Central Bank of Nigeria Communiqué’ No. 103 of the Monetary
Policy Committee Meeting of Monday and Tuesday, September 21
and 22, 2015
The Monetary Policy Committee met on 21st and 22nd September,
2015 against the backdrop of lingering uneven recovery in the
global economy and slowing domestic growth. In attendance were
10 out of 12 members. The Committee reviewed developments in
global and domestic economic and financial environments in the
first eight months of 2015 in order to provide the policy direction for
the rest of fiscal 2015.
International Economic Developments
The Committee observed a divergence in the global economic
environment, with a gradual but steady growth in the United States
and UK but a slowdown in emerging and developing economies.

The underlying drivers of growth in the advanced economies
included improving financial conditions and consumer sentiments,
suppressed commodity prices and favorable labour market
conditions. On the flip side, the slowdown in the emerging and
developing economies is mainly attributable to tight external
financial conditions, mostly a direct consequence of reduced
revenues from weak commodity prices, fragile global demand and
other geo-political factors.

Aided by strong consumer spending, continuous improvement in the
housing and labour markets and wage growth, the United States
continues to benefit from soft energy and other commodity prices
evidenced by the country’s revised second quarter 2015 GDP
growth of 3.7 per cent. Growth outlook in the second half, however,
remains moderate as exports could slow on the heels of a
strengthening dollar and slowing growth in China.

The Bank of Japan maintained accommodative monetary policy
through its asset purchasing program, with monthly injection of ¥6.7

trillion (US$55.48 billion), resulting in stronger than anticipated second
quarter growth. Following its September 3, 2015 meeting, the
European Central Bank (ECB) retained its key policy rate, even as its
asset purchasing program continued, while inflation remained
largely subdued.
In the United Kingdom, the Bank of England also continued its asset
purchase program as the economy maintained a robust growth
path in the second quarter, with a modest uptick in inflation. These
developments have started to trigger the debate over when the
Bank of England (BoE) would start raising its rates.
Mindful of the potential impact of a rate adjustment, particularly on
the emerging markets and considering the sluggish recovery in the
Euro Area and Japan as well as the need to firm up recent growth
and employment gains in the domestic economy, the US Federal
Reserve voted at its September meeting to maintain its key interest
rate, and delay monetary policy normalization. The decision is
expected to strengthen stability in global economy and moderate

volatility in the financial markets, while also consolidating recovery at
home.
In the emerging markets and developing economies, expectations
of low growth continued into the third quarter of 2015, with strong
likelihood of moderate uptick in 2016. Output growth in China at 7.0
per cent in the second quarter of 2015, is expected to moderate
further, due to slower productivity and exports, collapsing assets
value and excess capacity in the manufacturing sector.
Global inflation is expected to remain tepid as the recent temporary
rebound in oil prices and stronger consumer sentiments have mildly
raised consumer prices in the advanced economies. Consumer
price developments were mixed in emerging and developing
economies. Commodity importing economies have continued to
benefit from low global oil and other commodity prices, while others,
especially exporters of primary commodities, are contending with
increased pressure on their currencies and fiscal position; and in
some cases, significant inflation pass-through to domestic prices.

Domestic Economic and Financial Developments
Output
Output growth in the first half of 2015 trended downwards from the
level in the fourth quarter of 2014, mainly on account of softening oil
prices. According to the National Bureau of Statistics (NBS), real GDP
grew by 2.35 per cent in the second quarter of 2015, a significant
decrease when compared with the 3.96 and 6.54 per cent in the
preceding quarter and corresponding period of 2014, respectively.
Real GDP growth is projected by the National Bureau of Statistics
(NBS) to stabilize at 2.63 per cent in 2015, compared with the 6.22
per cent recorded in 2014. The non-oil sector remained the main
driver of growth in the second quarter of 2015, at 3.46 per cent. The
key drivers were services, trade and agriculture, contributing 1.80,
0.95 and 0.82 percentage points, respectively. On the other hand,
Oil and Natural Gas sector declined by 0.73 percentage point an
improvement of 1.13 percentage points relative to the first quarter of
2015.

The overall outlook for economic activity is expected to improve on
account of sustained improvement in the supply of power and
refined petroleum products and progress with counter-insurgency in
the North East axis. The Committee reiterated its commitment to
efforts in support of the various ongoing Federal Government
initiatives to stimulate output growth.
Prices
The Committee noted that the year-on-year headline inflation
edged upwards to 9.3 per cent in August, from 9.2 per cent in June
and July, 2015. The increase in headline inflation in August reflected
marginal increases in both the core and food components of
inflation. Core inflation rose to 9.0 per cent in August from 8.8 per
cent in July, while food inflation increased to 10.1 per cent from 10.05
per cent over the same period.
The Committee observed that the uptick in inflation was mainly
traceable to higher energy prices, delayed harvests and pass
through from imports. It however, noted with satisfaction, the
continued moderation in all measures of month-on-month inflation

across all the measures. In August, on a month-on-month basis,
headline inflation rose by 0.59 per cent from 0.69% in July; core
inflation rose by 0.61 per cent, same as in July. Month-on-month food
inflation also moderated to 0.63 per cent in August, from 0.77 per
cent in July. The Committee, while reiterating its commitment to
price stability, noted that the rising inflationary trend was a concern
given the already tight monetary policy stance of the Bank.
Monetary, Credit and Financial Markets Developments
Broad money supply (M2) contracted by 2.23 per cent in August
2015, below the level at end-December 2014. When annualized, M2
contracted by 3.34 per cent, which was significantly below the
growth benchmark of 15.24 per cent for 2015. Net domestic credit
(NDC) rose by 11.00 per cent, which annualizes to 16.49 per cent in
the same period. At that level, NDC was within the provisional
benchmark of 29.30 per cent for 2015. The growth in aggregate
credit was attributable mainly to growth in Federal Government
borrowing which reached 140.13 per cent in August 2015 or 210.19
per cent when annualized.

During the period under review, rates in all segments of the money
market were largely influenced by the level of liquidity in the banking
system. Money market interest rates were relatively volatile,
reflecting fluctuations in banking system liquidity during the period.
Average inter-bank call and OBB rates, which opened at 10.85 and
10.65 per cent in June, 2015, closed at 31.07 and 28.10 per cent,
respectively, in August, 2015. Average inter-bank call and OBB rates
for the period were 14.95 and 17.17 per cent, respectively.
The Committee noted the bearish trend in the equities segment of
the capital market during the review period. The All-Share Index (ASI)
decreased by 9.3 per cent from 33,456.83 on June 01, 2015 to
30,332.68 on September 18, 2015. Similarly, Market Capitalization
(MC) fell by 8.8 per cent from N11.42 trillion to N10.42 trillion during
the same period. However, relative to end-December 2014, the
indices decreased by 12.5 and 9.3 per cent, respectively. The
decline in share prices (year-to-date) was largely due to subdued
sentiments preceding the general elections, which held in March

and concerns for the country’s foreign reserves position due to
declining global oil prices.
External Sector Developments
The average naira exchange rate remained relatively stable at the
inter-bank segment, but significantly volatile in the BDC segment of
the foreign exchange market during the review period. The
interbank exchange rate opened at N196.95/US$ and closed at
N197.00, at a daily average of N196.98/US$ between June 29 and
September 18, 2015 representing a depreciation of N0.5K for the
period. At the bureau-de-change segment, the exchange rate
opened at N224.50/US$ and closed at N211.50. This represented an
appreciation of N13.00k for the period. The relative stability in the
inter-bank market and improvement in the BDC segment were
attributed to the effects of various administrative and policy
measures. Consequently, gross official reserves decreased modestly
from US$31.20 billion at end-July 2015 to $30.63 billion on September
17, 2015.

Committee’s Considerations
The Committee noted that the overall macroeconomic environment
remained fragile. The economy further slowed in the second quarter
of the year, making it the second consecutive quarterly less-thanexpected performance. The Committee noted that growth had
come under severe strains arising from declining private and public
expenditures. In particular, it noted the impact of non-payment of
salaries at the state and local government levels as a key
dampening factor on consumer demand. Year-on-year headline
inflation continued to trend upwards, although the month-on-month
measure moderated. Demand pressure in the foreign exchange
market remained significant as oil prices continued to decline.
Arising from these developments, there were indications that some
of the banking sector performance indicators could be stressed if
conditions worsen further. Specifically, the Committee noted that
liquidity withdrawals following the implementation of the TSA,
elongation of the tenure of state government loans as well as loans
to the oil and gas sectors could aggravate liquidity conditions in
banks and impair their financial intermediation role, thus affecting

economic growth, unless some actions were immediately taken to
ease liquidity conditions in the markets.
Having seen two consecutive quarters of slow growth, the
Committee recognized that the economy could slip into recession in
2016 if proactive steps were not taken to revive growth in key sectors
of the economy.
In
the
face
of
prevailing
circumstances,
the
Committee
acknowledged that synergy between monetary and fiscal policies
remained the most potent option to sustainable growth. The
Committee further observed that the impact of the persistent
decline in global crude oil prices on the fiscal position of
Government continues to reflect in rising credit to government. The
Committee also noted that the initial market reaction to the decision
by JP Morgan to exclude the country from its Government Bond
Index for Emerging Economies (GBI-EM) had largely dissipated as
yields soon adjusted to their pre-announcement levels’ adding that
there may be second round effects over the next two months as the
economy adjusts to that decision. The Committee reiterated its

unwavering commitment to naira exchange rate stability despite the
pressures. Mindful of the possibility of diversion of any extra liquidity to
the foreign exchange market, the Committee urged the Bank to
closely monitor the nature and sources of demand pressure in the
foreign exchange market to ensure that funds were not diverted to
demand for foreign exchange but applied to specific growthenhancing asset creation lending by banks. It further noted that
sectors such as agriculture and MSMEs were sectors for rapid
generation of productive employment and wealth creation, and
must therefore, be painstakingly encouraged.
On inflation, the Committee was optimistic that as harvests progress
in the coming months, pressure on food prices would gradually
recede, while growth enhancing measures would over the medium
term have some moderating effect on food prices.
Overall,
the
Committee
expressed
optimism
that
business
confidence would continue to improve as the Government
continues to unfold its economic plans. In addition, some of the
reassuring measures of the administration including efforts aimed at

resolving fiscal challenges at the sub-national levels, and the fight
against corruption and improving the business environment would
unlock the inflow of foreign direct investment. The Committee also
underscored the imperative of growing and protecting the country’s
foreign reserves and building fiscal buffers in the process of
strengthening confidence in the economy, which is essential for
promoting growth and stability. The MPC also observed that despite
the TSA, banking system liquidity ratio remained moderate.
Consequently, the Committee advised on the urgent imperative of
banks to aggressively support the efforts of government at job
creation by channeling available liquidity into target growth
enhancing sectors of the economy such as agriculture and
manufacturing. This is with a view to promoting employment creation
through conscious efforts aimed at directing lending to the growth
enhancing sectors of the economy. The Committee considered that
the Bank and deposit money banks, must strive to reverse the
slowing GDP trajectory by actively stepping up their efforts in
catalyzing the economy with substantial new loans to the target
sectors earlier highlighted.

