Central Bank of Nigeria Communiqué No 110 of
the Monetary Policy Committee Meeting of
Monday and Tuesday 21st and 22nd November

The Monetary Policy Committee met on 21st and
22nd November 2016, amidst relatively subdued
global
and
domestic
economic
and
financial
conditions. The Committee evaluated the global and
domestic
macroeconomic
and
financial
developments as well as the challenges to the

domestic economy up to November 2016, and the
outlook for the first quarter of 2017. In attendance
were 10 out of 12 members.

International Economic Developments

The Committee acknowledged the tapered growth in
global output, stemming from relatively unbalanced
risks to the global economic outlook. Global
recovery remains fragile in the advanced economies
while
the
emerging
markets
and
developing
economies (EMDEs) continue to struggle against
strong headwinds, including low commodity prices,
slowing demand and instability of capital flows.

The path to the modest improvements in the
advanced economies has increasingly turned fragile
owing to persistent uncertainties. While still being
expected to unravel, the BREXIT shocks have been
rapidly followed by the outcome of the U.S.
Presidential Elections; a development which has
created its own uncertainties. Accompanied by the
planned referendum in Italy, and general elections in
France
and
Germany,
the
global
political
environment could not be more uncertain. In effect,
current judgments about growth prospects in the first
half of 2017 could be overly optimistic. The IMF’s
current outlook for global growth for 2016 which was
revised to 3.1 per cent in July and retained in

October could be missed by a significant margin.
The World Bank has been more cautious in retaining
its June 2016 global output growth projection of 2.4
per cent. Headwinds to global growth prospects are
also emanating from weak trade and financial
conditions.
The
OECD’
Economic
Forecast,
September 2016 Update, emphasized that both
elements underpin the current low-growth trap facing
the global economy.

The United States (US) economy exceeded it’s
growth expectation in Q3 2016, growing at an
annual rate of 2.9 per cent, a significant uptick from
the average growth rate of 1.1 per cent in H1 2016.

The enhanced performance of the economy was
attributed largely to the growth of inventories and
robust surge in exports, coupled with improved
consumer spending, even as the mining sector
recorded a pull back.

Japan’s economy grew at a seasonally adjusted
annualized rate of 0.2 per cent in Q2 of 2016
compared with 1.7 per cent in Q1 of 2016. The
moderation in growth was largely attributed to weak
wage growth and a strong yen. The Bank of Japan
(BoJ) in a rare move at its September MPC meeting
set a target for government bond yields and
introduced an inflation-overshooting commitment.

The Bank voted to apply an interest rate of minus
0.1 per cent to the policy rate on balances in current
accounts held by financial institutions. The Bank
also announced a plan to purchase Japanese
Government
bonds
up
to
JPY

trillion
(approximately USD788 billion), among series of
policy measures taken towards achieving the price
stability target of 2 per cent. The government had, in
August, approved a fiscal stimulus of ¥13.5 trillion
(US$132 billion) in a spirited attempt to jumpstart the
economy.

Real GDP in the Euro area is expected to maintain
or outperform its Q2 growth rate of 0.3 per cent in

the third quarter. While short-term downside risks
from the Brexit vote have largely subsided, the longterm potential economic impact remains uncertain.
As
such,
the
zone’s
growth
path
remains
challenged. At its October 20th, 2016 meeting, the
Governing Council of the European Central Bank
decided to retain its key interest rates on refinancing
operations, the marginal lending facility and the
deposit facility at 0.00, 0.25 and -0.40 per cent,
respectively.
The
Council
also
reaffirmed
its
commitment to sustain its quantitative easing
programme of monthly asset purchases of €80
billion (US$85.6 billion) until March 2017 and
beyond, as economic conditions dictate.

The growth outlook for the UK in 2016 was
upgraded to 1.8 per cent from 1.7 per cent, although
that for 2017 was downgraded to 1.1 per cent from
1.3 per cent. The Bank of England (BoE), at its
November 2nd meeting, decided to leave its
benchmark interest rate unchanged at 0.25 per cent
as part of its earlier commitment to support output
recovery in the aftermath of the Brexit vote. In
addition, the Committee voted to continue its
quantitative easing programme of £435 billion.
Whereas some Emerging Market and Developing
Economies (EMDEs) continue to contend with low
capital
inflow
and
unstable
macroeconomic

environment, the prospects for their recovery look
more promising. The IMF (WEO October 2016
Update) projected growth rate of 4.2 per cent, an
upward review from 4.1 per cent projected in July
2016 for the EMDEs. The marginal improvement in
growth outlook is expected to be powered by
improvements in India and China.

