CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO 118 OF THE MONETARY POLICY
COMMITTEE MEETING OF MAY 21 AND 22, 2018, WITH PERSONAL STATEMENTS OF
MEMBERS
Background
The Monetary Policy Committee (MPC) met on the 21st and 22nd of May, 2018
against the backdrop of optimistic global growth outlook and sustained
recovery in the domestic economy. The Committee examined the
performance, risks, vulnerabilities in the global and domestic economies up to
May 2018, and the outlook for the rest of the year. In attendance were nine
members of the Committee.
Global Economic Developments
The momentum of global economic activities remained broadly sustained,
with outcomes likely to be shaped by emerging geo-political issues including:
easing geo-political tensions on the Korean Peninsula; reduced trade tensions
between China and the United States; United States withdrawal from the 2015
Iranian Nuclear Deal; easy financing conditions in the Euro Area, the UK and
Japan; as well as difficulties associated with the Brexit negotiations.
Accordingly, global output is projected to grow at 3.9 per cent in 2018, up from

3.8 per cent in 2017. Growth in the advanced economies is projected to
strengthen to 2.5 per cent in 2018 from 2.3 per cent in 2017 premised on
improved investments and consumption spending. Similarly, output growth in
the emerging markets and developing economies (EMDEs) is projected to rise
marginally at 4.9 per cent in 2018 reflecting improvements from 4.8 per cent in
2017, led by oil exporters, such as Russia, Brazil, and Nigeria. The Committee
noted that despite these optimistic developments, the downside risks to global
growth include: the geo-political tensions in the Middle-East; lingering
uncertainties from BREXIT negotiations; and growing trend towards trade
protectionism.
Inflation in the advanced economies is projected to rise by 2.0 per cent and
would remain subdued relative to the long term trend. In the emerging markets
and developing economies, price developments could surge by 4.6 per cent
in 2018. The International Monetary Fund (IMF) forecasts that inflation may rise
modestly over the medium to long-term, due to rising asset prices and longterm yields in the major financial markets.
Domestic Output Developments
The Committee noted improvements in the domestic economy, attributable
to the steady decline in inflation, rebound in oil prices and increase in
production level, as well as the continued stability in the foreign exchange
market. According to data from the National Bureau of Statistics (NBS), real
Gross Domestic Product (GDP) for Q4 2017 was revised upwards from 1.92 per
cent to 2.11 per cent, while a growth of 1.95 per cent was recorded in the first

quarter of 2018, up from a contraction of 0.91 per cent in the corresponding
period of 2017. The development was due to growth in the oil and non-oil
sectors by 14.77 and 0.76 per cent, respectively. The Monetary Policy
Committee also noted the sustained positive outlook based on the
Manufacturing, and Non-manufacturing Purchasing Managers’ Indices (PMI),
which rose for thirteenth and twelfth consecutive months to 56.9 and 57.5 index
points, respectively, in April 2018. The Committee welcomed this development
but believes that growth remains largely fragile and could benefit from further
reforms and stimulus. In this regard, the MPC urged the various levels of
government to accelerate the settlement of contractor debt and salary
arrears as well as facilitate the quick implementation of the 2018 Federal
Government budget.
Developments in Money and Prices
The Committee noted that broad money supply (M2) grew by 2.16 per cent in
April 2018 from 1.26 per cent in March 2018, annualised to 6.48 per cent. This
was in contrast to the provisional growth benchmark of 10.48 per cent for 2018.
The performance of M2 was mainly driven by the growth in Net Domestic
Credit (NDC) of 6.24 per cent (annualised to 18.72%), owing largely to net
credit to government, which grew by 46.13 per cent (annualised to 138.39%)
against the provisional benchmark of 54.97 per cent. Credit to the private
sector, however, contracted by 0.16 per cent (annualised to -0.47%) in April
2018, in contrast to the provisional annual benchmark of 5.64 per cent. Net
Foreign Assets (NFA) grew by 7.38 per cent in April 2018, annualized to 22.13

per cent, compared with the provisional benchmark of 18.15 per cent. Narrow
money (M1), however, contracted by 3.31 per cent (annualised to -9.94%),
compared with the provisional benchmark of 8.04 per cent.
Inflationary pressures continued to moderate with headline inflation (year-onyear) declining for the fifteenth consecutive month to 12.48 per cent in April
2018 from 13.34 per cent in March 2018. Food and Core inflation also
decelerated to 14.80 and 10.92 per cent from 16.08 and 11.18 per cent,
respectively, during the same period.
The average inter-bank call rate decreased to 3.34 per cent in April 2018 from
9.49 per cent in December 2017. Similarly, the average Open Buy Back (OBB)
rate fell to 2.96 per cent in April 2018 from 8.46 per cent in December 2017. The
movement in the net liquidity position and interest rates reflected the
combined effects of Open Market Operations (OMO) auctions, foreign
exchange interventions and statutory allocation to state and local
governments.
The Committee welcomed the sustained improvement in the level of external
reserves, which stood at US$47.79 billion on May 18, 2018, compared with
US$46.73 billion at the end of March 2018. The Committee urged the Bank to
sustain this momentum and continue to boost investor confidence in the
economy. The Committee also welcomed the continued rise in the price of
crude and called on the Federal Government to seize the opportunity to build
fiscal buffers against future oil price shocks.

The All-Share Index (ASI) decreased by 6.6 per cent from 43,330.54 on February
28, 2018 to 40,472.45 on May 18, 2018, owing largely to profit taking activities
of investors, and capital reversals in response to monetary policy normalization
in some advanced economies particularly, the United States. Similarly, Market
Capitalization (MC) fell by 5.7 per cent from N15.55 trillion on February 28, 2018
to N14.66 trillion on May 18, 2018. The Committee noted the need to maintain
remunerative domestic rates to stem the trend towards huge capital outflow.
The MPC welcomed the continued stability in the foreign exchange market,
promoted by improved dollar liquidity in the market due to the high level of
activity at the Investors’ and Exporters’ (I&E) window, that is equally driving
rates towards convergence at all segments of the market. Total foreign
exchange inflow through the economy from January to March 2018 stood at
US$24.719 billion, of which funding from the CBN was US$8.81 billion or 28.5 per
cent, while autonomous sources accounted for the larger balance of US$15.91
billion or 71.5 per cent of the total. In addition, the Committee welcomed the
US$2.5 billion or RMB 15 billion Currency Swap between the Central Bank of
Nigeria (CBN) and the People’s Bank of China (PBoC). This swap, the
Committee noted, will ease pressure in the foreign exchange market by the
reduction in reliance on a third currency for trade settlement between Nigeria
and China. They further noted that this swap arrangement could be the basis
for an expanded and mutually beneficial economic relationship between
Nigeria and China.
2.0. The Overall Outlook and Risks

The macroeconomic environment that propelled the economy’s exit from
recession has remained positive and is likely to continue in the near-term. The
expectation was premised on speedy implementation of the 2018 budget,
improved security, continued stability in the foreign exchange market as well
as increase in crude oil production and prices. The Committee noted the
downside risks to the outlook to include: the late approval and implementation
of the 2018 budget; farmers-herdsmen conflict; weak demand and consumer
spending associated with outstanding salaries and contractor debt; and the
growing level of sovereign debt.
The outlook for inflation indicates continued moderation in the price level,
even though the risks include huge liquidity injections that is expected to arise
from the implementation of the proposed N9.12 trillion 2018 FGN budget;
expenditure towards the 2019 elections; monthly FAAC injections, approval
and implementation of the proposed new national minimum wage, possibly
finance by a supplementary budget. These could impact aggregate demand
and put pressure on domestic prices in the remaining months of 2018 and may
dampen the gains already made by the Bank in stabilizing prices.
Staff forecasts, given the anticipated liquidity injections into the economy,
indicates upward trending pressure on domestic prices from the second half
of fiscal 2018. Consequently, the Committee advocates an orderly injection of
the anticipated liquidity by the fiscal authorities to prevent a negative shock
to prices that would derail the positive but fragile recovery so far achieved.

