CENTRAL BANK OF NIGERIA COMMUNIQUÉ No. 97 OF THE
MONETARY POLICY COMMITTEE MEETING, SEPTEMBER 18-19,

The Monetary Policy Committee (MPC) met on September 18 and
19, 2014 with all the 12 members in attendance. The Chairman
welcomed the new member, representing the Board of the Central
Bank of Nigeria, Mr. Stanley I. Lawson to membership of the
Committee. The meeting held against the backdrop of the
increasingly limited choices for monetary policy, particularly, in the
emerging market and developing economies; tapered recovery in
the euro area coupled with the social and political tensions in the
domestic and global environment, some of which have had
fundamental impact on domestic macroeconomic management.
The Committee reviewed key developments in the global and
domestic economy up to mid-September 2014, and the outlook for
the near-term.

International Economic Developments

The Committee noted the slow global growth prospects as the IMF,
in July, marked down its projection by 0.3 per cent to 3.4 per cent,
reflecting weak economic recovery, particularly in the Euro Area,
and a less than optimistic outlook for several emerging market
economies. Global growth which moderated more than expected
in the first quarter of 2014 regained momentum in the second
quarter although recovery remained largely uneven. The United
States provided strong tailwinds for growth recovery but fiscal
constraints continued to limit robust possibilities. Similarly, economic
activity in the United Kingdom maintained a strong momentum in
the second quarter, supported by improved household confidence
and an impressively recovering housing market. Growth in China also
recovered following the fiscal policy stimulus and a surge in credit.
In contrast, growth moderated in Japan after the VAT hike in April,
but the quantitative easing programme of the Bank of Japan
continues to support recovery. Growth in the Euro area is expected
to strengthen to 1.1 per cent in 2014 and 1.5 per cent in 2015, but
would remain uneven across the region, reflecting continued
financial fragmentation, impaired private and public sector balance
sheets, and high unemployment in some EU economies. In the
emerging markets and developing economies, growth is projected
at 4.6 per cent in 2014, which is 0.2 percentage point lower than the

earlier projection. The sources of growth include strong external
demand from the advanced economies; however, tight financial
condition is expected to dampen growth in domestic aggregate
demand.
Global inflation has remained relatively stable while spare capacity
remains large, suggesting no significant inflationary pressures in the
short-to-medium-term. The stance of monetary policy has remained
unchanged across most advanced and emerging economies in
view of the unclear outlook for monetary conditions and financial
stability especially in the post-QE tapering era. The expectations of
increase in policy interest rate remain in focus in the US and the UK,
even though the Fed reaffirmed that it would maintain the current
highly accommodative monetary policy stance. The European
Central Bank (ECB) and Peoples Bank of China (PBoC) have also
announced
new
monetary
stimulus
programmes
which
will
moderate the impact of the end of QE3 on frontier markets.
Domestic Economic and Financial Developments

Output
The Committee noted the continued resilience of the economy as
real GDP grew by 6.54 per cent in Q2, 2014 compared with 5.40 per
cent in the corresponding quarter of 2013. The observed growth rate
also surpassed the 6.21 per cent recorded in the Q1 of 2014. The
non-oil sector remained the main driver of growth recording 6.71 per
cent in Q2, 2014; although lower than the 8.21 and 8.88 per cent

recorded in Q1, 2014 and the corresponding quarter of 2013,
respectively. The decline in growth of non-oil GDP was traced to the
decline in agricultural output, construction, trade and services
relative to the levels recorded in Q1, 2014. The slowdown in
agricultural output was attributed to the insurgency activities in the
North Eastern axis and some parts of the North Central States which
led to displacement of farming communities, thereby limiting
agricultural activities and, hence, output from that region.
Growth in the services and industry sectors remained relatively stable
compared with the corresponding period in 2013. The Committee
commended all levels of government and the general population
for the coordinated, prompt and effective response to the Ebola
Virus Disease (EVD) in Lagos and Port Harcourt; two cities that are
commercial hubs and leading growth axes for the service and
industry sectors of the economy.
The oil sector grew by 5.14 per cent in Q2 2014, a marked reversal
from the decline recorded in the preceding four quarters. The
Committee welcomed the intensification of efforts by government at
addressing vandalism of oil facilities and theft of crude oil in the
Niger Delta region as well as efforts towards addressing gas supply
shortages to the power plants. The Committee reiterated its
commitment to continue to support the efforts, in addition to
facilitating other measures aimed at promoting inclusive noninflationary growth.

Prices
Headline inflation rose to 8.5 per cent in August from 8.3 in July 2014.
The mild but sustained underlying inflationary pressures were
attributable mainly to food production and distribution challenges
posed by the insurgency activities. From 9.4 per cent in April 2014,
food inflation, measured on a year-on-year basis, rose to 10.0 per
cent in August while core inflation moderated consecutively in the
last two months since June 2014. In August 2014, the year-on-year
core inflation was 6.3 per cent, down from 8.1 and 7.1 per cent in
June and July, respectively. The Committee was concerned that the
insurgency was forcing a switching from domestic to imported food
to meet domestic shortfall with huge impact on external reserves
and underscored the need to expedite action to restore normalcy to
the troubled region to sustain the tempo of growth. The Committee
further reaffirmed its commitment to sustain efforts at ensuring price
stability.
Monetary, Credit and Financial Markets’ Developments
Broad money supply (M2) grew by 2.94 per cent in August 2014 over
the level at end-December 2013 compared with 4.83 per cent in
July. The annualized growth of 4.41 per cent in August 2014 was
below the growth benchmark of 14.52 per cent for the year. Net
domestic credit, however, increased by 5.31 per cent in August
relative to the end-December 2013 level. When annualized, net
domestic credit rose by 7.96 per cent, compared with the growth
benchmark of 28.5 per cent for fiscal 2014. The rather slow expansion

