Central Bank of Nigeria Communiqué No. 95 of the Monetary
Policy Committee Meeting of May 19 and 20, 2014

The Monetary Policy Committee (MPC) met on 19th and 20th May,
2014 against the backdrop of continuing modest recovery in the
US economy, lingering fragile recovery in Europe, slowing output
growth in the emerging market economies and possible risks to
domestic price stability. In attendance were 9 members including
Mr. Adebayo Adelabu, the new Deputy Governor, Financial
System Stability. The Committee considered major developments
in both the global and domestic economies up to May 2014, and
the outlook for the rest of the year.

International Economic Developments
The Committee noted the prospects of improved global growth in

predicated
on
expectations
of
sustained
favorable
developments in the US and the euro area. Driven by the recovery
in the advanced economies, global growth strengthened in the
second half of 2013, averaging 3.6 per cent from the 2.6 per cent
recorded during the first half. In the United States, improved
domestic demand continues to strengthen growth outlook. In
Europe, a pickup in growth in the core states continued to
compensate for the decline in most of the peripheral states even
as debt, low inflation, financial fragmentation and unemployment
persisted as threats to sustainable long term economic recovery in
the region. Growth in the emerging markets and developing
economies is projected to rise from 4.7 per cent in 2013 to 4.9 per

cent in 2014. The effects of tighter financial conditions in these
economies are expected to be moderated by improved external
demand from the advanced economies.

Global inflation is generally expected to remain subdued in 2014
with sustained sizable negative output gaps in the advanced
economies, weaker domestic demand in several emerging
economies, and falling commodity prices. In the euro area and
the United States, headline inflation at about 1.5 per cent is
projected to remain below the long-term inflation expectations.
Lower world commodity prices in U.S. dollar terms would help
reduce price pressures, although in some economies, exchange
rate depreciation continues to pose a threat to consumer price
stability.

The Committee noted that monetary policy stance across the
advanced economies could begin to diverge in 2014/15. In the
United States, the Federal Open Market Committee (FOMC) rate is
expected to increase, post-tapering, in 2015. On the contrary,
markets continue to expect a prolonged period of low interest
rates and supportive monetary policy in the euro area and Japan.
In the emerging market economies, there has been a tightening
of monetary and financial conditions since mid-2013, owing to the
combined effect of spillovers from rising bond rates and better
economic prospects in the advanced economies based on the
markets’ reassessment of medium-term growth prospects. The risks
posed to the emerging economies by capital reversals in the posttapering era remain a major challenge to the outlook.

Overall, global economic outlook remains benign with prospects
of steady and gradual improvements in the major economies, as
well as slowing but sustained healthy growth in the emerging
markets and developing economies.

Domestic Economic and Financial Developments
Output
The Committee noted that real Gross Domestic Product (GDP)
growth remains robust. The recently rebased GDP figures released
by the National Bureau of Statistics (NBS) indicated that real GDP
grew by 7.41 per cent in 2013, compared with the 5.09 and 6.66
per cent recorded in 2011 and 2012, respectively. From the
rebased GDP, the new major sectors of the economy in 2013 in
terms of their share in GDP were: Services (36.08%); Industry
(21.73%); Agriculture (21.50%) and Trade (17.06%). Figures for the
first quarter of 2014 based on the rebased GDP are yet to be
released by the NBS. The non-oil sector remained the main source
of overall growth performance (7.77%), driven largely by:
agriculture (0.43%), industry (1.28%) of which manufacturing was
1.26% and construction (0.62%); trade (1.54%) and services (3.89%).

Prices
Inflation has remained within the indicative benchmark target
range of 6.0-9.0 per cent during the first four months of 2014. On a
year-on-year basis, however, headline inflation inched up to 7.9
per cent in April from 7.8 per cent in March 2014. Food inflation,
which was 9.3 per cent in January, declined to 9.2 per cent in
February and slightly increased to 9.3 and 9.4 per cent in March
and April, 2014, respectively. Core inflation, which declined to 6.6
per cent in January, increased to 7.2 per cent in February, and
rose further to 7.5 per cent in April, 2014. The Committee noted
that headline inflation has remained within single digit in the last
sixteen months and stressed its commitment to sustain price
stability; defined by the Bank’s indicative benchmark range.

Monetary, Credit and Financial Markets’ Developments
Broad money supply (M2) increased by 1.94 per cent in April, over
the level at end-December 2013. When annualized, M2 increased
by 5.83 per cent. M2 was however, below the growth benchmark

of 15.52 per cent for 2014. The increase in money supply reflected
the growth in the net domestic credit (NDC) of 1.62 per cent in
April. Annualized, NDC grew by 4.85 per cent over the endDecember, 2013 level. It is, however, below the provisional
benchmark of 28.5 per cent for 2014. The slow growth in
aggregate credit was traced mainly to Federal Government
borrowing which contracted by 18.06 per cent in April 2014 or
54.18 per cent on annualized basis. In the period under review,
money market interest rates remained within the MPR corridor of
+/- 200 basis points; oscillating in tandem with the level of liquidity
in the banking system. The inter-bank call and OBB rates averaged
10.5 and 10.59 per cent, respectively, in April. As at mid-May, the
inter-bank call rate stood at 10.57 per cent while the OBB rate was
10.32 per cent.

The Committee noted the modest improvement in the equities
segment of the capital market in the review period. The All-Share
Index (ASI) rose by 0.7 per cent from 38,748.01 on March 31, 2014
to 39,018.34 on May 16. Similarly, Market Capitalization (MC)
increased by 3.3 per cent from N12.45 trillion to N12.85 trillion in the
same period. However, relative to end-December 2013, the
indices declined by 5.6 and 2.8 per cent, respectively. This was
traced partly to the impact of the response of global financial
markets to Q.E. tapering by the US Fed, weak economic
performance in the emerging markets and fragile recovery in the
Eurozone.

