the contraction in Net Foreign Assets
(NFA) which was, however, unable to
overwhelm
the
modest
growth
recorded in Net Domestic Assets (NDA)
of the banking system during the
review period.
Money
market
activities
generally
mirrored liquidity conditions in the
banking system. The money market
rates were volatile largely in response
to
developments
in
the
foreign
exchange
market
as
the
Bank
intervened with measures to curb
demand pressure. Accordingly, money
market
rates
fluctuated
with
occasional spikes reflecting the effects
of
OMO
transactions,
maturing
government securities and CBN bills,
Joint
Venture
Cash
(JVC)
call
payments and Paris Club debt refunds
as well as the introduction of the


CBN Monetary Policy Review

Investors’
and
Exporters’
foreign
exchange window. Following these
developments, the Monetary Policy
Committee (MPC) during the period
maintained the Monetary Policy Rate
(MPR) at 14.0 per cent and the
associated
asymmetric
corridor
of
+200/-500 basis points as well as the
Cash Reserve Ratio (CRR) and Liquidity
Ratio (LR) at 22.5 and 30.0 per cent,
respectively.
The
sustained
tight
monetary
policy
stance
complemented
by
other
liquidity
management measures resulted in
upward fluctuation of money market
rates.
Activities in the Nigerian capital market
were moderately bullish in the first half
of 2017. The All-Share Index (ASI) rose
by 23.23 per cent to 33,117.48 at endJune 2017, from 26,874.62 at endDecember 2016. It, also, rose by 11.89
per cent from 29,597.79 at end-June
2016.
The
development
was
due
largely to several factors including
measures to exit the current recession
and
restart
growth,
improving
corporate performance and relative
stability in exchange rate arising from
increased interventions in the foreign
exchange
market
by
the
CBN.
Furthermore,
the
uncertainties
beclouding the domestic investment
environment
continued
to
wane
following
the
launching
of
the
Economic Recovery and Growth Plan
(ERGP) by the Federal Government,
and the curtailment of militancy and
insurgency in different parts of the
country. Also, the anti-corruption efforts
of the government which led to the
recovery of large sums of money
boosted investor confidence in the
economy.
These
factors
were
complemented by the sustained tight
monetary policy stance of the Bank
which helped to improve returns on
domestic assets thereby encouraging
both
domestic
and
foreign
investments.
Transactions in Federal Government of
Nigeria (FGN) instruments dominated
activities in the bonds market. Some
activities were also recorded in the
Sub-national
government
and
corporate bond segments. At 4.80 per
cent, the 10-year dollar-denominated
bond yield for Nigeria decreased by
1.55 percentage point at end-June
2017 from 6.35 per cent at endDecember 2016. When compared with
the end-June 2016 yield of 6.74 per
cent, it decreased by 1.94 percentage
points, reflecting improved investor
perception of Nigeria’s sovereign risk.
Headline inflation moderated during
the
review
period,
although
substantially
above
the
Bank’s
benchmark of 6-9 per cent. The price
development was, however, still within
the moderate double digit range. Staff
estimates suggest that year-on-year
headline
inflation
is
projected
to
decelerate further to 15.7, 15.6, 15.5
and
15.4
per
cent
in
August,
September, October and November
2017, respectively. This is predicated on


CBN Monetary Policy Review

a good harvest season and sustained
stability
of
the
exchange
rate
supported by the continued tight
monetary policy stance of the Bank.
Risks to inflation outlook in the near
term, however, remain the relatively
high energy prices, poor power supply,
disruption
of
production
and
distribution chains due to lingering
insurgency
and
herdsmen-farmer
conflicts in some parts of the country.
Domestic output growth in the first half
of 2017 turned positive following the
negative trend which commenced in
2016.
According
to
the
National
Bureau of Statistics (NBS), real Gross
Domestic Product (GDP) contracted
by 0.91 per cent in the first quarter of
2017, but became positive, growing by
0.55 per cent in the second quarter.
Thus, the economy effectively exited
recession in the review period.
The improvement in output growth was
attributed to several factors including:
higher
oil
prices;
increased
oil
production, attributable mainly to the
return of peace in the Niger Delta; as
well
as
improved
and
stable
production from OPEC’s commitment
to
output
cut.
Furthermore,
the
passage of the Petroleum Industry
Governance Bill (PIGB) is likely to
attract
new
investments
into
the
industry. The International Monetary
Fund (IMF) projected Nigeria’s growth
at 0.8 per cent in 2017, confirming that
the country will recover from its current
recession
based
on
improved
oil
production,
continued
growth
in
agriculture,
and
higher
public
investment spending.
The risk to the outlook, however,
continues to come from developments
in the external environment and the
domestic economy. Externally, the
weak
global
economic
recovery,
declining
demand
for
crude
oil
globally
in
the
face
of
the
development
of
clean
energy
technologies and the continuing loss of
market share for Nigeria’s crude oil
may
dampen
the
fragile
growth
prospects. Also, growing social tensions
reflected in the threats of resumption
of
militancy
and
herdsmen-farmer
conflicts
could
further
undermine
investments and growth.
In the face of these developments, the
risks to monetary policy for the rest of
2017 would include: the continuing low
foreign exchange receipts with its
attendant
implications
for
foreign
reserves and government expenditure;
pressure on the exchange rate; and
instability in the financial markets. In
addition, although the economy has
exited the recession, growth is likely to
remain fragile as macro-fundamentals
remain weak. Other challenges are:
persisting liquidity surfeit in the banking
system; weakening financial stability
indicators; and the need for the
emergence of positive real interest rate
in the economy. The Bank would
continue to monitor these indicators to
ensure
that
the
monetary
policy


CBN Monetary Policy Review

environment
delivers
price
stability
conducive to economic growth in the
second half of 2017 and beyond.


CBN Monetary Policy Review

CHAPTER 2

2.0
OUTPUT IN THE DOMESTIC
ECONOMY

n the first half of 2017, the Nigerian
economy exited recession which
began
in
early
2016.
The
development
was
due
to
improvements
in
fiscal
receipts
occasioned by the firming up of crude
oil and other commodity prices as well
as increased oil production owing to
relative peace in the Niger Delta
region. The increased fiscal receipts
and accretion to external reserves
resulted in improved fiscal activities
including spending on infrastructure
and payment of salary arrears by subnational governments. In addition, the
increased supply of foreign exchange
aided the importation of intermediate
goods and other productive inputs for
manufacturers, with attendant positive
effects
on
overall
output
in
the
economy.
Accordingly,
the
contraction of real gross domestic
product moderated to 0.91 per cent
(year-on-year) in the first quarter of
2017 from 1.73 and 0.67 per cent in the
fourth and the corresponding quarters
of 2016, respectively. The moderation
in contraction was largely due to the
improved performance of both the oil
and non-oil sectors. The oil sector
contracted
by
15.60
per
cent
compared with a contraction of 17.7
per cent in the previous quarter.
Similarly, the performance of the nonoil sector improved as it grew by 0.72
per cent compared with contractions
of 0.33 and 0.18 per cent recorded in
the
previous
and
corresponding
quarters of 2016, respectively.
The moderation in contraction in the
first quarter is also reflected in the
performance of the primary sectors, as
industry (-5.83%), services (-0.39%) and
Trade
(-3.08%)
contracted,
while
construction and agriculture grew by
0.15 and 3.39 per cent, respectively.
The relative shares of the key sectors to
the
GDP
were
services
(38.18%),
agriculture (21.43%), industry (18.36%),
trade
(17.10%)
and
construction
(4.18%).

Figure 2.1
Real GDP Growth (%) 2016 Q1 – 2017 Q2

Q1-2016
Q2-2016
Q3-2016
Q4-2016
Q1-2017
Q2-2017

Per cent
Source: NBS

In the second quarter, real gross
domestic product (GDP) expanded by
0.55 per cent (year-on-year) from
contractions of 0.91 and 1.49 per cent
I


CBN Monetary Policy Review

in the preceding quarter of 2017 and
the corresponding quarter of 2016,
respectively. The output growth was
largely
due
to
the
improved
performance of both the oil and nonoil sectors. The oil sector grew by 1.64
per cent compared with contractions
of 15.60 and 11.63 per cent in the
preceding
quarter
and
the
corresponding
period
of
2016,
respectively. Similarly, the non-oil sector
recorded a slower growth of 0.45 per
cent from 0.72 per cent in the
preceding quarter and a contraction
of 0.38 per cent in the corresponding
period of 2016. The performance of the
primary sectors that contributed to the
growth in the second quarter were
Agriculture (3.01%), Industry (1.45%)
and
Construction
(0.13%),
while
Services and Trade contracted by 0.85
and 1.62 per cent, respectively. The
relative shares of the key sectors in the
GDP
were
Services
(37.26%),
Agriculture (22.97%), Industry (18.42%),
Trade
(17.10%)
and
Construction
(4.26%).

2.1
Domestic Economic Activities
In the first quarter of 2017, the
moderation in output contraction was
largely driven by activities in the non-oil
sector, with a reduced drag from the
oil sector performance. The non-oil real
GDP grew by 0.72 per cent in the first
quarter of 2017, reversing the negative
growth of 0.33 and 0.18 per cent in the
fourth and corresponding quarters of
2016, respectively. The growth of the
non-oil sector was accounted for by
the activities in solid minerals (31.47%);
arts, entertainments and recreation
(11.67%); transport
(10.55%); fishing
(5.49%);
crop
production
(3.50%);
information
and
communication
(2.73%)
and
construction
(0.15%)
compared
with
their
respective
performance of -73.63, 8.41, 14.73,
3.25, 3.02, 4.07 and -5.37 per cent in
the corresponding period of 2016.

In the same vein, the contraction in the
oil sector moderated to 15.60 per cent
(year-on-year) in the first quarter of
2017, from 17.70 per cent in the
preceding quarter. It was however,
4.81 per cent in the corresponding
quarter of 2016.
Average daily crude oil production in
the first quarter fell to 1.69 million
barrels per day (mbpd) from 1.76 and
2.05 mbpd recorded in the preceding
and the corresponding quarters of
2016, respectively.
During the second quarter of 2017,
non-oil real GDP recorded a slower
growth of 0.45 per cent from 0.72 per
cent in the first quarter of 2017 and a
contraction of 0.38 per cent in the
corresponding quarter of 2016. The
growth of the non-oil sector was
accounted for by the activities in crop
production
(3.21%);
solid
minerals
(2.28%);
finance
and
insurance
(10.45%); forestry (3.89%); coal mining
(4.92%)
and
livestock
(2.28%);
compared
with
their
respective
performance of 4.72, -10.82, 3.84, 2.68


CBN Monetary Policy Review

and 6.32 per cent in the corresponding
period of 2016.

Similarly, the oil sector grew by 1.64 per
cent (year-on-year) in the second
quarter of 2017 from contractions of
15.60 and 11.63 per cent in the
preceding
quarter
and
the
corresponding
period
of
2016,
respectively. Average daily crude oil
production rose to 1.84 million barrels
per day (mbpd) in the second quarter
from 1.69 and 1.81 mbpd in the
preceding quarter of 2017 and the
corresponding period of 2016. The
development was largely attributed to
the restoration of the Forcados pipeline
and reduced incidence of pipeline
vandalism and other militant activities
following
on-going
negotiations
between the government and militants
in the Niger Delta area.

The contribution of the oil sector to
GDP rose to 8.89 per cent in the
second quarter from 8.53 per cent in
the preceding quarter.
Figure 2.2
Non-oil Sector Performance 2016Q1-2017Q1
Source: NBS

Figure 2.3
Performance of the Oil Sector, 2016Q1 - 2017Q2
Source: NBS
2.2
Sectoral Analysis
This section analyses the sectoral
performance of the economy by
reviewing key institutional factors that
contributed to domestic output in the
first half of 2017.
2.2.1 Agriculture

Real agricultural GDP grew by 0.30
percentage points to 3.39 per cent in
the first quarter of 2017 from 3.09 per
cent in the corresponding period of
2016. This however, represented a
decline when compared with 4.03 per
cent in the preceding quarter of 2016.
The growth in Agricultural output was
driven mainly by activities in fishing
(5.49%) and crop production (3.50%),
followed
by
forestry
(2.59%)
and
livestock (1.72%). This compares with
the respective growth rates of 3.25,
3.02, 2.31 and 3.86 per cent in the
corresponding quarter of 2016. This
trend indicates a general improvement
in most of the activity sectors. The
contribution of the sector to overall


CBN Monetary Policy Review

real GDP in the first quarter of 2017
slowed to 21.43 per cent from 25.60 per
cent in the corresponding quarter of
2016 (Figure 2.2).

During
the
second
quarter,
real
agricultural GDP grew slower by 0.38
percentage points to 3.01 per cent
from 3.39 and 4.53 per cent in the
preceding
quarter
and
the
corresponding
period
of
2016,
respectively. The growth in agricultural
output was driven mainly by activities
in forestry (3.89%) and crop production
(3.21%), followed by livestock (2.28%).
This compares with their respective
growth rates of 3.84, 4.72 and 6.32 per
cent in the corresponding quarter of
2016. This trend indicates a general
slowdown in most of the activity
sectors. The contribution of the sector
to overall real GDP in the first quarter of
2017 improved to 22.97 per cent from
21.43 per cent in the corresponding
quarter of 2016 (Figure 2.2).
Figure 2.4
Agricultural Sector Contribution by Activity,
2016Q1 - 2017Q2
Source: NBS

2.2.1.2 Agricultural
Policies
and
Institutional Support
The performance of the sector in the
first half of 2017 was supported by a
number of key policies, reforms and
institutional support. These included:
The Agricultural Credit and Guarantee
Scheme (ACGS)
In the first half of 2017, the volume and
value of loans guaranteed under the
Scheme were 21,073 and N3.07 billion,
respectively, compared with 23,774
and N3.63 billion in the corresponding
period
of
2016.
This
outcome
represented a decrease of 11.36 and
15.43 per cent in the volume and value
of loans guaranteed, respectively. The
analysis of loans by purpose showed
that food crops accounted for 14,264
(57.88 %); mixed crops, 2,097 (8.00%);
cash crops, 1,587 (8.93%); livestock,
1,867 (15.82%); fisheries 797 (7.19%);
and other activities, 461 (2.24%). A total
of 11,354 loans valued at N1.84 billion
were repaid in the first half of 2017
compared with 29,519 loans valued at
N4.03
billion
repaid
in
the
corresponding period of 2016. This
represented a decrease of 61.54 and
54.32 per cent in the volume and value
of loan repayments during the period.
N200 Billion Commercial Agriculture
Credit Scheme (CACS)
Under the Scheme, N79.56 billion was
disbursed for 35 projects in the review
period, compared with N35.99 billion


CBN Monetary Policy Review

for 4 state government and 39 private
projects in the corresponding period of
2016. This represented an increase of
121.06
per
cent
in
value
of
disbursements. However, N19.78 billion
was repaid for 185 projects in the
review period, compared with N22.77
billion for 247 projects in the first half of
2016, representing decreases of 13.13
and 25.10 per cent in the value and
volume of repayments.
Anchor Borrowers’ Programme (ABP)
The implementation of the Anchor
Borrowers’ Programme continued in
the
review
period
with
the
disbursement of N12.57 billion for 27
projects, compared with N14.46 billion
in the first half of 2016. The cumulative
disbursement under the Scheme since
inception
is
N31.52
billion
for

projects. Accordingly, 183,026 smallholder
farmers
cultivating
217,750
hectares have been financed. The
programme is being implemented in 27
states with the participation of 10 stateled anchors, 47 private-led anchors
and

participating
financial
institutions (PFIs) (10 commercial banks,
1 development finance institution, 1
microfinance bank and 1 non-bank
financial institution). The commodities
financed so far under the scheme
include: rice, maize, wheat, soya
beans,
cotton,
cassava,
fish
and
poultry.
Micro, Small and Medium Enterprise
Development
Fund
(MSMEDF)
Disbursements to SME and Micro Credit
A total sum of N1.59 billion was
disbursed to 21 PFIs/State Governments
for
onward
disbursement
to
beneficiaries in the review period,
compared with N16.53 billion in the
corresponding period of 2016. The sum
of N15.52 billion was repaid in the
review period.
2.2.2 Industry


2.2.2.1 Industrial Production

The contraction in industrial output
moderated to 5.83 per cent in the first
quarter of 2017 from 6.68 and 8.73 per
cent
in
the
corresponding
and
preceding
quarters
of
2016.
The
moderation was driven largely by the
manufacturing and solid minerals subsectors which grew by 1.36 and 31.47
per
cent,
compared
with
their
respective contractions of 7.00 and
73.63 per cent in the corresponding
quarter
of
2016.
The
significant
improvement in solid minerals was
traceable to activities in quarrying and
other mining, which recovered from a
deep contraction of 88.87 per cent in
the corresponding quarter to a growth
of 52.54 per cent in the first quarter of
2017. Also, the substantial recovery of
the
manufacturing
subsector
was
driven largely by food, beverage and
tobacco (4.07%), oil refining (3.01%)


CBN Monetary Policy Review

and wood & wood products (2.46%),
owing to improved foreign exchange
supply for the importation of raw
materials and intermediate inputs.
In the second quarter, industrial
output grew by 1.45 per cent in the
second
quarter
of

from
contractions of 5.83 and 7.19 per
cent in the preceding period and the
corresponding quarter of 2016. The
growth was driven largely by the
crude petroleum and manufacturing
sub-sectors which grew by 1.64 and
0.64 per cent, compared with their
respective growth rates of -11.63 and
-3.36 per cent in the corresponding
quarter of 2016.
Figure 2.5
Industrial Sector’s Contribution by Activity,
2016Q1-2017Q2

Source: NBS
2.2.2.2 Industrial Policy and Institutional
Support
The performance of the sector
during
the
review
period
was
sustained by the existing institutional
and policy framework as well as
incentives
and
reform
measures.
These included:

N300 Billion Power and Airline
Intervention Fund (PAIF)
During the review period, N4.76 billion
was disbursed to one power project,
compared with N11.59 billion to two
power and one airline projects in the
first half of 2016. In addition, ₦13.01
billion was repaid in the first half of
2017, compared with ₦11.35 billion in
the corresponding period of 2016.

Nigerian
Electricity
Market
Stabilization Facility (N213 billion)
There was no disbursement under this
facility in the review period; however,
₦4.48 billion was repaid.

Real Sector Support Facility (RSSF)
In the first half of 2017, the sum of
N22.73 billion was disbursed to seven
(7) projects, compared with N1.10
billion for one (1) project in the
corresponding period of 2016.

Textile Sector Intervention Facility
The amount released to 17 projects
stood at N10.29 billion in the first half of
2017 compared with N15.19 billion for
fourteen (14) projects in the first half of
2016.


