CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO 116 OF THE MONETARY POLICY
COMMITTEE MEETING OF MONDAY 20th AND TUESDAY 21st NOVEMBER, 2017

Background
The Monetary Policy Committee met on the 20th and 21st of November, 2017
against the backdrop of a relatively optimistic global economic outlook. The
Committee reviewed key developments in the global and domestic
economies during the first ten months of 2017 and assessed the risks to price
and financial stability in the short- to-medium term as well as outlook for the
first half of 2018.

Nine (9) members of the MPC were present at the meeting.

External Developments
Global output is projected to improve to 3.6 per cent in 2017 from 3.2 per
cent in 2016. The revised growth forecast reflects the uptick in global
economic activity, strengthened by the recovery in oil and other commodity
prices and leading to improved aggregate demand. Growth in the
advanced economies is projected to improve to 2.2 per cent in 2017 from 1.7
per cent in 2016. Similarly, emerging markets and developing economies are

forecast to grow at 4.6 per cent in 2017 up from 4.3 per cent in 2016. The
MPC, however, noted some risks to the outlook for global growth to include:
continued tension in the Korean Peninsula, complexities arising from the
BREXIT negotiations and financial market uncertainties due to monetary
policy normalization in the US.

The Committee noted that the pace of increase in inflation in the advanced
economies, with the exception of the UK, is expected to be considerably slow
towards the end of 2017. In the emerging market economies, inflationary
pressures have abated as key economies exit recession and their currencies
stabilize. Inflation is projected at 1.7 and 4.2 per cent in 2017 in the advanced
and developing economies, respectively. The Committee observed that the
outlook for global monetary policy remains largely accommodative, in
support of economic recovery and growth.

Domestic Output Developments
Data from the National Bureau of Statistics (NBS) indicate that real Gross
Domestic Product (GDP) grew by 1.40 per cent in the third quarter of 2017, up
from 0.72 per cent, and contraction of 0.91 per cent in the second and first
quarter of 2017, respectively. The major drivers of real GDP growth were
agriculture (0.88%) and industry (1.83%). Some subsectors contracted,
including: construction (0.01%), trade (0.29%) and services (1.02%). Overall,
non-oil real GDP contracted by 0.76 per cent in Q3 2017, giving credence to

the argument that more work is required to consolidate the recovery process;
by putting in place policies that will boost growth through the non-oil sector.

The Committee also noted the continuous positive outlook based on the
Manufacturing Purchasing Managers Index (PMI), which stood at 55.0 index
points in October 2017, indicating expansion in the manufacturing sector for
the seventh consecutive month. Eleven of the sixteen sub-sectors reported
growth in the review period. Also, the composite PMI for the nonmanufacturing sector stood at 55.3 index points in October 2017, indicating
growth for the sixth consecutive month. The Committee hopes that, while the
economic recovery appears to remain fragile, a tenacious implementation
of the 2017 budget and quick passage of the 2018 budget would boost
aggregate demand and confidence in the economy.

Developments in Money and Prices
The Committee noted that money supply (M2) contracted by 5.54 per cent in
October 2017 (annualised), in contrast to the provisional growth benchmark
of 10.29 per cent for 2017. The development in M2 is largely due to the
contraction of 37.50 per cent in other assets net (OAN). Similarly, M1
contracted by 7.79 per cent (annualised to -9.35 per cent). Net domestic
credit (NDC) expanded by 1.18 per cent, annualized to 1.42 per cent, driven
primarily by net credit to government, which also expanded by 7.60 per cent
against the programmed growth of 33.12 per cent. Credit to the private

sector, however, contracted by 0.24 per cent in October 2017, compared
with the provisional benchmark of 14.88 per cent. The MPC also noted the
structural constraints in the transmission of credit to the real sector of the
economy as well as the rising unemployment level. The Committee urged
the Management of the Bank to continue to encourage the deposit money
banks to accelerate the rate of credit growth to the real sector of the
economy.

Inflationary pressures in the economy continued to moderate with headline
inflation (year-on-year) receding for the ninth consecutive month to 15.91 per
cent in October 2017 from 15.98 per cent in September 2017. Food inflation
fell marginally to 20.31 per cent from 20.32 per cent in September, while core
inflation increased slightly to 12.14 per cent from 12.12 per cent during the
same period. These developments were attributable to the contraction in
money supply, favourable but dwindling base effects, and the relatively
stable naira exchange rate. In spite of the marginal decline in food inflation in
October, the Committee noted that the rate remained high, traceable to
cross border sales, distribution bottlenecks, high prices of farm inputs and
supply shortages.

Money market interest rates oscillated in tandem with the level of liquidity in
the banking system as the average inter-bank call rate, which opened at
12.00 per cent on October 3, 2017, closed at 5.38 per cent on November 16,

2017. The OBB rates opened at 10.41 per cent and closed lower at 6.02 per
cent in the same period. However, the average inter-bank call and OBB rates
for the period stood at 10.94 and 10.15 per cent, respectively. The
development in net liquidity positions and flows reflected the effects of
Federation Account payments to states and local governments; remittances
by the Nigerian Customs, Federal Inland Revenue Services; OMO sales;
foreign exchange interventions and maturing CBN Bills.

The Committee noted the continuing improvement in the level of external
reserves and the equities segment of the capital market. External reserves
grew to US$34.9 billion at the close of business on November 16, 2017.
Similarly, the All-Share Index (ASI) rose by 3.38 per cent from 35,504.62 on
August 31, 2017 to 36,703.58 on November 17, 2017. Market Capitalization
(MC) improved by 4.35 per cent to N12.77 trillion from N12.24 trillion during the
same period. Relative to end-December 2016, capital market indices rose by
36.57 and 38.10 per cent, respectively, indicating rising investor confidence,
due to improvements in foreign exchange supply.

Total foreign exchange inflow through the central bank declined by 6.61 per
cent in October 2017, compared with the previous month and attributable to
the decline in crude oil and gas receipts as well as revenues from petroleum
profit tax (PPT) and royalty payments. Total outflows, however, increased by

18.77 per cent during the same period, as a result of interbank sales, direct
payments and JVC calls.

The Committee noted the gradual convergence between the rates at the
bureau-de-change (BDC) and the Nigeria Autonomous Foreign Exchange
(NAFEX) market segments, as well as the stability of the exchange rate at the
inter-bank segments of the foreign exchange market during the review
period. Similarly, the Committee viewed with satisfaction, the growing
patronage at the Investors’ and Exporters’ (I&E) window of the foreign
exchange market and attributed the development to increased confidence
by foreign investors and the preference of Nigerian investors’ and exporters’
for the window compared with all other windows. The MPC noted that the
I&E window had increased liquidity and boosted confidence in the market
with over US$18.70 billion in transactions since its introduction in April 2017.

2.0. Overall Outlook and Risks
Forecasts of key macroeconomic variables indicate a positive outlook for the
economy up to Q1 2018. This is predicated on continued implementation of
the 2017 budget into early 2018, anticipated improvements in government
revenue from the implementation of the Voluntary Asset and Income
Declaration Scheme (VAIDS) as well as favourable crude oil prices. The
development finance initiatives by the CBN in the real sector, particularly in
agriculture, are expected to continue to yield positive results in terms of

output expansion and job creation. Focusing on the downside risks to the
outlook, the Committee noted the low fiscal buffers and weak aggregate
domestic demand. On the external front, widening global imbalances, and
rising geo-political tensions were some of the crucial risks identified.

3.0. The Considerations of the Committee
The Committee noted with satisfaction the second consecutive quarterly
growth in real GDP following five quarters of contraction. In addition,
Members welcomed the relative stability in the exchange rate, particularly
the narrowing premia and the very slow deceleration in consumer price
inflation, largely attributable to base effects. Overall, the economy has
begun to show strong signs of recovery as public investment has picked up
with increased housing construction at the Federal and state levels, as well as
shipping activities at the ports. The Committee was, however, of the view that
policy makers must not relent in their aggressive policy initiatives aimed at
continuing the positive growth trajectory. The Committee was also
concerned about potential adverse external developments and the cautious
approach to lending and financial intermediation by domestic deposit
money banks.

The Committee similarly evaluated other concerns in the domestic economy
and the opportunities for strengthening output recovery, noting that some
highly critical subsectors were yet to resume growth. The Committee noted

the significant contribution of food prices to headline inflation and observed
that the benefit of base effect on overall headline inflation had substantially
dwindled. Members, however, expressed confidence that the tight stance of
monetary policy and the stability in the exchange rate of the naira should
continue to positively weigh in on price developments. The Committee
reaffirmed its commitment to maintaining price stability, which is crucial to
sustainable economic growth and development.