in money supply in August reflected the 10.17 per cent contraction in
net foreign assets of the banking system (NFA).
Money market interest rates, however, remained within the MPR
corridor as the overnight and collaterized OBB rates moderated from
11.30 and 11.49 per cent in August to 11. 08 and 10.62 per cent on 11
September 2014, respectively. The MPC noted that both rates traded
around the lower band of the MPR corridor on account of the
liquidity surfeit in the banking system.
Activities in the capital market were bearish during the period with
the All-Share Index (ASI) decreasing by 4.3 per cent from 42,482.48
on June 30, 2014 to 40,672.94 on September 12, 2014. Market
Capitalization (MC) also decreased by 4.3 per cent from N14.03
trillion on June 30, 2014 to N13.43 trillion on September 12, 2014.
Market indicators declined owing to the profit taking activities of
investors.
External Sector Developments
The average naira exchange rate remained considerably stable in
all segments of the foreign exchange market. The exchange rate at
the retail-Dutch Auction System Segment (rDAS) was stable at
N157.29/US$, but depreciated at the inter-bank and substantially at
the BDC segments between July and August 29, 2014. At the
interbank segment, the naira depreciated slightly by N0.32 or 0.20
per cent to $/N162.40 from $/N162.08. Similarly, at the BDC segment,
the exchange rate depreciated by N2.00 or 1.2 per cent from

US$/N167.00 to U$/N169.00. The premium between the rDAS and
interbank rates was 3.25 per cent while that between the rDAS and
BDC rates stood at 7.45 per cent in the review period. Gross official
reserves rose from US$39.1 billion at end-July to US$40.7 billion on 17th
September, 2014. The current level of external reserves provides
approximately 7 months of imports cover.
The Committee’s Considerations

The MPC expressed satisfaction with the relative stability in the
economy while also noting the risks that lie ahead. The key risks
include: the possibility of capital reversals as the Fed‟s Quantitative
Easing in the US finally ends in October, amidst dwindling oil output
and declining oil prices, domestic security challenges and upward
trending headline inflation. The Committee further expressed
concern about high banking system liquidity and its potential effects
on inflation and the exchange rate. The policy challenges, the
Committee noted, would include sustaining the stability of the naira
exchange rate, managing the vulnerability to capital flow reversal,
building fiscal buffers to insure against global shocks, managing
inflation and exchange rate expectations and safeguarding the
financial system stability as well as a buildup in election related
spending.
The Committee welcomed the efforts by government to address
some of the constraints and risks to economic activity like the

insurgency in the North-East and the Ebola Virus Disease epidemic. It
noted that as progress is made in these areas and in respect of other
constraints like power and improving SME financing, the outlook for
growth appears bright and prospects for upward price pressure
would be moderated. The Committee further noted that the
restrictive stance of monetary policy provided important defenses
against structural liquidity in the banking system and also reaffirmed
the willingness to play a key role in managing expectations around
exchange rate and inflation vulnerabilities. Consequently, adequate
consideration would need to be accorded the goal of reining-in
banking system liquidity to safeguard the objective of price stability.

The Committee was, however, concerned that banks were holding
large excess reserves averaging over N300 billion even when there
were ample opportunities for productive and profitable lending to
the real sector of the economy. The concern was further
strengthened by the reality of injecting an additional N866 billion into
the system through the redemption of maturing AMCON bonds in
October. Given the apathy to lending, banks may be inclined more
to placing these new funds in the SDF or use it to increase pressure
on the exchange rate. The Committee advised the Bank to explore
ways of encouraging banks to lend such excess reserves to the real
sector.

In light of the foregoing and consideration of other key risk factors,
the Committee was of the view that the direction for policy in the
short- to medium term would be either to retain the current tight
stance of monetary policy or further tighten monetary policy.
The Committee’s Decisions

In view of these developments, the Committee was split between
retaining the current stance of monetary policy and further
tightening. Consequently, 6 members voted to retain the current
stance of monetary policy. Five members voted to increase private
sector CRR while while one member voted to increase public sector
CRR. In addition, one member voted for an asymmetric corridor
around the MPR. Consequently, the MPC decided by a majority vote
to:

(i)
Retain the MPR at 12 per cent with a corridor of +/- 200 basis
points around the midpoint;
(ii)
Retain the public sector Cash Reserve Requirement at 75.0 per
cent; and
(iii)
Retain the private sector Cash Reserve Requirement at 15.0 per
cent.
Thank you.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
19th September 2014

PERSONAL STATEMENTS BY MEMBERS OF THE MONETARY POLICY
COMMITTEE

1.0 ADELABU, ADEBAYO

Performance of key macroeconomic indicators suggests a mixed
signal. Output growth at 6.54 per cent for the second quarter and
projection of 6.75 per cent for the entire F2014 are suggestive of the
resilience of the economy. Inflation developments, however, are
becoming worrisome. Headline inflation continued its upward trend
for six consecutive months, accelerating to 8.5 per cent in August
while food inflation is almost at the upper band of the Bank‟s long
run target. Moderation in core inflation in August, however, raises
some form of optimism though it adds to the complication of policy
decision. Uptick in external reserves that commenced in July
continued during the period albeit sluggishly due to both slowdown
in inflows and demand pressure.

Examining the issues on case by case basis, the inflation outlook
reveals considerable risks in the near to medium term. Election
related expenses, depreciation of the exchange rate at the BDC
due to current measures, rising global food prices, and seasonal
factors portend upside risks to price level particularly core inflation in
the near term. Staff forecasts, however indicates that headline
inflation would still be within the border of single digit by endDecember 2014 which in essence implies that the Bank long run

target is still protected. As a result, I would like to hold the Monetary
Policy Rate (MPR) at the subsisting level.