The Committee’s Decisions
In consideration of the underlying fundamentals of the economy,
particularly the declining output growth, rising unemployment,
evolving international economic environment as well as the need to
properly position the economy on a sustainable growth path, the
MPC decided by a vote of 7 to reduce the Cash Reserve
Requirement (CRR) from 31 per cent to 25 per cent while 3 voted to
hold. By a unanimous vote, the MPC voted to retain the MPR at 13
per cent.
In summary, the MPC voted to:
(i)
Reduce the CRR from 31 to 25 per cent;
(ii)
Retain the MPR at 13 per cent;
(iii)
Retain the symmetric corridor of 200 basis points around the
MPR; and
(iv) Retain the Liquidity Ratio at 30 per cent.
Thank you.
Godwin I. Emefiele
Governor, Central Bank of Nigeria
22nd September 2015

PERSONAL STATEMENT BY THE MONETARY POLICY
COMMITTEE MEMBERS
1.0
ADELABU, ADEBAYO
Key macroeconomic indicators are suggestive of rising challenges in
the various sectors of the economy with the pressure emanating
from both the global and domestic environments. The recovery in
the global economy has remained largely uneven with the balance
of risks tilted to the downside. Among the industrial nations, only the
US and UK appear to be recording fairly impressive growth while the
vast majority, particularly the Euro zone, is grappling with one
challenge or the other. The lingering challenges of deflation and
turbulent financial market in the Euro zone have now been
compounded with the issue of illegal immigrants in Germany. As a
result, the earlier growth projection of 3.5 per cent for 2015 has been
revised downward to 3.3 per cent. The condition is not anything
better in the emerging economies with most of them showing
downward trend. China, one of the biggest emerging economies is
now on a lower growth trajectory of around 7.5 per cent relative to

the average of double digit in the first decade of the century. The
slowdown in global economic activities coupled with the rising
global supply of crude oil has considerably moderated the prices of
crude oil with far reaching implications on the domestic economy.
The domestic economy is further challenged by elevated headline
inflation, which rose to 9.2 per cent in July 2015 and remained flat in
August, largely due to acceleration in food inflation. More
worrisome is the development in real output as the GDP growth of
2.35 per cent in the second quarter is not only below the 5-year
average, but also represents a second consecutive slowdown. The
financial markets have continued to witness considerable level of
volatility particularly in the month of August with an average
interbank rate of about 31 per cent. The commencement of full
implementation of the TSA could have contributed to the spikes but
it is most welcome that the initial spikes are dying off.
Although equities and fixed income securities have shown partial
recovery following the successful conduct of the elections, they
have
underperformed
relative
to
emerging
markets
peers,

suggesting some level of reservation by investors. The recent
exclusion of government bonds from the JP-Morgan EM index could
have also contributed but the effects appears to be waning. The
exchange rate market is less volatile at the interbank segment but
the burden was borne by the external reserves, which declined by
4.2 per cent between July and August, indicating persistence of
demand pressure.
Against these multi dimensional challenges, monetary policy needs
to take a cautious approach to avert the danger of time
inconsistency. With respect to the headline inflation, the medium
term upside risks include the likelihood of commencement of hike in
interest rate by the Federal Reserve with the attendant strengthening
of dollar which could rapidly impact on domestic price level from
exchange rate pass through effect. As valid as this argument may
sound, there is a countervailing factor in the sense that the base
effect has contributed significantly to the current uptick in headline
inflation given that the month-on-month metric showed moderation.

It should be therefore, expected that an improvement would be
recorded as the base effect dies off by end-December.
With respect to the slowdown in growth, as I have argued in my
previous statements, the underlying causes are largely structural in
nature and this seems to have been corroborated by the rising
contribution of food inflation to the overall headline inflation; a clear
indicator of food supply deficit. The structural bottlenecks have been
largely caused by the activities of insurgents and hiccups around
production and distribution system. It is remarkable that considerable
success is being achieved by the Federal Government in the fight
against the insurgency and this should translate to improvement in
output level soonest. Besides, complimentary factors that could
enhance the ease of business environment should not be
discounted in order to promote foreign direct investment.
With regard to the financial markets particularly the pressure on the
exchange rate, the key drivers include the adverse shock to the
terms of trade in the form of slump in the price of crude oil. The
phenomenon may not be reversed soonest owing to supply glut in

the global oil market. It is envisaged that that it would take several
years of ongoing retrenchment of capital expenditure in the oil
sector to rein in global supply. Besides, if the downturn in financial
markets in Europe and China snowballs into wider real financial crisis,
commodities prices including oil could overshoot downside forecast.
Thus, prudent demand management measures already in place,
particularly the exclusion of certain items from the interbank foreign
exchange market, need to be pursued to a logical conclusion.
Besides, the ongoing turn around in the domestic refineries would go
a long way to reduce demand pressure in the foreign exchange
market. Thus, I would advocate for fast tracking of this process.
On the banking system efficiency in general, I advocated in my last
statement for remuneration of part of the sterilized fund as a
palliative
measure
towards
reducing
the
cost
of
financial
intermediation to the banks. Evolving developments since that time
are suggestive of stronger liquidity enhancing measures. My position
derives strong support from the fact that current macroeconomic
conditions pose threat to the banking sector from both the asset and

liabilities sides. From the asset side, apart from the provisioning that
could emanate from exposure to oil and gas sector, current data
shows that the stock market fell by about 11 per cent by end-August.
This would adversely impact on the balance sheet of firms because it
implies a reduction in the net worth of firms and companies quoted
on the stock exchange by about 11 per cent. In view of the
existence of strong information asymmetry in Nigeria’s credit
markets, a lower net worth leads to a more severe adverse selection
and moral hazard in lending to those firms. In other words, lower net
worth implies a lower collateral for the loans extended to those firms,
therefore banks would be constrained to reduce their exposure to
these firms with dire consequence for future growth and
employment. This issue needs to be brought to the front burner in the
light of negative growth in the manufacturing sector in the last two
quarters.
The liability side on the other hand, would suffer initial setback with
the full implementation of the Treasury Single Account as the latitude
for deposit mobilization is reduced, ultimately affecting liquidity and

lending. In sum, evolving macroeconomic conditions would reduce
the scope for financial intermediation. It needs to be underscored
that economic contraction is accentuated in an environment of
financial instability and the primary approach for a central bank to
avert financial instability is by ensuring liquidity in the financial sector
in order to prevent initial crisis from spinning out of control. This has
been aptly demonstrated by notable central banks on a number of
occasions. For example, the US Federal Reserve in the fall of 1998
had to reduce the Federal Funds rate by 75 basis points to avert the
spillover of Russia financial crisis on the US financial system. Against
this perspective, I am of the view that the existing cash reserve
requirements should be reduced in order to enhance market
liquidity and inevitably enhance financial intermediation.
Based on the foregoing, I would like to propose a reduction in the
existing CRR by 600 basis points to 25 per cent while the MPR and the
LR are retained at the subsisting 13 and 30 per cent, respectively. The
symmetric corridor of 200 basis points on the MPR should equally be
maintained.

2.0
ALADE, SARAH O.
A number of challenging events have affected the Nigerian economy
since the last MPC meeting in July. These include the announcement by
JP Morgan that the country will be delisted from the emerging market
bond index at the end of September and the total adoption of Treasury
Single Account (TSA) which moved Federal Government Funds from the
banking system into government accounts at the Central Bank. Despite
these events, the Nigeria economy has shown some level of resilience and
has weathered the storm remarkably well. In the domestic environment,
Nigeria like other commodity exporters is experiencing tighter external
financial conditions and an uptick in headline inflation. In addition, lower
oil prices is helping to fuel turbulence in the foreign exchange market and
a bearish situation in the stock market as investors divest their portfolio
away from the Nigerian market. Based on the above, I support a hold on
Monetary Policy Rate (MPR), and a reduction in CRR to 25 percent to
release liquidity to the banking system and to allow banks to adjust to the
adoption of TSA in the short run.

The growing cloud over global growth has prompted the Federal Reserve
to maintain benchmark interest rate at near-zero percent at its September
17th Meeting. Coming out of its Federal Open Market Committee (FOMC)
Meeting, Fed Chairman stated that “recent global economic and
financial developments may restrain economic activity somewhat and
are likely to put further downward pressure on inflation in the near term”
for the US economy, thus a rate hike is further delayed till end of 2015 or
early 2016. Growth in emerging market and developing economies is
projected to be lower as low commodity prices and tighter financial
conditions pose increasing risk to growth in the region. Concern about
global economic slowdown, low inflation in the US and volatile stock
markets informed the Fed decision to keep rate steady. Heightened
concerns about growth in China and other emerging market economies
have led to notable volatility in financial markets. Oil exporting countries
have had to revise their growth projection downwards. In view of these
developments, monetary policy is expected to remain responsive to the
emerging issues these developments pose for the Nigerian economy.

Headline inflation increased to 9.3 percent in August compared to 9.2
percent recorded in July 2015. Headline inflation increased to 9.3 percent
in August from 9.2 percent recorded in July. This is the third consecutive
month that headline inflation has surpassed the up limit of the Central
Bank inflation target of 9 percent set since 2013. Both core and food
inflation rose in the review period. Core inflation rose to 9 percent from 8.8
per cent in July, while food inflation increased to 10.1 per cent from 10 per
cent in the previous month. The uptick in year-to-date inflation rates can
be traced to the late start of the raining season, which has delayed
harvest and insurgent activities that limited farming activities in the North
Eastern part of the country. While the rains have commenced, some of
the time lost may not be regained, thus medium term outlook for inflation
may remain elevated to the end of the year. Based on this, monetary
policy should give consideration to the feedback effect of the food
supply seasonality on the economy.