The Committee welcomed the review of the Economic Recovery and
Growth Plan (ERGP), in an effort to realise the objectives of the plan. In the
same vein, the Committee urges a quick passage of the 2018 Appropriation
Bill by the National Assembly, so as to keep fiscal policy on track and deliver
the urgently needed reliefs in terms of employment and growth of the
economy.

On financial stability, the Committee noted the concentration of nonperforming loans in a few sectors but observed that the overall condition and
outlook for the banking system was stable as deposit money banks’ balance
sheets remained strong. This assessment is strengthened by developments in
the national accounts and the expectations that the affected sectors are
returning to growth. Nonetheless, the Committee urged further strengthening
of supervisory oversight and deployment of early warning systems in order to
promptly identify vulnerabilities and proactively manage emerging risks in the

banking system. The Committee further observed that government was
increasing debt, both domestically and externally, thus crowding out the
private sector.

4.0. The Committee’s Decisions
In arriving at its decision, the Committee appraised potential policy options in
terms of the balance of risks. The Committee also took note of the gains
made so far as a result of its earlier decisions; including the stability in the
foreign exchange market and the moderate reduction in inflation and thus
extensively deliberated the options regarding whether to hold , tighten or
ease the policy stance.

While tightening would strengthen the impact of monetary policy on inflation
with complementary effects on capital inflows and exchange rate stability, it
nevertheless could also potentially dampen the positive outlook for growth
and financial stability. On the other hand, whereas loosening would
strengthen the outlook for growth by stimulating domestic aggregate
demand through reduced cost of borrowing, it could aggravate upward
trend in consumer prices and generate exchange rate pressures. The
Committee also feels that loosening would worsen the current account
balance through increased importation. On the argument to hold, the
Committee believes that key variables have continued to evolve in line with
the current stance of macroeconomic policy and should be allowed to fully

manifest. Members noted that the developments in output and inflation in
particular required effective close monitoring in order to gain clarity on the
medium term optimal path of monetary policy.

In consideration of the foregoing, the Committee decided by a vote of 8 to 1
to retain the Monetary Policy Rate (MPR) at 14.0 per cent alongside all other
policy parameters. One member voted to reduce the MPR by 100 basis
points.

Consequently, the MPC voted to:

(i)
Retain the MPR at 14.0 per cent;
(ii)
Retain the CRR at 22.5 per cent;
(iii)
Retain the Liquidity Ratio at 30.0 per cent; and
(iv)
Retain the Asymmetric corridor at +200 and -500 basis points around
the MPR.

Thank you for listening.

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

PERSONAL STATEMENTS BY THE MONETARY POLICY COMMITTEE MEMBERS
1.
ADELABU, ADEBAYO
It is laudable that the economy has formally exited recession, justifying the
various bold initiatives put in place by macroeconomic policy makers in the
last couple of months. In tandem with this, headline inflation eased to 15.91
per cent in October 2017, sustaining the decelerating trend of the past nine
months. In the external sector, the exchange rate has not only stabilized in
both markets, but a good degree of net accretion to external reserves has
equally been observed, taking the gross external reserves to about US$34
billion in November, 2017 the highest level in the last two years. In this regard,
it is worth commending the Investors’ and Exporters’ FX Window put in place
by the Bank in boosting liquidity in the market. The innovation, among others,
has substantially scaled up the bar of confidence of economic agents in the
economy with the attendant self-reinforcing phenomenon.
The progress recorded so far, obviously, is impressive, but vulnerability is still
visible, thus the issues now border on sustaining the trend, which essentially
involves building resilience, while simultaneously reducing vulnerability. This, of
course, is the area that poses considerable challenges to monetary authority
and the entire macroeconomic policymakers. The risk factors to maintaining
the trend are quite huge, cutting across the real, fiscal and, external sectors.
In the real sector, beside the fact that the current recovery is weak and
naturally vulnerable to setback, other issues like rising spate of industrial unrest

and militancy activities are serious risk factors that could undermine growth
prospects. In this regard, it is commendable that the Federal Government has
set up a Presidential Committee on employment, which would proffer
measures to harness the bundles of untapped human resource endowment
and therefore assist the growth process. Without prejudice to this initiative, it
needs to be borne in mind that an enduring growth process is equally
dependent on the capacity to preserve existing level of growth in output.
Against this perspective, it is expedient that appropriate framework be put in
place to identify and monitor signals of labour unrest with a view to promptly
addressing such before an escalation in order to prevent reversal of the
ongoing recovery effort.
Another issue of serious concern within the real sector is the inflation
dynamics. Although overall inflation is easing, it is quite disturbing that farm
produce component is rising, reflecting supply bottlenecks particularly
disruption to farming activities on account of several factors like flooding,
militants in the North East, and displacement of many farming communities
by herdsmen. One glaring issue from the analysis of risk factors within the real
sector is that the issues are not much of monetary factors, but largely
requiring structural policies and robust engagement with critical stakeholders.
As such, the response of the monetary authority should essentially be
maintenance of status quo ante.
The fiscal sector is equally fraught with a number of issues that could
undermine macroeconomic conditions within the short to medium term. In

the first instance, although a causal examination of fiscal operations for the
first half of the year shows an improvement, which is good for monetary
policy, a deeper examination reveals a lot of outstanding obligations
particularly to contractors. Settlement of these obligations could result
possibly in further fiscal strain, extending the deficit beyond projection with
the likely implication of additional borrowing and the attendant crowding out
of the private sector credit.
On another but related dimension, the 2018 Appropriation Bill has just been
presented to the National Assembly by the President. It is commendable that
the Federal Government is keeping faith with the tenets of the Medium Term
Expenditure Framework (MTEF) as witnessed in the increase in allocation to
capital projects, while simultaneously making provision for sinking fund that
would assist in redeeming maturing bonds. This approach would definitely
mitigate key risks in macroeconomic condition particularly volatility in the
financial markets. This notwithstanding, a budget of N8.6 trillion, predicated
on deficit financing of about N1.7 trillion or about 20 per cent may likely
trigger some other challenges to macroeconomic conditions. For one, public
debt to GDP has been increasing consistently since 2012 and is now at 15.5
percent. The new borrowings would invariably increase the level of public
debt, raising concern about sustainability. Furthermore, the structure of the
new borrowings is a matter of concern. The deficit financing of N1.69 trillion is
expected to be sourced equally between domestic and external markets.
Each of these sources would exert significant pressure on domestic

macroeconomic conditions. From the external markets, although rising
appetite for yield has strengthened the demand for debt instruments of
emerging economies, the spate at which many sub-Sahara countries are
slipping into debt distressed conditions has triggered a downgrade of their
credit ratings below investment grade. The implication is that the new
external borrowing in the budget would much likely attract higher interest
rate thereby increasing the burden of debt servicing. The risks of borrowing
from the domestic are fairly obvious. It is well-known that credit to the private
sector has shown lackluster performance since the beginning of the year. For
example, statistics revealed that credit to the private sector contracted by
0.24 per cent at end-October, annualizing to 0.288 per cent against the
target of 14.88 per cent. This, of course is highly worrisome for an economy
that is in economic recovery phase. The reason commonly adduced for this
development is crowding out by the government sector. Beside the risk of
crowding out, credit to private sector could suffer additional set back on
account of asymmetry of information feature of Nigeria’s credit market. This
requires that the banking sector places considerable premium on collateral
as reflected mostly by net worth of business firms and enterprises. Given that
increase in government borrowing would increase the price of fixed income
securities at the expense of equity, net worth of business firms and enterprises
would nose-dive, prompting banks to scale down credit to the private sector.
This, invariably would constitute considerable drag to the recovery process. In
a nutshell, the evolving scenarios demand some sorts of fiscal consolidation

albeit without disrupting spending on public investments that are critical to
addressing bottlenecks to growth process. In other words, efforts should be
geared at raising revenues particularly from non-commodity sources while
simultaneously cut down on recurrent expenditures.
In tandem with developments within the domestic economy, key indicators
from the external sector have shown impressive performance in the last
couple of months, but the buildup in the downside risks still remains very
strong. Crude oil prices in particular have witnessed an appreciable increase
due to waning excess supply and slowdown in US shale oil production as well
as temporary shutdown of major refineries in the aftermath of the hurricane
Harvey storm. This development has been reinforced by improved
compliance of OPEC members with production cut deal. Although the
deadline on the deal has been extended to the end of the first quarter of
2018, little is known about the next policy move to ensure that output does
not exceed demand. The central issue here is that the current rally in the
prices of crude oil is mainly driven by temporary factors and as such subject
to setback.
On a related note, global inflation is beginning to show a divergence from
the trend of the last three years. Global price level, which was largely
subdued over the past three years due to weakness in energy prices, has
commenced a fair degree of uptick. The latest projection by IMF revealed
that global inflation would accelerate to 3.5 per cent in 2017 from 3.1 per
cent in 2016, fuelled by the upsurge in oil prices and currency depreciation.

