CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO 113 OF THE
MONETARY POLICY COMMITTEE MEETING OF 22nd AND 23rd
May 2017
Background
The Monetary Policy Committee (MPC) met on the 22nd and
23rd of May, 2017, against the backdrop of slowly improving
global growth prospects even as international cooperation
continues to be threatened by anti-globalization sentiments
in major advanced economies. On the domestic front, the
economy has shown greater resilience in the intervening
period since the last meeting of the Committee, anchored
on
more
focused
macroeconomic
policies
and
improvements in oil prices. While the general economic
outlook seems cautiously optimistic for the remainder of
fiscal 2017, emerging indicators suggest that economic
policy must remain circumspect.
In attendance were 8 out of 12 members of the Committee.
The MPC assessed the global and domestic economic and

financial environments in the first five months of 2017 and
the outlook for the rest of the year.
External Developments
The global economy continued to gather momentum in Q1,
2017, aided by gradual recovery in the emerging markets
on the back of a pick-up in global demand and higher
commodity prices, coupled with fairly robust domestic
demand in the advanced economies. Accordingly, global
output growth in Q1 2017 is estimated to expand by 2.8 per
cent annualized. In spite of the fairly optimistic global
economic outlook, uncertainty surrounding the direction of
macroeconomic policy in the advanced economies
continues to cloud the prospects of sustained recovery.
Global inflation appears to be upward trending on the back
of improved commodity prices and depreciated currencies
in several emerging markets.
Domestic Output Developments
Data from the National Bureau of Statistics (NBS) showed
that the economy contracted marginally by 0.52 per cent in
Q1 2017, a much more positive development since Q1 2016.

The data also shows that about eighteen (18) economic
activities recorded positive growth in Q1 2017; indicating
that the economy was firmly on the path of recovery. The
key growth activities were led by quarrying (52.54%), metal
ores (40.79%), road transportation (12.35%), water supply
and sewage (12.63%), fishing (5.49%), crop production
(3.5%),
oil
refining
93.01%),
motion
pictures
(2.95%),
telecommunication
(2.89%),
forestry
(2.59%),
amongst
others. The Committee noted the positive effects of
improved
foreign
exchange
management
on
the
performance of the manufacturing sector and other
economic activities. The non-oil sector grew by 0.72 per
cent in Q1 2017, largely reflecting the growth recorded in
agriculture
and
solid
minerals,
and
recovery
in
manufacturing, construction and services sectors. The
Committee urged the fiscal authorities to expeditiously
commence the implementation of the recently approved
2017 budget, especially, the capital expenditure portion, in
order to sustain the momentum of recovery, engender
employment and restore confidence in the Nigerian
economy.

Developments in Money and Prices
The committee noted that money supply (M2) contracted
by 8.48 per cent in April 2017, annualized to a contraction of
25.44 per cent in contrast to the provisional growth
benchmark of 10.29 per cent for 2017. Net Domestic Credit
(NDC) grew by 1.40 per cent in April, 2017, annualized to
4.21 per cent, which is significantly below the 17.93 per cent
provisional growth benchmark for 2017. However, net credit
to government grew by 24.08 per cent over end-December
2016, representing an annualized growth of 72.0 per cent.
The Committee was concerned that credit to government
continued to outpace the programmed target of 33.12 per
cent for fiscal 2017, while credit to the private sector
declined considerably far below the programmed target of
14.88 per cent.
Headline inflation (year-on-year) moderated for the third
consecutive month, falling to 17.24 per cent in April, from
17.26 per cent in March, 17.78 per cent in February and
18.72 per cent in January 2017, effectively reversing the
monthly upward momentum since January, 2016. The food
index component, however, rose to 19.30 per cent in April,

from 18.44 per cent in March and 18.53 per cent in
February, 2017. The moderation in headline inflation in April,
2017 thus reflected the decline in the core component to
14.80 per cent in April from 15.40, 16.01, and 17.87 per cent,
respectively in March, February and January, 2017. Similarly,
month-on-month inflation moderated to 1.60 per cent in
April from 1.72 per cent in March, 2017.
The Committee attributed these developments in part to
the effects of the recent gains in the naira exchange rate,
brought about by the Bank’s interventions in the foreign
exchange market and the resulting downward price
adjustments on imported items and their derivatives. Against
this background, the Committee emphasized the need to
sustain
and
deepen
the
Bank’s
foreign
exchange
management policies and measures in order to reap the
benefits of the pass-through to consumer prices. The MPC
recognized the continued influence of structural factors
such as high energy and transportation costs, production
bottlenecks on prices and hoped that the ongoing reforms
by the Government would address some of these
constraints.

