CENTRAL BANK OF NIGERIA
MONETARY
MONETARY
POLICY REVIEW
POLICY REVIEW
MONETARY
POLICY REVIEW
FEBRUARY 2018
FEBRUARY 2018
FEBRUARY 2018
Central Bank of Nigeria
33 Tafawa Balewa Way
Central Business District
P.M.B. 0187, Garki,
Abuja
Phone: +234 (0)9 462 36011
Website: www.cbn.gov.ng
E-mail:
ISSN: 2141-6281
©2017 Central Bank of Nigeria
Mandate
§Ensure monetary and price stability
§Issue legal tender currency in Nigeria
§Maintain external reserves to safeguard the international
value of the legal tender currency
§Promote a sound financial system in Nigeria
§Act as banker and provide economic and financial
advice to the Federal Government
Vision
“Be the model Central Bank delivering Price and
Financial System Stability and promoting
Sustainable Economic Development"
Mission Statement
“To be proactive in providing a stable framework for the economic
development of Nigeria through effective, efficient and
transparent implementation of monetary and exchange
rate policy and management of the financial sector"
Core Values

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

vii
Chapter 1
Overview..


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

Chapter 3
Price Developments ..


Chapter 4
Monetary Policy and Liquidity Management..
..

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

Chapter 6
Economic Outlook..


Appendices


List of Tables
Table 3.1:
Inflation Rates, July – December 2017
..
..

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


July-December 2017..


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


July-December 2017 ..


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


July- Dec 2017..


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


July-December 2017..


Table 3.6:
Major Components of Core Inflation


(Y-on-Y) July – Dec. 2017


Table 3.7:
Major Components of Core Inflation


(M-on-M) July – Dec. 2017


Table 3.8:
Actual and Seasonally Adjusted Headline Inflation


July -December 2017 ..


Table 4.1:
OMO Bills Auction (January 2016 – December 2017)
(N'million)..


Table 4.2:
CBN Standing Lending Facility (January 2016 –


December 2017) (N'billion)


Table 4.3:
CBN Standing Deposit Facility (January 2016 –


December 2017) (N'billion)


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

Table 4.5:
Monetary Aggregates Outcomes (Growth in % except


otherwise stated)


Table 5.1:
Weighted Average Monthly Money Market Interest Rates


(July –Dec 2017)..


Table 5.2:
Average Monthly Spot Exchange Rates (January 2017 –


December 2017) (N/US$)


Table 5.3:
End-Month Exchange Rates (January 2017 –


December 2017) (N/US$)


Table 5.4:
Nominal and Real Effective Exchange Rates Indices


(2016H2-2017H2)


Table 5.5:
Monthly Foreign Exchange Flows through the CBN
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(January 2016 – Dec 2017)


Table 5.6:
Monthly Foreign Exchange Flows through the Economy


(Jan 2016 – Dec 2017) (US$ Million)
..
..
..

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


(December 2016 – December 2017) ..
..
..

Table 5.8:
Policy Rates of Selected Countries June – December 2017 63
Table 5.9:
Selected International Stock Market Indices as at


December 29, 2017


Table 5.10:
Exchange Rates of Selected Countries (value in currency


units to US$)


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

List of Figures
Figure 2.1:
Real GDP Growth (%) 2016 Q1 – 2017 Q4..

..

Figure 2.2:
Non-oil Sector Performance 2016Q1-2017Q4 ..
..

Figure 2.3:
Performance of the Oil Sector 2016Q1-2017Q4
..

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


2017Q4..


Figure 2.5:
Industrial Sector's Contribution by Activity, 2016Q1-2017Q4 12
Figure 2.6:
Services Sub-Sector Contribution, 2016Q1-2017Q4... ..

Figure 2.7:
Quarter Oil Production (2016Q1-2017Q4)..
..
..

Figure 2.8:
Monthly Bonny Light Price, July – December 2017
..

Figure 3.1:
Headline, Core and Food Inflation Rates


(July – December 2017)..

..
..
..

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


July-December 2017 ..


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


July-December 2017 ..


Figure 3.4:
Major Components of Food Inflation


(Y-on-Y), Jul - Dec 2017..

..
..
..

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


July - Dec 2017


Figure 3.6:
Major Components of Core Inflation


(Y-on-Y) July – Dec. 2017


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


July – Dec. 2017


Figure 3.8:
Actual and Seasonally Adjusted Headline Inflation


July - December 2017..


Figure 4.1:
OMO bills Auction (January 2016 – December 2017) ..

Figure 4.2:
CBN Standing Lending Facility (January 2016 –


December 2017) (N'billion)


Figure 4.3:
CBN Standing Deposit Facility (January 2016 –


December 2017) (N'billion)


Figure 4.4:
Total FX Supply (Including NAFEX and Forward Sales


($'Million)..


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Figure 4.5:
Money Supply (M1) and (M2) (July – December, 2017)

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


(June - December, 2017)


Figure 4.7:
Net Domestic Asset (NDA) (July - December 2017)
..

Figure 4.8:
NDA, NDC and Other Assets (Net) (July – December, 2017) 44
Figure 4.9:
Domestic Credit to Private Sector (July – December, 2017) 45
Figure 5.1:
Weighted Average Monthly Money Market Interest Rates


(July –December 2017)


Figure 5.2:
Daily Interbank Call Rate (Jul – Dec 2017)
..
..

Figure 5.3:
Daily Open Buy Back Rate (July-December 2017)
..

Figure 5.4:
Daily Naira/US Dollar Exchange Rate (January -


December 2017) )


Figure 5.5:
Nominal and Real Effective Exchange Rates Indices


(July 2016 – December 2017)) ..
..
..
..

Figure 5.6:
Monthly Foreign Exchange Flows through the CBN


(Jul 2017 – Dec 2017)) ..


Figure 5.7
Monthly Foreign Exchange Flows through the Economy


(Jul 2017 – Dec 2017) (US$ Million)
..
..
..

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

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

Figure 5.10:
NSE Market Capitalisation by Sector as at End-June 2017

Figure 5.11:
NSE Market Capitalisation by Sector as at End-December 59
Figure 5.12:
Warren Buffett Valuation of Nigerian Equities Market

Figure 5.13:
10-Year U.S. Dollar-denominated Bond Yield for Nigeria


(Dec 31, 2016 – Dec 29, 2017) ..
..
..
..

Figure 5.14:
FGN Bonds Yield Curves: end-Dec. 2016 vs. end-Jun. 2017


vs. end-Dec. 2017


Figure 5.15:
Structure of the Nigerian Capital Market (December, 2017) 61
List of Boxes
Box 2.1
Nigeria Bulk Electricity Trading – Payment Assurance Facility


(NBET-PAF)


Box 2.2
Natural Resources Scarcity and Conflicts in Nigeria ..

Box 5.1
Green Bond and Infrastructural Development in Nigeria

Box 5.2
The FGN Sovereign Sukuk: Implication for Monetary Policy

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STATEMENT BY THE GOVERNOR
T
he monetary environment in the second half of 2017 was characterized by
several challenges on both the global and domestic fronts. Although the global
economy continued on its recovery path, the continued slow pace of recovery
in crude oil and other commodity prices, reduction in China's uptake of global
commodities and financial market uncertainties due to reduced pace monetary
policy normalization in the US, the BREXIT negotiations, as well as trade protectionism
and immigration challenges, were key risks to the recovery efforts. Notwithstanding
these threats from the external sector, the domestic economic environment
witnessed further improvement reflected by stability in the foreign exchange
market, buoyed by rising oil receipts and growing external reserves as well as the
implementation of the Economic Recovery and Growth Plan (ERGP). Consequently,
the economy grew by 1.40 per cent in the third quarter and further by 1.92 per cent
in the fourth quarter of 2017. These were significant expansions in contrast to the
contractions of 2.34 and 1.73 per cent in the respective quarters 2016. The improved
performance in the review period was attributed to the growth of both the oil and
non-oil sectors. Overall, the economy grew by 0.83 per cent in 2017, reversing the
contraction of 1.58 per cent in 2016. The development was attributed to several
factors, including the moderate rise in crude oil prices and improvement in oil
production following the relative peace in the Niger Delta region.
On the general price level, the sustained the implementation of existing measures
on foreign exchange management including the newly introduced Investors' and
Exporters' (I&E) window, special foreign exchange auction to targeted sectors, as
well as foreign exchange sales for small scale importation, led to stability in the
foreign exchange and with lower pass-through from import prices to inflation. In
addition, the sustained non-accommodative monetary policy stance helped to
rein-in inflationary pressure in the review period. As a result headline inflation
continued to moderate from 16.05 per cent in July to 15.37 per cent in December
2017.
The Bank sustained its tight monetary policy stance and continued to employ
various policy instruments in its tool kit in the review period in order to achieve the
objective of price and macroeconomic stability. The MPR was maintained at 14.0
per cent throughout the period along with the asymmetric corridor of +200 and -500
basis points around the MPR. The Bank also increased its reliance on Open Market
Operations (OMO) as the main tool for managing banking system liquidity in the
second half of 2017. This was complemented by foreign exchange interventions, as
necessary. The Nigerian capital market remained largely bullish in the review period,
vii
reflecting investor positive sentiments as macroeconomic conditions improved. The
sustained tight monetary policy stance of the Bank improved returns on domestic
assets and attracted foreign inflows into the capital market. Consequently, the AllShare Index (ASI) increased by 15.48 percent to 38,243.19 at end-December 2017
from 33,117.48 at end- June 2017, and by 42.30 per cent year-on-year.
The outlook is that the economy is projected to remain on a growth path into the first
half of 2018, supported by positive developments in the oil sector and other
government initiatives. The near term risks to this outlook, however, remain the delay
in the passage and implementation of the FGN 2018 budget, slow credit growth and
poor transmission of monetary policy impulses to the real economy, which could
undermine output in addition to the perennial challenge of infrastructure deficit.
Also, the short to medium-term outlook for price development indicate that inflation
would continue to moderate. The key risks to inflation, however, would include: the
implementation of the proposed expansionary 2018 Federal Government budget
and election-related spending in preparation of the 2019 general elections in the
country, high energy costs and continued poor power supply, increased cost of
transportation and the disruptive effects of the clashes between farmers and
herdsmen, which are likely to feed into higher domestic prices. Nevertheless,
monetary policy would remain proactive to minimize the threats to the
achievement of the objective of price stability conducive to sustainable economic
growth.
GODWIN I. EMEFIELE
Governor, Central Bank of Nigeria
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CHAPTER ONE

1.0
OVERVIEW
onetary policy in the second
half of 2017 was shaped by a
number of developments in
the global and domestic economic
and financial environments. On the
global front, the key issues were: the
continued slow pace of recovery in
global oil and other commodity prices,
the damage to infrastructure caused
by hurricanes - Harvey, Irma and Maria,
the reduction in China’s uptake of
global
commodities
and
financial
market uncertainties due to monetary
policy normalization in the US. Others
included:
trade
protectionism
and
immigration challenges, complexities
arising from the BREXIT negotiations,
continued tensions on the Korean
Peninsula as well as geo-political risks
associated with the growing right-wing
political movements in Europe.

On the domestic front, the stability in
the foreign exchange market, arising
from
measures
to
manage
the
demand
pressure
including
the
introduction
of
the
Investors’
and
Exporters’ window, and the sustained
tight monetary policy stance of the
Bank, further contributed to the decline
in inflation witnessed during the period.
As a result, headline inflation declined
progressively from 16.05 per cent in July
to 15.37 per cent in December 2017.
The food component remained the key
driver of headline inflation in terms of its
weight in the consumer basket.

The domestic economic environment
further improved due largely to rising
public and private consumption as a
result of higher oil receipts, fiscal
stability arising from the implementation
of the Economic Recovery and Growth
Plan
(ERGP),
and
stability
of
the
exchange rate as well as increased
tempo of activities in the key sectors of
the economy. These developments
along with increased oil production
following stability in the Niger Delta
region, resulted in domestic output
recovery. Accordingly, data from the
National Bureau of Statistics (NBS)
showed that real GDP in the fourth
quarter of 2017 strengthened further by
1.92 per cent from the growth of 1.40
per cent in the preceding quarter of
2017, in contrast to the contraction of
1.73 per cent in the corresponding
quarter
of
2016.
The
improved
performance was attributed to the
growth of both the oil and non-oil
sectors. The oil sector grew by 8.38 per
cent in the fourth quarter, representing
a 26.08 percentage points increase
over the contraction of 17.70 per cent
in the corresponding quarter of 2016.
The non-oil sector also grew remarkably
by 1.45 per cent in the fourth quarter in
M
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contrast to the contractions of 0.76 and
0.33 per cent in the preceding quarter
and the corresponding period of 2016,
respectively. The fourth quarter non-oil
GDP growth was largely driven by
Agriculture
(4.23%),
Construction
(4.14%) and Trade (2.07%). The Services
and
Industry
sectors,
however,
contracted by 0.55 and 0.03 per cent,
respectively. Thus, the growth of the oil
sector seems to be spilling over to
recoveries in some non-oil activities.
Overall, the economy grew by 0.83 per
cent in 2017 reversing the contraction
of 1.58 per cent in 2016.

Activities in Nigeria’s financial markets
were influenced by a number of
developments in the global economic
environment. On the global scene,
although
the
financial
markets
remained moderately calm, it was
under threat from uncertainties around
NAFTA
renegotiations,
BREXIT
discussions, and the growing share of
companies with low investment grade
ratings in the advanced economy
bond
markets.
Other
challenges
included rising asset valuations and
higher leverage arising from continued
monetary accommodation, spill-over
of financial stability risks to the nonbank and market sectors as well as
geo-political tensions on the Korean
peninsula
and
the
Middle
East.
Nevertheless,
most
currencies
appreciated against the US dollar, as
oil
and
other
commodity
prices
continued to improve and earlier
expectations of an expansionary US
fiscal policy diminished.

The Bank continued to intervene in the
foreign exchange market in order to
sustain the stability so far achieved and
strengthen the gains recorded in the
Investors’
and
Exporters’
foreign
exchange window. Additional reforms
and interventions during the period
were aimed at encouraging capital
inflows to improve liquidity in the
market. These measures were the
intensification
of
the
policy
on
repatriation of export proceeds as well
as return of unutilized foreign exchange
sourced from CBN auctions. The Bank
also sustained the implementation of
existing
measures
including
the
restriction
of
access
to
foreign
exchange for 41 items, the use of Bank
Verification Number (BVN) in BDC
transactions, resumption of sale of
foreign exchange by the Bank and
International Money Transfer Operators
(IMTOs) to BDCs, as well as special
foreign exchange auction to targeted
sectors and foreign exchange sales for
small
scale
importation.
As
a
consequence, the rates at the bureaude-change
(BDC)
and
Nigeria
Autonomous
Foreign
Exchange
(NAFEX)
segments
moved
towards
convergence as demand pressure in
the market moderated. In addition, the
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average naira exchange rate at the
inter-bank segment of the foreign
exchange market remained stable in
the second half of 2017.

The Bank continued to employ various
policy instruments in its tool kit in the
review period in order to achieve the
objective
of
price
and
macroeconomic
stability.
The
instruments
deployed
were:
the
Monetary Policy Rate (MPR), Cash
Reserve Ratio (CRR), Liquidity Ratio (LR),
Open Market Operations (OMO), and
Discount
Window
Operations,
complemented by interventions in the
foreign exchange market. The MPR was
maintained at 14.0 per cent throughout
the period along with the asymmetric
corridor of +200 and -500 basis points
around the MPR. The Bank increased its
reliance on Open Market Operations
(OMO) as the main tool for managing
banking system liquidity in the second
half of 2017. As a result, total OMO sales
rose significantly by 92.87 per cent to
N7,472.21 billion in the second half from
N3,874.27 billion in the first half of 2017.
The increase in OMO sales in the
second half of 2017 was to reduce the
level of liquidity in the banking system in
order to moderate inflationary pressure,
in
line
with
the
prevailing
nonaccommodative
monetary
policy
stance of the Bank. The monetary
aggregates performed better than in
the first half even though most of the
aggregates did not meet their targets
for
end-December
2017.
The
development
was
due
to
the
significant decline in net domestic
assets (NDA), following the contraction
in credit to government which was,
however, moderated by the increase in
net foreign assets (NFA) during the
review period.

Liquidity conditions in the banking
system continued to influence activities
in the money market. Money market
rates fluctuated upwards in response to
the Bank’s interventions in the foreign
exchange
market
to
stabilize
the
exchange
rate,
coupled
with
increased OMO auctions. These were,
however, moderated by the liquidity
impact
of
Federation
Account
Allocation
Committee
(FAAC)
disbursements, release of balance of
Paris Club debt refunds, FGN capital
releases, Joint Venture Cash (JVC) call
payments and maturing CBN bills and
government securities. As a result, the
Interbank and OBB rates remained
largely above the upper band of the
standing facilities corridor. The Nigerian
money market reference rate, the
NIBOR,
recorded
mild
fluctuations
across all tenors in response to the
liquidity
condition
in
the
banking
system.

Activities in the Nigerian capital market
in the second half of 2017 were mainly
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bullish,
reflecting
investor
positive
sentiments attributable to generally
improving macroeconomic conditions.
The All-Share Index (ASI) increased by
15.48 percent to 38,243.19 at endDecember 2017 from 33,117.48 at end-
June 2017. It also increased by 42.30
per cent compared with 26,874.62 at
end-December 2016. The development
was traceable to a number of factors
including the growing external reserves,
stable exchange rate and moderating
inflation, on the back of rising crude oil
prices, which helped to boost investor
confidence in the economy. Also, the
sustained tight monetary policy stance
of the Bank improved returns on
domestic assets and attracted foreign
inflows into the capital market. The
continued BREXIT uncertainty and the
generally accommodative monetary
policy
stance
in
the
advanced
economies helped to support the flow
of foreign capital in search of yields in
the
emerging
markets,
including
Nigeria.

The
bond
market
segment
was
dominated by Federal Government of
Nigeria (FGN) securities in the second
half of 2017. There was also some
activity in the Sub-national government
and corporate bonds segments, with
the latter recording the least share by
market volume. The 10-year dollardenominated bond yields for Nigeria
decreased by 33 basis points to 4.47
per cent at end-December 2017, from
4.80 per cent at end-June 2017. When
compared with 6.35 per cent at endDecember 2016, it decreased by 188
basis
points,
reflecting
improved
perception by investors of the country’s
sovereign risk.

Headline
inflation
(year-on-year)
moderated during the second half of
2017, although still substantially above
the Bank’s benchmark of 6-9 per cent.
The
price
development,
however,
remained within the lower double-digit
range and is unlikely to harm growth,
based on available inflation threshold
studies for the economy. Staff estimates
indicate that year-on-year headline
inflation
is
expected
to
continue
decelerating to 15.35, 14.45 and 13.25
per cent in January, March and June
2018, respectively, driven by prospects
of sustained stability in the foreign
exchange market, lower food prices
and the sustained tight monetary
policy stance of the Bank.

Output growth in the second half of

was
positive,
following
the
economy’s exit from recession in the
second quarter of 2017. According to
NBS, real GDP in the fourth quarter of
2017 strengthened further by 1.92 per
cent from the growth of 1.40 per cent
in the preceding quarter of 2017, in
contrast to the contraction of 1.73 per
CBN Monetary Policy Review

cent in the corresponding quarter of
2016.
The economy is projected to remain on
a growth path into the first half of 2018,
supported by positive development
prospects in the oil sector and other
government initiatives conducive to
growth. Accordingly, the International
Monetary Fund (IMF) forecasts Nigeria’s
output growth in 2018 at 2.1 per cent
up from 0.8 per cent in 2017 (IMF, WEO,
January 2018), premised on expected
stronger activity and the positive effect
of restriction on OPEC oil production.
Similarly, the World Bank forecasts
Nigeria’s growth at 2.5 per cent in 2018
up from 1.0 per cent in 2017, premised
on
the
sustenance
of
rising
oil
production and continuing reforms in
the foreign exchange market, coupled
with
improved
electricity
supply.
Furthermore, the Federal Government
of Nigeria’s 2018 appropriation bill is
based on the growth projection of 3.5
per cent. The key risks to the promising
outlook, however, remain the delay in
the passage and implementation of
the FGN 2018 budget, thereby denying
the economy needed fiscal stimulus;
slow
credit
growth
and
poor
transmission
of
monetary
policy
impulses to the real economy, which
could undermine output; and perennial
challenge
of
infrastructural
deficit,
amongst others. In this regard, the
policy challenge facing the economy is
sustaining the fragile growth in the face
of
still
high,
although
moderating
inflationary pressure. The Bank would
continue to design, implement and
monitor appropriate monetary policy
to ensure that the downside risks
stemming from inflation to growth are
reined-in in the near to medium term.


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CHAPTER TWO

2.0
OUTPUT
IN
THE
DOMESTIC
ECONOMY
n the second half of 2017, the
Nigerian
economy
sustained
its
recovery, which was however, still
fragile. The improvement was largely
due to the firming up of crude oil and
other
commodity
prices
in
the
international market and increased oil
production owing to sustained peace
in the Niger Delta region. Other factors
were: the return of policy stability as
reflected in the implementation of the
Federal
Government’s
Economic
Recovery and Growth Plan (ERGP) as
well as reforms in the foreign exchange
market leading to improved investor
confidence in the economy. The risks to
this
modest
recovery,
however,
remained the emerging problem of
delays
in
budget
passage
and
implementation,
weak
aggregate
demand from the buildup of salary
arrears
and
contractors’
debt
by
government,
and
disruption
of
agricultural activities due to farmerherdsmen conflict as well as energy
supply challenges. Policy is expected
to focus on these challenges in order to
sustain the recovery.

As a result of these developments, real
GDP in the third quarter of 2017 grew
by 1.40 per cent (year-on-year) up from
0.72 per cent in the preceding quarter
in contrast to the contraction of 2.34
per cent in the corresponding period of
2016. The growth was largely attributed
to the performance of the oil sector
which grew substantially by 25.89 per
cent in the third quarter of 2017,
representing an increase of 47.90
percentage points compared with the
contraction of 22.01 per cent in the
corresponding quarter of 2016. The
recovery of the oil sector, if sustained,
signposts the return of the economy to
its growth trajectory. In contrast, non-oil
real GDP shrank by 0.76 per cent in the
third quarter of 2017, compared with
the growth of 0.03 per cent in the
corresponding quarter of 2016 and 0.45
per cent in the preceding quarter.

Figure 2.1
Real GDP Growth (%) 2016 Q1 – 2017 Q4

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

Per cent

Source: NBS
I
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In the fourth quarter, output growth
strengthened further by 1.92 per cent
from the growth of 1.40 per cent in the
preceding quarter of 2017, in contrast
to the contraction of 1.73 per cent in
the corresponding quarter of 2016. The
improved performance was attributed
to the growth of both the oil and nonoil sectors. The oil sector grew by 8.38
per
cent
in
the
fourth
quarter,
representing a 20.76 percentage points
increase over the contraction of 12.38
per cent in the corresponding quarter
of 2016. The non-oil sector also grew,
remarkably, by 1.45 per cent in the
fourth
quarter
in
contrast
to
the
contractions of 0.76 and 0.33 per cent
in the preceding quarter and the
corresponding
period
of
2016,
respectively. The fourth quarter non-oil
GDP growth was largely driven by
Agriculture
(4.23%),
Construction
(4.14%) and Trade (2.07%). However,
Services
and
Industry
sectors
contracted by 0.55 and 0.03 per cent,
respectively. The growth in the oil
sector seems to be spilling over to
recoveries in some non-oil activities.
Overall, the economy grew by 0.83 per
cent in 2017 from a contraction of 1.58
per cent in 2016.