This suggests that domestic price dynamics is still confronted with the upside
risk of international spillover even if the domestic monetary authority
succeeds in containing exchange rate depreciation. Given the possibility of
crystallization of this risk, the option of monetary easing should be treated
cautiously at this moment.
Against the perspective of the foregoing analysis, the option of monetary
easing at this period appears sub optimal, while further tightening may strain
the macroeconomic environment, most especially in light of dismal
performance of credit to the private sector. In view of the foregoing issues, I
would like to vote for the retention of all the current monetary policy
measures.

2.
BALAMI, DAHIRU HASSAN
The picture at the global level shows that output growth momentum
remained resilient due to recovery in commodity prices and aggregate
demand, consequently IMF projected upward growth rate of 3.6 %. The main
drivers of growth is coming from Euro area, Japan and Canada. In the
emerging economies, growth is expected to come from China, Brazil and
Russia. Likewise, in the LDCs countries such as South Africa, Kenya and Nigeria
is where growth is expected to come in 2018. However, in Nigeria the year
2017 started on a bad footing with the economy still in recession; inflation at
about 18.7%; unemployment of more than 14%; exchange rate of N525/to a
dollar; a negative growth rate of -1.58%; and high prime lending rate of 30%.
Taking the assessment of the growth performance by the MPC towards the
growth of the economy, inflation has decelerated from 18.97% in January to
15.97% by September 2017. Exchange rate at both the interbank and the
BDC has stabilised at about N305/366 to a dollar and currently there is south
ward convergence. The economy was able to move out of the recession in
the second quarter with a positive growth rate of 0.55%, followed by an
improvement in the third quarter with 1.40% growth rate. However, this growth
rate is not what MPC expected because Nigeria’s population growth rate is
about 2.82% implying that for growth to be meaningful it must be about 6%.
The major factor driving growth in the economy out of the recession is the oil
sector such as oil production and oil prices. However, both factors are fragile
because volatility in the oil market is uncertain due to the following reasons:

US shale oil development and ability of the government to maintain stable
peace in the Niger Delta region.
At the external sector, the flow of Foreign Direct Investment (FDI) and
Foreign Portfolio Investment (FPI) have improved and more than US$ 10 billion
have flowed in. However, managing the stability of the inflows is also a big
constraint to growth because of the following factors: the normalisation of US
economy and possibility of another hike in interest rate. Also, the increased
protectionist policy or inward looking policies of most developed economies
is a threat to Nigeria’s growth. Although Nigeria has exited recession, the
economy is currently experiencing in a stagflation, where unemployment is
on the increase and high inflation in double digit. High inflation discourages
growth. Again data and statistics show that the service sector of the
economy, which has been a great contributor to GDP growth (50%) is still in
recession. The other variables constraining growth in Nigeria include
declining government revenues both in terms of foreign exchange receipts
as well as domestically collected revenue through taxes; deteriorating
infrastructural transportation facilities such as road, air, waterways and rail;
problems of energy such as electricity, premium motor spirit (PMS), diesel;
insecurity such as Boko Haram in the north east, and other terrorist activities
particularly in Zamfara, Katsina, Benue and Niger Delta States etc. are all
hindrances to growth.

To promote growth there is need to stimulate the economy. This can be
achieved by employing appropriate monetary and fiscal policy tools to aid in
the diversification of the economy through the following:
1. Demand management policies such as discouraging high levels of
consumption of imported goods, which implies exporting jobs. It also
reduces our level of reserves bringing in volatility in the foreign
exchange market. The demand management policies earlier put in
place such as the ban on the import of 41 commodities which can be
produced in Nigeria from the interbank foreign exchange should be
encouraged and maintained until the situation improves. This has
helped reduce importation as well as saved foreign exchange which
would have been expended on the importation of the banned
commodities. This has also improved the Purchases Managers Index
(PMI). The update from the FX market is encouraging in terms of FDI
and FPI flow which was supported by MPCs tightening.
2. The developmental activities of the Bank should be encouraged with
caution so that it does not come into conflict with one of the core
mandates of the CBN that is maintaining price and foreign exchange
rate stability and assisting Government in promoting the growth of the
economy.
3. In the foreign exchange market a lot of interventions have been
introduced in order to manage the available foreign resources. These
include intervention, in the interbank foreign exchange segment,

Bureau de Changes (BDCs); and provision of windows for the Investors
and Exporters; SMEs BTA/Medical Tourism; and school fees which
greatly assisted in making foreign exchange available to clients
thereby stabilising the foreign exchange market. The bank should also
monitor carefully the activities of speculators, rent seekers, and round
trippers, amidst escalated pressures so that they do not destabilise the
market.
The impact of the policies put in place by the Monetary Policy
Committee (MPC) has led to the drop in the level of imports into the
economy and to the rising level of the external reserves.

Inflation has also moderated though not in the direction we wanted. It
should be noted that food inflation is not coming down due to massive
exportation of agricultural food items produced in the North to the
neighbouring countries of Niger, Chad and Northern Cameroun. A lot
of work need to be done until growth outweighs population growth.
Typically, the CBN can target some big private sector investors to invest
heavily in the agricultural sector.
The critical question to ask is “how do we reduce inflation and interest
rate charged by the DMBs and how do we encourage banks to lend
to the real sectors of the economy”? Interest rate should come down
but at what point will it be appropriate to lower interest? What can also
be done to reduce the high level of unemployment in the economy?

The overall assessment is that most of the variables such as inflation,
growth of GDP, and stability in the foreign exchange market have
attained some level of improvement. However, a lot need to be done.
To my mind there is need to keep on with passive monetary policy so
that the level of stability in the foreign exchange market, deceleration
of inflation and rising growth which are all fragile must be guarded. I
therefore do not support loosening at this time, because it will be
inflationary and will disturb the relative stability in the foreign exchange
market. At the same time tightening would not be admissible because
it will hurt the economy. I therefore vote to hold, to wait for clarity to
enable the fiscal side to do their job as well as to allow the past policies
to work out as evident from the growth recorded in the second quarter
of 2017 leading to the exit of the economy from recession. In view of
this I recommend the following:
1. To retain the MPR at 14%
2. To retain the CAR at 22.5%
3. To retain the liquidity ratio at 30%
4. To retain the asymmetric corridor at+200 and -500 basis point
around the MPR.

3.
BARAU, SULEIMAN
Background
Relative to the take-off point at the beginning of the year, the Nigerian
macroeconomic condition is assuming a better shape with a gradual
correction of imbalances in various sectors. In particular, the hitherto sharp
volatility in the foreign exchange market has been sufficiently contained,
while the deceleration in inflation, which commenced in February, remained
consistent. It is without gainsay that the evolving macroeconomic outcomes
has benefited considerably from proactive macroeconomic policy measures
as well as benign global economic condition, notably the latest rally in the
price of crude oil.
More fundamentally, it is commendable that the Federal Government is
keeping faith with the tenets of the medium term Economic Recovery and
Growth Plan (ERGP) by taking some bold steps through the recent release of
three Executive Orders (EOs). The EO on local content in particular would
boost domestic economic activities and invariably tackle unemployment
head-on. Equally commendable is the picture of the fiscal strategy as
contained in the 2018 Appropriation Bill recently presented to the National
Assembly by the President. Of significant importance is the increase in the
allocation to capital projects to about 30 per cent, in line with the principles
of ERGP. With full commitment to these measures, I am convinced that the
ongoing recovery would remain on course.

