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CENTRAL BANK OF NIGERIA COMMUNIQUE NO. 121 OF THE MONETARY POLICY COMMITTEE
MEETING OF WEDNESDAY 21ST AND THURSDAY 22ND NOVEMBER, 2018


Background

The Monetary Policy Committee (MPC) met on the 21st and 22nd of November, 2018, amidst a
resurgence of global inflationary pressures, increased fragilities in the global financial markets,
weakening crude oil prices, continuous capital flow reversal and moderate currency
depreciations, especially in the emerging markets as well as a strengthening US dollar and
subdued global economic growth outlook. The Committee appraised recent developments in the
global and domestic macroeconomic and financial environments, as well as the economic outlook
for the first half of 2019. In attendance were eleven (11) members of the Committee.
Global Economic Developments

The Committee noted the contraction in global output, underpinned largely by escalating trade
tensions resulting in widespread uncertainty and waning investor confidence. Consequently,
global growth in 2018 has been downgraded to 3.7 per cent from the earlier projection of 3.9 per
cent. Growth softened in major advanced economies in the third quarter of 2018. In the

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Emerging Markets and Developing Economies (EMDEs), growth remained divergent, reflecting a
combination of country-specific factors.
Thus, growth in the advanced economies is expected to remain at 2.4 per cent in 2018, supported
by strong output growth in the US projected at 2.9 per cent. The U.S. expansionary fiscal stance,
strong wage growth and continued inflow of capital into U.S. dollar denominated assets, are
expected to provide the impetus for growth. In the United Kingdom, growth remained weak,
hampered by uncertainties around Brexit negotiations. Growth in the Euro Area, projected at 2.0
per cent, appears to be subdued by low domestic aggregate demand amidst relatively high
unemployment and reduced global trade. In the Emerging Markets and Developing Economies,
growth was revised downwards to 4.7 per cent from the earlier projection of 4.9 per cent, largely
in anticipation of a slowdown in China as the country is confronted with an adverse external trade
environment.
Overall, the downside risks to global economic activity remained: elevated financial fragilities and
policy uncertainties, the gradual erosion of rule-based multilateral trading system, tighter
financial conditions with latent disruptive portfolio adjustments, increased capital flow reversals
with potentials for heightened exchange rate depreciation and some volatility, fiscal fragilities
and increased debt burden, geo-political tensions and increasingly depressed aggregate demand
in some countries. These factors will continue to shape developments for the rest of 2018 and
into 2019.
The MPC also noted that monetary policy in most advanced economies, particularly the US,
continued on a path of normalisation in view of strong wage growth and declining
unemployment. The Bank of England hiked its policy rate in August 2018, while the European
Central Bank (ECB) has given guidance to terminate its asset purchase programme in December
2018. The Committee was concerned that these developments will in the medium term,
accentuate

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capital flow reversals from emerging and developing economies, including Nigeria.
Domestic Output Developments

The Committee noted the positive outlook for output growth, evidenced by the Manufacturing
and Non-manufacturing Purchasing Managers Indexes (PMI), which stood at 56.8 and 57.0 index
points, respectively, in October 2018, indicating expansion for the 19th and 18th consecutive
months. This was attributed to the stability in the foreign exchange market, implementation of
the 2018 capital budget and the on-going intervention of the Central Bank of Nigeria (CBN) in the
real sector of the economy. However, the recent incidence of flooding across the country and the
impact of herdsmen attack on farming communities could affect output growth for the rest of
the year.
Overall, the Committee believes that, even though output recovery remains fragile, the effective
implementation of the 2018 capital budget, relative improvements in power supply, progress
with counter-insurgency in the North- East and sustained intervention by the CBN in the real
sector, will improve the investment climate and reduce unemployment. Consequently, the MPC
reaffirmed its support for all initiatives designed to stimulate domestic output growth.
Developments in Money and Prices

The Committee noted that broad money (M2) grew by 6.52 per cent in October 2018 over its
level at the end-December 2017; and annualised to a growth rate of 7.82 per cent, which was
below the provisional benchmark of 10.48 per cent for 2018. The growth in M2 was largely due
to the significant growth in Net Foreign Assets (NFA) which grew by 20.71 per cent in October
2018, annualised to 24.85 per cent which is above the 2018 provisional growth benchmark
of
14.50 per cent. Credit to Government and Net Domestic Credit (NDC)

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expanded by 7.43 and 2.71 per cent, annualized to 8.92 and 3.26 per cent, respectively; but below
the annual benchmark of 13.10 and 17.40 per cent, respectively. Credit to the private sector
grossly underperformed as it grew by
1.94 per cent, annualised to 2.33 per cent, below the 2018 benchmark of 12.40 per cent. The
underperformance of the monetary aggregates was of concern to the MPC, which urged the CBN
to ensure improved credit delivery to the small and medium scale industries, particularly to the
unbanked urban and rural populations.
The Committee noted the benign performance of inflation, as headline inflation (year-on-year)
decreased to 11.26 per cent in October 2018 from 11.28 per cent in September 2018 after two
consecutive months of marginal increases. The drop in headline inflation was driven by food
inflation, which moderated to
13.28 per cent in October from 13.31 per cent in September 2018. Core inflation, however,
inched up marginally to 9.9 per cent in October 2018 from 9.8 per cent in the previous month.
On a month-on-month basis, headline and food inflation also moderated to 0.74 and 0.82 per
cent in October from 0.84 and 1.0 per cent in September 2018, respectively, while core inflation
increased from
0.64 per cent in September 2018 to 0.80 per cent in October 2018.

The Committee noted that the moderation in inflation was largely seasonally driven and was
therefore, unsustainable as prices were expected to pick towards the end of the year. However,
the MPC observed that the near-term upside risks to inflation remained; the disruption to
agricultural production and distribution arising from flooding, insurgency in the North-East,
herdsmen-farmer crisis, high cost of energy, anticipated spending in the run-up to Christmas
festivities and campaign-related spending towards the upcoming 2019 general elections.
Accordingly, the Committee enjoined the appropriate authorities to continue to address these
challenges and to sustain the implementation of the

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2018 budget and the Economic Recovery and Growth Plan of the Federal Government to
ameliorate the supply side constraints.
Money market interest rates oscillated throughout the review period, reflecting fluctuations in
banking system liquidity. Inter-bank call and Open Buy Back (OBB) rates, which stood at 16.00
and 17.08 per cent, respectively, on September 26, 2018, declined moderately to 14.00 and 16.31
per cent, respectively, on October 24, 2018. On average, interbank call and OBB rates rose from
8.68 and
7.64 per cent in September 2018 to 14.18 and 13.93 per cent, respectively, in October 2018,
closing at 10.00 and 9.72 per cent, respectively, on November 21, 2018. The developments in net
liquidity position and flows which culminated in higher market rates reflected the impact of
higher risk perception in the market, withdrawals from the banking system for monthly statutory
disbursements to states and local governments; OMO sales and foreign exchange interventions.
The average naira exchange rate remained relatively stable and converging at both the Bureaude-Change (BDC) and the Investors’ and Exporters’ (I&E) window segments of
the foreign exchange market during the review period. The exchange rate at the I&E window
opened at N364.00/US$ and closed at N363.90/US$ with a daily average of N363.87/US$
between September 26 and November 16, 2018. At the BDC segment, the exchange rate opened
at N360.00/US$ and closed at N361.85/US$, with a daily average of N360.98/US$, over the same
period. The relative stability in the foreign exchange market, the MPC noted, was attributable to
the sustained policies of the Bank to increase the supply of foreign exchange from autonomous
sources. Gross official reserves decreased from US$42.60 billion at end-September, 2018 to
US$41.53 billion on 16th November, 2018.

The Committee noted the bearish trend in the equities segment of the capital market during the
review period. Thus, All-Share Index (ASI) decreased by 8.70 per cent from 34,848.45 on August
31, 2018 to 32,058.28 on November 16, 2018.

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Similarly, Market Capitalization (MC) decreased by 8.72 per cent from N12.72 trillion to N11.70
trillion during the same period. Relative to the end-December 2017, the indices decreased by
19.29 and 16.32 per cent, respectively. These developments largely reflect the sustained profit
taking activities by portfolio investors as foreign yields become increasingly more attractive
abroad. The MPC, however, believes that this trend will reverse in the medium term given the
current efforts at further improving investor confidence and the relative stability in the Investors
and Exporters (I&E) window of the foreign exchange market.

The Overall Outlook and Risks

Forecasts of key macroeconomic variables indicate a positive outlook for the economy in Q4 of
2018. The Committee expects that the effective implementation of the Economic Recovery and
Growth Plan (ERGP) and the 2018 budget, improvements in the security challenges, enhanced
flow of credit to the real sector and stability in the foreign exchange market will redirect the
economy on a path of inclusive and sustainable growth. Increased production in the oil and the
non-oil sectors are also expected to drive output growth in the medium term. The Committee,
however, acknowledged the downside risks to this outlook to include: reduced portfolio inflows,
weak of fiscal buffers, low domestic credit, and sluggish aggregate demand.
The inflation outlook suggests continued but moderate inflationary pressure to the end of 2018,
based largely on increased consumer spending for the Christmas festivities, election-related
expenditure and increased pace of implementation of the 2018 Federal government budget.
Improvements in the security, increased harvests as well as a stable exchange rate are expected
to moderate the rise in inflation.
Overall, the outlook for the economy remains positive with a growth projection of 1.75 per cent
in 2018.

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Committee’s Considerations

The Committee assessed the macroeconomic environment in 2018 and noted the modest
stability thus far achieved in domestic prices, output growth and the financial system. The
Committee noted that the economy was on the right path but some key sectors continued to
experience significant challenges. The MPC, however, expressed concern about the tepid growth
expectations and growing uncertainty in the global financial markets arising from the poor
reception of the Brexit deal by British politicians, continuing trade war between the US and her
major trading partners, as well as the commencement of US sanctions on Iran.
The Committee believed that although the domestic economy was recovering modestly from
recession, however, the recovery was tepid and efforts should be stepped up to strengthen
aggregate output and demand. In this regard, the Committee urged the CBN to deepen and
broaden access to finance to high employment elastic sectors with particular emphasis on small
and medium scale enterprises. The Committee called on the CBN to extend the success recorded
under the Anchor Borrowers Programme to other items including fish and palm oil, etc. by
introducing more stringent measures to curb access to foreign exchange for products that can be
produced within Nigeria.
The MPC welcomed the moderation in inflation in October, reflecting declining food prices. The
Committee believes that given the negative output gap, the proposed increase in the national
minimum wage would stimulate output growth due to prolonged weak aggregate demand arising
from salary arrears and contractor debt. Consequently, its impact on the aggregate price level
would be largely muted, given that the monetary aggregates have largely underperformed in
fiscal 2018. In addition, the prevailing stability in the foreign exchange market would continue to
moderate pressures on the domestic price level.