The main risk however is the uncertain global environment which has
grave implication for the domestic economy particularly on both the
current and capital accounts. Despite geo political conflicts in Russia
and Ukraine, crude oil price has been softening on the backlash of
rising production in the US and fragile rebound process in the euro
zone. This portends grave concerns for fiscal revenue and external
reserves. In addition, the US Federal Reserve has indicated the
termination of the third quantitative easing by October with
implication of reversal of investors‟ sentiment for developing and
emerging economies and the attendant slowdown in accretion to
reserves. In fact, the most crucial external consideration for
monetary policy makers in emerging markets and developing
economies today appears to be how to mitigate negative spillovers
from this risk should it crystallize.

As a consequence most emerging economies have been tightening
monetary policy stance to retain the existing capital flows and
possibly attract new ones. My analysis, however, shows that our
Monetary Policy Rate (MPR) is elevated enough in relation to most
emerging economies and as such the risk adjusted returns on foreign
capital is still good enough to retain existing capital and perhaps

attract new ones. Perhaps, more importantly, further tightening
through the MPR or the Cash Reserve Requirement (CRR) would
have dire consequence on lending rates which are already above
acceptable threshold with implication for quality of banking assets
and financial system stability as a whole.

The last issue is the persistence of huge liquidity in the banking system
with the potential of exacerbating the pressure in the foreign
exchange market. This development is suggestive of some measures
of further tightening particularly through adjustment to the Cash
Reserve Requirement (CRR). My view is that we should begin to
explore some innovative ways to address liquidity surfeit in the
system.

I would like to point out that the greater part of the burden imposed
on monetary policy are issues requiring active support of the fiscal
authority. First, it would be difficult for monetary policy to reduce
lending rate to single digit level in the light of the fact that the major
drivers of lending rates relate to the competitiveness of the business
environment including cost of power and security incurred by the
banks as opposed to cost of funds. Secondly, the burden foreign
exchange management is derived largely from the skewed structure
of the economy because the bulk of the pressure in the foreign
exchange markets comes mainly from payments of imports bills

rather than excess reserves of the banking sector. Thus, mopping up
excess banking liquidity through adjustment to CRR, as the present
monetary conditions implied, would amount to treating the
symptoms without addressing the root cause. I think the solution lies
in exploring innovative means of deploying excess liquidity in the
banking sector to productive sectors rather than considering it as a
threat.

As implied in my last statement, we are almost approaching the limit
of monetary policy thus requiring considerable structural and
administrative measures. Monetary policy independence appears to
have been lost mainly due to the weakening external reserve
position. In the short terms, appropriate administrative measures must
be put in place to curtail the rate of depletion of the external
reserves. As a quick win, an urgent review of the list of imported items
eligible for official foreign exchange is imperative in addition to
revisiting legislations around the exports of dollar in cash. Over the
medium to long term, considerable efforts must be made to improve
accretion to external reserves from proceeds of crude oil sales as
efforts are geared towards improving business environment by
building infrastructure that would promote foreign direct investments.
In the light of the foregoing I vote for the retention of all the subsisting
measures of monetary policy.

2.0 ALADE, SARAH O.

Headline inflation increased by 30 basis points to 8.5 percent in
August from 8.3 percent recorded in July, 2014. While core inflation
decreased to 7.3 percent from 7.4 recorded in the previous month,
food inflation increased form 9.9 percent to 10.0 percent during the
same period. Fiscal expansion remains muted as revenue fall below
budget due to lower oil production and prices. On the international
scene, there are mixed development, while growth in the US is
improving and tapering is on course to end in October, authorities in
Europe, Japan and China are still on the stimulus course. The full
impacts of these actions on the economy are yet to materialize, thus
the need to carefully monitor their impact. Additionally, the
presence of excess liquidity in the banking system suggests the need
for some action to avoid undue pressure on inflation and the foreign
exchange market. In view of these developments, I am inclined to
support a hold in Monetary Policy Rate (MPR) but an increase in
Private Sector Cash Reserve Requirement (CRR).

Headline inflation continues to trend upwards as food inflation
increased to 10.0 percent in August. Headline inflation increased to
8.5 percent in August from 8.3 recorded in July. The increase is driven
mainly by increase in food inflation which rose to 10.00 percent from
9.9 percent on the back of increases in processed and imported
food items. Core inflation however decreased to 7.3 percent form

7.4 percent recorded in July, suggesting that inflationary pressure is
largely coming from food. In a normal situation, this upward shift
would suggest further monetary tightening, however, in period of
global uncertainty and given that food inflation which is driving the
high inflation is volatile and short-lived.

The banking system liquidity continues to be high, suggesting that
some measure is needed to reign in the excess liquidity. Banking
system deposits at the CBN deposit lending facility has consistently
been high reaching N600 billion on some days during the review
period. Even with OMO operations, Interbank and OBB rate during
the review period have traded below the standing deposit facility
rate, thus there is need to sterilize some of these liquidity through
increase in cash reserve requirements to avoid distortion in the
system and to minimize the feedback effect on inflation. In addition,
the anticipated AMCON injection of N866 billion into the economy
at the end of October will also add substantial liquidity to system.

Gross Domestic Product (GDP) is showing strong momentum,
although risks remain. The 2014 second quarter GDP grew by 6.54
percent as against 5.40 per cent recorded in the corresponding
quarter of 2013, and also higher than the 6.21per cent recorded in
the first quarter of 2014. The non-oil sector grew by 6.71per cent in
the second quarter of 2014, although a decline of 2.17 percentage
points from the 8.88 per cent growth recorded in the corresponding

quarter of 2013, but it still remains the main drivers of growth. The
decline in non-oil sector growth was traced to decline in agriculture
as a result of insurgent activities in the North East part of the country
which has affected agricultural productivity. The oil sector grew by
5.14 percent in the second quarter of 2014 owning mainly to
government‟s effort to curtail pipeline vandalism and oil theft.
Although growth is trending up, the increasing inflationary pressure
calls for a caution at this time to avoid inflationary growth.