CBN Monetary Policy Review

2.2.3 Construction and Trade


2.2.3.1 Construction
In the first quarter of 2017, the
construction sector grew by 0.15 per
cent, up from contractions of 5.37 and
6.03 per cent in the corresponding and
preceding quarters of 2016.
In the second quarter, the construction
sector grew by 0.13 per cent, up from
a
fall
of
6.28
per
cent
in
the
corresponding quarter of 2016 and a
growth of 0.15 in the preceding
quarter.
The
increased
activity
in
construction during the period was
attributable
to
improved
capital
spending arising from enhanced fiscal
receipts.
2.2.3.2 Trade
In the first quarter of 2017, activities in
the Trade sector further contracted by
3.08 per cent from 1.44 per cent in the
preceding quarter of 2016. When
compared with the growth of 2.02 per
cent in the corresponding quarter of
2016, the sector contracted by 5.10
percentage points.
The contraction in the Trade sector
moderated to 1.62 per cent in the
second quarter of 2017 from 3.08 per
cent in the preceding quarter of 2017
and
-0.03
per
cent
in
the
corresponding quarter of 2016. The
performance
of
this
sector
could
benefit from more consistent trade
policy.
2.2.4 Service Sector
In the first quarter of 2017, the sector
contracted by 0.37 per cent from a
contraction of 1.52 per cent in the
preceding quarter and a growth of
0.80 per cent in the corresponding
period of 2016. Activities of the sector
were
largely
driven
by
arts;
entertainment
and
recreation;
transport;
and
information
and
telecommunication which grew by
11.67,
10.55
and
2.73
per
cent,
respectively. This compares with their
respective growth rates of 8.41, 14.73
and 4.07 in the corresponding quarter
of 2016. The performance of the sector
was still weighed down by activities in
accommodation and food services (-
3.96%), real estate (-3.10%) and public
administration (-2.07%).
In the second quarter of 2017, the
sector further contracted by 0.85 per
cent compared with contractions of
0.37 and 1.25 per cent recorded in the
preceding
quarter
and
the
corresponding period of 2016. The
contraction
of
the
sector
was
moderated by activities in finance and
insurance, other services and public
administration, which grew by 10.45,
2.33 and 1.63 per cent, respectively.
This compares with their respective
growth rates of -10.82, 4.32 and -6.13
per cent in the corresponding quarter
of 2016. The performance of the sector


CBN Monetary Policy Review

was weighed down by activities in
transport, (-6.18%), real estate (-3.53%)
and
professional,
scientific
and
technical services (-1.72%).
Figure 2.6
Services Sub-Sector Contribution, 2016Q12017Q2

Q1-2016
Q2-2016
Q3-2016
Q4-2016
Q1-2017
Q2-2
Source: NBS
OIL SECTOR
The
oil
sector
remained
weak,
although
there
were
signs
of
improvements in the key activities
during
the
review
period.
The
development stemmed largely from
the modest firming up of oil prices in
the international market and gradual
return of stability in the Niger Delta
region, following the suspension of
militant
activities.
Nevertheless,
average daily crude oil production fell
to 1.69 million barrels per day (mbpd)
in the first quarter of 2017, from 1.76
mbpd in the preceding quarter of
2016. This also represented a decline of
17.56 per cent when compared with
2.05
mbpd
recorded
in
the
corresponding period of 2016.
In the second quarter of 2017, average
daily crude oil production rose to 1.84
million barrels per day (mbpd), from
1.69 and 1.81 mbpd in the preceding
quarter of 2017 and the corresponding
period of 2016.
Figure 2.7
Quarterly Oil Production (2016Q1-2017Q2)
Source: NBS
In the review period, crude oil prices
fluctuated
downwards,
owing
to
worries over massive build-up of the US
crude petroleum inventory, despite the
agreement by OPEC to cut production
in order to support higher prices. The
level of global supply glut, largely
driven by US shale production clearly
undermined the effectiveness of the
actions by OPEC to support prices,
particularly in the face of emerging
global
alternative
energy
sources.
Consequently, the price of Nigeria’s
reference crude, the Bonny Light
370API, which stood at US$55.01 per
barrel
in
January
2017,
fell
to
US$46.39/barrel in February. Thereafter,
it
rose
to
US$52.13/barrel
and
US$52.94/barrel in March and April,
respectively,
before
falling
to


CBN Monetary Policy Review

US$50.57/barrel and US$47.42/barrel in
May and June 2017. The persistent
weakness
in
oil
prices
depressed
government
fiscal
operations
as
reflected in the accumulation of salary
arrears by sub-national governments.
Overall, the average price of Bonny
Light of US$50.74/barrel in the first half
of

was
above
the
Federal
Government 2017 budget benchmark
price of US$44.50/barrel.
Figure 2.8
Monthly Price of Bonny Light, January – June

Source: Bloomberg


CBN Monetary Policy Review

Box 2.1
THE ECONOMIC RECOVERY AND GROWTH PLAN (ERGP) OF THE FEDERAL
GOVERNMENT OF NIGERIA

The sharp decline in crude oil prices from mid-June 2014 created serious challenges for most
oil exporters including Nigeria. The development saw oil price falling by about 70 per cent
from over US$100 per barrel in the preceding periods, thereby putting Nigeria’s public
finance under severe pressure. The resulting lower fiscal receipt, falling foreign exchange
reserves, capital reversals and exchange rate depreciations, coupled with internal security
challenges such as militancy in the Niger Delta region, farmer-herdsmen conflicts, and
insurgency in the North-East pushed the Nigerian economy into recession in the second
quarter of 2016. The development required proactive government policy to stimulate the
economy and return it to the path of growth and recovery. It was within this context that
the Federal Government developed a medium term economic blue print called the
“Economic Recovery and Growth Plan (ERGP)”, which it launched on April 5, 2017.
The ERGP covers the period of 2017 – 2020 and is an upgrade on the Strategic
Implementation Plan (SIP) for the 2016 Budget of Change which was developed as a shortterm intervention by the current administration. The ERGP was developed for the purpose of
restoring economic growth while leveraging the ingenuity and resilience of the Nigerian
people. The ERGP is also expected to rely on science, technology and innovation (STI) to
help achieve a knowledge-based economy, and is consistent with the Sustainable
Development Goals (SDGs), as it seeks to address economic, social and environmental
sustainability challenges.

The ERGP is backed by strong political will to ensure that the Plan delivers on its objectives
through focused implementation over the next four years. The Ministry of Budget and
National Planning is expected to coordinate the implementation of the plan through
monitoring and evaluation. The Plan targets a gross domestic product (GDP) growth rate of
2.19 per cent in 2017 and 7.0 per cent by 2020; oil production of 2.5 million barrels per day
(mbpd) by year 2020, privatization of some assets, revamping of local refineries and cut in
petroleum product imports by 60 per cent by 2018, and environmental restoration in the
Niger Delta, amongst others. The Plan will enable the government maintain a close
collaboration with businesses to deepen investments in the agriculture, power,
manufacturing, solid minerals and services sectors, and support the private sector to
become the engine of national growth and development. As a sign of seriousness, the
government merged the Budget and Planning functions into one Ministry to create a
stronger link between annual budgets and the ERGP. The ERGP is also expected to ensure
collaboration and coordination with sub-national governments to guarantee purposeful
delivery of services to the Nigerian people.


CBN Monetary Policy Review

The major principle of the ERGP is to eliminate supply-side obstacles that constrain growth in
the country, including fuel, power, foreign exchange, and business unfriendly regulations. In
addition, the ERGP will leverage on the private sector, promote national cohesion and
social inclusion, and allow the market to function, amongst others. The vision of the ERGP is
both to achieve economic recovery in the short term and a growth plan outlining strategy
for sustainable growth and development in the long term. The ERGP is expected to help the
country achieve the national aspiration as contained in the 1999 Constitution by seeking to
promote national prosperity and an efficient, dynamic and self-reliant economy to secure
the maximum welfare, freedom and happiness of every citizen on the basis of social justice
and equality of status and opportunity. To achieve this, the ERGP has 3 broad strategic
objectives namely: restoring growth, investing in the Nigerian people, and building a
globally competitive economy. The key execution priorities of the ERGP include:
i.
Stabilizing the macroeconomic environment;
ii.
Achieving agriculture and food security;
iii.
Ensuring energy sufficiency (power and petroleum products);
iv.
Improving transportation infrastructure; and
v.
Driving industrialization focusing on Small and Medium Scale Enterprises.
The implementation of the ERGP is expected to support economic growth and overall
macroeconomic stability thereby aiding the effectiveness of monetary policy in Nigeria.


CBN Monetary Policy Review

CBN Monetary Policy Review

CHAPTER 3

3.0
PRICE DEVELOPMENTS
n the first half of 2017, inflationary
pressures in the domestic economy
moderated,
reflecting
the
effectiveness
of
the
Bank’s
tight
monetary policy. Accordingly, both
the headline and core measures of
inflation
trended
downwards,
although
food
inflation
increased.
Nonetheless,
headline
inflation
remained
above
the
Bank’s
benchmark of 6.0 – 9.0 per cent. These
price
developments
reflected
the
combined
effects
of
supply
and
demand-related factors.
On the supply side, the pressure in the
foreign exchange market moderated,
following the implementation of further
reform measures to boost foreign
exchange liquidity. These measures
included: the introduction of Investors’
and Exporters’ (I&E) Foreign Exchange
Window for willing buyers and sellers of
foreign currency; increased foreign
exchange sales to
BDCs;
special
foreign
exchange
auctions
to
targeted
sectors;
introduction
of
foreign exchange sales for small scale
importation; reduction of import and
export documentation requirements
and
processing
timelines;
and
reduction of the tenor of forward
foreign exchange transactions from
180 to 60 day cycles. Others were: the
directive to all banks to open foreign
exchange
retail
outlets
in
major
airports across the country as well as
the increase in the Foreign Exchange
Net Open Position (NOP) limit of banks
to 10.0 per cent. In addition, the Bank
continued
the
implementation
of
existing policies and administrative
measures to rein-in demand pressures.
These policies included: the restriction
of access to foreign exchange for 41
items, the use of bank verification
number (BVN) in BDC transactions;
mandating of international money
transfer
operators
(IMTOs)
to
sell
foreign exchange to BDCs; as well as
restrictions on the use of naira debit
cards
abroad.
Furthermore,
the
improvement in foreign exchange
liquidity
was
also
partly
due
to
improved foreign exchange receipts,
following the modest firming up of oil
prices
in
the
review
period.
Consequently, the naira exchange
rate appreciated in both the parallel
and BDC segments of the foreign
exchange market, with substantial
pass-through to lower domestic prices.
The
demand
side
reflected
developments in the money market
during the review period. Money
market
rates
remarkably
trended
upwards initially indicating signs of
liquidity
shortage
in
the
banking
system
which,
however,
reversed
towards the end of the period due to
improved
Federation
Account
Allocation
Committee
(FAAC)
disbursements, maturing OMO bills,
FGN capital releases and Paris Club
I


CBN Monetary Policy Review

debt
refunds
to
sub-national
governments.


3.1
Trend in Inflation

During the review period, all measures
of inflation, except food, trended
downwards.
The food and core measures of the
consumer price index (CPI) increased
consistently from 221.4 and 210.0 in
January
to
246.3
and
223.0,
respectively,
in
June
2017.
In
consequence, the food inflation (yearon-year) rose by 2.09 percentage
points from 17.82 per cent in January
to 19.91 per cent in June 2017, while
core
inflation
declined
by
5.4
percentage points to 12.5 per cent
from 17.9 per cent. As a result,
headline inflation declined from 18.72
per cent in January to 16.10 per cent
in June 2017 (Figure 3.1 and Table 3.1).
Thus, the core component moderated
consumer prices during the period,
although
the
food
component
remained the key driver of headline
inflation based on its weight in the
consumer basket.

Table 3.1
Inflation Rates, January – June 2017
Source: NBS

Table 3.1
Inflation Rates, January – June 2017
CPI
Y-on-Y 12MMA
CPI
Y-on-Y
12MMA
CPI
Y-on-Y 12MMA
Jan-17
215.7

18.7

16.4

210.0

17.9

16.0

221.4

17.8

15.5

Feb-17
218.9

17.8

17.0

212.3

16.0

16.4

225.8

18.5

16.1

Mar-17
222.7

17.3

17.3

215.1

15.4

16.7

230.8

18.4

16.6

Apr-17
226.3

17.2

17.6

217.5

14.8

16.8

235.5

19.3

17.1

May-17
230.5

16.3

17.6

220.0

13.0

16.6

241.5

19.3

17.5

Jun-17
234.2

16.1

17.6

223.0

12.5

16.2

246.3

19.9

17.9

Core Inflation
Food Inflation
Headline Inflation

Source: NBS

3.1.1 Headline Inflation
The decline in domestic prices during
the review period was reflected in the
drop
witnessed
in
the
major
components of headline inflation. The
major drivers of headline inflation
during the period were housing, water,
electricity, gas and other fuels which
significantly dropped from 4.65 per
cent in January to 2.02 per cent in
June
2017.
Similarly,
transport
decreased from 1.10 to 0.78 per cent
during
the
period.
Others
were:
clothing
&
footwear,
furnishings,
household,
equipment
&
maintenance, and education which
decreased from 1.34, 0.65 and 0.74
per cent in January to 1.17, 0.51 and
0.56
per
cent
in
June
2017,
respectively (Table 3.2 and Figure 3.4).
Food and non-alcoholic beverages,
however, exerted upward pressure on
the composite index, rising from 9.43


CBN Monetary Policy Review

per cent in January to 10.41 per cent
in
June
2017.
Overall,
headline
inflation fell due to the combined
effects of decrease in the prices of
Housing, water, electricity, gas & other
fuels;
transport;
education;
and
clothing & footwear.
The downward trend in inflationary
pressures
during
the
period
was
traceable to the base effects and the
return
of
stability
to
the
foreign
exchange
market
due
to
the
implementation of a number of policy
measures during the review period.
Also, Governments’ introduction of the
Economic Recovery and Growth Plan
(ERGP) provided a strategic roadmap
to
the
economy
which
restored
investor confidence and moderated
inflation expectations. In addition, the
sustained tight monetary policy stance
of the Bank
rein-in
liquidity and
dampen inflationary pressures.

Table 3.2
Major Components of Headline Inflation
(Y-on-Y), January – June, 2017
Headline
Food & NonAlcoholic
Bev.
Clothing &
footwear
Housing,Water
, Elect.Gas &
Other Fuel
Furnishings,
Household Equip
&HH Maint.
Health
Transport
Education
Jan-17 18.72

Feb-17 17.78

Mar-17 17.26

Apr-17 17.24

May-17 16.25

Jun-17 16.10


Source: NBS


Figure 3.2
Major Components of Headline Inflation
(Y-on-Y), January – June, 2017

Source: NBS

On a month-on-month basis, headline
inflation trended upwards from 1.01
per cent in January to peak at 1.88
per cent in May, before declining to
1.58 per cent in June 2017. The major
components that accounted for the
increase were the prices of food and
non- alcoholic beverage, which rose
from 0.68 to 1.08 per cent; clothing
and footwear rose from 0.07 to 0.12
per
cent;
and
housing,
water,
electricity, gas and other fuels rose
from 0.10 to 1.13 per cent in the review
period (Table 3.3 and Figure 3.5).

Table 3.3
Major Components of Headline Inflation (M-onM), January – June, 2017
ALLITEM
Food & NonAlcoholic
Bev.
Health
Transport Education
Clothing &
footwear
Housing,Wat
er, Elect.Gas
& Other Fuel
Furnishings,
Household
Equip &HH
Maint.
Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17


Source: NBS


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Figure 3.3
Major Components of Headline Inflation
(M-on-M), January – June, 2017

Source: NBS
3.1.2 Food Inflation
Food
inflation
(year-on-year)
increased by 2.09 percentage points
to 19.91 per cent in June 2017 from
17.82 per cent in January. The increase
was largely attributed to the rise in the
prices of its components, namely:
processed food and farm produce.
The price of processed food rose
significantly by 1.69 percentage points
from 9.24 to 10.93 per cent, while farm
produce
increased
by
0.53
percentage point from 8.45 to 8.98 per
cent in the review period. The major
drivers of the increase in processed
food category were meat; and fish &
sea food, which rose from 1.73 to 2.02
per cent and 1.85 to 1.97 per cent,
respectively. The rise in food prices was
largely attributed to continuing food
supply
shortages
occasioned
by
scarcity of foreign exchange for food
imports as well as incessant herdsmenfarmer
conflicts
which
affected
farming
activities.
Other
perennial
factors that continued to undermine
agricultural activities with inflationary
consequences
included:
sporadic
attacks by Boko Haram terrorist in the
North-East, hikes in the price of farm
inputs including fertilizer and pesticides
as well as high cost of transportation
due to bad roads (Table 3.4 and
Figure 3.6).
Table 3.4
Major Components of Food Inflation (Y-on-Y),
Jan - June 2017
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Change Jan. -
June 2017
Food

Processed Food

Meat

Fish & Sea Food

Gari Yellow, Sold Loose

Farm Produce

Vegatables

Yam, Potatoes & other
tubers

Source: NBS
Figure 3.4
Major Components of Food Inflation
(Y-on-Y), Jan - Jun 2017

Source: NBS

Consistent
with
the
year-on-year
trajectory, food inflation on a monthon-month basis also rose from 1.29 per
cent in January to 1.99 per cent in
June
2017,
an
increase
of
0.70


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percentage
point.
The
price
of
processed
food
rose
by
0.45
percentage point from 0.62 to 1.07 per
cent; and farm produce by 0.24
percentage point from 0.68 to 0.92 per
cent, over the review period. Thus, the
0.70 percentage point increase in
food inflation was due largely to the
0.45 percentage point increase in
processed food and 0.24 percentage
point increase in farm produce. The
major
drivers
of
the
increase
in
processed food category were: fish &
sea food; and meat, which increased
from 0.11 and 0.13 per cent to 0.20
and 0.18 per cent, respectively, in the
review period.
Table 3.5
Major Components of Food Inflation (M-on-M),
Jan-Jun 2016
Jan-17 Feb-17 Mar-17
Apr-17
May-17
Jun-17
Change
Jan. -
June

Food

Processed Food

Meat

Fish & Sea Food

Gari Yellow, Sold Loose

Farm Produce

Vegatables

Yam, Potatoes & other
tubers

Source: NBS

Figure 3.5
Major Components of Food Inflation (M-on-M),
Jan - Jun 2017
Source: NBS
3.1.3 Core Inflation
Core inflation (year-on-year) trended
downwards from 17.87 per cent in
January to 12.46 per cent in June 2017,
reflecting
a
decrease
of
5.41
percentage points. The decrease was
largely accounted for by housing,
water, electricity, gas & other fuels
(2.85 percentage points); milk, cheese
and eggs (1.17 percentage points),
processed
food
(0.62
percentage
point); and transport (0.54 percentage
point). All components of core inflation
declined
over
the
review
period
except
non-alcoholic
beverages,
which increased by 0.05 percentage
point from 0.13 per cent in January to
0.18 per cent in June 2017. The major
drivers
of
the
processed
food
component were: milk, cheese and
eggs (1.17 percentage points); and
sugar,
jam,
honey,
etc
(0.20
percentage point). The decrease in
core inflation was largely due to base
effects and the Bank’s recent policy
measures to improve liquidity in the
foreign exchange market and stabilize
the exchange rate (Table 3.6 and
Figure 3.8).


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Table 3.6
Major Components of Core Inflation
(Y-on-Y) Jan – Jul. 2017
YEAR-ON-YEAR (CORE)
J an-17
Feb-17
Mar-17
Apr-17
May-17
J un-17
Change btw Jan. to
Jun. 2016
ALL ITEMS LESS FARM
PRODUCE CPI

Processed Food

Milk,Cheese & Eggs

Sugar,Jam,Honey,etc

Non-Alcoholic Beverages

Alcoholic Bev. Tobacco & Kola

Clothing & footwear

Housing,Water, Elect.Gas &
Other Fuel

Furnishings, Household Equip
&HH Maint.

Health

Transport

Communication

Recreation & culture

Education

Restaurant & Hotels

Miscellaneous Goods &
Services

Source: NBS

Figure 3.6
Major Components of Core Inflation
(Y-on-Y) Jan – Jul. 2017
Source: NBS
Core inflation on a month-on-month
basis, however, rose from 0.68 per cent
in January to 1.32 per cent in June
2017, an increase of 0.65 percentage
point. Housing, water, electricity gas &
other fuel remained the major drivers
of core inflation, increasing from -2.50
per cent in January to -1.82 per cent in
June 2017. This was followed by
clothing
and
foot
wear
which
increased from 0.28 per cent in
January to 0.32 per cent in June 2017.
Non-alcoholic
beverages
also
increased from 0.01 per cent in
January to 0.03 per cent in June 2017
(Table 3.7 and Figure 3.9).

Table 3.7
Major Components of Core Inflation
(M-on-M) Jan – Jul. 2017
MONTH-ON-MONTH (CORE)
J an-17
Feb-17
Mar-17
Apr-17
May-17
J un-17
Change btw Jan. to
Jun. 2016
ALL ITEMS LESS FARM
PRODUCE CPI

Processed Food

Milk,Cheese & Eggs

Sugar,Jam,Honey,etc

Non-Alcoholic Beverages

Alcoholic Bev. Tobacco & Kola

Clothing & footwear

Housing,Water, Elect.Gas &
Other Fuel

Furnishings, Household Equip
&HH Maint.

Health

Transport

Communication

Recreation & culture

Education

Restaurant & Hotels

Miscellaneous Goods &
Services


Source: NBS

Figure 3.7
Major Components of Core Inflation
(M-on-M) Jan – Jul. 2017
Source: NBS


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3.1.5 Seasonally-Adjusted Inflation
In the first half of 2017, both the
actual
and
seasonally-adjusted
headline inflation trended downwards
(Table 3.8 and Figure 3.10). The
movement in actual headline inflation
reflected
the
general
price
developments in the economy. Actual
headline inflation remained below the
seasonally-adjusted headline inflation
for most of the review period, due to
the strong base effects, which could
not be overwhelmed by the seasonal
factors.
Nonetheless,
the
general
downward trend in both actual and
seasonally-adjusted
measures
of
inflation were ascribed to: the base
effects; measures by the Bank to
stabilize the foreign exchange market
with pass-through to lower domestic
prices; stable energy prices as well as
improved accretion to reserves arising
from the firming up of crude oil prices
during the period.
Table 3.8
Actual and Seasonally Adjusted Headline
Inflation Jan -June 2017
Date
Inflation
S-A Inflation
Jan.17
18.70
18.58
Feb.17
17.76
18.34
Mar.17
17.26
17.91
Apr.17
17.24
17.42
May.17
16.25
16.92
Jun.17
16.10
16.53
Source: NBS


Figure 3.8
Actual and Seasonally Adjusted Headline
Inflation January - June 2017
Source: NBS
3.2
Key
Factors
that
Influenced
Domestic Prices
Price developments during the first
half of 2017 were driven by a number
of
factors
including
strong
base
effects, appreciation of the naira
following sustained interventions by
the CBN in the foreign exchange
market, weak consumer spending
arising from many months of unpaid
wages; some modest resumption in
farming activities and the rebuilding of
damaged distribution chains in the
North-East.
Others
were
the
introduction
of
the
Economic
Recovery and Growth Plan, which
provided a strategic roadmap for the
economy
and
promoted
investor
confidence as well as the sustained
tight monetary policy stance of the
Bank
that
rein-in
liquidity
and
dampened
inflationary
pressures.
However, the above developments
overwhelmed the following factors
that continued to exert pressure on


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prices: the liquidity effect of the
expansionary 2016 and 2017 Federal
Government budgets as well as rising
food shortages due to unfavourable
agricultural
season,
and
the
herdsmen-farmer conflicts in some
parts of the country. These factors are
categorized into demand side, supply
side
and
moderating
factors
as
discussed below.
3.2.1 Demand-side Factors
The moderation in headline inflation
was largely attributed to base effects
and the tight monetary policy stance
of the Bank. In addition, the relative
stability
in
the
foreign
exchange
market, due to measures by the Bank
to improve liquidity in the market as
well as weak aggregate demand,
owing to the non-payment of salaries
and
pensions
by
sub-national
governments,
also
moderated
pressures on domestic prices.
3.2.2. Supply-side Factors
The supply side factors that exerted
pressures on domestic price levels
included the continuing food supply
shortages occasioned by scarcity of
foreign exchange for food imports, as
well
as
unfavourable
agricultural
season
and
incessant
herdsmenfarmer
conflicts
which
affected
farming
activities
and
reduced
productivity. Other perennial factors
that
continued
to
undermine
economic activities with inflationary
consequences were: sporadic attacks
by Boko Haram in the North-East, hikes
in the price of farm inputs including
fertilizer and pesticides as well as costs
of transportation due to bad roads. In
addition,
the
current
output
contraction,
which
reduced
aggregate supply in the face of
foreign
exchange
scarcity
for
intermediate imports also put pressure
on prices.
3.2.3 Moderating Factors
In the first half of 2017, the factors
that
moderated
domestic
prices
included stable energy prices and
transportation costs, indicating that
the effect of the price adjustments in
recent times had fully abated. Other
factors were the modest resumption in
farming activities and the rebuilding of
damaged distribution chains in the
North
East
following
the
success
recorded in the campaign against
insurgency.
In
addition,
the
introduction
of
the
Economic
Recovery and Growth Plan provided a
strategic roadmap for the economy
and
restore
investor
confidence
thereby
moderating
inflation
expectations.