External Sector Developments
The naira exchange rate remained stable at the rDAS window but
appreciated at the interbank and the BDC segments of the
market. The exchange rate at the rDAS-SPT during the review
period (March 26,-May 16, 2014) strengthened to N157.29/US$
from N157.30/US$, representing an appreciation of N0.01k or 0.01
per cent. At the Interbank foreign exchange market, the selling

rate opened at N164.65/US$ and closed at N162.33/US$,
representing an appreciation of 1.41 per cent or N2.32k in the
same period. At the BDC segment of the foreign exchange
market, the naira which sold at N172.00/US$ on March 26, closed
at N167.00/US$ on May 16; indicating an appreciation of 2.91 per
cent.

Gross official reserves as at May 15, 2014 stood at US$38.30 billion
compared with US$37.40 billion at end-March and US$42.85 billion
at end-December 2013. The current level of the country’s external
reserves could provide approximately 9 months of imports cover.

The Committee’s Considerations
The MPC noted the mixed signals over the global growth
prospects in the advanced, emerging markets and developing
economies. From the United States, the continued gains in
employment, rising inflation and growth stability could soon pave
way for policy tightening. On the contrary, the outlook for
monetary policy appears biased towards sustaining easy
monetary stance in the euro area and Japan against the
backdrop of slow and uneven recovery in the region. For the
emerging markets and developing countries, the Committee was
concerned that the current underlying pressures on their
currencies arising from capital flow reversals, increases in
consumer prices and declining inflows, which preclude the use of
expansionary monetary policy to stabilize domestic output and
employment in the short run, could dampen growth prospects.
The Committee noted with satisfaction Nigeria’s overall domestic
economic environment which has remained stable with inflation
contained within the target range, the recent stability in the
foreign exchange market, stable interbank rates and strong
growth outlook. The key challenge for policy, in the Committee’s
view, was that of sustaining and deepening the outcomes of
existing policies. It noted, also, that over the medium term, the

major risks to price stability appeared to be emanating from both
external and internal sources.
From the external environment, risks to the domestic economy
include the prospects for increased yields and interest rates in the
US and the rather low level of economic activity in the emerging
markets; both of which could have repercussions for foreign
exchange inflows (private and official) and stability of the naira
exchange rate. Internally, the key risk factors include the high
systemic banking system liquidity, elevated security concerns and
anticipated high election-related spending in the run-up to the
2015 general elections. High domestic liquidity could exert
sustained pressure on both the exchange rate and consumer
prices, as well as accentuate the already high demand for foreign
exchange, further depleting the country’s external reserves. In
addition, core inflation has continued to send conflicting signals
since January 2014. If the upward trend continues as observed in
April 2014, it could be a major factor in the upward trend in prices.
The Committee also expressed concern over the eroded fiscal
buffers which have exposed the economy to vulnerabilities arising
from both domestic and external shocks. The erosion has
accentuated the regime of persistently high interest rates,
elevated demand for foreign exchange and declining reserves
accretion. The Committee enjoined the Management of the Bank
to continue to monitor developments in the fiscal space with a
view to taking appropriate monetary policy actions.

In the light of the foregoing, the Committee acknowledged the
success of monetary policy measures in attaining price and
exchange rate stability and considered: the potential headwinds
in 2014, the ultimate goal of transiting to a truly low-inflation
environment; and the need to retain portfolio flows. The
Committee unanimously voted to retain the current stance of

monetary policy. In addition, one member voted for an
asymmetric corridor around the MPR.

Consequently, the Committee voted to:
hold the MPR at 12%;
keep the CRR on public sector deposits at 75% and CRR on
private sector deposits at 15%;
retain the MPR corridor at +/-200 basis points.

Thank you

Sarah O. Alade
Acting Governor
Central Bank of Nigeria
20th May, 2014
PERSONAL STATEMENTS BY MEMBERS OF THE MONETARY POLICY
COMMITTEE
1.0
ADELABU, ADEBAYO
Macroeconomic outcomes have remained relatively good since
the beginning of FY 2014. Headline inflation, though inched up to
7.9 per cent in April 2014, is still within the long term target of the
Bank while real output growth at 7.94 per cent in 2013 is higher
than the last 5-year average of 6.93 per cent. Besides, real output
growth in FY 2013 confirms that the economy is firmly on recovery
path, following the slowdown of 2011. The exchange rate at the
rDAS market has remained within the Bank’s target of +/-3.0 per
cent while a modest appreciation has been observed in the
interbank and BDC markets. Furthermore, volatility in the money
market rates has largely been subdued. These outcomes reflect
the proactive nature of the monetary policy of the Bank, which
should be consolidated.

The sustainability of these gains, however, is confronted with a
number of challenges. With respect to the consumer price level,
although the various measures of inflation are still within the single
digit target, an upward trend appears to be firming up for the
core component since the beginning of FY 2014. The elevated
banking system liquidity, evidenced by an average of N400 billion
in daily SDF since January and aggregate spending in the run-up
to the 2015 general elections may pose significant risk to inflation.
To underscore this point, staff forecasts indicate that headline
inflation could rise to around the border of single digit as early as
June.
Consequently,
policy
response
to
rein
in
inflation
expectation could not be completely ignored at this point in time.
Closely related to this is the declining external reserve and
implication for exchange rate stability, which is a major challenge
to nearly all developing economies at the moment. For us, the
pressure is from both supply and demand sides. The recent
upward adjustment of Cash Reserve Requirement (CRR) on both
the public and private sector deposit has largely curtailed the
demand pressure in the foreign exchange market by modifying
the behavior of the DMBs. This notwithstanding, a slight degree of
volatility was still noticeable in the interbank market particularly in
May 2014. Further increase on CRR may pose some risks to the
stability of the banking system as threats to the system are
gradually seen in the reduction of interbank transactions since the
beginning of the year. This suggests that the supply side of the
foreign exchange market deserves further policy attention.
There are two major issues on the supply side of the foreign
exchange market. Accretion to the external reserves from oil has
not been significant in the recent past though data in the last few
months showed that oil production volumes has started to
recover. With increased global demand for oil due to recovery in
the advanced economies, oil price would likely remain firm over
the medium term. In effect, accretion to reserves is expected to

