CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO 117 OF THE
MONETARY POLICY COMMITTEE MEETING OF TUESDAY 3RD AND
WEDNESDAY 4TH APRIL, 2018

Background
The re-constituted Monetary Policy Committee (MPC) held its
maiden meeting, the 260th meeting of the Committee, its first in
2018, on 3rd and 4th of April, 2018 against the backdrop of
strengthening global growth and improving domestic economic
conditions. The Committee assessed the developments in the
global and domestic economic environments during the first
quarter of 2018, including the risks to price stability, financial
stability, and economic growth in the short-to-medium term. Nine
members of the Committee attended the meeting.

Global Economic Developments
The strong headwinds which confronted the global economy in
2017 showed signs of moderation, giving way to prospects for
stronger growth in 2018. Consequently, global output is projected
to grow by 3.9 per cent in 2018 from 3.7 per cent in 2017 on the
heels of rebound in investment as a result of improvements in
investor confidence, strengthening commodity prices, rising

aggregate demand and accommodative monetary policy,
especially in some advanced economies. With the sustained
recovery in oil prices, aggregate demand is expected to continue
to firm up. Growth in the advanced economies is projected at 2.3
per cent in 2018, and 4.9 per cent for emerging markets and
developing economies (EMDEs). The Monetary Policy Committee
noted some downside risks to the outlook for global growth to
include: continuing normalization of monetary policy in the
advanced economies; new U.S. trade policy; uncertainties
associated with the BREXIT negotiations; and rising geo-political
tensions in the Middle-East and on the Korean Peninsula.

In the advanced and emerging market economies, inflation is
projected at 1.9 and 4.5 per cent in 2018, respectively. However,
the broad indication from the IMF is that over the medium to long
term, inflation may rise at a modest pace as general economic
conditions remain subdued. Asset prices and long-term yields in
major financial markets are also on the increase, confirming the
possibility of a future rise in the price level.

Domestic Output Developments
Data from the National Bureau of Statistics (NBS) indicate that real
Gross Domestic Product (GDP) grew by 1.92 per cent in the fourth
quarter of 2017, up from 1.40 and 0.72 per cent in the third and
second quarters, respectively. The economy grew overall by 0.83
per cent in 2017. The main drivers of real GDP growth were

agriculture (1.08%), industry (0.56%) and trade (0.35%). Non-oil real
GDP grew by 1.45 per cent in the fourth quarter of 2017
compared with a contraction of 0.76 per cent in third quarter of
2017, indicating that the economy is gradually returning to a path
of sustainable positive growth.

The Committee also noted the continuous positive outlook based
on the Manufacturing, and Non-manufacturing Purchasing
Managers’ Index (PMI), which stood at 56.7 and 57.2 index points,
respectively, in March 2018, indicating expansion for the twelfth
and eleventh consecutive months. The Committee believes that
effective implementation of the Economic Recovery and Growth
Plan (ERGP) by the Federal Government and quick passage of the
2018 budget will continue to enhance aggregate demand and
confidence in the Nigerian economy.

Developments in Money and Prices
The Committee noted that money supply (M2) grew marginally by
0.07 per cent in February 2018 (annualised to 0.42%), in contrast to
the provisional growth benchmark of 10.29 per cent for 2018. The
development in M2 largely reflected growth in net domestic credit
(NDC) of 4.05 per cent (annualised to 24.30%), emanating majorly
from net credit to government, which grew by 19.99 per cent
(annualised to 119.94%) against the provisional benchmark of
33.12 per cent. Credit to the private sector also grew by 1.49 per
cent (annualised to 8.94%) in February 2018, compared with the

provisional annual benchmark of 14.88 per cent. Net foreign assets
(NFA), contracted by 2.82 per cent, annualized to 16.92 per cent,
compared with the provisional benchmark of -29.31 per cent.
Narrow money (M1), also contracted by 2.77 per cent (annualised
to 16.62%). The Committee urged the Federal Government to
strongly exercise restraint on domestic borrowing in order to lower
the cost of credit to the private sector.