Given the CBN’s interventions, the current level of oil prices and developments
in the global economy, we expect rates to remain stable in the foreign
exchange market in the near-term. However, the bearish signs in the capital
market associated with profit taking activities of investors, call for a careful
calibration of policy so as to moderate the trend of capital outflows in an era
of monetary policy normalization in the United States. This is given that there
are already indications of severe attacks on the foreign exchange markets of
some emerging economies.
Nevertheless, there is significant high level of uncertainties that could arise from
the fiscal operations of government in the near term. Amongst these are: when
the implementation of the 2017 budget will end; dwindling revenue
projections; as well as the possibilities of full implementation of the 2018 Federal
budget. Consequently, we expect a likely bunching of government spending
in view of the late passage of the budget and government’s commitment to
honour prior obligations. This could pose a serious challenge to the Bank’s price
stability mandate.
Revenue is expected to increase in view of the favourable prices of crude oil
and improvements in non-oil revenue, particularly taxes. In addition,
production levels have also increased in recent times and this is expected to
be maintained. However, the implications of a China-US trade deal on China’s
oil imports from Nigeria remain unclear, especially as the US has included
energy imports on the list of items for negotiation with China.
3.0. The Considerations of the Committee

The Committee expressed satisfaction on the positive outlook in the domestic
economic environment as the real GDP grew for the fourth consecutive
quarter by the first quarter of 2018 and the positive trend in the Manufacturing
and Non-manufacturing Purchasing Managers’ Indices in the first quarter of
2018. It noted the continued deceleration in headline inflation as well as
stability in the foreign exchange market and therefore, called on the Bank to
sustain the momentum in order to further subdue inflation and ensure growth.
The Committee expressed satisfaction with the level of activities in the
Investors’ and Exporters’ (I&E) window of the foreign exchange market.
The Committee further noted the overall upward growth momentum of the
economy with key activity sectors returning positive growth. Despite the
improving macroeconomic environment, the Committee noted that
disruptions to the supply chains in major food producing states of the country
remains a concern as food prices remained sticky downwards. It also noted
the potential adverse effect of the rising global inflation on domestic prices
and therefore, urged the Government not to relent on curtailing the security
challenges to advance controlling inflation to its historical path.
Members of the Committee were satisfied with the progress made with the
implementation of the Economic Recovery and Growth Plan, but were
concerned on the effect of delay in the passage of the 2018 Appropriation
could derail the programme and urged the Federal Government to sustain its
implementation to further accelerate the economic recovery thus far
achieved. The Committee urged the Government to set the machinery for the

effective implementation of the 2018 budget to further stimulate the economy.
It also encouraged the Government to sustain current efforts at boosting tax
revenue generation notwithstanding the increase in crude oil and other
commodity prices. The MPC, however, noted the potential effects of
expansionary fiscal budget of 2018 and the liquidity impact of rising FAAC
distribution, following increase in the prices of crude oil as well as the build up
in election related spending towards the 2019 general elections.
The Committee took note of the improved performance of deposit money
banks and observed that the relatively high levels of non-performing loans in
the industry was moderating and urged Government to promptly settle
outstanding contractor arrears as earlier promised. The Committee
commended the effort of the Bank in achieving the positive outlook for the
industry and advice the Bank to intensify efforts to further improve banking
sector soundness. It called on the Bank to sustain its monitoring apparatus to
ensure compliance with existing prudential regulations and early detection
and management of emerging vulnerabilities. Also, it similarly encouraged the
Bank not to relent in ensuring that liquidity continues to flow from the banking
sector to the real sector to further strengthen economic recovery and
employment generation.
4.0. The Committee’s Decisions
The Committee critically evaluated the policy options in terms of
developments in the international and domestic environments, noting in
particular progress made in stimulating output growth, including stability in the

foreign exchange market increase in the level of foreign exchange reserves,
and sustained deceleration in the rate of inflation.
The Committee considered the forecast of high liquidity injection in the second
half of 2018, upward pressure on prices, driven largely by substantial
expansionary fiscal policy, which will arise from the late passage of the 2018
appropriation bill, outstanding balance from the 2017 budget and the preelection expenditures. Thus, tightening would ensure the mop-up of excess
liquidity. Mindful that despite the moderation in inflation, the current inflation
rate is still above targeted single digit and that real interest rate only turned
positive in the review period. The objective of the policy stance therefore,
would be to accelerate a reduction in the inflation rate to single digit to
promote economic stability, boost investor confidence, and promote foreign
capital flows with complementary impact on exchange rate stability.
Conversely, the Committee believes that raising interest rate would, however,
depress consumption and increase the cost of borrowing to the real sector.
Moreover, such policy would make deposit money banks to re-price their
assets.
In reviewing the choice of loosening, the Committee evaluated the potential
impact of stimulating aggregate demand through lower cost of credit.
Nevertheless, the Committee deliberated on the effectiveness of the choice
at a time when liquidity injection had been forecast to rise tangentially in the
second half of the year. The outcome therefore, would most likely exacerbate
inflationary pressure, cause higher pressure on the exchange rate as demand

for forex increases and return real rate into negative territory as nominal interest
rate fall lower than the inflation rate. Owing to the poor transmission
mechanism as a result of structural rigidities, the reduction in the MPR may not
necessarily transmit to lowering market lending rate on account of the high
cost of doing business. The Committee further noted that loosening could
worsen the current account balance through increase in importation, margin
lending, lowering of risk evaluation in accessing loans which will drive up loans
and likely increase in NPLs with potential negative consequence on the stability
of the banking industry. The cost of liquidity management would also rise
considerably.
The Committee, while arguing for a hold, observed that the downside risk to
growth and upside risk to inflation appears balanced as growth is improving
while inflation is moderating. Maintaining the current policy stance would
sustain gradual improvements in both indices. It was noted that there is need
to see how all the components of GDP would evolve in the second quarter of
2018 in order to gain greater clarity on the direction of monetary policy. In
summary, the predominant argument for a hold at this time is to await more
clarity on the evolution of key indicators i.e. the passage and implementation
of the budget, economic activities, and traction in fiscal policy in 2018.
Overall, the Committee was convinced that the economy needed a new
impetus of increased lending by the banking system and would work with the
Bank to adopt innovative ways to encourage the deposit money banks (DMBs)
to adopt innovative ways to accelerate credit growth, including a reduction

in the policy rate when conditions for such a decision arise. The MPC noted
that at single digit inflation and higher reserve levels, the risks associated with
a policy rate reduction under conditions of wavering foreign capital inflows
and an unstable oil market, including other severe uncertainties, could be
better managed to deliver macroeconomic stability in Nigeria. In
consideration of the foregoing, therefore, the Committee decided by a vote
of 8 members to retain the Monetary Policy Rate (MPR) at 14.0 per cent
alongside all other policy parameters. One (1) member, however, voted to
increase the MPR by 50 basis points.
Consequently, the MPC voted to retain the:
(i) MPR at 14.0 per cent;
(ii) CRR at 22.5 per cent;
(iii) Liquidity Ratio at 30.0 per cent; and
(iv) Asymmetric corridor at +200 and -500 basis points around the MPR.