improve. The other major issue is the ongoing tapering of the QE3
by the Federal Reserve which has revised investors’ sentiment
against emerging and developing economies in general. Besides,
I am also of the view that developing economies including Nigeria
should be preparing for the post tapering era in the US and other
developed economies. With unemployment in the US inching
towards the long term trend a switch to a tightening mode
appears very likely in the medium term. The cumulative effect of
this
development
is
that
capital outflow from
emerging
economies could continue for some time to come.
In a nutshell, the foregoing analysis presents the need to continue
to maintain a tight monetary stance either by holding steady the
current measures or by strengthening them. The impact of the
tightening measures on growth, however, could not be
completely discounted, particularly when consideration is given to
rising lending rates to small and medium scale borrowers. This
notwithstanding, the position of the monetary authority must be
without ambiguity whenever there is the delicate tradeoff
between price stability and other goals.
In sum, on the basis of the need to manage inflation expectation,
address the vulnerability of the economy to capital flow, build up
external reserves without undermining the stability of the banking
system, the subsisting monetary policy measures should be
maintained.
Consequently, I vote for retention of the current monetary policy
measures: MPR at 12 per cent with a symmetry corridor of 2 per
cent, Private Sector CRR at 15 per cent, and Public sector CRR at
75 per cent.

2.0
ALADE, O. SARAH
Global economic growth is projected broadly to strengthen to 3.6
percent in 2014 from 3.0 percent recorded in 2013, with much of the
momentum coming from advanced economies according to the April
2014, World Economic Outlook (WEO). In emerging markets, while
earlier projected risks have diminished, new ones have emerged as a
result of lower than expected inflation in the advanced countries,
which will impact output demand and prices, and geopolitical risks. In
the domestic environment, although stability have returned to the
foreign exchange market after some periods of turbulence, increased
political risk and uptick in inflation due to seasonal planting period calls
for a hold on monetary policy rate to safeguard the gains made. Based
on the above, I support a hold in Monetary Policy Rate (MPC),
maintenance of a 75 percent increase in public sector deposits Cash
Reserve Requirement (CRR) and a 15 percent increase in private sector
deposits.
Global economic growth has improved albeit with some downside
risks. Outlook to global growth has turned positive on the recovery
from the advanced countries led by United States, United
Kingdom and Germany. In the United States, there is a pickup in
momentum as disposable income adjusted for inflation grew by a
strong 3.8 percent in January through March with strong consumer
confidence index. The April surge in job growth to 288,000
confirms a pickup in the economy as monthly job growth so far
this year averaged 214,000 a month, above analysts’ estimate of
200,000 per month. In the Euro zone, growth is positive but
subdued at 0.2 percent in the first quarter with Germany pushing
the growth in the region at 0.8 percent. The high growth in
Germany was bolstered by industrial expansion and construction

activity which benefited from a mild winter. In emerging market
and developing economies, growth is projected to pick up to 4.9
percent in 2014. Growth will be helped by stronger external
demand from advanced economies, but tighter financial
conditions from tapering could have a dampening effect on
domestic demand growth if not handled well. Therefore care must
be taken in balancing the dual objective of stability and growth.
Headline inflation increased to 7.9 percent in April compared to
7.8 percent recorded in March 2014. Headline inflation increased
to 7.9 percent in April, suggesting that inflation may be expected
to stay elevated in the coming months, as local food supply
dwindle at the start of the planting season. Although a slight
increase, it is still within the Central Bank target of between 6- 9
percent and the overall goal of single digit inflation. Core inflation
rose slightly to 7.9 percent in April from 6.8 percent recorded in
March, 2014, while food inflation increased slightly to 9.4 percent
from 9.3 percent recorded in the previous month. The increase in
food index is driven mainly by dwindling local food stocks as
planting season commence, suggesting that future increase in
inflation is to be expected in the coming months. Aside from the
seasonal factors, there is still fiscal risk as a result of pre-election
and increased security spending. Based on this, monetary policy
should remain restrictive to forestall the anticipated impact of
fiscal risks and food supply seasonality.
Stability has returned to the domestic market. Foreign exchange
reserves increased to $38.30 billion as at May 15, 2014, after
declining in February and March as investors react to the
perceived uncertainty in the market. This is as a result of increase
revenue from oil and an attempt to strengthen the fiscal buffer by
the government. Excess Crude Account (ECA) increased to $4.1
billion as at May 16, 2014 from $2.5 billion at the end of 2013, as
government intensifies effort at rebuilding the fiscal buffers to
forestall the downside risk to the domestic economy through