From monetary policy perspective, the option of further tightening is
practically out of the equation in view of the balance of risks in the medium
term. This, in essence, reduces the options at this meeting to either easing or
retaining the current monetary policy measures. I would prefer to vote for the
retention of the current measures, based primarily on the need to strengthen
the evolving stability in the macroeconomic environment and possibly
address some risk factors, which have the potential to crystalize over the
medium term.
Pressure Points
Global Environment
Recovery in the global economy is firming up, with the latest IMF projection
indicating upward revision to the earlier growth projections for 2017-18.
Global growth is now projected at 3.6 and 3.7 per cent as against the
previous projections of 3.5 and 3.6 per cent for 2017 and 2018, respectively.
The projection notwithstanding, a number of risk factors, ranging from
economic to geo-political issues, may constrain the prospects of full recovery
and the beneficial impact on emerging economies. Firstly, in spite of the
expected improvement in the global economy, growth projection has been
downgraded for some systematically important economies like the US and
UK. Given that the US in particular accounts for over 60 per cent of Nigeria’s
export market, the implication of the downgrade is fairly obvious for the

external sector particularly current account balances and by extension,
external reserves.
Another major issue with possible risk implication to the global financial
markets is the rising level of Cryptocurrencies. Although the ratio of Bitcoin to
banknotes is still small in large currency areas like the USA, the picture is
completely different in other jurisdictions, even in countries within euro area.
Apart from the fact that this development would diminish the ability of
central banks to monitor payment system, it would also curtail their ability to
control money supply and credit. In response, monetary authorities
particularly in developed economies may increase interest rates as incentive
for bank based payment instruments. Such a response has the tendency to
increase the interest rate differentials between the advanced markets and
emerging market economies thereby reinforcing capital flight from the latter.
Still on the financial markets, the US Federal Open Market Committee (FOMC)
concluded the November 2017 meeting by leaving the rate unchanged
against widely held expectation. The statement from the Committee,
however, showed that the US economy was getting stronger to
accommodate higher interest rate, but the prevailing interest rate was
retained primarily on political consideration, as the Committee awaits the
appointment of the new FED Chairman. In essence, the agenda to increase
interest rate is still much in focus.
With respect to the commodity markets, medium term projection for crude oil
prices is in the range of US$50 per barrel, which is a positive trend. This

projection, however, is underpinned by major producers production cuts and
falling US crude oil inventories. In essence, inability to keep production freeze
agreement, as currently being witnessed in Organisation of Petroleum
Exporting Countries (OPEC), coupled with rising US crude oil production would
constrain the upside for oil prices.
On geo-political front, post Brexit negotiation is still ongoing, while the tension
between the North Korea and US remains elevated. With particular reference
to the crisis in the North Korean Peninsula, policy makers would be extremely
naïve to completely discount the possibility of physical conflict, which would
adversely impact worldwide supply chains with ripples across the globe.
Financial markets would be hard hit through a rise in risk premia particularly in
the Emerging Asia given that the region may be temporarily destabilized by
the conflict. On account of the aforementioned risk factors therefore, it is not
unlikely that global capital movement may still skew in favour of the
advanced economies, requiring proactive policy response from emerging
economies, including Nigeria.
Domestic Environment
As pointed out above, it is noteworthy that the Federal Government is taking
bold steps to confront the challenges to growth as evidenced in the
allocation of about 30 per cent of 2018 budget to capital projects as well as
the recent release of three executive orders. Despite these measures, some

risk factors with potential to crystalize are still visible. Some of these issues are
presented below.
Oil Price and Volume Assumptions in the Fiscal 2018 Appropriation Bill: The
proposed 2018 Appropriation Bill is predicated on some assumptions that
appear overly optimistic. Among others, crude oil production is projected to
increase to 2.3 mbd with benchmark price of US$45 per barrel. While the
projected oil price could be adjudged realistic, there is a need to recognize
that the current rally in crude oil price is anchored on production cut deal
particularly from OPEC members which have been largely successful. Thus,
even though the assumption of production level and its impact on projected
revenues in the budget may be optimistic, this will most likely be
compensated by upside tendencies in oil prices. This is given that oil price has
upside momentum as a testament to the successful outcome of OPEC cuts
among other positive factors.
Size of Deficit in the Proposed 2018 Appropriation Bill: It is a positive
development that the level of deficit in the proposed Appropriation Bill
reduced to 1.77 per cent of GDP from 2.14 per cent in 2017, but the absolute
size of the deficit at about two trillion naira is still very big. The fiscal deficit is to
be financed, at the ratio of 50:50 per cent from domestic and external
sources. Either of these sources has severe implication for macroeconomic
management. However, even as the absolute level of deficit in the 2018
budget may appear to be high, this can be justified in the context of the
increase in capital allocation and the tendencies to externalize the financing

of the deficits will help address the monetary policy implications of the
budget and indeed improve current debt service challenges.
Delay in Budget Passage: The President has submitted the 2018 Appropriation
Bill to the National Assembly for deliberation and ratification. In an ideal
situation, the budget cycle should run from January to December. It is very
doubtful if deliberation on the proposed budget by the National Assembly
could be completed by the end of the year. This implies some kinds of delay
on implementation of capital expenditure with the implication of stifling the
recovery process.
Preparation towards 2019 General Elections: Another issue that may take its
toll on the recovery process is likely heightening of political activities from
2018, given that it precedes 2019 when general election would be held.
There is the tendency for electioneering activities to increase, which would
lead to significant injection of money on recurrent expenditures. This
invariably, has the tendency to cause a setback on the current downward
trend on inflationary pressures, if the process is not well managed. Therefore,
the liquidity threat in the context of 2018 being a pre-election year and the
absolute size of the 2018 budget will no doubt be a risk to price stability that
MPC must have to tackle proactively.
Way Forward
Timely Passage of the 2018 Appropriation Bill: A preliminary review of the 2017
Budget revealed that only N450 billion of the capital vote was released as at

the end of October 2017, translating to about 20 per cent performance. This
is definitely below the acceptable threshold for an economy recovering from
recession. From the benefit of hindsight, the reason for such poor
performance is largely due to delayed commencement in budget
implementation on account of late passage of the Bill into law. Given the
imperative of accelerating the recovery phase, the various initiatives in the
capital project should not only be executed, but the execution should
equally be done speedily. As such, both the National Assembly and the
executive should work together in fast-tracking the passage of the proposed
Appropriation Bill.
Strengthening of Macro Stability: It is a little bit appealing to provide some
forms of monetary policy support to the ongoing recovery, which makes
monetary easing looks as an attractive option. It is however, necessary to
recognize that a significant part of the ongoing improvement is propelled by
improved confidence of the key stakeholders. For example, there is a
growing patronage at the Investors’ and Exporters’ (I&E) window of the
foreign exchange market, signifying enhanced level of confidence by
economic agents. As a result, the appropriate support from monetary
authority at this period should be in the area of strengthening the stability in
the macroeconomic environment in order to avoid time-inconsistency issue.
Although inflation is decelerating but at 15.91 per cent is still high while the
stability in the foreign exchange market could be threatened in the event of
increase in interest rate by the Federal Reserve of the US. Given that the risk

of vulnerability is not sufficiently strong to justify increase in the policy rate, the
stability in macro indicators is equally not sufficiently robust to warrant
monetary easing.
Sustained Interventions in Real Sector: The recovery process is not yet
inclusive. Recent data released by the National Bureau of Statistics (NBS)
showed that non-oil GDP still contracted in Q3 2017. The importance of real
sector in driving the ongoing recovery cannot be overemphasized.
Developments in the crop subsector of the agricultural sector has been
encouraging, particularly with the recent breakthrough in rice production,
but the solution to the current challenges should be all inclusive, involving the
entire agricultural value chain. The challenge of recovery in the real sector is
further compounded by weak support from the banking system. For example,
credit to the private sector contracted by 0.24 per cent in October,
annualizing to a contraction of 0.28 per cent, against a growth target of
14.88 per cent. Given the magnitude of expected borrowing by the fiscal
authority in 2018 Appropriation Bill, private sector credit from the banking
system would not only slowdown, but the pricing would equally be
inconsistent with viability of the real sector. As such, the Bank should continue
to strengthen its various intervention measures like the Anchor Borrowers
Programme and NIRSAL with a view to driving activities in the real sector.

Decision
In the light of the fact that the improvement in the macroeconomic
environment is yet to firm up coupled with pockets of likely risks particularly
from the global environment, I would like to vote for the retention of all the
existing measures of monetary policy.

4.
GARBA, ABDUL-GANIYU
Decision
1. My vote is similar to the one I offered in my September 2017 personal
statement except that instead of a 50 basis point rate cut, I vote to
reduce the MPR by 100 basis points (1%). This implies (i) a reduction in the
MPR from 14% to 13% and (ii) a reduction in Standing Lending Facility (SLF)
from 16% to 15% and the Standing Deposit Facility (SDF) from 9% to 8%.
2. My vote is still a vote for (i) consistency and effectiveness of monetary
policy; (ii) growth in private investment, creation of new jobs, output
growth, financial system stability and medium term macroeconomic
stability; (iii) a shift from passive monetary policy (Hong Kong Model) to an
active and truly independent monetary policy (Chinese Model); (iv)
substantive medium term macroeconomic stability rather than a
superficial (whited sepulcher-type) short-term stability and (v) a gradualist
approach to the shift from passive to active monetary policy regime.
Justification
3. My justification is also similar to the one in my September 2017 personal
statement. I will therefore provide highlights of my justification and reemphasize the requirements urgently moving along the three interrelated
strategic and policy pathways: low inflation conducive to growth,
financial system stability (FSS) and fiscal prudence or discipline.

