CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO 113 OF THE
MONETARY POLICY COMMITTEE MEETING OF 22ND AND 23RD MAY

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

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

PERSONAL STATEMENT BY THE MONETARY POLICY COMMITTEE
MEMBERS
1. ADELABU, ADEBAYO
The imbalances in the macroeconomic environment are
beginning to show gradual correction particularly with the
restoration of a fair degree of stability in the foreign exchange
market. The last two months have seen naira stabilizing around
N305/US$ at the interbank market while the stability at the BDCs‟
segment
was
further
accompanied
by
some
level
of
appreciation. In other word, the hitherto wide margin between
the rates in the two markets has narrowed considerably. In
addition, the episodes of contraction in GDP which commenced
in 2016:Q2 appears to be moving towards a halt as the statistics
for 2017:Q1 revealed a very modest dip in output, compared to
the size of contraction in the previous three quarters. Headline
inflation at 17.24 percent in April is still reasonably high but the
estimate represents two consecutive months of deceleration.
These achievements, no doubt, are the outcome of the various
monetary policy measures in the last couple of months. Among
others, the recent decision to improve the liquidity condition in the
foreign exchange market has positively impacted on confidence
in the market and therefore reduced demand pressure. The major
issue at this period, logically, is to strengthen the evolving stability.
Strengthening the stability, however, is confronted with significant
risk factors from both the global and domestic environments.

Within the domestic environment, one of the key issues is the
protracted delay in the commencement of implementation of the
2017 Fiscal Budget. The Budget has just been passed by the
National Assembly and awaiting Presidential assent, at almost the
end of the first half of the year. This, invariably, has constrained
capital expenditure which is very critical in reducing the binding
supply side constraint. Given that recurrent expenditure could
continue unabated under this scenario, the implication is that
aggregate demand could increase while expansion in aggregate
supply is constrained, putting pressure on domestic price. Against
this perspective, it is expedient that all the necessary processes to
formalize the budget be swiftly completed to avert the likelihood
of inflation resuming on the upward trajectory. Moreover, a strong
commitment to the economic recovery and growth plan of the
government implicitly assumes a timely implementation of the
budget particularly the capital expenditure component.
Another key issue in the domestic environment is the evolving
fragility of the banking system, being the direct consequence of
the negative growth in output and the depreciation of the
domestic currency. The contraction in output has reduced
profitability of firms and business outfits, leading to escalation of
NPLs in the banking industry while depreciation of the naira, on
the other hand, has reduced the asset base of the banking sector
in real term, thereby constraining their intermediation capacity.
The banking industry has been reacting to this adverse
developments through a gradual cut in credit, particularly, credit

to the private sector. This development is not expected to show
improvement within the near term given that the shocks appear
to be permanent in nature. As a result, further tightening of
monetary policy stance, though could help to address the
imbalance in price level, may not be the preferred option under
the present circumstances.
Beside the challenges in the domestic environment, there are
some thorny issues in the global environment. One of the global
issues with far reaching implication is the commencement of
monetary tightening by the US Federal Reserve (Fed). In response
to this development, most currencies particularly, emerging
countries‟ currencies have started shedding weight against the US
dollar. For example, the Euro, Pound Sterling, Japanese Yen, and
Chinese Renminbi depreciated by 0.23, 4.67, 2.26, and 3.0
percent, respectively against the US dollar in 2016. Economic
agents can suspect that the domestic currency would follow
similar route with other emerging countries‟ currencies and such
suspicion would weigh on confidence with the ultimate effect of
speculative attack on the currency. Given that further tightening is
not appropriate at this period based on output concern, the
current flexible exchange rate regime should be appropriately
managed to avoid appreciation that does not align with key
fundamentals which could be detrimental to the stock of external
reserves
and
competitiveness
of
non-oil
exports.
This
notwithstanding a careful analysis would be required to maintain
optimum liquidity in the foreign exchange market to sustain

confidence. Furthermore, the ongoing hike in interest rate by the
Fed has the potential of tightening external financing condition,
implying that support for the budget through external financing
may remain elusive. Consequently, there is a need to strengthen
all available means for mobilizing domestic resources.
The other key issue within the global environment with
considerable implication is the unsteady nature of oil price. There
has been some rally in crude oil prices since the beginning of the
year on account of cut in supply like the output freeze deal by the
OPEC and host of other factors. The challenge is that the drivers of
the price increases have little to do with improvement in global
fundamentals. Perhaps more disturbing is the renewed interest in
shale oil exploration in the US with considerable potential to
increase global supply of crude and thereby exert downward
pressure on price. Latest information indicates that three major oil
companies are pumping a whopping investment in the
neighborhood of US$10 billion into shale oil exploration in an
adventure that could make shale oil production profitable at
US$20/barrel. In essence, the current rally in the prices of crude oil
appears vulnerable to setback with far reaching consequence on
not only the external sector but with equal degree of severity on
the fiscal sector as well as other sectors.
Perhaps more importantly, there is the issue of rising economic
nationalism and waning support for global trade in advanced
economies,
which
is
further
complicated
by
heightened