foreign reserve depletion. The projection is that reserves build-up in
the coming months will be sustained if prices stay steady on the
back of high production and stable prices. The Naira has
strengthened by 2% in the past 3 months to reach NGN/USD162.4
as foreign investors return to the local bond market. Proper
coordination between the fiscal and monetary authority have
helped
stir
the
economy
safely
out
of
the
temporary
macroeconomic shock it experienced earlier on the year.
Domestic growth has remained robust but downside risks remain.
The forecast for 2014 GDP growth ranged from 6.75 percent to
7.41 percent but there are risk to this projection. While the rebased
GDP suggest that the economy is now more diversified and
broad-based, sustaining the momentum and creating inclusive
growth is the task all policy makers should take seriously. This will
require creating an environment that is competitive and
attractive to both foreign and domestic investors. The security
challenges in the country could impact growth negatively,
although the effort at dealing with the issue with international help
is a welcome development with the potential of achieving
positive results.
Pressure in the foreign exchange market has eased and some
level of stability has returned. Pressure at the foreign exchange
market window has eased as the diligent and coordinated efforts
by the Central Bank to restore stability paid off. This has been
helped by the foreign exchange inflows by foreign investors who
are now returning to the country in the local bond market and
other portfolio flows. Rates at the Interbank and Open Buy Back
(OBB) rate have remained within the band at 10.55 and 10.29
percent respectively as at May 16, 2014. These indicate excess
liquidity in the system as banks accessed the Standing Deposit
facility (SDF), but were rarely at the Standing Lending Facility (SLF)
window since the last MPC in March. In addition, lending rates
eased to 21 percent, suggesting that care must be taken to

manage the structural liquidity and the structural impediments to
credit growth in the economy.
Although pressure on the foreign exchange has eased, there are
some downside risks to the growth and stability prospects, and
now is not the time to start easing. Base on this, I vote for a hold on
Monetary Policy Rate, the maintenance of 75 percent increase in
public sector deposits Cash Reserve Requirement (CRR) and a 15
percent increase in private sector Cash Reserve Requirement.

3.0
BARAU, SULEIMAN
The current MPC meeting is taking place at a time of relative
stability in the local environment and when there is no significant
development in the global economy to elicit a change in policy.
Review of Developments
1.1
The global economy sustained the momentum towards
recovery since the last MPC meeting, with global output
estimated at 2.8% in the first quarter (Q1). The sustained
accommodative monetary policy in the Euro area, Japan
and the United States of America inspite of ‘tapering’ is
largely responsible for this. It is this and other significant
measures implemented particularly in the Euro area that
ensured
a
more
optimistic
global
growth
forecast.
Consequently, global output growth is projected at 3.6% by
the International Monetary Fund (IMF) as against 3.0%
achieved in 2013. The projected output growth in the Euro
area of 1.2% for 2014 is similarly optimistic, up from minus 0.4%
in 2013. Unemployment in the US dropped to 6.3% in April,
thus supporting the strong forecast growth numbers. The
Federal Open Market Committee (FOMC) has further
reduced the monthly asset purchase programme to $45
billion effective May, 2013 in the USA. Overall, growth is
expected to increase to 2.8% in 2014 compared with 1.9% in

2013. China’s Q1 GDP growth reduced to 7.4% compared
to 7.7% in Q3. It is however slightly below the 7.5% forecast in
2013 indicating that growth is within forecast. Output in SubSaharan Africa is expected to increase to 5.5% in 2014, a
stronger prospect when compared with 4.9% in 2013. Overall
the global economy is expected to moderately grow in 2014.
1.2
The Nigeria economy, after the recent rebasing of GDP,
witnessed substantial growth of 7.94% in 2013 when
compared with 6.66% in 2012. The rebasing of the GDP
indicates the fact that our economy is more diversified than
we thought it was. Industry and services now accounts for
over 57% of GDP up from 39%. The rebasing has however,
also thrown up other challenges in terms of strengthening
taxes and revenue base to reflect the level of the rebased
GDP. Overall, growth outlook remains strong at over 7% for
2014 inspite of the GDP rebasing.
1.3
Headline Inflation (HI) though largely stable inched up
marginally from 7.8% to 7.9% in April, 2014, largely
accounted by the surge in Food/Non Alcoholic Beverage
and Housing/Water/Electricity/Other Fuels components of
that measure. The Core measure (CI) showed a stronger
surge from 6.8% in March to 7.5% in April, 2014. While inflation
has largely been subdued, the outlook for the Headline and
Core measures indicate a disturbing upside risk. In all, the
Headline measure of inflation is expected to remain within
single digit level for a large part of 2014 based on staff
estimates. However, real interest rate is expected to
continue to be positive.
1.4
Interest rates remained largely stable. Market rates,
remained within the corridor. It is however, disturbing that
active traders have not resumed in the interbank clean
(unsecured) segment of the money market, indicating that
inspite of evidence of good liquidity, confidence has not

returned. The spread between the consolidated deposit
and lending rates also remain a concern. It is hoped that
the effect of the shared services initiatives when fully
implemented would help to narrow the spreads through the
reduction of cost of doing business of banks and ultimately,
lending rates. The more strategic solution to this problem
remains the development of a vibrant fixed income segment
of the capital market that should radically alter the demand
and supply balance for credits in the banking system and
favourably lower lending rates.
1.5
Exchange Rate witnessed substantial appreciation in the
Interbank and Bureau De Change segments. Interbank Rate
appreciated by 1.41% (N2.32) from 164.65 to N162.33 from
March 26th to May 16th respectively. The BDC rate also
appreciated by 2.91% (N5.00) from 172.00 to N167.00
respectively over the same period. The rDAS rate remained
stable at around N157.29 over the same period. The stability
and appreciation witnessed in the respective segments was
largely as a result of the tight stance in policy, reversal in
market sentiment and reversal of portfolio outflows.
1.6
Foreign Reserves level became stable at $37 billion. External
reserves at $38.30 billion as at May 15th is equivalent to
approximately 9 months of import cover. There are a few
reasons for this. First, the production level of crude has been
largely stable at about 1.876 bpd. Secondly, oil price has
maintained a floor above $100/b. Thirdly, portfolio outflows
have reversed and inflows are at pre-February 21 level.
Fourthly, and closely related, market sentiments have
reversed. Finally, with tax holiday given to the Nigerian
Liquefied Natural Gas Company just expiring, inflows from
the petroleum sector would be diversified and enhanced.
We see overall stability in the level of foreign reserves in the