4. Because this is the last MPC of 2017, I will start with a brief evaluation of the
policy environment compared to this time last year. The evaluation and
the outlook for 2018 give further context to my vote.
A Brief Review
Year 2016 was a very difficult year for monetary policy, fiscal policy, financial
markets, the macro-economy and the well-being of Nigerians. The economy
was technically in recession in the second quarter of 2016 and persisted
through the first quarter of 2017. However, the economy had been slowing
down since 2014. The headline, food and core inflation rates rose sharply by
93%, 64% and 103% in 2016 compared to much smaller growth of 20%, 15%
and 44%, respectively in 2015. Money supply (M1) was expanded from N6.9
trillion in December 2014 to N8.6 trillion in December 2015 and to N11.3trillion
in 2016. This means that money supply rose by N4.4 trillion between
December 2014 and December 2016: a phenomenal growth of 64% within 24
months! In the same period, Headline, food and core inflation rose by 131%,
90% and 131% respectively. A plot of inflation and M1 show a strong tracking
of inflation path by the path of money supply in the 24 months between
December 2014 and December 2016. The rate of expansion in M1 between
2014 and 2016 points strongly to a strong discordance between the restrictive
monetary policy regime of the period and the growth of monetary supply.
The main driver of M1 growth is “Central bank demand deposit” which rose
from N217.05 million in December 2014 to N3.25 trillion in December 2016. This

level of liquidity injection did not justify the increases in MPR and short term
interest rates. Neither did it help the goals of price stability, stable exchange
rates, investment and output growth or reduction in unemployment. The high
growth in inflation to more than twice the upper bound of 9%; the loss of
international value of the naira, the high spread of N150/$ depreciation, the
recession, the rising unemployment and the incredible growth in public debt
are not independent of the revolving door of liquidity injections and liquidity
mop-ups.
As I emphasized in previous personal statements, such expansionary growth in
money supply are not compatible with a restrictive monetary policy regime
or with its associated high interest rates, prohibitive costs of liquidity
management or adverse effects on fiscal policy. Between the fourth quarters
of 2014 and 2016, respectively, total public debt stock rose by N6.64 trillion
from N7.90 trillion. The fiscal problem posed by such phenomenal growth in
public debt is beyond the issue of crowding-out to a question of sustainability
because at this rate of growth of public debt and the high interest rates,
public revenue will not be enough to pay for debt service.
In the first ten months of 2017, the economy exited technically from recession.
Any excite however, is premature. First, the economy is far from its level in
third quarter of 2015 and is yet to match the growth rates before growth
slowed down. What is more fundamental is that the celebrated growth in the
third quarter of 2017 of 1.4% was due mainly to growth in oil GDP (2.09%).
Despite the growth in Agriculture (0.88%) driven by harvests of crops; non-oil

GDP contracted by -0.76% with services (-1.02%), trade (-0.29%) and
manufacturing (-0.26%) the lagging sectors. A clear headed analysis would
indicate that by excluding the oil and gas, the economy was back to
negative growth from the 0.72% in first quarter and 0.45% in the second
quarter of 2017. Furthermore, though employment data are not available, it
is safe to infer that the upward trend of unemployment from first quarter of
2015 will continue into 2017 and that current unemployment rate will exceed
14.2% and that the most active population aged 15-40 years will account for
a disproportionately higher share of the unemployed.
The stock market has rebounded from the lows of 2016, when All Share Index
(ASI) shed 6.2% and market capitalization declined by 6.1%. In the 10 months
of 2017, ASI rose by 36.5% and market capitalization by 37.3% or N3.45 trillion.
It is worthy of note that the stock market is in its third bubble since 2006: 20062008; 2012-2014 and from April 2017. The growth in the stock market were not
driven by economic fundamentals, but by policies that attracted portfolio
flows and, by the inflows of portfolio flows. The high yields offered portfolio
investors and a relatively stable exchange rate at less than half its
international price at the end of 2014 offered portfolio investors a riskless and
high return investment option that was hard to resist. As a result, portfolio flows
began to rise from April 2017: from $57.5 million in March to $119 million in
April and steadily to $1.32 billion in September.
The fiscal operations is characterized by an abnormally significant growing
fiscal deficits and public debts. In the first three quarters of 2017, the public

debt was 77% higher than it was last year, when it was about N1.512 trillion. In
the same period, public debt rose by N2.65 trillion or 18.2% in just 9 months!
The growth in public debt in the first nine months of 2017 is already 114.2% of
the total borrowing plans for 2017 and 112.2% of projected deficits for 2017.
The high and unusually generous interest rates used to attract portfolio flows
into treasury bills, treasury bonds and FGN bonds auctions are causal to the
growth of public debt stock and money supply, which tend to exert
crowding-out effects on credit to the real private sector and to public
spending on social and economic infrastructures. Every y naira of new public
debt at x interest rate grows the public debt by y*(1+x)n. The higher the
values of y and x and n the higher the public debt and money supply. For
every y Naira of public borrowing, public debt grows by x*y. Keeping x high
(via restrictive monetary policy) and y high (through lax fiscal spending),
causes the public debt to grow at the risk of fiscal unsustainability, financial
system instability, negative growth and high unemployment especially when
the employment and output elasticities of government expenditure are very
low. Clearly therefore, restrictive monetary policy and lax fiscal policy are
great threats to effective and efficient macroeconomic management.
In the same period (January to September, 2017), the Federal government
spent N1.24 trillion to service domestic debt. With a growing appetite for
external debt developing in complete disregard to the experience of 19782006 and the costly road shows and financial service costs, the growth of
both public debt and public debt service next year would most likely exceed

that of 2017. It is thus obvious that the fiscal challenges are extending beyond
the usual crowding-out effects to a problem of fiscal unsustainability: a point
where revenue may not be sufficient to pay debt commitments.
In my outlook for 2017 in my January MPC personal statement I wrote: “Year
2017 will be very challenging for macroeconomic management globally and
for global markets because of heightened uncertainties due mainly to
political and associated economic risks. . . . The domestic outlook indicated
by the fiscal deficit, the structure of expenditure, revenue shortfalls, high levels
of public debts and the crowding-out effects of public debt service and
public borrowing on private sector investments and current account deficits
make for a difficult 2017. The challenges of sourcing credit within and outside
the Nigerian economy may exert pressures on the growth in money supply.
Yet, as 2015 and 2016 clearly show, it would be damaging for the credibility of
monetary and fiscal policy to allow M1 match the growth of previous years. It
would significantly damage the purchasing power of the naira domestically
and internationally and destabilize the economy. There is also, the challenge
of twin deficits (fiscal and current account) and ensuring financial system
stability to contend with.” Indeed, as the review suggests, despite the
positives (slower growth in M1, rise in price of crude oil, managed stability in
the exchange rate, decline in headline inflation caused mainly by fall in core
inflation), 2017 was a difficult year for Nigeria. The costs of creating an
enabling environment to attract portfolio flows is unlikely to justify the benefits
of portfolio flows at least in the medium term. Two previous episodes of

capital market bubbles (2006-2008 and 2012-2014) triggered by capital
account liberalization and portfolio flows had devastating effects on the
capital market, money market, external account, forex reserves, exchange
stability, inflation, investment, public debt, public deficits and structure of
public expenditure. The game of attracting portfolio is a very risky gamble as
it was in 2006-2008 and 2011-2014.
Outlook for 2018
Bank staff suggest that inflation is likely to trend downward and the exchange
rate would be stable provided that oil output and prices rise, the Investment
and Export window remains stable and portfolio investors continue to pour
their capital into Nigeria. The perennial challenges (crowding-out of the
private sector, growing costs of liquidity management, low financial
intermediation and so on) are likely to persist.
Political activity will dominate 2018 as we count down to the 2019 elections.
Politics tend to correlate positively with money supply and exchange rate
and inflationary pressures. Thus the political premium is likely to be positive
and significant. With the balance sheet normalization plans of the US Fed well
underway and inflationary pressures expected to rise significantly in 2018, the
economic premium is also likely to rise. Hence, the risk of capital reversal is
very high. A macroeconomic management strategy hinged on portfolio
flows is badly flawed. Two major episodes of portfolio flows related bubbles
have provided more than sufficient empirical evidence about its destructive

payloads. I can hardly find any reasonable empirical support for a strategic
support for a third capital market bubble in just over a decade!
The combinations of heightening political and economic risks dooms a
monetary policy pivoted on attracting portfolio flows in 2018. It has been
suggested that cutting the MPR now is premature because the inflation rate is
still high at 15.91%. The fact however, is that the link between MPR and
inflation broke down with the introduction of Hong Kong Model: capital
account liberalization and exchange rate stabilization. Proof: at the onset of
restrictive monetary policy in September 2010, headline inflation was 13.6%
(August 2010) while MPR was 6%. In 2012, MPC fixed the target headline
inflation band with 6% as the lower bound and 9% as the upper bound. By the
time headline inflation fell within the band in January 2013, the MPR was
stable at 12%, a rate that was fixed at the emergency MPC Meeting of
October 2011. For 29 months (January 2013 to May 2015) headline inflation
did not exceed 9% yet, in November 2014, MPR was increased to 13%. The
increase was a response to pressures on the exchange rate and was in
defense of the exchange rate. Practice and theory both affirm that a passive
monetary policy in a small open commodity dependent economy with
capital account liberalization and fixed exchange rates surrenders active
and independent monetary policy. The resulting passive monetary policy not
only helped handicapp the economy, it is more likely to undermine the
economy through high interest rates required to keep portfolio investors
excited. The fear of capital flight locks policy to a high interest rate regime.