Thank you for listening.
Godwin I. Emefiele
Governor, Central Bank of Nigeria
22nd May, 2018

1. ADAMU, EDWARD LAMETEK
The May 2018 Monetary Policy Committee (MPC) meeting held against the
backdrop of continued relative improvement of the global and domestic
economic conditions. In spite of geopolitical tensions and trade issues, the
outlook for global output growth remains positive. This outlook is essentially
powered by widespread financial accommodation, investment recovery in
advanced economies and improved commodity prices and export demand
in emerging markets and developing economies (EMDEs). Beyond 2018,
particularly first-half of 2019, global economic activity is expected to remain
fairly robust on account of favourable market sentiments, loose financial
conditions and expansive fiscal actions in advanced economies, particularly
the United States. In the domestic economy, output recovery has remained
firmly on track and inflation continues to trend downwards. Both developments
are linked to, and greatly influenced by the sustained relative stability in the
naira exchange rate.
At the May 2018 meeting of the MPC, I voted to retain all the policy parameters
based on my assessment of developments since the current cyclical upswing
began, and the challenges I see in the short- to medium-term. My main
considerations are outlined in the rest of the statement.
Although current global economic conditions appear to portend a favourable
short-term outlook for oil prices, we have learned from experience that
upswings in crude prices unwind, most times, sooner than forecasts suggest.
There is no doubt, the recent rally in prices has had a positive impact on

external reserves accretion and boosted the economy’s resilience and
investor confidence. Partly as a consequence, inflows, especially of portfolio
investment improved. However, by their nature, such inflows are susceptible to
sudden reversals; this reality needs to be factored into policy considerations
and actions today. In effect, we need to build buffers on both fiscal and
monetary sides in preparation for a possible downturn. In the same vein,
regulatory buffers are needed to strengthen the capacity of banks to
withstand a shock, should there be one.
In the domestic economy, recovery remains firmly on course with real GDP
growth of 1.95 per cent in Q1, 2018. As shown by the latest data from the
National Bureau of Statistics (NBS), the growth momentum appears to be
broad-based – both oil and non-oil outputs grew in real terms during the
quarter. The outlook appears even stronger, on the assumption that inflation
continues to trend downwards, the exchange rate of the naira remains stable
and supply of foreign exchange for needed imports remain unconstrained. We
equally cannot discount the role of the CBN’s interventions in the growth poles
as well as government’s investments in infrastructure.
Headline inflation continued to decelerate in April 2018. Year-on-year, the
headline inflation index rose by 12.48 per cent compared to 13.34 per cent in
March. Food and core indices similarly rose by 14.80 and 10.92 per cent,
respectively in April 2018, compared with 16.08 and 11.18 per cent,
respectively in March. However, on month-on-month basis, both food and
core inflation rose in April. In fact core inflation rose consistently from January

to April. Importantly, at 12.48 per cent, the year-on-year headline inflation is
still considerably higher than the policy reference range of 6.0 – 9.0 per cent.
While not downplaying the marked deceleration since February 2017, it is to
be noted that further moderation is needed, just as a reversal of the trend in
the month-on-month core and food price changes remains an imperative for
macroeconomic stability. Economic growth and financial stability could
benefit tremendously from much lower levels of inflation.
Currently, the outlook for inflation in the rest of the year appears largely
uncertain owing to the likely surge in domestic liquidity arising mainly from
expected fiscal injections and election-related spending. At about N9.0 trillion,
the 2018 Appropriation passed by the National Assembly promises to be highly
expansionary. This is particularly so as a sizable portion of the budget, as is,
would have to be deficit-financed. In addition, the payment of contractor
debts, which is quite desirable from the standpoint of growth and financial
stability, and the prospects of a new minimum wage down the road,
somewhat further complicate the outlook for domestic liquidity. When these
likely fiscal injections are taken into account, the outlook for inflation that
emerges becomes scarier.
The Naira exchange rate continues to be an important influence on consumer
prices and output recovery. Stability in the naira exchange rate has been
sustained through appropriate policies and reforms of the exchange rate
market aimed at improving the supply of foreign exchange and reduction of
speculative and frivolous demands. Consequently, Nigeria’s stock of external

reserves continues to grow on account of reduced imports, increased
petrodollar inflows owing to more favorable oil prices and uninterrupted crude
production, and increased autonomous inflows through the Investors’ and
Exporters’ foreign exchange (I&E) window.
Though measured, there have been some improvements in the banking
system. Deteriorations in financial soundness indicators have been halted, and
in some cases reversed. For example, industry return on asset (ROA) and return
on earnings (ROE) rose quite significantly to 21.57 and 2.14 per cent,
respectively, in April, from 11.78 and 1.28 in February 2018. Likewise, the nonperforming loans (NPLs) ratio moderated slightly in April. These positive
developments are broadly connected to the improvement in the
macroeconomic conditions including stable exchange rate and declining
inflation. Interestingly, banking system stability is required for proper financial
intermediation (including credit flow to the real sector) which is needed to
support recovery in output. The feedback causation between the banking
system and the real economy has to be carefully managed always and
especially so during this (recovery) phase of the economy’s business cycle.
Therefore, from a financial stability standpoint, inflation threats or risks to the
naira exchange rate stability are to be mitigated upfront in order to sustain and
deepen the resilience of the industry. In my view, the expected surge in liquidity
and likely retrenchment in inflows on account of some external developments
appear to be the most potent threats to domestic economic and financial
stability in the short- to medium-term. In addressing these risks, policy

coordination is key. While public spending is needed to re-invigorate
economic growth, care must be taken to ensure that its essence is not
defeated by unintended consequences. Proper coordination of monetary
and fiscal policies reduces uncertainty, thereby allowing for optimal
deployment of instruments.
Like I stated in my April 2018 Statement, these threats call for a forward-looking
and cautious approach to monetary policy. I see clearly the need for a tight
monetary policy stance at this time to rein-in adverse price expectations. I
equally see the need to continue to give economic growth some space to
thrive, which leaves me rather hesitant to opt for further tightening.
Nevertheless, in voting to hold, I am persuaded that the current stance of
policy is adequate to sustain the trends in major indicators towards their desired
levels.
Overall, I voted to retain all the policy parameters at their current levels. That
is:

MPR at 14.0 per cent;

CRR at 22.5 per cent;

Liquidity Ratio at 30.0 per cent; and

Asymmetric corridor at +200 and -500 basis points around the MPR

2. ADENIKINJU, ADEOLA FESTUS
In the meeting of the MPC in April, I voted for a hold of all the existing
parameters of monetary policy. In the May Meeting, while there have been
some changes in both domestic and global economies, based on Staff
Presentations, on the probability of balance given the current and future
probabilities of occurrences of events, I am fully persuaded to retain my last
voting pattern which is to continue with existing monetary policy rate and other
monetary parameters.
International Developments
The global economy in a broad sense continues to post positive developments
in many areas. Global output growth based on the IMF World Economic
Outlook remains generally robust across the regional groupings. Global
inflation remains subdued, although noticeable pressures are building up
across advanced economies and emerging markets and developing
economies, with sub-Saharan African economies as the only exception.
Volatility in major stocks markets remain amidst uncertainties in global
economic and political directions. USA and China reached tentative trade
agreements to forestall possible trade war. Oil prices remain high, partly due
to rising global economic growth as well as regional tensions and anticipated

tightening of the global oil market supply with American planned sanctions on
Iran. All of which may keep the price of oil in current bullish position.
However, there are headwinds in the global economy that should be of
concern to Nigeria. First the terms of agreements between China and USA
requires the former to substantially increase its imports of American goods,
especially, energy and agriculture, which may impact on Nigeria’s oil export
market. Second, there is the expectation that Saudi Arabia and other countries
with spare capacity may expand oil production to make up for the potential
loss of supply from Iran and Venezuela. Third, the current quota arrangements
put in place between OPEC, Russia and some Non-OPEC countries to control
oil supply may be relaxed leading to higher global oil supply. The rising interest
rate in America may lure portfolio investors away from emerging economies,
especially Nigeria in a pre-election year. Staff presentations already show
some reverse capital movements. Nigeria stock market has suffered a hit since
the beginning of the year. In my view, the global economy remains uncertain,
the prospects of trade wars remains real, the tendency towards unilateral
rather than multilateral trade policies may moderate global economic growth
rate. There is also in my view, an upper limit to which oil prices will trend.
Domestic Developments
The domestic economic fundamentals remain largely positive and
encouraging. According to the data released by the NBS, First quarter 2018
GDP grew by 1.95 compared to -0.91 % in same period in 2017, although a
slight decline from the 4th quarter of 2017. Growth is driven by agriculture,