short run given the above demand and supply scenario for
foreign exchange.
Pressure points/challenges
Fiscal scenario remains a source of concern from a Monetary
Policy standpoint. Inspite of efforts towards fiscal consolidation,
with impressive outcome, fiscal buffers from the low balances in
the Excess Crude Account at a period of high oil price and stable
production levels gives me concern. Besides, the budget is yet to
be signed into law by the President/C in C as a result of reported
issues with respect to the package passed by the National
Assembly. It may be true that recurrent spending is being made
at current levels but capital expenditure is said to be at 50% of
previous year’s numbers. I cannot therefore rule out the possibility
of increase/sudden injection of liquidity from spending as the
Appropriation Act is signed, due to what one may loosely call
‘money illusion’.
Portfolio inflow trends have favourably reversed recently. Future
trend will depend on FOMC decisions on tapering going forward
and indeed on the reversal of quantitative easing in Japan and
across the globe. This is an external variable that could potentially
impact the success of policy in Nigeria.
Slow levels of structural reforms due to the known limitations of
monetary. Monetary Policy can only deliver stable prices and
monetary variables that are conducive to growth. Growth should
ultimately be driven by fundamental and complementary reforms
coming from the real sectors. With the recent privatization of the
power sector and significant reforms in the agricultural sector, we
are heading in the right direction. However, we need to extend
these reforms to other sectors and drive them faster as well. It is
well known that financial sector and real sector reforms produce
best results if they are pursued concurrently.

Current security challenge is a significant exogenous variable that
may hamper the effectiveness of monetary policy if not
contained. Besides, I have not been able to de couple the
security challenge that we have today with significant issues of
the current human development indices in Nigeria. In plain terms,
significant success in monetary policy, financial and real sector
reforms are best delivered in an environment where security of
lives and property is guaranteed.
Recommendation
In the light of the fact that the above challenges are already
receiving varying levels of attention from Government, the
demonstrated global and domestic macroeconomic stability
since the last MPC as well as successes recorded by the MPC, I
have no doubt that the sensible course for the current MPC is to
hold stance of policy and various measures already in place to
support this stance. I therefore voted as follows:
Keep MPR at 12%;
Keep Private Sector CRR at 15%;
Keep Public Sector CRR at 75%;
Keep the systemic corridor at plus and minus 2% around the
MPR; and
Keep Net Open Position at 1% of Shareholders Funds


4.0
DANIEL-NWAOBIA, ANASTASIA
Developments in 2013 indicated that the economy recorded a
rebased growth of 7.94 per cent, which was higher than 5.09 and
6.6 per cent recorded in 2011 and 2012, respectively despite
continuing security challenges, and weak external environment.
The
improved
growth
outlook
was
based
on
sustained
implementation of the on-going reforms and the Federal
Government’s transformation agenda, especially in Agriculture;
Energy and Transportation. Government’s increased efforts aimed

at curbing crude oil theft; critical infrastructure vandalization such
as gas and oil pipelines, as well as the general sanitization of the
petroleum industry cannot be overlooked.
Headline inflation continued its moderation to single digits,
indicating the effectiveness of sustained tight monetary policy of
the Bank. Though it rose marginally to 7.8 and 7.9 per cent in
March and April, 2014, respectively from 7.7 per cent in February
2014, projections of inflation performance in the next six months
indicate that the year-on-year headline inflation would remain
within the single digit target.
Stability in the foreign exchange market, as evidenced by the
modest appreciation recorded in the three segments of the
market during the period under review (March, 26 – April 30 2014)
is also worthy of note. The appreciation witnessed in the three
segments of the market could be attributed to improved supply
following the gradual return of foreign investors to the Nigerian
market as a result of the confidence reposed in the economy.
A key challenge to monetary policy in 2014 in the wake of the
tapering by the Federal Reserve which is proceeding faster than
anticipated with consequences for capital flow reversals relates to
a possible instability in our financial markets. However, the recently
concluded 24th edition of the World Economic Forum Africa
(WEFA) is expected to help stimulate investment in the economy,
thereby creating job opportunities and reducing unemployment.
The result of this is expected soon as understanding and
commitments were made during the meeting by several investors,
especially in the area of Power, Housing, Education, Agriculture,
etc. This is likely to reduce the vulnerability of the economy to
shocks, particularly through the diversification of the funding
sources away from oil. Attraction of capital will reduce pressure on
the exchange rate and also help in external reserves build-up.
However, there is need to continue to keep an eye on the areas
of vulnerability and intervene when necessary.

In view of the effectiveness of the current tight monetary policy
stance in keeping inflation within single digits as well as
maintaining stability in the foreign exchange market, it is advisable
to sustain the current policy stance.
Consequently, I vote as follows:
i.
The Monetary Policy Rate (MPR) to be retained at the current
level of 12% and corridor of +/- 2% for the inter-meeting
period.
ii.
The Private sector CRR which was increased from 12 to 15
per cent in March, 2014 should also be sustained to enable
the market adjust to the new policy.
iii.
The current policy on foreign exchange (mid-point and
exchange rate band of N155/US$1 +/- 3%) should be
retained for the next two months when another review will
be due for consideration, while effort to rebuild the fiscal
buffers is being sustained to further engender stability in the
foreign exchange market and build investor confidence.