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Box 3.1
Executive Orders and Economic Growth in Nigeria
Executive Orders are presidential directives that are signed by the President or Head of the
Executive arm of government intended to rejuvenate and reinvigorate processes required to
stabilize various aspects of governance including the economy, security, foreign relations and
other issues. In the exercise of the foregoing presidential authorities conferred on the Executive
arm of government, Acting President Yemi Osinbajo, on May 18, 2017, signed three executive
orders; Viz: The Promotion of Transparency and Efficiency in the Business Environment; Support for
Local Contents in Public Procurement by the Federal Government; and Timely Submission of
Annual Budgetary Estimates by all Statutory and Non-statutory Agencies. A fourth executive
order, titled Voluntary Assets and Income Declaration Scheme (VAIDS) was similarly signed on
June 29, 2017.

The Executive Orders are part of government efforts at providing an enabling environment for
the achievement of the key pillars of the Economic Recovery and Growth Plan (ERGP) to help
restart and restore the recovering economy to its long-run growth path. To support this growth
plan, government through the instrumentality of the Executive Orders sought to address major
bottlenecks in conducting business as well as other options of raising revenue beyond
dependence on oil revenue.

The Executive Order on Support for Local Contents in Public Procurement directs MDAs to give
preference to local manufacturers of goods and service providers in their procurements. The
Order signified the much-needed political will to promote the ‘made in Nigeria’ initiative through
the public procurement process. The order mandated MDAs to give special preference to locally
produced or made-in-Nigeria items by devoting at least 40.0 per cent of the procurement
expenditure on them. Offers, bids or proposal for goods and services by MDAs must clearly state
the preference to local manufacturers and service providers.

The Executive Order on the budget process was designed to improve the budgeting process,
redress the challenges associated with delayed budget submission and passage, as well as the
poor planning of estimates over the short- and medium-term. The Order set applicable timelines
for the submission of the annual budget estimates of Ministries, Departments and Agencies
(MDAs). It provided that MDAs should submit their schedule of revenue and expenditure
estimates for the next three years to the Minister of Finance; and the Minister of Budget and
National Planning on or before end of May, while their annual budget estimates were to be


CBN Monetary Policy Review

submitted on or before the end of July. It further forbids MDAs from making any payments with
regards to any capital or recurrent liability, without an approved budget and the payment must
be in conformity with the budget. In addition, the Order directed the accrual to the consolidated
revenue fund of the Federal Government, all revenue or other funds of MDAs in excess of the
amounts budgeted and duly expended.

One of the major thrusts of the Economic Recovery and Growth Plan is to create an enabling
environment for business by improving the ease-of-doing-business in Nigeria for businesses to
thrive. In pursuant of this, a 60-day National Action Plan was approved and implemented across
Entry and Exit of goods; Entry and Exit of people and Government; and Transparency and
Procurement by the Presidential Enabling Business Environment Council (PEBEC) in February 2017.
The success of the Action Plan precipitated the issuance of the Executive Order on the Promotion
of Transparency and Efficiency in the Business Environment, to build on the successes of PEBEC
action plan and extend the gains to the entire public sector. The provisions of the Order,
amongst others, mandated MDAs to publish a complete list of all requirements or conditions for
obtaining products and services within their respective scope of responsibility. The Order
provided for the issuance of default approvals to applications in instances when government
officials fail to respond within stipulated timelines. Erring government officers will be subjected to
appropriate disciplinary proceedings in accordance with the civil service law and regulations.
Furthermore, the Order abolished bottlenecks and delays associated with multiple verifications
by different government agencies. Applicants would only be required to provide photocopies of
document while the verification of such document would be carried out by government
agencies. The Order also directs immigration processes to be more transparent, while doing
businesses at port of entry to be eased. All government agencies at the airports are to merge
their respective departure and arrival formalities into a single customer interface and harmonize
their operations into one single interface station domiciled in one location in the port and
implemented by a single joint task force. Finally registration processes at the CAC are to be fully
automated through the CAC website and online payment solutions provided where necessary.
The Executive Order on Voluntary Assets and Income Declaration Scheme (VAIDS) was
designed to be a tax amnesty programme that offers a platform for tax defaulters to
voluntarily regularize their tax compliance records by declaring and paying their tax
liabilities that accrued from assets and income derived from sources both within and
outside Nigeria for the preceding six (6) years. By so doing it provides opportunity for
government to widen its tax base and improve tax efforts. The Scheme is intended to be
operational for a 9 month period: between July 2017 and March 2018. The provisions of the


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executive order were applicable to all tax entities and in conformity with extant tax laws in
Nigeria. It thus offers a leeway for individuals and corporate bodies that have earned
income, but failed to register, or registered but, defaulted or underpaid their tax obligations
to both the Federal and subnational tax authorities. The benefits of the tax amnesty also
extend to businesses that are already under audit investigation by tax authorities or
undergoing legal litigation over their tax liabilities, provided they are disposed to taking
advantage of the amnesty for an out-of-court settlement.

The adoption and implementation of the Executive Orders by MDAs is expected to
accelerate the attainment of the goals of the ERGP and stimulate growth of the domestic
economy in several ways.

The Executive Order on the budgeting process will address challenges associated with the
budget planning, approval and implementation processes in the country. This will facilitate
the efficiency of resource mobilization into critical sectors and development of key
infrastructure for economic growth.

The Executive Order on local content would drive the expansion of local small- and
medium-scale enterprises and stimulate growth of employment generation. Also, the order
would stimulate the growth of import-substitution industries, and support the policy of the
Central Bank of Nigeria of denying access to foreign exchange for some items that could
easily be produced locally, thereby saving scarce foreign exchange. In the long run, this
policy would deepen the country’s industrialization process as well as encourage the
transfer of technology to the country.

The implementation of the Executive Order on the Promotion of Transparency and
Efficiency in the Business Environment would make the Nigerian business and investment
environment more friendly to attract the much needed foreign inflows, and make the
country the prime investment destination in Africa. In addition, it would lead to the
emergence of a competitive business climate that enhances the transmission mechanism
of monetary policy.


CBN Monetary Policy Review

CBN Monetary Policy Review

CHAPTER FOUR

4.0
MONETARY
POLICY
AND
LIQUIDITY MANAGEMENT

evelopments in the global and
domestic
economic
and
financial
environments
continued to shape the design and
implementation of monetary policy in
the
first
half
of
2017.
The
key
developments in the global economy
were the persistence of uncertainties
in major advanced and emerging
economies such as the rising wave of
populist and protectionist sentiments,
aggravated by the United States as
well as the trigger of Article 50 of the
Lisbon treaty in March 2017 to kick start
BREXIT. Others were: the divergent
monetary
policy
stance
in
the
advanced
economies;
disorderly
commodity
price
movements,
culminating in sluggish global output
growth; the increased US Shale oil
production, despite OPEC’s decision
to cut output; as well as weakening
international cooperation, following
anti-globalization sentiments in major
advanced
economies.
In
the
emerging market and developing
economies, the challenges were: low
commodity
prices,
rising
inflation,
currency instability, weak aggregate
demand and subdued capital flows.
The domestic economy witnessed a
more promising development as the
recession bottomed out. There was
also moderation in domestic price
developments
following
measures
undertaken to stabilize the foreign
exchange market. However, the key
challenges
to
monetary
policy
included persisting liquidity surfeit in
the
banking
system,
weakening
financial
stability
indicators,
contraction in private sector credit,
expansionary fiscal policy, and rising
debt
profile
of
the
general
government, including the unhealthy
phenomenon
of
accumulation
of
salary
arrears
by
sub-national
governments. The need to restore
price stability conducive to economic
growth and sustain confidence in the
financial
markets,
were
the
key
considerations underlying monetary
policy decisions in the review period.

4.1 Decisions of the Monetary Policy
Committee (MPC)
The decisions of the Monetary Policy
Committee (MPC) were influenced by
the nature of global and domestic
economic developments during the
review period. The primary issues of
concern from the global front were:
the economic and financial market
uncertainties
that
surrounded
the
assumption of office of the new US
President with the America-First policy,
and
the
progress
towards
BREXIT
negotiations in Europe. Others were
the economic implications of the
elections in France and the United
Kingdom (UK) against the backdrop of
rising
protectionist
and
antiD


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globalization
sentiments,
monetary
policy
divergence
across
major
advanced
economies,
and
the
generally weak commodity prices.

On
the
domestic
front,
the
key
challenges were persisting weaknesses
in
the
economy
reflected
in
continuing output contraction and
high unemployment rate, which were
exacerbated by weak fiscal activities,
contraction in private sector credit,
sustained demand pressure in the
foreign
exchange
market
and
weakening financial system indicators.
Added
to
these
was
the
slowly
abating inflationary pressure, largely
driven by strong base effects.

4.1.1
January 2017 MPC Meeting
The January 2017 MPC meeting reassessed
the
headwinds
which
confronted the Nigerian economy in

and
the
opportunities
for
recovery in 2017. On the global front,
the
Committee
observed
that
uncertainties
in
the
external
environment
persisted
due
to
a
combination of recent political and
economic developments, including:
BREXIT, rising wave of populist and
anti-globalization
sentiments,
divergent monetary policy stance in
the
advanced
economies
and
disorderly
commodity
price
movements, culminating in sluggish
global output growth. The emerging
market and developing economies
continued to be confronted with
strong
headwinds
from
low
commodity
prices,
rising
inflation,
currency instability, weak aggregate
demand and subdued capital flows.

Developments on the domestic front
indicated that the economy further
contracted by 2.24 per cent in Q3
2016, having slipped into recession in
the preceding quarter. The Committee
noted that by their nature, the key
undercurrents
driving
the
output
contraction,
namely:
scarcity
of
foreign exchange, low fiscal activity,
high energy prices and accumulation
of salary arrears were not directly
amenable to monetary policy actions.
Headline inflation (year-on-year) rose
to 18.55 per cent in December 2016
from 18.48 and 18.33 per cent in
November and October, respectively,
thus sustaining its upward momentum.
The Committee was concerned that
the
structural
factors
driving
the
sustained pressure on consumer prices,
such as the high cost of power,
energy,
transport
and
production
factors, as well as rising prices of
imports, were yet to abate.

The Committee observed that the
financial markets remained relatively
calm, following measures by the Bank
to restore stability in the foreign
exchange market. As a result, the
average
naira
exchange
rate
remained stable at the inter-bank
segment of the foreign exchange
market,
although
capital
market
indices: the All Shares Index and


CBN Monetary Policy Review

Market Capitalization, fell by 2.04 and
2.05 per cent, respectively, relative to
end-December 2016, reflecting the
challenges confronting the economy.

The
key
considerations
underlying
MPC decisions were the implications
of the rising wave of nationalistic
sentiments across the West, the reevaluation of trade agreements and
the possibility of rapid monetary policy
normalization in the United States, with
adverse
consequences
for
other
countries, including Nigeria. Also, the
uncertainties
underpinning
the
implementation of BREXIT, and the
apparent retreat from globalisation
and free trade were taken into
account.
In
recognition
of
the
imminent structural shift in the global
economy in the years ahead, the
Committee reiterated the need for
more inward looking policies and
efforts towards the diversification of
the domestic economy.

The MPC also reflected on most of its
decisions in 2016, which were informed
by the need to address the delicate
balance between price stability and
growth, however, economic recession
persisted and inflationary pressures
remained heightened. The Committee
noted that the current situation was
not amenable to simplistic analyses
and
quick
fixes
was
increasingly
expressed in various fora and the
media. In the Committee’s view,
domestic economic challenges which
included
a
chronically
import
dependent consumption culture, lack
of competitiveness of many sectors
and
yawning
infrastructural
gap,
combined
with
an
unfavourable
external environment had complicate
macroeconomic policy management.

In terms of the outlook, the Committee
noted the positive contribution of
agriculture to GDP in the third quarter
of 2016, largely attributable to the
Bank’s interventions in the sector. The
MPC hoped that output growth would
resume in the short-to-medium term,
given the thrust of the 2017 Federal
Government
budget
and
accompanying sectoral policies. The
Committee believed that Inflationary
pressures would begin to subside as
non-oil output recovered and the
naira exchange rate stabilized. Until
then, it stressed that a rate cut would
worsen inflationary conditions and
undermine the current outlook for
stability
in
the
foreign
exchange
market. Furthermore, it would further
aggravate demand pressures, worsen
the inflationary spiral and reduce
confidence for foreign and domestic
investments. From a financial stability
standpoint, the Committee noted the
possible impact of the inclement
macroeconomic environment on the
banking
industry
resilience.
Accordingly, the MPC urged the Bank
to engage industry operators on issues
of asset quality, credit concentration
and high foreign exchange exposures.


CBN Monetary Policy Review

In consideration of the headwinds in
the
domestic
economy
and
the
uncertainties
in
the
global
environment,
the
Committee
unanimously voted to retain the MPR
at 14.0 per cent, alongside all other
policy parameters. In summary, the
MPC decided to: Retain the MPR at
14.0 per cent; Retain the CRR at 22.5
per cent; Retain the Liquidity Ratio at
30.00
per
cent;
and
Retain
the
Asymmetric corridor at +200 and -500
basis points around the MPR.
4.1.2
March 2017 MPC Meeting
The
March

MPC
meeting
evaluated the prevailing global and
domestic
macroeconomic
environments, noting that adverse
external
and
domestic
conditions
continued to complicate the policy
environment. The global economy
witnessed greater momentum in Q4
2016,
although
the
external
environment continued to be plagued
by political, economic and financial
market uncertainties, which features
were: BREXIT, growing protectionist
and
anti-globalization
sentiments,
divergent monetary policies in the
advanced economies and volatile
commodity price movements.

The MPC noted the slip in oil prices
against the backdrop of fears of a
global
supply
glut,
likely
from
increased US Shale oil production,
despite OPEC’s decision to cut output.
The Committee was also concerned
about the resumption of the pace of
US monetary policy normalization and
the potential spillover effects on global
capital flows and interest rates. The
MPC observed that challenges in the
emerging market and developing
economies persisted, as they struggled
to combat strong headwinds from low
commodity
prices,
rising
inflation,
currency
volatility,
receding
real
income and capital reversals. It was,
however, reassuring to the Committee
that in spite of these constraints, the
IMF projected improvement in global
growth from 3.1 per cent in 2016 to 3.4
per cent in 2017.

On the domestic front, available data
showed that the contraction of the
economy moderated to 1.30 per cent
in Q4 2016, which suggested that the
recession may have bottomed out.
Overall,
in
2016,
the
economy
contracted by 1.51 per cent. The
Committee was still convinced that
fiscal policy remained the most potent
panacea
to
the
key
negative
undercurrents of stunted economic
activity, heightened unemployment
and high inflation. The Committee
reemphasized
the
necessity
of
diversifying the economy away from
oil, and cautioned that despite the
recent moderate recovery, the era of
high oil prices was over.

The MPC also observed that headline
inflation (year-on-year) declined for
the first time in 15 months, dropping by
0.94 percentage point to 17.78 per


CBN Monetary Policy Review

cent in February, from 18.72 per cent
in January 2017, and 18.55 per cent in
December 2016, reversing the upward
momentum.
However,
month-onmonth
inflation
trended
upwards,
which the Committee attributed to the
sustenance of the structural factors
which mounted pressure 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
was optimistic that the adopted policy
stance and other ancillary measures,
aimed at improving the agricultural
and other key sectors of the economy,
would restart growth and drive down
prices in the short to medium-term.

The Committee was satisfied with the
relative
stability
in
the
financial
markets
as
the
average
naira
exchange rate remained stable in the
inter-bank foreign exchange market. It
welcomed
the
improved
implementation
of
the
foreign
exchange policy that resulted in the
recent appreciation of the naira. The
MPC, however, noted the decline in
the equities segment of the capital
market as the All-Share Index (ASI) and
stock
Market
Capitalization
(MC)
decreased by 3.12 and 3.03 per cent,
respectively,
relative
to
endDecember 2016. This development
reflected
the
challenges
still
confronting the economy.

The Committee also evaluated other
challenges confronting the domestic
economy and the opportunities for
achieving price stability conducive to
growth in 2017. These were: persisting
inflationary pressure; continued output
contraction; high unemployment rate;
elevated demand pressure in the
foreign exchange market; low credit
to the real sector and weakening
financial system indicators.

The broad policy considerations the
Committee faced with at the meeting
in
view
of
the
delicate
macroeconomic environment were to
ease, tighten or hold policy. The
argument for loosening the stance of
monetary policy was premised on the
need to stimulate aggregate demand
through
lower
interest
rates
and
cheaper credit to address the current
recession. However, the arguments
against loosening were anchored on
the upward trending month-on-month
inflation
and
its
impact
on
the
exchange rate as loosening would
worsen the already negative real
interest rate and reverse the positive
outlook for the current account. Also,
since
interest
rates
are
sticky
downwards,
loosening
may
not
necessarily transmit to lower retail
lending rates.

The argument for tightening was
anchored on the need to address
inflationary pressures and achieve
positive real interest rates to attract
foreign inflows to moderate demand
pressures in the foreign exchange
market. However, tightening at this


CBN Monetary Policy Review

time would portray the Bank as being
insensitive to growth concerns. Also,
deposit money banks may easily
reprice
their
assets
which
could
undermine financial system stability.

On balance, the Committee was on
the opinion that it may not be
necessary to change the course of
policy
in
view
of
the
fragile
macroeconomic
stability
so
far
achieved. Also, the need to allow
previous policy measures including the
implementation
of
the
newly
introduced Economic Recovery and
Growth
Plan,
the
new
foreign
exchange policy to permeate the
economy, so also is the current effort
by the Federal Government to restore
peace in the Niger Delta region, on
order to revive economic growth and
stabilize prices.

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: Retain the MPR at 14 per
cent; Retain the CRR at 22.5 per cent;
Retain the Liquidity Ratio at 30.00 per
cent; and Retain the Asymmetric
corridor at +200 and -500 basis points
around the MPR.


4.1.3
May 2017 MPC Meeting
At the May 2017 Monetary Policy
Committee
(MPC)
meeting,
the
challenges
confronting
monetary
policy from the global and domestic
environments were assessed against
the backdrop of slowly improving
global
growth
prospects,
and
weakening international cooperation,
which continued to be threatened by
anti-globalization sentiments in major
advanced economies. The challenges
included:
continued
global
uncertainties
arising
from
the
dwindling
commitment
to
global
cooperation, possibility of lower oil
prices due to renewed investment in
shale oil exploration and production,
unsteady commodity prices as well as
continued
monetary
policy
normalization by the U.S. Fed, which
may result in capital reversal from
emerging
market
economies,
including Nigeria.

The Committee observed that global
output growth continued to gather
momentum, and was estimated to
expand by 2.8 per cent (annualized) in
Q1 2017. In spite of the fairly optimistic
global
economic
outlook,
uncertainties surrounding the direction
of
macroeconomic
policy
in the
advanced economies continued to
cloud recovery prospects.

On the domestic front, data from the
National Bureau of Statistics (NBS)


CBN Monetary Policy Review

showed that the economy contracted
marginally by 0.52 per cent in Q1 2017,
with about eighteen (18) economic
activities recording positive growth, a
much more promising development
since Q1 2016, indicating that the
economy was firmly on a path to
recovery. In order to sustain the
recovery, engender employment and
restore confidence in the economy,
the
Committee
urged
the
fiscal
authorities to expeditiously commence
the implementation of the recently
approved 2017 Federal Government
budget,
especially,
the
capital
expenditure component.

Headline
inflation
(year-on-year)
moderated for the third consecutive
month to 17.24 per cent in April, from
17.26 per cent in March, effectively
reversing
the
monthly
upward
momentum since January 2016. Also,
month-on-month inflation moderated
to 1.60 per cent in April from 1.72 per
cent in March 2017. The moderation in
inflation reflected the decline in the
core
component.
The
Committee
attributed these developments largely
to the effects of the recent gains in the
naira exchange rate, due to the
Bank’s interventions in the foreign
exchange
market,
resulting
in
downward
price
adjustments
on
imported items and their derivatives. It
urged the Bank to sustain and deepen
these reform measures in order to fully
reap the benefits of the lower passthrough to consumer prices.