uncertainty in the euro area. It is without controversy that many
emerging markets (EMs), including Nigeria, have been able to
transit from low to middle-income status by integrating into the
global economy. It is, however, becoming clearer that inward
looking economic strategies could become the preferred global
framework as the rebalancing model is gaining momentum in
China while the US, under the new dispensation, is shifting towards
protectionism. The point here is that net export may still be driving
growth process but the prospects over the long term appears
diminished. For Nigeria, the balance of payment account
witnessed considerable challenge from mid-2014 to the end of first
half of 2016. The improvement in the latter half of 2016 resulted
mainly from drastic reduction in imports which initially was due to
foreign exchange constraint but later due to substitution of some
imported items with domestically produced ones. Viewed within
this prism, emerging economies such as Nigeria should start reexamining their economic model to avoid being caught napping.
It is commendable that the country has recorded significant
milestone in rice production such that it has taken over imported
rice within a space of two years. This initiative should be sustained
by extending the success story on rice to other critical products
like refined petroleum products. Put succinctly, there is a
compelling need to strengthen structural policies particularly in
the area of encouraging the consumption of home made goods
in line with the thrust of economic recovery and growth plan

Against the perspectives of the issues highlighted above, it is very
clear that concern for growth is important but at the same time
one must be conscious that growth is not a zero-sum game. Efforts
must be devoted to strengthening the fledgling stability in the
macroeconomic environment. In this regard I vote for the
retention of all the existing measures of monetary policy.

2. BALAMI, DAHIRU HASSAN
The global challenges likely to affect the Nigerian economy
include the following: slowdown in global recovery; low
commodity prices and weak fiscal buffers; weak demand and
consumer spending; terrorism and geopolitical tensions; significant
exchange rate volatility and widening global imbalances.
However, at the domestic level, the banking sector level of
resilience is becoming weaker as shown by the stress tests result.
The May 2017 MPC meeting met a deteriorating situation of the
Nigerian financial sector. The result of the stress tests showed that
capital adequacy ratio had deteriorated from 13.6 per cent in
February to 12.81 per cent in April, which is below the prudential
requirement of 15 per cent for banks with international
authorisation. The NPLs have also risen to 15.18 per cent from 13.59
per cent in February 2017 which is far above the prudential limit of
5 per cent. The liquidity ratio has also registered a decline from
46.61 per cent to 44.60 per cent. When compared with the
prudential limits of 30 per cent, it can be seen that the interbank
market has not been active, reflecting the fact that banks have
not been trading among themselves which is not a desirable
situation. Some of the banks are making use of the SLF which
under normal circumstances are meant for weaker banks. This
needs to be discouraged. Even with the bad ratios, banks are still
making profit. It should be noted that the three previous outlier
banks have now become four. If adjustments are made for foreign
exchange, the banks will be making lower levels of profit.

To move the economy forward, the MPC would have preferred to
have low interest rates, stable exchange rate, low inflation and
high GDP growth. However, the current low level of reserve due
to low commodity prices and output, pressure on the Naira and
strengthening of the dollar, low agricultural output, and terrorism in
the North-East as well as low energy supply and broken down
infrastructural facilities and risen cost of transportation, does not
permit the quick reversing of the situation. The critical question is
what can be done to bring down interest rates and as well
increase the rate of economic growth without affecting inflation?
The relationship between the Government and the CBN in terms
of financing through ways and means need to be guarded
because of the likely negative implications on the economy if not
handled with care. The case study of other countries should be
reviewed so that we do not fall into the Zimbabwean situation.
I vote to retain the existing stance in its entirety to allow previous
policy measures taken to work through the economy. Currently,
inflation is trending downwards from 17.24 per cent in April to 16.13
per cent in May 2017. This however, needs to be watched
because the downward trend may be as a result of base effect,
and the negative level of growth is trending downward which is
an improvement. The Purchase Manager‟s Index (PMI) also signals
recovery of the Nigerian economy. It is hoped that the effective
and holistic implementation of the 2017 budget will assist in
moving the frontiers of growth to support the economy„s gradual
recovery from recession.

I therefore decide as follows:
Retain the MPR at 14 percent
Retain the CRR at 22.5 percent
Retain the liquidity ratio at 30 per cent; and
Retain the asymmetric corridor at +200 and -500 basis points
around the MPR.

3. BARAU, SULEIMAN
Background
The imbalances in key macroeconomic sectors are gradually
waning in response to various monetary policy as well as
administrative measures enunciated in the last couple of
meetings. Of significant importance is the reduction in the
financial market volatility with the achievement of a fair degree of
stability in the exchange rate while the margin in rates between
the two markets equally narrowed considerably. Furthermore, the
latest statistical estimates indicate that the trough on real GDP is
on the verge of bottoming-out as real output contracted by 0.52
percent in 2017:Q1, a modest shrinkage relative to the magnitude
recorded in the previous three quarters. Although inflation remains
elevated, it is comforting that it is equally decelerating.
The key issue at this period revolves around strengthening the
nascent stability in the macroeconomic environment in the
expectation of a positive spillover to the real sector. Towards this,
some key challenges are still glaring, notably the evolving fragility
of the banking sector and the unsteady nature of commodity
prices which could trigger volatility in the foreign exchange
market. Within the context of strengthening the macroeconomic
environment particularly with inflation and exchange rate stability
in focus, it may not be expedient to commence loosening of
monetary policy stance at this period while concern for output
recovery may not support further tightening. Consequently, I opt