mining and quarrying, manufacturing, transportation and insurance and
financial and insurance. Foreign reserves continue to climb up although rate
of accretion declined between the last and current MPC meeting. The
declining accretion in my view is a reflection of a number of factors, first,
reluctance of some portfolio investors to roll over their investment in the
economy and actually exiting the economy, second, the existing contractual
arrangements in the oil sector in favour of Production Sharing Contract (PSC)
as against the Joint Venture (JV) agreements will continue to reduce
government take as more oil production comes from offshore and through the
PSC. Hence, government may have to negotiate an improved fiscal regime in
the petroleum sector. Third, I am also concerned that the rising fuel products
imports and the under recovery will continue to impact negatively on the fiscal
position of the country.
Moreover, domestic inflation continues to trend downwards. All measures of
inflation, Headline, Core and Food inflation declined broadly compared to the
last MPC meeting. Inflation fell from 13.34% in March 2018 to 12.48% in April
2018. The trending of inflation towards the growth consistent inflation level for
Nigeria estimated by the Bank is good news. However, the rate of decline in
food inflation remains fairly sticky at 14.80%. A major factor in my view is the
present security situation in the main food producing regions of the country, as
well as imported food inflation which actually rose from 16.08% in March 2018
to 16.17% in April 2018. . This is another issue for government to urgently address.
We must reduce our dependence on imported food items by boosting local

food production and addressing all the immediate challenges impacting on
food supply response.
The exchange rate markets remain stable, with small appreciation in the value
of the naira. The Bank must ensure convergence of the markets as soon as
practicable to allow for more transparency in the markets as well as provide
confidence to market operators.
The balance sheet of the banking sector has also improved relative to the last
MPC meeting. However, it is clear that banks are more eager to strengthen
their balance sheet than commit to new credits. The continuous preference of
banks for relatively safer fixed income assets rather than direct lending to the
real sector of the economy remains a critical challenge to current policy
stance. Simply tinkering with the MPR at this current state of the banking sector
may not simply translate into more credit for the economy unless there is a way
to creatively ‘de-risk’ the targeted real sectors of the economy. In general the
banking system witnessed growth in aggregate deposits in the first quarter of
2018, however, there was no corresponding increase in credit. This implies that
more liquidity in the system may not mean more credit as is widely believed in
the short term. The high operating expenses in the banking system need to be
carefully addressed to reduce the high cost environment which in my view
impacts more on lending rates than even the MPR.
The stock market continues to soften in spite of the relatively good
performance reported by many quoted companies. This suggests profit taking
and capital outflow especially by portfolio investors. This is a critical warning

signal to me of the possible trend in the coming months as elections
uncertainty sets in.
I am also concerned that the 2018 appropriation bill has been increased by
the National Assembly from N8.612 trillion submitted by the executive to over
N9.120 trillion. Although the President has not assented to the bill, however, I
am not only concerned by the overly high optimistic revenue expectations,
the fact that the country is currently operating the 2017 budget, which will be
overlaid by the 2018 budget when it becomes operational, the expected
liquidity surfeit in a year that is both a pre-general election year, party primary
elections, and when two critical state elections will be conducted, persuade
me that it is better to defend the current gains from existing tight monetary
policy stance, which is good for the economy in the medium term than to
lower policy rate. We must send strong signal to the economy of the CBN
commitment to monetary and exchange rate stability, which will allow
economic agents to make rational decisions. The current foreign reserves
though remains high however may suffer significant loss from expected
reversal of capital outflow if investors outlook turned negative.
As I watch for the right opportunity for gradual relaxation of monetary policy
from existing stance in order to contribute to growth and reduce current high
unemployment rate, the many uncertainties in the global and the local
economies in the next few months weigh heavily in my mind as to their impacts
on inflation expectations and capital outflow. I prefer to hedge my bet in
favour of sustaining current monetary and exchange rate stability than take a

sharp leap into the unknown with potential negative outcome. As we go
further into the year, the fiscal behaviour of the government and the
management of the electoral process will show whether previous spending
patterns in previous elections will likely change.
I continue to support a creative way to encourage credit creation and reward
banks that actively lend to the real sector of the economy rather than take
positions in safer havens in fixed interest security.
Hence I vote to maintain existing policy stance:
1. Keep MPR at 14 per cent
2. Maintain CRR at 22.5 per cent
Keep asymmetry corridor at +200 to -500 basis points around the MPR.


3. AHMAD, AISHAH
Introduction
The May 2018 MPC meeting held against the backdrop of gradual economic
recovery given four consecutive quarters of positive GDP growth, coupled with

steady decline in inflation, stable exchange rate and a positive outlook for the
Nigerian economy in 2018.
Whilst macroeconomic fundamentals were headed in the right direction,
inflation was still above its long run target and there are global and domestic
headwinds which appear increasingly within sight. These developments were
key considerations for policy decisions at the May MPC.
Domestic GDP growth continues to strengthen, at 1.95% in the first quarter (Q1)
of 2018, much higher than a contraction of -0.52% in Q1 of 2017. Though the
Q1 2018 figure is slightly lower than previous quarter GDP growth of 2.12%,
continued optimism of a positive outlook for the rest of the quarters is not
misplaced given 11 months consecutive increase in the Purchasers Managers
Index (PMI), and a positive output forecast by the IMF of 2.1% for 2018. Global
growth prospects also remained strong, even in the face of potential negative
effects of increased trade protectionism on global growth and inflation.

Headline inflation declined for the 15th consecutive month to 12.34% in April
from 13.34% in March 2018 according to recently released data from the
National Bureau of Statistics. This has been driven by relative stability in the
exchange rate whilst food and core inflation at 10.9% and 14.80% respectively,
in April 2018, also continue to moderate. Potential risks to the positive trend for
inflation include the ongoing implementation of the 2017 budget, substantial
implementation of the 2018 Federal budget within a limited time frame; and

the 2019 election season, which have historically had some inflationary
impact.
External sector indices retained their positive trajectory given relative stability
in the exchange rate and further accretion to foreign reserves, albeit at a
slower pace. Rising crude oil prices - from US$69/b in March 2018 to US78/b in
May 2018 and committed interventions by the CBN have been largely
responsible for exchange rate stability even as we must brace ourselves for this
resilience to be tested. In view of the continued increases in interest rates by
the US Federal Reserve, a reversal in foreign portfolio investment may occur, as
has been the case in a number of emerging markets. This could immediately
put pressure on the exchange rate, a situation that would be better managed
with healthy fiscal buffers and a more diversified source of foreign exchange
over the long term.
Policy rate hikes in the US and other advanced economies increase the
likelihood of these reversals. Yields on the US 10 year treasury notes crossed the
3% mark in April 2018 for the first time in four years, whilst further monetary policy
rate hikes are expected through 2018. These higher rates in the US, coupled
with reducing supply of Nigerian sovereign debt instruments (as the fiscal
authorities restructure the debt stock) amidst slightly declining yields, have led
to mild foreign portfolio flow reversals which are bad for exchange rate stability
particularly in the short term. Thus far, the CBN has been successful in meeting
foreign exchange demand and defending the Naira via its reserves. However,

it is expected that the reserves will take a further hit should portfolio investors
react to global yields rising much further.
The recent US$2.5 billion currency swap deal between the CBN and People’s
Bank of China in addition to the CBN’s other initiatives, is expected to help
reduce the pressure on the exchange rate in this respect. Also, the continued
rise in crude oil prices presents an opportunity to strengthen our fiscal buffers in
view of the inherent volatilities in commodity prices and external sector
vicissitudes.
The economic recovery is slow to reflect on the financial system; as banking
sector Non-Performing Loans (NPLs) concentrated in a few sectors, remain a
bit higher than we would like; whilst credit to the private sector contracted by
0.16 per cent in April 2018, compared to the provisional annual growth
benchmark of 5.64 per cent. Bank lending rates also remained significantly
high – all indicative that the banking industry requires more impetus to
substantially reflect the benefits of the ongoing recovery. Thus, the monetary
authority must work with the relevant financial institutions to entrench
innovative measures to safely increase credit to the real sector. In addition and
as a matter of urgency, prompt settlement of outstanding contractor arrears
as earlier promised by the Federal Government will significantly moderate
asset quality pressures and further improve resilience of the financial system.
The fiscal rebalancing going forward is commendable; whilst the growing total
sovereign debt stock must be prudently managed, efforts at restructuring