Money market interest rates moved in tandem with the level
of liquidity in the banking system. Rates were relatively
stable during the review period. The interbank call rate
opened at 11.40 per cent on March 22, 2017 and closed at
38.94 per cent on May 18. The movement in net liquidity
position was influenced by sales at the Open Market
Operations, foreign exchange interventions, the payment of
statutory revenues to States and Local Governments as well
as maturing CBN Bills.
The MPC noted the bullish trend in the equities segment of
the capital market as the All-Share Index (ASI) rose by 10.20
per cent from 25,516.34 on March 31, 2017, to 28,113.38 on
May
19,
2017.
Similarly,
Market
Capitalization
(MC)
increased by 10.10 per cent from N8.83 to N9.72 trillion
during the same period. Relative to end-December 2016,
the capital market indices rose by 4.60 and 5.10 per cent,
respectively,
reflecting
growing
investor
confidence
following improvements in foreign exchange supplies
reflected in the over US$1 billion injected through the
investor window and exchange rate management. Total
foreign exchange inflows through the CBN increased by

69.77 per cent in April, 2017 compared with the previous
month. Total outflows, however, rose, but less significantly, at
29.35 per cent during the same period. Consequently, the
Committee observed that the average naira exchange rate
remained stable at the inter-bank segment of the foreign
exchange market in the review period.
2.0. Overall Outlook and Risks
Available data and various forecasts of key economic
variables as well as assessment of government initiatives,
including the recently released Federal Government
Economic Recovery and Growth Plan (ERGP), all point to
prospects of recovery in 2017. The Committee expects that
the timely implementation of this plan, judicious execution
of the approved 2017 Budget and sustenance of the new
foreign exchange implementation regime supported by the
restoration of security in different parts of the country,
especially, in the Niger Delta region, would help accelerate
growth and restore confidence in the economy. The MPC
however, identified the downside risks to this outlook to
include the possibility of low oil prices due to renewed
investments in shale oil exploration and production,

continuing monetary policy normalization by the U.S. Fed
which may result in strengthening of the U.S dollar, and
consequent capital reversal from Nigeria and other
emerging market economies. Also, the MPC believes that
the inflation outlook does not appear benign as the limit of
the base effect driving the current moderation in prices may
have been reached.
3.0. The Considerations of the Committee
Notwithstanding the improved outlook for the economy, the
Committee weighed the implications of continuing global
uncertainties arising from the dwindling commitment to
global cooperation, the strengthening of the U.S. dollar, and
the unsteady commodity prices. The Committee similarly
evaluated other challenges confronting the domestic
economy and the opportunities for achieving economic
growth and price stability in 2017. The MPC was of the view
that whereas the downward trend in inflation in April 2017 is
a welcomed development; the rate was still significantly
above the policy reference band.

The MPC is particularly pleased with the gradual retreat in
inflation, the relative stability in the Naira exchange rate
across all segments of the foreign exchange market and the
improved prospects of foreign investment inflow. The
Committee also welcomes the passage of the 2017 Budget
and called on the relevant authorities to ensure its judicious
implementation, especially, the capital budget in line with
the Economic Recovery and Growth Plan. It, however,
noted the associated risks to banking system liquidity of the
envisaged fiscal injections during the remainder of the year.
Against
this
risk,
the
Committee
contemplated
the
prospects of further tightening of monetary policy should
the need arise. The MPC however, noted that further
tightening
would
widen
the
income
gap,
depress
aggregate consumption and adversely affect credit to the
real sector of the economy.
Nevertheless, against the backdrop of the rather unclear
outlook around key economic activities (food production
especially) and some optimism about current deceleration
in inflation as well as relative stability in the naira exchange
rate, the MPC was reluctant to alter the current policy

configuration in any fundamental manner. This is intended
to allow the existing policies to fully achieve their intended
goals and objectives. On the other hand, the Committee
noted that the cost of capital in the economy remains high
and not helpful to growth. The MPC was however,
concerned that loosening would exacerbate inflationary
pressures and worsen the gains so far achieved in the
exchange rate of the naira. It was also convinced that
loosening would further increase the negative real interest
rate as the gap between the nominal interest rate and
inflation widens.
On the financial stability outlook, the Committee noted that
in spite of the banking sector’s resilience, the weak
macroeconomic environment has continued to exert
pressure on the banking system. The MPC urged the CBN to
intensify its surveillance, in order to address emerging
vulnerabilities. The Committee also called on the DMBs to
step up credit to the private sector to support economic
recovery and convey a positive feedback to the financial
system.

4.0. The Committee’s Decisions
In consideration of the challenges weighing down the
domestic economy and the uncertainties in the global
environment, the Committee decided by a unanimous vote
of the 8 members in attendance to retain the MPR at 14.0
per cent alongside all other policy parameters. One
member was absent at the meeting. In summary, the MPC
decided to:
(i) Retain the MPR at 14 per cent;
(ii) Retain the CRR at 22.5 per cent;
(iii) Retain the Liquidity Ratio at 30.00 per cent; and
(iv) Retain the Asymmetric corridor at +200 and -500 basis
points around the MPR
Thank you for listening.


Godwin I. Emefiele
Governor, Central Bank of Nigeria
23rd May, 2017