CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO 115 OF THE
MONETARY POLICY COMMITTEE MEETING OF 25th AND 26th
SEPTEMBER, 2017

Background
The Monetary Policy Committee met on the 25th and 26th of
September, 2017 against the backdrop of a relatively optimistic
global economy. The Committee examined the global and
domestic economic and financial environments up to the third
quarter of 2017, and the outlook for the rest of the year. The
recent spate of flooding and hurricanes in some parts of the
globe; the flooding in Nigeria; the increasing tension between the
US and North Korea, and the perception of hostilities on the
Korean Peninsula as well as the associated geo-political tensions,
were identified as key risks to global output growth.

On the domestic front, the economy exited recession (which
began in the first quarter of 2016) in the second half of 2017, with a
modest positive short to medium-term outlook, resulting largely
from deliberate macroeconomic stimulus and a stable naira
exchange rate. Inflation expectations also appeared anchored
on the strength of prevailing tight monetary policy stance.

Seven (7) members of the MPC were present at the meeting.

External Developments
Global output is projected to improve further in 2017, as growth
forecast by the IMF in its July World Economic Outlook (WEO) was
projected at 3.5 per cent, up from 3.2 per cent in 2016. Output
growth in some advanced economies, including Japan, the Euroarea as well as some emerging market and developing
economies is expected to improve in 2017. Nigeria, Brazil and
South Africa, all exited recession, while Russia is likely to exit
recession in the fourth quarter of 2017, after a mild contraction of
0.57 per cent in the second quarter. Growth forecast for the US
was revised downwards from 2.3 per cent to 2.1 per cent in 2017,
as a result of the weak growth observed in the first quarter of the
year.

The MPC, however, noted some headwinds confronting the
optimistic
global
growth
prospects
to
include:
recent
developments on the Korean peninsula; the damage to
infrastructure caused by hurricanes - Harvey, Irma and Maria; the
lull in BREXIT negotiations and the normalization of monetary policy
by the US Fed, which is expected to instigate global capital flow
reversal. Other challenges include the continued slow pace of
recovery in global oil and other commodity prices and China’s
reduction in uptake of global commodities. In addition, the

Committee noted the tepid global inflation momentum, implying
that continued monetary policy normalization could be injurious to
global growth prospects.

The uptick in global inflation persisted, but moderated, in response
to rising oil prices, continued accommodative monetary policy in
the advanced economies; and currency appreciation in some
emerging markets and developing countries. Average inflation for
the developed economies is projected at 1.9 per cent in 2017,
while it is forecast to average 4.5 per cent in the emerging and
developing economies, as prices are expected to moderate due
to seasonal effects. The Committee observed that the outlook for
global monetary policy remains predominantly accommodative,
in support of recovery and growth.

Domestic Output Developments
Data from the National Bureau of Statistics (NBS) showed that real
Gross Domestic Product (GDP) grew by 0.55 per cent in the
second quarter of 2017, against the contractions of 0.91 and 1.49
per cent in the previous quarter of 2017, and the corresponding
quarter of 2016, respectively, marking the technical exit of the
Nigerian economy from recession. Non-oil real GDP grew by 0.45
per cent in Q2, 2017, driven largely by agriculture (3.0%), industry
(1.1%), and construction (0.1%). The modest growth was attributed
to fiscal injections from the implementation of the Economic
Recovery and Growth Plan (ERGP), and enhanced supply of

foreign exchange arising from improved crude oil prices. The
Committee also noted the positive outlook from the Purchasing
Managers Index (PMI) for manufacturing and non-manufacturing
activities, which stood at 53.6 and 54.1 index points in August 2017,
respectively, above the 50 index points benchmark, indicating
moderate signs of recovery. The Committee further noted that,
although the recovery was weak, it was hopeful that the active
implementation of the 2017 budget could boost aggregate
demand and employment.

Developments in Money and Prices
The Committee noted that money supply (M2) contracted by
11.06 per cent in August 2017 (annualised), in contrast to the
provisional growth benchmark of 10.29 per cent for 2017. The
development in M2 is largely due to the contraction of 18.42 per
cent in other assets net (OAN) in August 2017. Similarly, M1
contracted by 12.25 per cent in August 2017, (annualised to -18.37
per cent). Net domestic credit (NDC) contracted by 0.14 per
cent, annualized at -0.20 per cent, driven majorly by net credit to
government, which also contracted by 1.05 per cent against the
programmed growth of 33.12 per cent. Credit to the private
sector, however, grew marginally by 0.07 per cent in August 2017,
compared with the provisional benchmark of 14.88 per cent. The
MPC also noted the policy constraints in ensuring the flow of credit
to the real sector in the face of weak and underperforming
monetary aggregates.