to vote for a hold on key monetary policy measures, a decision
that is further reinforced by the need to allow for full transmission
of various measures in place.
Pressure Points
External Environment
The latest projection by the IMF shows that global output would
expand by 3.5 percent in 2017, a significant improvement over 3.1
percent recorded in 2016, anchored on buoyant financial market
condition and cyclical recovery in manufacturing, particularly in
the advanced countries. These developments portend the
capacity to improve external demand for emerging market
economies including Nigeria but not without some downside risks.
Among others, the near to medium term stance of policy by the
US Federal Reserve is an issue most monetary authorities in the
emerging market economies must contend with. Rate was hiked
in their last meeting which was held in March but it is not unlikely
that the sequence of interest rate hikes may proceed at a faster
pace than anticipated. My view is premised on the body
language of some top officials of the US Fed as well as recently
released statistics, which revealed that inflation is getting close to
the natural rate of 2 percent. Given that the US dollar has rallied
against most currencies since the beginning of the year, it could
therefore
be
expected
that
most
currencies
particularly
developing and emerging economies currencies could still shed
more weight against the US dollar. Outside the advanced nations,

it is widely expected that some leading emerging economies like
China could also tighten financial market condition on the
backlash of rapid credit growth. These developments could
trigger financial market volatility in other emerging market
economies with potential spillover to the real sector.
On another dimension, global recovery over the medium term
would continue to be weighed down by certain structural
constraints including the lingering challenges of low productivity,
high income inequality, and the evolving stance of nationalism
and protectionism, which is a marked deviation from economic
integration and globalization that have propelled global output in
recent times. The evolving economic architecture would in the first
round act as a drag on global volume of trade and ultimately
reinforces the downside risk to growth with the emerging and
developing economies being at the receiving end.
Another key issue is the rising level of uncertainty heightened by
developments in global political arena. France has just concluded
an election that produced the youngest president in the history of
the country while a number of countries in the euro area are still
heading for the poll during the course of the year. Under this
condition, business confidence may be hurt as investors take a
cautious approach to clearly discern the direction of policies of
new governments. For euro area that is just exiting from recession,
such a move may likely weigh on growth prospects with a spillover
to the entire global economic landscape. The channels of
transmission of these developments to the domestic economy

remain the commodity and financial markets. From the
commodity market, oil prices have shown some rally since
December 2015 as global demand strengthened in the face of
tight supply condition. The complex interaction of strengthening
US dollar with possible downward revision of global output growth
could weaken oil price with pronounced negative impact on both
accretion to external reserves and fiscal revenue in Nigeria.
The last issue is the commencement of uptick in global inflation.
Headline inflation is projected to increase in the US from 1.3
percent in 2016 to 2.7 percent in 2017. Similar trend is also
expected in most of the advanced and a number of emerging
market economies. This, in essence, implies that as domestic
upside risks to inflation recede, the contagion from the global
environment is being activated.
Domestic Environment
Delay in Budget Process: The 2017 Appropriation Bill has just being
passed by the National Assembly, five months into the current
fiscal year, while it is yet to receive Presidential assent. Given a lot
of controversy that is still ongoing around the document, it is not
unlikely that the final presidential assent may take a while. In light
of the fact that the constitution permits expenditure on only
recurrent component under this scenario, it implies that the
capacity to improve the supply base is constrained while pressure
from the demand side could increase with the obvious implication
of heightening inflation risk, notably structural inflation.

Reduced Capacity of the Banking Sector: The banking sector has
been highly challenged by the adverse developments in both the
financial and real sectors of the economy. The contraction in real
GDP contributed substantially to elevated NPLs in the industry,
which has, invariably, elicited cutback in the level of credit
exposure by the banks since the latter half of 2016.From the
financial sector development, the depreciation of the domestic
currency has reduced the value of banking asset in real terms.
Recent statistics showed that total banking assets denominated in
US dollar reduced by 27.4 percent in 2016 compared to the level
in 2015 on account of currency depreciation of about 55 percent
during the period. The reduction in asset in real term coupled with
the elevated NPLs would therefore weigh on the capacity of the
banks to support the recovery process.
Unsteady Nature of Commodity Prices: Crude oil prices rallied in
the last couple of months mainly due to transitory supply
restraining forces including supply outage in Libya, production cut
deal by OPEC, geo-political tension in the Middle East due to
Syria, and the intention by Russia to extend major producers
production cut agreement. In essence, upturn in prices was not
due to strong fundamentals in the global economy. Some of these
upward driving forces can easily be resolved which invariably
implies that the current rally in price is vulnerable to set back. My
position is further informed by the renewed interest in shale oil
production in the US with significant capacity to boost global
supply of crude oil.