Global inflation rose moderately in response to rising
prices in the advanced economies due to the
modest recovery in oil prices. However, their central
banks are expected to stay the course on
accommodative monetary policy. Following the
Brexit vote and the recent outcome of the US

Presidential Elections and uncertainties surrounding
both events as well as the regime of negative
interest rates and heavy fiscal and monetary stimuli
in Japan and elsewhere, we expect a resurgence of
aggregate demand and even higher price increases.

Domestic Economic and Financial Developments
Output
Data released by the National Bureau of Statistics
(NBS) in August showed that the economy slipped
into recession following a second consecutive
contraction in Q2, 2016. Domestic output contracted
in the quarter by 2.06 per cent. The latest release in

November 2016 by the NBS shows that real income
actually worsened in Q3, 2016 as output contracted
further by 2.24 per cent relative to its level in the
previous and corresponding quarter of 2015. The
non-oil sector grew by 0.03 per cent, driven by
Agriculture which grew by 4.54 per cent, following
the 0.38 per cent contraction in Q2 2016,.

The MPC noted that the key undercurrents –
shortage of foreign exchange, low fiscal activity, high
energy prices and the accumulation of salary
arrears, especially at the sub-national levels of
government – continued in the third quarter of the
year. Members also noted that those conditions

could not have been ameliorated directly with
monetary policy instruments. It, however, recognized
the need to continue to engineer monetary policy in
such a way as to enable fiscal policy the required
space to improve public investment in infrastructure.

Prices
The Committee noted that headline inflation (yearon-year) continued to rise in October 2016 to 18.3
from 17.9 per cent in September and 17.6 per cent
in August, 2016, thus maintaing the upward
momentum since January 2016. The increase in
headline inflation in October reflected increases in

both the food and core components of inflation. Core
and food inflation increased from 17.7 and 16.6 per
cent in September to 18.1 and 17.1 per cent,
respectively, in October, 2016.
The Committee also noted the less rapid movement
in the month-on-month CPI between September and
October. Headline inflation index (month-on-month)
rose by 0.83 per cent in October, from 0.81 per cent
in September, contrasting the successive declines
since May 2016. Similarly, the core index has been
increasing at a slower pace since May when it rose
by 2.7 per cent. It moderated to 0.75 per cent in
October from 0.96 in September. A similar pattern is
noted with the food (month-on-month) index which

rose by 0.86 per cent in October from 0.81 per cent
in September.
The MPC observed that the incessant pressure on
consumer prices continues to come from structural
factors including high cost of power and energy,
transport, production factors, as well as rising prices
of imports.
.
Monetary,
Credit
and
Financial
Markets
Developments
Broad money supply (M2) grew by 10.50 per cent in
September, 2016, compared with the 8.08 per cent
in August, 2016. When annualized, M2 grew by 14.0

per cent in September 2016, above the growth
benchmark of 10.98 per cent for 2016. Net domestic
credit (NDC) grew by 21.88 per cent in the same
period, annualized at 29.17 per cent. At this rate, the
growth rate of NDC was above the provisional
benchmark of 17.94 per cent for 2016. The
development in NDC, essentially reflected the
relative growth in credit to the private sector of 20.69
per cent in September, annualized to 27.59 per cent.
Credit to government grew by 29.57 per cent in the
review period, which annualized to a growth of 39.43
per cent compared with the growth benchmark of
13.28 per cent for fiscal 2016. The growth in

government borrowing was largely to compensate
for the continued decline in oil receipts.
Money market interest rates oscillated in tandem
with the level of liquidity in the banking system.
Thus, average inter-bank call rate, which stood at
11.50 per cent on 11th October 2016, closed at 15.02
per cent on November 17, 2016. Between these
periods the interbank call rate averaged 11.68 per
cent. However, the average interbank call rates fell
to 10.00 per cent on October 24, 2016, following net
government financing of N149.00 billion between
October 18 and 28, 2016 and the payment on
October 24th 2016 from statutory revenue allocation
of N174.00 billion.

The Committee noted a decline in the equities
segment of the capital market as the All-Share Index
(ASI) fell by 7.33 per cent from 27,839.93 on
September 19, 2016, to 25,797.88 on November 16,
2016. Similarly, Market Capitalization (MC) declined
by 7.11 per cent from N9.56 trillion to 8.88 trillion
during the same period. In addition, relative to endDecember 2015, the capital market indices fell by
9.93 per cent and 9.85 per cent, respectively,
reflecting the challenges facing the economy.