Medium term growth projections remained subdued with further downside
risks. Economic growth continues on the downward trend, as real GDP
grew by 2.35 percent during the second quarter of 2015 compared to

3.96 percent recorded in the first quarter. This was lower by
1.61percentage points from growth recorded in the preceding quarter
and also lower by 4.19 percent points from growth recorded in the
corresponding quarter of 2014. Non-oil growth was subdued, growing by
3.5 percentage points, lower than 5.6 percent in the first quarter. The
subdued growth is attributable to lower oil price which resulted in lower
government revenue, the feedback effect of fuel disruptions as a result of
the stand-off between oil marketers and government and foreign
exchange scarcity. The drop in oil price reduced export earnings by 40
percent year-on-year, putting pressure on the foreign exchange market
and reserve level. Despite these challenges, the Nigeria economy remains
resilient but policy actions will be needed to secure the gains made. In the
coming months, as government economic policy is articulated, and a
conducive environment is created to attract foreign and domestic
investors, the downside risk to growth could be reversed.


Against this background, care must be taken to navigate the precarious
global environment and its impact on Nigeria. Given the divergent

monetary policies on the global scene, rising inflation, declining growth
and lack of fiscal buffers in the domestic environment, a hold on policy
rate is needed in the short term. In addition, the adoption of TSA would
have impact on liquidity in the banking sector and an increase in policy
rate could be detrimental to the system at this time. Also at a time that JP
Morgan is delisting the country from the Emerging Market Bond Index, it is
important that the banking system remain liquid. Base on this, I vote for a
hold on policy rate, and a reduction of Cash Reserve Requirements (CRR)
to 25 percent.

3.0
BALAMI, DAHIRU HASSAN
Global growth remained mixed after the last MPC meeting. This is
particularly true with Nigeria’s major trading partners’ economies
including the Euro zone (i.e. countries like France, Germany, UK, Italy
and Spain etc) and others such as the U.S.A, Canada, India, China,
Brazil, Argentina and Japan. Global trade level remained weak with
the value of World trade down by one per cent (1%) except in Africa
and the Middle East. Other happenings that have direct bearing on
the Nigerian economy include the following:
(i)
Weakening industrial production in the Euro zone, with the
exception of construction, declined by at least 4%;
(ii)
Current decline in World net export trade with the
exception of Africa and the Middle-east;
(iii)
Monetary tightening in the U.S and the Strengthening of
the U.S Dollar;
(iv) Falling oil price at the international market and
(v)
The uncertainty with Greece economy and the expected
future negotiations.

The implication of the following on the Nigerian Economy is the slow
domestic economic growth in the second and third quarter of 2015.
Although domestic demand from the major trading partners is high
as demonstrated by Purchase Managers Index (PMI), it will take
some time to impact on the Nigerian economy positively. In my
opinion, the CBN, FMF and DMO have taken the right decision by
protecting access to foreign exchange.
The level of growth at the domestic level has been on the decline
while inflation is on the increase. This is reflected in the decline in the
level of asset, credit and increasing level of non-performing loans.
The policy decision is whether to promote growth or tame inflation. In
my opinion the better option is to promote growth.
The foreign exchange market has been relatively stable particularly
in interbank rate which has fluctuated between N196 -197. However
this is possible due to earlier policies of the CBN.

Concerns about the Nigerian economy
(I). The terrorism and insurgency in the Northeast region, Niger
Delta and Oil theft are still on-going, affecting the level of growth
in the agricultural sector, trade and commerce, etc.
(ii). The growing level of youth unemployment in the economy
especially in the North East and the problem of the IDPs and the
cost of planned resettlement and reconstruction. This will put
much pressure on the resources of the government at all levels
(iii).The non-execution of many capital projects in Nigeria in 2015,
implies series of future problems for the economy.
(iv).
Structural
deficiency
between
demand
and
supply
constraints on the foreign exchange market.
(v). The poor performance of the capital market due to losses in
September 2015 in which some of the major DMBs stocks were
hard hit.
(vi). The declining level of foreign exchange as a result of volatility
in the crude oil price and quantity exported has greatly affected
Nigeria’s external reserve.

In my judgment, to promote inclusive growth, job creation and
development in the economy, there is need for the rehabilitation of
the infrastructure in the North-east region in particular and Nigeria in
general; and further liberalize trade and commerce by executing
various development projects and opening up the routes that were
closed as a result of the activities of the terrorists. Various initiatives
and assistance for development of the devastated areas should be
consolidated for effective planning and execution. The costs of
borrowing need to be lowered to encourage entrepreneurs to take
advantage of the investment opportunities in the North particularly
with the ongoing improvement of the security situation. The
operation of the TSA when fully implemented will have positive
implication for the economy.
The ability of the policy makers to stabilize the exchange rate at the
official window for the past seven months is commendable and
should be encouraged.

I therefore vote to:
(i)
Reduce the Cash Reserve Ratio Requirements from 31 to
25 %. This will raise the level of liquidity in the economy. It
will also prepare the DMBs for October 2015 as well as
complete delisting of the FGN Bonds from the FGB-EM by
JP Morgan.
(ii)
Retain the MPR at 13%
(iii) Maintain symmetric corridor of +2/-2%.
In my mind the monetary and fiscal space should continue to
monitor developments in the economy and take necessary policies
that will protect the economy and the Nigerian interest.

4.0
BARAU, SULEIMAN
Background
My assessment of current macroeconomic conditions reveals rising
imbalances in virtually all sectors of the economy. In the external
sector, sustained negative term of trade shock via the slump in oil
price is driving the balance of payment to a disequilibrium level, the
first time in over ten years. Furthermore, imbalances continued in the
foreign exchange market with demand pressure outstripping supply,
culminating in negative accretion to external reserves between July
and early September.
Imbalances in the domestic environment include dwindling fiscal
revenue relative to expenditure, suggesting imminent twin deficits of
fiscal and current account deficits. Imbalances also exist in the real
sector as both public and private domestic demands are partially
suppressed on the backlash of dwindling public sector revenue and
the attendant non-payment of salaries at some levels of government
thus, constraining output growth, among others. Estimated GDP for

the second quarter was 2.95 per cent, the lowest in the last five
years, while inflation for August was 9.2 per cent.
The imbalance in the banking sector is becoming clearly discernible
with deterioration in asset quality due to the effect of falling oil price
on exposure to oil and gas sector, which constitutes a reasonable
component of banking sector assets.
On the flip side however, efforts at eliminating wastes by the new
administration and progress recorded in the fight against insurgency
have bolstered confidence in the economy and this is expected to
reverse negative sentiments from foreign investors but it would take
some time and complimentary actions for the confidence to impact
key macroeconomic variables.
It is obvious that monetary policy tools may not be sufficient to
simultaneously address all of these imbalances, thus requiring
strengthening the synergy between the fiscal and monetary
authorities. I am therefore of the view that the best approach for
the monetary authority is to focus on maintaining stability in the
macroeconomic environment in order to strengthen the confidence

emanating from the new political dispensation. Given the
importance of banking system stability to monetary policy
transmission mechanism and by extension overall macroeconomic
stability, I would advocate for measures that could reduce part of
the strain on the banking system. Consequently, I would like to
propose a reduction of the consolidated CRR by 600 basis points to
25 per cent with a view to enhancing intermediation process. I
would, however like to maintain the MPR and LR at 13 and 30 per
cent, respectively.
Issues and Pressure Points
Developments in both the external and domestic macroeconomic
environments continued to reveal intensification of risks.
External Environment: Apart from the US and UK, most global
economies have been facing challenges as a result of which global
recovery remains muted and unevenly distributed. Earlier global
growth projection of 3.5 per cent for 2015 has been revised
downward in the second half of the year by 0.2 percentage point
but more fundamentally, the balance of risks tilted towards the

downside and heavily skewed against emerging market economies
(EMEs). In the advanced countries, the unresolved problems of
deflation in the Euro zone and the challenge of Greece debt crisis
have further been complicated by the challenge of illegal
immigrants in Europe.
In the emerging economies, the Chinese economy, one of the
biggest emerging market economies, is now facing slowdown on the
heel of shifts in its growth model from exports to consumption while
the stock market has just crashed by about 30 per cent. A significant
slowdown in China would affect Nigeria in at least two ways: export
to China may suffer severe setback with negative consequence for
our current account while the challenge in the financial market
could make investors flee to the US, leading to further appreciation
of US dollar against emerging economies currencies, including
Nigeria.
Another key challenge from the global economy is the lingering
slump in crude oil price. The dynamics of the oil market is indicative
that crude oil price may well anchor below US$55/barrel over the

next two years. The August 2015 data revealed that Brent crude
traded as low as US$42/barrel on the backlash of massive sell off.
With the re-admittance of Iran to the oil market coupled with rising
investment in exploration in many parts of the globe such as North
America, the Middle East and Africa, global output would continue
to exceed demand in the near to medium terms. This, invariably,
would continue to pose challenge to the current account as well as
fiscal revenue.
In addition, the declining capital inflow and rising outflows have not
abated. The recent exclusion of the country from the JP-Morgan
Index may be seen in certain quarters as an issue but I do not see
much challenge from it. My take is reinforced by the latest data on
bond yield, which showed that the initial spike, after the
announcement of the exclusion, has died off. The real issue,
however, is the much anticipated hike in interest rate by the Federal
Reserve. Latest information suggests that the delay in announcing
the hike at the September’s meeting was due to the need for clarity
on
non-farm
statistics
as
other
indicators
supported
the

announcement. Thus, it should be reasonably expected that this
would come in the early period of next year, at the latest. This has at
least three implications on the economy. First capital outflow would
accelerate.
Second,
dollar
would
strengthen
against
most
currencies with implication of higher inflation through exchange rate
pass through. Thirdly, banking system stability may be threatened as
dollarization may increase with implication of reduction in naira
denominated deposit liability.
Domestic Environment:
Key macroeconomic indicators showed signs of further weakness up
to the early part of the third quarter. The GDP recorded a slow down
for the second consecutive quarter, growing by mere 2.35 per cent
in the second quarter, down from 3.96 and 6.54 per cent in the
previous and corresponding quarters, respectively. More worrisome is
the development in the industrial sector which recorded negative
growth at -1.11 and -1.02 per cent in Q2 and Q1 of 2015,
respectively. This is a clear signal that unemployment may increase
in no distant time. Meanwhile, the latest data from the Bureau of

Statistics revealed that underemployment increased to 17.9 per cent
in Q4, 2014 from 15.4 per cent in Q3, 2014 and 14.8% in 2013. Despite
the benign global inflation environment, domestic headline inflation
remained flat at 9.2 per cent in August, having been trending
upward for seven consecutive months. The present level of inflation is
the threshold of the target set by the Bank as possibility of further
slippage remains a course for concern.
Analysis of fiscal profile shows serious revenue shortfall at the end of
June. Cumulative fiscal deficit at the end of June was about N676
billion, annualizing to about N1.36 trillion against the projection of
N755 billion in the 2015 budget. This, invariably, has put pressure on
monetary sector with credit to Government growing by over 150 per
cent at end-July 2015. As expected under this circumstance, private
sector has been crowded out with private sector credit growing by
mere 3.29 per cent at end-July 2015. This portends adverse
implication for future investment and ultimately growth and
employment.