The Committee noted that the continued low level of lending by
banks remains a constraint to growth of the real sector of the
economy. The Committee advised the Management of the CBN
to continue to provide the required policy impetus to engender
improved credit delivery by the deposit money banks to the
economy.

Inflationary pressures in the economy continued to moderate with
headline inflation (year-on-year) receding for the thirteenth
consecutive month to 14.33 per cent in February 2018 from 18.72
per cent in January 2017. Month-on-month food inflation fell by
133 basis points to 17.59 per cent in February 2018, and core
inflation also declined marginally by 38 basis points to 11.71 per
cent during the same period.

Money market interest rates reflected liquidity conditions in the
banking system as the average inter-bank call rate increased to
averagely 12.42 per cent in February 2018 from 9.49 per cent in

December 2017. The Open buy back (OBB) rate also increased to
13.19 per cent in February 2018 from 8.46 per cent in December
2017. The movement in the net liquidity position and interest rates
reflected the combined effects of OMO auctions, foreign
exchange interventions and statutory allocation to state and local
governments.

The Committee also noted the continuous improvement in the
level of external reserves, which stood at US$46.699 billion as at
March 29, 2018. Similarly, the All-Share Index (ASI) rose by 8.5 per
cent from 38,243.19 on December 29, 2017, to 41,504.51 on March
29, 2018. Market Capitalization (MC) improved by 10.2 per cent
from N13.61 trillion on December 29, 2017, to N14.99 trillion during
the same period. The Committee observed that, while this
development
may be a reflection of improved investor
confidence in the economy, it cautioned that the Management
of the Bank should carefully monitor the developments and to
establish mechanisms for safeguarding the stability of the foreign
exchange market in the event of a sudden capital reversal. The
Committee observed the continued rise in oil prices, but
acknowledged the inherent volatility in commodity prices and
urged the Bank not to relent in building external reserves buffers
against any future price downturns and as a means of sustaining
investor confidence in the economy.

The Committee noted the relative stability in the foreign exchange
market, with declining premia across all segments of the market. It
observed with satisfaction, the sustained high level of activity at
the Investors’ and Exporters’ (I&E) window of the foreign
exchange market. The window continues to attract more
investors, thus boosting foreign exchange supply. Consequently,
total foreign exchange inflow through the central bank increased
by 73.00 per cent in February 2018, compared with the previous
month. This was attributed to the increase in receipt of proceeds
from Petroleum Profit Tax (PPT), royalties and crude oil & gas. Total
outflow also increased in February 2018 by 15.69 per cent, as a
result of higher payments for invisibles, interbank transactions as
well as JVC cash call payments.

2.0. Overall Outlook and Risks
Forecasts of key macroeconomic indicators give a positive
outlook for the Nigerian economy in 2018. This is predicated on the
quick passage and effective implementation of the 2018 budget,
improved security, foreign exchange market stability as well as
favourable crude oil prices. On the downside, the Committee
noted the potential impact of the 2019 election-related spending,
against the weak backdrop of tax revenue efforts, herdsmen
related violence and rising yields in the advanced economies.
Indications in the US and the UK point to higher interest rates in the
short to medium term.

3.0. The Considerations of the Committee
The Committee noted with satisfaction the gradual return to
macroeconomic stability as reflected in the third consecutive
quarterly growth in real GDP in the fourth quarter of 2017. It also
noted the continued moderation in all measures of inflation as
well as sustained stability in the naira exchange rate and urged
the Bank to sustain the stability to avoid a mission drift. In
particular, the Committee welcomed the narrowing of the
exchange rate premium between the BDC segment and the
Investors’ and Exporters’ (I&E) window of the foreign exchange
market. Overall, the Committee noted that the recovery of the
economy was strengthening, in view of the return to growth of the
Services Sector. As the fiscal sector continues to settle its
outstanding liabilities, it reduces its domestic debt profile, thus
increasing the liquidity of the banking system. However, the
Monetary Policy Committee observed increasing monetization of
oil proceeds as evident in the growing FAAC distribution, relative
to the 2017 level of disbursements. The Committee urged the
Government to initiate strong stabilization programmes and to
freeze the growth in its aggregate expenditure and FAAC
distributions in order to create savings; needed to stabilize the
economy against future oil price related shocks.