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The MPC noted the improvements in the financial stability indicators, including non-performing
loans, capital adequacy and liquidity ratios of the Deposit Money Banks (DMBs). It urged the Bank
to sustain its surveillance over the Banking industry by taking prompt corrective measures to
further improve stability in the system. The Committee also called on the fiscal authorities to
build significant buffers to strengthen the efficacy of monetary policy.
Overall, the MPC considered the options to loosen, hold or tighten. The Committee continues to
hold the view that although loosening would encourage the flow of credit to the real sector, help
in reduction of the aggregate cost of credit and spur business spending and investment, thereby
reinforcing the CBN’s support for output growth and economic recovery, it, however, believed
that doing so will reverse more rapidly, the gains of price and exchange rate stability achieved so
far given the liquidity impact that would entail. The ensuing liquidity will exert pressure on the
exchange rate in the light of increased capital flow reversals arising from monetary policy
normalization by the US Fed. This would further depress the capital market.

As for tightening, The MPC hold the view that, while tightening will strengthen the stability of the
foreign exchange market because of its dampening effect on the demand for foreign exchange,
it was however convinced that this would simultaneously dampen investment growth, widen the
output gap, depress aggregate demand and weaken output growth.

The MPC recognizes the fact that it had held the policy rate and other policy parameters constant
over the last several meetings. The Committee underscores that by holding its policy position
constant, it has confidence in the various policies and administrative measures deployed by the
Bank which have resulted in the moderation in domestic price levels and stability in the foreign
exchange rate. Thus, a hold position is an expression of confidence in the policy regime,

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given the gradual improvements in both output growth and price stability. On this premise, the
downside risks to growth and upside risks to inflation appears contained.
The Committee’s Decision

In light of the above, the MPC decided by a vote of all eleven (11) members present to HOLD.
In summary, the MPC voted to:

1. Retain the MPR at 14 per cent;
2. Retain the asymmetric corridor of +200/-500 basis points around the MPR;
3. Retain the CRR at 22.5 per cent; and
4. Retain the Liquidity Ratio at 30 per cent.


Thank you.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
22nd November, 2018

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PERSONAL STATEMENTS BY THE MONETARY POLICY COMMITTEE MEMBERS

1.
ADAMU, EDWARD LAMETEK

After two consecutive mild increases, headline inflation slowed, albeit weakly, in October 2018,
reflecting a slight moderation in food inflation. The decline in food inflation more than compensated
for the marginal increase in core inflation to produce the observed decline in the headline inflation.
Notwithstanding the decline, the underlying threats to consumer price stability have remained active,
giving fillip to a hazy medium-term outlook for inflation. The sources of this outlook include
uncertainties around the path of fiscal policy and liquidity on the domestic front; and risks to external
reserves accretion and exchange rate, coming from the global economic environment.
Owing mainly to developments like monetary policy normalization in the advanced economies, trade
disputes and softening commodity prices, local currencies and capital markets in emerging markets
and developing economies (EMDEs) have come under intense pressure in recent months. Although
the naira has fared better than most (other) currencies, the capital market has not been as resilient.
In the first ten (10) months of 2018, the NSE All-Share Index (ASI) declined by about 15 per cent, a
direct consequence of increased outflow of capital. Those conditions in the global economy spilling
vulnerabilities are not likely to give way; instead, they could intensify going into 2019. This is reflected
in the downward revision in October 2018 of the global output growth projection for 2018 and 2019
from 3.9 to 3.7 per cent by the IMF. The Organisation for Economic Cooperation and Development
(OECD) is less optimistic about 2019 with its current global growth projection of 3.5 per cent.
Juxtaposing the signals from the global environment with the country-specific vulnerabilities and the
outlook for key economic concerns (further elaborated below) leads me to the conclusion that the
risks to price stability and economic

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growth have remained balanced. I, therefore, voted at the November 2018 meeting of the Monetary
Policy committee (MPC) to hold all policy parameters.
First, it is important to note that at 11.26 percent, we cannot assume that inflation pressures have
fully receded. The outlook does not offer any such assurance. On the contrary, the expected increase
in private spending due to year-end festivities and the forthcoming general elections combining with
the more aggressive implementation of the capital side of the FGN budget for 2018 as well as payment
in-part of the debt owed to contractors by Government could rapidly expand domestic liquidity.
Though marginal, the increase in core inflation in October, being the first since November 2017, leaves
no one in doubt about what could happen in the short- to medium-term if proactive steps are not
taken to rein-in domestic liquidity.
The challenge for economic policy on the side of economic activity is not by any means lighter. In Q2
2018, the growth (recovery) momentum slowed as oil output contracted and importantly,
contribution from agriculture slowed. The economy appears to be risking a low-growth trap which
must be averted. Meanwhile, the fiscal levers needed to mitigate this risk do not seem to be readily
available. Given the already high public debt, low revenue and buffers as well as rising yields, the
scope for using fiscal policy to sufficiently push growth is narrowing. In effect, monetary policy could
continue to be overburdened.
Among others, improving domestic credit continues to be a key imperative towards growing the
economy and creating jobs. In addition to the real sector interventions by the Bank, the current state
of economic activity demands a marked improvement in commercial bank credit to shore up private
investment. A resilient banking system is needed to ensure this. And so, it is heartwarming that key
financial soundness indicators (FSIs) of the banking industry improved in October 2018 - industry
capital adequacy rose, while Non-Performing Loans (NPLs) moderated, amongst others. Sustaining
these improvements remains a key imperative for policy and partly argues for a non-hawkish
approach to monetary policy at this time even though inflation remains a concern.
Given the weak growth outlook, financial system fragilities and inflation, some kind of policy tradeoff is inevitable. However, in doing so, I recognize the primacy of the price stability mandate of the

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Bank; as such, the decision to hold which implies sustaining the current fairly tight stance of policy is,
in my view, consistent with the need to strike a balance between the competing imperatives of
keeping inflation in check, while not hurting growth and employment prospects. It is important to
emphasize that the Bank has all along relied on sterilization actions using open market operations
(OMO) and FX interventions which explains in part the relative exchange rate stability and the
remarkable slowing of inflation from over 15 percent in 2017 to about 11 per cent in October 2018. I
believe that the sterilization actions of the Bank are effective and should be sustained.
As I have observed previously, monetary policy cannot mitigate all of the current risks to economic
stability. It can only complement sector policies and mostly crucially, fiscal policy. Given the
indications coming from oil prices especially and the potential ramifications of a prolonged low crude
prices for the entire economy, all macroeconomic policy levers will need to be engaged at this time
to forestall a low growth trap. In voting for a hold, I have factored its various implications including,
quite importantly, continuation of monetary sterilization and other administrative measures and
innovations like the real sector interventions and the provision of access to part of the cash reserves
requirement (CRR) for targeted credit to specific sectors of the economy by deposit money banks
(DMBs).

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2. ADENIKINJU, ADEOLA FESTUS
Background
The fundamental factors driving the international and domestic economies as presented in the
Staff Reports at the November MPC Meeting did not show significant departure from the last
meeting of the MPC in September. Nevertheless, some positive developments were clearly
discernible that assuage some of the concerns that influenced the direction of my decision at the
September meeting.
In particular, the report on the banking system stability shows some improvements across major
financial soundness indicators, like the capital adequacy ratio, liquidity ratio, returns on equity
and assets as well as the non- performing loans (NPLs) ratios. This is an indication that the
measures taken by the Bank have started to yield some positive results. I am also pleased about
additional measures being considered by the Bank to ensure the continuous soundness of the
banking and financial sector. This is critical to address the incidence of NPLs, improve credit flow
to the economy and perhaps more importantly, boost confidence of the banking public on the
overall soundness of the financial sector. The Bank cannot afford to shift its attention away from
effective monitoring of the operations and conduct of the banking sector.
In the medium to long term, the performance of the banking system is tied to growth of the
economy and fiscal sector performance. Higher economic growth will boost domestic economic
activities, and reduce incidence of debt default. The latter outcome would also be achieved if
governments at all levels pay contractors’ debts, as well as improvement in credit administration
by the banking sector.
The report on the performance of the SMEs and micro-finance institutions is quite encouraging.
The Bank must find creative ways to boost credit to SMEs to support their employment
generation capacity, productivity and economic growth. The capacity of the SMEs to transform
the economy is quite high and they deserve all the support they can get in order to overcome
their current constraints, especially access to timely and affordable credit.

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The Economic Report sounded a more ominous signs for the country going forward. Global
economic growth is facing significant headwinds with potential negative effects on the Nigerian
economy. The downward revision of global economic growth for 2018 to 3.7 from 3.9 per cent
by the IMF may affect demand for oil and threaten global oil price. In fact, oil prices seem to have
settled at lower levels in recent weeks, and current projections against the background in the oil
market fundamentals may not support a quick return to its previous high levels. The continuous
uncertainty around the BREXIT, the unresolved America-China trade tensions, US sanctions on
Iran, the high volatilities in global financial markets, the rise of inflation in the US from 2.3 per
cent in September 2018 to 2.5 per cent in October 2018, means the Federal Reserve monetary
rates normalization would be sustained, continuous capital flow reversals in several emerging
and frontier countries, the buffeting of the foreign exchange markets in several emerging
countries, are all creating uncertainties around the global economy. Nigeria is not immune from
these developments. Some of the effects are already showing in the economy as seen in stock
market prices, the reduction in the level of foreign reserves and slower rate of foreign reserves
accretion, and weak fiscal performance, Hence, domestic policy response must be proactive to
mitigate their effects on the economy.
However, on the flipside, the economy continues to show some resilience, and imbue confidence
from foreign investors. The success recorded with the euro bond issue to fund capital projects if
effectively used would improve state of infrastructure and boost private sector GDP, the
Purchasing Manager’s Index continues to rise for the 19th consecutive months, the negative
output gap shows that there is some slack in the economy that can absorb expected demand
shocks such as national minimum wage increase and increased electoral spending. GDP growth
in the second quarter remains positive at 1.50 per cent, compared with 1.95 per cent in the first
quarter. However, the GDP growth rate is far below the level anticipated in the ERGP. It is also
not strong enough to cut poverty and unemployment rates. The contraction of the industrial
sector in the second quarter, is a source of concern given industrial sector’s potential for direct,
indirect and induced employment and income multipliers.
Data released by the National Bureau of Statistics showed that inflation moderated slightly