The financial markets have shown relative degree of stability but not
without some strains. The interbank rate exhibited considerable
spikes in the month of August with an average of about 31 per cent
but data in September suggests that some calmness has returned to
the market. The strain in August must have been due to the initial
market reaction to the implementation of Treasury Single Account
(TSA) although the implementation of the TSA would reduce the
level of liquidity in the market considerably, going forward.
Developments in the foreign exchange markets also suggest an
underlying rising pressure. The interbank rate has been fairly stable
but the pressure was borne by the external reserves, which declined
by 4.62 per cent between July and August 2015. Furthermore, the
premium between the interbank and the BDC rate remained
perpetually elevated at about 24 per cent, providing opportunities
for arbitrage.

Considerations
The key considerations for my decision are as follows:
i.
Need to Manage the Inflationary Pressure: A critical pillar of
monetary policy is the capacity to anchor expectation of
economic agents. With headline inflation of 9.2 per cent in
August, the single digit threshold of the Bank is seriously
threatened. The direction of inflation over the medium term is a
little bit dicey in view of equally strong upside and downside risks.
The upside risks include the seasonality factor particularly the
end of the year festivities. The second one is the likely increase in
aggregate demand resulting from the recent bail out to states
while the third risk actor is the likely appreciation of dollar due to
increase in interest rate by the Federal Reserve. Although the
drop in oil price is providing tailwinds for global inflation, the
much anticipated hike in interest rate by the Federal Reserve
with the attendant strengthening of dollar would filter into
domestic price level through exchange pass through. The
foregoing notwithstanding, there are some other countervailing

factors that could be at play. First, the rise in headline inflation
since January was on year-on-year basis as the month-on-month
showed moderation, suggesting base effect. Secondly, a large
portion of output gap was due to the activities of the insurgents
in certain parts of the country, thus with the significant progress in
restoration of peace in these regions, economic activities would
likely resume in full swing. In view of this apparent balance of
risks, it may be in order to leave the policy rate unchanged
particularly when cognizance is taken of the deteriorating
performance of the industrial sector.
ii.
Need to Avert Disruptive Movement in the Exchange Rate: The
interbank exchange rate has been relatively flat in the last
couple of months but at the expense of the external reserves
while the premium between the interbank and the BDC rates at
about 24 per cent is clearly above the tolerance limit. It needs to
be underscored that the ripple effects of the unsettled financial
markets in Europe and China would not be limited to only
financial assets, commodities markets particularly oil and other

primary exports of developing countries would be affected.
Consequently, additional pressure may be exerted on external
reserves. Reflecting likely crystallization of this risk, all emerging
countries currencies have been under pressure in recent times. In
the last one month, notable emerging countries currencies such
as Chinese Yuan, Vietnam Dong, and Kazakhstan Tenge have
been devalued. In the present circumstances where the supply
side of the foreign exchange market is facing intensive shock, it
may be necessary to strengthen demand management
measures. Nonetheless, the moderating impact of the TSA on the
excess liquidity of the banking system would likely reduce
excessive demand pressure in the market. Thus, additional
measures may not be necessary for now.
iii.
Need to improve Financial Intermediation by the Banking Sector:
The balance sheet of the banking industry is threatened from
both the assets and liabilities sides. The interbank rate could
have normalized after the initial shock from the implementation
of the TSA, nevertheless sustained compliance with the TSA

concept would reduce the scope for deposit mobilization and
ultimately affect intermediation process. When this is combined
with shocks to the asset side such as delinquency on exposure to
oil and gas sector, classification of consumer loans to public
servants due to non-payment of salaries, and restructuring of
states and local governments loans, the stability of the banking
sector may be threatened. It may be therefore expedient to free
some of the sterilized funds under the subsisting CRR with a view
to improving financial intermediation. This is more important
when the emerging ugly trend of negative growth in the
manufacturing sector is taken into consideration.
iv.
Need to Avoid Time Inconsistency in Policy: It is intuitive
appealing to ease policy stance on the backlash of slowdown in
GDP. However, as I have argued in my previous statements, most
of the drivers of the slowdown are traceable to structural
bottlenecks within the economy rather than monetary factors
alone. Besides, easing of interest rate in the face of strong
pressure from the external sector could only add to the

imbalances which would discourage investments and thereby
accelerate recession.

Decisions
In the light of the foregoing, I would like to propose a reduction in
the consolidated CRR by 600 basis points to 25 per cent while the
MPR and LR are maintained at the subsisting rate of 13 and 30 per
cent, respectively. In addition, the symmetry corridor of 200 basis
points around MPR should be retained.

5.0
GARBA, ABDUL-GANIYU
Context of Decision
The greatest danger to economies (large, emerging and small) in
the post-2007 global economy is the risks posed by a lack of depth,
scope, memory or foresight in the analysis that supports policy
decisions. As I wrote in my personal statement of March 2014 MPC:
‘’these are challenging times for all monetary authorities all over the
world primarily because the world is in unfamiliar territories in which
unconventional monetary policy instruments have been deployed in
the post-2007 global financial crisis by the most powerful Central
Banks. In the process, they have created financial and economic
challenges of unprecedented depths, scope and length.’’ A key
consequence is the emergence two twin traps - a low interest rate
and quantitative easing trap (large economies) and high interest
rate and tightening trap (small and ‘’emerging’’ economies). In
addition, the balance of power in the policy game has shifted in
favour of the ‘’market’’ such that if policy makers fail to understand
the new policy environment, they would be prone to short-sighted
and catastrophic policy choices. To safeguard the medium and

long term health of economies, policy makers must avoid short
memories, lack of depth, scope and foresight in the very difficult
policy environment of the new epoch.
I first warned about the dangers of the two related interest rate traps
in my personal statement of November 2013 MPC when I wrote:
‘’Available evidence leads me to conclude that the major
economies (United States, United Kingdom and the Euro Zone) are
sinking into a low interest rate trap. The decision of the European
Central Bank (ECB) to cut its Monetary Policy Rate by 0.25%
exemplified my point. The President of the ECB justified the rate cut
on the ground that the annual inflation rate fell below 1% - (the
target rate is 2%). The forward guidance was to the effect that as
long as there was fear of deflation, monetary authorities will cut rate
and sustain the policy of monetary accommodation. The forward
guidance traps the ECB and similar Central Banks to (persistent) low
interest rates and quantitative easing (QE) trap’’. The evidence then
showed ‘’that several episodes of monetary accommodation since
2007 (had) failed to stimulate aggregate demand to the degree of
the QEs.’’ Analysis of the transmission mechanisms of monetary

policy in large, emerging and small economies convinced me that
‘’much of the monetary accommodation (was) “dammed” in the
financial markets causing (i) inverted intermediations between
central banks and financial market players; (ii) distortions in asset
and commodity pricing and allocation and (iii) concentration in
wealth.’’ It was clear to me that in the case of ‘’Nigeria, the low
interest rate trap is a danger to financial stability (because) the high
interest rates and stable currency in Nigeria (had) been attracting
portfolio flows into equity and money market instruments well
beyond their optimum levels.’’ The flip side was the attractiveness of
borrowing by DMBs and Nigerian firms in foreign currency raising the
risks of currency mismatch when the exchange rate comes under
pressure.
The analysis led me to warn that ‘’such flows in a globalized asset
price bubble environment (can mislead) many players (to) become
complacent on the false expectations that the flows will continue
(and that) Nigeria has gone through painful “bubble asset”
withdrawal syndromes before . . . (and) it will be costly to go through
a full scale bubble asset withdrawal syndrome again. The greatest

danger to policy effectiveness, financial and economic stability
(was) the high likelihood that global low interest rate trap and,
domestic fiscal dominance (were) leading monetary policy into a
high interest rate regime. It was clear to me then in November 2013
that it ‘’was of the outmost importance that Nigeria avoids a high
interest rate trap and its twining with the low interest rate trap.’’
In the personal statement of January 2014, I re-emphasized my
concerns about the two interest rate traps and their structural
hysteresis (long term consequences). By digging themselves into the
low interest rate and quantitative easing trap I was and still am
convinced that the large economies, have weakened the
transmission mechanisms of policies (monetary and fiscal) globally,
distorted the financial-real economy relationships and caused
financial markets to malfunction in the allocation and pricing of
financial assets. The episodic volatilities and the large amplitude
observed in August 2015 in global financial and commodity markets
are some of the consequences of the uncertainties and risks
generated by the low interest rate trap. It was not a surprise that the
US Fed, Bank of England, the European Bank, Bank of Japan are

unable to raise rates nor are they able to stimulate upward
movements in aggregate demand and prices. The recovery of
employment in the US has proceeded without growth in income and
with uncertainties in the global economy; forward looking economic
agents are unlikely to spend without concern about future risks. The
global concentration in wealth clearly, weakens growth in
aggregate demand hence, the possibility of inflation.
Emerging and some small economies including Nigeria imprudently
walked themselves into a high interest rate trap in their scramble to
attract portfolio flows despite the short term trade trade-offs (job,
efficiency and growth) and medium to long term trade-offs (jobs,
efficiency, growth and macroeconomic and financial market
instability). The danger was most acute for economies committed to
exchange rate stability and free capital flows because the monetary
policy was easily trapped into a high interest rate regime: the fear
being that easing will trigger devaluation pressures on the exchange
rate as Nigeria is currently experiencing. Those who underplay the
importance of a loss of capacity for independent monetary policy
that most central banks (large, emerging and small) have walked

themselves into cannot provide the light for restoring the transmission
mechanism of monetary policy, the stability of markets (financial,
labour and product) or the stability of the macro-economy.
It was clear to me that a stable exchange rate and price regime
could
very
easily
unravel
if
a
forward
looking
economic
management
strategy
comprising
of
a
creative
mix
of
complementary macroeconomic policy (monetary and fiscal),
macro-prudential policy and micro-prudential were not developed
in time and effectively implemented. I warned that it was ‘’in the
best interests of Nigeria that its policy makers are not caught
unprepared.’’ This was partly why I voted for the discriminatory CRR
on public deposit in July 2013 and January 2014 (to impose fiscal
prudence and shut down the game of corporate welfare and
unnecessary accumulation of public debt when government had
deposits of about three trillion Naira in Deposit Money Banks). This
was why I also consistently expressed my preference for ‘’a forward
looking fiscal policy regime . . . (anchored in a commitment to the
fiscal rules in the Fiscal Responsibility Act of 2007 and ‘’a strategic