Reduced oil production and declining oil prices is bound to put
pressure on fiscal operations of the government and budget
implementation. The low oil production due to pipeline vandalism
and oil theft coupled with increased production of Shale oil in the US
is affecting government revenue. In addition the surge in Shale oil
has prompted OPEC to cut its production quotas. The implication is
that there will be revenue shortfall which will not only affect
government revenue, but will also affect external reserve build up. To
cover this shortfall, government may resort to increased borrowing at
higher interest rate which will crowd out private sector and constrain
growth.

Global economic environment is improving, but growth is still
teetering. The Bank of England at its meeting on September 18, 2014
decided to keep rate flat based on little or no domestic inflationary
pressure well into 2015, and the failure of wages to rise above the

rate of inflation. In the United States, the market added 142,000 jobs
mainly in the health care, professional and business services sectors,
bringing unemployment rate down to 6.1 percent in August.
Although second quarter GDP grew by 4.2 percent, the outlook for
U.S. growth remains cautiously positive. Strength in the housing
market, exports to emerging markets and increased domestic oil
production is hampered by some uncertainties, including the
geopolitical uncertainties in the Middle East and Eastern Europe. In
the Euro area, growth is expected to strengthen to 1.1 percent in
2104, but would remain uneven across the region.

In emerging market and developing countries growth projection is
slightly lowered to 4.6 percent from 4.8 percent previously projected
on the back of tight financial conditions from the US, and possible
capital reversal. Under these uncertain conditions, monetary policy
at this time should be focused at minimizing the downside risks and
safeguarding the economy.

Against this background, I support a hold on Monetary Policy Rate,
an increase in Private Sector Cash Reserve Requirement (CRR) and
retention of 75 percent of Public Sector Cash Reserve Requirement
(CRR) to ensure macroeconomic stability.

3.0 BALAMI, DAHIRU HASSAN

Global Economy
Macroeconomic data at the global level for major trading partners
of Nigeria shows that economic growth was firmly a little stronger in
the second half of the year than it had been in the first despite the
political situation in Russia and Ukraine. In the US, growth in
economic activity rebounded in the second quarter. It is expected
that US will grow at 2.9 percent moderated from 3 percent. For now,
the GDP has slightly increased by 1 percent and fall in output in the
first quarter has been raised to 0.5 percent. Labour market condition
improved with unemployment rate declining. Household spending
appears to be rising moderately and business fixed investment is
advancing. However, recovery in the housing sector remain slow.

In the Euro zone economic growth had not fully picked up; for
example GDP rose by only 0.6 percent, with fall in output in Italy,
weak industrial output in Germany, France and expectation that
output in Japan to contract. There is weakens in inflation in the Euro
zone activity. Real inflation for July had fallen to 0.4 percent. Inflation
in many core economies is likely to stay below 2 percent and slack
still remaining. This implies that the process of rebalancing and
restoring competitiveness in the periphery might well prove a greater
and persistent drag on Euro-area activity.

China/ Emerging Economies
GDP growth in China had risen from 7.4 in Q1 to 7.5 percent in Q2.
Targeted
stimulus
measures
were
implemented
by
Chinese
authorities since spring would be sufficient to keep growth close to
the government‟s 7.5 percent target for the rest of the year. In China
the rapid growth in credit and vulnerabilities associated with shadow
banking system, remain a risk to the outlook for Chinese economy.

Brazil
Expected growth is to improve over the coming twelfth months as
overseas demand recovered. This had led to pick-up in business
investment. CPI inflation had risen from 1.5 percent in May to 1.9
percent in June, rather strong than Bank staff and other economist
had expected. Note that high inflation rates generates distribution
that lend higher risk and depressed investment shortening the
planning horizon of household, companies and government as well
as distortions of business confidence.

Africa
In Africa, the growths remain strong for most countries. However
countries like South Africa witnessed weak growth and widening
output gap and negative employment outlook due partly to strike in
platinum.

Finance
The financial market in Euro-zone remained relatively resilient despite
a number of significant events during the month of August. The
European Central Bank cut interest rates to new record lows from
0.15 percent to 0.05 thereby lowering costs to try to lift inflation of 0.3
percent which was far below the ECB target of just bottom levels
and support stagnating Euro-zone economy, lowered the role on
Bank overnight deposit to - 0.20 percent meaning Banks to pay part
of funds at Central Banks. The ECB cuts its marginal lending facility or
emergency borrowing rate to 0.30 percent.

Prices
There has been little change in most commodity price. Price of
agricultural commodities had generally fall a little. Oil prices were
also slightly lower, despite the conflict in Iraq and renewed turmoil in
Libya. The threats to Nigerian oil Revenue exist due to US Shale oil
and gas and the preference for Angolan crude to that of Nigeria
and other countries.

Domestic Economy
The GDP growth rate and prospect remains strong in Nigeria. In the
Q1 of 2014 is about 6.21 percent which is an improvement over 2013
despite the higher base. The growth prospect of the economy is
bright due to government supportive policies in various sectors of the
economy like agriculture, energy and manufacturing. The oil price
though has slide downward slightly but overall it has been stable. The

service sector and other sub-sector in the non-oil sector are the
major drivers of growth. The country‟s overall domestic economic
environment remained stable backed with single digit inflation as
well as stable foreign exchange market and prices. It should be
noted that lending to Nigeria‟s private sector climbed to 9.2 percent
#17.25 trillion a year ago an indication that credit to the private
sector is rebounding. Money supply (M2) also grew 3.12percent
month-on-month in July, faster than the 0.13 percent increase in
June due in part to increase lending to the private sector.