Elevated Margin in the Forex Markets: As pointed out in my last
statement, the Bank has made giant stride in narrowing the
margin between the rates at the interbank and the BDCs‟ markets
from as high as over 150 per cent in the last quarter of 2015 to the
current
level
of
about

per
cent.
The
achievement
notwithstanding, the current margin is still fairly elevated as it is
considerably higher than the threshold of 5 per cent in most
jurisdictions. The margin, therefore is a potential source of
arbitrage which could distort monetary policy implementation.
Way Forward
Improve Confidence in the Forex Market: The ability to sustain the
gain recorded so far is critically hinged on stability in the foreign
exchange market. With the ongoing appreciation of US dollar
against most currencies, there may be tendency on the part of
economic agents to express doubt on the capacity of the Bank to
sustain the current trend in rates. This, invariably, would fuel
speculative demand and self-reinforcing depreciation. Towards
this, there is a need to sustain the current tempo of liquidity in the
forex market while equally fine-tuning the administrative measures
that could narrow the margin in the two markets.
Quick Implementation of the Budget: Fiscal policy must play a
pivotal role in driving economic progress in the face of the rapidly
emerging anti-benign global economic condition. The instrument
of budget in particular is very crucial in staving off downside risks
to growth and therefore offers the necessary support for the

ongoing recovery process. On this note, I want to commend the
National Assembly
for the recent passage of
the 2017
Appropriation Bill but it needs to be equally stressed that the
passage of the Bill at five months into the fiscal year is grossly short
of the urgency required to address the current macroeconomic
imbalance. This notwithstanding, it is expected that the ongoing
reconciliation and verification as well other issues surrounding the
2017 Appropriation Bill would be swiftly completed such that the
document would receive Presidential assent and implementation
commence in earnest.
Support for the Banking Sector: Net domestic credit, on annualized
basis, grew by mere 4.2 per cent at the end of the first quarter,
significantly lower that the target of 32 percent per cent. This low
level of growth in credit, obviously, cannot drive the anticipated
recovery process. The abysmal performance was largely due to
the strains on the banking sector from the imbalances in the
macroeconomic environment. The Central Bank, under its
developmental mandate, has put in place a number of credit
initiatives to support the recovery process but it needs to be borne
in mind that the task of channeling financial resources to the
private sector lies primarily with the commercial banks. To this end,
I would like to emphasize, as contained in my last statement, the
need to provide necessary support that could repair the balance
sheet of the banks in order to help them resume credit delivery to
the critical sectors.

Decision
Inflation is decelerating but still elevated, while the stability in the
foreign exchange market is not completely free from potential
headwinds, hence loosening of monetary policy stance may not
be a preferred option at the moment. Similarly, the need to
support the ongoing recovery makes further tightening less
attractive. Consequently, I vote for retention of all monetary
policy measures in place.

4. GARBA, ABDUL-GANIYU
Decision and Context
I vote to hold.
At the March meeting of the MPC, I considered voting for
loosening the monetary policy stance as I did at the two previous
MPC meetings in November 2016 and January 2017. At the May
2017 meeting, I did not consider a loosening stand.
My consideration of loosening in the three meetings from
November 2016 to March 2017 was to ensure consistency and
credibility of the monetary policy stand. I was concerned at (i) the
contradiction between a 70 per cent growth in money supply
between October 2015 and December 2016 and raising interest
rates and (ii) the sharp depreciation of the Naira by between 36
per cent (interbank) and 51 per cent (Bureau De Change) and rise
in inflation from 9.3 per cent to 18.5 per cent (100 per cent
increase) in the same period. The excellent tracking between
monthly money supply (M1), exchange rate and inflation in the
period is remarkable. This was why in last personal statement, I
cautioned against the usual generalization that Nigerian inflation
is structural.
The contradiction problem arose because when money supply is
increased, it is expected that interest rate will fall. To grow money
supply and raise rates at the same time is a contradiction. So is
loosening only to tighten. The tracking of M1 by the exchange

rates (Interbank and BDC) and inflation indicates that the
depreciation and inflation were driven by the strong positive
money supply shock. When liquidity created chase after a
declining supply of dollars and goods, it is inevitable that the value
of the Naira will fall and the cost of goods and services rise.
With the slowdown in the inflow of forex and, the negative
economic growth in the five quarters since the end of 2015, it is
easy to see how a strong positive money supply shock could fuel
both currency depreciation and domestic prices directly (quantity
effects) and indirectly (exchange rate effects) and amplify the
slowdown in the economy into a negative growth. It was clear to
me that the excess liquidity was a key problem not only because
of the size of the expansion, but also, because of its sources
(AMCON, “mop-up liquidity” mop-up and “accommodation
liquidity”) and structure of debt growth.
Raising MPR given the size of liquidity growth and its negative
consequences on exchange rate and inflation is contra-intuitive
and contra-positive. Even without the adverse effects on private
investment, employment and growth and financial system stability
the expected rise in “mop-up liquidity” will simply compound the
liquidity problem and impact adversely on fiscal operations of all
tiers of government through rise in cost of public debt and size of
debt service and, the crowding-out of the expenditure that will
raise consumption (recurrent) and investment (capital) by debt
service.