and forward looking management of oil and gas resources’’ to build
forex reserves required to support a stable currency.
Had fiscal policy been forward looking, public savings would have
been built up and the fiscal buffers would have minimized the
effects of the shocks (commodity price collapse, bubble corrections
and reverse flows) whose likelihood of occurrence were obviously
very high. The path of Nigerian money, capital and forex markets
particularly since October 2014 justify the concerns raised in my
personal statement of November 2013 about the twin traps and the
vulnerabilities they pose to large, small and emerging economies.
In my personal statement after the March 2014 MPC, I had expressed
concerns that ‘’many global players do not (1) see the linkages and
the medium term strategic implications and/or (2) have no interest in
the global commonwealth. For such short-sighted players, exploiting
the asymmetries at the nexus points is fair game (rational) regardless
of the resulting turbulence and the social, political and economic
consequences. Yet, unless many Central banks and market players
see,
understand
and
submit
to
the
good
of
the
global
commonwealth, the turbulence in the global economy and its

disturbing consequences will persist for a very long time to come. A
beggar thy neighbour policy environment is globally inferior to a
mutually beneficial cooperative environment.’’ I had argued for a
global cooperative process to solve the problems of the twin traps
because I was convinced that the ‘’two traps demand (1) a forward
looking monetary policy process within a broader and longer spacetime horizon and (2) greater mutually beneficial policy coordination
between monetary and fiscal authorities and between Central
Banks regionally and globally. Otherwise, exiting the abnormalities of
the last few years will be painful for most and unsettling for all.’’
I pointed to the fact that ‘’the various options for disposing the toxic
assets (mortgage backed securities) that the US Fed and most
Central Banks had accumulated on their balance sheet . . . (were)
fraught with dangers for monetary policy, for global financial
markets (asset prices, interest rates and yields), for the housing
markets and for growth and employment.’’ I was convinced that
fiscal-monetary policy coordination in Nigeria would have helped to
build buffers and made both policies more effective and more
compatible to medium and long terms economic goals of Nigeria.

I have provided this rather detailed chronology of my personal
statements to underscore the real challenge of macroeconomic
management in the post-2008 world and the risks of policy making
within a narrow scope and a short time horizon. The greatest danger
which most leading policy makers chose to underplay is deeper,
long-termed and deeply structural: the challenge of traps. Listening
to and watching Fed Chair Janet Yellen’s press conference after the
September 17 2015 Federal Open Market Committee (FOMC)
meeting I was struck by an unwillingness to confront the new post2008 global economic realities. As much as Fed Chair Janet Yellen
tried to downplay the threat of the Fed being in a zero interest rate
trap, she did not rule it out but had no plan B. She was asked ‘’Are
you worried that, given the global interconnectedness, the low
inflation globally, all of the other concerns that you just spoke about,
that you may never escape from this zero lower bound situation?’’
Fed Chair Janet Yellen answered ‘’So I would be very—I would be
very surprised if that’s the case. . . Can I completely rule it out? I
can’t completely rule it out.’’ Clearly, there is no Fed strategy to dig
itself out of such a trap and the associated costs. Japan which

entered into such a trap in the aftermath of its asset market bubbles
of the late 1980s is yet to exit the deflation trap. Now the major
economies had joined it.
To ignore the current realities of the global economy and its
implications for economic and financial outlook is to increase the
chances of dangerous policy errors. As I pointed out in my personal
statement after the July 2015 MPC, the real policy choice is not
between tightening or easing. It is far ‘’more fundamental. It is about
institutions, incentives, strategy, coordination and forward looking. At
the heart is the primacy of mechanism design and about leveraging
on the new government’s positive signals about fiscal prudence,
consolidation of NNPC Accounts in the Central Bank and possibility
of
re-starting
production
in
the
refineries
to
develop
a
macroeconomic management strategic framework for Nigeria.’’ This
remains my position at this MPC meeting.

Decision
I vote to hold.
However, my vote to hold is not a vote to do nothing. Rather, it is a
vote to harness and direct all available intellectual and political
resources
to
engage
the
fiscal
authorities
to
develop
a
macroeconomic management strategic framework for Nigeria
urgently
to
meet
the
real
challenges
of
macroeconomic
management in this new epoch.
The CBN Act makes it clear that the primary mandate of the CBN is
price stability and its secondary mandate is to support the policies of
the government. Neither mandate could be successfully achieved
without a dynamic and efficient and effective coordination of fiscal
and monetary policy and without a comprehensive and consistent
strategic framework for monetary policy, macro-prudential policy,
micro-prudential
policy
and
development
finance
policy.
Developing the frameworks for me, are the real and urgent
challenges.

It is true that the macroeconomic and financial market outlooks are
precarious for Nigeria and for most small and emerging economies
and indeed for most of the global economic zones besides the US.
However, doing something is not necessarily prudent. Similarly, a
reactive one issue driven monetary policy in the current policy
environment is most likely short sighted and prone to costly errors. For
instance, had the discriminatory CRR prevailed until the policy of
Treasury Single Account (TSA) came into force under the new
regime, there would have been no need to raise private sector CRR
to 31% at the May 2015 MPC. The process of adjusting to the TSA
after September 15 deadline would have generated less ‘’noise’’
since 75% would already have been in the CBN and with CRR at 20%
the effect of TSA on system liquidity would have been marginal if at
all. In any case, there was sufficient forward guidance between July
2013 when the CRR on public deposit was increased to 50% about
the need for Deposit Money Banks to gradually change their
business model from one that depended on profits from lending
public
deposits
to
government
to
one
that
depends
on
intermediation between borrowers and savers for their profits.

Clearly, their preference for ‘’financial subsidy’’ was rational but
short sighted and very costly for fiscal and monetary operations. In
addition, the ‘’strategic noise’’ about illiquidity is not supported by
the data on the average Liquidity Ratio which was at least 10%
above the required rate.
The expectation that a reduction in CRR will lower short term rates is
not rooted in sound analysis or evidence. The strongest argument for
lowering CRR is the profit argument. Yet, there is the unresolved profit
puzzle: rising profits of DMBs while growth in credit, assets and
deposits are slowing and inefficiencies are rising (interest rate
spreads, operating costs and forex arbitrage opportunities). In any
case, liquidity management implies that OMO could be used to
mop-up excesses liquidity or to inject liquidity when necessary. The
size of the projected injections through reduction in CRR to 25%
increases in the risks of exchange rate pressures given the asset
structure of the DMBs in the last few years. It will be imprudent to
begin to raise CRR in subsequent MPC meetings when the liquidity
injected begins to exert pressures on the forex market. This is more so,
since OMO could be used inject liquidity and reduce the cost of

mopping up later. Given the risks to the forex market and to financial
system stability of further pressures on the Naira, I could not vote for a
reduction in CRR. I could also not vote for tightening to reduce
inflation pressures because tightening could not be justified by the
already high sacrifice ratios of the ‘’tightening-quantitative easing’’
conundrum (tightening the massive AMCON injections) of the last
few years.
I expressed cautious optimism in my personal statement of July 2015
MPC. I remain cautiously optimistic. As I emphasized then, ‘’policy
and strategy should not be based on pessimistic outlooks because
nothing in the future is inevitable: it is the quality of current choices
that will shape future paths.’’ As the new cabinet takes shape, it is
important that monetary and fiscal authorities meet as soon as
possible to begin the hard-work of designing the appropriate
macroeconomic management strategy for Nigeria that builds the
resilience, efficiency and effectiveness required to achieve the
complementary mandates of the CBN and the fiscal authorities.
I had argued that resumption of refining at full capacity would help
to reduce petroleum subsidy payments which will bring about

significant reductions in fiscal deficits, public borrowing and public
debt and the need for portfolio flows. These changes would
significantly reduce the cost of liquidity management, reduce
pressures on the forex and money markets and help to bring about
improvements in the pricing, allocative, rationing and discovery
functions of the money and forex markets. Indeed, improvements in
refining and distribution efficiencies could bring to an end the game
of petroleum subsidy and its destructive effects on the efficiency and
effectiveness of markets and policies (fiscal and monetary).
Similarly, a successful war on corruption would increase government
revenue (as leakages and theft are reduced), reduce government
expenditure, budget deficit, public borrowing and public debt.
These would scale-up the effects of the reduction in petroleum
subsidy. The future effectiveness of macroeconomic management in
my view hinges strongly on effective and efficient policy
coordination. Without that, weathering the inevitable storms of the
twin traps will be difficult and very costly. My vote therefore, is for
medium to long term efficiency and effectiveness of markets, of
macroeconomic management and of the stability of the economy.

6.0
NNANNA, O. JOSEPH

Global macroeconomic conditions during Q3 of 2015 were fragile
amid financial market uncertainties, softening oil prices and China’s
uncertain growth future. While advanced economies witnessed
gradual improvement in output growth, overall global growth
performance was largely uneven across board. In the United States,
recent rebound in growth performance was largely driven by
continued monetary easing, lower energy prices and improved
labour market conditions; while inflation remained far below policy
target of 2 percent. However, while marginal deceleration in growth
in the Euro Area was attributed to continued fiscal fragilities, slowing
growth in emerging and developing economies were mainly driven
by economic headwinds, especially lower commodity prices and
ripples of growth rebalancing in China.
OUTPUT AND PRICES
While concerns of possible recession and worsening unemployment
remain valid given sustained weak output growth, marginal inflation

uptick was not surprising, and does not seem to threaten relative
price stability in the near term.
At the domestic front, GDP growth declined from 3.96 percent in
Q1 of 2015 to 2.35 percent in Q2, which consequently worsened
unemployment from 7.5 percent in Q1 to 8.2 percent in Q2 of 2015.
The sustained deceleration in GDP, which stoked fears of recession in
the medium term, was largely attributed to softening oil prices,
liquidity contraction in the banking sector, dwindling government
and private investment expenditure. Overall, broad money supply
(M2) declined from 20.64 percent in December, 2014 to -2.23
percent in August 2015, further deteriorated to -3.35 percent
(annualized), and compared with the bench mark of 15. 24 percent.
Consequently, credit to the private sector significantly contracted
from 11.88 percent in December 2014 to 2.80 percent in August 2015.
The creeping inflation uptick from 9.2 percent in July to 9.3 percent in
August, which was largely driven by food inflation, does not seem to
threaten relative price stability. Nonetheless, current monetary