2.1 DOMESTIC ECONOMIC ACTIVITIES
Activities
in
the
oil
sector
complemented
by
non-oil
sector
performance
drove
the
fragile
recovery witnessed in the second half
of 2017. During the third quarter, the oil
sector
grew
by
25.89
per
cent,
representing an increase of 47.90
percentage points compared with the
contraction of 22.01 per cent in the
corresponding quarter of 2016. Oil
production in the third quarter was
estimated at an average of 2.03 million
barrels per day (mbpd), which was 0.15
mbpd higher than the daily average
production of 1.87 mbpd recorded in
the second quarter of 2017.

The
non-oil
sector,
however,
contracted by 0.76 per cent in the third
quarter of 2017, reversing the growth of
0.45 and 0.03 per cent recorded in the
preceding
quarter
and
the
corresponding
period
of
2016,
respectively. The contraction of non-oil
sector was due mainly to shrinkage in
the Services (2.95%), Industry (2.79%),
Trade (1.74%) and Construction (0.46%)
sectors,
compared
with
their
corresponding growth rates of -1.08, -
4.22,
-1.38
and
-6.13
per
cent,
respectively.
Although
the
non-oil
sector contracted, the agricultural subsector grew by 3.06 per cent to support
the output recovery.

In the fourth quarter of 2017, both the
oil and non-oil sectors contributed to
output recovery. The oil sector grew by
8.38 per cent, from a contraction of
17.70 per cent in the corresponding
CBN Monetary Policy Review

period of 2016. This was, however, a
moderation when compared with the
growth of 25.89 per cent in the
preceding
quarter.
Accordingly,
average daily crude oil production in
the fourth quarter fell to 1.91 mbpd
from 2.03 mbpd in the preceding
quarter. This was, however, higher by
0.15 mbpd compared with 1.76 mbpd
in the corresponding period of 2016.
The non-oil sector also grew by 1.45 per
cent from the contractions of 0.76 and
0.33 per cent in the preceding quarter
and the corresponding period of 2016,
respectively. The growth in the non-oil
sector was mainly due to activities in
Transport (16.57%), Utilities (12.99%),
Crop
Production
(4.58%),
Fishing
(4.05%),
Arts,
Entertainment
&
Recreation
(3.54%)
and
Forestry
(2.83%).
This
compares
with
their
respective growth rates of -5.32, -2.27,
4.36, 0.76, 2.04 and 2.22 per cent, in the
corresponding period of 2016. The
improvement in non-oil sector in the
fourth quarter reflected the positive
spillover effects and fiscal releases
associated with expansion in the oil
sector.


Figure 2.2
Non-oil Sector Performance 2016Q1-2017Q4

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


Figure 2.3
Performance of the Oil Sector 2016Q1-2017Q4

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

Per cent
Source: NBS

2.2
Sectoral Analysis
This section highlights the sectoral
performance of the economy and the
key institutional factors that contributed
CBN Monetary Policy Review

to domestic output in the review
period.

2.2.1 Agriculture

Real agricultural GDP grew by 3.06
per cent in the third quarter of 2017, up
from 3.01 per cent in the preceding
quarter but lower than 4.54 per cent in
the corresponding period of 2016.
Activities in the agricultural sector were
mainly driven by the performance of
Forestry
(3.95%),
crop
production
(3.19%) and livestock (2.52%), which
compares with their respective growth
rates of 2.08, 4.88 and 0.76 per cent, in
the corresponding quarter of 2016.
Fishing, however, contracted by 2.84
per cent, below the contraction 0.34
per cent in the corresponding period of
2016.

During
the
third
quarter,
the
contribution of the sector to real GDP
stood at 29.15 per cent, representing a
decline of 2.06 percentage points
compared with 31.21 per cent in the
corresponding period of 2016.

In the fourth quarter of 2017, output of
the agricultural sector grew by 4.23 per
cent, up from 3.06 per cent in the
preceding quarter. This represented a
0.20 percentage point increase over
the growth of 4.03 per cent in the
corresponding quarter of 2016. At 4.58
per cent, Crop Production was the
main
driver
of
agricultural
output
growth in the quarter, followed by
Fishing (4.05%), Forestry (2.83%) and
Livestock (0.19%). This compares with
their respective growth rates of 4.36,
0.76, 2.22 and 1.23 per cent in the
corresponding quarter of 2016. The
share of agriculture in total output at
26.18 per cent in the fourth quarter of
2017 was below the 27.45 per cent
recorded in the corresponding period
of 2016.

Figure 2.4
Agricultural Sector Contribution by Activity,
2016Q1-2017Q4

Q1-2016
Q2-2016
Q3-2016
Q4-2016
Q1-2017
Q2-2017
Q3-2017
Q4-2017
Crop Production
Livestock
Forestry
Fishing

Source: NBS

2.2.1.2 Agricultural
Policies
and
Institutional Support
During the second half of 2017, the
performance
of
agricultural
sector
benefited from a number of policies,
CBN Monetary Policy Review

reforms and institutional support, which
included:

The
Agricultural
Credit
Guarantee
Scheme (ACGS)
In the second half of 2017, the scheme
guaranteed a total of 20,268 loans
valued at N2.822 billion for three
commercial
banks
and
some
microfinance banks, compared with
21,073 loans valued at N3.03 billion for
two commercial and 36 microfinance
banks in the first half of 2017. This
represented a decrease of 3.82 per
cent and 6.86 per cent in the number
and
value
of
loans
guaranteed,
respectively. During the same period,
N3.01 billion was repaid by 22,475
projects compared with N2.94 billion
from
18,600
projects
in
the
corresponding period of 2016. This
performance reflected an increase of
2.3 and 20.83 per cent in the value and
number of loans repaid, respectively.

The
N200
Billion
Commercial
Agriculture Credit Scheme (CACS)
The sum of N80.96 billion was disbursed
to 11 banks for 34 projects under the
Scheme in the second half of 2017,
compared with N79.56 billion disbursed
to 11 banks for 23 projects in the
preceding period. This represented an
increase of 1.76 and 47.83 per cent in
the value and number of projects
financed,
respectively,
under
the
Scheme.
Total
repayments
in
the
second half of 2017 stood at N28.825
billion for 191 projects.

N220 Billion Micro, Small and Medium
Enterprises
Development
Fund
(MSMEDF)
During the review period, the following
activities were carried out under the
Scheme:


Disbursements to SME and Micro
Enterprises
The sum of N1.59 billion was disbursed in
the second half of 2017 compared with
N1.59 billion in the first half of 2017.


Anchor
Borrowers’
Programme
(ABP)
In the second half of 2017, the sum of
₦13.406 billion was disbursed to 73,279
farmers in 18 states.

2.2.2 Industry


2.2.2.1 Industrial Production
Industrial output growth strengthened
by 10.51 per cent in the third quarter of
2017, up from 2.04 per cent in the
preceding quarter, in contrast to the
13.98 per cent contraction in the
corresponding period of 2016. The main
drivers of this outcome were activities in
the Crude petroleum & natural gas,
and Solid minerals sub-sectors, which
grew by 25.89 and 0.92 per cent,
CBN Monetary Policy Review

respectively,
while
Manufacturing
contracted by 2.85 per cent. This
performance
compares
reasonably
with their respective growth rates of
3.53,
and
2.28
per
cent
in
the
preceding quarter. When compared
with the corresponding period of 2016,
the Solid mineral sub-sector grew by
6.52 per cent, while crude petroleum &
natural gas contracted by 22.01 per
cent. The modest growth of the solid
mineral sub-sector was attributed to
activities in Metal Ores (10.70%), and
Quarrying & Other Mining (1.86%). The
contraction in the Manufacturing subsector was largely driven by shrinkage
in Oil Refining (45.41%), Motor Vehicle &
Assembly
(21.26%),
and
Cement
(4.56%).
This
compares
with
their
respective growth rates of -0.86, -33.31
and-6.26 per cent in the corresponding
period of 2016.

Industrial
sector
growth,
however,
moderated to 3.53 per cent in the
fourth quarter of 2017, from 10.51 per
cent in the preceding quarter. When
compared with the contraction of 9.52
per
cent
recorded
in
the
corresponding period of 2016, the
industrial
sector
grew
by
13.05
percentage points. The moderation in
Industrial output was traceable to the
9.18 per cent contraction in the solid
minerals sub-sector, in contrast to the
growth of 8.38 and 0.14 per cent in
Crude petroleum & natural gas and
Manufacturing
sub-sectors,
respectively. This compares with their
respective growth rates of 5.76, 17.70
and 2.54 per cent in the corresponding
quarter. The shrinkage of the Solid
Minerals sub-sector which dampened
the Industrial performance during the
period was largely due to the 10.94 per
cent contraction in Quarrying and
Other Mining activity. Consequently,
the share of Industry in the total GDP
declined from 19.01 per cent in the
third quarter to 16.20 per cent in the
fourth quarter of 2017.

Figure 2.5
Industrial Sector’s Contribution by Activity,
2016Q1-2017Q4

Q1-2016
Q2-2016
Q3-2016
Q4-2016
Q1-2017
Q2-2017
Q3-2017
Q4-2017
Per cent
Crude Petroleum & Natural Gas
Solid Minerals
Manufacturing

2.2.2.2 Industrial Policy and Institutional
Support
The Industrial sector benefited from
the continuation of a number of
CBN Monetary Policy Review

reforms, policies and incentives in the
review period. These include:

The N300 Billion Power and Airline
Intervention Fund (PAIF)
During the review period, N1.98 billion
was disbursed to two power projects -
Azura Power (₦1.699billion), and Kano
Hydro Power Project (₦0.28billion). Also,
N13.721billion
was
repaid
by

obligors.

The N213 Billion Nigeria Electricity
Market Stabilization Facility (NEMSF)
The Facility released N5.465billion to 3
market participants (Eko Disco, Egbin
Power, and Pan Ocean) in the review
period. In addition, ₦2.511billion was
repaid by 8 obligors.

Real Sector Support Facility (RSSF)
In the second half of 2017, ₦22.43 billion
was disbursed to eleven (11) projects
under the Facility compared with
₦22.73
billion
disbursed
to
seven
projects in the first half. This represented
a decrease of 1.3 per cent.

Entrepreneurship Development Centres
(EDCs)
A total of 7,859 participants were
trained
in
the
Entrepreneurship
Development Centres (EDCs) in the
second half of 2017, comprising 4,113
(52.33%), females and 3,746 (47.67%),
males.

Youth Entrepreneurship Development
Programme (YEDP)
In the review period, ₦126.98 million
was disbursed to 3 entrepreneurs under
the
Youth
Entrepreneurship
Development Programme (YEDP).


CBN Monetary Policy Review

Nigeria Bulk Electricity Trading – Payment Assurance Facility (NBET-PAF)
In order to address the protracted liquidity problem facing power generation and
distribution companies, the Federal Executive Council approved a payment
assurance guarantee of ₦701 billion for the power sector. The fund is to be
provided by the Central Bank of Nigeria under “Nigeria Bulk Electricity Trading –
Payment Assurance Facility (NBET-PAF)”. The facility is to provide bridging finance
that will enable NBET provide minimum level of payment to generation companies.
The payment will in turn allow the generation companies to meet their obligations
to gas suppliers, and thus increase the level of power generation in the country.
The NBET-Payment Assurance Facility was a directive of the Federal Executive
Council (FEC), and was backed by a Federal Ministry of Finance Guarantee for the
payment of Interest and Principal as they fall due, where NBET is unable to pay
from appropriation.

The terms and condition of the loan include: borrower - Nigeria Bulk Electricity
(NBET) Trading Plc; interest rate - 5% per cent per annum; loan tenor - ten (10)
years, not exceeding December 31, 2028; moratorium - Two (2) years after Effective
Date; interest payment shall commence from January 2018, while principal
repayment shall commence from January 2019. Also, a letter of Commitment by
NBET to provide for the repayment obligation in its annual budget for appropriation
each year until the loan is fully repaid, to be endorsed by the Federal Ministry of
Finance (FMoF) and the Ministry of Budget and National Planning. Guarantee from
the Federal Ministry of Finance (FMoF) to make payment as scheduled should there
be non-release from the budgetary allocation was also required.

Under the funding arrangement, CBN was to subscribe to debenture to be issued
by NESI Stabilization Strategy Limited (NESI SS Ltd), and set up an NBET-Payment
Assurance Facility under NESI SS Ltd using the structure under the Nigeria Electricity
market Stabilization Facility (NEMSF).

Drawdowns will be made on a monthly basis based on invoices, over a period
which shall not exceed 24 months. The applications for disbursement will contain
comprehensive breakdowns of the elements of the payment showing the amounts
due to each participating generator and its approved third parties. CBN will review
NBET’s submission and credit the beneficiaries that meet full disbursement criteria.
Applications for disbursement will be sent by NBET and confirmed by the Honorable
Minister, Federal Ministry of Power.
CBN Monetary Policy Review

So far, the sum of ₦109.689billion had been paid to the generating and gas
companies for invoices for March to July, 2017 as directed by NBET the primary
obligor.

The facility has restored the confidence of gas suppliers in the electricity market.
Also, the effort of the CBN to stabilize the electricity market in Nigeria could
mitigate the risk of high non-performing loans in the banking sector due to the
huge debt owed by the power industry to gas suppliers and the generating
companies.


2.2.3 Construction
In the third quarter of 2017, the
contraction in the construction sector
moderated to 0.46 per cent compared
with the contraction of 6.13 per cent in
the corresponding quarter of 2016. In
the preceding quarter, the sector,
however, grew marginally by 0.13 per
cent.

During the fourth quarter, the sector
grew by 4.14 per cent in contrast to the
contractions of 6.03 and 0.46 per cent
in the corresponding period of 2016
and the preceding quarter of 2017. The
share of Construction in the total GDP
improved from 3.04 per cent in the third
quarter to 3.50 per cent in the fourth
quarter
of
2017.
The
lackluster
performance of the sector may not be
unconnected
with
the
poor
appropriation and implementation of
capital budgets in the country.

2.2.4 Trade
The contraction of the trade sector
intensified to 1.74 per cent in the third
quarter of 2017 from contractions of
1.38
and
1.62
per
cent
in
the
corresponding period of 2016 and
preceding quarter, respectively.

During the fourth quarter, however,
activity in the trade sector recovered,
as the sector grew by 2.07 per cent
from the contractions of 1.44 and 1.74
per cent in the corresponding period of
2016 and preceding quarter of 2017,
respectively. The recovery of trade
activities was traceable to reforms in
the
foreign
exchange
market,
particularly
the
establishment
of
Investors’
and
Exporters’
Window,
which enhanced access to foreign
exchange by eligible investors. The
share of Trade in the total GDP
improved from 15.90 per cent in the
third quarter to 16.75 per cent in the
fourth quarter of 2017.
CBN Monetary Policy Review

2.2.3 Services Sector
The Services sector contracted during
the second half of 2017 as in the first
half of the year. In the third quarter, the
contraction of the sector was more
severe at 2.95 per cent compared with
the contractions of 1.08 and 0.15 per
cent in the corresponding period of
2016 and preceding quarter of 2017.
The contraction of the sector was
driven by shrinkages of 6.25, 5.96, 4.48,
4.12,
1.38
and 1.22
per
cent in
Transport,
Finance
&
Insurance,
Information & Communication, Real
Estate,
Professional,
Scientific
&
Technical Service and Education subsectors. The contraction of the sector
was, however, moderated by the
growth of 7.84, 1.72, and 0.68 per cent
in
utilities,
other
services
and
administrative & support services subsectors, respectively.

During
the
fourth
quarter,
the
contraction in the Services sector
moderated by 0.55 per cent from 1.56
and 2.95 per cent in the corresponding
period of 2016 and the preceding
quarter
of
2017,
respectively.
The
moderation was attributed mainly to
the growth of 16.57, 12.99, 3.54, 3.46
and 2.16 per cent in Transport, Utilities,
Arts, Entertainment & Recreation, Other
Services, and Administrative & Support
Services.
The
moderation
was,
however, softened by the continued
contractions of the following subsectors:
Real
Estate
(-5.92%),
Information and Communication (-
1.46%) and Education (-1.04%). The
effect of weak aggregate demand
appears to be reflected more sharply in
the performance of the sector which
has remained in recession since the
second quarter of 2016. The continued
contraction of the Services Sector
moderated its contribution to GDP from
38.31 per cent in the corresponding
period of 2016 to 37.38 per cent in the
fourth quarter of 2017.

Figure 2.6
Services Sub-Sector Contribution, 2016Q12017Q4

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

2.2.6
The Oil Sector
The performance of the oil sector
improved significantly during the review
period. As a result, average crude oil
CBN Monetary Policy Review


Q1-2016
Q2-2016
Q3-2016
Q4-2016
Q1-2017
Q2-2017
Q3-2017
Q4-2017
Million Barrels Per Day
production rose to 2.03 million barrels
per day (mbpd) in the third quarter of
2017, from 1.61 mbpd and 1.87 mbpd
in the corresponding period of 2016
and the preceding quarter of 2017,
respectively. In the fourth quarter,
average daily crude oil production,
however, moderated slightly to 1.91
mbpd
from
2.03
mbpd
in
the
preceding quarter. This was, however,
higher by 0.15 mbpd when compared
with 1.76 mbpd in the corresponding
period of 2016.

During the review period, crude oil
prices
rose
due
mainly
to
developments in the global economy.
These were the agreement between
OPEC and some non-OPEC producers
to cap production as well as economic
recovery
in
some
advanced
and
emerging markets and developing
economies. Thus, the price of Nigeria’s
reference
crude,
the
Bonny
Light
370API, rose steadily from US$49.01 per
barrel
in
July
to
US$51.67pb
in
September and peaked at US$60.42pb
in
December,
2017.
Overall,
the
average price of Bonny Light of
US$54.91pb in 2017 was US$10.41pb
above the Federal Government of
Nigeria’s 2017 budget benchmark of
US$44.50pb.
Figure 2.7
Quarter Oil Production (2016Q1-2017Q4)


Figure 2.8
Monthly Bonny Light Price, July – December

Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
US$


CBN Monetary Policy Review

Natural Resources Scarcity and Conflicts in Nigeria.
Natural resources including land, water, forests, and other components of the
ecosystem are available only in limited quantity. Climatic changes and human
activities including population explosion interact to further make these natural
resources scarcer. In most developing countries including Nigeria, the situation is
worsened by the lack of social and technical capital to maximise the use of these
resources. Studies have shown that the more people are dependent on sensitive
forms of natural capital, and rely less on economic and or social forms of capital,
the more at risk they are from climate changes and prone to conflict when such
resources are threatened. This is because the depletion of the natural capital
forces competition over marginal resource field and in some cases migration from
resource-depleted areas to areas adjudged to have more resources. Such
movements generate tension, threats, when not proactively addressed, result in
conflicts. In the African savannah belt, for example, increased agricultural activity
continue to exert pressure on the land, reducing soil fertility and forcing farmers to
shift to previously nucleated land. In an environment where you also have
pastoralists who traditionally treat uncultivated land as common resource, this
practice is bound to lead to conflict.

Resource use conflict is generally viewed as a situation of individuals or groups
competing for exclusive access to the use or ownership of limited resources.
Conflicts often arise because people have different uses and interests or rights in
the resources such as water, forest, pastures and land, or want to use them in
different ways. In the process of pursuing their different interests, disagreements
arise when the priorities of one group do not accommodate those of other(s). In
recent years, the scope and magnitude of natural resource conflicts have
increased and intensified. In some areas, they have become violent resulting in loss
of lives and properties, further plunging individuals and communities into extreme
poverty and deprivation. Today it is common to find settlements of Internally
Displaced Persons (IDP) camps housing thousands of people who have been
dislocated from their original homes by violent conflicts.

In view of the foregoing, the farmers-herders conflict in Nigeria can be analysed as
the outcome of four key drivers: limited supply of natural resources, population
growth and increasing demand for natural resource, climate change and its
impact on the supply of natural resources, and absence of proper institutional
CBN Monetary Policy Review

arrangements and technical capital to facilitate the efficient management of
natural resources.

Although nature is generous, its provision of material resources is limited. The earth
surface is made up of land and water with the latter accounting for more than 70
per cent of the earth total area. Similarly, while the size of the total surface area
has remained unchanged, same cannot be said of the ratio between land and
water surface areas in view of climate change effects over time. More obvious,
however, is the population explosion over this surface in the last millennium and the
necessity for continued access to natural resources for its survival.

Environmental scarcity constrains economic development and contributes to
migrations, situations which sharpens existing distinction among social groups,
weakens states and in turn make them vulnerable to conflicts and insurgencies.
One of the earliest contributors of the discussion on resources scarcity and violent
conflict is Thomas Malthus (1798). In his Essay on the Principle of Population, Malthus
posited that the human population grows exponentially while the supply of food
grows only in an arithmetic ratio such that over time, these expansion rates would
inevitably lead to crises. Thus Malthusianism agrees that there is scarcity of natural
resources that acts as constraints on human behaviour, and that there are linkages
between this and violent conflict.

Nigeria has remained largely an agricultural society depending on the available 77
per cent (as at 2015) of its total land area for agricultural activities. The country’s
population has grown from a little above 50 million in the 60s to around 180 million
today. The country’s human activities and the livelihood of its population have
continued to revolve around nature-dependent agriculture. This explains why most
communal/group conflicts have continued to be land-related as parties desire to
have unfettered access to the available land for their survival. In the case of
relationship between farmers and herders, farmers would want to secure their
cultivated land areas and practice shifting cultivation under rain-fed agriculture;
the practice overtime, however, reduces the space for open grazing. Thus, for
herders who have often seen uncultivated land as a common resource over which
they can graze their cattle, the narrowing of the space and the increasing
likelihood of the herds straying into cultivated lands makes the relationship
between the groups conflict-prone.

CBN Monetary Policy Review

Societies in the western world are today free of natural resource-induced conflicts
having developed and applied social and technical capital in the use of their
natural resources. In Nigeria, as in the rest of most developing societies, the
absence of social reorganization, development of indigenous technical-know-how
or its adaptation and effective institutions to guide and enforce contractual
relationship between individuals or groups have led to growing conflicts among
groups as exemplified by border-communities crisis and the farmers-herders
conflicts.

To address this ugly development that is now assuming a dangerous dimension in
Nigeria, the state must quickly put in place measures to de-escalate violence in
communities already affected and remain proactive in forestalling further
occurrence. The state must lead in reorienting the citizenry on the limited
availability of natural resources, institute a process of social reorganization through
effective institutional arrangements, and support the development of technical
capital and know-how in the exploitation of environmental resources. The Africa
Green Belt project is one important initiative that must be followed through with
every commitment by the Federal Ministry of Environment. The project involves the
building a forest vegetation shelter across the West African Sahel belt that passes
through Sokoto, Katsina, Kano, Yobe and Borno States. There is need for a
deliberate effort to commit sufficient resources by the government for the
implementation of this clearly beneficial project for the country. Overall,
acknowledging conflict as a common feature of any resource dependent/use
system is a prerequisite for developing a framework for its sustainable solution.