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between September and October 2018. Headline inflation declined marginally from 11.28 per
cent in September to 11.26 per cent in October, due to decrease in food & non-alcoholic
beverages and transport components. Similarly, food inflation reduced from 13.31 per cent in
September to 13.28 per cent in October. However, core inflation rose from 9.84 to 9.88 per cent
between September and October, 2018 respectively. Monetary aggregates like M1 and M2
continue to grow at annualized rates lower than their provisional benchmarks. The significant
difference between average lending and deposit rates is not showing sign of narrowing. This is
indicative of lack of competition in the banking sector as well as high operational costs by the
banks. Reducing the operations costs through infrastructural sharing wherever possible, and
other deliberate efforts by the banks will go a long way to reduce the lending deposit gaps, which
is one of the highest in Africa. The high retail lending rates is shutting out SMEs from credit and
contributes to the current levels of NPLs in a slow growing economy.
I still have strong concern about the fiscal side of the economy. The relatively under performance
of non-oil revenue, the high costs of governance, the slow and overlapping budget operations,
high budget deficits, the increasing share of foreign debts in total debt stocks, the share of budget
allocated to debt servicing, the high infrastructural deficit that impairs competitiveness and
productivities of the economy, lack of fiscal buffers, the uncertain state of the Petroleum Industry
Governance Bill (PIGB), the long run impacts of fuel subsidy, the poor power sector performance
that unnecessarily increases operational costs of firms and households, have to be addressed
urgently as they impact on the long term trend of the economy.
Decision

While a number of economic and political uncertainties continue to weigh on my mind at both
international and domestic economic levels: the low economic growth rate, the declining foreign
reserves, slow credit growth, low tax/gdp ratio, the continuous high fiscal dependence on oil, the
high lending- deposit interest rate gap, the volatility in the stock market, uncertainty in the
release of the capital budget, the uncertain state of the global economy, the fluidity of the global
oil market, the uncertainty surrounding the 2019 election, the continuous outflow of portfolio

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investment, etc, are some of the major issues that will weigh on the economy. I am partially
mollified by the efforts being taken by the Bank and by the government to address some of these
issues and mitigate their impacts on the economy. For instance, the decision of the government
to allocate the euro loans exclusively to fund capital budget, as well as decision to avoid the
labour industrial crisis, are steps in the right direction.
Second, the negative output gap shows that there are some buffers to accommodate the final
decision on the national minimum wage and expected electoral expenses in the run up to the
2019 elections.
Finally, the inflation rate has moderated since the last meeting. The upbeat in the performance
of the SMEs, and large number of the micro-finance banks, and some of the Bank’s nonconventional measures to stimulate the economy have been encouraging, and yielding some
desired results. The positive trend in key indicators of the banking and financial sectors
performance has also raised positive expectations about the economy. The Bank must continue
to be proactive and monitor the performance of these non-conventional measures, which at best
is temporary in my view in order to move the economy into the path of sustainable growth. The
fiscal side must play its role in balancing the economy to ensure that the Bank returns to its
primary roles of monetary and exchange rate stability.
It is on the basis of the above that I cast my vote to:

i. Maintain the MPR at 14.0 Per cent
ii. maintain CRR at 22.5 Per cent
iii. Maintain existing asymmetric corridor around the MPR

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3.
AHMAD, AISHAH N.

Introduction
At this last MPC meeting of the year, it is vital to reflect on economic developments thus far and
how well we have achieved our monetary and price stability remit in the face of rising risks. The
Committee has remained vigilant, forward looking and braced to weather the storms; which,
thankfully, have been generally slow to manifest.
Global economic activities in 2018 commenced on a broadly optimistic note. The strong
headwinds which confronted the global economy in 2017 moderated, giving way to prospects for
stronger growth in 2018. Halfway into the year, however, downside risks to global growth
became more evident- faster pace of the US policy normalization, a developing global trade war,
rising public debts and increasing financial vulnerabilities, emerging markets’ capital reversals
and volatile crude oil prices. These developments resulted - as anticipated in my July personal
statement - in tempered optimism and a downward review of global growth projections by the
International Monetary Fund (IMF) to 3.7 percent from its earlier projection of 3.9 percent.

These emerging risks had mixed impact on emerging market economies ranging from currency
depreciations to slowing growth and rising price levels. The Central Bank’s sustained tight
monetary policy stance, and other initiatives aimed at stabilizing the exchange rate and
maintaining confidence of foreign investors, which have been widely commended, tempered the
effect of these shocks. In addition, tailwinds, most significantly, high crude oil prices, averaging
about US$70p/b for most of the year, also helped strengthen prospects for fiscal consolidation
and build strong external reserve buffers.

As a result, exchange rate remained relatively stable with improved convergence across all
market segments. For instance, it recorded a daily average of N363.87/US$ between September 26
and November 16, 2018 at the Investors’ and Exporters’ (I&E) window and averaged
N360.98/US$ at the Bureau De Change (BDC) segment over the same period.
Maintaining exchange rate stability has not been without cost. External reserves have slowly

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depleted over the last six months in the face of portfolio flow reversals in response to US policy
normalization and rising geopolitical uncertainties. However, the Bank’s interventions and use of
heterodox policy measures to attract and retain foreign exchange inflows and deepen the
market, have ensured that Nigeria remained a relatively competitive investment destination,
continuing to attract new portfolio investors.
Tight monetary policy stance coupled with stability in exchange rate helped to moderate
inflation; headline inflation which had risen to 18.72 percent in January 2017, declined to 11.26
percent as at October 2018. Although economic activity lost some momentum in Q2 2018,
recording 1.50 percent growth compared with Q1 numbers at 1.95 percent, GDP growth remains
on a positive trajectory, projected to average about 1.90 percent in 2018 according to the IMF.
It is quite gratifying that key prudential ratios (capital adequacy, liquidity and non-performing
loans) and other performance indicators in the banking system have improved compared with
earlier in the year and the August 2018 position. Of particular interest is the recent growth in
credit to the private sector (August 2018; 0.81 percent and October 2018; 1.94 percent) following
months of contraction. These are indications that, among other measures, the CBN’s efforts at
enhancing access to finance for employment elastic sectors are yielding fruit. For this reason, I
support the Bank’s continued interventions in the real sector to ensure continued growth in
credit to, and output of, key sectors like Agriculture and Manufacturing. A critical headwind to
watch, however, is the recent downward trend in oil prices. Given portfolio concentrations in
oil and gas, this will require banks to build robust capital buffers to remain resilient to any shocks.
On the whole, the imminent settlement of Federal government contractual obligations to the
private sector and relatively positive domestic GDP growth prospects is expected to further
strengthen asset quality, solvency ratios and sustain financial system stability.

As we approach 2019, new downside risks are emerging as existing risks continue to intensify.
Slowing global demand and growth projections, volatile oil prices, and sustained monetary policy
normalization in the US, have implications for exchange rate stability and by extension, price and

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monetary stability. In addition, the upcoming general elections and unintended but largely
contractionary fiscal environment due to the delays in passing the 2018 budget, also have
implications for sustained economic recovery and growth.
It is safe to say that, based on data from NBS, which shows moderated headline inflation (yearon-year) in October 2018 compared to the previous month, there seems to be no significant near
term threat of rising prices. Even in the face of the planned minimum wage increase, it appears
that its inflationary effects may be largely benign given existing low aggregate demand.
As we brace ourselves for a tough year ahead, it is imperative to consolidate on the price stability
gains on the monetary side by stimulating stronger and more resilient GDP growth. This calls for
a policy stance that achieves price stability conducive to economic growth and it is my considered
view that the current policy rate is appropriately placed to achieve this objective.
Therefore, I vote to retain the current tight monetary policy stance, by keeping MPR at 14%; Cash
Reserve Ratio at 22.5%; Liquidity Ratio at 30% and Asymmetric corridor at +200 and -500 basis
points around the MPR.

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4.
ASOGWA, ROBERT CHIKWENDU
Background:
The domestic macroeconomic outlook preceding the November 2018 MPC meeting showed signs
of improvement eventhough surrounded by rising downside risks and vulnerabilities. The 2018
third quarter GDP figures were yet to be released at the meeting time, but there are general
indications of economic strengthening. The downsides risks are generally the same as identified
in the last meeting, including the turbulent oil prices, spending pressure in the run-up to the 2019
elections and volatility in capital flows especially the portfolio instruments. At the international
level, elevated periods of policy uncertainty persist with economic growth slowing down in
several advanced economies by the third quarter of 2018 and with possibilities of even further
downslide as trade tensions escalate and global financial vulnerabilities increase. Monetary
policy decision at this November meeting should therefore avoid any attempts to derail the
domestic recovery efforts whilst maintaining a consistent response to the evolving international
economic scenario.
Fragile and Uncertain International Economic Outlook:

The global economy remains fragile and world growth forecasts for 2018 and the early parts of
2019 present evidence of some underlying challenges in several key economies. There have been
repeated downgrades of growth forecasts in the past six months which suggests that the risks
and headwinds facing most of the advanced economies as well as emerging markets and
developing economies (EMDEs) may just be structural in nature. With global growth in 2018
downgraded to 3.7 per cent from an earlier projection of 3.9 per cent and against the backdrop
of current uncertainties stalling global trade, growth momentum may further be weakened in
2019.
CBN staff report show that output growth disappointed in many strong economies since the trade
tensions heightened and energy prices somewhat soared. In the US, the Euro Area, China and
India growth deteriorated in the third quarter of 2018, but there were marginal growth upticks

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in Japan and UK in the second quarter of 2018. In Sub-Sahara Africa, growth remained under
pressure in both commodity and non-commodity exporting countries. While growth in the
second quarter of 2018 slowed in Kenya, it was flat in Ghana while it remained in the negative
territory in South Africa as the recession continued.
Although the sentiments for possible growth have remained strong despite the recent
heightening of trade disputes, emerging data suggests that the challenges remain unresolved.
Recent Purchasing Managers Index in key advanced economies such as China, the Euro Area,
Japan and USA still show softer growth for the export market. In Germany, manufacturing orders
have fallen by about 4 percent on a monthly basis since June 2018.
Policy interest rates for many global economies remained unchanged between September and
November 2018 due to rising uncertainty and the lack-lustre economic growth. The USA, UK, Euro
Area, Brazil and India all retained policy rates at the September 2018 levels. In China, policy rates
have remained the same since late 2017 as the rebalancing towards more domestically-oriented
sectors continues in the country. Although monetary policy tightening in the USA appeared to
have slowed after the third policy rate increase in September 2018, expectations of more
surprises by the Federal Reserve have continued to generate financial market disruptions with
capital flows triggering currency depreciations in many emerging and developing economies. CBN
staff report show that the US dollar appreciated against many international currencies. In Europe,
the British pound, euro and the Russian rubble all depreciated against the US dollar eventhough
they look broadly unchanged in real effective terms.
Similarly, the currencies of China, India, Canada, Mexico, Nigeria, South Africa and Kenya all
depreciated against the US dollars.
Higher oil prices lifted headline inflation moderately in many emerging market and developing
economies over the past few months. While there were mild declines in headline inflation in the
US, UK and Japan, there were marginal upticks in the Euro area, Brazil, Egypt, China. In many of
these countries, core inflation (excluding all food and energy items) actually declined. For
instance, core inflation declined in Brazil, Mexico, Russia suggesting lower pass through effects

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from higher oil prices and exchange rate depreciations.
Recovery Signs on the Domestic Economic Front.