domestic versus foreign debt stock are applauded, especially as it portends to
reduce debt service costs, reverse crowding out in domestic debt markets,
and improve the fiscal financial condition. Low fiscal buffers, delays with
passing the 2018 budget (including the supplementary budget), unspent
balance of 2017 budget and 2019 election activities are imminent headwinds
mentioned earlier. Granted, some spending will stimulate growth; but, excess
spending beyond the economy’s absorptive capacity has potential negative
consequences, particularly with respect to inflation.
Policy Decision
The positive trajectory of key economic variables such as growth, inflation and exchange rates
is gratifying. However, we must keep our eyes on further threats to these gains, either in the
form of a potential US-China Trade War, inflationary fiscal shocks, or flow reversals from
actions by the US Fed. Although a further tightening of the monetary policy stance is not out
of place at this time, an increase in the policy rate is not absolutely necessary to maintain this
vigilance. Thus, in view of the above, I vote to maintain the MPR at 14%; Cash Reserve Ratio
at 22.5%; Liquidity Ratio at 30% and Asymmetric corridor at -500 and +200 basis points around
the MPR.

4. ASOGWA, ROBERT CHIKWENDU
Decision:
At this May 2018 meeting of the Monetary Policy Committee, I vote to hold all
parameters as they are.
Retain the MPR at 14.0 percent
Retain the CRR at 22.5%
Retain the Asymmetric Corridor at +200/-500 basis points and
Retain Liquidity Ratio at 30.0%

My decision follows careful considerations of the domestic and international
economic outlooks as well as emerging risks to these outlooks all of which
warrant that monetary policy rate should remain unchanged for now. On the
domestic outlook, the key issues are the current levels and expectations of
inflation, the current levels and forecasts of GDP as well as the domestic
exchange rate trend. On the international outlook, the official interest rate
changes in some countries abroad, the growth forecasts as well as the
inflationary trend are the issues of note. There are also emerging downside risks
of the outlook especially at the domestic front including the mixed
performance of banking sector indicators and the increasing public debt
levels, both with strong potentials of reversing any remarkable gains of the
current monetary policy stance.
Domestic Economic Outlook:
First, the trend decline in headline and core inflation continued with headline
inflation decreasing from 14.33% in February 2018 to 13.34% in March 2018 and
further to 12.48% in April 2018 while core inflation lowered to 10.92% in April 2018
from the 11.18% level in March 2018. This decline which resulted in positive real
interest rates for the first time in several months would ordinarily provide some
space for monetary policy easing. Given that the medium term risks to the
inflation outlook is broadly tilted to the upside, with increasing inflation
expectation arising from expected elections spending and the massive 2018
budget injections to the economy also expected in the latter parts of the year,

a decision to maintain the monetary policy rate while monitoring
developments in the near-term is most appropriate.
Second, GDP growth momentum has been maintained in the first quarter of
2018 following exit from recession. Provisional GDP estimates for 2018 first
quarter from the National Bureau of Statistics indicate that the economy grew
by 1.95% which is good eventhough slightly lower than the revised 2017 fourth
quarter GDP growth at 2.11%. Of particular interest is the solid non-oil growth
especially the manufacturing sector which picked up massively in the first
quarter of 2018 recording a 3.39 percent growth, compared with 0.14 in the
fourth quarter of 2017. This uptick in output is supported by the CBN computed
manufacturing and non-manufacturing Purchasing Managers Index (PMI). In
April 2018, the manufacturing and non-manufacturing PMIs stood at 56.9 and
57.5 index points respectively which indicate expansion in the economy and
for the 13th and 12th consecutive months respectively. These are positive signs
showing that confidence remains high and pointing to positive expectations
on growth prospects and realization of business expectations which are not
necessarily predicated on an expansionary monetary policy.
A third factor is the significant external reserves build up which continues to
provide additional buffers to the domestic currency market. With the external
reserves rising to US$47.50 billion by mid May 2018 from US$39.35 billion at end
of December 2017, the Naira has remained relatively stable against the dollar
even though some temporary demand pressures were noticed in the later part
of May 2018. Clearly this relative stability in the Naira reflects the net foreign

exchange flows in the economy which has remained positive because of the
improvements in the macroeconomic fundamentals, the improved current
account position and the existing monetary policy regime.
International Economic Outlook:
There has been a continued divergence in the magnitude of monetary policy
rate adjustments among key developed economies. In March 2018, the United
States Federal Reserve raised policy rates by 25 basis points to 1.5-1.75 % raising
its expectations for two further hikes in 2018 while the Bank of England has
signaled a possible further rate hike in 2018 citing inflation concerns. By
contrast, the European Central Bank and Japan are expected to keep policy
rates at the current historical zero and near zero levels in the near term. While
a few large commodity exporters like Argentina, Brazil, Russia, and South Africa
have lowered interest rates in early 2018, several other countries especially in
East and South Asia such as Korea, Malaysia and Pakistan have actually raised
policy rates in 2018. A cautious monetary policy approach remains
appropriate for Nigeria at this period given the weakened domestic currency
in the mist of the external uncertainties as this will help to avoid any possible
reverse flow of capital which can be in vast amounts.
Global output had a rebound in 2017 at 3.8% when compared to 3.2% in 2016
and this trend is expected to be sustained in 2018 eventhough first quarter real
GDP growth rates in several countries retracted similar to that of Nigeria. CBN
Staff report show that in the US, real GDP slowed to 2.3% in the first quarter of
2018 as compared to the 2.9% growth witnessed in quarter 4 of 2017. In the

Euro Area, real GDP also slowed to 0.4% in quarter one of 2018 from 0.7% in
quarter 4 of 2017. Similar 2018 quarter 1 GDP slowdown was recorded in the UK
and in China as compared to the fourth quarter of 2017. An uptick in growth is
however expected in many of developed and developing counties in the
remaining quarters of 2018 on the strength of accelerating wage growth,
favourable investment conditions, pickup in global trade and the recovery of
commodity prices despite the risks of trade policy disputes. The expected
improvements in global growth in 2018 mean more uncertainty in the monetary
policy adjustment. The US has already lifted its projections to possibly three
interest rate hikes in 2019.
Inflationary pressures remain contained across many developed and
developing countries despite the modest rise in global commodity prices. CBN
Staff Report show that similar to Nigeria, inflation also moderated in the Euro
Area, UK, China, Japan, South Africa, Ghana and Kenya. There was however
a marginal rise in inflation in the US to 2.5% in April 2018 from 2.4% in March 2018.
With further moderation in global inflation expected in the remaining months
of 2018, the choice of monetary policy rate in Nigeria will be key to ensuring
that domestic inflation does not persistently outpace the global inflation.
Emerging Risks to the Outlook:
Similar to the observation in my personal statement at the last MPC meeting,
while inflation, output, interest rate and exchange rates at both the domestic
and international levels may be key focus areas in shaping the monetary policy
decision at this time, there are significant downside risks with the potential to

reverse any expected maximum impact of the monetary policy decision at this
meeting. I would like to highlight at least two of these risks, just as I did in my last
personal statement.
Mixed Performance of Banking Sector Indicators and the Stock Market.
The banking industry on aggregate has remained strong with increases in
profitability, liquidity, total assets and total deposits especially between
February 2018 and April 2018. During this period also, the Banks’ Capital
Adequacy Ratio (CAR) increased while the non- performing loans ratio which
from CBN staff report had increased to about 16.21% in February 2018 declined
to 14.15% in April 2018. While these financial soundness indicators recorded
some improvements since the last MPC meeting, the rise in average daily
request of deposit money banks from the Standing Lending Facility (SLF)
window despite the fact that interbank call and OBB rates in April 2018
declined drastically to 3.34% and 2.96% respectively from 15.16% and 12.69% in
March 2018 remains a concern. As I also noted in my personal statement at
the last MPC meeting, these are all early warning signs of future threats to
stability in the banking industry and as such, any significant reduction of MPR
at this time could even further weaken the solvency position of these deposit
money banks.
Of greater concern is the size of banking sector credit to the private sector
which is now declining and even at poorer levels when compared to the
situation at the last MPC meeting. CBN Staff report show that the industry gross
credit recorded a 3.63% decrease in April 2018 and the lowest total ever since