conditions and the forthcoming harvest season are expected to
dampen threats to price stability in the near term.
EXCHANGE RATE DEVELOPMENTS
Effective demand management policies in the forex market has
halted the hemorrhage in reserves albeit temporarily, but sustained
accretion to reserves is threatened by softening oil prices and
uncertainties about capital inflows, in the wake of J P. Morgan
delisting threat.
External reserves, which marginally improved from $28.3 billion in
June to $31.2 billion in July, remained stable on average at $30.6
billion in August and September 2015, respectively. This underscores
the effectiveness of the subsisting demand management policies in
Forex market. But challenges of sustainability of the relative stability
in reserves remains a major concern. However, while interbank rates
remained within the policy band of N197/USD, the BDC rates have
significantly depreciated at N224 / USD, with a spread of 13.71
percent between the two market segments. Although, there has
been relative stability in reserve levels in recent times, but sustained

accretion cannot be assured against the backdrop of softening oil
prices and possible portfolio investment reversals due to possible
interest rate hike in the US in the near term. In the circumstance,
recent developments in the forex market indicate that the
combination of strategic intervention in the forex market and
sustained demand management policies have the potential to
stabilize and possibly improve reserve accretion in the medium term
as oil prices unravel and the implementation of structural policies
kick in as the new administration stabilizes.
LIQUIDITY MANAGEMENT
Full implementation of the Treasury Single Account ( TSA) and
prevailing tight monetary conditions have impacted credit to the
private sector and domestic investments, thus warranting some
banking system liquidity accommodation in the short term.
The combined impact of the Treasury Single Account (TSA) and the
31 percent CRR accounted largely for recent liquidity contraction
that depressed credit to the private sector in the period under
review. Tight liquidity conditions in the money market caused the rise

in interbank and open buy back rates from 10.85 and 10.65 percent
to 33.3 percent and 28.10 percent in June and August, 2015,
respectively. The relative decline in NPLs from 4.65 percent in June
to 4.57 percent in August 2015, in addition to relative stability on
return on equity (ROE) and return on assets (ROA), alleys policy
concerns about fragilities in the banking system in the near term.
However, given the impact of dwindling private sector credit and
declining growth in government and private sector investments,
there is need for policy to enhance liquidity in the financial sector.
Conclusion.
In the light of the mixed signals emanating from macroeconomic
developments especially, the uneven growth trends and the
decelerating GDP growth at the domestic front, declining credit to
private sector, tepid inflationary uptick and weakening government
and private sector investment expenditure, I see merit in advocating
for:
1. Reducing the CRR from 31 percent to 25 percent;
2. Retain the MPR at 13 percent;

3. Retain the symmetric corridor of 200 basis points around
MPR ; and
4. Retain the Liquidity Ratio at 30 per cent

7.0
UCHE, CHIBUIKE U
Information available to the MPC shows that our local economic
environment remains fragile. Given the current downward trend in
global oil prices and the dependence of our economy on oil rents, it
is not surprising that almost all our economic growth indicators have
either stalled or are trending in the negative direction. Our external
reserve has stalled while inflation has continued to inch upwards. Our
GDP growth rate is on the decline while our industry growth is in
negative territory. Although the interbank exchange rate for the
Naira has remained stable at N197 to the US Dollar for some time
now, the margin between this and the BDC rate has continued to
widen. This is a clear indication of the growing pressure on the
exchange rate of our currency. The Nigerian Stock Exchange ASI
index has, on the average, continued to trend downwards. The
recent announcement by JP Morgan to phase out Federal
Government of Nigeria Bonds from its Government Bond Index for
Emerging Markets by the end of October 2015 has also not helped
matters.

The above scenario is clearly a reflection of the mono product
dependent nature of our economy. The consequence of our
overdependence on oil rents is perhaps best illustrated by the recent
mandate given to the CBN to bail out state governments so as to
enable them to pay salaries. Bluntly put, states are now borrowing to
meet recurrent expenditure. This in my humble view can only
complicate our economic problem. Except the states are forced to
restructure their operating and cost structures, they will soon come
back for more bailout. This is especially plausible given the fact that
most analysts have ruled out the possibility of a sustained increase in
crude oil prices in the near future.
I do not subscribe to the view that the bail out of states in order to
enable them pay salaries can be considered as part of the
developmental function of the CBN. For CBN interventions to be
classified as such, it should be focused on the development of real
sector economic activities. It is in the light of the above reality that
various proposals have been put forward on how the CBN could
best aid the economic diversification process. Although I am in

support of the CBN exercising its developmental function, I am of the
humble opinion that our approach in this direction should be
cautious and systematic. Since the CBN has a long history of
developmental interventions, I am of the view that we should at the
very least first try to learn from history before proceeding. The first
thing to do therefore will be to critically study past interventions with
the view of understanding their strengths and weaknesses. This I
believe will help us design and operationalize better developmental
policies for the future. It will also help us to better sequence such
developmental interventions.
Despite the gloomy economic picture that may have been painted
above, there have been positive economic developments in our
country. For me, the most exciting news that preceded this MPC
meeting was the decision of the Federal Government to
operationalize the Treasury Single Account. In the past, I have
consistently argued that the proliferation of the accounts of
Government
agencies
in
commercial
banks
undermines
Government fiscal management and the formulation of monetary

policy. Such practices have in the past led the MPC to adopt
abnormal policies like charging discriminatory CRR on public sector
deposits. Unfortunately, such policies have not always proven to be
effective.
Although the September 15, 2015 deadline set by Government for
the full implementation of the TSA has now passed, data before the
MPC shows that thus far less than half of such deposits have been
transferred to the CBN. Unfortunately, all manner of claims and
counter claims exist, at least in the popular press, with respect to the
specific operational modus of the TSA. My interpretation of the
present uncertain scenario is that it is only a passing phase that will
eventually be sorted out in the near term. Since, in my view,
Government is resolute about operationalizing the TSA, I believe it is
prudent to wait for the dust to settle before we can determine the
full impact of this new policy direction on both monetary policy and
the health of banks.
It is on the above basis that I consider the argument that we should
reduce CRR in order to give more breathing space to the banks-

especially now that their non-performing loans are gradually
increasing- hasty. This is even more so given the fact that evidence
before the MPC clearly show that thus far, there has been no
material decline in the liquidity position of our banks. Rather, a major
area of risk for our banks is the increasing foreign currency liabilities in
their balance sheets. I am particularly troubled by the fact that some
of these foreign currency liabilities are being invested in local
currency assets. Thankfully, the current scale of the problem can still
be curtailed by proper and effective supervision based on existing
standards.
I will like to conclude this statement by commenting on the recent J.
P. Morgan decision to delist Nigerian bonds which has been
mentioned above. The crux of the matter is the CBN’s decision to
increase the controls in its foreign currency market. I am in full
support of the CBN argument that “given the high propensity for
speculation, round tripping, and rent-seeking in the market,” the only
players who should be allowed are those who are “in the market to
fulfil genuine customer demands to pay for eligible imports and other

transactions.” From the perspective of Nigeria as the issuer of the
said bonds, I am convinced that this is a better arrangement than
allowing speculators to determine the value of our currency.
I however wish that the above controls can also be extended to the
inflow of capital into the country. Over the years, I have consistently
argued that we should do more to regulate this. Surely, it will be
more logical and less disruptive to also control the inflow of foreign
currency into the country. Foreign capital is useful to the extent that
it is invested in productive assets. I humbly do not agree with the
argument that this is not the right time to put capital controls in
place. To the contrary, I believe that there can be no better time
than now that our economy is on the decline. For the avoidance of
doubt, capital controls simply means imposing some minimum term
limit, perhaps one year, for foreign investments to stay in Nigeria
before such investments can be moved without attracting any
surcharge. This can also be applied to new inflows only. Under such
a scenario, only unwanted speculative foreign investments will leave
the shores of our country. Controlling the type of capital we are

willing to receive will surely curtail speculative activities in our
economy.
In summary therefore, I am inclined to adopt a cautious attitude at
the present time. I therefore vote as follows: (1) to retain MPR at 13
percent with interest rate corridor of + 200/- 200 basis points; (2) to
retain CRR at 31 percent; and (3) to retain Liquidity Ratio at 30
percent.

8.0 YAHAYA, SHEHU
I vote to reduce the CRR to 25% and maintain the current level of
MPR along with the asymmetric corridor. The reasoning behind my
position is discussed below.
Global Economy
There has been little change in the global economic and financial
situation since the last MPC meeting. The US, and to a lesser extent
Europe, are experiencing economic recovery. Growth is tepid in
most of the EU countries and Japan, while India is still growing
rapidly. China’s growth is still robust but slowing down. Many of the
middle-Eastern countries are contending with either conflict or the
sharp fall in oil prices. Despite challenges to some major economies
in Africa including Nigeria, average growth rates are resilient for the
region as a whole.
Oil prices at around $45/bbl remain weak, due to global over-supply,
slow growth in most of the OECD countries and rising OPEC
production. With low oil prices, softening in the commodity markets,
stable food production, prices are low in most of our major trading

partners, while a few are facing deflationary pressures. Stock prices
have generally been experiencing downward pressures or significant
volatility. The US Dollar has appreciated against most major
currencies. US Federal Reserve have maintained interest rates at the
current rate
Domestic Economy
During Q2 2015, the GDP growth rate in the country fell significantly
to 2.35%, with projections for the year ranging from 2.5% to 5%,
compared to 3.96% in the Q1 2015 and 6.33% in 2014. In addition to
declines in the oil sector, manufacturing production has been
particularly hard hit, with a fall of 3.12%. This level of slow- down may
have significant implications for job creation and the financial
sector. Already, unemployment has edged up to 8.2% and
underemployment to 18.3%, compared to 7.8% and 17.5%
respectively in 2014.
Prices for Nigeria’s Bonny light crude has fallen to $47/b by August
2015, lower than it had been for months, while output has remained
stable or slightly higher. Both price and output are currently well

below the budget projections, with implications for government
revenue,, foreign reserves, forex market, government expenditure,
particularly capital expenditure.
Consequently, domestic general price levels have continued their
upward trajectory, with headline inflation at 9.34%, core inflation
rising faster than food inflation
The
exchange
rate
has,
due
to
administrative
measures
implemented,
remained
stable
at
the
inter-bank
market.
Nevertheless, some pressure has clearly built up on the value of the
Naira, mainly due to the low earnings from oil. External Reserves,
although have experienced some decline, but remain at a healthy
level.
Aggregate credit to the economy slowed down, although credit to
government exploded by more than 150% in July 2015. This is partly a
reflection of the drastic reduction of about 30% in the distribution of
the revenue account in January-August 2015 compared to the same
period in 2014. However, actual federal government expenditure in

the first half of 2015 was significantly higher than expenditure in the
corresponding period of 2014, despite the sharp fall in revenue
The banking system remains in good health with respect to capital
adequacy, liquidity, NPLs. Profit levels have increased significant by
about 28% in Q2 2015. There are a few challenges though, with
respect to the possible consequences of the implementation of the
TSA, the fall in oil prices as it relates to the general business climate,
some asset/liability mismatches and the relative concentration of the
loan portfolio. These are being addressed
Conclusion
The MPC is confronted with the three challenges of a sharp fall in the
GDP growth rate, rising inflation and pressures on the foreign
exchange market. Another challenge is the possible effect of the full
implementation of the TSA on liquidity in the banking system. The
challenges in the foreign exchange market are being vigorously
tackled and stability has been restored there so far. On the TSA, the
effects on the banking system have been muted so far. However,
rising inflation poses challenges for the economy. Yet, it may be

inappropriate to tighten monetary policy at this stage, when growth
is slowing sharply and when the effects of the TSA have clearly not
fully played out. Indeed, some loosening might be called for to help
stimulate economic activity and encourage the banking sector to
lend more to the productive sectors. This would be an appropriate
corollary to the policies implemented by the central bank to re-align
the allocation of foreign exchange.
I therefore vote to maintain the MPR at the current level and to
reduce the CRR to 25% to provide additional room for Bank lending.
Incentives should be provided to the DMBs to use the additional
lending space to support key productive sectors of the economy
with the aim of strengthening import substitution, local valueaddition and the creation of jobs. This will of course work only if
implemented in conjunction with an enabling fiscal policy
environment.