The Nigeria 2018 third quarter GDP is expected to be released by mid – December but there are
already signs of slight improvement. In the second quarter of 2018, output lowered to 1.50 per
cent from the first quarter level of
1.95 per cent which was considered temporary. The manufacturing PMI in November 2018 was
57.9 index points which is an expansion and also grew faster than the Index in October which
stood at 56.8 index points and that of September at 56.2 index points. The November PMI also
shows that 13 of the 14 manufacturing sub-sectors recorded increases in production levels. The
composite PMI for the non-manufacturing sector in November 2018 at 58.4 index points also
grew faster than the 57.0 points recorded in October and the 56.5 points in September 2018. The
high PMI reading in November signals that the economic growth moderation witnessed in the
second quarter of 2018 may have been abated and private sector growth is actually picking up.
The October 2018 Inflation Report also shows some encouraging signs as well. The year-on-year
headline Inflation which had increased marginally for two consecutive months from 11.14 per
cent in July to 11.23 per cent in August and further to 11.28 per cent in September declined
marginally to 11.26 per cent in October. The month-on month decline has been consistent for
some time, from 1.13 and 1.05 per cent in July and August, respectively, to 0.84 and 0.74 per
cent in September and October, respectively. Similarly, the food inflation (year on year) which
had increased from 12.85 per cent in July to 13.16 per cent in August and further to 13.31 per
cent in September, declined to 13.28 per cent in October 2018, while on a month by month
basis, food inflation declined from
1.42 per cent in August to 1.00 per cent in September and further down to 0.82 per cent in
October 2018.
The marginal declines in both headline inflation and food inflation (year-on-year and month-onmonth) shows that agricultural prices may have moderated slightly very recently and the earlier
concerns raised at the September 2018 MPC meeting about the cost push nature of the July and

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August Inflation arising mainly from scarcity of farm produce seems to have abated.
On the financial soundness indicators, there are encouraging signs as reported in the November
MPC meeting which is attributed partly to the current regulatory efforts at reducing the volume
of Non-performing loans. CBN staff report show that the NPL ratio which has risen to 14.70 per
cent in August 2018 had declined to 14.05 per cent in October which signals improvement even
though it is still above the allowed prudential maximum thus requiring comprehensive NPL
reduction strategies from the banks and the regulators. In addition, the modest improvement in
the Capital Adequacy Ratio (CAR) and the Profitability Indicators (ROE and ROA) in October as
compared to August shows that the financial sector weaknesses which was a key concern at the
last MPC meeting of September are partly being halted.

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Mounting Vulnerabilities:

Capital inflows have declined consistently especially since 2018, while outflows have more than
doubled during this same period, thus making external financing more challenging in Nigeria.
There have been sharp declines in inflows especially for portfolio investments and FDI. Between
July and September 2018, foreign portfolio investors withdrew more than N94. 4 billion Naira
from the Nigerian Stock market alone. These movements have been attributed to the monetary
policy normalization process in some advanced economies which has seen interest rates in places
like the USA increased for three times in 2018. Besides, the usual investors fear about the 2019
general elections may have also been a contributing factor.
Given that monetary policy forecasts for 2019 in many advanced economies suggests policy rate
increases, the capital flow position in Nigeria may possibly worsen in the near future. For
instance, the US Federal Funds rate is expected to reach 3.5 per cent by end of 2019, while the
prevailing zero rates in the Euro Areas is expected to move a bit higher by mid-2019.
Furthermore, the return of frequent volatility in the oil market is already putting pressure on
commodity exporting countries like Nigeria. Oil prices which had reached a high of $79. 4 per
barrel in October 2018 (which is the highest level since November 2014) from $77.2 per barrel in
September 2018 had suddenly dropped to $62.60 in late November. There are still expectations
that prices may drop further in the early months of 2019.
This fall in oil prices contributed to a weakening of the external reserve positon which declined
from $47.15 billion in June 2018 to $40.61 billion in October. Generally, weaker reserve positons
mean less room for the monetary authorities to respond to foreign currency pressures which is
a threat to the relative stability in Nigeria’s foreign exchange market. While the CBN’s current
approach has helped maintain stability in the market for several months, a continued decline of
international oil prices in the current context of limited domestic fiscal buffers will certainly
distort the foreign exchange stability which the country enjoys now.
In addition, the recurring issue of pressure on government finances because of the depressed oil

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revenue and the consequent widening of fiscal deficits is now an over flogged phenomenon. The
debt levels (external and domestic) are currently deemed unsustainable and only recently, the
country returned to the international bond market with new Eurobond issuance while there are
also plans for the second SUKUK bonds at the domestic market in December 2018. The prospects
of tighter monetary policy can however be counterproductive at this time as it may expose the
country to higher borrowing costs and heavy debt servicing schedule. An outright fiscal tightening
may not be the best panacea for now given its limiting role on the growth momentum, but
increasing domestic revenue to GDP ratio while re-orienting the composition of expenditures will
be key to reducing the fiscal deficits.
While the trend of financial soundness indicators (Non-performing loans ratio, the Capital
Adequacy ratio and profitability) look positive and improved in November as compared to the
statistics presented in the MPC September meeting, the volatility and frequent swings in these
core indicators are all signs of unresolved financial sector weaknesses. For instance, the nonperforming loans ratio although decreased in October, remains high and heavily concentrated in
the key sectors which contribute more than two thirds of the country’s national revenues. With
many of these firms relying more on bank financing rather than market financing, a surprise
tightening of monetary policy could further expose these vulnerabilities thus derailing the
recovery process. Identifying the primary obstacles to the non-performing loans resolution will
be critical for a complete balance sheet clean-up which will structurally address the financial
sector weaknesses in Nigeria.
Decision:

At this time of heightened uncertainties at the international economic levels, and with domestic
output growth improving moderately amidst lowering inflation levels, a further tightening of
monetary policy may not be warranted. On the other hand, lowering of policy rates will in itself
be counterproductive. I am therefore disposed to keeping the policy parameters as they are. This
cautionary approach will prevent the economy from overheating while we monitor
developments in the near-term.

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I will thus vote to:

• Retain the MPR at 14.0 %
• Retain the CRR at 22.5%
• Retain the Asymmetric Corridor at +200/-500 basis points
• Retain the Liquidity Ratio at 30.0%.

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5.
BALAMI, DAHIRU HASSAN At
The Global Level
Globally, the major development that have implications on the Nigerian economy during the
2018 include the following: tension and uncertainty associated with Brexit deal, U.S - China trade
wars, U.S sanctions on Iran, volatility of oil market price, deepening crisis in Venezuela and
concerns over Italy’s 2019 budget etc. These events slowed down the momentum of global
economic activities and are of concern to the Nigerian economy and its trading partners such as
U.S, Euro Area, China, Japan, South Africa, Kenya etc. In terms of prices, the global inflation has
been projected to rise to 3.2 percent in 2018 as against 3.1 percent in 2017. In the commodity
market, price of the following commodities such as gold and agriculture products have risen.
These have implications on global output growth, estimated at 3.7percent in 2018 against 3.9
percent as earlier projected.

At the Domestic level

Generally, the outlook of the Nigerian economy in 2018 is positive, but the growth of the
domestic output is still low. The output gap is about 1.50 percent as against population growth
rate of 2.62 percent. The actual output is below potential productive output, which means a
significant improvement in output supply will tame inflation. The critical question is how can we
stimulate output growth in the economy? Domestic output growth can be stimulated by
deploying more credit to the real sector of the economy. This can be achieved through the use
of unconventional monetary policies to assist the fiscal side of the economy and making sure
credit create value chains across board.
Although, inflation rate moderated in October 2018, there is need for further moderation,
because there is a possibility of an uptick in inflation in the economy in 2019. It should be noted
that inflation in Nigeria to some extent is largely structurally driven rather than monetary.
Therefore, the structural factors need to be addressed so that money supply in the economy
would drive growth in real sector of the economy (agricultural sector, manufacturing sector and

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SMEs Inflation can be reined in by correcting the shortcomings of the exchange rate regime. In
attacking addressing, open market operation (OMO) is a good instrument to continue to be
employed by the Bank taking into consideration the level of liquidity in the system.
The growth in money supply and liquidity in from banking sector have not been very effective
because of a number of interventions and under performance to the benchmark is not driving
the needed monumental growth in the economy. However, there is some improvement in the
performance of the banking sector, as indicated by various indices such as the capital adequacy
ratio (CAR), non- performing loans (NPLs), liquidity ratio, return on asset (ROA) and return on
equity (ROE). With regard to the high NPLs of the deposit money banks (DBMs), action needs to
be expedited to recover loans from the oil and gas sub-sector of the economy, which accounts
for the larger share of the NPLs. Though the NPLs deteriorated largely because of low economic
activity affected the ability of the sectors to create value adding production lines.
Challenges at the Domestic Level

i.
Foreign Exchange Market

There is threat to exchange rate stability due to the pressure on external reserves as well as
increase in capital outflow. It should be noted that capital outflows are accelerated due to lack
of instruments for foreigners to invest in. Price stability is better achieved if we can prevent
exchange rate volatility through proper management of external reserves. The exchange rate
market is largely affected by the volatility of the oil price and the level of domestic production.
Capital outflow can be reduced by creating more attractive instruments at the capital while
decline in reserve can be stemmed with significant diversification of the economy through
increasing production of commodities such as palm oil, fish and oil and gas export.
Also of importance is the drive to increase SMEs access to finance as well as other sectors that
have employment generation potentials. The continuation of the anchor borrowers programme
(ABP), discriminate cash reserve requirement and effective performance of the Investors and
Exporters window introduced in April 2017 would go a long way to achieve diversification of the