CBN Monetary Policy Review

CHAPTER THREE

3.0
PRICE DEVELOPMENTS
he inflationary pressure in the
domestic economy continued to
abate in the second half of 2017,
largely reflecting the sustained tight
monetary policy stance of the Bank. All
measures of inflation maintained a
downward trajectory throughout the
review
period,
although,
headline
inflation still remained outside the
Bank’s target range of 6 - 9 per cent.
These domestic price developments
broadly mirrored both supply and
demand side factors.

On the supply side, the pressure in the
foreign exchange market moderated,
with pass-through to lower domestic
prices
in
the
review
period.
Accordingly, the naira exchange rate
appreciated in all segments of the
market following recent reforms and
interventions
by
the
Bank.
These
included the introduction of a number
of measures to encourage capital
inflow and improve liquidity in the
foreign
exchange
market.
These
measures were the intensification of the
policy
on
repatriation
of
export
proceeds as well as return of unutilized
foreign exchange sourced from foreign
exchange auctions to the CBN. The
Bank also sustained the implementation
of existing measures including the
newly introduced Investors’ & Exporters’
window, restriction of access to foreign
exchange for 41 items, the use of Bank
Verification Number (BVN) in BDC
transactions, and resumption of sale of
foreign exchange to BDCs by the Bank
and
International
Money
Transfer
Operators (IMTOs). In addition, the
improved
accretion
to
external
reserves following the recovery of
crude
oil
prices
supported
the
appreciation of the naira.

On
the
demand-side,
price
developments reflected activities in the
money
market,
which
was
tight
towards the end of the review period.
The Inter-Bank Call and Open Buy Back
(OBB) rates continued to fluctuate on
account
of
changing
liquidity
conditions
in
the
banking
system.
Periods
of
excess
liquidity
largely
reflected
maturing
securities,
disbursement of the second tranche of
the Paris Club refunds to sub-national
governments,
and
the
cautious
approach to lending by DMBs. Overall,
the sustained Open Market Operations
(OMO)
helped
to
tighten
market
liquidity and rein-in inflation.


T
CBN Monetary Policy Review

3.1
Trends in Inflation
All measures of inflation (headline, core
and food), maintained a downward
trend
in
the
review
period.
The
headline, core and food measures of
the consumer price index (CPI) stood
at 237.0, 225.2 and 250.0 in July 2017
compared with 246.4, 233.8 and 261.0,
respectively,
in
December
2017.
Accordingly, food inflation (year-onyear) declined by 0.86 percentage
point from 20.28 per cent in July to
19.42 per cent in December 2017.
Similarly, core inflation declined by 0.10
percentage point from 12.20 per cent
in July to 12.10 per cent in December
2017. As a result, headline inflation
declined by 0.58 percentage point
from 16.05 per cent in July to 15.37 per
cent in December 2017 (Figure 3.1 and
Table 3.1). Thus, food inflation was the
major driver of overall moderation in
consumer prices during the period,
although
the
core
measure
also
contributed (Table 3.4).


Table 3.1
Inflation Rates, July – December 2017
CPI
Y-on-Y 12MMACPI
Y-on-Y
12MMA CPI
Y-on-Y 12MMA
2017-Jul 237.00 16.05 17.47

2017-Aug 239.30 16.01 17.33

2017-Sep 241.20 15.98 17.17

2017-Oct 243.00 15.91 16.97

2017-Nov 244.90 15.90 16.76

2017-Dec 246.40 15.37 16.50

Headline
Inflation
Core Inflation
Food Inflation

Source: Nigerian National Bureau of Statistics
data base

Figure 3.1
Headline, Core and Food Inflation Rates (July –
December 2017)

Source: Nigerian National Bureau of Statistics
data base

3.1.1 Headline Inflation
The decrease in major components of
headline inflation continued during the
second half of the year as reflected in
the
downward
trend
in
domestic
prices.
Food
and
Non-Alcoholic
Beverages remained the major driver
CBN Monetary Policy Review

Jul-17 16.05

Aug-17 16.01

Sep-17 15.98

Oct-17 15.91

Nov-17

Dec-17 15.37

Change btw
Jul & Dec.


Health Transport Education
Headline
Food & NonAlcoholic
Bev.
Clothing &
footwear
Housing,
Water,
Elect.Gas &
Other Fuel
Furnishings,
Household
Equip &HH
Maint.
of the decline in headline inflation,
falling from 10.60 per cent in July to
10.22 per cent in December, 2017. This
was
followed
by
housing,
water,
electricity, gas and other fuels, which
decreased slightly from 1.78 per cent to
1.53 per cent over the same period
(Table 3.2 and Figure 3.4). Overall,
headline inflation fell significantly, due
to the combined effects of decreases
in the prices of food & non-alcoholic
beverages; housing, water, electricity,
gas & other fuels; as well as reduction in
imported products.

The stability in the foreign exchange
market,
arising
from
measures
to
manage
the
demand
pressure
including
the
introduction
of
the
Investors’
and
Exporters’
window,
further contributed to the decline in
inflation witnessed during the period.
Other contributory factors were the
sustained tight monetary policy stance
of the Bank and fiscal stability following
the implementation of the Federal
Government’s Economic Recovery and
Growth Plan (ERGP).

On a month-on-month basis, headline
inflation declined from 1.21 per cent in
July to 0.59 per cent in December,
2017. The major components that
accounted for the decline were the
prices
of
food
and
non-alcoholic
beverages,
which
fluctuated
downwards from 0.82 per cent in July
to 0.32 per cent in December; and
clothing and footwear, from 0.09 per
cent in July to 0.05 per cent in
December, 2017 (Table 3.3 and Figure
3.5).

Table 3.2
Major Components of Headline Inflation (Y-on-Y),
July-December 2017


Figure 3.2
Major Components of Headline Inflation (Y-on-Y),
July-December 2017


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FOOD
Processed
Food
Meat
Fish &
Sea
Food
Milk,
Cheese &
Eggs
Oil &
Fats
Sugar,
Jam,
Honey,
etc.
Farm
Produce
Fruits Vegatables
Yam,
Potatoes &
other
tubers
Jul-17 20.28
11.22

1.95

2.00

0.43

1.22

0.33

9.06

0.54

1.80

2.36

Aug-17 20.25
11.02

1.88

2.02

0.44

1.24

0.35

9.23

0.56

1.80

2.45

Sep-17 20.32
10.82

1.85

2.04

0.44

1.25

0.36

9.50

0.57

1.80

2.47

Oct-17 20.31
10.83

1.78

2.03

0.45

1.23

0.36

9.47

0.58

1.78

2.44

Nov-17 20.31
10.66

1.72

2.01

0.45

1.21

0.37

9.65

0.59

1.76

2.42

Dec-17 19.42
9.86

1.59

1.92

0.44

1.17

0.36

9.56

0.57

1.68

2.33

Change
btw July
& Dec.

-0.86
(1.36)

(0.36)

(0.08)

(0.36)

0.50

(0.12)

(0.03)

Table 3.3
Major Components of Headline Inflation (M-on-M), JulyDecember 2017
Jul-17

Aug-17

Sep-17

Oct-17

Nov-17

Dec-17

Change
btw July &
Dec. 2017

Clothing
&
footwear
Housing,
Water,
Elect. Gas
& Other
Furnishings,
Household
Equip &HH
Maint.
Headline
Food &
NonAlcoholic
Bev.
Health
Transport
Education


Figure 3.3
Major Components of Headline Inflation (M-onM), July-December 2017


3.1.2 Food Inflation
Food
inflation
(year-on-year)
fluctuated downwards from 20.32 per
cent in July to 19.42 per cent in
December 2017, a decrease of 0.90
percentage point. The major source of
the
decrease
was
the
price
of
processed food which fell by 1.36
percentage points from 11.22 to 9.86
per cent. Farm produce, however, rose
by 0.50 percentage point from 9.06 per
cent in July to 9.56 per cent in
December 2017. The decrease in the
price
of
processed
food
was
accounted for by the fall in the prices
of meat, fish and sea food, and oil &
fat by 0.36, 0.08 and 0.05 percentage
point, respectively. The policy drivers of
the fall in processed food were largely
the favourable pass-through of lower
prices to imported food on account of
stability in the foreign exchange market
during
the
period.
Other
complimentary
factor
was
the
sustained tight monetary policy stance
of the Bank.

Table 3.4
Major Components of Food Inflation (Y-on-Y),
July- Dec 2017


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FOOD Processed
Food
Meat
Fish &
Sea
Food
Milk,
Cheese
& Eggs
Oil &
Fats
Sugar,
Jam,
Honey,
etc.
Farm
Produce Fruits Vegat
ables
Yam,
Potatoes
& other
tubers
Jul-17 1.52

Aug-17 1.14

Sep-17 0.87

Oct-17 0.85

Nov-17 0.88

Dec-17 0.58

Change btw
July & Dec.


Figure 3.4
Major Components of Food Inflation
(Y-on-Y), Jul - Dec 2017


In line with the year-on-year trend, food
inflation in general, fell on a month-onmonth basis. It fluctuated downwards
by 0.94 percentage point from 1.52 per
cent in July to 0.58 per cent in
December
2017.
The
price
of
processed food fell by 0.47 percentage
point from 0.71 per cent in July 2017 to
0.24 per cent in December 2017.
Similarly, the price of farm produce
declined by 0.47 percentage point
from 0.81 per cent to 0.34 per cent in
the
same
period.
Thus,
the
0.94
percentage point decrease in food
inflation was equally due to the 0.47
percentage point apiece decrease in
processed food and farm produce. The
key driver of the decrease in the
processed food category was fish and
sea food which fell by 0.13 percentage
point, while that of farm produce were
Yam, Potatoes & Other tubers (-0.13
percentage point) and Vegetables (-
0.08 percentage point).

Table 3.5
Major Components of Food Inflation (M-on-M), July
December 2017


Figure 3.5
Major Components of Food Inflation (M-on-M),
July - Dec 2017


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CORE INFLATION
July
August September
October
November December
Change btw
July and
December
Core Inflation

Processed Food
6.02


Milk, cheese and egg

Sugar, Jam, Honey, etc

Non-Alcoholic Bev

Alcoholic Bev.,Tobacco & kola

Clothing and footware

Housing, Water, Elect. Gas &other Fuels

Furnishings, HH Equipments & M

Health

Transport

Communication


Recreation and Culture

Education

Restaurant & Hotel

Misc Goods and Services

3.1.3 Core Inflation
Core inflation (year-on-year) trended
downwards from 12.21 per cent in July
2017 to 12.09 per cent in December
2017, a decrease of 0.12 percentage
point.
The
major
sources
of
the
decrease were: processed food (0.37
percentage point), Education (0.18
percentage point), clothing & foot
wear (0.06 percentage point), and
Alcoholic Beverages, Tobacco & Kola
(0.01 percentage point). All other
components of core inflation increased
in the reviewed period (Table 3.6 and
Figure 3.8). The substantial drop in the
prices
of
processed
food
and
Education which drove the decline in
core inflation was traceable to the
pass-through effect of the stability in
the exchange rate to lower domestic
prices on account of the Bank’s recent
foreign
exchange
management
measures,
particularly,
the
establishment of the I&E window and
improved funding of BDCs.


Table 3.6
Major Components of Core Inflation
(Y-on-Y) July – Dec. 2017


Figure 3.6
Major Components of Core Inflation
(Y-on-Y) July – Dec. 2017


On a month-on-month basis, core
inflation
decreased
by
0.49
percentage point from 1.00 per cent in
July to 0.51 per cent in December 2017.
Processed food remained the major
CBN Monetary Policy Review

July
August September October November December
Change
btw July
and
December
Core Inflation

Processed Food

Milk, cheese and egg

Sugar, Jam, Honey, etc

Non-Alcoholic Bev

Alcoholic Bev.,Tobacco & kola

Clothing and footware

Housing, Water, Elect. Gas &other Fuels

Furnishings, HH Equipments & M

Health

Transport

Communication

Recreation and Culture

Education

Restaurant & Hotel

Misc Goods and Services

driver of the decline in core inflation,
decreasing from 1.24 per cent in July to
0.77 per cent in December 2017. This
was followed by clothing and foot
wear
(-0.12
percentage
point),
Furnishing and Household Equipment &
maintenance (-0.09 percentage point),
Health
(-0.08
percentage
point),
Education (-0.05 percentage point)
and
Restaurant
and
Hotels
(-0.05
percentage point) (Table 3.7 and
Figure 3.9).

Table 3.7
Major Components of Core Inflation
(M-on-M) July – Dec. 2017


Figure 3.7
Major Components of Core Inflation (M-on-M)
July – Dec. 2017


3.1.4 Seasonally-Adjusted Inflation
The actual and seasonally-adjusted
measures of headline inflation trended
downwards
in
the
review
period,
continuing
the
trend
of
decline
witnessed towards the end of first half
of 2017 (Table 3.8 and Figure 3.10).
Actual headline inflation continued to
reflect the general price level in the
economy,
trending
below
the
seasonally-adjusted headline inflation
throughout the second half of 2017. The
overall downward trend in both actual
and seasonally-adjusted measures of
inflation were attributed to the stability
in
the
foreign
exchange
market,
improved
accretion
to
external
reserves
and
increased
food
production partly arising from the
Anchor Borrowers’ Programme.

CBN Monetary Policy Review

Date
Inflation
SA
Inflation
Jul.17
16.05
16.13
Aug.17
16.01
16.05
Sept.17
15.98
16.01
Oct.17
15.91
15.97
Nov.17
15.9
15.93
Dec.17
15.37
15.73
Table 3.8
Actual and Seasonally Adjusted Headline
Inflation July -December 2017


Figure 3.8
Actual and Seasonally Adjusted Headline
Inflation July - December 2017


3.2
Key
Factors
that
Influenced
Domestic Prices
The behaviour of inflation during the
review period was driven by cost-push,
demand-pull and moderating factors.
The net effect of these forces gave rise
to
the
moderation
in
inflation
experienced in the period. A highlight
of these factors are: the stability in the
exchange
rate,
sustained
tight
monetary
policy
stance,
improved
agricultural
harvests,
sustained
interventions by the Bank to support the
real sector, weak aggregate demand
resulting from unpaid workers salaries
and contractor debts, and relative
stability
in
energy
prices
which,
however, gave way to some fuel
shortages towards the end of the
period. Others included: the liquidity
effects
of
the
bailout
of
state
governments; increased government
spending to support the expansionary
2017 Federal Government budget; the
impact of festive and other seasonal
activities; worsening conflicts between
herdsmen and farmers in many parts of
the country as well as disruption to
production and distribution activities
due to insurgency in the North East.

3.2.1 Demand-side Factors
The moderation in headline inflation
was largely attributed to the continued
tight monetary policy stance of the
Bank,
which
helped
to
rein-in
CBN Monetary Policy Review

inflationary pressures. Also, the Bank’s
foreign
exchange
demand
management measures substantially
moderated
exchange
rate
depreciation, leading to stability in the
exchange rate with pass-through to
lower domestic prices. In addition,
weak aggregate demand arising from
unpaid
workers
salaries
and
outstanding contractors debt as well as
relative stability in energy prices, further
helped in moderating the pressure on
the domestic price level.

3.2.2. Supply-Side Factors
Some supply side factors moderated
inflation in the review period, while
others dampened the moderation. The
year 2017 enjoyed relatively clement
weather
conditions
resulting
in
improved agricultural harvests, thereby
dampening
the
pressure
on
food
prices. This was supported by the Bank’s
sustained
interventions
in
the
real
sector. Also, the increase in electricity
generation
by
5.60
per
cent
to
3,875.3MW in the fourth quarter of 2017
helped to moderate the domestic
price level. On the other hand, the
continued conflicts between herdsmen
and farmers which affected farming
activities and reduced productivity,
continuing insurgency in the North East
region as well as perennial challenges
of poor infrastructure, mitigated the
moderation in inflation rates.
3.2.3 Moderating Factors
In the second half of 2017, the factors
that
moderated
domestic
prices
included
stable
supply
of
foreign
exchange
in
the
market
and
moderated
energy
prices.
Other
factors were the modest resumption in
farming activities and the rebuilding of
damaged distribution chains in the
North-East
following
the
success
recorded in the campaign against
insurgency. In addition, the introduction
of the Economic Recovery and Growth
Plan provided a strategic roadmap for
the economy and helped restore
investor confidence.


CBN Monetary Policy Review

CBN Monetary Policy Review

CHAPTER FOUR

4.0
MONETARY
POLICY
AND
LIQUIDITY MANAGEMENT

Developments
in
the
global
and
domestic
economic
and
financial
environments
continued
to
pose
challenges to monetary policy in the
second half of 2017. On the global
front, the continued slow pace of
recovery
in
global
oil
and
other
commodity prices, the damage to
infrastructure caused by hurricanes -
Harvey, Irma and Maria, the reduction
in
China’s
uptake
of
global
commodities, and financial market
uncertainties due to monetary policy
normalization in the US were the key
challenges to output recovery. These
were
compounded
by
trade
protectionism
and
immigration
challenges, complexities arising from
the
BREXIT
negotiations,
continued
tensions on the Korean Peninsula as
well as geo-political risks associated
with the growing right-wing political
movements
in
Europe.
Emerging
market and developing economies
continued to witness strong economic
headwinds,
although
Brazil,
South
Africa and Nigeria exited recession.

On
the
domestic
front,
the
key
challenges that confronted monetary
policy were: the high but moderating
inflationary pressure with strong base
effect; fragile growth recovery; threats
to
financial
system
stability
from
banking system liquidity surfeit, and
weakening
macro-prudential
indicators. Others included: sustaining
the fragile stability in the foreign
exchange
market;
contraction
in
private
sector
credit;
high
unemployment rate; rising costs and
shortages of energy; rising debt profile
of
the
Federal
and
sub-national
governments
and
the
uncertainty
surrounding the late passage and
implementation of the 2017 Federal
Government
budget.
Against
this
background,
the
Bank’s
desire
to
support
the
fragile
recovery
from
recession, without compromising the
achievement of price and exchange
rate stability, shaped monetary policy
decisions during the review period.

4.1
DECISIONS OF THE MONETARY
POLICY COMMITTEE (MPC)

The decisions of the Monetary Policy
Committee (MPC) in the review period
were influenced by key global and
domestic
economic
and
financial
developments.
The
key
global
developments were: the continuing
wave
of
protectionist
sentiments,
heightened
geo-political
tensions,
continued fragilities in financial markets
and slow pace of recovery in oil and
other commodity prices.
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On
the
domestic
front,
the
key
concerns
were:
fragile
economic
recovery, the high but moderating
inflationary pressure with strong base
effect, weak aggregate demand, low
fiscal buffers, threats to financial system
stability from banking system liquidity
surfeit
and
weakening
macroprudential indicators. These challenges
and the need to achieve the Bank’s
mandate provided the context for
monetary policy decisions.

4.1.1 July 2017 MPC Meeting
The 24th and 25th July, 2017 Monetary
Policy
Committee
(MPC)
meeting
reviewed key developments in the
global and domestic economic and
financial environments in the first half of
2017 and the outlook for the rest of the
year.
At
the
global
stage,
the
key
developments
were:
relatively
improving global economic outlook,
strengthening commodity prices and
positive macroeconomic outcomes in
the
advanced
economies
with
spillovers to the emerging markets and
developing
economies.
Trade
protectionism
and
immigration
challenges, fragilities in the financial
markets, receding market expectations
of expansionary U.S. fiscal policy as well
as weaker-than-expected growth in
the
U.K
due
to
difficult
BREXIT
negotiations, however, remained key
risks to global economic stability.

On the domestic front, the Committee
noted that the contraction in the
economy moderated to 0.52 per cent
in Q1 2017 from 1.30 per cent in Q4
2016, with fifteen economic activities
recording
positive
growth.
The
economy
showed
strong
signs
of
recovery, as non-oil real GDP grew by
0.72 per cent in Q1 2017, reflecting
growth in the agricultural sector of 0.77
per cent in the same period. The
Committee also noted the continued
positive effects of improved foreign
exchange
management
on
the
performance of manufacturing and
other economic activities.

In
terms
of
price
developments,
headline
inflation
(year-on-year)
declined
for
the
fifth
consecutive
month in June 2017, to 16.10 per cent
from 16.25 per cent in May and 18.72
per
cent
in
January
2017.
The
Committee
partly
attributed
the
moderation in inflation to the effects of
the relative stability in the foreign
exchange
market,
arising
from
improved
management,
which
encouraged
foreign
inflows.
The
Committee observed that while the
moderation in inflation was broadly in
response
to
the
prevailing
tight
monetary policy stance, the base
effect was still strong but could wane
CBN Monetary Policy Review

by
August
2017.
The
MPC
also
welcomed
improvements
in
the
equities segment of the capital market
as the All-Share Index (ASI) and stock
Market Capitalization (MC) rose by
33.33 and 32.84 per cent, respectively,
between March 31 and July 21, 2017,
reflecting growing investor confidence.

The
Committee
also
reviewed
available
forecasts
of
key
macroeconomic
indicators
which
largely pointed to fragile economic
recovery in the second quarter of the
year. Accordingly, the MPC cautioned
that
this
delicate
recovery
could
relapse into a protracted recession if
strong and bold monetary and fiscal
policies
were
not
immediately
activated. In this regard, the MPC
urged the fiscal authorities for a timely
implementation of the 2017 budget
and the Economic Recovery and
Growth Plan (ERGP) in order to sustain
the recovery, stimulate employment,
further strengthen growth, and restore
confidence
in
the
economy.
Consequently,
the
Committee
identified the downside risks to the
outlook to include: weak financial
intermediation, poorly targeted fiscal
stimulus and the absence of structured
programme implementation.

At that meeting therefore, the broad
policy consideration of the Committee
was either to hold or ease position. The
argument
for
holding
was
largely
premised on the need to safeguard the
stability so far achieved in the foreign
exchange market and allow time for
previous
policy
measures
to
work
through the economy. Specifically, the
MPC considered the high level of
banking system liquidity; the need to
continue to attract foreign inflows to
support the foreign exchange market
and economic activity; the expansive
outlook for fiscal policy in the rest of the
year; and the prospective electionrelated spending which could increase
system liquidity.

In contrast, the argument for easing
was the need for the Committee to
signal its sensitivity to growth and
employment concerns by encouraging
the flow of credit to the real economy.
Also, easing at this time would reduce
the cost of debt service, which is
actually crowding out government
expenditure.
The
risks
to
easing,
however, would show up in terms of
upstaging
the
modest
stability
achieved in the foreign exchange
market, through the likely exit of foreign
portfolio
investors
as
well
as
a
resurgence of inflation following the
intensified implementation of the 2017
budget in the course of the year. The
Committee also reasoned that easing
would pull the real interest rate further
into the negative territory.

