Central Bank of Nigeria (CBN) Communiqué No. 100 of the Monetary
Policy Committee Meeting of Monday 23rd and Tuesday 24th March,

The Monetary Policy Committee (MPC) met on 23rd and 24th March,
2015, against the backdrop of harsh external economic environment
and significant risks in the domestic economy. In attendance were
eleven (11) out of the twelve (12) members, including Dr. O. J.
Nnanna, who assumed duty as Deputy Governor (Financial System
Stability) at the end of January 2015. The Committee analyzed key
developments in the global and domestic economic and financial
conditions as well as the outlook for the rest of 2015.
International Economic Developments
The Committee noted that the pace of global economic recovery
had remained moderate and uneven. In particular, the Committee
noted that lower commodity prices were weighing heavily on output
growth, especially in the oil exporting countries. In addition,
expectations of a rise in US short-term interest rates continue to fuel
capital outflows and currency weaknesses in the emerging markets
and developing countries. Against the backdrop of sustained

weakness in the Euro zone and softening growth in the emerging
markets, global output has remained largely tapered.
During the first quarter of 2015, the United States led the global
impetus to output growth as consumer demand strengthened on the
heels of falling oil prices, lower US oil imports and accommodative
monetary policy. In contrast, in the Euro area, continued output
decline, in the face of positive oil price shocks, made the European
Central Bank (ECB) to introduce a massive €1.1 trillion asset purchase
programme, commencing in March 2015, involving a €60 billion
monthly asset purchase. The programme, although open-ended, is
expected to last at least until September 2016 by which time inflation
may have gained reasonable traction.
The Committee, however, noted a number of important downside
risks to global outlook in 2015 including geopolitical tensions and
conflicts; the negative impact of commodity price declines; weak
external demand and the possibility of Monetary Policy normalization
in the US. Growth could, however, remain subdued in most of the
Euro Area and Japan, in the short-to-medium term. Growth in the
emerging
markets
may
exhibit
wide
variations
with
sharp
deceleration in most of the large emerging market economies,
especially in Latin America and Eastern Europe, due to the
headwinds from softening commodity prices and slowdown in
external demand from the advanced economies. In addition,
country specific risks, such as political crisis, structural factors,

adverse weather conditions, and large swings in currencies may
continue to slow aggregate demand in a number of countries.
Global inflation continues to be low due to declining oil prices and
continuing slack in global output. Core inflation has continued to
sag due amongst other things to the dampening effect of low oil
prices and lack of appreciable wage gains. Average inflation for the
developed economies is projected to remain flat at 1.5 per cent in
2015 due to the increasing output gap, weak recovery, and strong
regional currencies. This development appears to be offsetting the
risk of imported inflation in the emerging and developing countries,
most of which have experienced moderate to severe depreciation
in their local currencies. Developing economies are thus expected
to have moderate inflation in the medium term.
The Committee observed that the outlook for global monetary
policy suggested a predominantly easy stance. The Euro Area and
Japan are expected to remain in the accommodative mode. Even
in countries where growth appears to be strengthening like the US,
UK and Canada, there are indications of delayed switch to tight
monetary policy stance. Owing to currency concerns, however, the
Committee further noted that some emerging and developing
economies may experience moderate tightening in the short to
medium term. Growth in sub-Saharan Africa is projected to average
4.9 per cent in 2015.

Domestic Economic and Financial Development
Output
The National Bureau of Statistics (NBS) estimated real Gross Domestic
Product (GDP) growth rate at 5.94 per cent in Q4 of 2014 lower than
the 6.77 per cent recorded in the corresponding period of 2013 and
the 6.23 per cent recorded in Q3 2014. The Committee noted that
the slowdown in growth resulted mainly from the non-oil sector,
which grew by 6.44 per cent in Q4, 2014 compared with 8.78 per
cent in Q3 2014. Agriculture, industry, construction, trade and
services contributed, 0.89, 1.30, 3.64, 0.87 and 2.45 percentage
points, compared with 1.21, 1.04, 0.36, 1.08 and 2.53 percentage
points, respectively, in Q3 2014. The softening non-oil GDP was partly
traced to the spill over effects of low oil prices which negatively
impacted agricultural output, trade and services.

Oil-GDP on the other hand, grew by 1.18 per cent in Q4, 2014
compared with a decline of 3.60 per cent in the preceding quarter.
The growth in oil-GDP is particularly noteworthy because it came at
a time when the sector was experiencing external negative price
shocks.

Prices
Headline inflation remained within the 6.0—9.0 per cent band
established by the CBN. However, the Committee noted with
concern, the gradual increase in the year on year headline inflation
during the first two months of the year from 8.0 per cent in
December 2014 to 8.2 per cent in January and further to 8.4 per cent
in February 2015. The underlying inflationary pressures came largely
from food (particularly imported food) and the core components.
Food inflation rose from 9.2 per cent in December 2014 to 9.4 per
cent in February 2015 while core inflation increased from 6.2 to 7.0
per cent during the same period. The major risks to inflation, the
Committee noted, include elevated aggregate spending in the runup to the 2015 general elections, the likely higher import prices on
the strength of an appreciating dollar and possible food supply
shocks linked to insurgency and insecurity in some major agricultural
zones of the country.

