Central Bank of Nigeria Communique No. 94 of the
Monetary Policy Committee Meeting, March 24-25, 2014
The Monetary Policy Committee (MPC) met on March 24
and 25, 2014 against the backdrop of challenging monetary
policy environment; particularly, in the emerging markets
and developing economies; coupled with the unfolding risks
to stability in the domestic economy. In attendance were 9
members. The Committee reviewed key developments in
both the global and domestic economies up to March
2014, and the outlook for the rest of the year.
International Economic Developments
The Committee noted that the recovery of the global
economy could accelerate further in 2014 relative to 2013
as a result of increased domestic demand in the advanced
economies and the rebound of exports in emerging

markets. The IMF has projected global growth to increase
from 3.0 per cent in 2013 to 3.7 per cent in 2014 and then to
3.9 per cent in 2015. In the US, growth is expected to be 2.8
per cent in 2014, compared with 1.9 per cent in 2013, driven
by increased domestic demand as well as reduction in the
fiscal drag due to the recent deal brokered on the Federal
Budget. Although, the euro area has continued to adjust to
a high level of indebtedness and financial fragmentation in
some countries, growth is expected to recover in the
coming years. Thus, growth is expected to rise from 0.4 per
cent in 2013 to 1.0 per cent in 2014. This is buoyed by easier
credit conditions, increased investor confidence, and
expansion in exports. Tight financial conditions since mid2013 as well as political uncertainty were a drag on growth
in most of
the
emerging
markets
and developing
economies. Notwithstanding, overall growth in this group of

countries is expected to increase from 4.7 per cent in 2013
to 5.1 per cent in 2014.
Reflecting the expansion in economic activities, an upward
pressure is expected in global price levels in 2014. Global
inflation is projected at 2.71 per cent in 2014, representing
an increase of about 40 basis points in relation to the
estimates for 2013. It is expected, however, that favorable
developments in the prices of food and fuel will help
contain the upward movement in the prices of major
commodities.
The Committee observed an emerging variance between
advanced
and
emerging
market
economies
(and
developing economies) in terms of monetary policy stance
since the beginning of 2014. While central banks in a
number of advanced economies maintained the cautious
posture adopted in 2013 and in Q1 of 2014, the emerging

economies and developing countries have apparently
switched to more aggressive monetary policy tightening to
support domestic currencies and retain foreign investments
by raising interest rates. South Africa, Ghana, Brazil and
Russia were among countries that tightened monetary
policy to address concerns over rising risks to inflation and
exchange rate stability.
Domestic Economic and Financial Developments
Output
Growth remains robust. The National Bureau of Statistics
(NBS) has estimated real Gross Domestic Product (GDP)
growth rate at 7.72 per cent for the fourth quarter of 2013,
which was higher than the 6.81 per cent, recorded in Q3,
2013 and 6.99 per cent in the corresponding period of 2012.
Thus, in 2013, GDP grew at an estimated 6.89 per cent, up
from 6.58 per cent in 2012. In line with recent trends, the

non-oil sector continued to be the main driver of growth in
Q4, 2013, recording 8.76 per cent. The growth drivers in the
non-oil sector in Q4, 2013 remained wholesale and retail
trade,
agriculture
and
telecommunications
which
contributed 2.57, 2.27 and 1.97 percentage points,
respectively.
Based on the 2013 favorable performance, output growth
has been projected at 7.7 per cent for fiscal 2014. The
Committee observed that the relatively robust growth
projections, despite the sluggish global recovery, reflected
the
continuing
favorable
conditions
for
increased
agricultural production, sustained outcome of the banking
sector reforms as well as the initiatives of the government to
stimulate the real economy. In particular, the Committee
noted with satisfaction the rise by about 10 per cent in the
national average electricity generation in Q4, 2013; a

development
which
provided
impetus
for
improved
economic activities during the period.
Prices
Inflation has remained in the target range. The downward
trend in inflation, which commenced in December 2012
continued up to February 2014. The year-on-year headline
inflation fell consistently from 9.5 per cent in February 2013 to
7.9 per cent in November 2013, but rose marginally to 8.0
per cent in December 2013 and January 2014. In February
2014, however, it moderated to 7.7 per cent. The
deceleration was largely due to the moderation in food
inflation, which moved from 9.3 per cent in January 2014 to
9.2 per cent in February 2014. Core inflation, on the other
hand, exhibited a fair degree of volatility during the period;
having declined up to the first half of 2013. It commenced
an upward trend in the latter half of the period but declined

to 6.6 per cent in January 2014, before inching up to 7.2 per
cent in February 2014.
Noting the continued commitment of price stability within
the CBN range, the Committee; emphasized the need to
maintain the current monetary policy stance. In all, the
Committee expressed satisfaction over the sustenance of
single digit of all measures of inflation. The Committee,
therefore, restated its commitment to sustaining the price
stability objective.