CBN Monetary Policy Review

On balance and in consideration of
the
challenges
confronting
the
domestic
economy
as
well
as
uncertainties in the global environment,
the Committee decided by a vote of 6
to 2 members to retain the Monetary
Policy Rate (MPR) at 14.0 per cent
alongside all other policy parameters.
In summary, the MPC voted to: Retain
the MPR at 14 per cent; Retain the CRR
at 22.5 per cent; Retain the Liquidity
Ratio at 30.00 per cent; and Retain the
Asymmetric corridor of +200 and -500
basis points around the MPR.

4.1.2 September 2017 MPC Meeting
At the 25th and 26th September, 2017
MPC
meeting,
the
Committee
observed that global output growth
was projected to improve to 3.5 per
cent in 2017 from 3.2 per cent in 2016,
with
major
emerging
market
and
developing
economies
including
Nigeria, Brazil and South Africa exiting
recession. The key challenges to global
recovery prospect were identified to
include: recent developments on the
Korean peninsula; the damage to
infrastructure caused by hurricanes -
Harvey, Irma and Maria; the lull in
BREXIT
negotiations
and
the
normalization of monetary policy by
the US Fed, expected to instigate
global capital flow reversal as well as
the slow pace of recovery in oil and
other commodity prices, and China’s
reduction
in
uptake
of
global
commodities.

On the domestic scene, data from the
National Bureau of Statistics (NBS)
showed
that
real
Gross
Domestic
Product (GDP) grew by 0.55 per cent in
the second quarter of 2017, reversing
the contractions of 0.91 and 1.49 per
cent in the previous quarter, and the
corresponding
period
of
2016,
respectively.
The
Committee
welcomed this development which
effectively
marked
the
country’s
technical exit from recession. It further
noted that, although the recovery was
weak, the active implementation of
the 2017 budget could hopefully boost
aggregate demand and employment
to strengthen growth.

In terms of price developments, the
Committee
observed
that
the
economy continued on the path of
disinflation with headline inflation (yearon-year) moderating for the seventh
consecutive month to 16.01 per cent in
August 2017, from 16.05 per cent in July
2017. The outcome was attributed to
the
contraction
in
money
supply,
decline in imported food and non-food
prices, favourable base effects, and
the
moderating
effects
of
stable
exchange rates.

The financial market also remained
relatively
stable,
buoyed
by
the
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continuing improvement in the external
reserves position and developments in
the equities segment of the capital
market. External reserves position grew
to US$32.9 billion on 25th September,
2017 while the All-Share Index (ASI) and
stock Market Capitalization (MC) rose
by 7.20 and 6.90 per cent, respectively,
between June 30 and August 31, 2017,
reflecting
continuing
investor
confidence, following improvements in
foreign exchange management.

The Committee’s considerations at this
meeting centered on output and price
developments. In terms of output, the
MPC noted the economy’s exit from
recession,
although
the
growth
remained
fragile.
It
hoped
that
complementary fiscal and monetary
policy measures would be required to
support the growth momentum. The
Committee
further
expressed
satisfaction
with
the
gradual,
but
consistent decline in inflation, noting,
however, the underlying base effect in
addition
to
the
continued
improvement in the naira exchange
rate across all segments of the foreign
exchange market.

In arriving at a decision, the Committee
took note of the gains so far achieved
from its earlier decisions; including the
stability in the foreign exchange market
and
the
moderate
reduction
in
inflation. Accordingly, the broad policy
options facing the Committee were
either
to
tighten,
ease
or
hold.
Although tightening would help rein-in
inflation expectations and strengthen
the stability in the foreign exchange
market, the Committee felt that this
option would further widen the income
gap, depress aggregate demand and
adversely affect credit delivery to the
private sector. The Committee also
noted that tightening may result in the
deposit money banks re-pricing their
assets,
thus
raising
the
cost
of
borrowing and worsening the already
weak investment climate and nonperforming loans.

The argument for easing was that this
option would make it more attractive
for Nigerians to acquire assets at
cheaper prices, thus increasing their
net wealth, and, therefore, stimulate
spending
as
confidence
rises.
Nevertheless,
the
Committee
felt
concerned that loosening at this time
would
exacerbate
the
inflationary
pressures and worsen exchange rate
depreciation. The Committee also felt
that loosening will pull the real interest
rate deeper into negative territory as
the gap between the nominal interest
rate and inflation widens.

The argument for holding was premised
on maintaining stability to allow the
effect of recent policy measures to
take root. In particular, the Committee
CBN Monetary Policy Review

felt that the effects of fiscal policy
actions
towards
stimulating
the
economy have begun to manifest as
evident in the exit of the economy from
the fifteen-month recession. Also, the
fragility of the growth recorded makes
it imperative to allow more time to take
appropriate
complementary
policy
decisions to strengthen the recovery.
Overall, the most compelling argument
for a hold was to achieve greater
clarity
in
the
evolution
of
key
macroeconomic indicators including
budget
implementation,
economic
growth, exchange rate, inflation and
employment generation.

In consideration of the headwinds
confronting the domestic economy
and the uncertainties in the global
environment, the Committee voted to:
Retain the MPR at 14.0 per cent; Retain
the CRR at 22.5 per cent; Retain the
Liquidity Ratio at 30.0 per cent; and
Retain the Asymmetric corridor of +200
and -500 basis points around the MPR.

4.1.3 November 2017 MPC Meeting
The 20th and 21st November, 2017 MPC
meeting noted the improving global
growth prospects as reflected in the
revision of global output growth for
2017 to 3.6 from 3.5 per cent up from
3.2 per cent in 2016. The revision of
global growth was premised on the
uptick in global economic activity,
strengthened by the recovery in oil and
other commodity prices, and improved
aggregate
demand.
The
MPC,
however, identified the risks to the
revised outlook for global growth to
include: continued tension on the
Korean Peninsula, complexities arising
from
the
BREXIT
negotiations
and
financial market uncertainties due to
monetary policy normalization in the
US. The Committee also noted a slow
pace of inflation trajectory in most
advanced
economies
and
the
abatement of inflationary pressures in
some key emerging market economies,
as
they
exit
recession
and
their
currencies stabilize. Accordingly, the
outlook for global monetary policy
remained largely accommodative, in
support of economic recovery and
growth.

At the domestic front, data showed
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 Committee noted
with
satisfaction
the
second
consecutive quarterly growth in real
GDP
following
five
quarters
of
contraction. The Committee also noted
that the growth was largely driven by
the oil sector as non-oil real GDP
contracted by 0.76 per cent in Q3 2017,
giving credence to the need to put in
CBN Monetary Policy Review

place policies to boost non-oil growth
and consolidate the recovery. Overall,
the
Committee
noted
that
the
economy has begun to show strong
signs of recovery as public investment
had picked up with increased housing
construction at the Federal and state
levels, as well as shipping activities at
the ports.

On price development, the Committee
noted the continued moderation in
headline inflation (year-on-year) for the
ninth consecutive month to 15.91 per
cent in October 2017 from 15.98 per
cent
in
September
2017.
The
Committee
attributed
the
development to contraction in money
supply, favourable but dwindling base
effect, 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 supply
shortages exacerbated by cross-border
sales and distribution bottlenecks as
well as high prices of farm inputs.

The Committee was satisfied with the
sustained
stability
in
the
financial
markets as reflected in relative stability
in
the
exchange
rate,
continuing
improvement in the level of external
reserves and the equities segment of
the capital market. The Committee
noted
the
gradual
convergence
between the rates in the Bureau de
change
(BDC)
and
the
Nigerian
Autonomous Foreign Exchange Market
(NAFEX) segments as well as stability in
the interbank segment of the market.
The
MPC
equally
welcomed
the
growing patronage at the Investors’
and Exporters’ window of the foreign
exchange
market,
reflecting
the
growing confidence of foreign and
local investors. The All-Share Index (ASI)
and stock Market Capitalization (MC)
rose by 3.38 and 4.35 per cent,
respectively, between August 31 and
November
17,
2017,
indicating
sustained investor confidence, due to
improvements in foreign exchange
supply.

On financial stability, the Committee
observed that the overall condition
and outlook for the banking system was
stable
as
deposit
money
banks’
balance
sheets
remained
strong,
although it noted the concentration of
non-performing loans in a few sectors.
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 to banking
system stability.

In
arriving
at
its
decision,
the
Committee appraised potential policy
options in terms of their balance of risks,
against the backdrop of the gains so
CBN Monetary Policy Review

far made from earlier policy decisions.
These included: the stability in the
foreign exchange market and the
moderate reduction in inflation. Thus,
the policy options at this meeting were
either to hold, tighten or ease 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 system stability. On the
other hand, loosening would support
the outlook for growth by stimulating
domestic aggregate demand through
reduced cost of borrowing; it could,
however, aggravate upward trend in
consumer
prices
and
generate
exchange
rate
pressures.
The
Committee also felt that loosening
would worsen the current account
balance
through
increased
importation. The argument to hold was
predicated on allowing key variables to
continue to evolve in line with the
subsisting stance of macroeconomic
policy.
Members
noted
that
the
developments in output and inflation,
in particular, required close monitoring
in order to gain more clarity on the
medium term path of monetary policy.
In consideration of the foregoing, the
Committee voted to retain the MPR at
14.0 per cent; retain the CRR at 22.5
per cent; retain the Liquidity Ratio at
30.0
per
cent;
and
Retain
the
Asymmetric corridor of +200 and -500
basis points around the MPR.

4.2
Instruments
of
Liquidity
Management
In order to achieve its objectives of
price and monetary stability, the Bank
continued to employ various policy
instruments in its tool kit in the review
period. The instruments deployed were:
the Monetary Policy Rate (MPR), Cash
Reserve Ratio (CRR), Liquidity Ratio (LR),
Open Market Operations (OMO), and
Discount
Window
Operations
complemented by interventions in the
foreign exchange market.

4.2.1 Monetary Policy Rate (MPR)
The MPR remained the key instrument
of monetary policy in the review
period. The MPR was maintained at
14.0 per cent throughout the period
along with the asymmetric corridor of
+200 and -500 basis points around the
MPR. The retention of the MPR and its
asymmetric
corridor
signaled
the
Bank’s commitment to sustain the
macroeconomic
stability
so
far
achieved.

4.2.2 Open Market Operations (OMO)
The Bank increased its reliance on
Open Market Operations (OMO) as the
CBN Monetary Policy Review

main avenue for managing banking
system liquidity in the second half of
2017. As a result, total OMO sales rose
significantly by 92.87 per cent to
N7,472.21 billion in the second half from
N3,874.27 billion in the first half of 2017.
The increase in OMO sales in the
second half of 2017 was to reduce the
level of liquidity in the banking system in
order
to
moderate
inflationary
pressures, in line with the prevailing tight
monetary policy stance of the Bank.
On a year-on-year basis, OMO sales
increased by 35.12 per cent above the
level in the second half of 2016 (Table
4.1).

Table 4.1
OMO Bills Auction (January 2016 – December
2017) (N’million)
Date

%
Change
Jan
698.42
700.52

Feb
509.23
619.14

Mar
394.63
391.16

Apr
363.72
316.09

May
64.63
580.08

Jun
299.12
1,267.28

1st Half
2,329.75
3,874.27
66.30
Jul
695.21
1,517.53

Aug
1,728.15
1,104.57

Sep
1,057.95
741.85

Oct
807.02
1,179.20

Nov
665.57
1,461.13

Dec
575.97
1,467.93

2nd Half
5,529.87
7,472.21
35.12
Cumulative
Figure
7,859.62

11,346.48
44.36
Source: Financial Market Department, CBN

Figure 4.1
OMO Bills Auction (July – December 2017)

Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
N'Billion
OMO Bill

4.2.3 Reserve Requirements
To complement MPR and OMO as
instruments of liquidity management,
the Bank also used macro-prudential
requirements namely: the cash reserve
ratio (CRR) and liquidity ratio (LR) in the
second half of 2017. During the period,
the CRR was retained at 22.5 per cent
to address the excess liquidity condition
in the banking system. Also, the liquidity
ratio was unchanged at 30.0 per cent
in the second half of 2017.


4.2.4 Standing Facilities
In the second half of 2017, the Bank
continued to deploy the standing
facilities (lending/deposit) window to
meet daily liquidity requirements of
Deposit Money Banks (DMBs) and the
CBN Monetary Policy Review

Discount House (DH). The asymmetric
corridor
of
+200/-500
basis
points
around the MPR, which defined the
standing
facilities,
was
maintained
throughout the review period.

At the Standing Lending Facility (SLF)
window, the requests decreased by
6.56 per cent to N25,664.35 billion in the
second half of 2017 from N27,466.58
billion in the first half. This, however,
represented a 621.80 per cent increase
compared with N3,555.62 billion in the
corresponding period of 2016 (Table
4.2).

The volume of deposits at the Standing
Deposit Facility window also decreased
by 22.42 per cent to N4,274.99 billion in
the second half from N5,510.75 billion in
the first half of 2017. This represented a
28.33 per cent decrease relative to the
corresponding period of 2016 (Table
4.3). The transactions at the two
windows resulted in a net lending of
N21,389.36 billion in the second half of
2017, slightly down from N21,955.83
billion in the first half. The development
could partly be attributed to DMBs
perverse
incentives
whereby
funds
sourced at the CBN window find their
way into the foreign exchange market,
although the Bank has a subsisting
regulation on this unhealthy practice.


Table 4.2
CBN Standing Lending Facility (January 2016 –
December 2017) (N’billion)
Date

% Change
Jan
84.26
3,380.57

Feb
4.11
4,478.50

Mar
474.75
5,052.56


Apr
942.66
5,746.68

May
869.52
4,596.99

Jun
2,762.36
4,211.28

1st Half
5,137.66
27,466.58
434.61

Jul
2,727.21
3,855.13

Aug
4,255.97
5,585.51

Sep
3,482.35
4,377.89

Oct
4,132.39
5,605.30

Nov
5,041.36
3,909.09

Dec
3,820.61
2,331.43


2nd Half

Total
8,693.28
53,130.92
511.17
Source: Financial Market Department

CBN Monetary Policy Review


Jul-17
Sep-17
Nov-17
N'Billion

Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
N'Billion
Figure 4.2
CBN Standing Lending Facility (July – December
2017)


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

%
Change
Jan
2,369.31
1,855.98

Feb
2,553.89
804.07

Mar
1,635.43
889.35

Apr
2,971.33
593.79

May
1,760.02
665.28

Jun
1,822.25
702.28

1st Half
13,112.23
5,510.75

57.97
Jul
934.29
825.10

Aug
1,050.27
315.24

Sep
826.94
411.43

Oct
949.32
405.21

Nov
744.30
691.97

Dec
1,459.81
1,626.05

2nd Half
5,964.93
4,274.99

28.33
Total
19,077.16
9,785.74

48.70
Source: Financial Market Department
Figure 4.3
CBN Standing Facility (July – December 2017)


4.2.5
Foreign Exchange Intervention
During the review period, the Bank
continued to intervene in the foreign
exchange market in order to sustain
the stability so far achieved and
strengthen the gains recorded in the
investors’
and
exporters’
foreign
exchange window. Additional reforms
and interventions during the period
were aimed at encouraging capital
inflows to improve liquidity in the
market. These measures were the
intensification
of
the
policy
on
repatriation of export proceeds as well
as return of unutilized foreign exchange
sourced from CBN auctions. The Bank
also sustained the implementation of
existing
measures
including:
the
restriction
of
access
to
foreign
exchange for 41 items, the use of Bank
CBN Monetary Policy Review

Verification Number (BVN) in BDC
transactions, resumption of sale of
foreign exchange by the Bank and
International Money Transfer Operators
(IMTOs) to BDCs, as well as special
foreign exchange auction to targeted
sectors and foreign exchange sales for
small
scale
importation.
As
a
consequence, the rates at the bureaude-change
(BDC)
and
Nigeria
Autonomous
Foreign
Exchange
(NAFEX)
segments
moved
towards
convergence as demand pressure in
the market moderated. In addition, the
average naira exchange rate at the
inter-bank segment of the foreign
exchange market remained stable in
the second half of 2017.

Consequently, total supply of foreign
exchange declined by 5.11 per cent to
US$7,710.49 million in the second half of
2017 from US$8,125.95 million in the first
half. This, however, represented an
increase of 162.26 per cent compared
with
US$2,940.05
million
in
the
corresponding period of 2016 (Table
4.4). The year-on-year increase in the
supply of foreign exchange largely
reflected
improved
autonomous
inflows
and
accretion
to
external
reserves. These helped to stabilize the
exchange rate and restore investor
confidence in the Nigerian economy.


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

Total FX Supply
(Including Forward
Sales ($'Million))
Total FX Supply (Including
NAFEX and Forward Sales
($'Million))
January
973.57

789.76

February
895.77

876.48

March
1,093.05

1,309.44

April
727.69

1,919.30

May
617.50

2,109.93

June
1,423.81

1,121.04

1st Half
5,731.40

8,125.95

July
470.00

1,207.00

August
576.15

1,449.49

September
105.00

1,220.33

October
343.92

1,315.99

November
363.11

1,210.99

December
1,081.87

1,306.69

2nd Half
2,940.05

7,710.49

Total
8,671.45

15,836.44


Figure 4.4
Total FX Supply (Including NAFEX and Forward
Sales ($'Million)


4.3.
Developments in the Monetary
Aggregates
In the second half of 2017, monetary
aggregates performed better than in
the first half, even though most of the
CBN Monetary Policy Review

aggregates did not meet their targets
at
end-December
2017.
The
development was due to the decline in
net domestic assets (NDA), following
the
contraction
in
credit
to
government
which
was,
however,
moderated by increase in net foreign
assets (NFA) during the review period.

4.3.1
Broad Money (M2)
Broad Money (M2) grew by 9.19 per
cent to N24,001.41 billion at endDecember 2017 from N21,980.58 billion
at end-June 2017. Compared with the
end-December,

level
of
N23,591.73 billion, M2 increased by 1.74
per cent. The year-on-year growth of
1.74 per cent in M2 was significantly
below the 2017 indicative growth
target of 10.29 per cent.

Figure 4.5
Money Supply (M1) and (M2) (July – December,
2017)

Figure 4.6
Growth in Money Supply (M1) and (M2) (June -
December, 2017)


4.3.2
Narrow Money (M1)
Narrow Money (M1), grew by 8.30 per
cent to N11,036.35 billion at endDecember 2017, from N10,190.19 billion
at end-June 2017. When compared
with the end-December 2016 figure of
N11,271.50 billion, M1 contracted by
2.09
per
cent.
The
year-on-year
contraction in M1 of 2.09 per cent was
below the indicative growth target of
11.07 per cent (Figures 4.4 and 4.5),
indicating that M1 under-performed
during the review period. The year-onyear contraction in M1 is traceable to
the contractions of 2.07 and 2.09 per
cent in both currency outside bank
and demand deposit from N1,820.42
billion and N9,451.09 to N1,782.66 billion
CBN Monetary Policy Review

and N9,253.69 billion, respectively, over
the same period.

4.3.3 Net Foreign Assets (NFA)
Net Foreign Assets (NFA) increased by
74.93 per cent to N 14,813.28 billion at
end-December 2017 from N8,468.08
billion at end-June 2017. Compared
with the end-December 2016 figure of
N 9,149.66 billion, NFA grew by 61.90
per cent. This year-on-year increase in
NFA of 61.90 per cent was above the
indicative growth target of -29.31 per
cent, attributed to recovery in crude oil
prices and sustained capital inflows as
economic fundamentals improved.

4.3.2
Net Domestic Assets (NDA)
Net
Domestic
Credit
(NDC)
contracted
by
5.04
per
cent
to
N25,863.28 billion at end-December
2017 from N27,236.43 billion at endJune 2017. Compared with the endDecember 2016 level of N26,857.72
billion, NDC contracted by 3.07 per
cent, as against the indicative growth
target of 17.93 per cent, largely on
account of huge contraction in credit
to government.


Figure 4.7
Net Domestic Asset (NDA) (July - December
2017)


Figure 4.8
NDA, NDC and Other Assets (Net) (July –
December, 2017)


4.4.3
Credit to the Government (Cg)
Credit to government (Cg) in the
second half of 2017 contracted by
CBN Monetary Policy Review

31.93 per cent to N3,574.03 billion at
end-December 2017 from N5,250.49
billion at end-June 2017. Credit to
government also contracted year-onyear
by
26.70
per
cent
when
compared with the end-December
2016 figure of N4,875.57 billion. This was
in contrast to the indicative growth
benchmark of 32.99 per cent. The
development
was
attributed
to
improved oil receipts occasioned by
higher oil prices and government’s
recent policy of increased reliance on
foreign borrowings.

4.4.4
Credit to the Private Sector (Cp)
Credit to the private sector (Cp)
increased
by
1.38
per
cent
to
N22,289.25 billion at end-December
2017 from N21,985.95 billion at endJune 2017. Compared with the endDecember 2016 figure of N21,982.15
billion, Cp rose marginally by 1.40 per
cent, which was, significantly below the
indicative growth target of 14.89 per
cent for 2017. The slow performance of
credit to the private sector in the
review period was attributed to the
reluctance of DMBs to create credit
due
to
weak
macroeconomic
conditions as reflected in the fragile
growth rate of the economy. The CBN
and Commercial banks’ components
of credit to the private sector rose by
3.11 and 0.63 per cent to N5,869.29
billion and N16,193.86 billion at endDecember 2017 from N5,692.29 billion
and N16,092.23 billion, respectively, at
end-June 2017. On a year-on-year
basis,
the
monetary
authority’s
component grew by 155.40 per cent
from
N2,298.26
billion
in
the
corresponding period of 2016, while
commercial
bank’s
component
declined
by
1.86
per
cent
from
N16,500.15 billion at end-December
2016.

Figure 4.9
Domestic Credit to Private Sector (July –
December, 2017)


4.4.5
Reserve Money (RM)
Reserve Money (RM) increased by
18.20 per cent to N6,477.60 billion at
end-December 2017, from N5,480.21
billion at end-June 2017. Compared
with its end-December 2016 level of N
5,847.92 billion, RM increased by 8.53
CBN Monetary Policy Review

per cent and was marginally below the
indicative
benchmark
of
N6,605.50
billion. The year-on-year increase in
reserve money is traceable to the
growth of 17.76 per cent in bank
reserves from N3,668.74 billion at endDecember 2016 to N4,320.37 billion at
end-December
2017.
Currency
in
circulation, however, declined by 1.01
per cent from N2,179.17 billion at endDecember 2016 to N2,157.23 billion at
end-December 2017. The year-on-year
growth in RM during the period was
attributed to increase in economic
activities, following the recovery.

A summary of the major monetary
aggregates
and
the
provisional
outcomes as at end-December 2017 is
presented in Table 4.5.
CBN Monetary Policy Review

CHAPTER FIVE

5.0
DEVELOPMENTS
IN
THE
FINANCIAL MARKETS
n
the
second
half
of
2017,
developments
in
the
Nigerian
financial markets
were
generally
influenced by a number of global and
domestic economic conditions. On the
global
scene,
although
financial
markets remained moderately calm, it
was under threat from uncertainties
around NAFTA renegotiations, BREXIT
discussions, and the growing share of
companies with low investment grade
ratings in the advanced economy
bond
markets.
Other
challenges
included rising asset valuations and
higher leverage arising from continued
monetary accommodation, spill-over
of financial stability risks to the nonbank
and market sectors.