5.0
GARBA, ABDUL-GANIYU
At the third MPC meeting for 2014 (May 19-20), my decision took
account of (1) my previous decisions and the majority decisions,
(2) action lag and policy performance, (3) the revealed and
expected responses of key players to policy, action lag and policy
options, (4) regulatory effectiveness, (5) underlying vulnerabilities
in the national and global economy, (6) short-term stability of key
variables in March and April and the associated costs and risks, (6)
transition issues and (6) underlying trends and fundamental
structural changes in the economy. After due analysis of the
underlying evidence and contemplations about the outlook
(national and global), I am convinced that it is wise to keep MPR,
CRR on private sector deposit and CRR on public sector deposit

and the SLF rate unchanged in the short term. This implies the
following: MPR (12%), CRR on private sector deposit (15%), CRR on
public sector deposit (75%) and SLF rate (14%).
However, I remain convinced of the need for (1) short term
responses to the slow-down in the activities in the interbank
lending market and (2) medium term planned adaptations to a
post- QE world.
In the short term, I am convinced that there is a need for an
asymmetric corridor to gradually reduce the incentive for the
rapidly expanding activities in the Standing Deposit Facility (SDF)
window. It is axiomatic that an active interbank lending market
(ILM) is necessary for the efficient pricing of risks and financial
assets, for allocative efficiency as well as for the effectiveness of
monetary policy to stimulate the growth in investments,
employment and economic development. I do not subscribe to
the idea of classical dichotomy that is, the idea that monetary
policy variables impact only monetary variables in the short run or
the idea that monetary policy variables do not generate hysteresis
that is, long lasting impacts.
Indeed, both the interbank lending market and Open Buy Back
are pivotal to the transmission mechanism of the monetary policy
regime guiding the MPC decisions. Since the interbank call rate
became the operating target for monetary policy, the call rate
also became the benchmark for short-term rates (prime and
maximum lending rates). Until recently, strong linkages were
successfully established between MPR, call rate and the short term
rates in the tightening regime that began with the September
2010 MPC meeting. When the interbank lending market becomes
significantly less active for whatever reason (s), the call rate
becomes a less effective benchmark for the pricing of short-term
risks and rates and for the efficient allocation of financial assets.

I am convinced based on analysis of available data and from
institutional perspectives that (1) the AMCON effects on the
interbank market are exaggerated; (2) a 10% rate on SDF has
been a consistently strong incentive for inverted intermediation
and by corollary, a strong disincentive against the intermediation
effectiveness of DMBs and (3) a reduction in the SDF rate along
with game changing administrative options will incentivize DMBs
away from the highly profitable games of inverted intermediation.
I therefore, vote for a reduction in SDF by 300 basis points that is
from 10% to 7%. The risk of a portfolio readjustment into the forex
market may exist. However, effective administrative actions
including (a) mechanism re-design and (b) more effective
surveillance would considerably reduce such risks. The inverted
intermediation is a strong vulnerability in the Nigerian economy
that must be inverted if monetary policy is to stand a strong
chance of sustaining price stability and lowering the sacrifice ratio
(employment and growth forgone in disinflation regimes). Besides,
analysis of available data convinces me on a sustained basis that
the pressure on the Naira is not driven by fundamentals (net
exports, current account balances and net financial flows have
been positive from 2011). For instance, in the first quarter of 2014,
the average monthly trade balance and net financial are
respectively $3.34 billion and $4.6 billion respectively. It is clear to
me that “unwise rational greed” (destructive rationalism) and
asymmetries (financial power and information) undermine the
pricing and allocation of financial assets with adverse effects on
employment,
investment,
development
and
security.
The
challenge for MPC and the CBN in collaborations with fiscal
authorities is to develop a right mix of policy, administrative
effectiveness and institutional changes to tame such behaviors,
address the vulnerabilities in the economy that are being
exploited and; to be build resilience into the economy to sustain
stability in a post-QE world.

I have always favored a forward-looking monetary policy regime
anchored in (1) a creative mix of policies and institutional
changes; (2) effective coordination and (3) sound prudential
oversights. These ought to be at the core of the conversations and
decisions for the post-QE era macroeconomic management of
the Nigerian economy.

6.0
MOGHALU, C. KINGSLEY
Considerations
Taking into consideration a combination of monetary conditions
and the economic environment, my vote in this MPC meeting
appears obvious to me.
At the last MPC meeting there were concerns generated by the
leadership transition in the Central Bank of Nigeria. Between then
and now, stability has been firmly anchored, and the naira has
been stable and even recorded gains vis-à-vis the dollar. But this
has been at significant cost to our external reserves owing to the
resolute interventions by the CBN in the forex market. Nigeria has
had net inflows of foreign capital since April 2014. And with
reserves at US$38.30 as at May 15, 2014, this provides
approximately 9 months of import cover.
Against this background, we have a present context in which the
economy’s growth rate is satisfactory at 7.41 per cent in 2013
driven by non-oil sectors; inflation, though ticking up to 7.9 per
cent in April 2014 on a year-on-year basis, remained within the
single digit indicative target. Broad money supply (M2) increased
by 5.83 per cent on an annualized basis but remained below the
growth benchmark of 15.52 per cent for 2014, and net domestic
credit increased by 1.62 per cent in April. The interbank market
has remained stable. Oil output increased.