Yet, what portfolio investors provide are whited sepulchers for reserves; and
exchange rate; and the capital market. Sooner rather than later, the white
paint wears off and the truth about the sepulcher becomes very obvious. I
cannot support a temporary coat of paint that will sooner wash away by the
political and economic realities of 2018 and beyond.
What has not changed
1. My conviction about the importance of urgently finding sustainable paths
to low inflation growth conducive to job creation and economic growth,
financial system stability and fiscal prudence are the most urgent strategic
and policy priorities building on the “March MPC Retreat”. “Can two walk
(and work) together unless they are agreed” (Amos 3:3). The answer is a
resounding no! A person with two legs will be foolish to walk only on one
leg. He/she will also be foolish to set the two legs in competition with each
other causing them to constantly disagree about which directions to go.
2. The foundations of the March Retreat in the following three key area
remain fundamental: (i) the relationship principles of humility, sincerity and
integrity; (ii) the organic links between fiscal, monetary and prudential
policy and the urgent necessity for interdependent and coordinated
strategic and policy analysis, choices and actions and (iii) the urgent
need for coordinated and effective movements along the three
pathways: low inflation conducive to growth, financial system stability
(FSS) and fiscal prudence or discipline.

3. The growing costs of ignoring the lessons of Nigerian and global economic
history to the present and the future of Nigeria. Failure to learn from
mistakes
4. The macroeconomic challenge remains overwhelming: (a) a tentative exit
from technical recession driven by oil GDP – a long way from recovery to
2014 level let alone growth from 2014 level; (b) an unemployment rate of
14.2% as at 2016:Q4 (likely to be higher given the trend); (c) a 0.04% fall in
headline inflation driven by seasonal effects, which caused a decline in
food inflation of 0.03%, partly offset a 0.1% rise in core inflation; (d) a
N2.01trillion rise in public debt, a Federal deficit of N1.9 trillion in the first 8
months, debt service of N1.58 trillion (2.4 times the spending on capital
project); (e) rising maximum lending rate to 31.2% (by 0.26%) and prime
lending rates of 17.69% (by 0.04%) and widening interest rate spread to
26.95% (from 26.83%); (f) a very active revolving door of liquidity –
pumping in and mopping out; (f) collapse of the interest rate corridors
which makes Standing Lending Facility and Standing Deposit Facility rates
redundant as effective monetary policy tools; (g) 32.1% growth in All Share
Index driven mainly by banking stocks (58.6%) and Consumer Goods
(31.81%) that are in turn powered by (h) a monthly average growth in
portfolio and FDI investments in the capital market that averaged 52%
between April and August 2017.
5. The unresolved issues: (a) a forward looking medium to long term
strategic macroeconomic management framework for Nigeria as the

context for policy analysis and choice; (b) continuing malfunctions in the
credit market which tends to allocate credit to sectors with traditionally
high NPLs and low output and employment elasticities as well as a
tendency to restrict access and to charge maximum rates on credit to
sectors and economic agents with traditionally lower NPLs and higher
output and employment elasticities; (c) the dominance of rent havens in
both the real and financial sectors, and the public space; (d) prevalence
of present hedonistic and backward looking orientation and (e) inefficient
and ineffective use of existing Nigerian capacity in all aspect of the
political economy.
6. The Hong Kong model within which monetary policy has been conducted
since January 2012, which uses high interest rates to attract portfolio flows
while hurting domestic investment, growth, employment and expanding
public debt and money supply and distorting the structure of public
expenditure and reducing its output and employment elasticities of public
spending. The case against reducing interest rates has less to do with the
inflation rate than with fears about possible reversal of portfolio flows. The
questions we must answer include: which is best for growth and
employment: portfolio flows or domestic investment? Is portfolio flow more
stable and heavier than remittances? Does portfolio flows have higher
employment and growth elasticities that remittances? If the answer to the
questions is a resounding no, a strategic policy overhaul is imperative.

7. My preference for the Chinese model as a better option to the Hong Kong
model. I still believe that the Chinese model limits vulnerability to
destabilizing financial flows and frees monetary policy to support growth,
employment, financial system stability and lower fiscal imbalance.
Finally
8. My vote is still for a gradualist approach in a shift from an outwardoriented passive monetary policy to an inward-oriented independent
monetary policy.
9. A 100 basis cut in MPR is still, just a first step on the paths to low inflation
conducive to growth, financial system stability and fiscal prudence. It
should be a consensus point on which the monetary and fiscal authorities
could build on to produce a consistent forward looking strategic
framework for coordinated, effective and constrained monetary,
prudential and fiscal policies.

5.
NNANNA, OKWU JOSEPH
Nigeria’s growth remains positive despite its seeming fragility thanks to the
uptick in oil prices and improved oil production. Real GDP grew by 1.4% in
Q3 of 2017 up from 0.7 per cent in Q2 and Q1 contraction of 0.91per cent.
The major drivers of real GDP growth were agriculture (0.88%) and industry
(1.83%). The Manufacturing Purchasing Managers Index (PMI), which stood at
55.0 index points in October 2017, indicated expansion in the manufacturing
sector. Similarly, the composite PMI for the non-manufacturing sector stood at
55.3 index points in October 2017, indicating growth for the sixth consecutive
month. However, structural headwinds remain a drag to growth in the non-oil
sectors as the manufacturing and construction industries continue to be
constrained by power supply shortages. Consequently, non-oil real GDP
contracted by 0.76 per cent in Q3 2017.

Inflationary pressures are receding reflecting the contraction in money supply
and the relative stability of the naira exchange rate. Headline inflation (yearon-year) decelerated albeit marginally for the ninth consecutive month to
15.91 per cent in October 2017 from 15.98 per cent in September 2017. Food
inflation which stood at 20.31 per cent remained elevated due to distribution
bottlenecks, high prices of farm inputs and supply shortages as a result of
increased cross border sales. Core inflation increased slightly to 12.14 per
cent from 12.12 per cent in the same period.

Though structural constraints have continued to impede transmission of credit
to the real sector, liquidity conditions and investor sentiments remain positive.
Net liquidity positions and flows reflected the effects of Federation Account
payments to states and local governments; remittances by the Nigerian
Customs, Federal Inland Revenue Services; OMO sales; foreign exchange
interventions and maturing CBN Bills. Reflecting banking system liquidity, the
average inter-bank call rate, which opened at 12.00 per cent on October 3,
2017, closed at 5.38 per cent on November 16, 2017. The OBB rates opened
at 10.41 per cent and closed lower at 6.02 per cent in the same period.
However, the average inter-bank call and OBB rates for the period stood at
10.94 and 10.15 per cent, respectively. Credit to the private sector fell by 0.24
per cent in October 2017, while net credit to government rose by 7.60 per
cent. The All-Share Index (ASI) rose by 3.38 per cent on November 17 from
35,504.62 on August 31, 2017. Market Capitalization (MC) improved by 4.35
per cent to N12.77 trillion from N12.24 trillion during the same period. Banking
industry profitability improved significantly, although I am not under any
illusion that the challenging macroeconomic environment could have
adverse effect on non-performing loans (NPLs).

Global economic activity is improving albeit widening imbalances. Global
output is projected to improve to 3.6 per cent in 2017 from 3.2 per cent in
2016 reflecting the recovery in oil and other commodity prices. Growth in the
advanced economies is projected to increase to 2.2 per cent in 2017 from 1.7

per cent in 2016. Similarly, emerging markets and developing economies are
forecast to grow at 4.6 per cent in 2017 up from 4.3 per cent in 2016. I note
that the global outlook for growth is beclouded by the prolonged tension in
the Korean Peninsula, potential BREXIT-cliff and financial market uncertainties
due to monetary policy normalization in the US.

Fiscal space to implement the 2017 budget into Q1 of 2018 remained delicate
in the absence of strong buffers. However, more revenue was expected from
achieving and sustaining oil production at 2.2 mbpd. The tailwinds will be the
continued implementation of the 2017 budget into early 2018, anticipated
improvements in government revenue from the implementation of the
Voluntary Asset and Income Declaration Scheme (VAIDS) and favourable
crude oil prices.