On the domestic front, the market
noted
the
key
policy
thrust
of
supporting and sustaining the fragile
recovery of the economy into growth.
Given the pressure on the exchange
rate witnessed in the preceding half
year, policy measures were needed to
relieve this pressure and encourage
foreign inflows to stabilize the market.
Accordingly,
monetary
conditions
remained
non-accommodative
in
order to address the perennial liquidity
surfeit in the banking system. As a result,
money
market
rates
fluctuated
upwards in response to the Bank’s
interventions in the foreign exchange
market to stabilize the exchange rate,
coupled with increased OMO auctions.
Activities at the newly introduced
Investors’
and
Exporters’
window
helped to support foreign exchange
liquidity for willing buyers and sellers,
thereby
absorbing
speculative
pressures in the market. Thus, the rates
at the Bureau-de-Change (BDC) and
the
Nigeria
Autonomous
Foreign
Exchange (NAFEX) segments moved
towards convergence, indicating the
narrowing of arbitrage opportunities in
the
market.
The
capital
market
remained
largely
bullish,
reflecting
investors’
positive
sentiments,
attributable to generally improving
macroeconomic conditions during the
period. Consequently, the all-share
index (ASI) increased remarkably by
15.48 per cent over the preceding half
year, and 42.30 per cent year-on-year.

5.1
The Money Market

In the review period, liquidity conditions
in the banking system continued to
mirror activities in the money market.
Money
market
rates
fluctuated
upwards in response to the Bank’s
interventions in the foreign exchange
market to stabilize the exchange rate,
coupled with increased OMO auctions.
These were, however, moderated by
I
CBN Monetary Policy Review

the liquidity impact of the Federation
Account Allocation Committee (FAAC)
disbursements, release of balance of
Paris Club debt refunds, FGN capital
releases, Joint Venture Cash (JVC) call
payments and maturing CBN bills and
government securities. As a result, the
Interbank and OBB rates remained
largely above the upper band of the
standing facilities corridor. In addition,
high transaction levels were recorded
at the collateralized segment of the
money market with several periods of
inactivity at the Interbank segment,
reflecting
heightened
counter-party
risks during the period.

5.1.1
Short-term
Interest
Rate
Developments
In the second half of 2017, money
market rates largely reflected liquidity
conditions in the banking system. There
was increased transaction in the OBB
segment,
an
indication
of
the
increased
risk
perception
at
the
Interbank call segment. Accordingly,
the average interbank call rate rose
from 12.08 per cent in July to 19.55 per
cent in September and further to 35.31
per cent in October. It, however,
declined
to
19.38
per
cent
in
November
and
9.64
per
cent
in
December. On the other hand, the
average OBB rate fell from 17.18 per
cent in July to 15.80 per cent in
September. It, however, rose sharply to
42.55 per cent in October, and closed
at 7.59 per cent in December 2017. The
interbank call rates ranged between
9.64 and 35.31 per cent and averaged
19.78 per cent, while the OBB rate
ranged between 7.59 and 42.55 per
cent, averaging 22.57 per cent in the
period. Thus, the interbank call rate was
generally lower than the OBB rate, due
to periods of inactivity at the Interbank
call segment.

Table 5.1
Weighted Average Monthly Money Market
Interest Rates (July –Dec 2017)
Date
Interbank
OBB
MPR
SDF
SLF
NIBOR
(30
Day)
Jul

Aug

Sep

Oct

Nov

Dec

Ave

Source: Statistics Dept., (CBN)

CBN Monetary Policy Review

Figure 5.1
Weighted Average Monthly Money Market
Interest Rates (July –December 2017)

Jul
Aug
Sep
Oct
Nov
Dec
Ave
Interbank
OBB
MPR
SDF
SLF
NIBOR (30 Day)

Jul
Aug
Sep
Oct
Nov
Dec
Ave
Interbank
OBB
MPR
SDF
SLF
NIBOR (30 Day)


(i)
The Interbank Call Rate
During the second half of 2017, the
interbank call segment which is the
uncollaterized
market,
recorded
several periods of inactivity due to
heightened
risk
aversion
amongst
DMBs. Theaverage interbank call rate
rose from 12.08 per cent in July to 19.55
per cent in September and further to
35.31 per cent in October. It, however,
declined
to
19.38
per
cent
in
November
and
9.64
per
cent
in
December. The interbank call rates
ranged between 9.64 and 35.31 per
cent and averaged 19.78 per cent,
compared with 24.68 per cent in the
preceding half year. Analysis of the
daily rates showed that the call rate
ranged from 2.0 to 116.0 per cent
between July and December, 2017.
The rate spike of 116.0 per cent
recorded in October was due to
concerns
over
liquidity
shortages
following a court order that DMBs
should remit all funds held in accounts
without
bank
verification
numbers
(BVN) to the Government. The rate,
however, declined to 2.0 per cent in
December, following improved liquidity
conditions and suspension of OMO
auctions by the Bank.

Figure 5.2
Daily Interbank Call Rate (Jul – Dec 2017)


CBN Monetary Policy Review

(ii)
The Open Buy Back Rate
In the second half of 2017, the OBB
segment was more active relative to
the
interbank
call
segment.
The
development
largely
reflected
the
increasing risk perception amongst
DMBs in view of the impact of the
recession on DMBs’ assets quality. The
average OBB rate fell from 17.18 per
cent in July to 15.80 per cent in
September. It, however, rose sharply to
42.55 per cent in October, and closed
at 7.59 per cent in December 2017. The
OBB rate ranged between 7.59 and
42.55 per cent, averaging 22.57 per
cent in the period, down from 29.14 in
the preceding half year. The daily
analysis showed that the OBB rate
ranged between 2.00 and 193.95 per
cent, with peaks of 92.23, 193.95 and
140.39 per cent in July, August and
October,
respectively.
The
peaks
reflected liquidity shortages associated
with preparation for FAAC meetings
and
increased
OMO
auctions.
However, it declined significantly in
December largely due to liquidity
surfeit as CBN suspended the issuance
of OMO bills for liquidity management
operations.


Figure 5.3
Daily Open Buy Back Rate (July-December 2017)


(iii)
The Nigeria Interbank Offered
Rate (NIBOR)
The Nigerian money market reference
rate,
the
NIBOR,
recorded
mild
fluctuations on all tenors. The rates
moved in tandem with developments
at the interbank market. The weighted
average 30-day NIBOR rose from 17.90
per cent in July to peak at 39.24 per
cent in October. It, thereafter, fell to
20.02 and 16.32 per cent in November
and December 2017, respectively. The
average 30-day NIBOR rate declined to
23.16 per cent in the second half of
2017, from 27.83 per cent in the
preceding half year, implying that
liquidity conditions eased (Table 5.1).


CBN Monetary Policy Review

5.2
Foreign Exchange Market

During the second half of 2017, the
Bank continued its foreign exchange
interventions to provide liquidity in the
market, ease demand pressures and
stabilize the exchange rate. Activities
at the newly introduced Investors’ and
Exporters’ window helped to support
foreign exchange liquidity for willing
buyers and sellers, thereby absorbing
speculative pressures in the market.
Complementary
reforms
and
interventions during the period aimed
at encouraging capital inflows to
further
improve
foreign
exchange
liquidity.
The
reforms
were
the
intensification
of
the
policy
on
repatriation of export proceeds and
return of unutilized foreign exchange
sourced from CBN auctions. The Bank
also sustained the implementation of
existing
measures
including
the
restriction
of
access
to
foreign
exchange for 41 items, the use of Bank
Verification Numbers (BVN) in BDC
transactions, resumption of sale of
foreign exchange by the Bank and
International Money Transfer Operators
(IMTOs) to BDCs, as well as special
foreign exchange auction to targeted
sectors, amongst others. Consequently,
the rates at the Bureau-de-Change
(BDC) and Nigeria Autonomous Foreign
Exchange (NAFEX) segments moved
towards convergence, indicating the
narrowing of arbitrage opportunities in
the market. In addition, the average
naira exchange rate at the inter-bank
segment of the foreign exchange
market remained stable.

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


5.2.1
Average Exchange Rates
The
interbank
exchange
rate
depreciated slightly by 0.06 per cent,
from an average of N305.71/US$ in the
first half of 2017 to N305.89/US$ in the
second half. The BDC rate, however,
appreciated by 17.27 per cent from an
average of N426.85/US$ to N363.99/US$
over the same period (Table 5.2).

CBN Monetary Policy Review

Table 5.2
Average Monthly Spot Exchange Rates (January
2017 – December 2017) (N/US$)
Period
Interbank
Rate
BDC Rate
2017: Jan
305.20
493.29
Feb
305.31
494.70
Mar
306.40
429.48
Apr
306.05
392.89
May
305.54
384.48
Jun
305.72
366.25
Average
305.70
426.85
2017: Jul
305.72
365.38
Aug
305.86
365.57
Sep
305.67
365.55
Oct
305.89
362.21
Nov
305.90
362.40
Dec
306.31
362.83
Average
305.89
363.99

5.2.2
End-Period (Month) Exchange
Rates
The end-period analysis showed that
at the interbank foreign exchange
segment, the naira depreciated by
0.04 per cent to N305.84/US$ at endDecember from N305.71/US$ at endJune, 2017. At the BDC segment, the
Naira, however, appreciated by 13.11
per
cent
to
N363.08/US$
from
N410.67/US$ over the same period
(Figure
5.5
and
Table
5.3).
The
difference between the average and
end-period exchange rates in the BDC
segment
showed
that
demand
pressure moderated towards the end
of the year.

Table 5.3
End-Month Exchange Rates (January 2017 –
December 2017) (N/US$)
Month/Year
Interbank Rate BDC 'B' Rate
2017H1: Jan
305.25

Feb
305.5

Mar
306.35

Apr
305.85

May
305.4

Jun
305.9

Average
305.71
410.67
2017H2: Jul
305.65

Aug
305.85

Sep
305.75
364.5
Oct
305.8

Nov

Dec

Average
305.84
363.08

5.2.3
Nominal
and
Real
Effective
Exchange Rates
The Nominal Effective Exchange Rate
(NEER) depreciated by 3.84 per cent to
an average of 160.83 in the second
half of 2017 from 155.31 in the first half.
It also depreciated by 3.49 per cent
when
compared
with
the
corresponding period of 2016. On the
other
hand,
the
Real
Effective
Exchange Rate (REER) appreciated by
2.82 per cent from an average of 86.79
in the first half of 2017 to 84.41 in the
CBN Monetary Policy Review

second half, indicating improvements
in trade competitiveness for Nigeria.
When
compared
with
the
corresponding period of 2016, the
average REER also appreciated by 7.00
per cent (Table 5.4).

Table 5.4
Nominal and Real Effective Exchange Rates
Indices (2016H2-2017H2)
DATE
NEER
REER
Jul-16
160.52
95.33
Aug-16
156.75
92.08
Sep-16
157.06
91.57
Oct-16
154.88
89.78
Nov-16
151.21
87.02
Dec-16
150.87
86.16
2016: H2
Average
155.22
90.32
Jan-17
153.29
88.75
Feb-17
153.33
87.71
Mar-17
154.54
87.03
Apr-17
155.84
86.62
May-17
156.95
85.71
Jun-17
157.92
84.94
2017: H1
Average
155.31
86.79
Jul-17
160.61
85.55
Aug-17
161.37
85.41
Sep-17
160.32
84.32
Oct-17
159.05
83.21
Nov-17
160.9
83.72
Dec-17
162.74
84.24
2017: H2
Average
160.83
84.41

Figure: 5.5
Nominal and Real Effective Exchange Rates
Indices (July 2016 – December 2017)

NEER
REER


5.2.5 Foreign Exchange Flows through
the CBN
Foreign exchange inflows through the
CBN increased by 65.29 per cent to
US$26,337.00 million in the second half
of 2017, from US$15,933.36 million in the
first half. It also increased by 113.20 per
cent
when
compared
with
US$12,353.03
million
in
the
corresponding period of 2016. Similarly,
the foreign exchange outflows through
the CBN increased by 42.66 per cent to
US$18,197.65 million in the second half,
from US$12,755.61 million in the first half.
When compared with US$12,421.32
million in the corresponding period of
2016, it increased by 46.50 cent. Thus, in
the review period, there was a higher
net
inflow
of
US$8,139.35
million
compared with US$5,908.87 million in
the first half. This was in contrast to the
net outflow of US$474.99 million in the
CBN Monetary Policy Review

corresponding half of 2016 (Table 5.5
and Figure 5.7). The increased net
inflow was traceable to improved oil
receipts and accretion to external
reserves.

Table 5.5
Monthly Foreign Exchange Flows through the CBN
(January 2016 – Dec 2017)
Dates
Inflow
(CBN)
Total
Outflow
(CBN)
Net
Flow
(CBN)
16-Jan
1329.40
1687.59
-358.19
16-Feb
1221.53
1025.73
195.80
16-Mar

16-Apr

16-May
1779.42
1690.29
89.13
16-Jun
1870.88
2521.03
-650.15
2016 H1
Total

16-Jul
2126.36
2671.08
-544.72
16-Aug
2112.69
2430.51
-317.82
16-Sep

16-Oct

16-Nov
2251.90
1061.94
783.17
16-Dec
3385.31
1468.73
1916.58
2016 H2
Total
12353.03
12421.32
-474.99
17-Jan
2605.50
1055.84
1549.66
17-Feb
2374.48
978.56
1395.92
17-Mar
1693.40
1672.59
20.81
17-Apr
2874.86
2164.39
710.47
17-May
2712.38
3676.12
-954.74
17-Jun
3672.74
3208.11
3186.75
2017 H1
Total
15933.36
12755.61
5908.87
17-Jul
3615.10
3358.32
256.78
17-Aug
4211.75
3594.33
617.42
17-Sep
4328.97
2390.41
1938.56
17-Oct
3688.39
2891.97
796.42
17-Nov
6811.96
2957.60
3854.36
17-Dec
3680.83
3005.02
675.81
2017 H2
Total
26337.00
18197.65
8139.35

Figure 5.6
Monthly Foreign Exchange Flows through the CBN
(Jul 2017 – Dec 2017)


5.2.6 Foreign Exchange Flow through
the Economy
Gross foreign exchange inflow to the
economy increased by 58.32 per cent
to US$53,650.70 million in the second
half, from US$33,886.85 million in the first
half of 2017. It also increased by 59.70
per
cent
when
compared
with
CBN Monetary Policy Review

US$33,594.00
million
in
the
corresponding period of 2016. Similarly,
gross
foreign
exchange
outflow
increased
by
88.59
per
cent
to
US$19,799.77 million in the second half
of 2017, from US$10.498.63 million in the
first
half.
When
compared
with
US$13,673.02
million
in
the
corresponding
period
of
2016,
it
increased by 44.81 per cent. Thus,
during the second half of 2017, total
foreign exchange flows through the
economy resulted in a higher net inflow
of US$33, 850.93 million compared with
US$20,027.22 million and US$19,120.98
million
in
the
first
half
and
the
corresponding
period
of
2016,
respectively. This represented increases
of 69.02 and 77.04 per cent relative to
the
first
half
of
2017,
and
the
corresponding
period
of
2016,
respectively. The increased net inflow
through
the
economy
during
the
period
reflected
increased
foreign
exchange receipts from the recovery
of crude oil prices as well as improved
autonomous inflows.
CBN Monetary Policy Review

Table 5.6
Monthly Foreign Exchange Flows through the Economy
(Jan 2016 – Dec 2017) (US$ Million)
Date
Inflow(CBN) Inflow(Auto) Total Inflow Outflow(CBN) Outflow(Auto) Totaloutflow
Netflow
Netflow(CBN) Netflow(Auto)
Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

2016H1 Total
8,713.12

20,444.88

29,158.00

10,742.86

1,137.23

9,605.63

16,630.91

2,676.24
-
19,307.15

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

2016H2 Total
12,353.06

21,240.94

33,594.00

12,421.35

1,251.67

13,673.02

19,120.98

68.80
-
19,989.27

Jan-17

Feb-17

Mar-17
1693.4


Apr-17

May-17

Jun-17

2017H1 Total
15,933.36

17,953.49

33,886.85

12,755.61

1,103.93

10,498.63

20,027.22

5,105.23

16,102.42

Jul-17

Aug-17

Sep-17

Oct-17

Nov-17

Dec-17

2017H2 Total
26,588.94

27,061.76

53,650.70

17,777.09

2,022.68

19,799.77

33,850.93

8,811.85

25,048.08


CBN Monetary Policy Review

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


5.3
Capital Market
Activities
in
the
Nigerian
capital
market in the second half of 2017 were
mainly
bullish,
reflecting
positive
investor
sentiments
attributable
to
generally improving macroeconomic
conditions. In particular, the growing
external reserves, stable exchange
rate and moderating inflation, on the
back of rising crude oil prices, helped
to boost investor confidence in the
economy. Also, the sustained tight
monetary policy stance of the Bank
improved returns on domestic assets
and attracted foreign inflows into the
capital market. The continued BREXIT
uncertainty,
generally
accommodative
monetary
policy
stance in the advanced economies,
helped to support the flow of foreign
capital in search of yields in the
emerging markets including Nigeria.

5.3.1
Equities Market
The All-Share Index (ASI) increased by
15.48 per cent to 38,243.19 at endDecember 2017 from 33,117.48 at end-
June 2017. It, similarly, increased by
42.30
per
cent
compared
with
26,874.62
at
end-December
2016.
Market capitalization (MC) increased
by 18.86 per cent to N13.61 trillion at
end-December
2017,
from
N11.45
trillion at end-June 2017. Also, when
compared with N9.25 trillion at endDecember 2016, it increased by 47.14
per cent. The year-on-year increase of
42.30 per cent in the ASI was driven
mainly by strong performance in the
food & beverage and banking sectors,
which increased by 13.65 and 19.10
per cent, respectively, above their
levels at end-December 2016.

Table 5.7
NSE All-Share Index (ASI) and Market
Capitalization (MC) (December 2016 –
December 2017)
Date
ASI
MC(Equities)
N’Trillion)
Dec-16
26,874.62
9.25
Jan-17
26,036.24
8.97
Feb-17
25,329.08
8.77
Mar-17
25,516.34
8.83
Apr-17
25,758.51
8.91
May-17
29,498.31
10.20
Jun-17
33,117.48
11.45
Jul-17
35,847.75
12.35
Aug-17
35,504.62
12.24
CBN Monetary Policy Review

Sep-17
35,429.31
12.21
Oct-17
36,680.29
12.69
Nov-17
37,944.60
13.21
Dec-17
38,243.19
13.61
Source: NSE

Figure 5.8
NSE ASI and MC (December 2016– December

Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17
(N' Trillion)
All-Share Index
Equities Market Capitalisation (N' Trillion)

Source: NSE

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

Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
(N' Trillion)
All-Share Index
Equities Market Capitalisation (N' Trillion)

Source: NSE
5.3.2 Market Turnover
Aggregate stock market turnover in
the second half of 2017 increased by
34.49 per cent to 59.39 billion shares,
valued at N803.82 billion in 491,300
deals compared with 44.16 billion
shares, valued at N467.67 billion in
448,950 deals in the first half of 2017.
On
a
year-on-year
basis
market
turnover increased by 75.50 per cent
from 33.84 billion shares, valued at
N263.50 billion in 380,997 deals. Foreign
portfolio investment inflow exceeded
outflow by N194.85 billion in the second
half
of
2017,
indicating
sustained
investor confidence in the economy.

5.3.3 Sectoral Contribution to Equity
Market Capitalization
The
construction
sector
still
dominated
overall
market
capitalization and was primarily driven
by activities in the building materials
sub-sector. The contribution of the
building materials sub-sector, however,
declined to 32.36 per cent at endDecember 2017 from 33.60 per cent in
the
preceding
half
year.
The
dominance of the building materials
sub-sector was largely attributable to
the share of Dangote cement in the
market. Other major sub-sectors were
banking,
food
&
beverages
and
breweries, with market shares of 19.10,
CBN Monetary Policy Review

13.65 and 13.52 per cent, respectively,
at end-December 2017 (Figure 5.12).

Figure 5.10
NSE Market Capitalisation by Sector as at EndJune 2017
Food and Beverages
9.13%
Banking
18.57%
Insurance
1.27%
Breweries
13.17%
Conglomerates
0.87%
Oil and Gas
5.72%
Building Materials
33.60%
Other Sectors
17.67%
Source: NSE

Figure 5.11
NSE Market Capitalisation by Sector as at EndDecember 2017
Food and
Beverages
13.65%
Banking
19.10%
Insurance
1.13%
Breweries
13.52%
Conglomerat
es
0.75%
Oil and Gas
5.14%
Building
Materials
32.36%
Other Sectors
11.40%
Source: NSE

5.3.4 The Warren Buffett Valuation
Metric and Nigeria’s Equities
Market
The
analysis
of
Warren
Buffett
valuation metric showed that the
Nigerian equities market was undervalued. At 74.0 per cent in the third
quarter and 72.0 per cent in the fourth
quarter of 2017, the metric was below
the threshold of 75.0 - 115.0 per cent.
The development was attributable to
the following: still fragile economic
recovery, weak corporate earnings
and the ongoing normalization of the
US monetary policy resulting in more
attractive yields. The undervaluation of
equities present attractive investment
opportunities for domestic and foreign
investors,
further
strengthened
by
improving economic conditions and
rising crude oil prices.

Figure 5.12
Warren Buffett Valuation of Nigerian Equities
Market

Q1-2014
Q2-2014
Q3-2014
Q4-2014
Q1-2015
Q2-2015
Q3-2015
Q4-2015
Q1-2016
Q2-2016
Q3-2016
Q4-2016
Q1-2017
Q2-2017
Q3-2017
Q4-2017
Per cent
WARREN BUFFET INDICATOR

CBN Monetary Policy Review


Nigeria
5.3.5 Bond Market
Activities in the bonds market were
dominated by Federal Government of
Nigeria (FGN) securities in the second
half of 2017. There was also some
activity
in
the
Sub-national
government and corporate bonds
segments, with the latter recording the
least share by market volume.

5.3.5.1 FGN Eurobond
The
10-year
dollar-denominated
bond yields for Nigeria decreased by
33 basis points to 4.47 per cent at endDecember 2017, from 4.80 per cent at
end-June 2017. When compared with
6.35 per cent at end-December 2016,
it decreased by 188 basis points (Figure
5.14).
The
development
was
attributable to improved perception
by investors of the country’s sovereign
risk.

Figure 5.13
10-Year U.S. Dollar-denominated Bond Yield for
Nigeria (Dec 31, 2016 – Dec 29, 2017)


FGN bond yields fell by 37 basis points
to 16.37 per cent in December 2017
when compared with 16.74 per cent at
end-June, 2017 and 3 basis points
when compared with 16.40 per cent at
end-December 2016. The observed
negative slope suggests that there is
perceived
uncertainties
about
economic conditions in the longerterm and investors are more optimistic
about
the
current
economic
conditions (Figure 5.15).