Notwithstanding the general improvement in macroeconomic
conditions, the Committee noted the rather slow pace of
moderation in food inflation. It also took note of the potential risk

of a pass-through from rising global inflation to domestic prices.
Members, however, expressed confidence that the tight stance of
monetary policy would continue to complement other policies of
government in addressing some of the structural issues underlying
the stickiness of food prices. The Committee noted that at 14 per
cent, the policy rate was tight enough to rein-in current
inflationary pressures. The Committee, therefore, reaffirmed its
commitment to price stability conducive to sustainable and
inclusive growth.

The
Committee
noted
with
satisfaction
the
gradual
implementation of the Economic Recovery and Growth Plan, in
an effort to stimulate economic recovery. In the same vein, the
Committee urged quick passage of the 2018 Appropriation Bill by
the National Assembly, so as to keep fiscal policy on track and
deliver the urgently needed reliefs in terms of employment and
growth for the citizenry.

The Committee noted the relatively strong balance sheets of the
deposit money banks’ and the stable outlook. This is in spite of the
concentration of non-performing loans in a few sectors, which the
Committee observed was satisfactorily being addressed by
adequate mechanisms established by the Bank to address the
phenomenon. The Committee also noted that as Government
pays off its huge contractor debts, a sizeable portion of these nonperforming loans will be addressed. The Committee urged the

Bank to strengthen its supervisory oversight and early warning
systems to promptly identify, monitor compliance with extant
prudential regulations, sustain macro-prudential policy and
manage emerging vulnerabilities in the banking system.

The Committee reiterated the Bank’s commitment to delivery of
low interest credit as evidenced in its bold steps to adopt
unconventional monetary policy to aid credit flow to vulnerable
and growth enhancing sectors of the Nigerian economy. The
Committee, therefore, enjoined the Bank to continue to support
and encourage credit delivery at single digit interest rate through
other mechanisms in the interim, while encouraging the banking
system to establish frameworks to increase credit delivery to the
employment generating sectors of the economy. In consideration
of available data and evolving macroeconomic indicators, the
Monetary Policy Committee is committed to revisiting its decisions
in the short to medium term as the fundamentals evolve.

4.0. The Committee’s Decisions
In reaching its decision, the Committee appraised potential policy
options in terms of the balance of risks. The Committee also took
note of the gains made so far as a result of its earlier decisions;
including the stability of the foreign exchange market, the
moderation in inflation rate as well as the restoration of economic
growth. The launching of the Food Security Council by the
Federal Government to improve food sustainability is a step in the

right direction. The Committee was concerned about the fiscal
distortions associated with absence of buoyancy between GDP
growth and tax revenue, and urged the fiscal authorities to
deploy
appropriate
corrective
measures
to
address
this
phenomenon.

The Committee was of the view that further tightening would
strengthen the impact of monetary policy on inflation with
complementary positive effects on capital flows and exchange
rate stability. Nevertheless, it could potentially dampen the
positive outlook for growth and financial stability. However, the
Committee is of the view that loosening would strengthen the
outlook for growth by stimulating domestic aggregate demand
through reduced cost of borrowing. This may, however, lead to a
rise in consumer prices, generating exchange rate pressures on
the currency in the process. The Committee also believes that
loosening could worsen the current account balance through
increased importation. On the argument to hold, the Committee
believes that key macroeconomic variables have continued to
evolve in a positive direction in line with the current stance of
macroeconomic policy and should be allowed more time to fully
manifest.

In consideration of the foregoing, the Committee decided
unanimously by a vote of all members present to retain the

Monetary Policy Rate (MPR) at 14.0 per cent alongside all other
policy parameters.

Consequently, the MPC voted unanimously to retain the
(i)
MPR at 14.0 per cent;
(ii)
CRR at 22.5 per cent;
(iii) Liquidity Ratio at 30.0 per cent; and
(iv) Asymmetric corridor at +200 and -500 basis points around the
MPR.

Thank you for listening.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
4th April, 2018