External sector indicators remained resilient, supported by improved oil
production and sustained foreign exchange market liquidity. Gradual
organic convergence of the rates at the bureau-de-change (BDC) and the
Nigeria Autonomous Foreign Exchange (NAFEX) market segments is evident.
Clearly, there is stability of the exchange rate at the inter-bank foreign
exchange market since the last MPC. The Investors’ and Exporters’ (I&E)
window had increased liquidity and boosted confidence in the market with
over US$18.70 billion in total transactions since its introduction in April 2017.

Overall, staff estimates indicate positive macroeconomic outlook for the
economy up to Q1 2018. I note the development financing initiatives of the
CBN, particularly, in agriculture; the resolute implementation of the 2017
budget; and the speedy passage of the 2018 budget as essential to output
expansion and job creation. Hence, I vote to retain the current stance of
monetary policy tightening.

6.
UCHE, CHIBUIKE U
Perhaps the only positive economic development in Nigeria since the last
MPC meeting in September 2017 is that global oil prices have continued to
inch upwards. Despite this, the economic future of Nigeria remains bleak.
Based on the figures contained in the President’s 2018 budget speech, for
instance, it is obvious that the fiscal authorities still have not mustered the
political will necessary to curtail the embarrassingly high government
recurrent expenditure. The continued maintenance of an over bloated civil
service at the expense of the much needed basic infrastructure for the
development of the private sector and for the promotion of sustainable
economic growth makes no sense.
As I have pointed out in previous statements, I am particularly disturbed by
the recklessness with which the Federal Government has been borrowing,
both internationally and locally. It is obvious to me that very little
consideration has been given to how these loans would be repaid in the
future. With the medium to long term expectation that oil will become less
important in the global economy, it is nothing more than wishful thinking to
expect that these new loans will be repaid from oil cash flows in the future.
The absence of a clear and robust economic plan and/ or strategy on the
part of the Federal Government has continued to impact negatively on the
monetary policy terrain in the country. The ability of the CBN to ensure
monetary and price stability has been greatly impeded under the above

circumstances. I am of course aware that our national reserves have been
inching upwards for some time now. I am however not convinced by the
argument that the rising reserves is evidence of good monetary policy
management by the CBN. This is because I have consistently argued that
allowing short term portfolio inflows into the country and then using such
proceeds to fund imports and consumption makes little sense. All that such a
policy can do is help to temporarily sustain the foreign exchange cash flow
of the country while driving it deeper into international debt.
This is not sustainable as there is a 100% certainty that the bubble will burst.
Few will, for instance, dispute the fact that the most probable outcome of the
scenario where the cost of capital is higher than the return on investment is
economic doom While it is true that such temporary inflows could help
sustain the value of the local currency, this kind of relief can only be
temporary. What gives permanent relief is the expansion of the underlying
economy and exports. Unfortunately, this has been hampered in Nigeria by
poor infrastructure and poor governance.
In the context of the peculiarities of Nigeria, the temptation to turn the CBN
into a Santa Claus for the Government should also be resisted. This is because
it destroys the balance sheet of the CBN and complicates it monetary policy
management function. It, for instance, makes no sense for the CBN to create
liquidity problems (by printing and spending huge amounts money on behalf

of government) and then go ahead to spend equally huge amounts of
money trying to solve the problem it created (mopping up the liquidity).
The poor economic policy choices of Government are not only endangering
businesses, they are also endangering the financial system. I find it very
troubling than less than a decade after Nigeria emerged from one of the
worst financial crisis in its history, it is gradually inching towards another one.
This is even more so given the fact that the massive financial hole created in
the attempt to address the last crisis (AMCON) is yet to be meaningfully
resolved. It is instructive that the current aggregate bad debt levels of
Nigerian banks are now in double digit territory and still rising.
Inflation also remains in double digit territory and is still above MPR. It is in the
light of the above that I find calls for MPR to be lowered rather frustrating. On
the other hand, increasing the MPR will further increase the interest rates of
banks and subsequently, the nonperforming loans of such banks. It is in the
light of the above manmade difficulties that I have come to the careful
conclusion that the least destructive policy path for MPC will be to do
nothing.
I therefore vote as follows: (i) to retain the MPR at 14.00 per cent; (ii) to retain
the CRR at22.50 per cent; (iii) to retain the Liquidity Ratio at 30.00 per cent;
and (iv) to retain the Asymmetric Window at +200 and -500 basis points
around the MPR.

7. YAHAYA, SHEHU
I vote to maintain the current monetary stance, due to the reasons provided
below
Developments in the Global Economy
The year is coming to an end with some positive global economic
developments. Global output is expected to improve this year with
compared with 2016. Although GDP growth rates for the US experienced a
minor blip in Q32017 as compared to Q2 results, the growth rate for 2017,
expected at around 2.2% will be appreciably higher than in 2016. Both the
Euro area and the UK experienced positive growth in Q3. GDP growth rate in
China has remained fairly stable and is expected to be slighter higher than
last year, while there was a slow- down in Japan, even though growth
remained positive. There is expected to be a substantial economic recovery
in Sub-saharan Africa. South Africa regained a positive growth rate in the last
quarter. Generally speaking, despite concerns about the slow-down in China
and the UK, there are strong prospects for a more robust global economy in
2018.
Oil prices have been relatively buoyant, with Bonny light above $50/b during
the second half of 2017, reaching over $60/b last week, compared to an
average of less than $40/b in 2016. As oil prices rise however, it is certain that
output, particularly from shale oil producers, will rise, thereby raising global
supply and undercutting prices. Despite the political and security challenges

facing a number of major oil producing countries, the medium-term
prospects for oil prices therefore remain uncertain.
Another important development has to do with global interest rates, or at
least interest rates in some of the major economies in the world. The US
Federal Reserve policy rates are on a trend towards normalization, with strong
prospects for a series of interest rate hikes in the next year. The Bank of
England has recently hiked its rate and the EU, while continuing with its
quantitative easing program, is also doing so at a reduced pace. Higher
interest rates in these countries and regions would obviously pose challenges
to developing economies by pulling some or much of international
investments from them, making debt service more difficult, and exerting
additional pressure on their currency exchange rates.
The Domestic Economy
GDP grew in Q3 of 2017 by an estimated 1.4%, doubling the figure of 0.7% for
Q2, the highest achieved since 2015. The sub-narrative however is that the
non-oil sector has been experiencing a decline fell by 0.76% during Q3. Solid
minerals had remained flat and the manufacturing sector showed a negative
growth of -0.26. Construction, Trade and services all declined. The agricultural
sector, mainly buoyed by crop production, has however maintained a trend
towards recovery, although at a slower pace than expected. The impetus for
growth was therefore mainly from a recovery in the oil sector, which grew by

2.09% during the quarter, due to both improved output and higher price
levels compared to 2016 and the first half of 2017.
The slow downward trend for headline inflation continued during October-
with the price level at 15.91%, mainly due to a slight decline in food inflation,
driven by a slight decrease in the rate of increase of prices of farm produce.
Otherwise most other items in the basket remained flat, at about the same
level as in September 2017, except for imported rice, which experienced an
increase. Overall, food inflation remained high at 20.31%. Core inflation
inched up in October 2017, year-on-year, mainly due to the slight increase in
prices in the transport, housing and utilities sub-sectors. Month-on-month, it
dipped slightly.
The level of foreign reserves continues to build, reaching approximately
$34.92 billion by mid- November and should reach $38b by December 2017.
This has been possible due to a combination of policy initiatives, such as the
exporters and investors window which has encouraged a surge of Foreign
Portfolio Investment (FPI), external borrowing and an improvement in oil
earnings. Non-oil exports have accounted for only slightly higher than 1% of
inflows between August and September this year. The build up of reserves in
turn has helped to maintain stability in the foreign exchange market,
narrowing the gap between Bureau de Change (BDC) and inter-bank rates.
Nevertheless, there are significant risks involved here, since a substantial
proportion of the foreign investments are in the form portfolio investments
(accounting for about two-thirds of capital inflows in October 2017), which

are rapidly reversible, and a much smaller proportion in the form of FDI. The
capital market has clearly benefited from the surge of portfolio investment,
with the ASI rising more than 36% in the course of 2017.
The banking and financial sector of the economy is basically sound, although
facing some significant challenges. It presents a complex and sometimes
puzzling picture, whereas DMBs profits have increased by more than 60% in
the last one year, mainly driven by increases in interest income; return on
equity (ROE) and return on assets (ROA) are showing an upward trend and
are higher than comparator countries; Yet total credit to the economy
decreased by a little over 3%; non-performing loans (NPLs) are rising and the
capital adequacy ratio, while still above the regulatory threshold, is declining.
One positive development though was that, by October 2017, the
Agricultural sector accounted for 13% of new credits. Clearly the various
efforts made at encouraging support for this sector are bearing some fruit.
Moreover, NPLs are concentrated in a few sectors that have borne the brunt
of the economic recession and the extent of provisioning for bad loans has
been raised sufficiently to cover the risks. Concentration risks and issues
around Net Open positions still need to be tackled, while vulnerability to
exchange rate risks have abated somewhat.
External borrowing also has some challenges. It is eminently sensible to
significantly increase investments in the economy in order to climb out of
recession. Also, some substitution between domestic and foreign borrowing
may reduce the burden of debt service as well as crowd in private borrowing