Figure 5.14
FGN Bonds Yield Curves: end-Dec. 2016 vs. endJun. 2017 vs. end-Dec. 2017


Y ie ld
Time to Maturity
Dec 29th,

Jun 30,2017
Dec 30,2016
FGN and Yeild Curves: Dec 30, 2016 vs. Jun 30, 2017 vs. Dec 29, 2017


5.3.5.2 State/Local Government Bonds
The
sub-national
bonds
market
continued to witness low activity during
the review period. The total value of
outstanding state/local governments
bonds declined by 0.13 per cent to
N562.81 billion at end-December 2017
CBN Monetary Policy Review

from N563.58 billion at end-June 2017.
When compared with N516.58 billion at
end-December
2016,
it,
however,
increased by 1.98 per cent.

5.3.5.3 Corporate Bonds
Activity
in
the
corporate
bonds
segment declined during the review
period.
The
value
of
outstanding
corporate bonds at end-December
2017, declined by 7.04 and 1.94 per
cent to N276.50 billion from N297.44
billion and N281.97 billion in the first half
of 2017 and the corresponding period
of 2016, respectively. The development
was traceable to increased activities in
the sovereign bond market.

5.3.5.4 Overall Analysis of the Nigerian
Capital Market
The value of FGN bonds increased
significantly by 26.39 per cent to N8.43
trillion at end-December 2017 from
N6.67 trillion at end-June 2017, and by
38.20 per cent when compared with
N6.10 trillion at end-December 2016.
FGN bonds accounted for 44.29 per
cent
of
aggregate
market
capitalization as at end-December
2017. The value of state/municipal
bonds,
corporate
bonds
and
supranational bonds were N562.58
billion, N276.50 billion and N24.95
billion, accounting for 2.96, 1.45 and
0.13 per cent of aggregate market
capitalization,
respectively.
The
equities market contributed 51.16 per
cent
of
aggregate
market
capitalization at end-December 2017,
while
FGN
bonds,
state/municipal
bonds,
corporate
bonds
and
supranational bonds accounted for
the balance of 48.84 per cent (Figure
5.16).

Figure 5.15
Structure of the Nigerian Capital Market
(December, 2017)


5.4
Global
Financial
Market
Developments

During
the
review
period,
global
financial
markets
remained
moderately
calm,
although
uncertainties following developments
in
important
long-standing
trade
agreements, weighed on financial
market
sentiments
and
global
investments. In particular, the current
NAFTA
renegotiations
and
BREXIT
discussions, heightened trade barriers
and regulatory realignments, and were
CBN Monetary Policy Review

compounded by geopolitical tensions
on the Korean peninsula and the
Middle East. The heightened risks were
reflected in the growing share of
companies with low investment grade
ratings in advanced economy bond
markets. Generally, the environment of
continuing monetary accommodation
to revive global economic activity and
inflation, led to rising asset valuations
and higher leverage, with the search
for yields shifting sharply into the
nonbank
sector.
Consequently,
financial stability risks were spilling over
from
the
banking
system
to
the
nonbank and market sectors. Also,
unconventional
monetary
policies
have
forced
substantial
portfolio
adjustments in the private sector and
across
borders,
making
financial
market vulnerability less predictable
than in previous cycles. Nonetheless,
the key challenge confronting policy
makers was to guard against the buildup of financial vulnerabilities, while
ensuring
that
monetary
policy
remained
supportive
of
global
recovery.

Following these developments, most
currencies appreciated against the US
dollar, as oil and other commodity
prices continued to improve, although
the US dollar rallied in November 2017.
As a result, the performance of major
global
stock
markets
remained
generally positive.
5.4.1 Money
Market
and Central
Bank Policy Rates
Liquidity
conditions
were
largely
influenced by moderating risks in the
global financial markets, resulting from
the
generally
improving
macroeconomic environment. In the
advanced economies, particularly in
the US and the UK, the earlier trend of
low inflation has been progressively
reversed,
leading
to
continued
normalization of monetary policy, while
in the EU and Japan, inflation has
remained muted. In the emerging
markets and developing economies,
the reversal in currency depreciation
following improvements in oil and other
commodity prices, gave room for
downward policy rate adjustments to
accommodate
growth
concerns.
Headwinds to the stability in the global
macroeconomic
environment,
however, remained the uncertainties
surrounding
BREXIT
negotiations,
direction
of
US
trade
policy,
sustainability of improving oil and other
commodity prices. Accordingly, the US
and the UK raised their policy rates to
improve yields on domestic assets and
contain inflationary pressures, while the
EU and Japan retained their rates in
the
review
period.
Amongst
the
emerging
market
and
developing
economies, Brazil, Russia, Ghana and
Indonesia lowered their policy rates to
accommodate growth concerns as
CBN Monetary Policy Review

inflationary pressures moderated, while
China, South Africa, Kenya and Nigeria
maintained their policy rates.


Table 5.8
Policy Rates of Selected Countries June – December 2017
Country
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Kenya

S. Africa

Ghana

Nigeria

Brazil

USA

Japan

Euro
Area

India

Russia

China

UK

Indonesia


5.4.2 Capital Market
The performance of major global
stock
markets
remained
generally
positive in the review period. In Europe,
the UK FTSE 100, French CAC 40,
German
DAX
and
Russian
MICEX
indices increased by 5.13, 3.75, 4.81
and 12.25 per cent, respectively. In
North America, the United States S&P
500 and Canadian S&P/TSX Composite
indices increased by 10.32 and 6.76
per
cent,
respectively,
while
the
Mexican Bolsa decreased by 1.01 per
cent. In South America, the Brazilian
Bovespa, Argentine Merval and the
Columbia COLCAP indices increased
by 21.47, 37.21 and 3.47 per cent,
respectively. In Asia, the Japanese
Nikkei 225, Chinese Shanghai SE and
Indian BSE Sensex indices increased by
13.63,
3.59
and
10.14
per
cent,
CBN Monetary Policy Review

respectively. In Africa, the Nigerian NSE
All-Share, South African JSE All-Share,
Kenyan Nairobi NSE 20, Egyptian EGX
CASE 30 and Ghanaian GSE All Share
indices increased by 15.48, 15.29, 2.90,
11.36 and 31.31 per cent, respectively.


Table 5.9
Selected International Stock Market Indices as at December 29, 2017


Country
Index
30-Dec-16
30-Jun-17
29-Dec-17
December
30, 2016December
29, 2017
% Change
Jun 30 -
Dec 29,
2017 %
Change
AFRICA
Nigeria
ASI

South Africa
JSE African AS

Kenya
Nairobi NSE 20

Egypt
EGX CSE 30

Ghana
GSE All Share

NORTH AMERICA
US
S&P 500

Canada
S&P/TSX Composite

Mexico
Mexico Bolsa (IPC)

SOUTH AMERICA
Brazil
Bovespa Stock

Argentina
Merval

Colombia
COLCAP

EUROPE
UK
FTSE 100

France
CAC 40

Germany
DAX

Russia
MICEX


ASIA
Japan
NIKKEI 225

China
Shanghai SE A

India
BSE Sensex

Source: Bloomberg
CBN Monetary Policy Review

5.4.3 Commodities
As in the first half of 2017, commodity
prices continued their recovery in the
second
half.
The
recovery
was
witnessed in both fuel and non-fuel
commodity prices. Energy price index
as
shown
by
the
price
of
the
Organization
of
the
Petroleum
Exporting Countries (OPEC) reference
crude oil basket, rose from an average
of US$49.95pb in the first half to
US$56.43pb in the second half of 2017.
Crude oil prices were still supported by
the
extension
of
the
agreement
between
OPEC
and
non-OPEC
producers including Russia to freeze
output.
Non-fuel
price
index,
as
reflected in the behaviour of metal
prices,
also
increased
during
the
review period. In particular, the prices
of Aluminum and Zinc1 rose from
US$1,907/mt and US$2,593/mt in the
first
half
to
US$2,103/mt
and
US$3,230/mt in the second half of 2017,
respectively. The development was
largely due to improvements in global
growth
prospects
and
the
strengthening of aggregate demand.
The increase in metal prices was
occasioned
by
improving
macroeconomic outcomes from China
following the rebalancing programme.

1 World Bank Commodities Price Data (The Pink
Sheet) @www.worldbank.org/commodities
The Food and Agriculture Organization
(FAO) Food Price Index, however, fell
by 3.54 per cent from 175.3 points in
June to 169.1 points in December 2017.
During the review period, the subindices of meat, cereals and dairy fell,
while that of vegetable oil and sugar
increased. The development was due
to strong supply of meat, ample
supplies of cereals, particularly maize in
South
America
and
the
Northern
Hemisphere, as well as high export
supplies of dairy and weak demand.

5.4.4 Foreign Exchange Market
During the second half of 2017, most
currencies appreciated against the US
dollar, as oil and other commodity
prices continued to improve and
earlier
expectations
of
an
expansionary
US
fiscal
policy
diminished. Although the US dollar
rallied in November 2017 against the
backdrop
of
continued
monetary
policy normalization, high expectations
of a positive outcome on the North
American
Free
Trade
Agreement
(NAFTA) negotiations and promise of a
substantial
corporate
tax
cut,
economic agents remained cautious
on the ability of the administration to
deliver
on
these
expectations.
Accordingly, in North America, the
Canadian dollar appreciated by 3.13
per cent while the Mexican peso
depreciated against the U.S. dollar by
CBN Monetary Policy Review

7.83 per cent. In South America, the
Brazilian real and the Argentine peso
depreciated against the U.S. dollar by
0.04 and 10.71 per cent, respectively,
while
the
Colombian
peso
appreciated against the U.S dollar by
1.88 per cent in the period under
review.

In Europe, the Pound Sterling, the euro
and the Russian ruble appreciated
against the U.S dollar by 3.72, 5.07 and
2.29 per cent, respectively. In Asia, the
Japanese yen depreciated against
the U.S dollar by 0.27 per cent, while
the Chinese yuan and the Indian
rupee both appreciated against the
U.S. dollar by 4.09 and 1.11 per cent,
respectively.

In Africa, the Nigerian naira and
Ghanaian cedi depreciated against
the U.S dollar by 0.03 and 2.11per cent,
respectively, while the South African
rand, Kenyan shilling and the Egyptian
pound appreciated against the U.S.
dollar by 5.59, 0.55 and 1.78 per cent,
respectively.

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


Currency
30-Dec-16
30-Jun-17
29-Dec-17
Jun 17 - Dec. 17
(% App/Dep)
Dec 16 - Dec 17
(% App/Dep)
AFRICA
Nigeria
Naira

South Africa
Rand

Kenya
Shilling

Egypt
Pound

Ghana
Cedi

NORTH
AMERICA
Canada
Dollar

Mexico
Peso

SOUTH
AMERICA
Brazil
Real

Argentina
Peso

Colombia
Peso

EUROPE
UK
Pound

Euro Area
Euro

Russia
Ruble

ASIA
Japan
Yen

China
Yuan

India
Rupee

Source: bloomberg

Exchange Rates of Selected Countries (Value in currency units to US$)

CBN Monetary Policy Review

Green Bond and Infrastructural Development in Nigeria
The imperative to safeguard the sustainability of economic development strategies
is driving the search for policy alternatives and viable, environmentally-conscious
instruments of economic management. The latest initiative in this regard is the
issuance of green bonds. The World Bank describes a green bond as a debt
security, issued to raise capital and specifically to enhance environmental
sustainability by supporting climate-related or environmental projects. The
distinguishing feature of the green bond from other debt securities is the utilization
of accrued funds for a specific pre-determined project, enabling investors to assess
the actual environmental impact of the project to be funded with the proceeds of
the bond.

Globally, several multilateral institutions have issued green bonds. The European
Investment Bank (EIB), in 2007 issued a €600 million Climate Awareness Bond that
focused on renewable energy and energy efficiency. Instead of a fixed coupon,
the bond returns were linked to an equity index. The World Bank, through the
International Bank for Reconstruction and Development (IBRD), launched the first
labeled “green bond” in 2008 in the sum of SKr 3.35 billion (approximately US$440
million).

The World Bank issuance of the first green bond was aimed at:
Responding to calls from Scandinavian pension funds seeking to support climatefocused projects with a simple fixed-income product, and in line with IBRD's efforts
to cater for investors interested in sustainable and responsible investing (SRI); and
raising investor and the financial sector awareness on the commitment of
developing countries to take decisive actions to combat climate change;

The bond issuance was in line with the World Bank’s effort to seek innovative ways
to finance climate related projects. By 2015, the IBRD had issued green bonds
valued at US$8.5 billion in over 100 transactions in 18 currencies, supporting about
70 climate mitigation and adaptation projects across several countries in the
developing world (World Bank, 2015).

Other notable multilateral institutions involved in the issuance of green bonds
include the African Development Bank (AfDB) and the International Finance
Corporation (IFC). The African Development Bank had issued a total of US$500
million worth of green bonds in October 2013, while the International Finance
CBN Monetary Policy Review

Corporation (IFC), a subsidiary of the World Bank Group, issued over 37 green
bonds, raising US$3.8 billion in nine currencies, in the same year. Generally, four
broad steps are followed in issuing green bonds. These are:

Defining Project Selection Criteria
At this initial stage the issuer defines the type of ‘green’ project for which it is
seeking the green bonds. The ultimate aim being to support a project anticipated
to translate into low carbon emissions to the environment and climate-resilient
growth.

Establishing Project Selection Process
This entails a rigorous project review and approval process, which includes;
preliminary screening, identifying and managing potential environmental and/or
social impacts, and obtaining the approval of the project promoters.

Earmarking and Allocating Proceeds
The issuer discloses how it will separate green bond proceeds and make periodic
allocations to eligible investors. Funds are periodically allocated in a ratio equal to
the disbursements of eligible projects.

Monitoring and Reporting
The issuer monitors the implementation of the green projects and provides periodic
reports detailing the utilization of proceeds and the expected environmental
sustainability impacts.

Project implementation and monitoring follows the Green Bond Principle (GBP)
which aims to encourage disclosure, thereby enhancing transparency and integrity
in the development of the green bond market.

The GBP have core components: Use of Proceeds, Process for Project Evaluation
and Selection, Management of Proceeds, and Reporting.

There are four basic types of green bonds, namely:
Standard Green Use of Proceeds Bond: A standard recourse-to-the-issuer debt
obligation aligned with the GBP;

CBN Monetary Policy Review

Green Revenue Bond: A non-recourse-to-the-issuer debt obligation aligned with the
GBP in which the credit exposure in the bond is to the pledged cash flows of the
revenue streams, fees, and/or taxes, and whose use of proceeds go to related or
unrelated Green Project(s);

Green Project Bond: A project bond for a single or multiple Green Project(s) for
which the investor has direct exposure to the risk of the project(s) with or without
potential recourse to the issuer, and which are aligned with the GBP; and

Green Securitised Bond: A bond collateralised by one or more specific Green
Project(s), including but not limited to covered bonds, ABS, MBS, and other
structures; and aligned with the GBP. The first source of repayment is generally the
asset cash flows. These type of bonds cover, for example, asset-backed
securitization of rooftop solar PV and/or energy efficiency assets;

The GBP recognizes several categories of potential eligible projects, including, but
not limited to the following:

Renewable Energy Projects; Enhancing energy efficiency (including efficient
buildings), sustainable waste management, sustainable land use (including
sustainable
forestry
and
agriculture),
biodiversity
conservation,
clean
transportation, sustainable water management (including clean potable drinking
water), and climate change adaptation.

The Green Bond market grew from approximately US$4 billion in 2010 to over US$37
billion in 2014, with corporations like Toyota and public entities such as the State of
Massachusetts having issued over half of the total value.

In September 2016, the Nigerian President, Muhammadu Buhari, signed the Paris
Agreement on Climate Change, joining other nations to commit to reversing the
negative effects of climate change. Under the Paris Agreement, each country was
required to clearly specify efforts to be undertaken to achieve the objectives of the
agreement. These commitments, made on a country-by-country basis are referred
to as Nationally Determined Contributions (NDCs). Nigeria has committed to
reducing carbon emissions by 20 per cent unconditionally, and 45 per cent; with
international support, by 2030 through environmentally efficient energy, transport
and agriculture projects. Such projects are anticipated to reduce carbon emissions
CBN Monetary Policy Review

and mitigate the effects of climate change including desertification, flooding,
erosion, erratic rainfall, and other climate change-induced events. Achieving the
NDCs requires the implementation of various projects in different sectors of the
economy which would require adequate financing. Consequently, the Federal
Government of Nigeria issued its first green bond totaling N10.69 billion in
December, 2017 for a 5-year tenor at 13.48 per cent. The green bond presents a
unique opportunity for governments to seek financing for renewable energy and
other climate friendly projects to bridge infrastructure deficits where they may exist,
and to boost national productivity at a lower cost. This would enable governments
attain the twin objectives of fiscal efficiency and environmental sustainability.


The FGN Sovereign Sukuk: Implication for Monetary Policy
The immense financing gaps occasioned by the decline in oil revenue and binding
constraints Nigeria’s vast infrastructural deficit poses to economic development
has made it imperative for governments at both federal and subnational levels to
seek alternative and unconventional financing sources in order to fulfill their
development aspirations. One such source which continues to garner attention in
recent times is Islamic ‘non-interest’ finance, a fast growing subsector with assets
estimated in excess of US$2.5trillion. Islamic finance refers to banking or financing
activity compliant and guided by the principles of Islamic law (Shariah); and
includes ‘Sukuk’ as one of several products/instruments of Islamic financing. The
term “Sukuk” is an Arabic word which simply means “certificates”. Technically,
Sukuk refers to Islamic bonds structured to generate returns to ethical investors,
without infringing on the Islamic injunction which prohibits interest payment or usury.
The Security and Exchange Commission (SEC Rules 2013) describes Sukuk as:
investment certificates or notes of equal value which evidences proportionate
interest and/or ownership of tangible assets, ‘usufructs’ and services or investment
in the assets of particular projects or special investment activity using shariah
principles and concepts. While the accrued returns to conventional bond holders
signifies the right to receive interest for borrowed monies, Sukuk represents the
investors’ ownership interest in the underlying asset, business, enterprise or project
which entitles them to receive a share of the income generated from trade,
transaction or ownership of the asset or business venture.

In November 2017, the Debt Management Office issued, on behalf of the Nigeria
Government, the first Sovereign Sukuk Bond at N100 billion, with a seven year tenor.
CBN Monetary Policy Review

The bond targeted retail and institutional investors, offering bonds in N1000
denominations, with a minimum subscription amount of 10 units or N10,000.00 and
multiples of N1,000.00 thereafter. The bond offered investors a semi-annual, tax-free
rental income of 16.47 per annum. The proceeds of the N100 billion Sukuk were
earmarked to finance twenty-five (25) Road Projects across the six geopolitical
zones of the country.

The Securities and Exchange Commission (SEC) bears responsibility for the oversight
and regulation of sovereign, sub-national and corporate Sukuk Bond issuance in
Nigeria. This is implemented in line with the framework provided under the
Investment and Securities Act 2007 and in accordance to SEC’s guidelines on
Sukuk. Other institutions including the Central Bank of Nigeria (CBN), Islamic
Financial Services Board (IFSB) and the Accounting and Auditing Organisation of
Islamic Financial Institutions (AAOIFI) issue guidelines from time to time to streamline
the operations of Sukuk.

The selling point of the Sukuk bond, which endeared it to ethical investors, is the low
risk profile - as the payment of rental income and the principal at maturity is
guaranteed by the full faith and credit of the Federal Government of Nigeria. In
addition, the rental income is tax-exempt; and the CBN has conferred liquid asset
status on the bond. Accordingly, the Sukuk is listed on the Nigerian Stock Exchange
and the FMDQ OTC Securities Exchange, providing avenues for investors wishing to
liquidate part or all of their investments prior to maturity. Further, investors may also
opt to utilize the bond holdings as collateral for other transactions.

The Sukuk is a veritable innovation in the federal and sub-national governments’
quest to diversify funding sources to drive infrastructural and economic
development. It is an investment instrument, more suitable to ethical investors who
would ordinarily not invest in most pre-existing interest- bearing instruments. The
Sukuk thus, provides an avenue to tap into the substantial pool of investible funds
at the disposal of ethical investors and prompt their contribution to the
development financing needs of the nation in a manner consistent with their
investment preferences.

Furthermore, the Sukuk provides an opportunity for ethical and retail investors to
participate in the fixed income securities market, thereby encouraging financial
inclusion and improving the savings culture and inclusivity of growth in Nigeria. In
CBN Monetary Policy Review

this regard, the minimum subscription amount for the debut offer was set at N10,
000.00 to make it accessible to a wider scope of investors. Accordingly, financial
institutions, social and religious organizations, cooperative societies, trust funds and
retail investors were expected take advantage of this opportunity.

The Implication of the issuance of the Sovereign Sukuk Bond is the catalytic effect it
has had on activating the non-interest bearing segment of the bonds market in
Nigeria, thereby further deepening the Nigerian financial market by making
additional instruments available to issuers, investors and policy makers.


CBN Monetary Policy Review

CHAPTER SIX
ECONOMIC OUTLOOK

6.1
OVERVIEW

In 2017, global output growth further
strengthened to 3.7 per cent, up from
3.2 per cent in 2016 (IMF WEO January,
2018).
The
improvements
followed
strong growth in world trade supported
by a pickup in investments, particularly
in the advanced economies, as well as
increased manufacturing output in
Asia. The development was driven by a
number of factors including continued
recovery in oil and other commodity
prices, occasioned by the extension of
the OPEC plus agreement to limit oil
production, and geo-political tensions
in the Middle East. Other factors
included: the expected impact of
recent U.S. tax policy adjustments and
easier financing conditions particularly
in
advanced
economies.
Global
growth was, however, moderated by
downside
risks
from
inward-looking
trade policies, renewed uncertainties
associated with the current NAFTA
renegotiations.

In the advanced economies, growth
was estimated at 2.3 per cent, up from
1.7 per cent in 2016. Growth picked up
in most countries of the region, with the
United Kingdom being the notable
exception. Output growth in the US
was 2.3 per cent compared with 1.5
per cent in 2016, due to improved
business
investment
and
external
demand, reflecting the recovery in the
energy sector. In the Euro area and
Japan, growth was driven largely by
improved
private
consumption,
investment, and external demand.
Specifically, output growth in the euro
area expanded to 2.4 per cent from
1.8 per cent in 2016. The Japanese
economy also expanded at a faster
pace by 1.8 per cent compared with
0.9 per cent in 2016. In the United
Kingdom,
however,
growth
was
projected at 1.7 per cent, down from
1.9 per cent in 2016, partly due to
softer growth in private consumption as
the depreciation of the pound sterling
weakened household real income.

Growth expanded by 4.7 per cent in
the Emerging Market and Developing
Economies up from 4.4 per cent in the
preceding
year
due
to
higher
domestic
demand
in
China
and
continued recovery in key economies
within the group. China’s growth rose
marginally to 6.8 per cent from 6.7 per
cent in 2016, due to stronger external
demand.
Output
growth
in
Brazil
improved sharply to 1.1 per cent from
a contraction of 3.5 per cent in 2016 as
a result of strong export performance
and diminished pace of contraction in
domestic demand. Similarly, output
growth in Russia expanded by 1.8 per
CBN Monetary Policy Review

cent from a contraction of 0.2 per cent
in 2016 fuelled by recovering domestic
and external demand as well as
stabilizing oil prices, easing financial
conditions, and improved confidence.
Growth in India, however, slowed to
6.7 per cent from 7.1 per cent in 2016,
reflecting the lingering impact of the
country’s
currency
demonetization
exercise coupled with uncertainties
related to the mid-year introduction of
the goods and services tax.