The sharp expansion in public debt in 2016 exemplifies the
problem. In 2016, total public debt of the Federal government
rose by N3.6 Trillion or 32 per cent to a total of 14.54 Trillion! [In
Comparison, before Nigeria started the process of exiting the Paris
Club, total federal debt was N6.3 Trillion in third quarter of 2004. At
the exit point in the third quarter of 2006, total federal debt was
N2.3 Trillion or just 64 per cent of the increase in 2016).
My vote to hold at the March 2017 MPC was “based on the
consensus to work out a clear path to price stability conducive to
growth which is the goal of MPC consistent with its mandate.” We
agreed that this “requires a cap on money supply, a resolution of
the “AMCON liquidity” problem, a reduction in “mop-up liquidity”
and end to monetization of the crude export income as well as
moderation of “FAAC effects” on the stability of Call rate and
OBB.”
My vote to hold at this meeting is to support a further movement
along the paths of return to price stability conducive to growth,
financial system stability and prudent fiscal operations. This
inevitable requires a deepening of coordination between
monetary and fiscal authorities.
I have observed a significant reduction in “accommodation
liquidity” and the moderating effects the reduction in liquidity has
had on inflation and to some extent on the value of the Naira.
Much works needs to be done in reducing “mop-up liquidity” and
in integrating the foreign exchange market and in enhancing the

interbank money market to minimize the volumes in the Special
Lending Facility (SLF) and Special Deposit Facility (SDF).
Unresolved Issues
These are the longer term issues that we must not lose sight of. I
keep them in my personal statement because we cannot wish
them away. They are: (a) the need for a clearer forward looking
medium to long term strategic macroeconomic management
framework for Nigeria as the context for policy analysis and
choice; (b) the need to improve the functioning of the credit
market to allocate resources to sectors with highest output and
employment elasticities and with lower default rates; (c) the
conversion of rent havens in both the real and financial sectors to
efficiency and effectiveness centres; (d) a shift from a present
hedonistic orientation to a longer term commonwealth-oriented
perspective; and (e) the elimination of strategic vacuums for
policy analysis and choice that increase costs of policy failures.
I am still convinced of the need (i) to harness and put to effective
use the best Nigerian minds and talents in the analysis of national
and global political economy from a diverse set of perspectives
and skills sets to arrive at the best dynamic strategic context for
macroeconomic management in Nigeria compatible with our
national aspirations and (ii) of a continuous engagement
between fiscal and monetary authorities on mutually agreed
principles for fiscal-monetary policy coordination: humility, sincerity
and integrity.

5. NNANNA, OKWU JOSEPH
Since the MPC meeting in March 2017, indicators of economic
activity suggest a gradual rebound in growth. The index of
industrial production rose by 1.38 per cent in Q1 of 2017 relative to
the level in 2016 with manufacturing and mining indices rising by
0.01 per cent and 1.28 per cent, respectively. At -0.52 per cent
growth in 2017Q1, compared with -1.51 per cent at endDecember 2016, the negative growth is contracting, and
ultimately expected to turn positive by end-December 2017. I am
cautiously optimistic that further investments in critical sectors
through the implementation of the ERGP would shore up
economic activity and reduce unemployment.

Inflation dynamics also showed improvement on account of
positive supply shocks and reduced exchange rate volatility.
Headline inflation slowed from 17.26 per cent in March to 17.24 per
cent in April 2017 given the negative supply shock of food inflation.
Food inflation remained sticky downward, rising from 18.44 per
cent in March to 19.30 per cent in April 2017 arising from higher
energy cost, transportation cost and prolonged disruption of
farming activities due to insecurity. Core inflation, however, stood
at 14.75 per cent down from 15.40 per cent in March 2017. I expect
the deceleration in the inflation trajectory to be sustained, as a
result
of
positive
public
sentiments
and
expected
fiscal
consolidation, and less expansionary monetary policy.

It is apparent that the flexible exchange rate policy supported by
improved crude oil export receipt is yielding relative stability in the
foreign exchange market. Despite the distortions in the foreign
exchange market caused by multiple rates, a near-term
convergence in the rates and gradual normalisation is being
achieved. Noticeably too, from the sharp depreciation of the
exchange rate to near N500/$US towards the end of 2016, it
appreciated by about 28.94 per cent to N380/$US (BDC segment
of the market) as at May 19, 2017. At that level, the rate show
some degree of undervaluation, compared with the relative
purchasing power parity exchange rate estimate of about
N350/$US. In my opinion the current exchange rate policy regime
including all the access windows to foreign exchange should be
retained.

Despite the rebound in global growth, outlook remains uncertain.
Uncertainty surrounds the stability of commodity prices and effects
of monetary normalisation in the United States. I anticipate the
pass-through impact on domestic economic conditions to remain
benign as the economy has self-corrected the distortions from
recent portfolio capital reversals.

Fiscal reforms should be expedited in areas such as building of
fiscal buffers. The authorities should cautiously execute its
planned fiscal deficit in the 2017 budget, in order not to spoke
inflation and significantly, crowd-out private sector credit.