The Committee noted the sustained
stability in the financial market as
reflected
in
the
average
naira
exchange
rate,
which
remained
stable at the inter-bank segment of
the foreign exchange market. The
MPC also welcomed the growing
investor confidence in the economy
as the equities segment of the capital
market became bullish, with the AllShare Index (ASI) and stock Market
Capitalization (MC) rising by 4.60 and
5.10 per cent, respectively, relative to
end-December
2016,
due
to
improvements in the supply of foreign
exchange.

Following the above developments,
the broad policy considerations of the
Committee was to either tighten or
hold
position.
The
argument
for
tightening was premised on the need
to further rein-in inflation and attract
foreign inflows from improved yields. In
addition, the risks to banking system
liquidity
of
the
envisaged
fiscal
injections for the rest of the year from
the
implementation
of
the

Federal Government budget, was
factored-in. The MPC, however, noted
that further tightening would widen
the income gap, depress aggregate
consumption and adversely affect
credit to the real sector of the
economy.
The
Committee
also
reasoned that the cost of capital in
the economy remained high and not
helpful to growth.


CBN Monetary Policy Review

The MPC also muted the idea of
easing to support growth but was
concerned
that
loosening
would
exacerbate inflationary pressures and
worsen the gains so far achieved in
exchange rate management. It was
also convinced that loosening would
further increase the negative real
interest rate as the gap between the
nominal interest rate and inflation
widens. The Committee, however,
urged DMBs to step up credit to the
private sector to support economic
recovery.

Against the backdrop of the rather
unclear outlook around key economic
activities (food production especially)
and some optimism about current
deceleration in inflation, as well as
relative stability in the naira exchange
rate, the MPC was reluctant to alter
the current policy configuration in any
fundamental
manner.
This
was
intended to allow the existing policies
to
fully
achieve
set
goals
and
objectives. The MPC was also of the
view that whereas the downward
trend in inflation in April 2017 was a
welcome development, the rate was
still significantly above the policy
reference
band.
In
addition,
the
Committee believed that the inflation
outlook does not appear benign as
the limit of the base effect driving the
current moderation in prices may
have been reached.

In consideration of the challenges
weighing
down
the
domestic
economy and the uncertainties in the
global environment, the Committee
decided by a unanimous vote of the 8
members in attendance to retain the
MPR at 14.0 per cent alongside all
other policy parameters. One member
was
absent
at
the
meeting.
In
summary, the MPC decided to: Retain
the MPR at 14 per cent; Retain the
CRR at 22.5 per cent; Retain the
Liquidity Ratio at 30.00 per cent; and
Retain the Asymmetric corridor at +200
and -500 basis points around the MPR.
4.2
Instruments
of
Liquidity
Management
The Bank continued to deploy the
instruments in its tool kit in the conduct
of monetary policy in the review
period, with the objective of price and
macroeconomic
stability.
The
key
instruments were: the Monetary Policy
Rate (MPR), the Cash Reserve Ratio
(CRR), the Liquidity Ratio (LR), Open
Market
Operations
(OMO)
and
Discount
Window
Operations.
In
addition, interventions in the foreign
exchange market were sustained.
4.2.1 Monetary Policy Rate (MPR)
The MPR remained the key instrument
for monetary policy management,
and was unchanged at 14.0 per cent
during the review period. Similarly, the
asymmetric corridor around the MPR
was retained at +200 and -500 basis
points throughout the period. The
maintenance of the MPR and the


CBN Monetary Policy Review

asymmetric
corridor
continued
to
signal the Bank’s commitment to a
tight
monetary
policy
stance
to
achieve
overall
macroeconomic
stability.
4.2.2 Open Market Operations (OMO)
In the first half of 2017, the Bank
increased its reliance on Open Market
Operations
(OMO)
for
managing
system
liquidity.
Total
OMO
sales
increased
by
66.17
per
cent
to
N3,871.27billion in the first half of 2017
compared with N2,329.75 billion
recorded in the corresponding period
of 2016. It was, however, 29.99 per
cent lower than the sale of N5,529.87
billion in the preceding half year.
Table 4.1
OMO Bills Auction (January 2016 – June
2017) (N’billion)
Date

%
Change
Jan
698.42
700.52
-29.62%
Feb
509.23
619.14
-19.98%
Mar
394.63
391.16
-3.66%
Apr
363.72
319.09
-27.94%
May
64.63
580.08
369.31%
Jun
299.12
1,261.28
-63.53%
1st Half
2,329.75
3,871.27
66.17%
Jul
695.21


Aug
1728.15


Sep
1057.95


Oct
807.02


Nov
665.57


Dec
575.97


2nd Half
5,529.87


Source: CBN


Figure 4.1
OMO Bills Auction (January 2016 – June

Jan
Feb
Mar
Apr
May
Jun
N'Billions
OMO Sales

Source: Financial Market Department

4.2.3 Reserve Requirements
The Bank continued the use of the
Cash Reserve Ratio (CRR) as a macroprudential and liquidity management
instrument to complement the MPR
and OMO in the first half of 2017. The
Monetary
Policy
Committee
maintained the CRR at 22.5 per cent
of total deposits throughout the review
period, to address the persistence of
excess liquidity in the banking system.
The
liquidity
ratio
also
remained
unchanged at 30.0 per cent during
the period.
4.2.4 Standing Facilities Corridor
Deposit Money Banks (DMBs) and the
Discount
House
(DH)
utilized
the
standing facilities window in the period
under review, to meet their daily
liquidity
requirements.
With
the


CBN Monetary Policy Review

asymmetric corridor of +200/-500 basis
points
maintained
throughout
the
review period, the request under the
Standing
Lending
Facility
(SLF)
increased
by
15.02
per
cent
to
N26,984.46 billion in the first half of 2017
from N23,459.89 billion in the second
half of 2016. This also represented an
increase of 425.23 per cent compared
with
N5,137.66
billion
in
the
corresponding period of 2016 (Table
4.2).
Deposits at the Standing Deposit
Facility
(SDF)
window
stood
at
N5,175.05 billion, a decrease of 13.24
and
60.53
per
cent
below
the
respective levels of N5,964.93 billion
and N13,113.23 billion in the preceding
and the corresponding half years
(Table 4.3). Thus, transactions at the
two windows resulted in a net lending
position of N21,809.41 billion, up from
N9,520.11 billion in the preceding half
year, in contrast to the net deposit of
N7,974.57 billion in the corresponding
period of 2016.
The
combination
of
liquidity
management instruments deployed
by the Bank in the review period
curtailed the liquidity surfeit within the
banking system significantly, leading
to an increase in lending at the SLF
window and a marginal decrease in
deposits at the SDF window. The
reduced
Federation
Accounts
Allocation
Committee
(FAAC)
disbursements to the three tiers of
government in the first half of 2017 also
contributed to the moderation of
liquidity
in
the
banking
system,
resulting in a significant drop in OMO
sales in the review period relative to
the second half of 2016.
Table 4.2
CBN Standing Lending Facility (January 2016 –
June 2017) (N’billion)
Date

% Change
Jan
84.26
3,540.86

Feb
4.11
3,591.58

Mar
474.75
5,380.33

Apr
942.66
5,203.28

May
869.52
5,073.33

Jun
2,762.36
4,195.09

1st Half
5,137.66
26,984.46
425.23%
Jul
2,727.21
Aug
4,255.97


Sep
3,482.35
Oct
4,132.39


Nov
5,041.36
Dec
3,820.61


2nd
Half
23,459.61


Source: CBN

Figure 4.2
CBN Standing Lending Facility (January 2016 –
June 2017)

Jan
Feb
Mar
Apr
May
Jun
N'Billions
Standing Lending Facility (January - June 2017)
SLF

Source: CBN


CBN Monetary Policy Review

Table 4.3
CBN Standing Deposit Facility (January 2016 –
June 2017) (N’billion)
Date

% Change
Jan
2,369.31
1,953.88

Feb
2,553.89
411.68

Mar
1,635.43
892.95

Apr
2,971.33
508.10

May
1,760.02
769.32

Jun
1,822.25
639.13

1st
Half
13,112.23
5,175.05
-60.53%
Jul
934.29


Aug
1,050.27


Sep
826.94


Oct
949.32


Nov
744.3


Dec
1,459.81


2nd
Half
5,964.93

-13.24%
Source: CBN

Figure 4.3
CBN Standing Deposit Facility (January 2016 –
June 2017)


Jan
Feb
Mar
Apr
May
Jun
N'Billion
Standing Deposit Facility (January -June
2017)
SDF

Source: CBN


4.2.5
Foreign Exchange Intervention
In order to further restore stability in
the foreign exchange market, the
Bank complemented the new flexible
foreign
exchange
regime
with
additional
measures
aimed
at
boosting foreign exchange liquidity,
moderating the widening exchange
rate premium, addressing speculative
pressures as well as guarding against
the evolution of multiple exchange
rates in the market. These measures
included: the introduction of Investors’
and Exporters’ (I&E) Foreign Exchange
Window for willing buyers and sellers of
foreign currency; increased foreign
exchange sales to BDCs;
special
foreign
exchange
auctions
to
targeted
sectors;
introduction
of
foreign exchange sales for small scale
importation; reduction of import and
export documentation requirements
and
processing
timelines;
and
reduction in the tenor of forward
foreign exchange transactions from
180 to 60 day cycles. Others were: the
directive to all banks to open foreign
exchange
retail
outlets
in
major
airports across the country as well as
increase in the Foreign Exchange Net
Open Position (NOP) limit of banks to
10.0 per cent. Furthermore, the Bank
continued
the
implementation
of
existing policies and administrative
measures including the restriction of
access to foreign exchange for 41
items and the use of bank verification
number (BVN) in BDC transactions, to


CBN Monetary Policy Review

rein-in
demand
pressures
in
the
market. Consequently, the pressure in
the
foreign
exchange
market
moderated. Accordingly, total supply
of
foreign
exchange,
increased
remarkably by 162.48 per cent, to
US$7,717.11 million in the first half of
2017 from US$2,940.05 million in the
second
half
of
2016.
This
also
represented a 34.65 per cent increase
when
compared
with
US$5,731.39
million in the corresponding period of
2016 (Table 4.4). The increased supply
of
foreign
exchange
was
largely
traceable to the modest accretion to
foreign reserves following the firming
up of crude oil prices, as well as
improved capital inflows from the
sustained tight monetary policy stance
of the Bank.

Table 4.4
Foreign Exchange Supply by the CBN (US$
Million)
Date

% Change

Total FX
Supply
(including
Forward
Sales)
Total FX
Supply
(including
Forward
Sales)

Jan
973.57
768.76

Feb
895.77
876.48

Mar
1093.05
1309.44

Apr
727.69
1919.3

May
617.5
1727.73

Jun
1,423.81
1,115.40

1st
Half
5,731.39
7,717.11
34.65%
Jul
470.00

Aug
576.15


Sep
105.00

Oct
343.92


Nov
363.11

Dec
1,081.87


2nd
Half
2,940.05


Source: CBN

Figure 4.4
Foreign Exchange Supply by the CBN (US$
Million)

Source: CBN

4.3
Developments in the Monetary
Aggregates
In the first half of 2017, most of the
monetary aggregates contracted and
performed
below
their
indicative
benchmarks. The development was
traceable to the contraction in Net
Foreign
Assets
(NFA)
which
was,
however, unable to overwhelm the
modest growth in Net Domestic Assets
(NDA) of the banking system. The
contraction of NFA was, however, an
improvement when compared with
the programme benchmark, due to
improved foreign exchange receipts
following the firming up of crude oil


CBN Monetary Policy Review

prices. Net Domestic Credit (NDC)
increased, largely on account of
growth in credit to government.
4.3.1
Broad Money (M2)
Broad Money (M2) contracted by
7.33 per cent to N21,674.21 billion at
end-June 2017, from N23,388.33 billion
at end-December 2016. Compared
with N22,078.01 billion, at end-June
2016. M2 contracted by 1.83 per cent,
in contrast to the indicative growth
target of 10.29 per cent for 2017.
Figure 4.5
Money Supply (M1) and (M2) (January – June
2017, 2017)

Source: CBN

Figure 4.6
Growth in Money Supply (M1) and (M2) (June -
December, 2016)
Source: CBN
4.3.2
Narrow Money (M1)
Narrow Money (M1) contracted by
10.75 per cent to N9,883.82 billion at
end-June 2017, from N11,068.11 billion
at end-December 2016. Compared
with N9,518.98 billion at end-June 2016,
M1 increased by 3.83 per cent. The
year-on-year increase in M1 was
below the indicative growth target of
11.07 per cent for 2017. The year-onyear increase in narrow money came
from 23.8 per cent increase in the
foreign currency deposits of merchant
and non-interest banks as a result of
the CBN’s interventions in the foreign
exchange market to stabilize the
naira.
4.3.3 Net Foreign Assets (NFA)
Net Foreign Assets (NFA) contracted
by 7.45 per cent to N8,468.08 billion at
end-June 2017, from N9,149.66 billion
at
end-December
2016.
When
compared with the end-June 2016
level
of
N7,105.66
billion,
NFA,
however, increased by 19.17 per cent.
The year-on-year increase in NFA was
in
contrast
to
the
indicative
benchmark of -29.31 per cent for 2017
due to improved foreign exchange
receipts as a result of the modest rise
in crude oil prices from an average of
US$40.51 per barrel in the first half of
2016 to US$50.74 per barrel in the
review period.


CBN Monetary Policy Review

4.3.2
Net Domestic Assets (NDA)
Net Domestic Credit (NDC) grew
marginally
by
1.02
per
cent
to
N26,921.03 billion at end-June 2017,
from
N26,649.02
billion
at
endDecember 2016. When compared
with the end-June 2016 level of
N24,623.62 billion, NDC increased by
9.33 per cent largely on account of
growth in credit to the government.
The year-on-year increase of 9.33 per
cent
was,
however,
substantially
below
the
indicative
growth
benchmark of 17.93 per cent.
Figure 4.7
Net Domestic Asset (NDA) (January – June 2017)

Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
N'Billion
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Net Domestic Credit 26,385,468.28 27,141,089.62 27,390,140.33 27,450,334.24 26,758,768.72 26,921,031.26
Source: CBN
Figure 4.8
NFA, NDA and Other Assets(net) (Jan. – Jun.
2017)

Source: CBN

4.4.3
Credit to the Government (Cg)
Credit to government (Cg) grew by
1.02 per cent to N4,942.46 billion at
end-June 2017, from N4,509.81 billion
at
end-December
2016.
When
compared with N3,171.44 billion, at
end-June
2016,
Cg
increased
substantially by 58.84 per cent, due
largely to government borrowing to
finance the expansionary budget in
the face of dwindling oil revenue. The
year-on-year increase in Cg was
above the indicative benchmark of
33.12 per cent for 2017.
4.4.4
Credit to the Private Sector
(Cp)
Credit to the private sector (Cp)
contracted by 0.02 per cent to
N21,978.57 billion at end-June 2017,
from
N21,982.15
billion
at
endDecember 2016. When compared
with the end-June 2016 level of
N21,452.18
billion,
Cp
increased
marginally by 2.54 per cent. The yearon-year increase in Cp was, however,
substantially
below
the
growth
benchmark of 14.88 per cent for 2017.
The marginal increase in credit to
private
sector
in
the
face
of
remarkably
high
credit
to
the
government,
indicates
DMBs
preference for sovereign instruments
and cautious approach to lending to
the real sector. The development calls
for policies aimed at de-risking the real


CBN Monetary Policy Review

sector in order to facilitate the flow of
credit to the real economy to promote
recovery.

Figure 4.9
Domestic Credit to Private Sector (January
– June 2017)
Source: CBN
4.4.5
Reserve Money (RM)
Reserve Money (RM) contracted by
6.13 per cent to N5,489.63 billion at
end-June 2017, from N5,847.92 billion
at
end-December
2016.
When
compared with the end-June 2016
level of N5,371.86 billion, RM, however,
showed an increase of 2.19 per cent.
The growth in RM was due largely to
the 11.2 per cent increase in currencyin-circulation (CIC) during the period.
The modest year-on-year increase in
RM was still substantially below the
indicative growth benchmark of 11.41
per cent for 2017.
A summary of the major monetary
aggregates and provisional outcome
as at end-June 2017 is presented in
(Table 4.5).


CBN Monetary Policy Review

Table 4.5
Monetary Aggregates Outcomes (Growth in % except otherwise stated)


Change in H1 2017
Varaibles
Actual
Actual
Actual
Benchmark
Deviation
(N'b)
Actual
June
Dec
June

M2 (N'b)

M2 (%)

M1 (N'b)

M1 (%)

RM (N'b)

RM (%)

NDC (N'b)

NDC (%)

Cg (N'b)

Cg (%)

Cp (N'b)

Cp (%)

NFA (N'b)

NFA (%)

Source: CBN


CBN Monetary Policy Review

Box 4.1
TAX EFFORT AND ECONOMIC GROWTH: THE VOLUNTARY ASSET AND INCOME
DECLARATION SCHEME (VAIDS)
Tax effort had been identified as an important factor in sustainable growth and poverty
reduction in many countries. It is defined as the ratio of tax revenue to gross domestic
product (GDP), and thus measures how much of a country’s taxable capacity is utilized.
The low tax effort observed in the Nigerian fiscal space had been ascribed to weak tax
compliance and feeble enforcement of tax laws over the years. Available Statistics show
that only 14 million out of 69.9 million economically-active individuals in Nigeria are tax
payers. About 96.0 per cent of these tax payers are compelled to pay through the ‘Pay As
You Earn’ (PAYE) system that automatically deduct their taxes at source, with only 4.0 per
cent of voluntary compliance.
Towards redressing this state of affairs, the Federal Government of Nigeria in February 2017
approved the National Tax Policy, which prescribed the promotion of a tax culture,
improving tax compliance, curbing tax evasion and widening the tax net as well as
improving the tax to Gross Domestic Product (GDP) ratio as core objectives of fiscal policy.
The Federal Ministry of Finance, in pursuance of this mandate, instituted the Voluntary Assets
and Income Declaration Scheme (VAIDS).
VAIDS was introduced on June 29, 2017 by the Executive Order number 004 signed by the
Acting President, Yemi Osinbajo. VAIDS is designed to be a tax amnesty programme that
offers a platform for tax defaulters to voluntarily regularize their tax compliance records by
declaring and paying their tax liabilities accrued from assets and income derived from
sources both within and outside Nigeria in the last six (6) years. The Scheme therefore,
provides opportunities for government to widen its tax base and improve its tax collection
efforts. It is intended to be operational for a 9 month period, from July 2017 to March 2018.
The provisions of the executive order were applicable to all tax entities and in conformity
with extant tax laws in Nigeria. It thus provides a leeway for individuals and corporate
bodies that have earned income, but failed to register; or registered, but defaulted; or
underpaid their tax obligations to both the Federal and subnational tax authorities. The
benefits of the tax amnesty were also extend to businesses that are already under audit
investigation by tax authorities or undergoing legal litigation over their tax liabilities,
provided they are disposed to taking advantage of the amnesty for an out-of-court
settlement.
The Voluntary Asset and Income Declaration Scheme (VAIDS) offers such benefits to willing
beneficiaries, which include immunity from tax audit and prosecution for tax infractions,
interest and penalty waivers on accrued tax liabilities, along with the option of agreeing
with the respective tax authorities on the terms of payment of outstanding liabilities over a


CBN Monetary Policy Review

maximum period of three years. The tax immunity will, however, not invalidate accrued
penalty already imposed by a court as a consequence of prior litigations. On the other
hand, section 8 of the Executive Order details the consequences of not taking the benefits
offered by VAIDS to include payment of the outstanding tax liability in full, with penalty and
interests where applicable as well as criminal prosecution. In addition, where the tax
liabilities are not fully declared, whatever amount paid will be considered as part payment
of the outstanding total liability.
To complement the VAIDS, the Federal Inland Revenue Service (FIRS) will implement the
Standard for Automatic Exchange of Information (AEOI) on Tax Matters from January 1,
2018. The AEOI would enable the Agency to work in partnership with the Global Forum on
Transparency and Exchange of Information for Tax Purposes under the auspices of the
Organisation for Economic Co-operation and Development (OECD). The AEOI Standard will
enable the FIRS cooperate with tax authorities globally in order to implement measures
against tax evasion, where Nigerians have failed to declare income and assets abroad.
The implications of enhanced tax effort on government revenue, which VAIDS represent,
arise from the widening of the tax base of the economy. This will lead to the diversification
of government revenue away from the current dependence on oil. In effect, periodic
shocks to government revenue usually associated with fluctuations in oil price will be
minimized and subsequently smoothen out. Consequently, government will be in a better
position to increase investment in public infrastructure.