In Sub-Saharan Africa (SSA), growth
accelerated by 2.7 per cent above
the 1.4 per cent recorded in 2016, due
to
improved
performance
in
the
region’s
two
largest
economies,
Nigeria and South Africa. The Nigerian
economy expanded by 0.8 per cent
from a contraction of 1.6 per cent in
2016 as the economy emerged from
recession, owing to recovery in oil
production and prices as well as
ongoing strength in the agricultural
sector. The South African economy
expanded by 0.9 per cent from 0.3 per
cent in 2016 driven by easing of
drought in the agriculture sector and
improved mining activity.

6.2
Outlook for Global Output

Global growth forecasts for 2018 was
revised upwards due to expectations
of improvements in macroeconomic
conditions anchored on several factors
including:
favourable
financial
conditions
and
strong
sentiments
about
investment
demand.
Other
factors include the recovery of oil and
other commodity prices expected to
continue
into
the
medium
term;
expectations of expansionary fiscal
policy In the U.S and resolution of the
NAFTA agreement by the U.S. with
Canada and Mexico. These factors
could be moderated by continued
geo-political tensions in the Middle
East, threats of military action on the
Korean peninsula and difficulties in the
BREXIT negotiations.

In the advanced economies, growth is
expected
to
be
spurred
by
government
policies
such
as
tax
reforms and fiscal stimulus in the US
and stronger domestic demand and
higher external demand in Europe and
Japan. Global output will also be
influenced by the prospects of growth
pickup in emerging market economies.
Accordingly, global growth is forecast
to stabilize at 3.9 per cent in 2018 and
2019, up from 3.7 per cent in 2017.

Growth in the advanced economies is
projected to stabilize at 2.3 per cent
apiece in 2017 and 2018 and decline
to 2.2 per cent in 2019, influenced by
uncertainty
surrounding
continued
normalization of US monetary policy,
although moderated by expected
improvements in business activities due
CBN Monetary Policy Review

to the response of investment to the
proposed US tax cuts. The Euro area is
forecast to slowdown as growth is
projected at 2.2 and 2.0 per cent in
2018 and 2019 down from 2.4 per cent
in 2017. The lower projection for the
region is due to the possible impact of
increased
political
uncertainty
surrounding
the
BREXIT
discussions,
operating through confidence and
demand channels. Growth projections
for other advanced economies such
as Japan and the United Kingdom, in
2018 and 2019, were also revised
downwards mostly on account of a
less-than-expected
performance
during the latter part of 2017. In
addition, headwinds from the on-going
BREXIT negotiations continue to impose
a drag on growth in the United
Kingdom,
while
Japan’s
ageing
population is slowing down aggregate
demand.

In
the
emerging
market
and
developing
economies,
growth
is
projected at 4.9 and 5.0 per cent in
2018 and 2019, respectively, up from
4.7 per cent in 2017. The development
is
expected
to
be
driven
by
improvements in economic conditions
such as stronger external demand and
commodity prices. Growth forecast for
India is projected at 7.4 and 7.8 per
cent in 2018 and 2019, respectively, up
from 6.7 per cent in 2017. The Brazilian
economy is expected to experience
stronger recovery of 1.9 and 2.1 per
cent in 2018 and 2019, respectively,
compared with 1.1 per cent in 2017,
due to increasing commodity prices
and
easier
financing
conditions.
Growth in China is, however, expected
to decline slightly to 6.6 and 6.4 per
cent in 2018 and 2019, respectively,
from 6.8 per cent in 2017.

In
sub-Saharan
Africa,
growth
is
forecast to rise to 3.3 and 3.5 per cent
in 2018 and 2019, respectively, up from
2.7 per cent in 2017. The expected
improvement would result from modest
output expansion in Nigeria in the face
of a subdued growth prospect in South
Africa. Nigeria is projected to grow by
2.1 and 1.9 per cent in 2018 and 2019,
respectively, up from 0.8 per cent in
2017; while growth in South Africa is
projected to remain stable at 0.9 per
cent during 2017 - 2019.

In the Middle East and North Africa
(MENA) region, higher growth forecasts
of 3.6 and 3.5 per cent in 2018 and
2019, respectively, are expected, up
from 2.5 per cent in 2017. The stronger
growth is likely to result from firmer
crude oil prices and increase in
domestic demand among the oil
producing countries in the region,
particularly Saudi Arabia.


CBN Monetary Policy Review

6.3
Downside
Risks
to
Global
Outlook
In the medium term, risks to the global
economic outlook would continue to
be tilted to the downside. These
downside risks include: the potential
build-up of vulnerabilities, given the
current
easy
financing
conditions.
These vulnerabilities could accumulate
as
yield-seeking
investors
increase
exposures to riskier corporate and
sovereign borrowers and less creditworthy households. Another risk is the
possible adoption of inward-looking
trade policies. In particular, the likely
increase
in
trade
barriers
and
regulatory realignments, following ongoing NAFTA renegotiations and BREXIT
discussions, could dampen investment
and undermine production and trade
efficiencies globally in the medium
term. In the advanced economies, risks
to the outlook include ensuring the
sustainability
of
public
debt
and
curtailing
excessive
external
imbalances.

In
the
emerging
market
and
developing
economies,
rebuilding
fiscal buffers, especially in commoditydependent economies remains a key
challenge to investment and growth in
the medium term. With adequate fiscal
buffers, exchange rate flexibility could
complement other policy measures to
prevent sustained misalignments of
relative
prices
in
the
domestic
economy, and the build-up in external
imbalances.

The medium-term global outlook is also
clouded
by
geopolitical
tensions,
notably in East Asia and the Middle
East. In addition, non-economic factors
could threaten near term growth
prospects.
In
this
regard,
recent
extreme weather outcomes, including
hurricanes in the Atlantic and drought
in Sub-Saharan Africa and Australia,
signpost the risk of climatic events
destabilizing economic activities with
devastating humanitarian costs and
economic
losses
to
the
affected
regions. The development could add
to
migration
flows
that
further
destabilizes already fragile recipient
economies.

In the Middle East and North Africa,
continued civil unrest and hostilities
which had
undermined
economic
activities are unlikely to recede in the
near
term.
These
include:
armed
conflicts, emergence of militia groups,
and growing population of displaced
persons
as
well
as
increasing
geopolitical tensions and terrorism,
which
are
likely
to
undermine
confidence and dampen growth and
investment.

CBN Monetary Policy Review

Table 6.1
Global Output and Inflation Outlook

2018*
A. World Output


World Output

Advanced
Economies

USA

Euro Area

Japan

UK

Canada

anced Economies

Emerging &
Developing
Economies

Commonwea
lth of
Independent
States

Latin America
and the
Caribbean

Middle East
and North
Africa

Sub-Saharan
Africa

B. Commodity
Prices (US'
Dollars)


Oil

Non-fuel

C. Consumer
Prices


Advanced
Economies

Emerging &
Developing
Economies

Source: IMF WEO Update, January 2018
*Forecast

6.4
Global Inflation Outlook

Globally,
consumer
prices
are
projected to rise modestly from 3.1 per
cent to 3.3 per cent in 2018, partly
reflecting
rising
oil
and
other
commodity prices. The increase is,
however, likely to remain subdued due
to persisting output gaps in many
advanced
and
emerging
market
economies.

In the advanced economies, inflation
is forecast to remain stable at 1.7 per
cent in 2017 and 2018, due to
remarkably lower wage growth and
slack in the labour market. Inflation in
the
United
States
remained
unchanged at 2.1 per cent in 2017 and
2018, driven by rise in energy prices,
moderated by recent appreciation of
the domestic currency. In the United
Kingdom, inflation is projected to
remain stable at 2.6 per cent in 2017
and 2018, fuelled by mixed factors
including BREXIT uncertainty. In the
Euro Area, although inflation remained
below its 2.0 per cent target, it is
forecast to fall to 1.4 per cent in 2018,
from 1.5 per cent in 2017, largely on
account of the decline in German
inflation from 1.6 to 1.5 per cent over
the same period.

In
the
emerging
market
and
developing
economies,
inflation
is
CBN Monetary Policy Review

expected to rise to 4.4 per cent in
2018, from 4.2 per cent in 2017. In
China, it is projected to rise to 2.4 per
cent in 2018, from 1.8 per cent in 2017,
reflecting
the
effects
of
modest
recovery in oil and other commodity
prices. In India, it is expected to rise to
4.9 per cent in 2018, from 3.8 per cent
in 2017. In Brazil, inflation is projected to
increase to 4.0 per cent in 2018, from
3.7 per cent in 2017. The decline in
food prices and high excess capacity
in the economy would moderate the
rise in price levels in both Brazil and
India. In Russia, inflation is forecast to
decline to 3.9 per cent in 2018 from 4.2
per cent in 2017, due to rising oil prices
feeding into currency appreciation.

Inflation
in
Sub-Saharan
Africa
is
forecast to decline to 9.5 per cent in
2018, from 11.0 per cent in 2017, owing
to
moderation
in
currency
depreciations from a combination of
factors including firming up of oil and
other commodity prices. Inflation in
Nigeria is projected to decline to low
sing digit between 11 - 14.8 per cent in
2018, from 16.3 per cent in 2017, driven
by rising oil receipts passing through to
lower domestic prices. In South Africa,
inflation is projected to decline to 5.3
per cent in 2018 from 5.4 per cent in
2017, driven by expected decline in
food, and housing & utilities prices.
Inflation in the Middle East, North Africa
is forecast to rise to 8.1 per cent in 2018
from
7.1
in
2017,
driven
by
depreciations of domestic currencies,
the removal of subsidies, and increase
in value-added taxes.

6.5
Outlook
for
Domestic
Output
Growth

Output growth in the second half of
2017 was positive, following the exit
from recession in the second quarter of
2017. Real GDP in the fourth quarter of
2017 strengthened further by 1.92 per
cent from the growth of 1.40 per cent
in the preceding quarter of 2017, in
contrast to the contraction of 1.73 per
cent in the corresponding quarter of
2016 on the back of higher crude oil
production and growth of the non-oil
sector.

The increase in GDP growth has been
attributed to several factors, including
the moderate rise in crude oil prices
and improvement in oil production
following the relative peace in the
Niger Delta region.

The economy is projected to remain
on a growth path into the first half of
2018,
supported
by
positive
developments in the oil sector and
other government initiatives conducive
to growth. The oil sector is poised to
benefit from improved and stable
production from OPEC’s commitment
to its output cut agreement. Also the
CBN Monetary Policy Review

prevailing peace deal between the
Federal Government of Nigeria and
stakeholders in the Niger Delta is
expected to continue to support oil
production. The recovery in oil price
and
improved
Joint
Venture
production
will
help
support
government revenue, with the latter
adding
approximately
0.2
million
barrels per day to total oil production
in 2018. Furthermore, the non-oil sector
would benefit from fiscal spending
following the implementation of the

budget,
as
well
as
various
development finance initiatives of the
Bank. The CBN’s commitment to make
foreign exchange available to genuine
businesses and retail users is expected
to
support
manufacturing
sector
output and spur overall expansion of
goods and services production in the
economy.

Based on the foregoing, the growth
outlook for the economy is largely
optimistic. The International Monetary
Fund (IMF) forecasts Nigeria’s output
growth in 2018 at 2.1 per cent from 0.8
per cent in 2017 (IMF, WEO, January
2018), premised on expected stronger
activity and the positive effect of
restriction on OPEC oil production.
Similarly, the World Bank forecasts
Nigeria’s growth at 2.5 per cent in 2018
up from 1.0 per cent in 2017, premised
on
the
sustenance
of
rising
oil
production and continuing reforms in
the foreign exchange market, coupled
with improved electricity supply. Also,
the Federal Government of Nigeria’s
2018 appropriation bill is based on the
growth forecast of 3.5 per cent.

The key risks to the promising growth
outlook,
however,
remain
developments
in
the
external
environment which may affect capital
inflow to Nigeria, as well as domestic
economic
conditions.
The
key
domestic risks include the delay in the
passage and implementation of the
FGN 2018 budget, thereby denying the
economy of needed fiscal stimulus. In
addition, slow credit growth and poor
transmission
the
monetary
policy
impulses to the real economy is clearly
undermining output. The perennial
challenge
of
infrastructural
deficit
remains a constraint to entrepreneurial
activities
and
initiatives
in
the
economy.
Also,
external
sector
imbalances could widen and harm
growth if the current oil price outlook
and stability in the Niger Delta region
reverses in the near term. It is, however,
hoped that monetary, fiscal and trade
policies
would
focus
on
these
challenges in order to support the
fragile recovery in the near term.

6.6 Outlook for Domestic Inflation
Nigeria’s headline inflation (year-onyear) moderated during the second
half of 2017, although still substantially
CBN Monetary Policy Review

above the Bank’s benchmark of 6-9
per cent. The price development,
however, remained within the lower
double-digit range and is unlikely to
harm growth, based on available
inflation
threshold
studies
for
the
economy. Staff estimates indicate that
year-on-year
headline
inflation
is
expected to continue decelerating to
15.35, 14.45 and 13.25 per cent in
January,
March
and
June
2018,
respectively,
driven
by
sustained
stability
in
the
foreign
exchange
market, lower food prices and the
sustained tight monetary policy stance
of the Bank.

The upside risk to inflation would
include: the implementation of the
proposed expansionary 2018 Federal
Government budget and electionrelated spending in preparation for the
2019 general elections in the country.
Also, continued poor power supply,
increased cost of transportation, the
disruptive
effects
of
the
clashes
between
farmers
and
herdsmen,
amongst others, are likely to feed into
higher
domestic
prices,
thereby
moderating the current deceleration in
inflation. The Bank would, however,
continue
to
manage
liquidity
conditions in the domestic economy to
ensure that these threats from inflation
are minimized.


CBN Monetary Policy Review

Summary of Inflation Forecast for Year-On-Year Change (per cent)
YEAR-ON-YEAR INFLATION RATE
12-MMA INFLATION RATE
Status
Month
Headline
inflation
Food
inflation
Core
inflation
Status
Month
Headline
inflation
Food
inflation
Core
inflation
Actual
Jul-17
16.05
20.28
12.21
Actual
Jul-17
17.48
18.25
15.80
Aug-17
16.01
20.25
12.30
Aug-17
17.33
18.57
15.34
Sep-17
15.98
20.32
12.12
Sep-17
17.17
18.88
14.90
Oct-17
15.91
20.31
12.14
Oct-17
16.97
19.14
14.41
Nov-17
15.90
20.31
12.21
Nov-17
16.76
19.39
13.93
Dec-17
15.37
19.42
12.09
Dec-17
16.50
19.55
13.46
Forecast
Jan-18
15.35
19.40
12.15
Forecast
Jan-18
16.24
19.66
13.01
Feb-18
15.01
18.95
12.07
Feb-18
16.01
19.68
12.71
Mar-18
14.45
18.28
11.04
Mar-18
15.78
19.65
12.35
Apr-18
14.23
18.34
10.53
Apr-18
15.53
19.56
12.01
May-18
13.42
17.22
10.20
May-18
15.28
19.37
11.77
Jun-18
13.25
17.71
9.34
Jun-18
15.04
19.18
11.50
Source: CBN Statistics Dept.
6.7 Outlook for Monetary Policy in 2018

The medium term outlook for the
economy
indicated
a
modest
recovery
from
the
current
fragile
growth. The outlook will be substantially
driven
by
the
sustained
implementation
of
the
Federal
Government’s
Economic
Recovery
and Growth Plan (ERGP) within an
overall context of expansionary fiscal
policy. The non-oil sector is expected
to play a major role in the recovery
prospect, supported by the sustained
development finance initiatives and
financial inclusion strategies of the
Bank, in addition to other initiatives by
government to diversify the economy.
Also, the prospects for continuing
moderation
in
inflation
outcomes
CBN Monetary Policy Review

would
be
strengthened
by
the
commitment of the monetary authority
to continue to implement appropriate
liquidity management measures and
supportive foreign exchange policies.
In this regard, the policy challenge
facing the economy is sustaining the
fragile growth in the face of still high,
although
moderating
inflationary
pressures.
Accordingly, the risks to monetary
policy in the near-term would include:
the high but moderating inflationary
pressure, as well as banking system
liquidity surfeit and weakening macroprudential indicators that are likely to
threaten
financial
system
stability.
Others include: sustaining the fragile
stability
in
the
foreign
exchange
market in the face of continued
normalization of monetary policy by
some
advanced
economies;
contraction in private sector credit in
the face of sluggish recovery; high
unemployment rate; and rising costs
and shortages of energy. On the fiscal
front, the rising debt profile of the
Federal and sub-national governments
and
uncertainty
surrounding
the
passage and implementation of the
expansionary

Federal
Government
budget
as
well
as
election-related spending in the run-up
to the 2019 general elections, are
clearly key concerns. The Bank would
continue to design, implement and
monitor appropriate monetary policy
measures to ensure that the downside
risks stemming from inflation to growth
are reined-in in the near to medium
term.


CBN Monetary Policy Review

Appendices

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO

OF
THE
MONETARY
POLICY
COMMITTEE
MEETING OF 24th AND 25th JULY, 2017

1.0
Background

The Monetary Policy Committee met
on the 24th and 25th of July 2017,
against the backdrop of a relatively
improving global economy. However,
protectionism
in
trade
and
immigration; fragilities in the financial
markets, remain the key risks to global
economic stability.

On the domestic front, the economy is
on a path to moderate recovery with a
positive short- to medium-term outlook,
premised largely on fiscal stimulus and
a stable naira exchange rate. Inflation
expectations also appear sufficiently
anchored with the current stance of
monetary policy.

In attendance were 8 out of 12
members
of
the
Committee.
The
Committee examined the global and
domestic
economic
and
financial
environments in the first half of 2017
and the outlook for the rest of the year.


External Developments
The momentum witnessed in the global
economy
in
Q1

continued
through the second quarter, driven by
a generally accommodative monetary
policy
stance
in
most
advanced
economies,
moderation
in
energy
prices and improved global demand.
The emerging markets and developing
economies, are experiencing positive
spillovers from somewhat improved
commodity prices and developments
in the advanced economies. The
growth prospects for this group of
countries in 2017 are expected to rise
to about 4.6 per cent from 4.3 per cent
in 2016.

Complemented by the momentum in
other blocks and a potential positive
prospect for expansion in world trade,
the IMF in its July edition of the World
Economic Outlook (WEO) projected
global output growth in 2017 at 3.5 per
cent from 3.1 per cent in 2016.

The
MPC,
however,
noted
some
headwinds confronting the optimistic
outlook to global growth arising mainly
from receding market expectations of
expansionary U.S. fiscal policy, weaker
than expected growth in the U.K due
to difficult BREXIT negotiations and
geo-political risks associated with the
forthcoming
German
general
elections. In addition, the Committee
noted the downward trend in global
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inflation after earlier indications of an
uptick as the U.S. continues to build up
inventories in shale oil, while emerging
economies such as Brazil, Russia and
South Africa witness strong economic
headwinds leading to sharp downturn
in output.

Domestic Output Developments
Data from the National Bureau of
Statistics
(NBS)
showed
that
the
contraction
in
the
economy
moderated to 0.52 per cent in Q1 2017
from 1.30 per cent in Q4 2016. The
data further revealed that fifteen
economic activities recorded positive
growth in Q1 2017, showing strong signs
of recovery. The Purchasing Managers
Index (PMI) for manufacturing and
non-manufacturing activities stood at
52.9 and 54.2 index points in May and
June 2017, respectively from 52.7 and
52.5
index
points
in
May
2017,
indicating an expansion for the third
consecutive
month.
Similarly,
the
Composite
Index
of
Economic
Activities (CIEA) rose from 55.85 to
59.50 index points between April and
June 2017. The Committee noted the
continuous positive effects of improved
foreign exchange management on
the performance of manufacturing
and other economic activities. Non-oil
real GDP grew by 0.72 per cent in Q1
2017,
reflecting
growth
in
the
agricultural sector by 0.77 per cent in
the same period. Provisional data also
showed
that
the
external
sector
remained resilient in Q2 2017, as the
overall Balance of Payments (BOP)
position recorded a surplus of US$0.65
billion, equivalent to 0.8 per cent of
GDP. The Committee hopes that the
implementation of the 2017 budget
and the Economic Recovery & Growth
Plan (ERGP) will further strengthen
growth and stimulate employment.

Developments in Money and Prices
The Committee noted that money
supply (M2) contracted by 7.33 per
cent in June 2017, annualized to a
contraction of 14.66 per cent, in
contrast to the provisional growth
benchmark
of
10.29
per
cent
expansion for 2017. The development
in M2 reflected a contraction of 7.45
per cent in net foreign assets (NFA) in
June 2017. Similarly, M1 contracted by
7.98 and 10.70 per cent in May and
June 2017, respectively, consistent with
the
directive
of
the
MPC
that
expansion in narrow money should be
controlled. On the other hand, net
domestic credit (NDC) grew modestly
by 1.02 per cent in June 2017,
(annualized at 2.04 per cent), driven
mainly by net credit to government,
which grew by 5.91 per cent. Credit to
the private sector, however, declined
relative to end-December 2016 by 0.02
per cent. The MPC noted the widening
fiscal deficit of N2.51 trillion in the first
half of 2017 and the growing level of
CBN Monetary Policy Review

government
indebtedness
and
expressed concern about the likely
crowding out effect on private sector
investment. The constrained growth in
the monetary aggregates provides
evidence
of
weak
financial
intermediation in the banking system
arising from the constraints imposed by
developments in the macroeconomy.

Headline
inflation
(year-on-year)
declined for the fifth consecutive
month in June 2017, to 16.10 per cent
from 16.25 per cent in May, and 18.72
per cent in January 2017. Core inflation
moderated to 12.50 per cent in June
from 13.00 per cent in May 2017 while
the food index rose marginally to 19.91
per cent in June from 19.27 per cent in
May 2017. This development was
traced
to
intermittent
attacks
by
herdsmen on farming communities,
sporadic terrorist attacks in the NorthEast
and
other
seasonal
farming
effects.
The
Committee
was
particularly
concerned
about
the
unabating pressure from food inflation
but hopeful that the situation will
dampen in the third quarter as harvests
begin to manifest.