and even help reduce domestic interest rates. However, the debt
service/government revenue ratio is a particularly critical measure in an
economy where the tax/GDP is so low. This is however getting so high that
sustainability may become an issue, particularly in the medium term. If tax
revenue does not rise significantly, debt service may undermine the capacity
to finance capital expenditure. Moreover, the assumptions behind increased
external borrowing may be substantially affected by increases in global
interest rates and pressures on the naira exchange rate. This calls for greater
caution.
It seems that the scope for substantially expanding domestic revenue
mobilization has not been exhausted. The various policies aimed at extending
the tax net are quite positive. It is hoped that theses will yield better results in
2018. However, financing deficits through the sale of government assets
needs to be carefully considered, as there are options that may yield a more
regular revenue stream and avoid some of the political economy risks of
outright sales (including worsening income distribution). These options could
include raising financing through securitization and collateralisation of the
appropriate assets.
As indicated above, much of the recovery observed during Q32017 is
attributable to recovery of prices and output in the Nigerian oil sector. The
stability in the exchange rate is due to CBN interventions in the market and
other active policies, as well as the substantial increase in foreign reserves.
These interventions and many of the policy initiatives have been made

possible by the increase in earnings from oil and external borrowing.
Government revenue also needs to pick up to galvanise the fiscal impetus to
growth. There is some progress in the agricultural sector: certainly, there is
evidence of a substantial reduction in primary food imports. The increased
government focus on capital expenditure is very positive and more creativity
is needed to effectively fund the growth-enhancing programs. In general,
therefore, there is still much to be done to sustain many of the policy
initiatives and to embark on additional ones in order to maintain the recovery
impetus and to raise the GDP growth rate above the population growth rate
and to achieve the goals of restructuring the economy
As far as monetary policy is concerned, it appears that the imperative is to
continue to build reserves, maintain exchange rate stability which should help
to resuscitate manufacturing output. CBN and government programs are
also required to address funding gaps in the agriculture sector, since this
cannot at this time, be largely met by DMBs, despite the significant increase
in new loans to this sector. Combined with the strong focus on infrastructure
development, this will help under-cut supply-side inflationary pressures. In the
medium term, it would then be possible to focus attention on reducing
interest rates.
For the short term, MPR cannot be substantially reduced since inflation is only
falling slightly and is still too high. Moreover, some of the factors that are
exerting a downward pressure on price levels such as the very low level of
monetary aggregates- both M1 and M2 are contracting, credit to both

government and the private sector are below the designated benchmarks-
cannot be expected to continue at their current sub-optimal levels. Global
price levels are also likely to go up a bit in the course of 2018, thereby
contributing to imported inflation.
Under the circumstances, I vote to maintain the current monetary policy
stance

8.
EMEFIELE, I. GODWIN, GOVERNOR OF THE CENTRAL BANK OF NIGERIA
AND CHAIRMAN, MONETARY POLICY COMMITTEE
Over the course of the year, key macroeconomic indicators have continued
to improve as recovery consolidated in the third quarter of 2017. Real GDP
growth improved from a contraction of 0.9 per cent in 2017q1 to expansion
of 0.7 and 1.4 per cent in quarters two and three, respectively. Inflation rate
maintained a steady decline from 18.7 per cent in January 2017 to 15.9 per
cent in October 2017. The exchange rate in the various foreign exchange
market segments remained stable and are converging towards NGN360/US$
as external reserves had risen to US$34.8 billion at November 20, 2017. Our
balance of payments account strengthened likewise with surpluses in the
current account balances. These outcomes portend a brightening outlook for
the Nigerian economy in the near- to short-term with a projected real growth
of 0.8–1.0 per cent for 2017 from -1.6 per cent in 2016.
Global growth for 2017, according to the IMF, is projected at 3.6 per cent visà-vis 3.2 per cent in 2016 due to recoveries in oil and commodity prices. The
projections for advanced economies indicated a growth of 2.2 per cent in
2017 from 1.7 per cent in 2016, while emerging market economies are
expected to grow by 4.6 per cent in 2017 compared with 4.3 per cent in
2016. For sub-Saharan Africa, growth rate is projected to rise from 1.4 per cent
in 2016 to 2.6 per cent in 2017. The upward revisions in these forecasts suggest
improving prospects of global demand which could act as a tailwind to the

continued recovery of the Nigerian economy in short-term. However, the
heightened tension in the Korean Peninsula, intricate BREXIT negotiations and
financial market vulnerabilities could impinge the domestic economy in the
short-to medium-term. This risk is further complicated, in the long-run, by the
ramifications of the unpredictability of oil prices on our economy, which still
relies on oil export for much of government revenue.
Against this backdrop, the call for diversification of the Nigerian economy
remains sacrosanct. I note that although the rise in real GDP growth rate is
heartening, it is below the population growth rate. Besides, the slowdown in
non-oil GDP in 2017q3, the falling per capita income and the high rate of
unemployment remain going concerns amidst the positive metrics recorded
so far in the year. It is imperative to ensure that monetary, fiscal, and
structural policies are synchronised and delicately balanced in order to
achieve a thriving well-diversified economy with low inflation and
unemployment rates.
I note the boost in investor confidence and business sentiment following the
continued recovery of the economy. Conjointly with the increased stability in
the foreign exchange (FX) market, this had a positive spill-over effect on the
domestic capital market performance as reflected in the 36.6 per cent and
38.1 per cent year-to-date growth in the all share index and market
capitalisation, respectively. Money market conditions, however, remained
tight during the review period. Broad money supply showed an annualised
contraction of 5.5 per cent in October 2017 in contrast to a target expansion

of 10.3 per cent. Analysis of the domestic credit analogously indicated an
annualised contraction of 0.3 per cent in private sector credit vis-à-vis the
benchmarked growth of 14.9 per cent and in contrast to the 9.1 per cent
annualised expansion of net claims on government. In this regards, I note the
apathy of banks to lend to the real sector especially in view of the elevated
credit risks resultant from fragile macroeconomic conditions and the
attractive yield on risk-free securities. The CBN will continue to work with
banks to ensure that low-priced credits are sufficiently channelled to high
impact sectors with a view to bolstering domestic productivity, creating jobs
and reducing poverty.
Overall, I note that the recovery of the economy is strengthening as key
indicators consolidate; although, it remained structurally delicate, especially
given the contraction of the non-oil sector in 2017q3. I reiterate that the
stability in the FX market remains a significant factor in the macroeconomic
improvements that have been recorded. To safeguard the ongoing
recovery, it is necessary to ensure that gains from the relative FX stability are
not derailed. We must maintain a balanced inflow of foreign capital to the
economy by always ensuring appropriate interest rate parity. The desire for
an accelerated recovery must be properly balanced with the imperatives of
price and exchange rate stability. In this regard, the CBN will continue its
interventions in critical sectors of the economy so as to support the
government’s efforts at bolstering domestic productivity. I re-emphasise the
need to sustain the pace of capital projects in order to reduce infrastructural

deficits, boost output and moderate prices. I am of the view that, if
judiciously implemented, the 2018 budget of the fiscal authorities and the
proposed capital expenditure therein will have a significant push effect on
the real economy.
I reiterate the need for cautious policy decisions. While the path of inflation is
pleasing, its level is yet unacceptable. In my consideration, I note that a
balanced analysis of options is most essential. A decision to ease monetary
stance in order to accelerate GDP growth may reverse recent disinflation
and worsen the already intolerable level of inflation. On the other hand,
further tightening at this time may strangulate the emergent recovery and
exacerbate the already depressed demand of household and private
businesses. It is important to emphasise that the current inflation rate, at 15.9
per cent, remains at a growth inhibiting level. Hence, the need to retain the
restrictive stance of policy without further tightening. I am of the view that the
current level of real interest rate is appropriate to balance the objectives of
exchange rate stability, price stability and output stabilisation.
I remain personally in favour of low nominal interest rate in the long-run.
Nonetheless, a drive to force down interest rate would be counterproductive
at this time. It is important to avoid impulsive policy shocks, which could
reverse ongoing disinflation, upend the path of recovery and destabilise FX
market. Consequently, I vote to:

1. Retain the MPR at 14.0 per cent;
2. Retain the CRR at 22.5 per cent;
3. Retain the asymmetric corridor at +200/–500 basis points; and
4. Retain liquidity ratio at 30.0 per cent

Godwin I. Emefiele, CON
Governor

November 2017