CBN Monetary Policy Review

CHAPTER FIVE

5.0
DEVELOPMENTS
IN
THE
FINANCIAL MARKETS

n
the
review
period,
the
performance
of
the
Nigerian
financial market continued to be
influenced by a number of global and
domestic
developments.
The
key
global developments included: the
persistence of uncertainties in major
advanced
and
emerging
market
economies such as the rising wave of
populist and protectionist sentiments,
actions by the UK government to
trigger BREXIT negotiations, and Left
Wing electoral victory in France. The
divergent monetary policy stance in
the advanced economies, low global
commodity
prices
and
increased
investment in U.S. shale oil production
also influenced market activities. In
order to moderate the impact of these
uncertainties on global growth and
ensure
the
resumption
of
the
momentum of economic activities,
monetary policy in the advanced
economies
remained
broadly
accommodative in the review period.
Developments in the emerging market
and
developing
economies
were
mixed in view of the need for monetary
accommodation for those in recession
or
experiencing
sluggish
recovery,
while others, particularly oil exporters
that
had
severe
currency
depreciations from recent oil price
shocks, required improved yields on
domestic assets.
The money market rates were volatile,
largely in response to developments in
the
foreign
exchange
market.
Accordingly, the rates fluctuated with
occasional spikes reflecting the effects
of
OMO
transactions,
maturing
government securities and CBN bills,
Joint
Venture
Cash
(JVC)
call
payments and Paris Club debt refunds.
As a result, the Bank intervened in the
foreign
exchange
market
with
measures to curb demand pressure
and speculative activities including the
introduction of the Investors’ and
Exporters’ foreign exchange window.
These measures were able to stabilize
the foreign exchange market and
return confidence to the economy.
Accordingly, capital inflows resumed,
leading to a bullish trend in the equities
market.
5.1
The Money Market

During the review period, the money
market remained active with the
market
rates
mirroring
liquidity
conditions in the banking system. The
money market rates were volatile
largely in response to developments in
the foreign exchange market as the
Bank intervened with measures to curb
demand pressure. Accordingly, money
market
rates
fluctuated
with
occasional spikes reflecting the effects
of
OMO
transactions,
maturing
government securities and CBN bills,
I


CBN Monetary Policy Review

Joint
Venture
Cash
(JVC)
call
payments and Paris Club debt refunds
as well as the introduction of the
Investors’
and
Exporters’
foreign
exchange window. Notwithstanding
these developments, the Monetary
Policy Committee (MPC) during the
period maintained the Monetary Policy
Rate (MPR) at 14.0 per cent and the
associated
asymmetric
corridor
of
+200/-500 basis points as well as the
Cash Reserve Ratio (CRR) and Liquidity
Ratio (LR) of 22.5 and 30.0 per cent,
respectively.
The
sustained
tight
monetary policy complemented by
other liquidity management measures
resulted
in
upward
fluctuation
in
money market rates. As such, both the
interbank
call
and
OBB
rates
fluctuated above the upper band of
the
asymmetric
corridor,
reflecting
liquidity stress in the market during the
period. Liquidity cycles in the market
were addressed by the deployment of
OMO and NTB auctions to manage
injections associated with the monthly
Federation
Account
Allocation
Committee
(FAAC)
disbursements,
Paris Club debt refunds and OMO
maturities. There was, however, a
slowdown in activities in May and June,
particularly
in
the
uncollateralized
segment, reflecting weak confidence.


5.1.1
Short-term
Interest
Rate
Developments

During the review period, the money
market rates largely reflected liquidity
conditions in the banking system. As
usual, money market liquidity was
driven mainly by the effects of OMO
transactions,
maturing
government
securities and CBN bills, monthly FAAC
disbursements, Joint Venture (JVC)
cash call payments and Paris Club
debt
refund
to
sub-national
governments. In addition, the Bank’s
interventions
to
moderate
foreign
currency liquidity also affected liquidity
in the money market. Both segments
of the money market remained active,
recording
increased
transactions.
Accordingly, the average interbank
call rate rose from 8.15 per cent in
January to 27.46 per cent in February,
and thereafter fell to 12.56 per cent in
March. It, however, rose remarkably to
64.58 per cent in April, falling to 21.29
and 13.46 per cent in May and June,
respectively. Similarly, the average OBB
rate rose from 8.69 per cent in January
to stabilize at 23.60 and 21.60 per cent
in February and March, respectively. It,
thereafter, spiked at 51.04 per cent in
April, falling to 29.57 per cent in June
2017. The interbank call rate ranged
between 8.15 and 64.58 per cent,
averaging 24.58 per cent, while the
OBB rate ranged lower between 8.69
and 51.04 per cent, averaging 28.97
per cent in the period. Thus, on
average, the OBB rate was generally


CBN Monetary Policy Review

higher than the interbank call rate,
reflecting
some
distortions
in
the
market.
Table 5.1
Weighted Average Monthly Money Market
Interest Rates (January – June 2017)
MONTHS
Interba
nk
OBB
MPR
SDF
SLF
NIBOR -
30DAY
S
Jan-17
8.15
8.69

16.95
Feb-17
27.46
23.60

16.37
Mar-17
13.11
22.67

16.88
Apr-17
64.58
51.04

55.47
May-17
21.29
39.29

30.48
Jun-17
13.46
29.57

30.84

Average

Source: CBN
Figure 5.1
Weighted Average Monthly Money Market
Interest Rates (Jan.–Jun. 2017)


Jan
Feb
Mar
Apr
May
Jun
Per cent
Inter
OBB
MPR
SDF
SLF
NIBOR (30 Day)

Source: CBN


(i)
The Interbank Call Rate

The
interbank
call
segment
was
volatile
with
the
rate
fluctuating
upwards in the first half of 2017. It rose
from 8.15 per cent in January to 27.46
per cent in February, dropping to 12.56
per cent in March, before rising
remarkably to 64.58 per cent in April.
The
development
reflected
the
sustained tight monetary policy stance
of the Bank, which led to occasional
liquidity crunch in the money market. In
particular, the spike in April was
triggered
by
huge
withdrawal
of
liquidity through OMO auctions and
foreign exchange interventions by the
CBN. The rate, however, declined to
21.29 per cent in May and further
closed lower at 13.46 per cent in June,
on account of liquidity flows from
maturing CBN bills and government
instruments.
Figure 5.2
Daily Interbank Call Rate (Jan – June 2017)

Source: CBN

(ii)
The Open Buy Back Rate

Activities at the OBB segment were
less volatile in comparison with the
interbank call segment, although the
rate also fluctuated upwards in the first


CBN Monetary Policy Review

half of 2017. This was largely on
account of the securitized nature of
transactions in this segment of the
market. The OBB rate rose from 8.69 per
cent in January to 23.60 and 21.60 per
cent
in
February
and
March,
respectively, and further to 51.04 per
cent in April 2017. The rate, however,
moderately declined to 39.29 per cent
in May and further to 29.57 per cent in
June, on account of liquidity flows from
maturing CBN bills and government
instruments. The moderate decline was
due to the fact that liquidity in the
segment was largely committed and
therefore unavailable for transactions,
particularly
in
response
to
the
introduction of the investors’ and
exporters’ foreign exchange window.
Figure 5.3
Daily Open Buy Back Rate (January-June 2017)
Source: CBN


(iii)
The Nigeria Interbank Offered
Rate (NIBOR)

The Nigerian money market reference
rate, the NIBOR, fluctuated significantly
across all tenors following the liquidity
challenges experienced in the review
period, including the introduction of
the Investors’ and Exporters’ (I&E)
foreign
exchange
window.
The
weighted
average
30-day
NIBOR
remained fairly stable at 16.95, 16.87
and
19.99
per
cent
in
January,
February and March, respectively. The
30-day NIBOR, like other money market
rates, also rose dramatically to 55.47
per cent in April owing to activities to
curb liquidity surfeit in the market. It,
thereafter fell to 30.48 per cent in May,
and closed at 30.84 per cent in June
2017, due to liquidity inflows into the
market from maturing instruments and
disbursement of Paris Club debt refund
to
sub-national
governments.
The
average NIBOR rate was 28.43 per
cent in the review period, up from
13.61 per cent in the preceding half
year (Table 5.1).
5.2
Foreign Exchange Market
During
the
review
period,
the
challenges in the foreign exchange
market intensified, warranting the Bank
to implement a cocktail of policy and
administrative
measures
to
rein-in
demand pressure and stabilize the
exchange
rate.
These
measures


CBN Monetary Policy Review

included: the introduction of Investors’
and Exporters’ (I&E) Foreign Exchange
Window for willing buyers and sellers of
foreign currency, increased foreign
exchange
sales
to
BDCs,
special
foreign exchange auctions to targeted
sectors,
introduction
of
foreign
exchange
sales
for
small
scale
importation, reduction of import and
export documentation requirements
and processing timelines as well as
reduction of the tenor of forward
foreign exchange transactions from
180 to 60 day cycles. Others were: the
directive to all banks to open foreign
exchange retail outlets in major airports
across the country as well as the
increase in the Foreign Exchange Net
Open Position (NOP) limit of banks to
10 per cent. In addition, the Bank
continued
the
implementation
of
existing policies and administrative
measures such as: the restriction of
access to foreign exchange for 41
items, the use of bank verification
number (BVN) for BDC transactions,
mandating
international
money
transfer operators (IMTOs) to sell foreign
exchange to BDCs as well as the
restrictions on the use of naira debit
cards abroad. As a result of these
measures, speculative practices were
curbed and the depreciation of the
naira moderated in all segments of the
market.


Figure 5.4
Daily Naira/US Dollar Exchange Rate (January -
June 2017)

Source: CBN

5.2.1
Average Exchange Rates
The Interbank foreign exchange rate
depreciated by 0.49 per cent to an
average of N305.70/US$ in the first half
of 2017 from N304.19/US$ in the second
half of 2016. During the same period,
the BDC rate depreciated by 1.43 per
cent, from an average of N420.73/US$
to N426.85/US$ (Table 5.2).


CBN Monetary Policy Review

Table 5.2
Average Monthly Spot Exchange Rates
(July 2016 – June 2017) (N/US$)
Period
Interbank Rate BDC Rate
2016: Jul
294.57
364.47
Aug
309.73
396.15
Sep
305.23
431.10
Oct
305.21
462.03
Nov
305.18
415.36
Dec
305.22
455.26
Average
304.19
420.73
2017: Jan
305.20
493.29
Feb
305.31
494.70
Mar
306.40
429.48
Apr
306.05
392.89
May
305.54
384.48
Jun
305.72
366.25
Average
305.70
426.85
Source: CBN
5.2.2
End-Period (Month) Exchange
Rates
The
naira
depreciated
at
the
interbank segment of the foreign
exchange market, while it appreciated
at the BDC segment at the end of the
first half of 2017. At the interbank
foreign exchange market, the naira
depreciated by 0.29 per cent to
N305.90/US$ at end-June 2017 from
N305.00/US$ at end-December 2016.
At the BDC segment, it, however,
appreciated by 33.88 per cent to
N366.00/US$ at end-June 2017 from
N490.00/US$ at end-December 2016.
The development showed a trend
towards convergence of the rates in
the market due to the Bank’s policy
measures (Figure 5.5 and Table 5.3).
Table 5.3
End-Month Exchange Rates
(July 2016 – June 2017) (N/US$)
Period
Interbank Rate
BDC Rate
2016: Jul
313.00
379.00
Aug
306.00
420.00
Sep
305.25
464.00
Oct
305.00
469.00
Nov
305.00
400.00
Dec
305.00
490.00
Average
306.54
437.00
2017: Jan
305.25
497.00
Feb
305.50
450.00
Mar
306.35
385.00
Apr
305.85
390.00
May
305.40
376.00
Jun
305.90
366.00
Average
305.71
410.67
Source: CBN
5.2.3
Nominal
and
Real
Effective
Exchange Rates
The Nominal Effective Exchange Rate
(NEER) depreciated by 0.08 per cent to
an average of 155.35 in the first half of
2017 from an average of 155.22 in the
second
half
of
2016.
It
also
depreciated significantly by 30.88 per
cent
when
compared
with
the
corresponding period of 2016. The Real
Effective
Exchange
Rate
(REER)
appreciated by 6.25 per cent from an
average of 90.32 in the second half of
2016 to an average of 85.01 in the first
half of 2017. When compared with the
corresponding period of 2016, the
average REER depreciated by 21.10
per cent (Table 5.4). Thus, the naira


CBN Monetary Policy Review

appreciated in real terms relative to
the
currencies
of
Nigeria’s
major
trading partners in the review period
(Table 5.4 and figure 5.6).
Table 5.4
Nominal and Real Effective Exchange Rates
Indices (Jan 2016 – Jun 2017)
DATE
NEER
REER
Jan-16
97.7
63.98
Feb-16
97.79
62.78
Mar-16
101.65
64.11
Apr-16
102.19
63.66
May-16

60.89
Jun-16
144.94

2016:H1 Average
107.38
67.07
Jul-16
160.52
95.33
Aug-16
156.75
92.08
Sep-16
157.06
91.57
Oct-16
154.88
89.78
Nov-16
151.21
87.02
Dec-16
150.87
86.16
2016: H2 Average
155.22
90.32
Jan-17
153.29
86.93
Feb-17
153.33
85.91
Mar-17
154.7
85.34
Apr-17
155.92
84.9
May-17
156.87
83.88
Jun-17
157.98
83.08
2017: H1 Average
155.35
85.01

Source: CBN
Figure: 5.5
Nominal and Real Effective Exchange Rates
Indices (January 2016 – June 2017)

NEER
REER
Source: CBN


5.2.4 Foreign Exchange Flows through
the CBN
Foreign exchange inflows through the
CBN increased by 28.98 per cent to
US$15,933.36 million in the first half of
2017, from US$12,353.06 million in the
preceding period. It also increased by
82.87
per
cent
compared
with
US$8,713.12
million
in
the
corresponding period of 2016. Foreign
exchange outflow also rose by 2.69 per
cent to US$12,755.62 million in the first
half from US$12,421.35 million in the
preceding period. On a year-on-year
basis,
foreign
exchange
outflows
increased by 18.74 per cent, from
US$10,742.86 million, resulting in a net
outflow of US$3,177.74 million in the first
half of 2017, compared with US$68.29
million in the second half of 2016, and
US$2,029.74
million
in
the
corresponding half of 2016 (Table 5.5
and Figure 5.7).


CBN Monetary Policy Review

Table 5.5
Monthly Foreign Exchange Flows through the CBN
(July 2015 – June 2017)
Dates
Inflow (CBN)
Total Outflow (CBN)
Net Flow (CBN)
15-Jul
6312.16
3383.08
2929.08
15-Aug
2598.05
3153.98
-555.93
15-Sep
2180.69
2987.06
-806.37
15-Oct
2821.22
2341.09
480.13
15-Nov
2481.21
2499.76
-18.55
15-Dec
1832.98
2916.65
-1083.67
2015 H2 Total
18,226.31
17,281.62
944.69
16-Jan
1329.4
1687.59
-358.19
16-Feb
1221.53
1025.73
195.8
16-Mar
1611.38
1764.89
-153.51
16-Apr
900.51
2053.33
-1152.82
16-May
1779.42
1690.29
89.13
16-Jun
1870.88
2521.03
-650.15
2016 H1 Total
8,713.12
10,742.86
-2,029.74
16-Jul
2126.36
2671.08
-544.72
16-Aug
2112.69
2,430.54
-317.85
16-Sep
1,379.97
2,669.87
-1289.9
16-Oct
1,096.83
2,119.19
-1022.36
16-Nov
2,251.90
1,061.94
1189.96
16-Dec
3,385.31
1,468.73
1916.58
2016 H2 Total
12,353.06
12,421.35
-68.29
17-Jan
2,605.50
1,055.84
1549.66
17-Feb
2374.48
978.56
1395.92
17-Mar
1693.4
1672.59
20.81
17-Apr
2874.86
2164.4
710.46
17-May
2712.38
3676.12
-963.74
17-Jun
3672.74
3208.11
464.63
2017 H1 Total
15,933.36
12,755.62
3,177.74
Source: CBN


CBN Monetary Policy Review

Figure 5.6
Monthly Foreign Exchange Flows through the
CBN (Jul 2015 – Jun 2017)
Source: CBN
5.2.5 Foreign Exchange Flow through
the Economy
Gross foreign exchange inflow to the
economy decreased by 4.69 per
cent to US$32,019.83 million in the first
half of 2017, from US$33,594.00 million
in the second half of 2016. It,
however, increased by 10.85 per
cent
when
compared
with
US$28,885.87
million
in
the
corresponding period of 2016. On the
other hand, gross foreign exchange
outflow increased by 1.98 per cent to
US$13,943.19 million in the first half of
2017, from US$13,673.02 million in the
second
half
of
2016.
When
compared with US$12,254.96 million
in the corresponding period of 2016,
it surged by 13.78 per cent.
Thus, during the first half of 2017, total
foreign exchange flows through the
economy resulted in 8.70 per cent
lower net inflow of US$18,076.64
million, compared with US$19,920.98
million in the preceding half year. The
net inflow was, however, 9.26 per
cent higher than the US$16,630.91
million in the corresponding period of
2016.
The
increased
net
inflow
through the economy during the
period reflected improved foreign
exchange receipts, owing to modest
firming up of crude oil prices and
increase in capital importation, due
to the sustained tight monetary
policy stance of the Bank.

Figure 5.7
Monthly Foreign Exchange Flows through the
Economy (Jul 2015 – Jun 2017) (US$ Million)

Source: CBN


CBN Monetary Policy Review

Table 5.6
Monthly Foreign Exchange Flows through the Economy
(July 2015 – June 2017) (US$ Million)
Dates
Inflow(CBN)
Inflow
(Autonomous) Total Inflow Outflow(CBN)
Outflow(Au
tonomous)
Total
Outflow
Net Flow
Net Flow
(CBN)
Net Flow
(Autonomous)
Jul-15
4,313.26

6,764.42

11,077.68

3,383.08

930.18

4,313.26

6,764.42

930.18

5,834.24

Aug-15
3,266.24

3,949.22

7,215.46

3,153.98

112.25

3,266.23

3,949.23

112.26

3,836.97

Sep-15
3,360.96

5,506.42

8,867.38

2,987.06

373.90

3,360.96

5,506.42

373.90

5,132.52

Oct-15
2,821.22

4,212.73

7,033.95

2,341.09

262.33

2,603.42

4,430.53

480.13

3,950.40

Nov-15
2,481.21

4,144.54

6,625.75

2,499.76

267.91

2,767.67

3,858.08

(18.55)

3,876.63

Dec-15
1,832.90

4,801.79

6,634.69

2,916.65

331.70

3,248.35

3,386.34

(1,083.75)

4,470.09

2015: H2 Total
18,075.79

29,379.12

47,454.91

17,281.62

2,278.27

19,559.89

27,895.02

794.17

27,100.85

Jan-16
1,301.80

4,078.86

5,380.66

1,941.97

235.72

2,177.69

3,202.97

(640.17)

3,843.14

Feb-16
1,228.34

3,096.19

4,324.53

1,030.74

189.61

1,220.35

3,104.18

197.60

2,906.58

Mar-16
1,391.97

3,669.51

5,061.48

1,773.75

187.71

1,961.46

3,100.02

(381.78)

3,481.80

Apr-16
1,142.49

3,209.39

4,351.88

2,129.67

135.74

2,265.41

2,086.47

(987.18)

3,073.65

May-16
1,505.51

2,555.46

4,060.97

1,720.07

178.35

1,898.42

2,162.55

(214.56)

2,377.11

Jun-16
1,870.88

3,835.47

5,706.35

2,521.03

210.60

2,731.63

2,974.72

(650.15)

3,624.87

2016: H1 Total
8,440.99

20,444.88

28,885.87

11,117.23

1,137.73

12,254.96

16,630.91

(2,676.24)

19,307.15

Jul-16
2,126.36

2,913.56

5,039.92

2,671.08

177.25

2,848.33

2,191.59

(544.72)

2,736.31

Aug-16
2,112.69

4,420.69

6,533.38

2,430.54

118.26

2,548.80

3,984.58

(317.85)

4,302.43

Sep-16
1,379.97

4,115.34

5,495.31

2,669.87

299.53

2,969.40

2,525.91

(1,289.90)

3,815.81

Oct-16
1,096.83

2,277.93

3,374.76

2,119.19

130.19

2,249.38

1,125.38

(1,022.36)

2,147.74

Nov-16
2,251.90

3,306.69

5,558.59

1,061.94

194.96

1,256.90

4,301.69

1,189.96

3,111.73

Dec-16
3,385.31

4,206.73

7,592.04

1,468.73

331.48

1,800.21

5,791.83

1,916.58

3,875.25

2016: H2 Total
12,353.06

21,240.94

33,594.00

12,421.35

1,251.67

13,673.02

19,920.98

(68.29)

19,989.27

Jan-17
2,605.50

2,142.96

4,748.46

1,055.84

179.12

1,234.96

3,513.50

1,549.66

1,963.84

Feb-17
2,374.48

2,935.28

5,309.76

978.56

224.32

1,202.88

4,106.88

1,395.92

2,710.96

Mar-17
1,693.40

3,345.00

5,038.40

1,672.59

255.20

1,927.79

3,110.61

20.81

3,089.80

Apr-17
2,874.86

3,203.72

6,078.58

2,164.39

129.90

2,294.29

3,784.29

710.47

3,073.82

May-17
2,712.38

1,786.77

4,499.15

3,676.12

162.59

3,838.71

660.44

(963.74)

1,624.18

Jun-17
3,672.74

2,672.74

6,345.48

3,208.11

236.45

3,444.56

2,900.92

464.63

2,436.29

2017: H1 Total
15,933.36

16,086.47

32,019.83

12,755.61

1,187.58

13,943.19

18,076.64

3,177.75

14,898.89


Source: CBN


CBN Monetary Policy Review

Box 5.1
RESTORING FOREIGN EXCHANGE STABILITY: THE INVESTORS’ AND EXPORTERS’
FOREIGN EXCHANGE WINDOW
As part of the Central Bank of Nigeria’s effort to boost liquidity in the foreign exchange
market; ensure timely execution and settlement of eligible transactions; as well as stabilize
the exchange rate of the naira; the Bank introduced a new window called the Investors’
and Exporters’ (I&E) Foreign Exchange Window on 24th April, 2017. The window was
designed to specifically serve eligible Bills for collection and invisible transactions. Until the
establishment of this window, small business owners and exporters had decried the closure
of several investments due to lack of access to foreign exchange to procure foreign input
to support their operations. The supply of foreign exchange to this window is expected to
come from portfolio investors, exporters, Authorized Dealers (i.e. Deposit Money Banks) and
‘other’ parties with foreign currency to exchange for naira.
In order to ensure price discovery, the exchange rate of transactions at this window is as
agreed by Authorized Dealers and their counterparties on a willing buyer and willing seller
basis, thus, introducing more flexibility and transparency in the foreign exchange market.
The Financial Market Dealers Quotes (FMDQ) is charged with polling buying and selling
rates and other relevant information from participants in the market to drive price
discovery. Trading at the window is conducted via recorded telephone conversations,
owing to the slow progress by corporates in on-boarding the Financial Markets Dealers
Quotes Over-The-Counter (FMDQ OTC) Securities Exchange.
The expectation here is that with improved transparency, key constraints around liquidity
which have deterred strong foreign participation in the markets, despite attractive fixed
income yields and equity valuations would be minimized. Beside Authorized Dealers and
their counterparties, the CBN is also a participant at this window as a buyer or seller, as it
deems fit, in order to ensure that the market remains liquid and transactions at this window
are conducted professionally, according to laid down rules.
Eligible transactions at this new window include:
Bills for collection which are documents presented by banks on behalf of exporters to
enable them receive money abroad. It means exporters can now sell their goods via this
window;
Loan repayments by companies to repay principal obligations in dollars;
Loan interest payments by companies to repay interest obligations in dollars;
Dividend/income remittances with respect to foreign investors who need to remit dividend
from Nigerian companies in dollars;


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Capital repatriation by foreign investors who want to repatriate their capital out of Nigeria;
Management service fees for businesses to pay service fees to their foreign service
providers in dollars;
Consultancy fees for businesses to pay their foreign consultants in foreign exchange;
Software subscription fees being subscription fees for accounting software, programming
license and other software licenses, for example, in foreign currency;
Technology transfer agreements management fees, technical agreement fees etc; and
Personal home remittances and any such other eligible invisible transactions including
miscellaneous payments.
The implementation of this new window had attracted more investment, increased the
supply of foreign exchange into the Nigerian economy and brought about relative stability
in the foreign exchange market.