External Sector Developments
The average naira exchange rate weakened at the
inter-bank segment of the foreign exchange market

during the review period. The exchange rate at the
interbank market opened at N305.00/US$ and
closed at N305.90/US$ between September 1st and
October 27, 2016. The Committee observed that
total foreign exchange inflows through the CBN
decreased by 31.85 per cent, from US$1,404.84
million in September to US$957.37 million in
October 2016. The decrease was due to lower crude
oil and other government revenues in the period
under review. In spite of the resumed Joint Venture
payments in October, total outflows also continued
to decrease, dropping significantly by 58.68 per cent
from US$2,456.86 million to US$1,015.08 million
during the same period.

The Committee also implored the Management to
continue to direct more focus at making foreign
exchange available to agriculture and manufacturing
sectors of the economy by enforcing its policy
directing DMBs to allocate 60 per cent of the FX
available to these sectors.

The MPC believes that the Security agencies should
sustain their checks on the activities of illegal foreign
exchange operators in order to bring sanity to that
segment of the market. The Committee reiterated
that the extant foreign exchange regulation outlaws
the trafficking of currency on the streets as some
unlicensed operators currently do. Thus, to evolve

an appropriate naira exchange rate that stabilizes
the foreign exchange market, BDC operators must
strictly observe the terms and conditions of their
license.


The Committee’s Considerations
The Committee assessed the fragile macroeconomic
conditions and the strong headwinds confronting the
economy. In particular, the Committee considered
the implications of the twin deficits of current
account and budget deficits, the rise of nationalist
sentiments across the West and implications for
national elections in France and Germany as well as

the forthcoming referendum in Italy. Other
considerations include the yet to be unveiled long
term uncertainties of Brexit and expectations of
significant shifts in US economic policy. The
Committee reaffirmed the urgency of prioritizing the
diversification of the economy given the emerging
gloomy protectionist outlook of the global economy.

The Committee also evaluated the impact of its July
and September 2016 actions on the macroeconomy
noting that while foreign exchange inflows into the
economy had improved significantly in July and
August, it declined after the September MPC
meeting, leading to rising inflation and increasing

negative real interest rates. However, outflows
significantly dropped, lending credence to the
propriety of the decisions of the July and September
MPC meetings.

The MPC reiterated the limitations of monetary
policy
in
reversing
the
current
stagflationary
condition in the economy, which it traced to supply
and demand shocks. Members stressed the need for
a
robust
and
more
keenly
coordinated
macroeconomic policy framework that would restart
output growth, stimulate aggregate demand and rein
in inflation expectations. Consequently, the MPC
welcomes efforts at resuscitating planning, noting

the progress made in developing the medium term
economic recovery plan. The MPC urged the
Federal Government to urgently assess the extent of
its indebtedness to domestic economic agents and
develop a framework for securitizing the debts in
order to settle its outstanding domestic contractual
obligations which cuts across all sectors of the
economy. These accumulated debts have slowed
business activities of economic agents; most of who
are
indebted
to
the
banking
system,
thus
compromising the integrity of the financial system. It
also advised the Bank to commit to greater
surveillance and deployment of early warning
systems in managing the banking system.

Overall, members called for an enrichment of fiscal
and other sector initiatives and interventions towards
resolving the growth challenges in the economy in
order to promptly revive confidence in the economy.

Outlook
Available data and forecasts of key economic
variables indicate that the outlook for growth and
inflation in the medium term continues to be
challenging. Growth is expected to remain less
robust given the absence of sufficient fiscal space
while the current tight stance of monetary policy and

improved agricultural harvests are expected to
contain further price increases and moderate price
expectations as the trend has already revealed.

The Committee’s Decisions
The Committee assessed the relevant risks to the
global and domestic economy and concluded that
the risks to the economy remained highly elevated
on two fronts (price and output). However,
considering the importance of price stability, and
being mindful of the limitations of monetary policy in
influencing output and employment under conditions
of stagflation, the Committee decided unanimously
in favour of retaining the current stance of monetary
policy, thus keeping the MPR at 14.0 per cent
alongside all other policy parameters.

In summary, all 10 MPC members voted 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 Window at +200 and
-500 basis points around the MPR


Thank you for listening.


Godwin I. Emefiele
Governor, Central Bank of Nigeria
22nd November 2016