Monetary, Credit and Financial Markets’ Developments
Broad money supply (M2) declined by 1.70 per cent in February 2014
over the level at end-December 2014. This translated to an
annualized decline of 10.23 per cent compared with the provisional
growth benchmark of 15.24 for fiscal 2015. The decline in M2 primarily
reflected the contraction of 18.14 and 8.22 per cent in net foreign
assets (NFA) and other assets (net), respectively, during the period.

The fall in NFA is attributed to the combined effects of weakening oil
price and reversal of portfolio capital flows. During the period, net
domestic credit (NDC) grew by 9.89 per cent in February 2015,
annualized to a growth rate of 59.31 per cent, compared with a
growth rate 7.89 per cent recorded in the corresponding period of
2014 and an indicative benchmark of 29.3 per cent for 2015. The
credit-to-government (net) component grew sharply by 54.69 per
cent relative to a decline of 21.81per cent at end-December 2014.

The Committee noted that money market interest rates were
relatively volatile in the intervening period but stabilized on average
during the first two months of 2015, as banking system liquidity
fluctuated. Thus, average inter-bank call and OBB rates, which
opened at 10.58 and 10.52 per cent on 5th and 6th January 2015,
closed at 11.00 and 9.23 per cent, respectively, on February 27, 2015.
Average inter-bank call and OBB rates for the period were 15.21 and
18.36 per cent, respectively.

The Committee observed that the bearish conditions in the capital
market continued in the review period. The All-Share Index (ASI)
decreased by 13.1 per cent from 34,657.15 at end-December 2014
to 30,103.81 by February 27, 2015. Market capitalization also moved
in the same direction, falling by 12.5 per cent from N11.48 trillion to
N10.04 trillion during the period. The Committee noted that the

situation, though reflecting current trends globally, needed to be
monitored closely.

External Sector Developments
Following the closure of the Retail Dutch Auction System (rDAS)
window of the foreign exchange market on 18th February 2015, the
foreign exchange market is now unified. Consequently, the naira
exchange rate opened at N180.1/US$ and closed at N198.0/US$,
with a daily average rate of N198.0/US$. This represented a
depreciation of N17.9k or 9.04 per cent for the period.

Considerations
The Committee expressed satisfaction with the impact of the
decisions taken to harmonise the foreign exchange market. As a
consequence of those actions, the interbank exchange rate has
stabilized after an initial adjustment. The Committee, however,
expressed concern about the wide divergence between the
interbank and the bureau-de-change exchange rates, which
provides an avenue for arbitrage and speculative activities in the
market. The Committee noted with concern the phenomenon of
currency substitution and partial dollarization in the economy, a
development which may have significantly fuelled the high demand
for foreign exchange. The Committee, therefore, reiterated that the
naira remained the currency of transaction in the economy and

advised the Bank to take all possible measures to address this
development. The Committee also expressed concern about the
outlook for growth, which had moderated partly due to the effects
of low oil prices, naira exchange rate depreciation, and electionrelated concerns. The Committee was however, optimistic that the
situation would improve once elections were successfully conducted
with the expected improvement in business confidence.
The Committee took note that while adverse developments in
international oil prices had affected government revenues and
reserves accretion and impacted negatively on capital flows, the
financial system remained stable with key banking stability indicators
showing robustness. In the light of this, the Committee directed the
Bank to take all necessary measures to improve the resilience of the
financial system as well as the overall economic environment and
functioning of the financial markets.
The Committee also took note of the administrative measures
implemented by the Bank since the last meeting of the MPC to
achieve stability in the foreign exchange market. The Bank had on
18th February 2015 taken the bold supply management measures to
close the official window of the foreign exchange market in order to
create transparency and minimize arbitrage opportunities in the
foreign exchange market. Furthermore, to deepen the market and
enhance the efficacy of the demand management measures, the
Bank gave specific directives on the effective monitoring and

repatriation of both oil and non-oil export proceeds. In addition, the
utilization of export proceeds has been restricted to eligible
transactions only, to minimize leakages. The Committee enjoined the
Bank to continue to fine-tune demand management measures as
well as implement appropriate supply-enhancing strategies to
ensure effective demand and utilization of foreign exchange in the
country.
The Committee noted the gradual rise in headline inflation, driven
mainly by exchange rate-induced high prices of imported
(processed) food and output supply shocks. However, the
Committee was of the view that the prevailing tight monetary policy
stance and some of the recent administrative measures would
among others help to lock-in inflation expectations and further
stabilize the naira exchange rate.
Decision
In the light of the above considerations, the Committee observed
that its previous decisions needed time for their effects to fully
permeate the economy and therefore, voted to maintain the
current position. Consequently, the Committee decided as follows:
All eleven members unanimously voted to retain the MPR at 13 per
cent; retain the CRR on Private Sector deposits at 20 per cent; retain
CRR on Public Sector deposits at 75 per cent; and retain the liquidity
ratio at 30 per cent.

I thank you all for Listening


Godwin I. Emefiele, CON
Governor
Central Bank of Nigeria

24th March, 2015