Major Challenges to Growth in the Nigerian Economy
Insecurity in the north east of Nigeria, high unemployment level
particularly graduate, fall in the level of agricultural output due
insecurity in the northeast and flood problem, rising level of food
inflation, poverty and inequality, lower level of oil output due oil theft
and vandalism of oil and gas infrastructure except in June, Risk to
political tensions in the run-up to election in 2015, pervasive
corruption which undermines growth, rising level of poverty and
income inequality, challenges in the foreign exchange and reserve,
and infrastructural gap.

Foreign Exchange Rate
The foreign exchange rate has remained stable partly due to
strategic sacrifice of monetary policy independence for exchange
rate policy stability at the risk of medium term macro and financial
system stability. In month of August it was relatively stable at rDAS

segment but appreciated at the interbank and BDC segment
indicating effectiveness of monetary policy, gradual of foreign
investors
to
Nigerian
market,
and
introduction
of
more
complimentary measures to speculative demand.

Capital Market
There is decline in equities and this was attributed to the impact of
the global financial market. The decline in equities was in response
to quantitative easing tapering in the US. Despite this the capital
market is fairly stable.

Inflation
Inflation declined steadily from 9.0 percent in January 2013 to 8.00
and 7.8 percent in February and March 2014 respectively. Food
inflation, a major driver of core inflation declined consistently from
9.5% in 2013, to 9.2% in February 2014 before increasing to 9.3% in
March and 9.4% in August 2014. However all measures of inflation
are single digit.

Interest Rate
Although the financial system remained stable the interest rates are
still high particularly the gap between deposit and lending rates. The
inter-bank call rate fell from 10.75% in February 2014 to 10.5 percent
in May 2014. However in August, Nigeria‟s inter-bank lending rates
climbed 25 basis points to an average of 10.75 on Friday 29/5/2014

after funding for Foreign exchange purchase and issuance of
treasury bills to curb market liquidity.

The open-buy-back (OBB) rate fell from 10.52 to 10.32 in March and
May 2014.It climbed to 10.75 percent from 10.5 percent the previous
week, 1.25 basis points below central banks bench mark interest rate
of 12 percent. Overnight placements also increased 50 basis points
to 11 percent from 10.5 percent the previous week.

Fiscal Operation
Government fiscal operation has been largely directed towards
recurrent expenditure rather than capital which undermined growth
prospects.
I vote to retain the current tight monetary stance because on the
basis of the current situation a reduction on interest rate will assist in
triggering higher inflation, lower our reserve due to hot money likely
to jet out leading to increased pressure on the Naira. This may call for
devaluation. At the same time food inflation is likely to be on the
increase because of low agricultural output due to insecurity in the
northeast region. The months coming ahead are in electioneering
period with consequence of rise in the level of government
expenditure which will lead to rise in inflation. It should be noted that
89 percent of US domestic oil demand is met internally, leaving only
11 percent leading to fall in demand for Nigerian oil. Out of this 11
percent, Angola‟s oil is favored over Nigerian supply.

4.0 BARAU, SULEIMAN

Summary of Recent Developments
The estimated Gross Domestic Product (GDP) growth for the second
quarter of 2014 at 6.54% was strong; higher than 6.21% in Q1 and
5.49%in 2013. However, inflation, particularly Headline Inflation (HI) is
on upward trajectory in the last 6 months closing at 8.5% in August
2014. Exchange rate is stable at the rDAS and interbank markets but
there has been increasing pressure on BDC rate. Foreign reserve
level has been stable closing at $39.7b on September 17, 2014.

Therefore, monetary Policy meeting is taking place at a time of
heightened risk to the current policy stance arising from global and
domestic developments.
On the Global Scene:
There has been heightened geo-political tension arising from
developments in the Middle East particularly Iraq and Syria. The
recent activities of ISIS and response by the US and its coalition
countries could affect the demand/supply balance for crude oil and
ultimately its price in the international market.
Oil prices have recently been showing a declining trend due to the
effect of shale oil production among other reasons. Brent and Bonny
Light closed at $96.9 per barrel (pb) on September 9th, below the
psychological resistance level of $100/bp. The OPEC reference
basket price also closed at $97.00 per barrel on September 9th. This

portends danger for government revenues, foreign reserves,
exchange rate and ultimately the effectiveness of monetary policy.
The US Federal Reserve‟s Federal Open Market Committee (FMOC)
released its decision after the September meeting as summarized
below;
o It reduced the monthly assets purchase programme under
QE3 to $15 billion monthly.
o It will continue its assets purchase program and employ other
tools as appropriate until the labour market improves
substantially in the context of price stability, but while
maintaining
that
accommodative
stance
remains
appropriate, asset purchases paces will be consistent with
labour market and inflation developments.
o If
information
about
labour
market
and
inflation
developments move toward long run objective, it will end its
asset purchases at its next meeting.
The conclusion I reach from these carefully worded release imply
that asset purchases will for now continue albeit at a slower pace
until labour and inflation long run objectives are met.
Should this happen, it will make emerging markets assets less
attractive, elicit reversal of flows, impact foreign reserves, exchange
rate and inflation. Meanwhile, global recovery particularly from the