Effective reforms would allow inflation deceleration and low
interest rate regime.

Overall, in the future, keeping a tab on eliminating second-round
effects of negative supply shocks due to food inflation is key. On
account of the recent macroeconomic trends and the balance
of risks based on available information, I vote to retain the current
policies.

6. UCHE, CHIBUIKE U
Although inflation has continued to inch downwards, it remains in
solid double digit territory. At the present time, the inflation rate is
also above MPR. With Government currently borrowing at double
digit interest rates, the pressure to reduce MPR is meaningless. In
other words, it is unlikely that the cost of credit for businesses will
come down when the interest rates on Government securities,
which are risk free, are in double digit territory. Bluntly put, the
Government is increasingly crowding out the private sector from
accessing bank credit.

Although economic history has shown that it is possible for
countries to borrow and spend their way out of recession, this
cannot happen when recurrent expenditure continues to
dominate government spending. Based on the above, I personally
find it frustrating when Government officials who are supposed to
monitor our debt profile consistently argue that Nigeria is yet to
reach its optimum debt capacity. Surely such views are arrived
out without taking into consideration, the peculiar nature of our
economy. Although Nigeria drastically reduced its debt burden
during the Obasanjo era, our debt profile is now rising at an
alarming rate. Unfortunately, very little of such cash inflow is being
invested in projects that can boost our country‟s income in the
future. Recently, the World Bank expressed concern about our
ability to generate enough cash flows to repay our rising debt in

the future. Our chances of being able to come out of this
deepening debt hole is increasingly dependent on the sole
expectation that oil prices will soon miraculously recover and then
sustained at $100+ per barrel range.

The above scenario is however relatively minor especially when
compared with the unrelenting demands on the CBN to fund/
intervene in all manner of government expenditure. In my policy
statement submitted after the March 2017 MPC meeting, I
addressed this subject matter thus:

One can fully understand the pressure on the management of
the CBN to intervene in diverse sectors of our national economy
including paying salaries on behalf of government entities some
of which are very poorly run and lack financial transparency. The
reality however is that there is little the CBN can do in the above
direction without either contravening the legal instrument that
established it or flouting national appropriation rules or
sabotaging its own balance sheet. Perhaps more dangerous is
the fact that the action of the CBN can actually undermine its
monetary policy role and weaken the efficacy of its monetary
policy tools. It is therefore, in my humble opinion, prudent for the
CBN to do all within its power to resist any pressure to intervene in
diverse sectors of our economy.

Before the ink used in penning the above advice could dry, it was
brought to my notice that the Federal Executive Council has
mandated the CBN to fund the power sector to the tune of N701
billion. The fact that the CBN has in the recent past intervened
handsomely in the said sector is of no consequence. Interestingly,
the Nigerian Electricity Regulatory Commission (NERC) has already
made it clear that the approved intervention fund will not be
sufficient. Furthermore, the schism between the electricity
distribution companies and the Federal Ministry of Power, Works
and Housing over the nature and structure of debts owned has
continued to widen, at least in the public space. Based on the
above, it is safe to predict that the said intervention fund, like the
first one, is unlikely to meaningfully address the problems of the
power sector. Intervention pressures for the power sector, if
unchecked, can thus only increase in the future.

It is however important to reiterate that such interventions can
only worsen our very fragile monetary policy environment. An
injection of such high powered money into our economy will
definitely impact inflation. It will also impact the exchange rate of
the Naira. Aside from the above, I will like to emphasize that it is
important for the CBN to check whether it indeed has the powers
to do what it has been asked to do in a country where all
appropriations are supposed to be sanctioned by the National
Assembly.

I am also fairly convinced that such a huge injection will impact
on the health of our banking system which is currently struggling
under the current harsh economic environment. With aggregate
bank NPLs already in double digit territory, we should all join hands
to ensure that policies and directives that are bound to
unnecessarily put pressure on interest and exchange rates are
avoided. Surely, we cannot at the present time afford another
banking crisis. This is even more so given the fact that the fallouts
of the last one are yet to be satisfactorily resolved.

In conclusion, the reality is that our economy is in dire straits and
the space for effective monetary policy intervention is fast
disappearing. Our current over dependence on oil rents and
debts is simply not sustainable. There is thus an urgent need to
meaningfully diversify our economy and rethink our recurrent
expenditure profile. Until this is done, maintaining price stability will
be an uphill task. Tightening monetary policy at the present time,
for instance, can only exacerbate the financial system risks in our
country while loosening will be meaningless.

I therefore vote as follows: (i) to retain the MPR at 14.00 per cent;
(ii) to retain the CRR at 22.50 per cent; (iii) to retain the Liquidity
Ratio at 30.00 per cent; and (iv) to retain the Asymmetric Window
at +200 and -500 basis points around the MPR.