January 2017 and this happened despite the reported increases in total
industry deposits. The earlier expectation that with economic recession over in
2017 and with recovery signs, credit to the private sector will pick up in the early
parts of 2018 is yet to happen. Since a reduction in the monetary policy rate
may not likely result in any increases in private sector credit, non-interest rate
based strategies for stimulating private sector credit will be required at this
time. This can be achieved through targeted indirect policy instruments which
will surely be worthwhile in the immediate period and can be complemented
by other short term measures as the current CBN development financing
support to few critical sectors.
On the Stock Market, the high weekly volatility of the All Share Index and the
Market Capitalization since 2018 as compared to 2017 acts as a reminder that
vulnerabilities still exist in the Nigerian financial market. Even when monetary
policy rates have remained unchanged for a long period, sudden capital
injections and withdrawals in the stock market shows the sector is still exposed
to little movements in risk aversion.
High and Rising levels of Debt:
Similar to the concern I raised in my personal statement at the last MPC
meeting, the threat of rising public debt in the midst of declining government
revenues remains potent. With continued decline of oil and non-oil revenue,
government has desperately relied on domestic and external borrowing to
finance the increasing budget expenditure targets. With the addition of FGN
Savings Bond and FGN Sukuk to the expanding FGN Bonds and FGN Savings

Bond, the stock of domestic debt increased significantly between June 2017
and December 2017. The same scenario happened with external debt which
had increased significantly partly due to additional Eurobonds sale. While
government has regularly defended the elevated debt levels citing the debtto-GDP ratio which is still at internationally accepted levels, it is clear that public
debt not backed by productive assets can pose serious financial risk and will
always be a potential danger to the economy in the near future.

5. BALAMI, DAHIRU HASSAN
Although it was the second meeting of the Monetary Policy Committee (MPC)
in 2018, it was clear that the Nigerian economy had made some progress,
though not all the trends in the macroeconomic variables have been positive.
Inflation continued to trend downwards from 13.34% in March 2018 to 12.48%
in April 2018, as monetary policy tightening was sustained. Economic growth
was also reported at 1.95% in the first quarter of 2018. It therefore, shows that
the current growth rate remains fragile. The major growth drivers of the
economy in the first quarter of 2018 include transport and storage (due to the
non-disruption in fuel supply); mining and quarrying; crude oil and gas;
agriculture; the financial sector, as well as the manufacturing sub-sector, which
picked up substantially. Therefore, a lot was still required for Nigeria’s growth to
move above 5%.
The critical question now is how do we stimulate growth in the economy? This
cannot be achieved without a trade-off because the growth policy would be
counter-productive if its leads to inflation. In addition, the extent of Nigeria’s
mono-export and import dependence poses a threat to the economy,
whenever there is an external shock. There is also the importance of signalling
to provide clarity when the CBN adjust its economic policies in relation to
growth, inflation, and exchange rate. An effective policy should be directed
at achieving low inflation and stable exchange rate.

From the outlook in the second half of 2018, inflation is threatened by election
related expenditure and also from the outflow of capital which the economy
seriously needs. The normalization in the US also shows that there is likely to be
a pressure that could arise from the external sector and result in the depletion
of our reserves (capital flight). In the domestic economy, adverse shocks from
electioneering campaigns expenditure; injections from 2017 budget which is
still being implemented as well as from the 2018 budget which is yet to be
passed but is likely to be ready by June/July 2018 are also sources of reversal
of the downward trend in inflation.
We must therefore adopt unconventional monetary policy strategies to
promote growth. For example, in the month of April 2018, the public sector did
not crowd out the private sector, the NTB rate went down to 10% (90 day), from
18%. The CBN followed up by bringing down the OMO rate, even though it
became counter-productive. If fiscal policy is pumping liquidity into the
economy, the CBN has to sell dollar in the market to mop-up. In the last three
weeks of April 2018, more than US$500 million was sold. This happened for two
reasons: (1) the lack of instrument of high interest rate for foreign investors (2)
outflow of funds to the US encouraged by rising interest rate. It should be noted
that within Africa, the emerging economies such as South Africa, Ghana and
Egypt are also likely destinations for investable funds.

Developments in the Banking Sector

The lending rates by banks remain high and credit to the real sector continue
to be low. The DMBs should be further encouraged to take advantage of the
derisking on lending provided by the CBN to grow credit in the economy. Banks
should also be encouraged to improve their roles in the economy through the
provision of a secondary market for buying DMBs bad loans to clear their
balance sheets.
Fiscal Side
There are so many unknowns on the fiscal side, particularly on when the
implementation of the 2017 budget would cease and when the 2018
appropriation would be approved and implemented. However, the indication
is that there would be high injection from campaign expenditure as 2019
election approaches. Also, many contractors are likely to get 40% to 70%
payment of their contracts if 2018 budget is approved and this may be
inflationary. The danger with the fiscal side is the absence of a fiscal buffer to
cushion the effect of a sudden outflow of capital. Although interest rates had
remained high and there is a need to lower the rates and service the external
debt.
The CBN, therefore, must sustain the sale of OMO bills to maintain tightening
and promote capital inflow into the economy. With projections that the
economy would be awashed with liquidity, fiscal and monetary cooperation
at this time is critical to maintaining macroeconomic stability. It is more
expedient with the bearish performance of the capital market in the month of
April, as investors gradually divest to foreign markets offering higher yields.

China - US Negotiations at the Global Level: The China - US negotiations at the
global level has implications for the Nigerian economy. It is likely that China
would sacrifice imports from other countries such as Nigeria’s oil in the ongoing
arrangement. The Federal Government’s capacity to fund the 2018 budget
would therefore be constrained.
Policy Choice
On the choice of policy options, I believe that raising the CRR could suffocate
industries and the banking sector. Ordinarily, one would go for policy
tightening as available data and information showed that loosening can
worsen the inflationary pressure arising from liquidity surfeit (FAC, IGR, and
Borrowing). The possibility of destabilising the foreign exchange market which
had been stable for some time is also high. Since the beginning of 2018,
however, it is my opinion that the current tightening stance with the MPR at
14% and CRR at 22.5% are adequate. Again at this point in time, the fiscal
injection should provide the much needed liquidity in the economy. On the
basis of this I vote to hold which implies retaining:
i.
MPR at 14%;
ii.
CRR at 22.5%;
iii.
LR at 30%;
iv.
Asymmetric corridor +200 /- 500 basis point around the MPR.
6. NNANNA, OKWU JOSEPH
Enhanced external reserves and fiscal buffers, combined with rising crude oil
production and high oil prices will continue to fuel Nigeria’s economic
recovery over the coming quarters. Key PMI indicators point to improvement

in the economy. Specifically, manufacturing and non-manufacturing PMIs
stood at 56.9 and 57.5 index points in April 2018, indicating expansion for the
thirteenth and twelfth consecutive months, respectively. Nevertheless, the
fragile growth so far recorded is not inclusive as the rate of unemployment –
especially amongst the youth remains unacceptably high. Employment level
in the manufacturing and non-manufacturing sectors stood at 55 and 55.3
points, respectively, at end-April 2018. This indicated growth for the twelfth
consecutive month in both sectors.
Contractionary monetary policy is yielding the expected results. Inflationary
pressures have remained subdued owing to stable exchange rate and the
positive effect of development financing in the agricultural sector. Headline
inflation declined to 12.48 per cent in April 2018 from 13.34 and 17.24 per cent
recorded in the previous month and corresponding month of 2017,
respectively. Food inflation decreased, modestly to 14.80 per cent at end-April
2018, from 16.08 per cent in the preceding month. The month-on-month
headline and core inflation, however increased marginally in the month of
April, due, mainly, to increase in price of staple foods; and price of fuel and
lubricants, respectively
Growth in the monetary aggregates and the relative stability in the financial
system continue to produce positive sentiments and yield in the financial
markets. Broad money (M2) grew by 2.16%, at end-April 2018, compared with
the growth of 1.26%, and in contrast to a decline of 7.7% growth recorded at