9.0 ADEDOYIN SALAMI
September’s meeting of the Monetary Policy Committee (MPC)
concluded with the majority of members voting to reduce the Cash
Reserve Ratio (CRR) from 31percent to 25percent whilst maintaining
the status quo on all other policy instruments. I was in the minority of
members unable to support the proposal to reduce CRR. I voted to
maintain the status-quo on all policy parameters including the CRR,
primarily because of what I considered to be an inappropriate use of
the CRR.
The proposal by Bank Staff for lowering CRR hinged on the following:
(i) alleviate the difficulty being experienced by banks in adjusting to
implementation of the Treasury Single Account (TSA) Policy; (ii)
addressing the deteriorating economic conditions - especially
slowing output growth; and (iii) preparing for the effect of exit from
the JP Morgan Index.
Presentation by Bank Staff had flagged the need to alleviate
problems being experienced, or anticipated, by banks that were
finding it difficult to replace public sector deposits lost to the Federal

Government’s
Treasury
Single
Account
(TSA)
directive.
The
consequent loss of funding resulting from TSA implementation would
make it difficult for the affected banks to retain assets on their
balance sheets. Indeed, ahead of the deadline for compliance with
TSA, overnight rates in the interbank market rose from 6.7percent on
14th September to 91percent by the close of the market on
deadline day.
The Bank also sought to promote market conditions that would
enable banks to relax the terms of deteriorating loans in sectors
directly affected by continuing effects of oil revenue shocks to the
economy. At issue here is the longer duration of finance expected
to support credit restructurings increasingly sought by the large
borrowers – especially sub-national governments, and borrowers in
Energy and Manufacturing sectors. A concern was also raised about
the need to enhance liquidity as we approach the final acts of
Nigeria’s exit from the JP Morgan GBI EM. As I noted earlier, the
majority of Committee members were persuaded to reduce the CRR
from 31% to 25% of deposits. However, I was not persuaded that the

policy proposal constituted an appropriate response to the
characteristics of the Economic Environment as presented by
available data.
The liquidity issues we deliberated on appear to me to be specific to
a particular cohort of banks, and were not systemic in nature. Data
provided show that the liquidity ratio for 8 banks exceeds 50percent.
2 other banks have liquidity ratio of between 40 and 50percent. A
further 3 banks reported liquidity ratio of between 35 and 40percent.
In other words, half of the Deposit Money Banks attained liquidity
levels significantly higher than the prescribed minimum. I must
immediately concede that in the absence of data to identify the
various banks, our hope must be that the banks close to the
regulatory minimum are not systemically important.
I also note that the ‘spike’ in interest rates around the deadline for
TSA implementation was corrected within a few days. The short-lived
increase may simply be the result of uncertainty as to how much
Federal Government deposits would be affected. Strangely,

notwithstanding rising interbank rates, the CBN ‘Repo’ window
remained unused.
Given my view that the liquidity issues relate only to particular banks,
it is inappropriate to deploy the Cash Reserve Ratio (CRR) that, as a
tool is non-discriminatory and thus cannot address bank-specific
liquidity problems, it is, in my view, thus inappropriate to deploy.
Furthermore, while a one-time injection of liquidity may enable banks
to retire expiring payment obligations, it offers no help in extending
maturities of their funding liabilities.
While some, but not all, banks were experiencing liquidity problems
as a result of TSA enforcement. The MPC’s decision, in my view
reflects understandable desire to have the Central Bank relieve
pressure-points of banks feeling the pinch. However, rather than
directly targeting liquidity to those institutions needing it most, the
implication of the MPC’s decision is, in effect, to flood the market.
Reduction in CRR, will release approximately 750-800 billion Naira – a
magnitude of liquidity that seems more appropriate for responding
to a financial crisis.

My view is that there is no existential crisis; just a number of poorly run
banks, with weak treasury operations, that have been caught out by
the inevitable consequence of relying on highly concentrated
depositor bases for funding. This last point being a pre-existing
condition in the system that we have all been well-aware of. Hence,
the solution proposed by Bank Staff is uncharacteristically imprudent
especially as nothing in the available data indicated any lack of
suitable collateral against which the Bank could have directly,
targeted the required relief.
Evidence presented to the Committee showed that TSA related
withdrawals amounted to approximately NGN400bn, one-third of the
Federal Government’s NGN1.4trn deposits. The CBN therefore
sought to re-inject almost double the amount of liquidity it had
drained into the TSA. However, even without this measure,
practically all banks continued to meet, and most even exceeded,
the CBN’s minimum liquidity ratio - currently 30% of deposits. Indeed,
at 40.65%, the average liquidity ratio of banks after commencement

of TSA implementation is only marginally worse than the 41% level
reported, in June.
I had been concerned about the likely impact on yields of Nigeria’s
exit from the JP Morgan GBI EM when the exit process is completed
before our next meeting in November. My key fear being a rise in
yields if banking sector liquidity is inadequate to cope with sales by
departing investors. Available information suggests that the size of
sales by departing investors is unlikely to significantly exceed US1bn.
At this level, the impact on bond market yields is nothing to be
concerned about. Overall, I found the arguments advanced to be
largely unsupported by available data. I thus felt that deploying the
CRR against our stated goals would be a misapplication of this policy
tool. I therefore cast a dissenting vote against its reduction.
My skepticism about the liquidity challenge is further strengthened
by the absence of an untoward surge in the level of Non-Performing
Loans (NPLs) that might have caused a loss of funds from the
banking system. Indeed, the latest available reports showed August

NPLs, at 4.56% in August 2015, to be improving over the position of
4.65% of loans reported, for June 2015, at our last meeting.
Furthermore, inflation still appeared to be on the upswing – albeit at
a slowing pace; continuing to remain outside the desired 6-9% band.
At 9.3%, Headline Inflation is at its highest level since May 2013. The
CBN’s staff forecast suggests that Headline Inflation is likely to peak
at 9.4% in September, ease to 9% in November, before ending 2015
at 9.2%.
Beyond inflation, data presented confirmed a sharp slowing in
output growth. Gross Domestic Product (GDP) in Q2-2015 showed
output growth to have diminished to 2.35percent from 3.96percent
the previous period. Detailed review of figures provided by the
National Bureau of Bureau (NBS) affords a graphic view of the nature
of the slow-down in output growth. Less than 5% of the economy
grew faster in Q2-2015 than in the same period a year ago. A further
73.5percent, though still continuing to grow, is growing significantly
less rapidly than had been in Q2-2014. The remaining 21.7percent of
the economy are now
shrinking.
With unemployment and

underemployment rising to 8.2precent and 18.3percent in Q2-2015, it
is clear that the effect of slowing economic activity is translating into
rising joblessness!
The case that the extra stimulus of liquidity from reducing CRR would
boost credit provision to the real sector is also, in my opinion, not
valid. This argument is, in my view, fatally undermined by evidence
provided showing banking industry loan-to-deposit ratio is just short
of the 80% limit stipulated by prudential guidelines. Given my analysis
of available data, my expectation is for the additional liquidity, whilst
reducing bond yields, may also worsen forex market conditions.
From a Macro-economic viewpoint, the proposal to lower CRR is
inconsistent with the economic characteristics to which the
evidence of data provided attests. The economy is obviously
struggling to overcome demand-side constraints compounded by
an exchange rate policy, which hampers capacity utilization. As the
Statistician-General
made
clear
in
his
comments,
rising
unemployment and under-employment coupled with the nonpayment of public sector salaries have weakened demand. Indeed,

it would appear that the NGN338bn ‘bail-out’ afforded State
governments through restructuring of loans has had, at best, a
marginal impact on the ability of this tier of government to meet its
payroll obligations – especially arrears. Banks, it would appear, have
been the primary beneficiaries of that exercise!
At this stage, without further adjustments to relative prices in the
economy, it is doubtful that any supply-side boost will benefit the real
sector.
With
its
supply
chains
disrupted,
end-user
markets
contracting, and cashflows drying up, much of the real sector is
losing the ability to sustainably utilize, much less attract, financial
sector liquidity. The impact of the decision to provide additional
liquidity in these circumstances is more liable to stagnate in financial
institutions than flow towards the real sector. Such measures of size
will more likely inflate Naira fixed income and currency asset prices,
rather than improve growth and employment prospects of the
economy.
None of the issues that need to be addressed will, in my opinion, be
remedied
by
the
reduction
in
CRR.
In
other
words,
the

accommodative policy stance that was certain to ensue, nothing in
the data warranted policy easing at this time.
Looking ahead, it is clear that the nettle of adjustment to low and
uncertain oil price remains to be grasped. The task of defining and
treading a strategic path for monetary, fiscal and regulatory policy
should become easier with completion of the on-going process
composing the government.

10.0 EMEFIELE, I. GODWIN, GOVERNOR OF THE CENTRAL
BANK OF NIGERIA AND CHAIRMAN, MONETARY

POLICY COMMITTEE
Encumbered by weak demand, the global economy faltered in the
first half of 2015 and lost some momentum as near-term growth
prospects dimmed. Though projected global growth for 2015
broadly remained within 3.0–3.5 percent, the OECD Interim
Economic Outlook for September 2015 revised growth forecasts
downward by 0.1 percentage point. Global growth performance
remained asymmetric across countries and largely reflects the
outcomes in key advanced economies. Buoyed by softening
commodity prices, recovery and prospects, steadied in major
advanced
economies in
contrast
to
many
emerging
and
developing economies where the outlook worsened further. While
cheaper commodity prices are expected to boost global economic
activities in the short-term, the drag from the adverse effects on the
economies of commodity exporters may outstrip the benefits to
importers.