developed (particularly Euro area) and some emerging economies
continues to be slow and this will no doubt compound Nigeria‟s
potential problems in the context of the impending deterioration in
the demand and supply balance for oil in the international markets,
reduce accretion to foreign reserves and put pressure on the
Naira/US$ exchange rate.
From the Domestic Scene:
There is evidence of sustained liquidity in the banking system.
Liquidity ratio remains at 12% above the minimum prescribed ratio. In
addition, a monitoring of the average daily balance at the Standing
Deposit Facility (SDF) window remains a source for concern in the
context of need to increase lending to the real sector. The reasons
for the sustained liquidity are not farfetched. Firstly, there has been
the reluctance of banks to increase lending to the real sectors given
the attractive yield from investment in government securities and
indeed from the SDF window. Secondly, even though the stance of
policy has been tight for sometimes in the recent past, liquidity
injection from prior year QE by CBN following the global economic
crises and subsequent creation/funding of the Asset Management
Corporation (AMCON) is still substantially out there. The disturbing
liquidity outlook from the impending repayment of maturing
obligations by AMCON in October, CBN„s intervention activities and
likely increase in fiscal spending as we head into election year, as

well as security related spending should be of significant concern to
monetary policy.
The YoY Headline Inflation has been on upward trajectory in the last
six months. HI increased to 8.5% in August compared to 8.3% in July.
The Food measure also increased to 10.0% in August from 9.90% in
July. The Core measure however decreased to 6.26% in August
compared to 7.10% in July. Inspite of the fact that the HI is within 6 –
9% targeted band and its six months staff outlook estimated to
remain within the band, I am disturbed that the liquidity outlook may
drive the HI beyond the band. This will no doubt hurt the reputation
we built over the past one year in containing inflation.
In the management of foreign exchange rate, there have been
some recent disturbing trends as well. Overall, we have recorded
successes in building foreign reserves, and in ensuring exchange rate
stability in rDAS. However, there has been a build-up of pressure on
the BDC and interbank market rates. BDC sell rate closed at 169/$ in
September compared to 168/$ in August. We also witnessed a
marginal depreciation of 0.07% in the interbank rate from 162.78/$ in
August compared to 162.9/$ in September. We had to step up
intervention in the interbank window to contain similar pressure and
to ensure stability. The pressure on these segments relates to change
in market sentiment and demand for hajj related activities amongst
other internal and external factors. The outlook for the exchange
rate in the light of these factors and particularly the external sector

threats stemming from the uncertainty regarding QE3 in the US and
its effect on portfolio flows is a major pressure point going forward.
Apart from the above developments which influenced the way I
voted, it is important to discuss some other issues that guided me in
reaching my conclusion.
Other Significant Issues:
There have been calls recently on MPC to reduce the MPR and by
extension change to an accommodative stance in policy. This is
consistent with the clamour for the reduction in lending rate.
Maximum Lending Rate (MLR) at 26.07% in June and July remained
unacceptably high. Even the average Prime Lending Rate at 16.44%
in July is high in relative and global contexts. This situation could
justify the clamour for lowering of rates and the call for a downward
review of MPR and reversal of stance from tight to a more
accommodative policy stance.
However, in the light of the recent pressure points earlier mentioned,
it is difficult to justify a change in stance at the moment. Besides
there are two other considerations;
As I have always said, recent research studies initiated by MPC have
proven lack of a clear relationship between MPR and credit growth
in Nigeria. Desirable as it may be to some, there is no evidence to
show that a reduction in MPR will be accompanied by any

significant growth in private sector credit and real sector growth at
least in the short-run.
This confirms our earlier position that what is needed to spur radical
growth in credit to the private sector is the much talked about
structural reforms. Credit will subsequently flow into the real sector.
It is important to mention that inspite of the GDP rebasing and the
current regime of interest rate, we continued to record strong real
GDP growth rates. Given this fact, the risk of easing in the context of
high systemic liquidity, declining oil price and pressure on foreign
reserves and exchange rates can be more costly and should be
delayed at this time.
Recommendations:
It is in the light of the foregoing that I voted as follows;
That we maintain the tight stance in policy;
That we maintain MPR at 12%;
That we maintain the Systemic Corridor of plus and minus
2% around the MPR for SLF and SDF respectively. But I am
also open to a migration to asymmetric corridor if that will
help to stimulate growth in private sector credit as we
make the SDF less attractive to the Banks;
That we maintain the NOP at 1% of Shareholders Funds;
That we maintain Minimum Liquidity Ratio (MLR) at 30%.

5.0 DANIEL-NWAOBIA, ANASTASIA

The outlook for the domestic economy output in the coming months
is positive. The real GDP grew by 6.54 per cent in the second quarter
of 2014 with the oil sector growing by 5.14 per cent. The positive
growth in the oil sector during the second quarter of 2014 was a
marked reversal from the negative growth recorded in the previous
four quarters. This was attributable to the outcome of Federal
Government‟s intervention in the Niger Delta area which has
reduced the vandalism of oil production facilities and theft of crude
oil.

Year-on-year headline inflation accelerated to 8.5 in August 2014
from 8.3 per cent in July, 2014 driven by the rise in food inflation.
Staff projections indicate that, the year-on-year headline inflation
would remain within single digits in the next six months with the endDecember, 2014 rate projected at 8.8 per cent. The positive inflation
outcome is partly attributable to fiscal prudence, policy measures
that have increased domestic food production as well as restrictive
monetary policy stance.

The exchange rate continues to maintain relative stability in the
three segments of the market (RDAS-SPT, Inter-bank and BDC),
supported strongly by the external reserves. The level of gross official
reserves as at August 29, 2014 stood at $38.70 billion which could

finance 8.52 months of import. As at September 16, 2014, gross
official reserves had increased to $40.7 billion, reflecting the
conscious efforts by the Government to build the external reserves.
Reduction in market interest rates as well as ensuring the flow of
credit to the real economy continued to be key policy challenges. In
particular, credit expansion, domestic investment and real sector
growth have been hampered in view of the continued high interest
rates of the Deposit Money Banks. Consequently, strategic efforts
need be made towards addressing the issue of high interest rates as
well as ensure the flow of credit to the real economy in order to
engender growth and create employment.