CBN Monetary Policy Review

5.3
Capital Market
In the review period, activities in the
Nigerian
capital
market
were
moderately bullish, owing to several
factors including: measures to exit the
recession and restart growth, improving
corporate performance and relative
stability in the exchange rate arising
from increased interventions in the
foreign exchange market by the CBN.
Furthermore,
the
uncertainties
beclouding the domestic investment
environment
continued
to
wane
following
the
launching
of
the
Economic Recovery and Growth Plan
by the Federal Government, and the
curtailment
of
militancy
and
insurgency in different parts of the
country. Also, the anti-corruption efforts
of the government which led to the
recovery of large sums of money
fostered investor confidence in the
economy.
These
factors,
complemented by the sustained tight
monetary policy of the Bank, improve
returns on domestic assets.
5.3.1
Equities Market
The All-Share Index (ASI) rose by 23.23
per cent to 33,117.48 at end-June
2017, from 26,874.62 at end-December
2016. Similarly, it grew by 11.89 per cent
from 29,597.79 in the corresponding
period of 2016. Likewise, Market
Capitalization increased by 23.78 per
cent to N11.45 trillion at end-June 2017,
from N9.25 trillion at end-December
2016, and by 12.59 per cent compared
with N10.17 trillion at end-June 2016
(Table 5.7 and Figure 5.9). The year-onyear ASI grew by 11.89 per cent,
driven mainly by strong performance in
the
banking
and
conglomerates
sectors, which rose by 18.57 and 0.87
per cent, respectively, above the levels
at end-June 2016.
Table 5.7
NSE All-Share Index (ASI) and Market
Capitalization (MC) (June 2016 –June 2017)
Date
ASI
MC (Equities)
(N'Trillion)
Jun-16
29,597.79

10.17

Jul-16
28,009.93

9.62

Aug-16
27,599.03

9.48

Sep-16
28,335.40

9.73

Oct-16
27,220.09

9.35

Nov-16
25,241.63

8.69

Dec-16
26,874.62

9.25

Jan-17
26,036.24

8.97

Feb-17
25,329.08

8.77

Mar-17
25,516.34

8.83

Apr-17
25,758.51

8.91

May-17
29,498.31

10.20

Jun-17
33,117.48

11.45

Source: NSE


CBN Monetary Policy Review

Figure 5.8
NSE ASI and MC (June 2016 – June 2017)

June-16
July-16
August-16
September-16
October-16
November-16
December-16
January-17
February-17
March-17
April-17
May-17
June-17
ASI
MC (Equities) (N'Trillion)

Source: NSE
Figure 5.9
NSE ASI and MC (December 2016 – June

Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
MC
ASI
ASI
MC (Equities) (N'Trillion)

Source: NSE

5.3.2 Market Turnover
During the review period, aggregate
stock market turnover increased by
30.50 per cent to 44.16 billion shares
(valued at N467.67 billion in 448,950
deals) compared with 33.84 billion
shares (valued at N263.50 billion in
380,997 deals) in the second half of
2016. On a year-on-year basis, this,
however, reflected a decline of 28.74
per cent in market turnover from 61.97
billion shares (valued at N312.21 billion
in 454,290 deals). Notwithstanding the
development,
foreign
portfolio
investment inflow exceeded outflow
by N15.18 billion in the first half of 2017,
indicating
continued
investor
confidence in the economy.
Figure 5.10
Portfolio Inflows (May 2016 – May 2017)


Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17
US$
Portfolio Investment - Equity
Source: NSE

5.3.3 Sectoral Contribution to Equity
Market Capitalization
The construction sector continued to
dominate overall market capitalization,
driven by activities in the building
materials sub-sector. The contribution
of the building material sub-sector to


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market
capitalization,
however,
declined to 33.60 per cent at end-June
2017 from 39.3 per cent at endDecember 2016. The development was
largely attributed to the share of
Dangote cement in the market. Other
major
sub-sectors
were
banking;
breweries; and food & beverages; with
respective market share of 18.6, 13.2
and 9.1 per cent, at end-June 2017
(Figures 5.12 and 5.13).
Figure 5.11
NSE Market Capitalisation by Sector as at
End-December 2016
Breweries
14.9%
Banking
15.6%
Food &
Beverages
10.0%
Conglomerates
0.8%
Insurance
1.5%
Oil and Gas
6.8%
Building
Materials
39.3%
Other Sectors
11.0%

Source: NSE
Figure 5.12
NSE Market Capitalisation by Sector as at EndJune 2017
Food and Beverages
9.13%
Banking
18.57%
Insurance
1.27%
Breweries
13.17%
Conglomerates
0.87%
Oil and Gas
5.72%
Building Materials
33.60%
Other Sectors
17.67%
NSE Market Capitalization by Sector as at June 30, 2017

Source: NSE
5.3.4 The Warren Buffett Valuation
Metric and Nigeria’s Equities Market
The
Nigerian
equities
market
remained under-valued in the review
period, based on the Warren Buffett
valuation metric. At 55.66 and 70.00
per cent in the first and second
quarters of 2017, respectively, the
metric was below the threshold of 75.0
to 115.0 per cent. This development
was attributable to a number of factors
including
the
fragile
exit
from
economic recession; still weak but
improving
corporate
earnings;
continuing
capital
reversals,
heightened
by
the
pace
of
US
monetary policy normalization as well
as weak external receipts. All of these
impacted
negatively
on
investor
confidence. As in preceding periods,
the
undervaluation
of
equities
presented
attractive
investment
opportunities for domestic and foreign
investors.

Figure 5.13
Warren Buffett Valuation of Nigerian Equities
Market (Q12014 –Q22017)

Source: Bloomberg


CBN Monetary Policy Review

5.3.5 Bond Market
During the review period, transactions
in Federal Government of Nigeria
(FGN) debt instruments dominated
activity in the bond market. Some
activity was also recorded in the subnational government and corporate
bond
segments,
with
the
later
recording the least share by market
volume.
5.3.5.1 FGN Eurobond
At 4.80 per cent, the 10-year dollardenominated bond yield for Nigeria fell
by 1.55 percentage points at end-June
2017 from 6.35 per cent at endDecember 2016. When compared with
the end-June 2016 yield of 6.74 per
cent, it declined by 1.94 percentage
points, reflecting improved investor
perception of the country’s sovereign
risk (Figure 5.14).
At 16.71 per cent, the FGN bond yield
curve at end-June 2017 was upward
trending by 31 basis points compared
with the yield of 16.40 per cent at endDecember 2016. Compared with the
yield
of
13.31
per
cent
in
the
corresponding period, however, the
curve trended downwards by 339 basis
points. With this development, the
bond yield was positive and above the
end-June 2017 inflation figure of 16.10
per cent.

Figure 5.14
10-Year U.S. Dollar-denominated Bond
Yield for Nigeria (June 30, 2016 – June 30,
2017)
Source: NSE

Figure 5.15
FGN Bonds Yield Curves: End-Dec. 2016 vs. End
March 2017 vs. end-June 2017

Source: NSE


CBN Monetary Policy Review

5.3.5.2 State/Local Government Bonds
Activity at the sub-national bonds
market improved during the review
period. Total value of outstanding
state/local
government
bonds
increased to N563.58 billion at endJune 2017, from N516.58 billion at endDecember 2016 and N535.08 billion at
end-June 2016.
5.3.5.3 Corporate Bonds
In the review period, activity in the
corporate bonds segment increased
marginally,
owing
to
the
current
weaknesses in the domestic economy.
The value of outstanding corporate
bonds at end-June 2017 was N297.44
billion, compared with N281.97 billion
at end-December 2016 and N224.91
billion at end-June 2016. The modest
increase was due largely to the
preference by the corporate bodies
for domestic borrowing in the face of
heightened foreign exchange risks
from the depreciation of the local
currency.
5.3.5.4 Overall Analysis of the Nigerian
Capital Market
The value of FGN bonds increased
by 9.34 per cent to N6.67 trillion at endJune 2017 from N6.10 trillion at endDecember 2016, and by 5.54 per cent
year-on-year. FGN bonds accounted
for 35.06 per cent of aggregate market
capitalization at end-June 2017. The
value
of
state/municipal
bonds,
corporate bonds and supranational
bonds were N563.58 billion, N297.44
billion and N24.95 billion, representing
2.96, 1.56 and 0.13 per cent of
aggregate
market
capitalization,
respectively.
The
equities
market
contributed
60.3
per
cent
to
aggregate market capitalization at
end-June
2017,
while
the
others
including FGN bonds, state/municipal
bonds,
corporate
bonds
and
supranational bonds accounted for
the balance of 39.7 per cent (Figure
5.16).
Figure 5.16
Structure of the Nigerian Capital Market
(June 2017)
FGN
Bonds
35.06%
State/Mu
nicipal
bonds
2.96%
Corporat
e bonds
1.56%
Supranati
onal
bonds
0.13%
Equities
60.30%


CBN Monetary Policy Review

5.4
Global
Financial
Markets
Developments
The global financial market in the
review period was shaped by key
developments in the global economy
including:
the
persistence
of
uncertainties in major advanced and
emerging economies such as the rising
wave of populist and protectionist
sentiments being led by the United
States and the trigger of Article 50 of
the Lisbon treaty in March 2017 to kick
start BREXIT negotiations. Others were:
the divergent monetary policy stance
in the advanced economies; disorderly
commodity
price
movements,
culminating in sluggish global output
growth as well as the increased US
Shale oil production, despite OPEC’s
decision to cut output. As such,
monetary policy remained broadly
accommodative in the advanced
economies, occasioned by the need
for resumption in the momentum of
economic
activities.
Owing
to
improved
macroeconomic
developments, most currencies in the
advanced
economies
appreciated
against the US dollar. In addition,
recovery in global commodity prices
was sustained although overall, the
commodity index fell by 6.64 per cent,
largely on account of the decline in
energy and metal prices.

In
the
emerging
market
and
developing economies, the picture
appeared mixed. Many economies in
recession or suffering from sluggish
recovery required sustained monetary
accommodation to restart growth,
while others, particularly oil exporters
that had experienced severe currency
depreciation from recent oil price
shocks opted for improved yields on
domestic
assets.
Following
the
developments
above,
the
performances of major stock markets
across the globe improved.

5.4.1 Money Market and Central Bank
Policy Rates
Global
liquidity
conditions
were
largely shaped by financial markets’
reactions to uncertainties clouding
political and economic developments
in the review period. The initial reaction
to
protectionism
following
the
assumption of the Trump Presidency in
the U.S. was priced-in by the market in
the wake of the triggering of Article 50
of the Lisbon Treaty by the UK as well as
the Left Wing electoral victory in
France.
Consequently,
market
nervousness to political developments
in Europe waned, leading to the
decline in volatility and risk premia.
Thus,
monetary
policy
remained
broadly
accommodating
in
the
advanced economies, occasioned by
the
need
for
resumption
in
the
momentum of economic activities. On
the
back
of
expectations
of
improvement in economic activities,
including
exports,
investment
and
domestic demand, the Bank of Japan


CBN Monetary Policy Review

sustained its highly accommodative
monetary policy through quantitative
and
qualitative
monetary
easing
aimed at achieving its price stability
target of 2.0 per cent. The European
Central Bank (ECB) continued its QE at
a slower pace of 60.0 billion euros
monthly, from March 2017, to sustain
the return of inflation towards its long
term objective of 2.0 per cent. On the
other hand, the Federal Open Market
Committee (FOMC) raised its policy
rate
as
various
lag
indicators
suggested
the
likelihood
of
rising
inflation in the medium term. It also
gave forward guidance of more rate
hikes in 2017.
In
the
emerging
market
and
developing economies, the picture
appeared mixed. For many economies
in recession or suffering from sluggish
recovery, monetary accommodation
was sustained to restart growth, while
others, particularly oil exporters that
have
seen
severe
currency
depreciation from recent oil price
shocks needed to improve yields on
domestic assets. Accordingly, China,
India, Nigeria, South Africa and Kenya
maintained their policy rates, while
Brazil and Russia lowered theirs in order
to stimulate growth and exit their
current recession. Ghana also lowered
her policy rate to address growth
concerns,
following
the
policy
headroom
gained
from
the
moderation in inflation.

Table 5.8
Policy Rates of Selected Countries January –
June 2017
Country
Jan

Feb.

Mar.

Apr.

May.

Jun

Kenya

S. Africa

Ghana

Nigeria

Brazil

USA

Japan

Euro
Area

India

Russia

China

UK

Indonesia

Source: Bloomberg

5.4.2 Capital Market
In
the
review
period,
the
performances of major stock markets
across the globe were positive. In
Europe, the DAX, CAC 40 and FTSE 100
indices increased by 7.4, 5.3 and 2.4
per
cent,
respectively,
while
the
Russian MICEX index decreased by
15.8 per cent. In North America, the
Mexican Bolsa and United States S&P
500 indices increased by 9.2 and 8.2
per
cent,
respectively,
while
the
Canadian S&P/TSX Composite index
decreased by 0.7 per cent. In South
America,
the
Argentine
Merval,
Colombian
COLCAP
and
Brazilian
Bovespa indices increased by 29.5, 8.2
and 4.4 per cent, respectively.


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In Asia, India’s BSE Sensex, Japan’s
Nikkei 225 and China’s Shanghai Stock
Exchange-A indices increased by 16.1,
4.8 and 2.9 per cent, respectively. In
Africa, the Nigerian NSE All-Share,
Ghanaian
GSE
All-Share,
Kenyan
Nairobi NSE 20, Egyptian EGX CASE 30
and South African JSE All-Share indices
increased by 23.2, 16.3, 13.2, 9.7 and
1.9 per cent, respectively.


Table 5.8:
Selected International stock market indices as at June 30, 2017
Source: Bloomberg


Country
Index
30-Dec-16
31-Mar-17
30-Jun-17
Dec 31, 2016 -June
30, 2017 % Change
March 31, 2017 - June
30, 2017% Change
AFRICA
Nigeria
NSE All-Share Index

South Africa
JSE All-Share Index

Kenya
Nairobi NSE 20 Share index

Egypt
EGX CASE 30

Ghana
GSE All-Share Index

NORTH AMERICA
US
S&P 500

Canada
S&P/TSX Composite

Mexico
Bolsa

SOUTH AMERICA
Brazil
Bovespa Stock

Argentina
Merval

Columbia
COLCAP

EUROPE
UK
FTSE 100

France
CAC 40

Germany
DAX

Russia
MICEX

ASIA
Japan
NIKKEI 225

China
Shanghai SE A

India
BSE Sensex


CBN Monetary Policy Review

5.4.3 Commodities
Global commodity prices sustained
recovery, moderating in the second
quarter of 2017, largely traceable to
the decline in energy and metal prices.
Energy, particularly crude oil prices
softened in response to the build-up of
U.S. petroleum inventories. It, however,
rebounded in mid-May as the market
priced in the extension of the subsisting
OPEC
production
freeze
through
March 2018. Crude oil prices declined
following sustained U.S. supplies and
production recovery in some OPEC
countries. The decrease in metal prices
was due mainly to the efforts to rein-in
shadow
banking
in
the
Chinese
economy. In China, the majority of offbalance sheet credit goes to the metal
sector
in
the
form
of
wealth
management products. Accordingly,
following the tightening of credit,
China’s economy including demand
for metal slowed down.
The Energy Price Index fell by 11.89 per
cent to 88.2 points in June 2017 from
100.1 points in December 2016. This
was driven largely by the average
price of oil which fell by 7.21 per cent
to US$50.2 per barrel in the second
quarter of 2017, down from US$54.1 in
the first quarter.
Also, non-fuel commodity price index
fell marginally by 0.07 per cent to 138.6
points in June 2017 from 138.7 points in
December 2016, reflecting slow global
demand. Metal prices fell by 5.9 per
cent to 132.4 points in June 2017 from
140.7 points in December 2016.
In contrast, food prices rose during the
period. The Food and Agriculture
Organization (FAO) Food Price Index
rose by 2.88 per cent to 175.2 points in
June

from
170.3
points
in
December 2016. The development was
driven by the rise in the sub-indices of
meat,
dairy
and
cereals,
while
vegetable oil and sugar fell. Overall,
the commodity index fell by 6.64 per
cent to 106.8 points in June 2017 from
114.3 points in December 2016.
Figure 5.17:
Indices of Primary Commodity Prices December
2016 – June 2017 (2005=100 US$)

June-16
July-16
August-16
September-16
October-16
November-16
December-16
January-17
February-17
March-17
April-17
May-17
June-17
Commodities
Food
Metal
Energy

Source: IMF
5.4.4 Foreign Exchange Market
During the first half of 2017, the
movements of currencies against the
US
dollar,
were
mixed
owing
to
improved
macroeconomic
developments. These included the
recovery of output growth in the Euro
area, slowdown in U.S. output growth
due to uncertainties surrounding its


CBN Monetary Policy Review

fiscal policy and modest recovery in oil
and other commodity prices as well as
moderation in the outlook on the pace
of U.S. monetary policy normalization.
In the emerging markets, currency
instabilities were moderated by some
efforts to address the policy constraints
underlying the weaknesses in these
economies. Consequently, in North
America, the Canadian dollar and the
Mexican peso appreciated against the
U.S. dollar by 3.08 and 14.40 per cent,
respectively. In South America, the
Colombian peso, Brazilian real and
Argentine peso depreciated against
the U.S. dollar by 1.35, 1.51and 4.51 per
cent, respectively.
In Europe, the Russian ruble, British
pound and euro appreciated against
the U.S. dollar by 4.41, 5.19 and 7.95
per cent, respectively. In Asia, the
Chinese yuan, Japanese yen and
Indian rupee appreciated against the
U.S. dollar by 2.51, 4.07 and 5.17 per
cent, respectively.
In Africa, the Egyptian pound and
South
African
rand
appreciated
against the U.S. dollar by 0.06 and 5.13
per
cent,
respectively,
while
the
Nigerian naira, Kenyan shilling and
Ghanaian cedi depreciated against
the U.S. dollar by 0.29, 1.20 and 3.85
per cent, respectively.