7. YAHAYA, SHEHU
I vote to maintain the current monetary stance, due to the reasons
provided below
Developments in the Global Economy
The prospects for growth in the world economy are looking a little
better this year, except in some key countries such as the US and
the UK. In China, the growth rate is still trending slightly
downwards. For most of the other countries and regions, including
the EU area, Brazil, Russia, Japan, South Africa and Africa
generally, the growth prognosis for 2017 is positive, even if modest.
India is expected to regain its growth momentum.
Global price levels are expected to inch upwards in the Euro area,
China and India. Commodity prices in the meantime are easing
down.
As far as oil prices are concerned, although the futures market is
indicating a slight trend rise, this is unlikely to be sustained. OPEC
has indicated that it will extend its production management
agreements for nine months. However, a sustained rise in prices
will certainly lead to substantial increases in shale oil production in
the US and other countries, thereby exerting downward pressure
on price levels. This, combined with the modest prospects for
growth in the global economy, puts considerable uncertainty on
the market situation.

The Domestic Economy
Overall GDP growth rate in Q1 2017, although still in the negative
zone at -0.52 per cent, has experienced a decrease in the rate of
decline (it was -1.73 in Q4 2016). It is worrying though that the
recovery in the agricultural sector appears to be faltering, except
the fishing sector, which is booming, but constitutes less than 1 per
cent of GDP output. This may partly be attributable to seasonal
factors. Crude Petroleum and natural gas is still falling. The solid
minerals sub-sector is booming, with an increase in output of more
than 50 per cent in Q1 2017, although this may partly due to the
exchange rate effect. The manufacturing sector is also, at last,
showing a positive growth rate, led by food, beverages and
tobacco. The transport sector, led by road transport, is showing a
sharp recovery. Construction and services are, at last, showing
positive, albeit modest growth. The picture emerging is that of a
slow, tentative, uneven and fragile recovery. Careful thought and
effort is needed to support and sustain the recovery.
Headline inflation, at 17.24 per cent in April is only marginally lower
than in March. This was mainly due to the rise of 0.86 per cent in
food prices (processed food and farm produce), whereas
imported food prices decelerated. Core inflation also moderated
slightly. Headline inflation is forecast to trend downwards over the
next three months. However, this expectation may not be realized
if electricity tariffs are raised, which would appear to be inevitable
at some point, since the power sector appears to suffer from a
structural crisis.

The exchange rate has remained stable and the gap between
the inter-bank and BDC rates have continued to narrow due to
the steady increase in reserves and Central Bank management.
This should help moderate the inflationary pressure going forward
and help provide some comfort to foreign investors. The major
challenge is to prudently manage fiscal policy to raise tax revenue
and limit debt within the Growth and Recovery program targets.
This will obviously be a tough challenge, given pressures such as
continuing salary and pension arrears in many states, the
demands for supporting the power sector and the agitations for
salary increases. Yet this is needed to help attenuate pressures on
the interest rate and price levels.
The financial sector is facing some headwinds. CAR is on a
downward trend, NPLs are still rising, total assets, deposits and total
credit are declining or slowing down in real terms (excluding the
exchange rate effect), although there appear to be some
positive signs in April. ROE and ROA though still declining a bit, are
still at a reasonable level. The performance of the commercial
banks is however unduly affected by the relatively poor
performance of a few of the Banks. The matter is being vigorously
addressed by the CBN.
Yet, excess liquidity appears to be a challenge in the system. This
needs to be addressed to avoid generating additional pressures
on the exchange rate and via money supply, to prices.

Conclusion and Recommendations
Despite a number of changes in the macro-environment, the
major challenge facing the economy remains the same: how to
achieve economic recovery, promote inclusive growth and
mitigate inflationary pressures.
A steady build-up of reserves and careful management of the
exchange rate is an important ingredient. Effective management
of the money supply, containing excess liquidity and supporting
the financial sector are other important tasks of the monetary
authorities. It is also crucial for the fiscal authorities to develop and
effectively implement the EGRP and be fiscally prudent. It is
unlikely that oil prices shall rise substantially. Nigeria therefore has
to focus more on increasing oil output within the bounds that can
be accommodated by the OPEC production strategy. More
important is therefore the implementation of the plan for
increased non-oil production, value addition in agriculture,
manufacturing,
energy,
solid
minerals
and
a
supporting
infrastructure.
As indicated above, GDP growth is still negative and recovering
only slowly and tentatively. It is therefore not appropriate to
tighten monetary policy. Nor is it wise to add to the burden of the
financial sector at this moment. However, it cannot be loosened
either, given the high level of inflation, the only slight reduction in
inflationary pressure in March and the excessive liquidity. I

therefore vote to hold the current monetary stance, while
addressing the challenge of excess liquidity.