Notwithstanding the relative stability in the domestic macroeconomy, I am not unmindful of some global economic
developments which could adversely affect our expectations in the
medium to long term. For instance, the continued increase in oil and
gas output in the US could lead to uncertainties in the export of
Nigeria‟s oil and hence revenue and foreign reserve accumulation;
while the possibility of foreign investors redirecting their investments
interest to the advanced economies following the improved growth
and employment conditions in these economies could result in lower
foreign exchange inflows or increased outflow of foreign capital;
however, the positive economic profile of the country has helped in
attracting foreign direct investment (FDI) in sectors such as

Petrochemicals, Cement, Sugar and Agro processing, making
Nigeria, for the second year running, the preferred destination for FDI
in Africa. Furthermore, Government efforts at reducing the vandalism
of oil production facilities and crude oil theft would minimize the
effect of possible capital reversals.

Given the current macro-economic stability coupled with positive
outlook in near to medium term, I will advise that the current tight
monetary policy stance be maintained in order to sustain the
relative stability achieved thus far.

Consequently, I vote as follows:

(i) The Monetary Policy Rate (MPR) to be retained at the current
level of 12% and corridor of +/- 2% for the inter-meeting period.

(ii) The Private sector CRR should also be retained at 15 per cent,
given the current banking system liquidity profile.

(iii)
The current policy on foreign exchange (mid-point and
exchange rate band of N155/US$1 +/- 3%) should be retained,
while the CBN continues to intervene to stabilize the rates,
when necessary.

6.0 GARBA, ABDUL-GANIYU

I voted for a forward looking policy stance that is consistent with (1)
current monetary policy strategy, (2) current and expected
domestic pressures and (3) anticipated global pressures. The real
macroeconomic data for the second and third quarter of 2014
indicates good performance: 6.54% in the second quarter and
about half a million jobs created in the first two quarters of 2014
albeit with more than three quarters in the informal sector. The
financial data (inflation, money supply, the capital market indexes,
forex market data), fiscal data and external data indicate the
pressure points in the economy. The developments in the global
economy particularly the separation between the Euro-zone and
the United States in terms of economic performance and monetary
policy stance indicate a great likelihood of instabilities in financial
markets particularly foreign exchange markets in the fourth quarter
of 2014 and through 2015.

The impacts of maturing AMCON Bonds in the fourth quarter
(October, 2014) on liquidity demand proactive actions to sterilize
“inverted intermediation liquidity”. Staff forecast that inflation is likely
to overshoot the upper bound of 9% in the fourth quarter even
without accounting for AMCON effects strengthen the case for
sterilization of inverted intermediation liquidity.

I vote for tightening of liquidity by raising private sector CRR while
keeping MPR fixed at 12%, liquidity ratio at 30%. In addition, I vote for
asymmetric corridor of -5 and +2 around the MPR. I have consistently
justified the asymmetric corridor on the “market functioning”
argument.
The vote for tightening is a vote to sterilize “inverted intermediation
liquidity”. Were excess liquidity channeled to high employment
elasticity sectors of the economy, tightening will be unnecessary.
Indeed, I am convinced that if excess liquidity were channeled to
high employment elasticity sectors of the economy, interest rates will
most likely fall especially if the SDF rate is significantly reduced. As is,
Deposit Money Banks have found it more rational to hold excess
liquidity for the secure and attractive returns from the game of
inverted intermediation. It is clear to me that the Standing Deposit
Facility (SDF), government securities and currency substitution are
weakening market functioning and destabilizing key nominal
anchors for monetary policy. It is necessary to sterilize such liquidity
particularly,
because
they
are
inherently
and
structurally
destabilizing given their likely effects on price stability.

Market functioning remains a major challenge for efficient allocation
of financial assets and for a stronger transmission mechanism of
monetary policy which has weakened and become more
asymmetric globally in the aftermath of the global financial crisis.

Much of the expansion in the balance sheets of Central Banks in the
aftermath of the global financial crisis has had limited effects on real
variables, stronger effects on asset prices and adverse effects on
income distribution with the top 1% the top gainers and the low and
middle classes the most losers.

Without significant “market-function-improving”, it will be difficult to
strengthen the transmission mechanism of monetary policy and
empower it to support the sectors of the economy and businesses
that have high employment elasticity of growth.

Available data point to more activities in the interbank market in the
last two months. A significant reduction in the incentive for the high
“inverted intermediation liquidity” in the SDF window will support the
interbank market. Tightening of CRR simultaneously with significant
reduction in SDF rate will further spur activities in the interbank
market.

Far too much is expected of monetary policy today. However, faced
with impossible trinities (exchange rate stability, independent
monetary policy and capital account liberalization) and possible but
malfunctioning trinity of policies (monetary and fiscal) and politics, it
is important to stress that monetary policy is not a panacea (a cure
all). It has to be complemented by market-function-improving

institutional changes, more effective monetary-fiscal policy strategic
coordination as well as sound macro-prudential and microprudential regulations and implementations. The greater challenge
for
economic
management
(monetary,
fiscal
and
political
economy) is that of steering the economy seamlessly through the
coming turbulence of a post quantitative easing era. Monetary
policy must, remain forward looking.


7.0 LAWSON, I. STANLEY

Global Economy
The global economy has continued on a path of weak economic
recovery as evidenced by the IMF‟s mark down of its growth
projections by 0.3% to 3.4%. The US however continues to provide
considerable tail wind as its economy expanded by 4.2% in Q2 up
from a contraction of 2.1% in Q1. Unemployment fell from 6.2% in July
to 6.1% in August, while YoY inflation rate is reported at 1.7% in
August (BLS).

Due to improving macroeconomic performance, the US is gradually
moving from a regime of easing which will end in 2014 to a regime of
tightening which will commence in 2015. This action by the US will
have far reaching implications and consequences for emerging
market economies. Global growth may however be further
depressed by various existing and escalating regional conflicts.