On the other hand, two factors suggest the MPC cannot be
complacent in the present state of things. The first is that liquidity
remains high and inflationary threats remain. The second is that
the United States Federal Reserve Bank appears set to increase
the pace of tapering and is expected to increase its monetary
policy rate in 2015. U.S. interest rate rises, combined with the
prospect of increased spending in the Nigerian election period,
could place serious pressures on the naira as foreign investors seek
what they may perceive to be relative safety, and inflationary
pressure may increase.
No matter, the situation at present and the immediate future
clearly argues for the maintenance of stability and leaving
monetary aggregates as they are at present.
The threat at the last MPC having passed, this is not a time to
make changes to the monetary stance of this Committee. Until
the structure of the Nigerian economy changes in a fundamental
manner, or fiscal buffers increase markedly (or, preferably, both
outcomes occur), monetary policy must remain tight. It is a
hopeful sign that recent growth has been driven largely by non-oil
sectors, and the recent GDP rebasing exercise indicates an
increasing diversification of the economy. But, until we achieve
economic complexity and import far less than we do today,
monetary policy will have to continue to bear a heavy burden.
That is the Faustian dilemma – and eradicating that dilemma is a
largely fiscal responsibility.
Vote
I therefore vote to:
Maintain the MPR at 12%
Hold the CRR on public sector at 75% and CRR on private
sector deposits at 15%
Retain the MPR corridor at plus or minus 200 basis points.

7.0
ORONSAYE O. STEPHEN
From the statistics released by the National Bureau of Statistics
(NBS), our real Gross Domestic Product (GDP) indicates that our
economy is healthy. Specifically, the NBS figures show that the
rebased GDP grew by 7.41 per cent in 2013, compared to what
the economy witnessed in the corresponding period of last year.
The Year-on-Year (Y-O-Y) headline inflation rose to 7.9 per cent in
April, while food inflation stood at 9.4 per cent for the months of
March and April 2014, up 0.1 per cent from the figure in February
2014. Core inflation rose from 7.2 per cent in February 2014 to 7.5
per cent. Despite the percentage increases, it is gratifying to note
that inflation has remained within the single digit benchmark in the
first quarter of 2014. It is also noteworthy that the Naira has
remained quite stable in the face of extreme internal and external
pressures.
The Committee, in considering the performance of the Nigerian
economy in the last three months, equally noted that the
country’s overall domestic economic environment has remained
stable, backed with single digit inflation, as well as stability in the
foreign exchange market and interbank rates. These, however,
need to be sustained.
Considering the success of monetary policy measures in attaining
price and exchange rate stability and the fact that the conditions
for maintaining MPR at 12% are still unchanged; there is therefore
no justifiable reason to tamper with the present rate.
On the Cash Reserve Requirement (CRR) on deposits from the
Public Sector, I do not see the reason for any increase at this time
considering the gains achieved from imposing 75 per cent CRR on
the funds.

Votes
The arguments canvassed for holding the MPR at 12% in March
2014 remain largely unchanged. Given the stability all-round, I do
not see reasons why the parameters should be altered at this time.
Based on the foregoing, I voted for the following:
a) Holding the MPR at 12%;
b) Retaining the symmetric corridor of 200 basis point around
the MPR;
c) Retaining the Cash Reserve Requirement (CRR) at 15% for
deposits from the private sector; and
d) Retaining the 75% Cash Reserve Requirement (CRR) on
deposits from the Public Sector.

8.0
SALAMI, R. ADEDOYON
Despite the marginal increase in Headline Inflation to 7.9percent in
April, prices, in the opening four months of the year rose on
average by 7.85percent. This places inflation within the 6-9percent
target for 2014. Unlike the opening months of 2013 when Core
inflation trended lower, there is no immediately discernible trend in
the data for Non-food inflation for the 1st four months of 2014.
However, the average rate of Core inflation is, thus far,
approximately 200bps lower than it had been for the same period
last year. While Food inflation is similarly lower than it had been
between January-April 2013, at an average of 9.4 percent, it
however continues to rise faster than Core Inflation.

With stability of the exchange rate across segments – indeed, an
appreciation in the Bureau de Change market, the background
to this meeting of the MPC was devoid of the anxiety which had
framed the run-up to recent meetings. The stability which formed
the background to this meeting is in no small measure the result of
improvement in confidence as the turbulence generated by the
transition of leadership at the Central Bank subsided. The slight rise
in the stock of Forex Reserves – rising by approximately US$0.5bn to
US$38.3bn - since our meeting in March, also reduced uncertainty.
The recovery in confidence saw a sharp rise in portfolio inflow of

US$2.152bn in April 2014 – an increase of almost US$1.2bn over the
inflow the previous month.

Given the significance of international developments to our
economy, the announcement of further tapering in Quantitative
Easing by the Federal Open Markets Committee (FOMC) of the US
Federal Reserve was perhaps the most significant non-domestic
issue to reflect on. With FOMC Asset purchases further reduced by
US$10bn/month from May coupled with easing short and long
term yields in the US the impact on Capital flows continues to be
an issue of importance for domestic policy making.

In the absence of data to indicate how the output and
expenditure sides of the economy, in aggregate, have fared in
the opening months of the year, it is near impossible to
authoritatively describe, or indeed assess, domestic non-financial
economic conditions. It is thus near impossible to situate
developments in the rest of economy in the context of the
Monetary Policy Committee’s (MPC) primary mandate of ensuring
currency and price stability.

Bearing in mind the caveat in the preceding paragraph, liquidity –
irrespective of definition – continues to contract when adjusted for
increases in prices. In contrast, there appears to be a sharp
improvement in credit to the private sector. Not only does its
growth rate exceed inflation, industry loan book seems to be
growing faster than liabilities. The sharp reduction in both volume
and value of transactions at the interbank window continues.