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economy.
ii.
Performance of the Banking Sector
The financial soundness indicators in terms of Capital Adequacy Ratio (CAR), Non-Performing
Loans (NPLs), Liquidity Ratio, Return on Equity (ROE) and Return on Assets (ROA) have improved
over the levels at the last MPC. The improvement in the capital adequacy ratio is due to
regulatory actions of the CBN. It should be noted that NPLs have also shown slight improvement.
Currently, the economy does not have problem with liquidity. Without the outlier banks, Nigerian
banks can favourably compare with its pears.
iii Low Level of Credit to the Real Sector of the Economy

The ratio of credit to gross domestic product (GDP) is low. Credit to other sectors of the economy,
particularly when Deposit Money Banks (DMBs) are not willing to do so is weak, therefore, we
can encourage the establishment of more micro-finance banks and strengthen the existing ones
so as to improve access to credit to poor. However, this may result into conflict of interest to the
CBN.
iv. Cyber Security

Another challenge observed at this meeting is related to cyber security, a frame-work therefore
need to be deployed to deal with cyber security to reduce the level of cybercrime through the
creation of security operation centres. Trained ethical hackers can be employed by banks while
information must be shared among peers to protect the industry. As we approach 2019, it is
expected that MPC should identify the variables affecting the economy, formulate appropriate
polices as well as the strategy for their implementation, monitoring and evaluation within the
CBN’s statutory mandate.
Policy Choice

On the basis of the above analysis, I voted for a hold on earlier MPC decisions which have resulted
in dampening inflation pressures both on year-on-year as well as month-on-month basis. It has
also promoted exchange rate stability and positive growth. Loosening may give a wrong signal to

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the public. On the other hand, tightening will stifle growth. MPC decisions in the past have been
complimented by the clarity of reasoning and the direction we are heading, for example
convergence in the foreign exchange market has been achieved.
I therefore vote to retain the following:

i.
Retain the MPR at 14.00 percent,

ii.
Retain the CRR at 22.50 percent,

iii.
Retain the liquidity ratio at 30.00 percent, and

iv.
Retain the Asymmetric corridor at + 200 and -500 basis points around the MPR.

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6.
ISA-DUTSE, MAHMOUD
A. INTRODUCTION

The world economy continues to grapple with several key issues that engender underperformance, such as, the US-China trade war, US sanctions on Iran, the lingering BREXIT deal,
tightening financial conditions in major advanced economies, geo-political concerns and political
tensions. These developments have resulted in mounting policy uncertainties, disruption in
global trade flows, currency depreciations and huge capital outflows from vulnerable
emerging/developing economies. On the domestic front, there is a plethora of risks that threaten
the attainment of desirable economic outcomes.
B. EXTERNAL ECONOMIC CONDITIONS

The un-abating headwinds to economic activities necessitated the downgrading of the global
growth forecast by 0.2 percentage point from the earlier 3.9 per cent for 2018 to 3.7 per cent. In
broad terms, the slowdown in global output has potential negative implications for oil exporting
countries like Nigeria as weaker demand for oil will translate into reduced oil revenue. Already,
crude oil prices have started softening following rising supply and dimmer prospects for demand.
This is against the background of US sanctions on Iran which did not result in the expected oil
price gains as waivers were granted to some countries to continue importing Iranian oil. Thus,
Nigeria must brace up to avoid diminution of foreign reserves.
A major development in the world economy that has impacted negatively on Nigeria and some
other emerging/developing economies is the continued tightening of monetary policy in
advanced economies. Apart from the US Fed and the Bank of England (BoE) who are pushing
forward with their guidance on monetary policy normalization, the on-going monetary
accommodation in the Euro Area may come to a halt by December 2018 with the expectation
that policy rate will begin an upward trajectory. However, recent growth data shows a slowdown
in the US economy as real GDP growth fell to 3.5 per cent in Q3 2018 from 4.2 per cent in the
previous quarter on account of declining consumption, investment and government spending.
Growth in the Euro Area also decelerated in Q3 2018. These developments imply a reduction in

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the forces contributing to capital outflows from Nigeria.
C. DOMESTIC ECONOMIC CONDITIONS

The current statistics indicate that real GDP growth rate stood at 1.5 per cent in Q2 2018 as
compared with 1.9 per cent in the previous quarter. In the absence of GDP data for Q3 2018, the
Purchasing Manager’s Index (PMI), provides a rough approximation of economic performance.
The PMI for both manufacturing and non-manufacturing sectors in October 2018 portrays
consistent expansion for the 19th and 18th consecutive months, respectively. The implication is
that the economy is unlikely to slide into recession in the near term, even though, growth outlook
remains weak. Moreover, downside risks such as the late passage and implementation of the
2018 budget, security challenges, 2019 election spending, inadequate real sector financing and
multiplicity of structural problems may affect growth outcomes. Thus, it becomes imperative to
take cognizance of output growth in any policy framework to curtail pervasive high level of
unemployment.
Headline inflation (year-on-year) declined marginally in October 2018 to 11.26 per cent from
11.28 per cent in the previous month. On a month-on-month basis, headline inflation also
decelerated to 0.74 per cent from 0.84 per cent in the review period. Further month-on-month
analysis indicates that while food inflation fell from 1.0 to 0.82 per cent, core inflation rose from
0.64 to 0.80 per cent between September and October 2018. Although overall, prices moderated,
the rise in the core inflation component is a source of concern. Moreover, inflation uptick may
occur when the new minimum wage takes effect in line with historical experience. This is against
the backdrop of reserve money exceeding the Q4 2018 provisional quarterly benchmark – a
reflection of increased money supply and warning against inflationary pressures in the medium
term.
Monetary conditions in the domestic economy witnessed some improvement as maximum and
prime lending rates moderated in October 2018 but remained high. Private sector credit grew by
a paltry 1.94 per cent and fell below the benchmark of 12.40 per cent. Any rate hike at this time
will further stifle credit extensions to the real sector. Capital market indices have continued to

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deteriorate on account of several factors including gradual tightening of financial conditions in
advanced economies and the rising price of gold in the international market. These developments
have negative implications for the accretion of foreign reserves, naira-dollar exchange rate
stability and price stability. Therefore, monetary policy should be targeted at guiding market
sentiments in a favourable direction.
Given that a strong banking system is a necessary condition for sustained economic growth, it is
encouraging to observe noticeable improvements in key banking stability indicators such as
capital adequacy ratio, non performing loans and profitability ratios during the review period. Of
note is the point that the increasing resilience of the banking system is occurring within the ambit
of an appropriate monetary policy mix, which should be sustained.
C. VOTING DECISION
Taking into account the downside risks to growth and possible inflationary pressures in the short
to medium term, I voted for maintenance of the current policy stance.
• MPR should remain at 14.0% per annum
• The asymmetric corridor at +200/-500 basis points
• Retain liquidity ratio at 30.0% per annum
• Maintain the CRR at 22.5% per annum

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7.
NNANNA, OKWU JOSEPH

Growth was lower than projected, reflecting weak aggregate demand on account of weak
purchasing power and lagged implementation of the capital budget. Available data showed that
Real GDP growth declined to 1.50 per cent in the second quarter relative to 1.95 per cent in the
first quarter of 2018 (NBS, 2018). The change was attributed to the tepid growth in the non-oil
and oil sectors. Specifically, construction, services and agriculture sectors grew by 7.66,
4.19 and 1.19 per cent, respectively. The oil sector fell by 3.95 per cent during the period, in
contrast to a growth rate of 14.77 per cent in the first quarter. Key PMI indicators showed that
manufacturing and non-manufacturing PMI stood at
56.2 and 56.5 index points in September, respectively, indicating a gradual momentum in the
sector.
Inflationary pressures moderated due to positive supply shocks associated with improved postharvest food supplies. Headline inflation declined marginally in October to 11.26 per cent
compared with 11.28 per cent in the previous month. Similarly, food inflation fell to 13.28 per
cent at end-October 2018, from 13.31 per cent in the preceding month. However, core inflation
rose slightly by 0.1 percentage point to 9.9 per cent relative to 9.8 per cent recorded at end-
September 2018. On month-on-month basis, headline and food inflation moderated, while core
inflation, increased marginally in the month of October, due, mainly, to cost-push factors. Upside
risks to the inflation outlook in the near- term remain the anticipated 2019 election spending,
high energy cost, protracted herder-farmer problem and the poor transport infrastructure. Given
the current out-put gap, I do not expect the implementation of the expected general wage
increase to trigger inflation in the near term.
Despite the growth in the monetary aggregates, it was however, insufficient to significantly
trigger demand-pull concerns. Relative to the level at end- December 2017, broad money supply
(M2) grew by 4.71 per cent at end-September 2018, annualised to 6.28 per cent. Money market rates
reflected liquidity conditions in the banking system, indicating the relative effectiveness of CBN liquidity
management strategy. The monthly average inter-bank call and OBB rates were 14.07 and 14.05 per cent,
respectively for October 2018, vis-à-vis the monetary policy rate of 14.0 per cent.