Inflationary pressure in the economy continued to moderate with
headline inflation (year-on-year) receding for the seventh
consecutive month to 16.01 per cent in August 2017, from 16.05
per cent in July 2017. Food inflation declined slightly to 20.25 per
cent in August 2017 from 20.28 per cent in July 2017, while core
inflation increased to 12.30 per cent in August 2017 from 12.21 per
cent in July 2017. This development was attributed to the
contraction in money supply, decline in imported food and nonfood prices, favourable base effects, and the moderating effects
of stable exchange rates. The Committee, however, noted that
the high food inflation was traceable to rising prices of farm inputs
and supply shortages, intermittent clashes between farmers and
herdsmen, as well as weak harvest, due to increased flooding of
farmlands.

Money market interest rates oscillated in tandem with the level of
liquidity in the banking system as the average inter-bank call rate
which opened at 18.00 per cent on July 26, 2017, closed at 7.00
per cent on August 31, 2017. The OBB rate opened at 15.03 per
cent and closed lower at 7.83 per cent in the same period.
However, the average inter-bank call and OBB rates for the period
stood at 22.63 and 39.66 per cent, respectively. The movement in
net liquidity positions and flows reflected the effects of OMO sales;
foreign exchange interventions; statutory revenue payments to
states and local governments; remittances by Nigerian Customs

and Federal Inland Revenue Services for FAAC meetings; and the
maturity of CBN Bills.

The Committee noted the continuing improvement in the external
reserves position and the equities segment of the capital market.
External reserves position grew to US$32.9 billion at close of
business on 25th September, 2017 while the All-Share Index (ASI)
rose by 7.20 per cent from 33,117.48 on June 30, 2017 to 35,504.62
on August 31, 2017. Market Capitalization (MC) improved by 6.90
per cent to N12.24 trillion from N11.45 trillion during the same
period. Relative to end-December 2016, capital market indices
rose by 32.10 and 32.30 per cent, respectively, reflecting growing
investor confidence, due to improvements in foreign exchange
management.

Total foreign exchange inflows through the Central Bank of Nigeria
(CBN) rose by 1.98 per cent in August 2017, compared with the
previous month. Similarly, total outflow increased by 7.03 per cent
during the same period, as a result of increased international
remittances, inclusive of public sector and JVC payments; which
rose by 58.59 per cent in the period under review.

The Committee noted the trend towards convergence between
the rates at the bureau-de-change (BDC) and the Nigeria
Autonomous Foreign Exchange (NAFEX) segments, as well as the
stability of the exchange rate at the inter-bank segment of the

foreign exchange market during the review period. Similarly, the
Committee noted the success of the Investor and Exporters’
window (I &E) of the foreign exchange market and traced this not
only to foreign investor confidence but also to the zeal and
commitment of Nigerian exporters who have demonstrated
preference for the window to the parallel market. The Committee
observed that the I&E window has increased liquidity and boosted
confidence in the market with over US$7.0 billion inflow in the last
five months. The Committee will continue to introduce policies
that will improve the confidence of foreign investors in the
country’s macroeconomic management regime.

2.0. Overall Outlook and Risks
Available data and forecast of key macroeconomic variables
indicate a relatively positive outlook, predicated on existing policy
initiatives including the ERGP. Other potential drivers of economic
recovery are; the expected increase in government revenue
arising from favourable crude oil prices, stable output, and
general improvements in the non-oil sector, especially, agriculture,
industry and construction. The intervention by the CBN in the real
sector is expected to continue to yield positive results in terms of
output and lower consumer prices.

The Committee, however, noted some downside risks to the
overall short- to medium-term positive outlook for the economy.
These include; flooding which displaced farming communities and

political agitations. On the external front, the hawkish policy
stance in the United States, rising geo-political tensions and
sluggish output recovery in the Euro-area and Japan, could slowdown the momentum of global output growth, with significant
spillovers to emerging markets and developing countries,
including Nigeria.

3.0. The Considerations of the Committee
The Committee applauded the exit of the Nigerian economy from
recession but observed that the growth remains fragile and,
therefore, hopes that complementary fiscal and monetary policies
would sustain the growth momentum. The Committee further
expressed satisfaction with the gradual, but consistent decline in
inflation, noting, however, the substantial base effect in addition
to the continuous improvement in the naira exchange rate across
all segments of the foreign exchange market; and considerable
improvement in foreign capital inflow. The Committee welcomed
the steady implementation of the 2017 Budget, especially, the
capital component of the budget, and urged increased
momentum in expenditure directed at the growth-stimulating
sectors of the economy in order to reduce youth unemployment
and restiveness.