With regard to the MPC’s principal mandate of price stability, the
six-month ahead outlook for inflation, provided by Bank Staff,
shows some improvement relative to the position at our meeting in
March. Notwithstanding this, the Outlook is for Headline to worsen
slightly from the current position. Headline Inflation, projected to
average 8.7percent between May and October, is expected to
show a continuous rise. Over the next six months, Core Inflation is
expected to peak at 7.9percent in May/June before decelerating
to 6.1percent in Sept. In the same six months, Food price inflation is

expected to worsen – averaging 10.6percent, with a peak of
11.1percent.

Staff Outlook for economic conditions hasn’t changed materially –
characterized by lower oil prices, faster tapering of Quantitative
Easing, prospect of rising deficit as revenues continue to slip, and
worsening inflationary pressure. Perhaps to these we should add
the formal commencement of activities towards the 2015 General
Elections. On the positive side, the leadership transition at the
Central Bank, a source of very expensive turbulence, should be
concluded shortly.

Leaving all monetary policy parameters unchanged, for which I
vote, is not to suggest that there are no challenges ahead. The lull
currently being experienced simply offers an opportunity to
emplace a contingency plan to proactively respond when the
next wave comes in.
9.0
UCHE, U. CHIBIUKE
For some time now I have consistently voiced my concern about
the impact of fiscal policy (mis)management on monetary policy.
Although the promotion of price stability is a key mandate of
MPC, this is not an end in itself. If it were so it will, in my opinion, be
very easy to achieve. The essence of price stability is to help
create the enabling environment for economic growth and
development to take place. This perhaps explains why it is also the
mandate of MPC to determine credit policy. As a consequence
of this, we have in the past tried to use monetary policy to force
changes in government fiscal behavior which is also critical to
economic development and the credit system. A clear example
of such monetary policy strategy is the use of CRR to force
government to adopt the Treasury Single Account (TSA).
Specifically, the CRR on government deposits has since been
raised to 75 percent, as against 15 percent for private sector
deposits, all in the attempt to promote government fiscal

prudence which facilitates the operationalisation of monetary
policy.
Although I am pleased with the results thus far from the above
policy initiative, available data suggests that some government
agencies and banks may be circumventing this strategy by
exploiting the arbitrage opportunities that have arisen as a
consequence of the fact that there is currently no requirement for
CRR to be applied to domiciliary account deposits in commercial
banks. The above example clearly shows the limitations of using
monetary policy as a tool to force prudent fiscal behavior on the
part of government and its agencies. The fact that there are few
viable monetary policy instruments left in a fiscally dominant
environment explains my minority vote to extend CRR to public
sector domiciliary accounts at the last MPC meeting. To be able
to appreciate the difficulties we face in formulating effective
monetary policy, it is important to note that the placement of
government deposits in commercial banks contravenes the CBN
Act which makes it explicit that the CBN is the banker to the
government. Placement of government deposits in commercial
banks also facilitates poor fiscal management by government
and its agencies which in turn complicate monetary policy
formulation. Based on the above, I was pleased to learn that the
government is now taking the issue of TSA seriously and has
indeed given a deadline of May 2014 to all government agencies
to comply or face severe sanctions. Once the TSA is achieved, the
abnormal practice of applying CRR on public sector deposits will
cease to exist.
Another policy development, although considered contentious in
some circles, that has positively impacted on monetary policy is
the rebasing of the Nigerian GDP. The above exercise has
demonstrated that the Nigerian economy is more diversified than
previously believed. It is for instance now known that the
manufacturing and service sectors are the leading sectors in the

Nigerian economy, not agriculture as previously believed. The
implication of the above is that MPC must now do more to
encourage the delivery of credit to these important sectors. After
all the design of credit policy is also a key mandate of MPC. The
argument that the dominant subsistence practice in the
agricultural
sector,
coupled
with
its
dependence
on
uncontrollable natural forces like the weather, makes it less
responsive to monetary policy manipulation clearly cannot be
transferred to the service and manufacturing sectors of our
economy. Since the excessive interest rates charged by banks
has consistently been a primary concern of both the service and
manufacturing sectors, I am of the view that we should do more
to bring down the cost of credit to these important sectors of our
economy. Using market forces to explain away the widening gap
between deposit and lending rates in the country is no longer
useful.
Despite
the
above
positive
policy
anticipations
and/or
developments, the monetary policy environment in the country
remains challenging. This was no doubt brought to a head early in
the year by the leadership crisis in the CBN. The subsequent
outflow of foreign portfolio investments put pressure on both our
external reserves and the value of our currency. Although these
pressures have started to ease, difficulties remain. While the
variance between the w/r/DAS, interbank and BDC exchange
rates narrowed in the recent past, it remains material. I am also
aware that there are concerns about the fact that the 2014
budget has not been signed into law, growing insecurity in some
parts of the country and the dwindling government revenues
especially in the run up to an election year. Despite these, I am
reluctant to vote for further tightening of monetary policy at this
point. This is
in
part
because
if
the
planned
total
implementation of the TSA happens at the end of this month, this
will in itself represent an implicit tightening of monetary policy.
Furthermore I am convinced that a lot of the portfolio outflows

that negatively impacted on our foreign reserves had more to do
with the perceived uncertainties that arose from the recent
leadership crisis in the Central Bank and less with the inability of
the Central Bank to tighten monetary policy and offer investors
better rates of return, The fact that such portfolio outflows have
tapered provide support for this view. More important however is
the fact that there will be another change in the leadership of the
CBN in a couple of weeks. I am of the view that policy changes
should be undertaken at the present time only if absolutely
necessary. From the above analysis, this is certainly not the case at
this point.
In the light of the above factors, I hereby vote as follows: (1) to
retain MPR at 12 percent with interest rate corridor of + 200/- 200
basis points; (2) to retain CRR at on private sector and
government deposits at 15 percent and 75 percent respectively,
and; (3) to retain Liquidity Ratio at 30 percent.