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Despite significant pressure from non-performing loans (NPLs), systemically important top-five
banks in the banking industry, which account for over 50.0 per cent of total banking sector
assets, reveal soundness of the financial system. Broad rebalancing of the industry is expected
to be sustained, consistent with the pace of economic recovery, supported by: continuous
improvement in oil prices and production volume; and sustained regulatory oversight. Overall,
credit to the core private sector has leveraged on the emerging positive sentiments, and the lull
in government borrowing, to increase by 2.20 per cent in September 2018 and 2.93 per cent
annualized. Net credit to the government contracted by 6.25 per cent in September 2018 over
the level at end-December 2017, representing an annualized decline of 8.34 per cent.
Lingering monetary policy normalisation in some advanced economies and the uncertainty in
the domestic environment has continued to weigh in negatively on the financial markets,
leading to a sell-off of highly capitalized stocks. Consequently, equities market indicators were
negative in the review period. The All-Share Index (ASI) decreased by 6.84 per cent from
34.848.45 on August 31, 2018 to 32.466.27 on October 31, 2018. Similarly, Market Capitalization
(MC) decreased by 6.84 per cent from N12.72 trillion on August 31, 2018 to N11.85 trillion on
October 31, 2018. A reversal of the bearish trend is, however, expected in the medium term all
things being equal.
I hold the view, that, expectation of expansionary fiscal policy in the near-term driven by the
desire to address the infrastructure deficit, and satisfy labour union wage demands remain a
concern to macroeconomic stability, but should help the already fragile growth if the expenditure
is well targeted. As it is evident, the Federal government fiscal deficit has continued to widen and
concomitantly, the debt burden is on the rise, narrowing the fiscal space for the implementation of growth
related programmes. The government can build fiscal buffer through the privatisation of some
inefficiently managed national assets, particularly, the refineries and elimination of subsidy in PMS
consumption.
In the foreign exchange market, I note the effectiveness of the current flexible exchange rate
policy regime, the emergent organic convergence and exchange rate stability. Consistent with
the improved FX liquidity and a healthy external reserve buffers, the external sector prospect

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remains positive. The current account surplus observed in recent times will be sustained on
account of recovery in oil prices and high export revenues. The exchange rate at the I&E window,
which recorded a weighted average of ₦362.38/US$ at end-August 2018, was ₦363.93/US$ in
October 2018. The naira exchange rate at the retail SMIS window and the BDC segment remained
at an average of ₦330.00/US$ and ₦359.0/US$, respectively. These rates are relatively aligned
with the relative purchasing power parity rates of the naira.
Against the backdrop of continued stability in the key macroeconomic fundamentals and
concerns about emerging fiscal surprises, and palpable political risks, I vote to keep all the policy
metrics at their contemporaneous levels.

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8.
OBADAN, MIKE IDIAHI
Introduction
In the globalized world, increased trade and capital flows is a major feature. However, policy
making in individual countries has also become globalized in the sense that policy directions in
such countries have become responsive to developments in global commodity and financial
markets. Also, the policies of international financial institutions and leading countries in the
advanced world are also important drivers of policies in the emerging and developing countries
(EADCs). Consequently, this personal statement on the monetary policy direction in Nigeria is
informed by key developments in the global economy and the domestic economy.
Global developments and implications for the Nigerian Economy

World trade has continued to witness uncertainties as a result of the trade policy actions of the
United States government and unstable global growth trends. The United States’ trade war with
China and other major trading partners, reflecting the imposition of tariffs and counter-tariffs
against each other, has produced uncertainty as to the full effect on the volume of trade and
global output. One of the reasons for downgrading global growth for 2018 from the 3.9 percent
earlier projected to 3.7 percent is the persisting trade war between China and its major trading
partners in Europe and North America. The continued use of trade policies in the United States
is one of the growth-mitigating factors. Amid the tariff war, China’s economy has further
weakened with growth slowing to 1.6 percent in the third quarter from 1.7 percent in the second
quarter of 2018. This, amid its current re-balancing programme could affect its trade with Nigeria.
However, the Currency Swap agreement may ameliorate the situation and it should therefore be
sustained.
Weak global growth is not good for the sale of Nigeria’s major commodity export – crude oil. To
worsen matters current developments in the oil market are not cheering. The price of Bonny light
crude which stood at US$ 79.03 per barrel on September 14, 2018 dropped to US$ 67.02 per
barrel on November 5. The price further dropped to US$ 62.6 per barrel on November 20 due to
rising supply and a weaker demand for crude oil. Although US’ sanctions against Iran went into

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effect on November 5, 2018, the government has, however, granted sanction waivers to eight
countries to continue importing Iranian oil over a period of six months, thereby easing fears of
impending shortages that could shore up the price of oil. Besides, Saudi Arabia has signaled its
readiness to cover any production shortfalls that may arise from US’ sanctions on Iran. In
addition, the increasing investment in shale oil production by the US remains a significant threat
to future oil price increases. Even though OPEC / non-OPEC countries plan to extend oil
cooperation agreement which will allow OPEC intervention in the market to address market
uncertainties from January, 2019, the regime of much higher oil prices may not be feasible in the
foreseeable period. This poses a notable threat to the Nigerian economy whose performance
depends delicately on robust prices in the global oil market. If the market for oil continues to
show weakness, Nigeria’s growth performance is at risk while the gains in external reserves
accumulation, exchange rate and macroeconomic stability will be threatened. The policy
implication relates to the advice that has been given to the government time and time again: use
oil resources to diversify the economy and build fiscal buffers in periods of high oil prices. It is
regrettable that state governments have continued to reject suggestions to save out of high oil
earnings. They insist on all monies available being shared at Federation Account Allocation
meetings.
Monetary policy stances in the advanced countries have important implications for international
capital flows. Nigeria has been experiencing the negative consequences of the current monetary
policy directions in the US and Europe. For example, the continued monetary policy
normalization, entailing hikes in the policy rate, has contributed significantly to capital flows
reversal in Nigeria, and consequently bleeding the nation’s external reserves, weakening the
stock market, and threatening exchange rate stability, among others. So far in 2018, the United
States has hiked its benchmark policy rate three times to the range of 2.0 – 2.25 percent. There
is the likelihood of at least one more rate hike during the rest of the year. In the Euro area,
monetary accommodation has continued at a reduced rate while the European Central Bank
plans to end its bond-buying programme and raise interest rates in 2019. These monetary actions
of the advanced countries coupled with weak crude oil market prospects threaten the stability

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of the Nigerian economy. They suggest prudent management of available foreign exchange
resources, effective diversification of the economy to increase non-oil export earnings, and
aggressive domestic revenue mobilization.
Basis of Opinion on Monetary Policy Direction

Against the backdrop of the above developments in the global economy, my opinion is informed
by various specific developments in the Nigerian economy, especially since the last Monetary
Policy Committee Meeting. Although the economy has continued to face many risks / challenges
to macroeconomic stability, there have been some positive developments. These and some of
the challenges inform my opinion on the direction of monetary policy in the next few months.
Domestic output. This needs to be strengthened with the support of monetary policy. Although
pleasantly, the domestic economy had exited recession since
the second quarter of 2017, the growth achieved remains weak and fragile. From Q2 2017 to Q2
2018, the economic growth rate averaged 1.49 percent. In the second quarter of 2018, the GDP
grew by 1.5 percent compared to 1.95 percent in the first quarter, representing a decline of 0.45
percent. Although agriculture was one of the three major drivers of growth during the period, its
contribution to growth at 0.27 percent showed highly reduced significance in relation to previous
quarters. The sector thus needs to be further stimulated beyond what the Central Bank of Nigeria
(CBN) is currently doing. Overall, aggregate output has remained below its potential for quite
some time and the outlook for growth will remain fragile unless greater efforts go into stimulating
the production sectors with various forms of fiscal and monetary support. There is thus need to
ensure that more credit is directed to the real sector of the economy. Further monetary policy
tightening will not advance this goal. But for the stagflation in the country which has made policy
choices difficult, the normal policy response to low growth and high unemployment would be
monetary accommodation.
Moderating rate of inflation. There is some good news on the inflation front. After two months
of successive uptick in inflation, inflationary pressures eased in October. Year-on-year headline
inflation reduced marginally from 11.28 percent in September to 11.26 percent in October. Yearon-year and month-on-month headline inflation reflected declines. The prices of four items

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including Food and Non-alcoholic beverages declined while all the other items have their prices
unchanged. Food inflation declined from 13.31 percent in September to 13.28 percent in October
while imported food inflation declined from 15.66 to 15.57 percent during the same period.
Imported food inflation declined perhaps due to the relative stability of the exchange rate.
However, core inflation inched up to 9.88 percent in October from 9.84 percent in September
due largely to increases in the prices of processed food, transport, communication, education,
among others.
For some time now, inflation has largely been structurally driven rather than monetary. Hence,
the threats to inflation control in the short-term are poor transportation infrastructure, high cost
of energy, especially diesel, recurring incidence of herdsmen/farmers’ clashes, and anticipated
election spending. Implementation of the new minimum wage may take some time while its
impact on inflation may not be substantial when implemented. A sustainable solution is required
for the herdsmen attacks on farmers and farmlands which have negatively impacted agricultural
output.
Money supply growth and banking system liquidity. Although the banking system witnessed a
surge in liquidity surfeit from September to October, 2018, due to fiscal injections from central
revenue sharing, Value Added Tax (VAT), sustained foreign exchange purchases by the Central Bank and
maturing Nigerian Treasury Bills and Open Market Operations (OMO) Bills, the effects of the injections
were moderated by the sale of CBN bills at the OMO auctions, provisioning for and settlement of foreign
exchange purchases and auctioning of FGN Bonds as well as Nigerian Treasury Bills. Importantly, broad
money and other money aggregates underperformed during the period; they remained below the
benchmarks. For example, the annualized growth of M1 is -0.49 percent compared to the 2018 benchmark
of 7.3 percent. Similarly, M2’s annualized growth is 7.82 percent compared to the benchmark of 10.48
percent. Generally, as the Monetary Policy Department has observed, money supply remains weak to
drive growth momentum in the economy. Risky investment environment is one factor that undermines
the flow of credit to the real economy. Enhanced credit to the real sector, especially the small and medium
enterprises, is thus imperative.
Encouraging news from the financial system. Generally, there is improvement in most financial
indicators due to the high oil prices, action of the National Assembly to ensure payment of
government debt, and effectiveness of CBN’s corrective measures including enforcement of
prudential regulations since the last MPC meeting. Of note here are improvements in the capital

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adequacy ratio, reduction in number of banks that failed the minimum liquidity ratio test from
five a year ago to one as at October, 2018, reduction in the number of banks that recorded unaudited
losses to three between January and October 2018 from five in the corresponding period in 2017. The
non-performing loans (NPLs) ratio improved, albeit, marginally. Since it is still far above the prudential
maximum, special attention would need to be paid to loan recovery from the oil and gas sector which
accounts for 30 percent of aggregate credit and about 45.0 percent of NPLs. Importantly, there is need to
sustain implementation of the CBN’s corrective measures/actions that contributed to the improved
financial soundness indicators.
Government’s fiscal operations. The government’s fiscal operations have continued to impact
liquidity management and make it difficult. The fiscal operations have resulted in widening fiscal
deficit and concurrently increasing debt level and debt service payments. From January to September,
2018 a cumulative deficit of N2,491.21 billion was recorded arising from revenue underperformance and
high cost of governance. The high debt level is influenced by an increase in deficit financing through bond
issuing, and high interest rates that fuel the high cost of debt servicing. What seems to be obvious is that
fiscal policy has been lagging in the effective performance of its roles, especially in the area of domestic
revenue mobilization, thus making the designing of monetary policy more difficult. It is thus important
that fiscal policy should play its complementary role. If the fiscal authorities intensify revenue mobilization
as they are currently attempting to do, and effectively build fiscal buffers, then the Central Bank’s use of
non-conventional monetary policy tools would not be overburdened.
Policy rates in other climes. Across the globe, inflation picked up moderately in some countries
as oil prices moved up over the last few months. In several emerging markets and developing
economies, inflation showed signs of moving in the upward direction. Yet, most of the countries
maintained the policy rate because of concerns relating to growth and employment. In the case
of Nigeria, the need to strengthen growth and reduce unemployment should be factored into
any decision on the monetary policy rate. Achieving robust and inclusive growth is crucial at this
point in time when various reports suggest a worsening of the incidence of poverty. Making
monetary policy tighter and, in particular, raising the policy rate will not help growth and
employment. It will increase the cost of borrowing both for firms and government, especially
against the backdrop of widening government fiscal deficit, debt accumulation and rising debt
service.
In light of the foregoing, especially the observed downturn of inflation and its structural nature,
the behavior of policy rates in some other countries, underperformance of monetary aggregates,

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and need to strengthen output growth, I vote to maintain the monetary policy instruments at
their current levels: MPR, 14.0%; CRR, 22.5% and Liquidity Ratio, 30.0%.