Monetary, Credit and Financial Markets’ Developments
Broad money supply (M2) contracted by 2.24 per cent in
February 2014 over the level recorded at end-December
2013,
which,
on
annualized
basis,
translated
to
a
contraction of 13.42 per cent as against a growth target of
15.52 per cent for fiscal 2014. Net domestic credit grew
marginally by 0.86 per cent in February 2014, translating to
an annualized growth rate of 5.15 per cent. The annualized
growth in net domestic credit is significantly lower than the
provisional benchmark of 28.5 per cent for fiscal 2014. The
sluggish growth in aggregate credit was traced mainly to
the decline in Federal Government, borrowing which
contracted by 2.02 per cent in February 2014 or 12.14 per
cent on an annualized basis.
During the review period, money market interest rates
remained within the MPR corridor, oscillating in tandem with

the level of liquidity in the banking system. The average
interbank call rate for the period was 10.17 per cent while
the OBB rate was 11.01 per cent. The weighted average
inter-bank call and OBB rates which closed at 10.86
and10.46 per cent in December 2013, respectively, rose to
11.27 and 10.5 per cent in February 2014. Activities in the
capital market, however, were bearish as the All-Share
Index (ASI) moderated from 41, 329.19 at end-December

to
39,269.4
on
March
11,

with
market
capitalization exhibiting similar trends.

External Sector Developments
The end-period exchange rate remained stable at the rDAS
window but depreciated at the interbank appreciated at
the BDC segment of the market. The exchange rate at the
rDAS-SPT during the review period opened at N157.61/US$

(including 1% commission) and closed at N157.26/US$,
representing an appreciation of N0.35k or 0.22 per cent. At
the Interbank foreign exchange market, the rate opened at
N158.83/US$
and
closed
at
N164.90/US$,
averaging
N161.89/US$, representing a depreciation of 3.68 per cent or
N6 for the period. At the BDC segment of the foreign
exchange market, the selling rate opened at N173.00/US$
and closed at N172.00/US$, representing an appreciation of
0.58 per cent or N1.00k. The BDC segment averaged
N170.44/US$, representing an appreciation of 0.06 per cent.

Gross official reserves as at March 2014 stood at US$37.83
billion compared with US$42.85 billion at end-December
2013. The decrease in the reserves level was driven largely
by the increased funding of the foreign exchange market in

the face of intense pressure on the Naira and the need to
maintain stability.

The Committee’s Considerations
The Committee unanimously agreed that a continuation of
a tight monetary policy was needed to consolidate recent
gains. Recent resurgence of core inflation in spite of the
downward trend in headline inflation reinforces this position.
Thus, prudent monetary stance would also facilitate better
reserve
and
exchange
rate
management
in
an
environment where Fed tapering increases pressure on
emerging economies financial markets.

The MPC welcomed the growth expectations but expressed
concern that the industrial sector has continued to lag
behind. The Committee noted that growth remained

consistently in favour of the agricultural sector, noting that
the continued achievement of relative exchange rate
stability and single digit inflation in 2014 given the risks in the
horizon will require extra-ordinary measures. The Committee
viewed some of the developments as positive optimism by
the market relative to other emerging market economies.
While tension in Ukraine over Russia’s claims to Crimea
remained serious, direct trade and financial links between
Nigeria and the duo remained largely limited. Thus, the risk
premia could come from rising oil and gas prices which
were deemed positive shocks.

On the other hand, the Committee noted that the recent
pressure in the foreign exchange market was in response to
key developments in the US over the Fed’s unwinding of its
assets purchase programme. In addition, the pressure on

external reserves was deemed to be consistent with the
seasonal annual payment of dividends to foreign investors.
On a positive note, inflation forecasts indicate that food
inflation may not grow beyond current levels, especially
with bumper harvests expected in 2014. However, core
inflation could rise. The Committee noted that frontier
markets were positioning themselves to attract higher
capital inflows by raising their policy rates to contain
inflation and also remain competitive. Oil prices remained
relatively high while production was improving, and there
were signs of accretion to external reserves. The Committee
also expressed concern over the sudden surge in domiciliary
account balances which may offset the gains from
imposing 75 per cent CRR on public sector funds.

The Committee commended the Bank for its continued
commitment to exchange rate stability in the face of undue
pressure on the Naira. It noted with satisfaction the calm in
the foreign exchange market and the relative stability in the
interbank exchange rate after the initial turbulence. The
Committee acknowledged that while this stability was at a
high cost, safeguarding short run macroeconomic stability
under the circumstance required firm and bold measures.

In the light of the foregoing, the MPC considered the
success of Monetary Policy in attaining price and exchange
rate stability; the potential headwinds in 2014; the ultimate
goal of transiting to a truly low – inflation environment; and
the need to retain portfolio flows. The Committee
unanimously voted for further tightening of monetary policy
but were divided on the instruments.. While some voted for

an increase in the MPR to retain and attract more inflows,
other members felt that such increase could impact access
to credit and domestic growth negatively. Consequently,
the Committee voted as follows:

(1)
Five (5) members voted to keep MPR at 12%, while
four (4) members voted for an increase in MPR.
(2)
Seven (7) members voted to retain the MPR
corridor at +/-2%, while two (2) members voted for an
asymmetric corridor.
(3)
Seven (7) members voted to increase CRR on
private sector deposits by 300 basis points to 15%, while
two (2) members voted to retain the CRR on private
sector deposits at 12%.
The Committee, therefore, decided by a majority vote of 5
to 4 to hold the MPR and its corridor at current levels but

raised the CRR on private sector deposits by 300 basis points
to 15 per cent.

Thank you for listening

Sarah O. Alade
Acting Governor
Central Bank of Nigeria
25th March, 2014