The Committee also attributed the
moderation in inflation to be partly due
to the effects of the relative stability in
the
foreign
exchange
market,
stemming
from
improved
management,
which
promoted
increased
inflows.
Against
this
backdrop, the Committee reiterated its
commitment to sustain and deepen
flexibility in the foreign exchange
market to further enhance foreign
exchange flow in the economy. The
Committee,
however,
noted
the
protracted effects of high energy and
transportation costs as well as other
infrastructural constraints on consumer
price developments and expressed
hope that government will fast-track its
reform
agenda
to
address
these
legacy issues. The Committee noted
that while responding to the current
tight monetary policy stance, inflation
still had a strong base effect which is
expected to wane by August 2017.
Money market interest rates moved in
tandem with the high level of liquidity
in the banking system. The interbank
call rate opened at 16.13 per cent on
May 25, 2017 and closed at 4.43 per
cent on June 29, 2017. However, the
average inter-bank call rate during the
period stood at 12.49 per cent. The
movement in the net liquidity position
reflected the effects of OMO, foreign
exchange
interventions,
statutory
allocation
to
state
and
local
governments, and maturity of CBN Bills.
The
Committee
noted
the
improvements in the equities segment
of the capital market as the All-Share
Index (ASI) rose by 33.33 per cent from
25,516.34 on March 31, 2017, to
34,020.37 on July 21, 2017. Similarly,
CBN Monetary Policy Review

Market Capitalization (MC) rose by
32.84 per cent from N8.83 trillion to
N11.73 trillion during the same period.
Relative
to
end-December
2016,
capital market indices rose by 26.59
and
26.81
per
cent,
respectively,
reflecting growing investor confidence
due
to
improvements
in
foreign
exchange
management.
The
Committee
however,
noted
the
seeming bubble in the capital market
and cautioned on the utilization of the
inflows.

Total foreign exchange inflows through
the Central Bank of Nigeria (CBN)
increased by 35.41 per cent in June
2017 compared with the previous
month. Total outflows, on the other
hand, decreased by 12.73 per cent
during the same period, as a result of
reduced
CBN
intervention
in
the
interbank foreign exchange market,
which
also
reduced
TSA
(dollar)
payments balances by 61.4 per cent in
the period under review. The positive
net flows resulted in an improvement of
gross external reserves to $30.30 billion
at end-June 2017, compared with
$29.81 billion at end-May 2017.

The Committee noted the emerging
convergence between the bureau-dechange
(BDC)
and
Nigeria
Autonomous
Foreign
Exchange
(NAFEX) segment rates and the stability
of the average naira exchange rate at
the inter-bank segment of the foreign
exchange market during the review
period.

2.0.
Overall Outlook and Risks
Available
forecasts
of
key
macroeconomic indicators point to a
fragile
economic
recovery
in the
second quarter of the year. The
Committee
cautioned
that
this
recovery could relapse in a more
protracted recession if strong and bold
monetary and fiscal policies are not
activated immediately to sustain it.
Thus, the expected fiscal stimulus and
non-oil federal receipts, as well as
improvements in economy-wide nonoil
exports,
especially
agriculture,
manufacturing,
services
and
light
industries, all expected to drive the
growth impetus for the rest of the year
must
be
pursued
relentlessly.
The
Committee
expects
that
timely
implementation of the 2017 Budget,
improved
management
of
foreign
exchange, as well as security gains
across the country, especially, in the
Niger Delta and North Eastern axis,
should be firmly anchored, to enhance
confidence
and
sustainability
of
economic recovery.

The
Committee
identified
the
downside risks to this outlook to include
weak financial intermediation, poorly
targeted fiscal stimulus and absence of
structural programme implementation.
CBN Monetary Policy Review

3.0.
The
Considerations
of
the
Committee
Notwithstanding the improved outlook
for growth, the Committee assessed
the implications of the uncertainties
arising
from
the
continued
normalization of monetary policy by
the US Fed and the implications of a
strong dollar, the weak recovery of
commodity prices, and the uncertainty
of US fiscal policy. The Committee
similarly evaluated other challenges
confronting the domestic economy
and the opportunities for achieving
economic growth and price stability in
2017.

The Committee expressed satisfaction
with the gradual but consistent decline
in inflationary pressures in the domestic
economy, noting its substantial base
effect, continuous improvements in the
naira
exchange
rate
across
all
segments of the foreign exchange
market, and considerable signs of
improved
investments
inflows.
The
Committee welcomed the move by
the fiscal authorities to engage the
services of asset-tracing experts to
investigate the tax payment status of
150 firms and individuals in an effort to
close some of the loopholes in tax
collection,
towards
improving
government revenue. However, the
Committee expressed concern about
the slow implementation of the 2017
Budget and called on the relevant
authorities
to
ensure
timely
implementation,
especially,
of
the
capital portion in order to realize the
objectives of the Economic Recovery
and Growth Plan.

The MPC believes that at this point,
developments in the macroeconomy
suggest two policy options for the
Committee: to hold or to ease the
stance of monetary policy.

Against the backdrop of the outlook
for the domestic and global economy;
the enthusiasm around the base-effect
which reduced inflationary pressures
and the continuous relative stability in
the naira exchange rate, there is need
to maintain cautious optimism, given
the potential ramification of a major
deviation from the existing policy path.
The Committee is not unmindful of the
high cost of capital and its implications
on the still ailing economy, which
arguably
necessitates
an
accommodating
monetary
policy
stance. The MPC also noted the
liquidity surfeit in the banking system
and
the
continuous
weakness
in
financial intermediation, but agreed
on the need to support growth without
jeopardizing price stability or upsetting
other
recovering
macroeconomic
indicators,
particularly
the
relative
stability
in
the
foreign
exchange
market.

CBN Monetary Policy Review

The MPC thinks that easing at this point
would
signal
the
Committee’s
sensitivity to growth and employment
concerns by encouraging the flow of
credit to the real economy. It would
also promote policy consistency and
credibility of its decisions. Also, the
Committee observed that easing at
this time would reduce the cost of
debt
service,
which
is
actually
crowding
out
government
expenditure.
The
risks
to
easing
however, would show in terms of
upstaging
the
modest
stability
achieved in the foreign exchange
market, the possible exit of foreign
portfolio
investors
as
well
as
a
resurgence of inflation following the
intensified implementation of the 2017
budget in the course of the year. The
Committee also reasoned that easing
would further pull the real interest rate
down into negative territory.

The argument for holding is largely
premised on the need to safeguard
the stability achieved in the foreign
exchange market, and to allow time
for past policies to work through the
economy.
Specifically,
the
MPC
considered the high banking system
liquidity level; the need to continue to
attract foreign investment inflow to
support the foreign exchange market
and economic activity; the expansive
outlook for fiscal policy in the rest of
the year; the prospective election
related spending which could cause a
jump in system liquidity, etc.

The MPC expressed concern over the
increasing fiscal deficit estimated at
N2.51 trillion in the first half of 2017 and
the crowding out effect of high
government borrowing. While urging
fiscal restraint to check the growing
deficit, the Committee welcomed the
proposal
by
government
to
issue
sovereign-backed promissory notes of
about N3.4 trillion for the settlement of
accumulated
local
debt
and
contractors arrears. The Committee,
however, advised the Management of
the Bank to monitor the release
process of the promissory notes to
avoid an excessive injection of liquidity
into the system thereby offsetting the
gains so far achieved in inflation and
exchange rate stability.

On the outlook for financial system
stability, the Committee noted that, in
spite of the resilience of the banking
sector,
the
prolonged
weak
macroeconomic
environment
has
continued to impact negatively on the
sector’s stability. The MPC reiterated its
call on the Bank to sustain its intensive
surveillance of deposit money banks’
activities for the purpose of promptly
identifying
and
addressing
vulnerabilities. The Committee also
called
on
the
DMBs
to
support
economic recovery and growth by
CBN Monetary Policy Review

extending reasonably priced credit to
the private sector.

4.0.
The Committee’s Decisions
In consideration of the headwinds
confronting the domestic economy
and the uncertainties in the global
environment, the Committee decided
by a vote of 6 to 2 to retain the
Monetary Policy Rate (MPR) at 14.0 per
cent
alongside
all
other
policy
parameters. Consequently, 6 members
voted to retain the MPR and all other
parameters at their current levels while
two members voted to ease the
stance
of
monetary
policy.
In
summary, the MPC decided to:

(i) Retain the MPR at 14 per cent;
(ii) Retain the CRR at 22.5 per
cent;
(iii) Retain the Liquidity Ratio at
30.00 per cent; and
(iv) Retain the Asymmetric corridor
at +200 and -500 basis points
around the MPR.

Thank you for listening.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
25th July, 2017


CBN Monetary Policy Review

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO

OF
THE
MONETARY
POLICY
COMMITTEE
MEETING OF 25th AND 26th SEPTEMBER,

1.0
Background
The Monetary Policy Committee met
on the 25th and 26th of September, 2017
against the backdrop of a relatively
optimistic
global
economy.
The
Committee examined the global and
domestic
economic
and
financial
environments up to the third quarter of
2017, and the outlook for the rest of the
year. The recent spate of flooding and
hurricanes in some parts of the globe;
the flooding in Nigeria; the increasing
tension between the US and North
Korea, and the perception of hostilities
on the Korean Peninsula as well as the
associated geo-political tensions, were
identified as key risks to global output
growth.

On the domestic front, the economy
exited recession (which began in the
first quarter of 2016) in the second half
of 2017, with a modest positive short to
medium-term outlook, resulting largely
from
deliberate
macroeconomic
stimulus and a stable naira exchange
rate.
Inflation
expectations
also
appeared anchored on the strength of
prevailing
tight
monetary
policy
stance.

Seven (7) members of the MPC were
present at the meeting.

External Developments
Global output is projected to improve
further in 2017, as growth forecast by
the IMF in its July World Economic
Outlook (WEO) was projected at 3.5
per cent, up from 3.2 per cent in 2016.
Output growth in some advanced
economies, including Japan, the Euroarea as well as some emerging market
and
developing
economies
is
expected to improve in 2017. Nigeria,
Brazil and South Africa, all exited
recession, while Russia is likely to exit
recession in the fourth quarter of 2017,
after a mild contraction of 0.57 per
cent in the second quarter. Growth
forecast
for
the
US
was
revised
downwards from 2.3 per cent to 2.1
per cent in 2017, as a result of the
weak growth observed in the first
quarter of the year.

The
MPC,
however,
noted
some
headwinds confronting the optimistic
global growth prospects to include:
recent developments on the Korean
peninsula;
the
damage
to
infrastructure caused by hurricanes -
Harvey, Irma and Maria; the lull in
BREXIT
negotiations
and
the
normalization of monetary policy by
the US Fed, which is expected to
instigate global capital flow reversal.
Other
challenges
include
the
CBN Monetary Policy Review

continued slow pace of recovery in
global oil and other commodity prices
and China’s reduction in uptake of
global commodities. In addition, the
Committee noted the tepid global
inflation
momentum,
implying
that
continued
monetary
policy
normalization could be injurious to
global growth prospects.

The uptick in global inflation persisted,
but moderated, in response to rising oil
prices,
continued
accommodative
monetary policy in the advanced
economies;
and
currency
appreciation
in
some
emerging
markets and developing countries.
Average inflation for the developed
economies is projected at 1.9 per cent
in 2017, while it is forecast to average
4.5 per cent in the emerging and
developing economies, as prices are
expected
to
moderate
due
to
seasonal
effects.
The
Committee
observed that the outlook for global
monetary
policy
remains
predominantly
accommodative,
in
support of recovery and growth.

Domestic Output Developments
Data from the National Bureau of
Statistics (NBS) showed that real Gross
Domestic Product (GDP) grew by 0.55
per cent in the second quarter of 2017,
against the contractions of 0.91 and
1.49 per cent in the previous quarter of
2017, and the corresponding quarter of
2016,
respectively,
marking
the
technical exit of the Nigerian economy
from recession. Non-oil real GDP grew
by 0.45 per cent in Q2, 2017, driven
largely by agriculture (3.0%), industry
(1.1%), and construction (0.1%). The
modest growth was attributed to fiscal
injections from the implementation of
the Economic Recovery and Growth
Plan (ERGP), and enhanced supply of
foreign
exchange
arising
from
improved
crude
oil
prices.
The
Committee also noted the positive
outlook from the Purchasing Managers
Index (PMI) for manufacturing and
non-manufacturing
activities,
which
stood at 53.6 and 54.1 index points in
August 2017, respectively, above the
50 index points benchmark, indicating
moderate
signs
of
recovery.
The
Committee
further
noted
that,
although the recovery was weak, it
was
hopeful
that
the
active
implementation of the 2017 budget
could boost aggregate demand and
employment.

Developments in Money and Prices
The Committee noted that money
supply (M2) contracted by 11.06 per
cent in August 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 18.42 per cent in
other assets net (OAN) in August 2017.
Similarly, M1 contracted by 12.25 per
CBN Monetary Policy Review

cent in August 2017, (annualised to -
18.37 per cent). Net domestic credit
(NDC) contracted by 0.14 per cent,
annualized at -0.20 per cent, driven
majorly by net credit to government,
which also contracted by 1.05 per
cent against the programmed growth
of 33.12 per cent. Credit to the private
sector, however, grew marginally by
0.07
per
cent
in
August
2017,
compared
with
the
provisional
benchmark of 14.88 per cent. The MPC
also noted the policy constraints in
ensuring the flow of credit to the real
sector in the face of weak and
underperforming
monetary
aggregates.

Inflationary pressure in the economy
continued to moderate with headline
inflation (year-on-year) receding for
the seventh consecutive month to
16.01 per cent in August 2017, from
16.05 per cent in July 2017. Food
inflation declined slightly to 20.25 per
cent in August 2017 from 20.28 per
cent in July 2017, while core inflation
increased to 12.30 per cent in August
2017 from 12.21 per cent in July 2017.
This development was attributed to the
contraction in money supply, decline
in imported food and non-food prices,
favourable base effects, and the
moderating effects of stable exchange
rates. The Committee, however, noted
that the high
food
inflation was
traceable to rising prices of farm inputs
and
supply
shortages,
intermittent
clashes
between
farmers
and
herdsmen, as well as weak harvest,
due
to
increased
flooding
of
farmlands.

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
18.00 per cent on July 26, 2017, closed
at 7.00 per cent on August 31, 2017.
The OBB rate opened at 15.03 per cent
and closed lower at 7.83 per cent in
the
same
period.
However,
the
average inter-bank call and OBB rates
for the period stood at 22.63 and 39.66
per cent, respectively. The movement
in net liquidity positions and flows
reflected the effects of OMO sales;
foreign
exchange
interventions;
statutory revenue payments to states
and local governments; remittances
by Nigerian Customs and Federal
Inland Revenue Services for FAAC
meetings; and the maturity of CBN Bills.

The Committee noted the continuing
improvement in the external reserves
position and the equities segment of
the capital market. External reserves
position grew to US$32.9 billion at close
of business on 25th September, 2017
while the All-Share Index (ASI) rose by
7.20 per cent from 33,117.48 on June
30, 2017 to 35,504.62 on August 31,
2017.
Market
Capitalization
(MC)
CBN Monetary Policy Review

improved by 6.90 per cent to N12.24
trillion from N11.45 trillion during the
same
period.
Relative
to
endDecember
2016,
capital
market
indices rose by 32.10 and 32.30 per
cent, respectively, reflecting growing
investor
confidence,
due
to
improvements in foreign exchange
management.

Total foreign exchange inflows through
the Central Bank of Nigeria (CBN) rose
by 1.98 per cent in August 2017,
compared with the previous month.
Similarly, total outflow increased by
7.03 per cent during the same period,
as a result of increased international
remittances, inclusive of public sector
and JVC payments; which rose by
58.59 per cent in the period under
review.

The
Committee
noted
the
trend
towards convergence between the
rates at the bureau-de-change (BDC)
and the Nigeria Autonomous Foreign
Exchange (NAFEX) segments, as well as
the stability of the exchange rate at
the inter-bank segment of the foreign
exchange market during the review
period. Similarly, the Committee noted
the
success
of
the
Investor
and
Exporters’ window (I &E) of the foreign
exchange market and traced this not
only to foreign investor confidence but
also to the zeal and commitment of
Nigerian
exporters
who
have
demonstrated
preference
for
the
window to the parallel market. The
Committee observed that the I&E
window has increased liquidity and
boosted confidence in the market with
over US$7.0 billion inflow in the last five
months. The Committee will continue
to introduce policies that will improve
the confidence of foreign investors in
the
country’s
macroeconomic
management regime.

2.0.
Overall Outlook and Risks
Available data and forecast of key
macroeconomic variables indicate a
relatively positive outlook, predicated
on existing policy initiatives including
the ERGP. Other potential drivers of
economic recovery are; the expected
increase
in
government
revenue
arising from favourable crude oil prices,
stable
output,
and
general
improvements in the non-oil sector,
especially, agriculture, industry and
construction. The intervention by the
CBN in the real sector is expected to
continue to yield positive results in
terms of output and lower consumer
prices.

The Committee, however, noted some
downside risks to the overall short- to
medium-term positive outlook for the
economy.
These
include;
flooding
which displaced farming communities
and
political
agitations.
On
the
external front, the hawkish
policy
CBN Monetary Policy Review

stance in the United States, rising geopolitical tensions and sluggish output
recovery in the Euro-area and Japan,
could slow-down the momentum of
global output growth, with significant
spillovers to emerging markets and
developing
countries,
including
Nigeria.

3.0.
The
Considerations
of
the
Committee
The Committee applauded the exit of
the Nigerian economy from recession
but observed that the growth remains
fragile and, therefore, hopes that
complementary fiscal and monetary
policies would sustain the growth
momentum. The Committee further
expressed
satisfaction
with
the
gradual, but consistent decline in
inflation,
noting,
however,
the
substantial base effect in addition to
the continuous improvement in the
naira
exchange
rate
across
all
segments of the foreign exchange
market;
and
considerable
improvement in foreign capital inflow.
The Committee welcomed the steady
implementation of the 2017 Budget,
especially, the capital component of
the budget, and urged increased
momentum in expenditure directed at
the growth-stimulating sectors of the
economy in order to reduce youth
unemployment and restiveness.

The Committee, however, expressed
concern on the sustained pressure on
food prices, noting risks posed by
floods,
strikes
and
insurgencies
in
various parts of the country to food
production and distribution. Regarding
the tepid turnaround in economic
activities in the second quarter of 2017,
the Committee emphasized that the
employment gains of recovery were
still minimal, noting that a number of
important job elastic sub-sectors were
still weak and may require more fiscal
support
to
regain
traction.
The
Committee,
however,
commended
the Federal Government for issuing the
Executive Order aimed at improving
the ease of doing business in the
country. It also noted the efforts of the
government to create jobs in the
agricultural
sector
with
the
inauguration
of
the
Presidential
Committee on job creation, targeting
at least ten thousand jobs in each
state of the Federation, over the next
six
months
through
a
boost
in
agricultural support and funding. The
Committee
enjoins
the
state
governments
to
work
with
the
Presidential Committee to actualise this
plan without further delay.

The MPC also noted with satisfaction,
the
directive
of
the
Federal
Government to all states to promptly
pay outstanding salary arrears, in order
to
boost
aggregate
demand.
It
CBN Monetary Policy Review

commended
efforts
to
clear
outstanding contractor arrears; prompt
settlement
of
trade
disputes
with
certain Unions of organised labour,
including the Academic Staff Union of
Universities (ASUU) and Health Workers;
as well as the release of money to
settle outstanding entitlements of the
erstwhile workers of the defunct Nigeria
Airways. These efforts, the Committee
reasoned would improve aggregate
demand and strengthen the weak
recovery.

The
Committee
restated
its
commitment to maintaining stability in
prices,
without
which
meaningful
recovery cannot be achieved. In this
regard,
members
welcomed
the
gradual narrowing of rate spreads in
the foreign exchange market and
urged the Bank to continue to monitor
and respond proactively to threats and
vulnerabilities in the foreign exchange
market.

On the outlook for financial stability,
the Committee noted that, in spite of
the banking sub-sector’s resilience, the
weak macroeconomic environment
has continued to impact negatively on
the stability of the sub-sector. The
Committee reiterated its call on the
Bank to sustain its surveillance of
deposit money banks (DMBs) activities
for
the
purpose
of
prompt
identification
and
mitigation
of
potential
vulnerabilities.
The
Committee also called on the DMBs to
support
the
quest
to
move
the
economy
forward
by
extending
reasonably low priced credit to the
private sector.

4.0.
The Committee’s Decisions
In
arriving
at
its
decision,
the
Committee took note of the gains so
far achieved as a result of its earlier
decisions; including the stability in the
foreign exchange market and the
moderate reduction in inflation. The
option was whether to hold, tighten or
ease.
These
were
subjected
to
extensive
debate.
As
in
previous
meetings, although tightening would
help rein in inflation expectations and
strengthen the stability in the foreign
exchange market, the Committee felt
that it would further widen the income
gap, depress aggregate demand and
adversely affect credit delivery to the
private sector. The Committee also
noted that tightening may result in the
deposit money banks re-pricing their
assets and loans, thus raising the cost
of
borrowing
and
therefore
heightening
the
already
weak
investment
climate
and
nonperforming loans.

With
respect
to
loosening,
the
Committee believed that while it
would make it more attractive for
Nigerians to acquire assets at cheaper
CBN Monetary Policy Review

prices, thus increasing their net wealth,
and therefore stimulate spending as
confidence rises, it nevertheless, felt
constrained that loosening at this time
would
exacerbate
inflationary
pressures and worsen the exchange
rate and inflationary conditions. The
Committee also felt that loosening will
further pull the real rate deeper into
negative territory as the gap between
the nominal interest rate and inflation
widens.

On
the
argument
to
hold,
the
Committee believes that the effects of
fiscal policy actions towards stimulating
the economy have begun to manifest
as evident in the exit of the economy
from
the
fifteen-month
recession.
Although still fragile, the fragility of the
growth makes it imperative to allow
more
time
to
make
appropriate
complementary policy decisions to
strengthen the recovery. Secondly, the
Committee was of the view that
economic
activity
would
become
clearer between now and the first
quarter of 2018, when growth is
expected
to
have
sufficiently
strengthened and gains in receding
inflation,
very
obvious.
The
most
compelling argument for a hold was to
achieve more clarity in the evolution of
key
macroeconomic
indicators
including
budget
implementation,
economic recovery, exchange rate,
inflation and employment generation.
In consideration of the headwinds
confronting the domestic economy
and the uncertainties in the global
environment, the Committee decided
by a vote of 6 to 1 to retain the
Monetary Policy Rate (MPR) at 14.0 per
cent
alongside
all
other
policy
parameters. In arriving at this HOLD
decision,
the
MPC
commits
to
employing maximum flexibility to guide
the economy on the path to optimal
growth.
Consequently,

members
voted to retain the MPR and all other
parameters at their current levels, while
one member voted to lower the MPR
to signal an ease to the current stance
of tight monetary policy. However,
overall,
majority
of
the
members
expressed a strong commitment to
policy flexibility that would allow the
Committee
to
promptly
take
the
necessary actions that would promote
overall macroeconomic stability and
engender sustainable growth.

In summary, 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.

CBN Monetary Policy Review

Thank you for listening.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
26th September, 2017


CBN Monetary Policy Review

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO

OF
THE
MONETARY
POLICY
COMMITTEE
MEETING
OF
MONDAY
20th
AND
TUESDAY 21st NOVEMBER, 2017

1.0
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,
CBN Monetary Policy Review

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 nonoil 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 non-manufacturing 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 (annualized), 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
(annualized 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
CBN Monetary Policy Review

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,

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
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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
CBN Monetary Policy Review

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
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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


Thank you for listening.

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


CBN Monetary Policy Review