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9.
SANUSI, ALIYU RAFINDADI

1. Decision:

My decision to vote for a hold on all the policy parameters, today, was informed by the balance
of risks to both inflation and output recovery occasioned by the increased uncertainties in the
global and domestic economic environments. For instance, a number of global economic events
have significant consequences on the evolution of both domestic output, inflation and exchange
rate stability in the medium term. These events include the commencement of the US economic
sanctions on Iran; the economic consequences of the dynamics of the diplomatic relations
between the US and Saudi Arabia; the normalization of monetary policy in the advanced
economies; the Chinese-US trade war; and the likely outcomes of the Brexit negotiations.
Domestic economic developments, including the delays in the much expected fiscal injections,
election spending, implementation of the minimum wage increase, have implications on output
and inflation in the near term. My analysis of the available data, staff forecasts and estimates
suggest that sustaining the decline in inflation and positive growth in output require a cautionary
approach to policy. I, therefore, voted to maintain the current monetary policy stance, which is
tight enough to support further disinflation, without hurting the positive output growth.

2. Background and Justification

2.1. Global Economic Developments
The global economy is shrouded in policy uncertainties with ambiguous consequences on
domestic inflation and output. The expected rise in oil prices may not crystalise because of the
relaxation of the US secondary sanctions on the buyers of Iranian oil, as well as the unfolding
uncertainties around the BREXIT negotiations. These have important implications for Nigeria’s
output and price stability.

Developments, following the commencement of the US sanctions on Iran, suggest that the oil
prices may not rise, and the demand for Nigeria's oil may not increase as earlier anticipated. This
is because of the partial suspension of the sanctions earlier imposed by the US on buyers of
Iranian oil such as India, China, Italy, and Japan. Investment in the US Shale gas has been

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increasing, thereby raising US oil production from 10.9 million barrels per day in July 2018 to an
average of 11.475 million barrels per day in September 2018. Although OPEC and allied producers
may cut output, Saudi Arabia, which had earlier indicated its readiness to cover any shortfalls
arising from the US Sanctions on Iran, has been facing pressure from the US to sustain its supply
levels. Despite the uncertainty, indications from the crude oil futures market show that the
market expects crude prices to fall in 2019. The futures price for crude deliveries in April 2019,
which was quoted at US$ 75 per barrel on 3rd October, 2018, has dropped to US$ 53.82 per barrel
on 20th November, 2018. The likely consequences of these developments on the domestic
economy are also uncertain. Should the oil market slump, for instance, the possible adverse
effect on foreign exchange earnings is lower reserve accretion and, if exchange rate stability is
adversely affected, higher inflationary pressure. However, the adverse effects of the slump on
government oil revenue may affect the implementation of the ERGP, reduce the expected fiscal
injections and, therefore, through aggregate demand, have moderating effect on inflation and
output. Despite the agreement reached between the EU and UK’s Prime Minister for the
continuation of Customs Union after the 29th March, 2019 when the UK finally leaves the EU,
there are political uncertainties because the House of Commons has to vote on the agreement in
December 2018. There are also some uncertainties around the magnitude of effects of the
continued policy normalisation in the US on the impending capital flow reversals. For instance,
the decline in US inflation from the peak of 2.9% in July, 2018 to 2.7% in August and further to
2.3% in September has reduced the likelihood of the US Feds going ahead with its forward
guidance of more rate hikes before the end of 2018. The possible halt to further Feds rate hikes,
coupled with the effects of uncertainties surrounding BREXIT may have moderating effects on
capital reversals from Emerging Market Economies. These uncertainties, in my opinion, call for a
cautionary approach to policy.
2.2. Domestic Economic Developments

While available data indicate that headline inflation has declined in October 2018 and output
growth has continued to be positive, domestic economic conditions and staff forecasts suggest
that there are threats of inflation in the medium term, while output recovery is weak.

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Data suggest that the dis-inflationary process that started since January 2017 has resumed after
a two-month interruption in August and September 2018. Both the Year-on-Year and Month-onMonth measures have moderated in October 2018. The Year-on-Year headline inflation has
declined to 11.26 per cent in October 2018 from 11.28 percent in the previous month. The decline
is due to the moderation in the prices of food & non-alcoholic beverages; Housing, Water,
Electricity, Gas & Other fuels; and Transport. The Month-on-Month headline inflation declined
from 0.84 percent in September 2018 to 0.74 percent in October 2018 due to the decline in Food
Inflation from 1.0 percent in September 2018 to 0.82 per cent in October 2018. Core Inflation,
however, increased year-on-year from 9.84 per cent in September 2018 to 9.88 per cent in
October 2018.
Domestic output grew at a lower rate of 1.5 per cent in the second quarter of 2018 compared
with 1.95 per cent growth in the first quarter. The increase was driven by the activities in the nonoil sector, which grew by 2.05 per cent. The oil sector contracted by 3.95 per cent during the
quarter. The Industrial Production Index (IPI) rose by 0.6 per cent in Q3 2018 relative to the
preceding quarter. Manufacturing activities also marginally increased in the third quarter of 2018
by 0.1 per cent relative to the preceding quarter. There are also indications of marginal
improvement (of 0.2%) in manufacturing capacity utilization during the third quarter. The
Purchasing Managers Index (PMI) indicates expansion of manufacturing and non-manufacturing
activities in the month of October 2018, supported by stability in the foreign exchange market.
Although the outlook for output recovery is fragile, staff estimates suggest that given the
negative output gap, the anticipated fiscal injections, election-related spending and the
implementation of the agreed minimum wage are expected to boost effective demand further.
Monetary aggregate, measured by M2, grew at an annualized rate of 7.82 per cent in October
2018, which was below its programmed target of 10.48 per cent. Credit flows to the private sector
remained weak but were marginally higher in September 2018 at an annualized growth rate of
2.33 per cent compared with the 1.12 per cent achieved in August 2018. Naira continues to
remain stable in the foreign exchange market, trading at an average rate of US$360.25 at the BDC
segment, and US$ 363.93 at the Investors & Exporters’ window. This stability was achieved
through the various policies of CBN, including the implementation of the Bilateral Currency Swap

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Agreement with China. The banking sector remained stable, with the marginally improved NPL
ratio expected to further improve.
3. The basis for My Policy Choice

The basis for my vote to maintain the status quo in today’s meeting is the uncertainty in the
direction of the possible effects of the global and domestic economic developments on the
evolution of inflation and output, and exchange rate stability. With fragile output recovery,
therefore, further tightening would raise the cost of credit and reduce investment thereby
further weakening the recovery process. Loosening the policy stance would reverse the gains
achieved in price and endanger exchange rate stability. Loosening may not lead to lower lending
rate. I, therefore, choose to retain the current policy stance, under which most of the price and
output gains were achieved.
Consequently, I voted to:

• Retain the MPR at 14.00 per cent;
• Retain the CRR at 22.5 per cent;
• Retain the asymmetric corridor at +200/–500 basis points; and
• Retain liquidity ratio at 30.0 per cent.

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10.
SHONUBI, FOLASHODUN A.
Global Economic Developments
Despite the steadiness in the expansion of the global economy in the last two years, downside
risks have heightened over the last two quarters. The October 2018 edition of the World
Economic Outlook projected growth at 3.7 per cent in 2018, from 3.9 per cent in April, on account
of the potential effects of disputes in trade relationships among some of the world major
economies, tighter global financial conditions and other country-specific factors. Recent rapid fall
in the international crude oil price, due to lesser than expected scope and toughness of the
sanctions on Iran, again exposed the vulnerability of oil-dependent economies. These
developments portends pertinent implications for monetary policy in emerging and developing
economies, including Nigeria.
Trends in Domestic Output and Inflation
Subsisting data from the National Bureau of Statistics (NBS) indicate that growth in national
output, at 1.5 per cent in 2018Q2 was below the projected level. Though the non-oil sector was
the major driver, lower than expected growth in targeted sectors of agriculture, manufacturing
and solid minerals is a major concern for policy. The October 2018 composite Purchasing
Managers’ Index (PMI) for manufacturing and non-manufacturing sectors showed some
general expansion, however, contraction in critical enabler sub-sectors of electricity,
transportation and warehousing may limit future growth. Overall, growth remained weak and
fragile, highlighting the need for further growth enhancing measures.
Against the uptick in inflation in the last two months, latest data from the NBS showed waning
inflationary pressure, as headline inflation fell, both on month- on-month and year-on-year
bases, to 11.26 per cent in October. This further underscores the continued efficacy of the suit
of measures by the Bank, including retaining a generally non-expansionary monetary policy
stance and

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deployment of other complementing tools, like open market operations to ensure optimal
liquidity, as well as, the use of unconventional monetary policy measures.
Monetary and Credit Developments
Despite the generally non-expansionary stance of monetary policy, broad money supply (M2)
grew by 6.52 per cent at end-October 2018, annualised to
7.82 per cent, below the 10.48 per cent benchmark growth for fiscal 2018. The growth in
monetary aggregates did not, however, translate to the domestic economy, as credit to the
private sector grew marginally by 1.94 per cent, annualised to 2.33 per cent, below the
benchmark growth of 12.40 per cent. Net Foreign Assets (NFA), grew significantly by 20.71 per
cent, annualised to 24.85 per cent, above the 2018 target growth of 14.50 per cent.
On the average, money market rates in October 2018 were above the levels in September 2018
and remained around the monetary policy rate, reflecting the liquidity condition and risk
perceptions in the market. Though the maximum and prime lending rates fell in October 2018,
they remained high. The consolidated demand, savings and term deposit rates also fell, relative
to their levels in September 2018. The spread between maximum lending and average deposit
rates, however, widened, signifying high borrowing cost for economic agents, while low savings
rate constitute a disincentive to savings.