end-March 2018 and corresponding year, respectively. Overall, M2 grew by
6.48% on annualized basis.
Commercial banks aversion to lending to the real sector continues as claims
on the core private sector declined by 1.9% at end-April 2018. Conversely, net
claims on the Federal Government grew by 46.1%, compared with 6.98% and
8.1% growth at end-March 2018, and corresponding year, respectively. Derisking lending to the growth promoting private sectors remains a viable option
towards encouraging banks intermediation.
The banking industry continues to grapple with low profitability and a high ratio
of non-performing loans (NPLs) weighing on any recovery in credit growth. The
industry is still reeling from the impact of the collapse in oil prices between 2014
and 2016. The oil sector which accounted for about 7.2% of Nigeria’s real GDP
in Q4 2017, and accounted for a major channels of credit demand and foreign
currency revenue is yet to fully recover. While the recovery in oil prices offers
hope to the banking industry, this may not likely impact on lending and asset
quality in the next few months. Consequently, the combination of rising oil
prices, settlement of federal government contractual obligations to the private
sector creditors including stronger economic growth may reduce NPLs,
improve asset quality and sustain financial stability.
Despite subdued positive sentiment due to improved macroeconomic
conditions and the optimism for improvement in the expected GDP numbers in
the first quarter of 2018, market correction which began in February 2018, has
continued in the review period. Aggregate volume and value of traded

securities in April 2018 were 8.5 billion shares and N106.1 billion, respectively, in
92,807 deals, compared with 10.2 billion shares and N136.2 billion in 103,258
deals in March 2018. However, as at May 14, 2018 aggregate volume and
value of traded securities were 2.7 billion shares and N44.1 billion, respectively,
in 39,220 deals. The NSE All-Share index was 40,677.61 as at May 14, 2018,
compared with 41,268.01 at end-April 2018. Aggregate market capitalisation
(bonds and equities) was N24.9 trillion, as at May 14, 2018, compared with
N25.1 trillion, at end-April 2018. Market capitalisation of listed equities was N14.7
trillion, as at May 14, 2018, compared with N14.9 trillion at end-April 2018 and
constituted 59.0 per cent of the aggregate market capitalisation, while listed
bonds and the ETF accounted for the balance.

The outlook for global growth in 2018 remains positive. While there are obvious
signs that growth in many advanced markets is gradually attaining its peak
levels suggesting a lull in expansion in economic activity, growth in the US,
Eurozone and Japan is on the uptick. Also, recovery in the emerging market is
gathering momentum. Although geopolitical tensions and financial market
disruptions represent downside risks to global growth - overall, global
economic expansion is expected to remain positive. The expected stronger
dollar, coupled with higher Treasury yields highlights the potential for capital
reversal. Geopolitical tensions and fear of protectionism remain the major
downside risks to global economic growth.

We envisage an expansionary fiscal policy in the domestic economy in the
near term following the increase in FY 2018 Budget by the National Assembly.
Together with the electioneering campaigns, the threat to macroeconomic
stability must be taken very seriously by the monetary authority. And the urge
to avoid the adoption of time inconsistent policy must be resisted. Overall, any
positive trickle-down effect of government spending can be undermined by
higher borrowing cost and unproductive public sector spending. The delayed
passage and implementation in the 2018 budget affirms substantial uptick in
spending in the latter months of 2018 and unbudgeted election spending is
likely to upset domestic price stability.
Given the flexible exchange rate regime which is in place, the balance of
payments will remain healthy. The current account surplus observed in recent
times will be sustained on account of recovery in oil prices, high export
revenues and import substitution. The average exchange rate at the I&E
window as at May 14, 2018 was ₦360.86/US$, representing a depreciation of
some 0.2 per cent from end-April 2018. As at May 14, 2018, the naira exchange
rate at the retail SMIS window and the BDC segment remained unchanged
respectively at ₦330.00/US$ and ₦362.00/US$ as at May 14, 2018 from endApril 2018.
In my opinion, the greatest threat to macroeconomic and price stability in the
near term is the apparent expansionary fiscal program with its attendant
election related spending.

Against this backdrop, I vote to raise the MPR by 50 basis points and to hold
the other policy metrics. This is to signal the need to anchor inflation
expectations and maintain positive interest rates to encourage inflow of
portfolio and direct foreign investments.


7. SANUSI, ALIYU RAFINDADI

Decision:
At toady’s meeting, I voted to keep the current monetary policy stance. This
decision was based on my interpretation of the available data as well as my
analysis of the implications of key anticipated domestic and global economic
developments on the evolution of domestic inflation and output. In the
medium term, domestic economic and political developments, such as
election spending and aggressive implementation of federal government
budget, are expected to significantly inject liquidity into the economy, which
boost output but may reverse gains made in the current disinflation process.

Global developments, such as the improving long term yield in the US and UK
as well as the expected domestic political activities also have potentially
important implications for exchange rate stability. Given the combination of
these domestic and global developments, monetary policy should continue
to be tight in order to sustain the current disinflation gains without hurting
output growth.

Background and Justification
2.1 Global Economic Development
The projected increase in asset prices and long-term yields in major financial
markets have implications for capital flows, exchange rate stability and,
therefore, domestic inflation. World output, which grew by 3.8 per cent in 2017,
is anticipated to raise by 3.9 per cent in 2018. This is hinged on expected
improvements in aggregate demand led by recovering commodity prices,
rising asset prices and long-term yield in major financial markets as well as
rebound in global investment, manufacturing output and trade. Although
global inflation remains subdued, pressures are rebuilding as a result of rising
energy prices and moderate currency depreciations in some emerging
economies. Global inflation is expected to rise to 3.2 per cent in 2018, further
justifying the continued monetary policy normalization in advanced markets.
A possible implication of these developments is reduction in capital flows into
emerging markets and developing economies, including Nigeria, as a sizeable
amount of capital is retained in the advanced economies.

2.2 Domestic Economic Development
Domestic economic outlook appears positive for output growth, but
threatening to the current disinflation process. Available data shows that
output grew by 1.95 per cent during the first quarter of 2018 compared to -0.93
percent in the first quarter of 2017. Output growth, which started since the third
quarter of 2017 was therefore sustained during the first quarter of 2018, and is
expected to further rise in 2018. Data on purchasing manager’s index (PMI)
suggests that domestic production activities have continued to rise in April,
2018. Forecasts by the IMF and World Bank suggest that output will grow by 2.1
per cent and 2.5 per cent, respectively, in 2018.

Headline inflation continued to moderate as it declined (year-on-year) from
14.33 per cent in February, 2018 to 12.48 per cent in April, 2018. This is
attributable to fall in food and non-alcoholic beverages as well as the relative
stability of the foreign exchange market. Available staff forecasts show that
inflation would return the single digit mark in October, 2018. Both core and food
inflation rates have also moderated. Core inflation has declined from 11.71 per
cent in February, 2018 to 10.92 per cent in April, 2018 mainly due to
improvements in the supply of petroleum products. It is forecasted to reach
single digit in June, 2018. Food inflation has also declined from 17.59 per cent
in February, 2018 to 14.8 per cent in March, 2018 due to decline in the prices
of processed food.