8. EMEFIELE, I. GODWIN, GOVERNOR OF THE CENTRAL BANK OF
NIGERIA AND CHAIRMAN, MONETARY POLICY COMMITTEE
Developments in the domestic economy, year-to-date, signal
probable upturn in macroeconomic conditions and prospects.
Though growth outcome stayed negative, the discernible gradual
improvement is reassuring. Recently released GDP growth for
2017q1, at -0.5 percent, represented the smallest contraction
since 2016q1. Having turned the corner during the last quarter of
2016, the new data suggests that recovery is imminent.
Congruently, inflation rate slowed for a third successive month in
April 2107 to 17.2 percent. The downward convergence of the
exchange rates in all market segments is also satisfying. Likewise,
improved metrics subsisted in the capital market alongside
relative stability of money market interest rates –even as M2
slowed.
Though these developments are heartening, it is important to note
that the economy is not entirely out of the woods. As such, we
must remain cautiously optimistic about near-term prospects for
balanced growth. Nonetheless, the emergent recovery could
sustain into the short-term amidst moderate global headwinds.
Following the slight rebound in global demand and commodity
prices, near-term global macroeconomic outlook improved
modestly as growth impetus picked-up in 2017q1. Annualised at
2.8 percent, the estimated growth enhanced the prospect for
short-term recovery. The sustainability of this is, however,

threatened by lingering uncertainties in the political-economies of
key G7 countries and continued vulnerabilities in the financial
markets of prominent emerging market economies.
On the domestic scene, the modest recovery of crude oil price,
improving global condition and effective macroeconomic
policies are having benign effects on macroeconomic conditions.
External reserves rose from US$25.8 billion in December 2016 to
US$30.4 billion as at 19th May 2017 while exchange rates
converged downwards with positive knock-on effects on prices
and output. Analyses indicate that the -0.5 percent GDP growth
rate for 2017q1 vis-à-vis -2.1 and -1.3 percent in 2016q3 and
2016q4, respectively, was driven by resurgence in thirteen distinct
sectors. This recovery was attributable, not to improved domestic
demand in those sectors, but to declining costs traceable to the
positive outcomes in the FX market. Similarly, the continued
appreciation of the naira in various segments of the FX market
had a favourable pass-through effect as it ensured, in conjunction
with base-effect, that inflation rate slowed for a third consecutive
month.
I note that regardless of the salutary developments recorded
year-to-date, the need to correct the imbalances in the Nigerian
economy remains sacrosanct. Though monetary policy will
continue to do its part, I emphasise again that Nigeria‟s economic
challenges are fundamentally due to structural factors including:
foreign exchange scarcity (due to low crude oil receipts and
inadequately diversified economy); constrained fiscal space; high

energy
prices;
and
depressed
domestic
demand
(partly
attributable to sizeable salary arrears owed to some civil servants).
I note that the recently released Economic Recovery and Growth
Plan (ERGP), if diligently implemented could largely correct the
immanent rigidities. More also, a fast-tracked and judicious
execution of the 2017 fiscal budget would quicken recovery.
In the money and credit market, available data showed liquidity
tightness except for public sector borrowing. Annualised M2
growth as at April 2017 was 35.7 percentage points below its 10.3
percent benchmark. At 4.2 percent, annualised growth rate of
NDC fell short of the 17.9 percent growth target for 2017. However,
annualised at 72.0 percent, credit to government overshot the
programmed growth rate of 33.1 percent. This inadvertently
culminated to a less than impressive performance of private
sector credit, which considerably under-achieved its target. The
contingent crowding-out of private sector credits, as more
loanable funds are directed towards government, undermines the
productive investment required for accelerated rebound.
In general, I note that regardless of a fifth consecutive contraction
of the GDP, analysis of the trajectory suggests that the Nigerian
economy is on the path of recovery. Given that the prospect
remains fragile, it is important that efforts are coordinated at
ensuring that the underlying structural challenges are holistically
dismantled. I continue to stress that macroeconomic policies
should not be parochially limited to short-term goals of
overcoming the current quagmire. Policy objective should

decisively be to correct the structural imbalances that debilitate
the economy. I reiterate that the CBN will continue to ensure that
its short-term policies do not undermine the long-term prospects of
the economy considering the trade-off between growth and
price stability. I must note that the current level of inflation in
Nigeria is a threat to sustainable growth. Our in-house analysis
indicates that prevailing inflation rate is significantly above the
threshold at which it could be deemed beneficial to growth. In this
regard, if we must achieve the growth objective it behoves us to
curb inflation at this time.
In considering my position at this MPC Meetings, I note the modest
but gratifying improvements in the economy during the year
especially reducing inflation, upturn in GDP growth, and
exchange rate convergence among others. I also note that these
metrics, nonetheless, are outside their preferred levels. Besides,
unemployment and poverty remain visibly present as domestic
demand stays depressed. Private sector credit and investment are
grossly underperforming. While I personally desire that interest
rates and monetary conditions ease, the fundamentals show such
action would be sub-optimal at this time. There is need to ensure
that liquidity conditions are appropriate to deter undue exchange
market pressure and contain inflation. We must, also, always
ensure that our decisions do not distort the recovery of the
Nigerian economy. Given the archetypal lengthy lag of monetary
policies, I note that the effects of our previous decisions are still
permeating the system. In my view, policy tweaking today may be

somewhat impetuous and could unwarrantedly derail the
imminent recovery.
Based on the foregoing, I vote to:
1. Retain the MPR at 14.0 percent;
2. Retain the CRR at 22.5 percent;
3. Retain the asymmetric corridor at +200/–500 basis points; and
4. Retain liquidity ratio at 30.0 percent