Among developed countries, recovery in the United States remained
on track with a better than envisaged growth in 2015Q2. This
reflected a gradual cyclical recovery, the momentum of which may
be impeded in the rest of the year due to strengthening dollar.
However, in adjoining Canada, the growth estimate was lowered
due to further downgrades of business investment plans in the
energy sector and slowing exports of non-energy allied goods and
services. In the UK, growth trajectory is expected to foster in 2015;
supported by strong real income growth, accommodating credit
conditions, and elevated business and consumer confidence. In the
Euro area, though growth is slower than expected, recovery and
prospect in the region continue to improve. The sustained recovery
observed in some advanced economies is underpinned by
improving financial conditions and consumer sentiments, favourable
labour market conditions, growing private consumption due to the
positive impact of softening energy prices on real income growth.
Growth recovery and prospects among advanced economies was
reinforced, among others, by the deferral of interest rate adjustment
in the United States and the prevailing asset purchase programmes

of the European Central Bank, the Bank of England and the Bank of
Japan.
I note that the tepid economic growth observed in emerging and
developing economies in the first half of 2015 is expected to carry on
for the remainder of the year and into 2016. For 2015, the group’s
growth outlook is projected to slow to 4.3 percent due to weakening
demand, falling commodity prices, structural imbalances, nonaccommodating monetary policy, and intensifying vulnerabilities.
These vulnerabilities are underlain by harsher than anticipated
slowdown in the Chinese economy where weakening export is
dragging growth potentials below its long-run trend. Though the
Chinese economy grew by 7.0 percent in 2015Q2, it is projected to
slow to 6.8 percent at the end of 2015 from 7.4 percent in 2014. The
faltering growth in China stoked the prevailing financial turbulence in
the economy with a considerable pull on the short-term prospects of
the global economy. Other important emerging and developing
countries, especially, Russia and Brazil are also experiencing
profound contractions which are in some cases accompanied by

higher than average inflation rate while India is projected to
continue to grow strongly. For low-income developing countries and
the sub-Saharan region, growth prospect remain weak with a
projected deceleration of 0.5 percentage points apiece in 2015 to
5.5 percent and 4.5 percent, respectively.
The slight ease in the threats of deflation among major advanced
economies notwithstanding, inflation rate remained very low in these
economies keeping the expected global inflation in 2015 relatively
moderate. This reflected the continued softening of energy prices,
nominal wage rigidities and weak global demand. Among emerging
and developing economies, disinflation is gathering pace in
commodity importing countries due to the cushioning effects of
lower energy and commodity prices. Commodity exporting
emerging and developing countries, including Brazil and Russia are
experiencing intensifying uncertainties and inflation volatility as
domestic
prices are ascending
sharply following
escalating
imbalances in their foreign exchange markets and fiscal positions.

In Nigeria, growth prospects for 2015 weakened following the
slowing growth observed in the first two quarters of the year. Output
growth decelerated from 3.9 percent in 2015Q1 to 2.4 percent in
2015Q2 which was considerably less than the 6.5 percent and 6.2
percent
recorded
in
2014Q2
and
2014Q4,
respectively.
Consequently, the annualised growth projection for 2015 has been
marked down from 5.5 percent to 2.6 percent. The fragile
performance of the economy in the second quarter of 2015 reflects
the sustained turmoil in the oil sector caused by tumbling crude oil
prices which led to a 0.7 percent decline in oil related GDP.
However, the positive growth in output during the quarter was driven
essentially by a 3.5 percent expansion of non-oil GDP. This was
underpinned by the services, trade and agriculture sub-sectors
which jointly contributed over 90 percent to the overall growth.
I note that the sub-par performance of the economy in the second
quarter is not unique to Nigeria, but continue to reflect the
imbalances and vulnerabilities inherent in commodity exporting
economies. Nevertheless, it highlights the immediate need for fiscal

consolidation and an accelerated diversification of the economy.
The easing infrastructural challenges illustrated by the increased
availability of petroleum products (especially premium motor spirit),
improved power supply and the gradual dismantling of insurgents in
the North east region can possibly prop the faltering prospects in the
short-term. In addition, the initial frictions that followed the prohibition
of non-essential imports from the foreign exchange market are
dissipating as domestic supply capacity is beginning to improve. This
has the potential to strengthen the short- to medium-term economic
prospects.
On domestic consumer prices, the year-on-year rate of headline
inflation stayed above the Bank’s tolerance range of 6—9 percent,
although it remained single digit. The August 2015 Consumer Price
Index report of the National Bureau of Statistics indicated that
gradual rise in inflation rate was sustained as the rate increased
slightly from 9.2 percent in July to 9.3 percent in August. Accordingly,
inflation rate has increased for nine consecutive months. The rise in
headline inflation in the review month derives from the ascent in

both the core and food components of inflation. Core inflation
quickened 18 basis points to 9.0 per cent in August while food
inflation, at 10.1 per cent, added 8 basis points. The continued creep
in inflationary pressure is attributable to the base effects resultant
from unfavourable energy prices and exchange rate pass-through,
which may have been exacerbated by delayed harvests. The
ramification of the base effect is buttressed by the renewed
slowdown in the month-on-month rate of inflation. In the review
month, month-on-month rate of headline inflation decelerated by 10
basis points to 0.59 percent, food inflation dropped 14 basis points to
0.63 percent, whereas core inflation remained unchanged at 0.61
percent. Though reflective of the legacy effects of the uncertainties
that pervaded the economy early in 2015, the rising inflationary
pressure remained effectively underpinned by both structural and
cyclical factors. The moderating fear of deflation in key advanced
countries and a strengthening dollar heighten the upside risks of
imported inflation in short-term, especially in the backdrop of
relatively tight monetary conditions.

Liquidity conditions in the domestic monetary, credit and financial
markets remained tight as broad money supply (M2) declined by 2.2
percent in August 2015 from the end-2014 level. This represented a
sub-par annualised contraction of 3.3 percent in contrast to the 15.2
percent expansion targeted for 2015. The decline in money supply
during the month was attributable to the outcomes of net foreign
assets. On the contrary, net domestic credit recorded an 11.0
percent expansion in August, which translates to annualised growth
of 16.5 percent relative to the programmed target of 29.3 percent in
2015. This growth was largely driven by elevated claims on federal
government, which grew by 140.1 percent during the review period.
The lingering tight liquidity conditions reflected in the money market
where interest rates were relatively volatile. Average interbank call
and the OBB rates rose sharply from 10.9 and 10.7 percent,
respectively, in June 2015 to 31.1 and 28.1 percent in August 2015.
Cumulated for that period, interbank call and the OBB averaged
14.9 and 17.1 percent, respectively. At the equity segment of capital
market, conditions remained bearish in the review period. The All-

Share Index, closing at 30,332.7 points on 18 September 2015, shed
9.3 percent from the 33,456.83 points recorded at the beginning of
June 2015 while market capitalisation, at ₦10.4 trillion, decreased by
8.8 percent. Year-to-date, both All-Share Index and market
capitalisation have lost 12.5 and 9.3 percent of their respective
values. The fragility in the capital market is due essentially to the
insipid investor sentiments that accompanied the 2015 elections and
the sustained uncertainties associated with the uncomplimentary
dynamics of external reserves and crude oil prices.
I note the continued dissimilar outcomes in the two segments of the
foreign exchange market in the review period. At the interbank
market, the exchange rate was relatively stable with a daily average
rate of ₦196.95/US$ between 29 June 2015 and 18 September 2015
and a depreciation of ₦0.05k to close at ₦197.00/US$. On the other
hand, the bureau de change segment of the market recorded a
₦13.00 appreciation, opening at ₦224.50/US$ and closing at
₦211.50/US$. The non-negative outcomes in both segments reflect
the continued resolve of the CBN to ensure stability in the market

using both administrative procedures and policy actions. This
notwithstanding, exchange market pressure persists as the gross
official reserves declined comparatively by 1.8 percent to US$30.6
billion as at 17 September from US$31.2 billion in July 2015.
In general, given current macroeconomic conditions, I believe that
countervailing measures are immediately needed to act as a fillip to
the growth. The weakening economic growth is traceable to the
waning aggregate demand following the diminished government
expenditure and weak private consumption. The combination of
rising prices and falling expenditure is essentially reflective of an
aggregate supply imbalance and critically underscores the exigent
need to diversify the economy and ensure that domestic supply
capacity is bolstered. Against this backdrop and given that the
overbearing source of the present economic fragility – i.e. oil price
decline – is exogenous, I reiterate the imperatives of a coordinated
synergy of fiscal and monetary policies as the panacea that will
reposition Nigeria in the aftermath of the prevailing unsavoury
conditions.

On
the
financial
system,
I
recognise
that
following
the
implementation of the TSA, liquidity condition in the system may
need to be eased creatively in a way that concurrently strengthens
financial system fundamentals and directs the flow of vital credit to
the productive sectors of the economy. Given the lingering demand
pressure in the foreign exchange market and the firm resolve of the
CBN to maintain exchange rate stability despite the pressures, it is
crucial to ensure that any extra liquidity released into the system is
not re-routed to the FX market but channelled to growth generating
ventures and enterprises. I therefore call for increased lending to the
MSMEs, agriculture and manufacturing sectors as these have the
capacity for output enhancement, employment generation, wealth
creation and poverty reduction.
While I appreciate the counteracting effects of crude oil receipts on
fiscal balances, rising credit to government and the flagging debt
profile, I urge the relevant fiscal authorities to direct effort at capital
undertakings in power, energy and transportation which could
immediately bolster the domestic economy. I am of the opinion that,

as the economic blueprints of the government become clearer,
uncertainties will dissipate, financial markets will steady, business
outlooks and consumer sentiments will improve, productive capacity
will
strengthen,
and
domestic
inflation
will
moderating.
I
acknowledge that the recent decisive action to clear accumulated
salary arrears owed civil servants at sub-national levels would bolster
private consumption and growth prospects in the near-term.
Nonetheless, I remain strongly resolute that, even in the face of rising
inflation, some form of expansionary monetary policy is needed to
support the economy, promote growth and enhance job creation at
this critical time.
It is against this backdrop that I vote as follows:
1. Reduce the CRR from 31 to 25 percent;
2. Retain the MPR at 13 percent;
3. Maintain a symmetric corridor of ±200 basis points around the
mid-point of the MPR; and
4. Maintain the Liquidity Ratio at 30 percent.