Financial System Stability Concerns
The key prudential ratios in the banking sector showed improvement in the health and soundness
of the institutions, as well as, the overall banking industry. Banks’ capital and liquidity
ratios remained above the regulatory minimum, reflecting mainly the positive impact
of some of the measures implemented by the Bank. Asset quality also improved, as the nonperforming loans (NPLS) ratio fell below the level in September 2018, though it remained above
the regulatory maximum. Sustained surveillance and intensified prudential monitoring, including
decisive regulatory actions will further strengthen the resilience of the industry.
External Sector Vulnerabilities

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Overall balance of payment surplus in the second quarter of 2018, supported by increased nonoil export earnings, portends positivity in the external sector. Despite the slight depreciation at
the Investors’ and Exporters’ window, due to demand pressure, the average exchange rate
appreciated at the BDC segment of the foreign exchange market, with the relative stability
holding in the market, as rates convergence intensifies. Initial worry about gradual outflow of
foreign capital is waning, as developed economies are expected to reduce the speed of
normalisation to address recent slowdown in their economies. Besides, inflow from the recent
sixth Eurobond offering by Nigeria is expected to further enhance foreign exchange reserves and
improve external sector viability.

Overall Considerations and Decision
Though, high possibility of market correction of the recent fall in oil prices in the very near term
dampens the need for urgent actions, the trend re-emphasises the imperative for aggressive
build-up of fiscal buffers to easily accommodate the effects of any sudden and significant decline
in the international crude oil price.
On financial system stability, strong prospects of fiscal measures to facilitate settlement of
outstanding contractual obligations and debts to businesses, especially in the oil and gas sector
is expected to further improve the banking system conditions. Also, build-up in the positive
outcome of the various unconventional monetary policy measures by the Bank in the real sector
will improve businesses and enhance their capacity to defray obligations to the banking system.
More importantly, considering the drag on credit flow and waning willingness of banks to offer
credit, measures to drastically reduce bad assets in banks will enhance their health, strengthen
resilience of the industry and promote intermediation.
The recent decline in inflation and possibility of further decline in food prices as harvest
intensifies, aided by the aggressive intervention programmes of the Bank in the agricultural
sector has reduced the likelihood of increased inflationary pressure in the very near-term.
Moreover, supported by anecdotal indication of historically weak relationship between wage
increase and inflation in Nigeria, the proposed increase in the national minimum wage is

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expected to have muted impact on inflation, owing to the prolonged weak aggregate demand
and negative output gap. Thus, while the receding inflationary pressure provides the Bank with
some respite on price stability, the weak and fragile growth underscores the urgent need for the
intensification of growth enhancing measures.
Given the aforementioned, I believe that while the Central Bank cannot lose sight of the primary
mandate to achieve price stability, it must keep maintaining the delicate balance of ensuring low
and stable inflation conducive to growth. Evidently, the present monetary policy regime has
produced generally positive outcomes, in terms of waning pressure on domestic prices and
sustained exchange rate stability, while engendering investor confidence and steady net inflow
of foreign investments. It is, therefore, imperative that maintaining this regime will allow more
time for the effects and benefits to fully mature into greater economic prosperity.
In this regard, I recommend that the Bank intensifies implementation of its ongoing intervention
programmes and new initiatives in the real sector to sustain the impact of the positive outcomes
on the macroeconomy. I also propose a more aggressive implementation of the differentiated
CRR scheme, through improved turn-around-time for application processing and increased
advocacy.
I therefore vote to retain:
• MPR at 14.0 per cent;
• The asymmetric corridor of +200/-500 basis points around the MPR
• Cash Reserve Ratio (CRR) at 22.5 per cent; and
• Liquidity Ratio at 30.0 per cent.

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11.
EMEFIELE, GODWIN I.
GOVERNOR OF THE CENTRAL BANK OF NIGERIA AND CHAIRMAN, MONETARY POLICY
COMMITTEE
Short-term growth outlook of the Nigerian economy, though positive, indicates diminished
momentum amidst rising downside risks, persistent vulnerabilities, and depressed demand. Yet,
inflationary pressures are projected to slowly levitate within the short-term as the country
enters into an election year. Concerns around rising yields and protectionism in some advanced
economies have combined to cause disruptive portfolio adjustments. Thus, growth prospects in
many emerging markets economies have weakened with heightened fragilities, imbalances and
vulnerabilities in their financial markets. This is pushing global interest rates upward and
(alongside rising trade tensions) is debilitating global demand.

Global growth projection for both 2018 and 2019 have, therefore, been marked down by 0.2
percentage point to the 2017 level of 3.7 percent; and is expected to remain uneven across
countries. While the pace of the US economy remains strong, growth in the Euro area, the UK
and Japan are projected to decelerate. Among emerging markets, China is expected to further
slowdown just as growth prospects for Brazil, Argentina, and Turkey declined. Though recoveries
are ongoing, short-term growth outlook in sub-Saharan Africa remain generally subdued. Global
inflation is projected to rise both in advance economies and in emerging markets and developing
economies thus reinforcing the prospects of further tightening of global monetary conditions.
For the domestic economy, short-term outlook remains positive but significantly fragile due to
weak effective demand. Compared to the pre-recession average of about 6.0 percent, 2018
growth is projected at nearly 1.8 percent. The subdued but positive outlook is underlain by oil
price trends, continued stability in the foreign exchange market, sustained non-conventional

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development financing by the CBN, expected implementation of the 2018 capital budget, as well
as the likely aggregate demand boost from elections related spending.

There is also a foreseeable knock-on effect on domestic prices, with short-term outlook
suggesting a slight build-up of inflationary pressure by mid-2019. Regardless, year-on-year
outcome for October 2018 headline inflation showed a marginal decline of 0.02 percentage
point to 11.26 percent relative to the preceding month. The observed decline largely reflected
the 0.03 percentage point decline in food inflation to 13.28 percent even as core inflation rose
by 0.1 percentage point to 9.9 percent. This pattern was also discerned in month-over- month
estimates as core inflation ascended slightly while other definitions fell, thus indicating
substantial seasonal undercurrents.

Analyses of liquidity conditions in October 2018 showed an annualised contraction of 0.5
percent in M1 along with a subpar expansion of 7.8 percent (annualised) in M2. Breakdown of
net domestic credit indicate an annualised expansion of 8.9 percent in government credits visà-vis 2.3 percent growth in private sector credit (PSC). I note that whilst the expansion in PSC is
welcomed, it remained significantly below the 2018 target of 5.6 percent. Reflecting the risk
aversion of banks in the face of high NPLs, the underperformance of PSC continues to undermine
domestic investment, household demand, and aggregate productivity. Consequently, I reiterate
the need to innovatively de- risk PSC in order to brighten its risk perception, strengthen financial
system soundness, accelerate economic diversification, and ensure strong and inclusive growth.

In my consideration, I note the continued stability at the foreign exchange market and
discernible convergence of rates at the BDC and I&E segments during the review period. I note
also that the prevailing macroeconomic stability and short-term prospects remain cautious due
to multifaceted global and domestic risks. On the global scene, the rising yields in the US and
the concomitant capital flow reversals threaten our FX reserves, exchange rate, and inflation.
This is further exacerbated by the anticipated fiscal and political spending over the next few
months and its prospective impact on inflations expectations. While the cyclical recovery of

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Nigerian economy is still fragile, it is important that inflation expectations are adequately
anchored. As oil prices begin to soften, the expected cushion from oil receipts for FX reserves
and exchange rate looks to be weakening. It is critically important to ensure that we protect the
economy from oil related volatilities. At this time, given the rising inflation expectations and
likely exchange market pressures, the postulated policy response is to tighten our stance further
so as to stabilise domestic prices. The dilemma arises from the trade-off between inflation and
output. A rate hike could impinge on the already weak domestic demand and further enfeeble
our recovery. Short-term outlook indicate tepid growth forecasts in the next few quarters and
underscores the need to urgently stimulate demand and domestic productivity, and grow the
economy. Nonetheless, loosening is not an option as it would undermine price stability and
potentially disrupt foreign exchange markets. As I have always mentioned, I am generally
inclined towards a cautious, practical, and well-balanced decision that promotes price stability,
while being mindful of output and unemployment considerations.

I continue to recognize and emphasize the need to strengthen aggregate demand and bolster
domestic factor productivity. In-house analysis shows that our potential output is depressed,
pulling long-term aggregate demand with it. In the face of underperforming private sector credit
by DMBs, I maintain my determination for forceful financial stimulus for high-impact and
productive real sector activities especially in agriculture, manufacturing, and MSMEs. The
recently announced programme of a strategic release of portions of banks’ CRR for real sector
lending is a step in the right direction. This will stimulate productivity in qualifying high-impact
sectors while helping to diversify economic growth. I am of the opinion that the aggregate supply
boost from this policy would considerably moderate inflation trajectory. Since the key mandate
of the CBN remains price, monetary and exchange rate stability, I am committed to driving
inflation to single-digit levels and building sufficient reserves buffers to defend the naira.

I recognize that the relative stability enjoyed by the Nigerian economy reflects the combined
and individual potency of our past policy decisions. Overall, I am of the view that the current
levels of key policy parameters are sufficiently tight. An adjustment at this time could

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significantly disrupt on-going permeation of past decisions. The current level of real policy rate
remains appropriate to balance the objectives of exchange rate stability, price stability and
output stabilization without introducing disruptive policy shocks. Therefore, I vote to:

• Retain the MPR at 14.0 percent;
• Retain the CRR at 22.5 percent;
• Retain the asymmetric corridor at +200/–500 basis points; and
• Retain liquidity ratio at 30.0 percent.


GODWIN I. EMEFIELE, CON
Governor
November 2018