The Committee, however, expressed concern on the sustained
pressure on food prices, noting risks posed by floods, strikes and
insurgencies in various parts of the country to food production and

distribution. Regarding the tepid turnaround in economic activities
in the second quarter of 2017, the Committee emphasized that
the employment gains of recovery were still minimal, noting that a
number of important job elastic sub-sectors were still weak and
may require more fiscal support to regain traction.
The
Committee, however, commended the Federal Government for
issuing the Executive Order aimed at improving the ease of doing
business in the country. It also noted the efforts of the government
to create jobs in the agricultural sector with the inauguration of
the Presidential Committee on job creation, targeting at least ten
thousand jobs in each state of the Federation, over the next six
months through a boost in agricultural support and funding. The
Committee enjoins the state governments to work with the
Presidential Committee to actualise this plan without further delay.

The MPC also noted with satisfaction, the directive of the Federal
Government to all states to promptly pay outstanding salary
arrears, in order to boost aggregate demand. It commended
efforts to clear outstanding contractor arrears; prompt settlement
of trade disputes with certain Unions of organised labour,
including the Academic Staff Union of Universities (ASUU) and
Health Workers; as well as the release of money to settle
outstanding entitlements of the erstwhile workers of the defunct
Nigeria Airways. These efforts, the Committee reasoned would
improve aggregate demand and strengthen the weak recovery.

The Committee restated its commitment to maintaining stability in
prices, without which meaningful recovery cannot be achieved.
In this regard, members welcomed the gradual narrowing of rate
spreads in the foreign exchange market and urged the Bank to
continue to monitor and respond proactively to threats and
vulnerabilities in the foreign exchange market.

On the outlook for financial stability, the Committee noted that, in
spite
of
the
banking
sub-sector’s
resilience,
the
weak
macroeconomic
environment
has
continued
to
impact
negatively on the stability of the sub-sector. The Committee
reiterated its call on the Bank to sustain its surveillance of deposit
money banks (DMBs) activities for the purpose of prompt
identification and mitigation of potential vulnerabilities. The
Committee also called on the DMBs to support the quest to move
the economy forward by extending reasonably low priced credit
to the private sector.

4.0. The Committee’s Decisions
In arriving at its decision, the Committee took note of the gains so
far achieved as a result of its earlier decisions; including the
stability in the foreign exchange market and the moderate
reduction in inflation. The option was whether to hold, tighten or
ease. These were subjected to extensive debate. As in previous
meetings, although tightening would help rein in inflation
expectations and strengthen the stability in the foreign exchange

market, the Committee felt that it would further widen the income
gap, depress aggregate demand and adversely affect credit
delivery to the private sector. The Committee also noted that
tightening may result in the deposit money banks re-pricing their
assets and loans, thus raising the cost of borrowing and therefore
heightening the already weak investment climate and nonperforming loans.

With respect to loosening, the Committee believed that although
while it would make it more attractive for Nigerians to acquire
assets at cheaper prices, thus increasing their net wealth, and
therefore stimulate spending as confidence rises, it nevertheless,
felt constrained that loosening at this time would exacerbate
inflationary pressures and worsen the exchange rate and
inflationary conditions. The Committee also felt that loosening will
further pull the real rate deeper into negative territory as the gap
between the nominal interest rate and inflation widens.

On the argument to hold, the Committee believes that the effects
of fiscal policy actions towards stimulating the economy have
begun to manifest as evident in the exit of the economy from the
fifteen-month recession. Although still fragile, the fragility of the
growth makes it imperative to allow more time to make
appropriate complementary policy decisions to strengthen the
recovery. Secondly, the Committee was of the view that
economic activity would become clearer between now and the

first quarter of 2018, when growth is expected to have sufficiently
strengthened and gains in receding inflation, very obvious. The
most compelling argument for a hold was to achieve more clarity
in the evolution of key macroeconomic indicators including
budget implementation, economic recovery, exchange rate,
inflation and employment generation.

In consideration of the headwinds confronting the domestic
economy and the uncertainties in the global environment, the
Committee decided by a vote of 6 to 1 to retain the Monetary
Policy Rate (MPR) at 14.0 per cent alongside all other policy
parameters. In arriving at this HOLD decision, the MPC commits to
employing maximum flexibility to guide the economy on the path
to optimal growth. Consequently, 6 members voted to retain the
MPR and all other parameters at their current levels, while one
member voted to lower the MPR to signal an ease to the current
stance of tight monetary policy. However, overall, majority of the
members expressed a strong commitment to policy flexibility that
would allow the Committee to promptly take the necessary
actions that would promote overall macroeconomic stability and
engender sustainable growth.

In summary, the MPC voted to:

(i)
Retain the MPR at 14.0 per cent;
(ii)
Retain the CRR at 22.5 per cent;

(iii) Retain the Liquidity Ratio at 30.0 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
26th September, 2017