Table 5.10:
Exchange Rates of Selected Countries (value in currency units to US$)


Currency
30-Dec-16
30-Jun-17
YTD %
Change
App/Dep
AFRICA
Nigeria
Naira
305.00
305.90
South Africa
Rand
13.74
13.07
Kenya
Shilling
102.51
103.75
Egypt
Pound
18.14
18.13
Ghana
Cedi
4.24
4.41
NORTH
AMERICA
Canada
Dollar
1.34
1.30
Mexico
Peso
20.73
18.12
SOUTH
AMERICA
Brazil
Real
3.26
3.31
Argentina
Peso
15.88
16.63
Colombia
Peso
3002.00
3043.11
EUROPE
UK
Pound
0.81
0.77
Euro Area
Euro
0.95
0.88
Russia
Ruble
61.54
58.94
ASIA
Japan
Yen
116.96
112.39
China
Yuan
6.95
6.78
India
Rupee
67.92
64.58
Source: bloomberg
YTD = Year to Date


CBN Monetary Policy Review

CHAPTER 6
ECONOMIC OUTLOOK

6.1
OVERVIEW

lobal economic activity was
estimated to rise to 3.5 per
cent in 2017 up from 3.2 per
cent in 2016 (IMF, July 2017), premised
on recovery in manufacturing and
trade as well as buoyant financial
market
activity
arising
from
the
reduction in political risks in Europe.
These were supported by expected
macroeconomic
improvements
in
Japan and the euro area as well as
continued fiscal activity and strong
credit growth in China. The downside
risks to these developments included:
binding structural constraints such as
low productivity growth, high income
inequality and pressures from inwardlooking policies, particularly in the
advanced economies. Other growth
moderating
factors
were:
the
expected tightening in global financial
conditions due to U.S. monetary policy
normalization
and
headwinds
to
potential growth in the advanced
economies from ageing populations,
weak
investment
and
sluggish
productivity.
In the advanced economies, growth
was estimated at 2.0 per cent in 2017
up from 1.7 per cent in 2016, due
largely to low commodity prices and
accommodating
monetary
policy.
Growth in the United States was
projected at 2.1 per cent in 2017 up
from 1.6 per cent in 2016. In the Euro
area
growth
was
estimated
to
marginally increase to 1.9 per cent in
2017 from 1.8 per cent in 2016, due to
sustained
private
consumption,
increased manufacturing activity and
strong exports. The growth projection
for the United Kingdom was revised
downward to 1.7 per cent in 2017 from
1.8
per
cent
in
2016,
owing
to
uncertainties arising from BREXIT.
In
the
emerging
market
and
developing economies growth was
estimated to pick up to 4.6 per cent in
2017 from 4.3 per cent in 2016, due to
rise in commodity prices, that would
support recovery from recession of
commodity exporters such as Brazil
and Russia. Among the emerging
markets, growth in China would remain
flat at 6.7 per cent in 2017, arising from
policy easing measures and reforms to
supply-side constraints. Despite the
demonetization policy in India, growth
would remain robust at 7.2 per cent up
from 7.1 per cent in 2016. Expectedly,
growth in Latin America and the
Caribbean would pick up to 1.0 per
cent from a contraction of 0.1 per cent
in 2016, as Brazil and Argentina were
projected to exit recession. In addition,
Mexico was projected to grow to 1.9
per cent in 2017 from 1.7 per cent in
2016, despite uncertainties about the
US trade policy with Mexico.
In Sub-saharan Africa (SSA), growth
was estimated at 2.7 per cent in 2017
G


CBN Monetary Policy Review

up
from
1.3
per
cent
in
2016,
predicated
on
improvement
in
commodity
prices
and
economic
reforms
to
address
structural
impediments.
The
growth
of
the
Nigerian economy was estimated at
0.8 per cent in 2017 up from a
contraction of 1.6 per cent in 2016,
owing to some recovery in crude oil
prices and production, even as the
country continued to grapple with
unemployment and social tensions. The
South African economy was projected
to grow by 1.0 per cent in 2017 up from
0.3 per cent in 2016, due largely to
improvements
in
mining
and
agricultural output.
6.2
Outlook for Global Output

Global
growth
is
expected
to
maintain its momentum for the rest of
2017 and 2018. The development
would be driven by stronger recovery
in
a
number
of
advanced
and
emerging
market
and
developing
economies. The factors expected to
sustain the growth momentum would
include: continued monetary policy
accommodation in the advanced
economies, gradual recovery in large
commodity exporters like Brazil and
Russia due to recovery of oil prices,
and prospect of substantial fiscal
stimulus in the United States. Others
are:
further
actions
to
resolve
uncertainties surrounding BREXIT, as
well as domestic policy reforms to
improve competitiveness, investments,
and
the
business
environment.
However, in the advanced economies,
growth
would
continue
to
be
weakened
by
their
exposure
to
downside risk factors such as low
labour productivity growth and high
political uncertainties. Consequently,
global growth was projected at 3.5
and 3.6 per cent in 2017 and 2018,
respectively.
In the advanced economies, growth is
projected to rise to 2.0 and 1.9 per
cent in 2017 and 2018, respectively, up
from 1.7 per cent in 2016, due largely
to
expected
strong
consumer
demand,
investment
and
exports.
Moreover, inflation remains subdued
and generally below targets set by the
central
banks
in
most
advanced
economies. Growth in the Euro area is
forecasted at 1.9 and 1.7 per cent in

and
2018,
respectively,
compared with 1.8 per cent in 2016.
The lower projection for 2018 was
influenced by lingering uncertainties
associated with BREXIT. In the other
advanced
economies
including
Japan, the United Kingdom, Spain and
Italy, growth projections for 2017 and
2018 are expected to be slower than
earlier
forecast,
arising
from
their
weaker performance in the first quarter
of 2017.
In
the
emerging
market
and
developing economies (EMDEs) growth
is forecast to rise to 4.6 and 4.8 per
cent in 2017 and 2018, respectively,
from 4.3 per cent in 2016, predicated


CBN Monetary Policy Review

on the firming up of crude oil and other
commodity prices, bottoming-out of
economic recessions in some countries
and recovery of commodity exports.
China is forecast to grow by 6.7 and
6.4 per cent in 2017 and 2018,
respectively. The forecast for growth in
India shows it is to rebound to 7.2 and
7.7 per cent in 2017 and 2018,
respectively from 7.1 per cent in 2016,
owing to stronger fiscal stimulus. In
Brazil, growth is projected to rise to 0.3
and 1.3 per cent in 2017 and 2018,
respectively, from a contraction of 3.6
per cent in 2016.
In
sub-Saharan
Africa,
growth
is
projected to rise to 1.6 and 3.5 per
cent in 2017 and 2018, respectively,
from 1.3 per cent in 2016, anchored on
the recovery of Nigeria and South
Africa economies. Growth in Nigeria is
projected to expand by 0.8 per cent in
2017 and further to 1.9 per cent in
2018, from a contraction of 1.5 per
cent in 2016. In South Africa, growth is
forecast at 1.0 and 1.2 per cent in 2017
and 2018, respectively, from 0.3 per
cent in 2016.
Growth in the Middle East and North
Africa (MENA) region is forecast to
decelerate from 5.0 per cent in 2016 to
2.6 per cent in 2017, before its recovery
to 3.3 per cent in 2018, reflecting the
slowdown in oil sector activity and
political instability in the region.


6.3
Downside
Risks
to
Global
Outlook
There are downside risks to the global
outlook in the short-to-medium term.
These
include:
uncertainties
surrounding the BREXIT negotiations,
unsustainable debt levels, uncertain
fiscal
policy
stance
of
the
US
government
and
the
tendencies
towards protectionism and nationalism,
possibility of rise in global interest rates
propelled by the increased pace of
U.S. monetary policy normalization,
weak bank balance sheets in the euro
area, higher global oil and other
commodity
prices
with
negative
implications on commodity importers,
as well as rising geo-political tensions in
some regions of the world. In addition,
the sustained normalization of U.S.
monetary policy would further intensify
capital flow reversals from emerging
markets and developing economies
with attendant pressure on exchange
rates.
Also,
the
persisting
policy
divergence amongst the advanced
economies
could
worsen
global
imbalance and undermine growth and
weigh down the medium-term outlook
for the global economy.
In the advanced economies, while the
United States sustained its monetary
policy normalization, other countries
like Japan, the United Kingdom and
the Euro area kept their policy rates at
long-term historical low. The policy
divergence along with quantitative
easing (QE) might continue to fuel


CBN Monetary Policy Review

market risks and other vulnerabilities
such
as
disorderly
asset
price
movements.
In
the
emerging
market
and
developing economies, sustaining ongoing reforms is key to achieving the
growth projections as it is in China,
where failure to curb excessive credit
growth could dampen output with
adverse spillovers to other countries.
Also, balance sheet problems are likely
to arise in this group of countries if
capital flow reversals are heightened
by U.S. monetary policy normalization.
In the Middle East and North Africa
(MENA), the ongoing armed conflict
along with the sanctions on Qatar,
could halt the flow of new investments
and in some cases trigger divestments
capable of undermining growth in the
region.
Table 6.1
Global Output and Inflation Outlook

A. World Output


World Output

Advanced
Economies

USA

Euro Area

Japan

UK

Canada

Advanced Economies

Emerging &
Developing
Economies

Commonwealth of
Independent States

Latin America and
the Caribbean

Middle East and
North Africa

Sub-saharan
Africa

B. Commodity Prices
(US' Dollars)


Oil

Non-fuel

C. Consumer Prices


Advanced
Economies

Emerging &
Developing
Economies

Source: IMF WEO Update, July 2017
6.4
Global Inflation Outlook
Global inflation is expected to sustain
an upward trend in 2017, largely on
account of firming crude oil and other
commodities prices, easy monetary
policy in major advanced economies
as
well
as
the
depreciation
of
currencies of most emerging market
and developing economies. In the
advanced economies, the expected
rise in headline inflation could breach
central
banks’
targets
in
some


CBN Monetary Policy Review

countries. The inflation outlook in the
emerging
market
and
developing
economies,
would,
on
balance,
maintain
an
upward
trend.
Oil
exporters may witness moderation in
prices of goods and services, while oil
importers
could
experience
rising
inflation from the recovery of oil and
other commodity prices.
The
forecast
for
inflation
in
the
advanced economies, shows it would
to rise to 1.9 and 1.8 per cent in 2017
and 2018, respectively, from 0.8 per
cent in 2016, due to modest recovery
of oil and other commodity prices and
the
ongoing
quantitative
easing
programme in the Euro area, the
United Kingdom and Japan.
In the United States, inflation was
forecast to rise to 2.7 and 2.4 per cent
in 2017 and 2018, respectively, up from
1.3 per cent in 2016. In the Euro area,
headline inflation is expected to rise to
1.7 and 1.5 per cent in 2017 and 2018,
respectively from 0.2 per cent in 2016.
Headline inflation is also expected to
rise in Japan to 1.0 and 0.6 per cent in
2017 and 2018, respectively, from -0.1
per cent in 2016, driven by the impact
of the sustained quantitative easing
rising oil and prices other commodity.
In
the
emerging
market
and
developing
economies,
inflation
is
forecast to rise to 4.5 and 4.6 per cent
in 2017 and 2018, respectively, from 4.3
per cent in 2016, largely due to the
recovery of oil and other commodity
prices,
as
well
as
currency
depreciations. Inflation in China is
forecast to rise to 2.4 and 2.3 per cent
in 2017 and 2018, respectively, from 2.0
per cent in 2016. In India, inflation is
forecast to fall slightly to 4.8 per cent in
2017 from 4.9 per cent in 2016 and
thereafter, rise to 5.1 per cent in 2018.
Projection for inflation in Brazil shows it
would moderate to 4.4 and 4.3 per
cent in 2017 and 2018, respectively,
from 8.7 per cent in 2016, on the back
of a gradually closing negative output
gap and return of political stability. In
Russia, inflation is forecast to fall to 4.5
and 4.2 per cent in 2017 and 2018,
respectively, from 7.0 per cent in 2016,
which is expected to have an overall
moderating effect on inflation in the
Commonwealth
of
Independent
States.
In
sub-Saharan
Africa,
inflation
is
expected to moderate to 10.7 and 9.5
per cent in 2017 and 2018, respectively
from 11.4 per cent in 2016, largely on
account of the waning effect of the
previous currency depreciations in the
sub-region.


CBN Monetary Policy Review

Box 6.0
CLIMATE CHANGE AND THE TREND TOWARDS RENEWABLE ENERGY
Climate change has gained increased attention amongst scientists and non-scientists alike
as the continued incidence of emission of greenhouse gases has been identified as the
main culprit for the recent high rate of flooding of mainland areas. Traditional waterways
are breached more frequently than has been the case in the last half century. The
argument is mainly that greenhouse gases have contributed significantly to the melting of
icebergs due to rising global temperatures. The rise in temperatures are the result of
industrial activities, increasing temperature above the melting point of ice. This causes ice
to melt and flow into traditional water bodies, which overflow their banks resulting in rising
water levels and flooding across plain lands. The latest in this chain of flooding was seen in
Texas, United States where water levels in the mainland rose to about the height of an adult
male. Other remarkable incidences have been recorded in Nigeria where entire
communities were displaced by flood waters. Recently, in Freetown, Sierra Leone, over 300
persons were feared dead when moving flood waters resulted in a massive mud slide
across an entire community, burying people in its path alive.
A school of thought argues that climate change and its consequences are fictional
developments. This perspective is, however, becoming increasingly unpopular as the
evidence of changing climatic conditions become only too apparent. Others argue that
while climate change does in fact exist, its cause and acceleration is not entirely due to
greenhouse gases generated by the burning of traditional fossil fuels, carbon-dioxide (CO2 )
emissions and aerosols but may be down to non- carbon-dioxide greenhouse gases, which
have so far been ignored in the attempt to slowdown and reverse climate change. Such
gaseous substances as chlorofluorocarbons, methane and Nitrous oxide may also play a
significant role in changing climatic conditions. This school of thought thus argues that over
the next half century, as the emission of non-CO2 gases are reduced alongside reduction of
traditional burning of fossil fuels, climate change and its effects will be reduced and
eventually reversed.
Reversing climate change requires reducing dependence on non-renewable energy
sources that lead to greenhouse gas emissions. Non-renewable energy sources or fossilized
fuels are generated from sources that cannot be replenished naturally in our life time such
as natural gas, products from the fractional distillation of petroleum products and coal. The
trend towards renewable energy has been on the increase as the need to cut down on the
emission of greenhouse gases generated primarily from carbon-dioxide related sources has
been on the front burner. Renewable energy is defined as energy generated from
renewable sources such as sunlight (solar power), geothermal heat, biofuels, wind, rain and
water (hydroelectricity). These forms of energy, although also from natural sources, do not
emit greenhouse gases. Solar power which is generated from sunlight has become
increasingly popular in producing electricity in homes and small industries. The process


CBN Monetary Policy Review

requires a minimal level of technological installation in private homes to harvest solar
energy, which is converted to electrical energy. In other instances, solar farms are built in
wide expanses of desert land or on the sea to harvest the sun rays, which are channeled
directly to inverters that changes the solar energy to electrical energy. The main
advantage with this source of energy is that it is clean and does not require any fuels to
generate. Wind turbines are used to harness and convert wind energy to electrical energy,
while biomass involves the use of natural products such as wood, manure and other
decaying plants to produce fuels. Hydro energy is generated from water power by building
dams to create reservoirs which are used to harness hydro energy/power for conversion to
electrical energy. Incidentally, the adoption of renewable energy sources has been
embraced more by advanced economies such as the US and the UK, than developing
economies particularly in Africa where natural resources such as sunlight is in abundance. In
2015 for example, the US adopted various forms of renewable energy sources such as
hydropower (25%), biomass wood (21%), biomass waste (5%), biomass fuels (22%), wind
(19%), geothermal (2%) and solar (5%). Renewable energy, due to its clean state, is
extremely friendly to mankind as it is devoid of emission of poisonous gases associated with
fossil fuels. The gases emitted by traditional fuels tend to cause direct health problems such
as heart attacks; bronchitis and other breathing problems; irritation of the eyes and skin;
and various forms of cancer. This is in addition to environmental hazards such as flooding.
Compared with non-renewable energy sources (NRS), renewable energy sources (RES) are
unable to generate very large volumes of energy required to satisfy the consumption
requirements of society they are dependent on weather sources such as sunlight and
rainfall, which are seasonal and thus limited in supply. They can, however, compliment nonrenewable sources to a very large extent, thus significantly reducing the harmful effects of
NRS.
Recent developments towards the entrenchment of renewable energy include new
projects in France, such as the adoption of electric cars that will be recharged by solar
panels embedded in road pavements. This project is currently being developed by
engineers in France who are designing paper-thin and impact resistant solar panels to be
embedded in the middle of road pavements. In the United Kingdom, car manufacturers
have been enjoined to step down the production of petrol and diesel cars over the next
twenty five years and produce only electric cars for use in the country. High speed train links
are now powered by renewable energy sources compared with the older coal powered
engines. Legislation in certain countries also urges homes to use solar energy to heat their
homes and boil water as opposed to traditional natural gas heating systems.
In general, experts suggest that by 2050, many countries across the globe could run on
renewable energy, with serious implications for the demand for crude oil as a source of
energy globally. This development is likely to affect oil producing countries including
Nigeria.


CBN Monetary Policy Review

6.5
Outlook for Domestic Output
Growth
Domestic output growth in the first
half of 2017 returned to positive
territory
as
the
economy
exited
recession in the second quarter of
2017.
According
to
the
National
Bureau of Statistics (NBS), real Gross
Domestic Product (GDP) contracted
by 0.91 per cent in the first, but grew by
0.55 per cent in the second quarter of
2017.
The
GDP
growth
was
1.46
percentage points higher than -0.91
per cent recorded in the preceding
quarter and 2.04 percentage points
higher than -1.49 per cent recorded in
the corresponding quarter of 2016.
The improvement in output growth has
been attributed to several factors
including: higher oil prices; increased
oil production, attributable mainly to
the return of peace in the Niger Delta;
as
well
as
improved
and
stable
production from OPEC’s commitment
to
output
cut.
Furthermore,
the
passage of the Petroleum Industry
Governance Bill (PIGB) is likely to
attract
new
investments
into
the
industry. As a result, the economy is
projected to sustain the exit from
recession for the rest of the year,
supported by positive developments in
the oil sector and other government
initiatives conducive to growth.
The International Monetary Fund (IMF)
projected Nigeria’s growth at 0.8 per
cent in 2017, indicating that the
country will recover from the recession
based on improved oil production,
continued growth in agriculture, and
higher public investment spending. This
is reflected in the renewed focus of the
2017 Federal Government budget of
N7.44
trillion
favouring
capital
expenditure with the commitment to
timely
release
funds
for
capital
projects. Also, the Economic Recovery
and
Growth
Plan
(ERGP),
the
implementation
of
the
Executive
Orders of the Federal Government,
particularly the Voluntary Assets and
Income Declaration Scheme (VAIDS),
and the anti-corruption campaign are
expected to boost investor confidence
and attract foreign capital to grow the
economy.
In
addition,
the
CBN’s
commitment
to
make
foreign
exchange available, coupled with
other development finance initiatives,
would aid output recovery.
The risk to the outlook, however,
continues to come from developments
in the external environment and the
domestic economy. Externally, the
weak economic recovery, declining
demand for crude oil globally in the
face of the development of clean
energy
technologies,
and
the
continuing loss of market share for
Nigeria’s crude oil, may dampen
output growth prospects. Also, growing
social tension reflected in the threats of
resumption of militancy and herdsmenfarmer
conflicts
could
further
undermine investment and growth.


CBN Monetary Policy Review

6.6
Outlook for Domestic Inflation
Headline inflation moderated during
the
review
period,
although
still
substantially
above
the
Bank’s
benchmark of 6-9 per cent. The price
development was, however, still within
the moderate double digit range. Staff
estimates suggest that year-on-year
headline
inflation
is
projected
to
decelerate further to 15.99, 15.80, 15.61
and
15.42
per
cent
in
August,
September, October and November
2017, respectively, but increase slightly
to 15.46 per cent in December 2017.
The expected moderation in headline
inflation is predicated on continued
improvement in supply of petroleum
products, narrowing the supply gap
which
usually
feed
into
cost
of
transportation
and
other
domestic
prices. Similarly, the current foreign
exchange management interventions
of the Bank is expected to moderate
demand
pressure
in
the
foreign
exchange market and soften prices of
imported food items. In addition, the
moderation in inflation is expected to
persist over the forecast period as the
harvest season kicks in. This will be
supported by the continued tight
monetary policy stance of the Bank.
However, the seasonal factors around
December and January may give rise
to slight uptick in inflation.

The outlook for core inflation also
suggest a moderation premised on
sustained intervention in the foreign
exchange market, increased inflows
and
accretion
to
reserves,
thus
signaling convergence between the
interbank and parallel market rates.

Food inflation is projected to remain
high owing to high cost of transporting
goods and persons, especially in the
rural areas. The strong association
between commuting in rural areas,
owing to poor roads infrastructure, and
food inflation is expected to keep food
inflation high.
From the global scene, risk to inflation
outlook in the near term is the fasterthan-expected increase in interest rate
in the United States, which could stoke
a
sharp
dollar
appreciation
with
implication of slowing or reversing
capital inflows. At the domestic level,
the risks factors include; the relatively
high energy prices, poor power supply,
disruption
of
production
and
distribution chains due to continued
insurgents activities against soft targets
in the
North-East, and herdsmenfarmers conflicts in some parts of the
country. In addition, the expected
huge injections from the expansionary

Federal
Government
budget
could stoke inflation.

Nonetheless, the Bank would continue
to manage liquidity conditions in the
domestic
economy
to
rein-in
inflationary pressures and ensure that
upside risks to inflation are contained.


CBN Monetary Policy Review

Summary of Inflation Forecast for YearOn-Year Change (per cent)
Year/M onth
Headline Inflation
Core Inflation
Food Inflation
2017M01
18.7
17.9
17.8
2017M02
17.8
16.0
18.5
2017M03
17.3
15.4
18.4
2017M04
17.2
14.8
19.3
2017M05
16.3
13.0
19.3
2017M06
16.1
12.5
19.9
2017M07
16.1
12.2
20.3
2017M08
15.99
12.00
20.35
2017M09
15.80
11.94
19.85
2017M10
15.61
11.85
19.33
2017M11
15.42
11.76
18.74
2017M12
15.46
11.70
18.81
2018M01
15.51
11.61
18.84

Source: CBN Monetary Policy Dept.