External sector developments are positive, with the exchange rates remaining
generally stable and external reserves rising from US$46.699 billion as at March
22, 2018 to US$47.5billion as at May 16, 2018. Although the net foreign
exchange flow through the economy has remained positive, there are still
some vulnerabilities.
Political developments are likely to shape domestic fiscal outlook for the rest of
the year. As the 2019 general elections approach, significant injection of
liquidity from the fiscal authorities is expected through aggressive
implementation of the unspent part of the 2017 appropriation, as well as
implementation of a significant portion of the 2018 proposed 9.12 trillion Naira.
In addition, the political activities that will start in the next few months would
also inject significant amount of liquidity into the system. While these injections
are expected to boost output, they could knock inflation out of its current
trajectory. In addition, these liquidity injections could have adverse effects on
foreign exchange stability as the excess liquidity seeps into the foreign
exchange market.

Basis for My Policy Choice
My interpretation of the key global developments, dominated by the possibility
of rising asset prices and long-term yields in major financial markets, raised my
concern for the possibility of reduced capital flows to emerging economies,
including Nigeria. These concerns are further raised by the prospects of

increased political risks associated with pre-election years. Capital flows have
significant implications on exchange rate stability and, consequently, inflation.
Optimal monetary policy choice should, therefore, not seek to further reduce
the domestic yields by loosening. Monetary policy should, hence, remain tight
to keep domestic yields attractive.
Domestic factors, especially the anticipated aggressive implementation of the
unspent part of the 2017 budget and a good chunk of the proposed 2018
budget, as well as the rise in spending by politicians, would significantly boost
aggregate demand in the short to medium term. In addition, some of the
injected liquidity will seep into the foreign exchange market to raise pressure
on the exchange rate. This suggests that loosening the monetary policy stance
now will not only be pro-cyclical, but will also be inconsistent with the overriding
objective of monetary policy.
On the one hand, although inflation has continued to moderate, it remains
above the single-digit target and is threatened by the anticipated global and
domestic developments identified above. On the other hand, although the
positive output growth remains fragile, the anticipated domestic liquidity
injections will boost aggregate demand and output in the medium term.
Consequently, I am of the view that the current policy stance is tight enough
to balance the objective of price stability, exchange rate stability and output
stabilization. I therefore vote to:
Retain the MPR at 14.0 per cent;
Retain the CRR at 22.5 per cent;

Retain the asymmetric corridor at +200/–500 basis points; and
Retain liquidity ratio at 30.0 per cent.


8. EMEFIELE, GODWIN GOVERNOR OF THE CENTRAL BANK OF NIGERIA AND
CHAIRMAN, MONETARY POLICY COMMITTEE
My considerations at today’s meeting were largely driven by the need to
ensure long-run price stability ––guided by short-term outlook and
expectations. Though realised inflation is declining, analysis suggests a
probable rise in inflation expectations due to potential future shocks to the
domestic economy. Over the next seven months, huge fiscal injections and
electioneering spending are projected to considerably impact on systemic
liquidity, aggregate demand, inflation and exchange rate in the domestic
economy. Besides, the recent tightening stance of the US Fed, if not sufficiently
mitigated, has significant implications for price and exchange rate stability in
Nigeria. My immediate predisposition is for further tightening of domestic
policy stance to rein in expected inflation and ensure FX market stability.
However, given the continued permeation of previous policy tightening and
the improvements in key macroeconomic variables, it is prudent at this time
to avoid policy impulses.

The recovery of the global macroeconomy continued to strengthen with
better-than-expected outcomes in 2017 and brightening short-term outlook.
Reflecting a broad-based upswing, the IMF’s global growth projection rose to
3.9 percent in 2018 from 3.8 percent in 2017 ––with advanced economies at
2.5 percent and emerging market and developing economies at 4.9 percent
from 2.3 and 4.8 percent, respectively. Growth in sub-Saharan Africa is also
projected to rise in 2018 by 0.6 percentage points to 3.4 percent. The global
growth impetus is largely attributable to supportive financial conditions and
rising aggregate demand.
Macroeconomic conditions in the domestic economy also continued to
improve, although potential downside risks threaten short-term prospects.
Real GDP growth rate stood at nearly 2.0 percent in 2018q1 from 2.1 percent
in 2017q4. A breakdown of this figure indicates that the oil sector contributed
1.4 percent to the 2018q1 outcome while the non-oil sector added the
balance of about 0.6 percent. Further decomposition shows that the
agriculture sector contributed 0.7 percent to overall growth, industries
accounted for 1.6 percent while the services sector supplied -0.3 percent.
With improving conditions in the international oil market and the expected
surge in fiscal cum elections related spending, short-term growth outlook
remains somewhat modest. Given that Nigeria’s GDP growth rate is typically
lowest in quarter one, there is prospect for better outcomes in the remaining
three quarters of 2018. To reinforce the cyclical rebound of the economy,
prudent and well-balanced macroeconomic policies are essential.

The pace of disinflation steadied as headline inflation fell further to 12.5
percent in April 2018 from 13.3 percent in March. Similar declines were
recorded for core and food inflation from 11.2 and 16.1 percent, respectively,
to 10.9 and 14.8 percent over the same period. While the trend of disinflation
is encouraging, I note that the level of inflation is still significantly outside the
Bank’s tolerance range. The observed moderation in inflationary pressure is,
however, threatened by waning base-effects and the liquidity injections
anticipated in the second-half of the year. It is therefore imperative to ensure
that the path of disinflation is not reversed.
Analysis of monetary developments indicates a 9.9 percent annualised
contraction of narrow money supply (M1) in April 2018 in contrast to the
targeted expansion of 8.0 percent. Broad money supply (M2), however, grew
at an annualised rate 6.5 percent vis-à-vis the 10.5 percent benchmark. The
expansion in M2 was fundamentally driven by the 138.4 percent annualised
growth of net claims on government, which outstripped the programmed
target of 54.9 percent for the year. I note with disappointment the continued
sombre outcome of private sector credit with an annualised contraction of
0.5 percent as against a programmed expansion of 5.6 percent. The lacklustre
growth of private sector credit reflects the risk aversion of banks especially
given the higher NPLs recorded during the last recession. I note that supply of
credit to the private sector is primarily determined by risk perception while
interest rates merely affect its demand. Hence, it is important to ensure that
private sector lending is sufficiently de-risked so as to accelerate economic

diversification and ensure inclusive growth. Thus, the CBN will continue to
develop initiatives to optimally channel vital credits to pivotal sectors of the
economy.
On the whole, I note the continuing improvement in macroeconomic
conditions. I also note the potential shocks that could undermine the nearterm prospects. Specifically, I note that (i) the cyclical recovery of real GDP is
still fragile, (ii) inflation is declining but it remains high and outside acceptable
band – with probable risk of upturn in the short-term, (iii) the relative stability in
the exchange rate and the external reserves accumulation are satisfactory.
However, the current budget outlay of over N9trillion which is expected to be
rapidly implemented in the last half of the year, the anticipated huge
elections spending, and the on-going interest rate hike by the US Fed threaten
the favourable macroeconomic in the short-term if these risks are not
adequately hedged.
While concurrence of exchange rate stability, low inflation and low interest is
desirable, it is not feasible at this time given the structural realities of our
economy. While I remain resolute on the imperatives of a stable equilibrium
hinged on price stability, I re-emphasise my certitude for cautious policy
decisions. For a few analysts, the observed moderation in inflation rate
provides justification for policy ease. However, the prevailing realities
especially the double-digit inflation and elevated short-term inflation
expectations do not support this. To maintain stability in the FX market and

curb inflation expectations, my original standpoint was for further tightening
of monetary conditions. However, this could inadvertently introduce impulsive
policy shocks. I am of the opinion that the prevailing level of real policy interest
rate is appropriate to balance the objectives of exchange rate stability, price
stability and output stabilisation. I also believe that the effect of past policies
changes is still permeating the system. Consequently, in order to mitigate
against potential near-term risks while avoiding disruptive policy shocks, I vote
to:
1. Retain the MPR at 14.0 percent;
2. Retain the CRR at 22.5 percent;
3. Retain the asymmetric corridor at +200/–500 basis points; and
4. Retain liquidity ratio at 30.0 percent

GODWIN I. EMEFIELE, CON
Governor

May 2018