Fan Chart of Realistic Scenario for Headline
Inflation Forecast (2017M06-2017M12)

M12
M1
M2
M3
M4
M5
M6
M7
M8
M9
M10 M11 M12
M1

Forecast
Actual
H e a d lin e In fla tio n R a te (P e rce n t)
Source: CBN Monetary Policy Dept.
6.7
Outlook for Monetary Policy in

The medium term growth outlook for
the economy indicated a modest
recovery from the current recession.
This will be substantially driven by the
implementation
of
the
Federal
Government ERGP in the context of an
expansionary
fiscal
policy.
The
agricultural sector is expected to still
play a major role in the growth
prospect in view of the sustained
development finance initiatives of the
CBN
and
other
strategies
by
government to diversify the economy.
Also, the prospects for continuing
moderation
in
inflation
outcomes
would
be
strengthened
by
the
commitment
of
the
monetary
authorities to continue to provide
supportive foreign exchange policies.
Nevertheless, the risks to monetary
policy for the rest of 2017 would
include: the continuing low foreign
exchange receipts with its attendant
implications for foreign reserves and
government expenditure, pressure on
the exchange rate and instabilities in
the financial markets. In addition,
although the economy is projected to
exit recession, the envisaged growth is
likely to remain fragile as macrofundamentals
remain
weak.
Government
borrowing
at
both
national and sub-national levels had
expanded considerably in recent times
even
as
private
sector
credit
contracted. The challenge will be for
monetary policy strategy to ensure the
provision of enough resources to the
private sector to support sustained
recovery,
without
necessarily
undermining public sector investment.
Other
challenges
are:
persisting
liquidity surfeit in the banking system;


CBN Monetary Policy Review

weakening financial stability indicators;
and the need for the emergence of
positive real interest rates in the
economy.
The
challenges
from
the
external
environment are largely those related
to
the
continuing
divergence
of
monetary policies in the advanced
economies
with
implications
for
financial markets’ vulnerabilities that
could
spill-over
to
the
domestic
economy. In addition, the increasing
pace
of
U.S.
monetary
policy
normalization
has
implications
for
capital
reversals
from
emerging
markets including Nigeria. These issues
would continue to be monitored by
the Bank to ensure that the monetary
policy
environment
delivers
price
stability
conducive
to
economic
growth in the second half of 2017 and
beyond.


CBN Monetary Policy Review

Appendices

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ NO 111 OF THE
MONETARY POLICY COMMITTEE
MEETING
OF
23RD
AND
24TH
JANUARY 2017.

1.0
Background

The Monetary Policy Committee held
its first statutory meeting of fiscal 2017
on 23rd and 24th January, 2017 against
the backdrop of increased uncertainty
arising from political and economic
developments around the world. Over
the last few weeks the pillars of the old
order - free trade, multilateralism and
globalization have come under intense
pressure, and seemingly giving way to
an era of enlightened national interest
in
the
conduct
of
international
economic relations. On the domestic
front,
the
economy
remains
in
recession and inflation pressures have
yet to recede. Both external and
domestic conditions have blended to
significantly
complicate
the
policy
environment.
In attendance at the meeting were all
10 members of the Committee. The
Committee reviewed the global and
domestic
economic
and
financial
environments in 2016 and the outlook
for the short to medium term in 2017.


External Developments
The
uncertainty
in
the
external
environment persisted owing to a
combination of recent political and
economic
developments.
The
key
issues include: Brexit, the rising wave of
populist
and
anti-globalization
sentiments anchored by emerging
bilateralism, divergent monetary policy
stance of the advanced central banks
and
disorderly
commodity
price
movements. With global output
growth
improving
sluggishly,
the
outlook for 2017 remains unchanged
owing to persisting uncertainties in
commodity prices and volatility in the
financial markets as well as slowing
demand in the advanced economies
and the emerging markets.
The
MPC
welcomed
the
modest
increase in oil prices following the last
OPEC decision to cut output and
noted the increase in the policy rate of
the
US
Federal
Reserve
Bank
in
December 2016 and the potential
implications
of
that
decision
for
international interest rates and capital
flows. While noting the materiality of
the output cut on oil prices, the
Committee cautioned that the effect
could
rapidly
wane,
given
the
likelihood of a supply glut from nonOPEC members, low level of global
economic activity and weak growth.
Emerging markets and developing
economies,
in
particular,
have
continued
to
confront
strong
headwinds such as low commodity


CBN Monetary Policy Review

prices,
rising
inflation,
currency
instability, intractable low aggregate
demand and subdued capital flows.

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


1 The Federal Reserve raised its benchmark
Federal Fund rate by 25 basis points in December
2016, to a range of 0.50 to 0.75 per cent, and
also provided indication of rate hikes in 2017
Domestic Output Developments
Data released by the National Bureau
of Statistics (NBS) in November 2016
showed that the economy contracted
further by 2.24 per cent in Q3 2016,
having slipped into recession following
another contraction in output in Q2,
2016. Although the overall contraction
in Q3 was greater than was observed
in Q1 and Q2, the non-oil sector grew
by 0.03 per cent in Q3, driven mainly
by agriculture, which grew by 4.54 per
cent. The Committee is of the view that
the key undercurrents i.e. scarcity of
foreign exchange, low fiscal activity,
high
energy
prices
and
the
accumulation
of
salary
arrears
-
cannot be directly ameliorated by
monetary
policy
actions.
The
Committee hopes that the recent
increase
in
oil
prices
would
be
complemented by production gains to
provide
the
needed
tailwinds
to
sustainable economic activity. In that
regard, the Committee commends the
commitment of the fiscal authorities to
step up efforts to fill the aggregate
demand
gap
through
a
speedy
resolution
of
the
domestic
indebtedness
of
the
Federal
government
to
states
and
local
contractors. The Committee believes
that doing so will aid the effort towards
economic recovery.

Developments in Money and Prices
The Committee noted that money
supply (M2) grew by 19.02 per cent in


CBN Monetary Policy Review

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

The Committee observed the increases
in the month-on-month inflation rate in
November and December, in contrast
to successive declines between June
and September 2016. It noted that the
structural factors driving the sustained
pressure on consumer prices, such as
the high cost of power and energy,
transport, production factors, as well as
rising prices of imports are yet to
abate. Nonetheless, the Committee
estimates
that
the
current
policy
stance and other measures directed at
improving
food
production
would
combine with base effect to usher-in
some moderation in consumer prices in
the short to medium term.
Money market interest rates fluctuated
in tandem with the level of liquidity in
the banking system. Thus, average
inter-bank call rate, which stood at
15.34 per cent on 21st November 2016,
closed at 9.90 per cent on December
30, 2016. Between these periods, the
interbank call rate averaged 13.59 per
cent. The average interbank call rate
however, fell to 3.00 per cent on
December 9, 2016, due to an increase
in net banking sector liquidity to
N495.48 billion on December 8, 2016,
following the payment of statutory
revenue
to
states
and
local
governments as well as maturity of
CBN bills during the period.

The
Committee
welcomed
improvements in the equities segment
of the capital market as the All-Share
Index (ASI) rose by 2.84 per cent from
25,499.00 on November 21, 2016, to
26,223.54 on January 20, 2016. Similarly,
Market Capitalization (MC) increased
by 2.5 per cent from N8.80 trillion to
9.02 trillion during the same period.
Relative to end-December 2016, the
capital market indices, however, fell by


CBN Monetary Policy Review

2.04 and 2.05 per cent, respectively,
reflecting the challenges confronting
the economy.
Total foreign exchange inflows through
the CBN increased significantly by
82.45 per cent in December 2016
owing mainly to the increase in oil
prices. Total outflows, however, spiked
during
the
same
period.
The
Committee noted that the average
naira exchange rate remained stable
at the inter-bank segment of the
foreign exchange market in the review
period.

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

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


CBN Monetary Policy Review

between price stability and growth.
Noting that the pressures on consumer
prices were yet to abate and even as
the economy continued to be in
recession
despite
the
intervention
support by the Central Bank, the
Committee stressed that it was not
oblivious of the full ramifications of the
economic
challenges
facing
the
country.

The MPC was concerned that the
current situation was not amenable to
simplistic analyses and quick fixes such
as
have
found
expression
and
increased attention at different fora
and
the
media.
The
domestic
economic challenges which include a
chronically
import
dependent
consumption
culture,
lack
of
competitiveness of many sectors of the
economy and yawning infrastructural
gap,
have
combined
with
an
unfavorable external environment to
complicate
the
macroeconomic
policy
environment.
The
Monetary
Authority had on many occasions, and
to the extent feasible, taken extraordinary steps to support other policies
as well as compensate for aspects of
structural gaps in the economy even
at the expense of its core mandate.
The Committee specifically noted the
positive contribution of agriculture to
GDP
in the
third
quarter,
mostly
attributable to the Bank’s interventions
in the sector. The Committee hopes
that given the thrust of the 2017
budget and accompanying sectoral
policies, output growth should resume
in the short to medium term. The MPC,
therefore, lends its voice to efforts for
an early finalization of the 2017 Federal
Budget by the authorities concerned,
and the resolve to pursue a non-oil
driven economy, as these will go a
long way in stimulating aggregate
demand and restoring confidence in
the economy. The Committee also
urged
the
authorities
to
seriously
consider
using
the
Public
Private
Partnership
(PPP)
model
in
its
infrastructure
development
programme as a means of cushioning
any possible shocks to budgeted
revenue.

The Committee further noted that
Inflationary pressures would begin to
subside as non-oil output recovers and
the naira exchange rate stabilizes. Until
then, it stressed, a rate cut would
worsen the inflationary conditions and
undermine the current outlook for
stability
in
the
foreign
exchange
market. The Committee also feels that
doing so would further aggravate
demand pressures while undermining
existing income levels in the face of
the already expansionary monetary
policy
and
increasing
inflationary
pressure which will make the economy
unattractive for foreign and domestic
investment. Given these limitations, the
Committee was reluctant to lower the
policy rate on this occasion but


CBN Monetary Policy Review

remained committed to doing so when
the conditions permit.
From a financial stability standpoint,
the Committee noted the possible
impact
of
the
inclement
macroeconomic
environment
on
banking sector resilience. The MPC
urged the Management of the Bank to
engage industry operators to discuss
likely issues of asset quality, credit
concentration
and
high
foreign
exchange exposures.
Given the growth in money supply
arising from unconventional monetary
policy operations of the Bank and
implications for price and exchange
rate developments, the Committee is
committed to moderating growth in
narrow money in the 2017 fiscal year in
line with the Bank’s monetary growth
benchmarks.

4.0
The Committee’s Decisions
The Committee, in consideration of the
headwinds in the domestic economy
and the uncertainties in the global
environment,
decided
by

a
unanimous vote to retain the MPR at
14.0 per cent alongside all other policy
parameters. In summary, the MPC
decided to:
1.
Retain the MPR at 14 per cent;
2.
Retain the CRR at 22.5 per
cent;
3.
Retain the Liquidity Ratio at
30.00 per cent; and
4.
Retain the Asymmetric corridor
at +200 and -500 basis points
around the MPR.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
24th January, 2017


CBN Monetary Policy Review

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO

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 sociopolitical 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


CBN Monetary Policy Review

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 adjustment2 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
the slowdown in the agricultural sector,
which decelerated to 4. 03 per cent in

2 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
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
end-February
and
underperformed
their
programmed
provisional
benchmarks for fiscal 2017.


CBN Monetary Policy Review

Headline
inflation
(year-on-year),
however, declined for the first time in

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 monthon-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 mediumterm.

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


CBN Monetary Policy Review

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-thanexpected 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


CBN Monetary Policy Review

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;
month-onmonth 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,


CBN Monetary Policy Review

growth-stimulating
sectoral
policies
would
help
fast
track
economic
recovery.

4.0
The Committee’s Decision
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


Godwin I. Emefiele
Governor, Central Bank of Nigeria
21st March, 2017


CBN Monetary Policy Review

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO

OF
THE
MONETARY
POLICY
COMMITTEE
MEETING OF 22nd AND 23rd May 2017

Background
The Monetary Policy Committee (MPC)
met on the 22nd and 23rd of May, 2017,
against
the
backdrop
of
slowly
improving global growth prospects
even
as
international
cooperation
continues to be threatened by antiglobalization
sentiments
in
major
advanced
economies.
On
the
domestic front, the economy has
shown
greater
resilience
in
the
intervening
period
since
the
last
meeting of the Committee, anchored
on more focused macroeconomic
policies and improvements in oil prices.
While the general economic outlook
seems cautiously optimistic for the
remainder of fiscal 2017, emerging
indicators
suggest
that
economic
policy must remain circumspect.
In attendance were 8 out of 12
members of the Committee. The MPC
assessed the global and domestic
economic and financial environments
in the first five months of 2017 and the
outlook for the rest of the year.

External Developments
The global economy continued to
gather momentum in Q1, 2017, aided
by gradual recovery in the emerging
markets on the back of a pick-up in
global demand and higher commodity
prices,
coupled
with
fairly
robust
domestic demand in the advanced
economies. Accordingly, global output
growth in Q1 2017 is estimated to
expand by 2.8 per cent annualized. In
spite of the fairly optimistic global
economic
outlook,
uncertainty
surrounding
the
direction
of
macroeconomic
policy
in
the
advanced economies continues to
cloud
the
prospects
of
sustained
recovery. Global inflation appears to
be upward trending on the back of
improved
commodity
prices
and
depreciated
currencies
in
several
emerging markets.

Domestic Output Developments
Data from the National Bureau of
Statistics
(NBS)
showed
that
the
economy contracted marginally by
0.52 per cent in Q1 2017, a much more
positive development since Q1 2016.
The data also shows that about
eighteen
(18)
economic
activities
recorded positive growth in Q1 2017;
indicating that the economy was firmly
on the path of recovery. The key
growth activities were led by quarrying
(52.54%), metal ores (40.79%), road
transportation (12.35%), water supply
and sewage (12.63%), fishing (5.49%),
crop production (3.5%), oil refining
93.01%),
motion
pictures
(2.95%),
telecommunication
(2.89%),
forestry
(2.59%),
amongst
others.
The
Committee noted the positive effects
of
improved
foreign
exchange
management on the performance of
the manufacturing sector and other


CBN Monetary Policy Review

economic activities. The non-oil sector
grew by 0.72 per cent in Q1 2017,
largely reflecting the growth recorded
in agriculture and solid minerals, and
recovery
in
manufacturing,
construction and services sectors. The
Committee urged the fiscal authorities
to
expeditiously
commence
the
implementation
of
the
recently
approved 2017 budget, especially, the
capital expenditure portion, in order to
sustain the momentum of recovery,
engender employment and restore
confidence in the Nigerian economy.

Developments in Money and Prices
The committee noted that money
supply (M2) contracted by 8.48 per
cent in April 2017, annualized to a
contraction of 25.44 per cent in
contrast to the provisional growth
benchmark of 10.29 per cent for 2017.
Net Domestic Credit (NDC) grew by
1.40 per cent in April, 2017, annualized
to 4.21 per cent, which is significantly
below the 17.93 per cent provisional
growth benchmark for 2017. However,
net credit to government grew by
24.08 per cent over end-December
2016,
representing
an
annualized
growth
of
72.0
per
cent.
The
Committee was concerned that credit
to government continued to outpace
the programmed target of 33.12 per
cent for fiscal 2017, while credit to the
private sector declined considerably
far below the programmed target of
14.88 per cent.

Headline
inflation
(year-on-year)
moderated for the third consecutive
month, falling to 17.24 per cent in April,
from 17.26 per cent in March, 17.78 per
cent in February and 18.72 per cent in
January 2017, effectively reversing the
monthly upward momentum
since
January,
2016.
The
food
index
component, however, rose to 19.30
per cent in April, from 18.44 per cent in
March and 18.53 per cent in February,
2017. The moderation in headline
inflation in April, 2017 thus reflected the
decline in the core component to
14.80 per cent in April from 15.40, 16.01,
and 17.87 per cent, respectively in
March, February and January, 2017.
Similarly,
month-on-month
inflation
moderated to 1.60 per cent in April
from 1.72 per cent in March, 2017.

The
Committee
attributed
these
developments in part to the effects of
the recent gains in the naira exchange
rate, brought about by the Bank’s
interventions in the foreign exchange
market and the resulting downward
price adjustments on imported items
and their
derivatives.
Against
this
background,
the
Committee
emphasized the need to sustain and
deepen the Bank’s foreign exchange
management policies and measures in
order to reap the benefits of the passthrough to consumer prices. The MPC
recognized the continued influence of
structural factors such as high energy
and transportation costs, production
bottlenecks on prices and hoped that
the
ongoing
reforms
by
the


CBN Monetary Policy Review

Government would address some of
these constraints.
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 rate opened at 11.40 per
cent on March 22, 2017 and closed at
38.94 per cent on May 18. The
movement in net liquidity position was
influenced by sales at the Open
Market Operations, foreign exchange
interventions, the payment of statutory
revenues
to
States
and
Local
Governments as well as maturing CBN
Bills.
The MPC noted the bullish trend in the
equities segment of the capital market
as the All-Share Index (ASI) rose by
10.20 per cent from 25,516.34 on
March 31, 2017, to 28,113.38 on May
19,
2017.
Similarly,
Market
Capitalization (MC) increased by 10.10
per cent from N8.83 to N9.72 trillion
during the same period. Relative to
end-December
2016,
the
capital
market indices rose by 4.60 and 5.10
per
cent,
respectively,
reflecting
growing investor confidence following
improvements in foreign exchange
supplies reflected in the over US$1
billion injected through the investor
window
and
exchange
rate
management. Total foreign exchange
inflows through the CBN increased by
69.77 per cent in April, 2017 compared
with the previous month. Total outflows,
however, rose, but less significantly, at
29.35 per cent during the same period.
Consequently,
the
Committee
observed 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 various forecasts of
key economic variables as well as
assessment of government initiatives,
including the recently released Federal
Government Economic Recovery and
Growth Plan (ERGP), all point to
prospects of recovery in 2017. The
Committee expects that the timely
implementation of this plan, judicious
execution
of
the
approved

Budget and sustenance of the new
foreign
exchange
implementation
regime supported by the restoration of
security
in
different
parts
of
the
country, especially, in the Niger Delta
region, would help accelerate growth
and
restore
confidence
in
the
economy.
The
MPC
however,
identified the downside risks to this
outlook to include the possibility of low
oil prices due to renewed investments
in shale oil exploration and production,
continuing
monetary
policy
normalization by the U.S. Fed which
may result in strengthening of the U.S
dollar,
and
consequent
capital
reversal
from
Nigeria
and
other
emerging market economies. Also, the
MPC believes that the inflation outlook
does not appear benign as the limit of
the base effect driving the current
moderation in prices may have been
reached.


CBN Monetary Policy Review

3.0
The
Considerations
of
the
Committee

Notwithstanding the improved outlook
for the economy, the Committee
weighed the implications of continuing
global uncertainties arising from the
dwindling
commitment
to
global
cooperation, the strengthening of the
U.S.
dollar,
and
the
unsteady
commodity prices. The Committee
similarly evaluated other challenges
confronting the domestic economy
and the opportunities for achieving
economic growth and price stability in
2017. The MPC was of the view that
whereas
the
downward
trend
in
inflation in April 2017 is a welcomed
development;
the
rate
was
still
significantly
above
the
policy
reference band.

The MPC is particularly pleased with
the gradual retreat in inflation, the
relative stability in the Naira exchange
rate across all segments of the foreign
exchange market and the improved
prospects of foreign investment inflow.
The Committee also welcomes the
passage of the 2017 Budget and
called on the relevant authorities to
ensure its judicious implementation,
especially, the capital budget in line
with the Economic Recovery and
Growth Plan. It, however, noted the
associated risks to banking system
liquidity
of
the
envisaged
fiscal
injections during the remainder of the
year. Against this risk, the Committee
contemplated the prospects of further
tightening of monetary policy should
the need arise. The MPC however,
noted that further tightening would
widen
the
income
gap,
depress
aggregate
consumption
and
adversely affect credit to the real
sector of the economy.

Nevertheless, against the backdrop of
the rather unclear outlook around key
economic activities (food production
especially) and some optimism about
current deceleration in inflation as well
as
relative
stability
in
the
naira
exchange rate, the MPC was reluctant
to alter the current policy configuration
in any fundamental manner. This is
intended to allow the existing policies
to fully achieve their intended goals
and objectives. On the other hand, the
Committee noted that the cost of
capital in the economy remains high
and not helpful to growth. The MPC
was
however,
concerned
that
loosening
would
exacerbate
inflationary pressures and worsen the
gains so far achieved in the exchange
rate of the naira. It was also convinced
that loosening would further increase
the negative real interest rate as the
gap between the nominal interest rate
and inflation widens.

On the financial stability outlook, the
Committee noted that in spite of the
banking sector’s resilience, the weak
macroeconomic
environment
has
continued to exert pressure on the
banking system. The MPC urged the


CBN Monetary Policy Review

CBN to intensify its surveillance, in order
to address emerging vulnerabilities. The
Committee also called on the DMBs to
step up credit to the private sector to
support
economic
recovery
and
convey a positive feedback to the
financial system.

4.0
The Committee’s Decisions

In consideration of the challenges
weighing
down
the
domestic
economy and the uncertainties in the
global environment, the Committee
decided by a unanimous vote of the 8
members in attendance to retain the
MPR at 14.0 per cent alongside all
other policy parameters. One member
was
absent
at
the
meeting.
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


Godwin I. Emefiele
Governor, Central Bank of Nigeria
23rd May, 2017


CBN Monetary Policy Review

CBN Monetary Policy Review