Global inflation has remained relatively stable with little inflationary
pressures in the short to medium term. Inflation in the US, UK, Europe
and
China
have
remained
lower
than
policy
goals.
The
announcements by the European Central bank and the Peoples
Bank of China to introduce new monetary stimulus programs have
left expectations high that the US and the UK will probably
announce an increase in policy interest rates.

International crude oil prices have commenced a southward trend
due to diminishing demand by the US, increased supply by the US
and other countries, and the US proxy war with Russia. All of these will
gradually have a direct negative impact on Nigeria‟s foreign
reserve. Staff research shows that growth in African countries
continues to be strong but may be dampened by tight financial
conditions.

Domestic Economy
The domestic economy has remained strong with a real GDP growth
of 6.54% in Q2. The main sectors contributing to the growth are
service, agriculture and trade. Gross official reserves rose to 40.7
billion in September, up from 39.1 billion in July thus revealing a slow
but steady reversal of the previous decline trend. This is attributable
to a number of measures taken by the CBN to sanitize the BDC

market and a steady rebuilding of fiscal buffers by the fiscal
authorities.

The subtle but steady upward trending of headline inflation to 8.5% in
August from 8.3% in July is a cause for concern but does not at this
time call for drastic measures as it is still at single digit and within the
bank‟s target band of 6-9%. Production and distribution challenges
occasioned by the insurgency and insecurity in the North-Eastern
part of the country have led to increasing food prices and this is
overly responsible for the underlying inflationary pressures on the
headline inflation. Food inflation measured on a YoY basis increased
from 9.4% in April 2014 to 10% in August. It is important to keep a
close tab on this as it could lead to a gradual switch from domestic
food to imported food in order to meet domestic food shortfalls. This
will create a consequential huge impact on external reserves. Yearon-year core inflation has shown a steady decrease over the last
three months to 6.3%in August, down from 8.1% and 7.1% in June
and July respectively.

Interest rates and liquidity continue to be high as staff research
reveals an average lending rate of about 22% and deposit money
banks holding over 300 billion naira in reserves. While the high
lending rate is worthy of note, a decrease in the policy rate at this
time may lead to an accelerated worsening of headline inflation,

increased pressure on the foreign exchange rate, and an
acceleration of reverse capital flows especially on the back of the
Fed‟s Quantitative Easing, billed to end finally in October. Also an
increase of the policy rate at this time will potentially push lending
rates to unacceptable levels thus further crowding out the already
deprived productive sector from the credit loop of deposit money
banks.

There are genuine fears that the high liquidity levels of banks may
worsen with the anticipated redemption of AMCON bonds in
October 2014. It is my candid opinion that the CBN can and should,
through several other means at its disposal, encourage the deposit
money banks to channel a good portion of their excess liquidity to
the growth and employment generating sectors of the economy.
This productive sector of the economy which is known to have an
almost insatiable appetite for credit, is unfortunately presently
outside the credit loop of the banks due to the inherent risks
associated with the sector, the high operating costs of the sector
arising from the absence of adequate basic operational enablers
like power and security, and most importantly, due to the existing
high interest rates in the market.

Redirecting banks‟ high liquidity positions to credit extension in the
productive sector will have the triple effect of addressing the excess

liquidity scenario, reducing the pressure on the exchange rate, and
further enhancing growth through production and employment
creation.

Conclusion
I am reasonably satisfied with the relative stability in the economy
while also being mindful of the existing and potential key risks and
challenges. These risks and challenges which are diverse in content
and effect, include the upward trending headline inflation, high
interest rates which negatively impacts credit extension to the real
sector, high bank liquidity, declining oil prices, domestic security
challenges with its attendant impact on food inflation, increasing
pressure on the exchange rate, and capital reverse flow challenges
especially in the face of the Fed‟s Quantitative Easing. Nevertheless,
I am reasonably persuaded that these risks and challenges can at
this time be better mitigated using avenues other than monetary
policy adjustments. Also because the apex bank has both monetary
and financial system stability responsibilities, it is expedient to always
keep an eye on both responsibilities in discharging our duties.

I therefore vote as follows:

(i) To hold the MPR at its current level of 12% with the symmetric
corridor of +/-2%.

(ii) To maintain the CRR on public sector deposits at the current
level of 75%.
(iii)
To maintain the CRR on private sector deposits at the current
level of 15%.


8.0 MOGHALU, KINGSLEY CHIEDU

In the face of gradually rising inflation and excess liquidity pressures,
with staff estimates, pointing to inflation ticking up in the next six
months owing to anticipated growth in reserve money and
accelerated food inflation, the imminent injection of over N800
billion liquidity into the financial system through the October 2014
bond-redemption by the Asset management Corporation of Nigeria
(AMCON), pressures on the naira and the imminent end of
quantitative easing by the United States Federal Reserve Bank, the
question that faces the MPC at this time appears to be not that of
whether to tighten monetary policy further, but when.

And in the face of apparent ideological differences of view of at
this meeting of the MPC, with what is desirable – on which we all
virtually agree – increasingly confronted with what is necessary, the
Committee may be walking towards a perfect storm that can only
deferred but not avoided.

Questions have been raised about how the Committee can tackle
rising inflation but without hurting growth, jobs and productivity.
Should the Committee stick with the traditional approach of straight
forward tightening in the face of present and medium term future
economic conditions, or should it shift strategy to addressing how the
excess liquidity in the banking system can be deployed to more
productive ends? Should we indeed, reach out to unconventional
wisdom?

Perhaps we should, but not now. If the MPC is to abandon the
implicit inflation targeting it has pursued for the past three years, it
needs to consider three important factors. First, any strategy course
correction can only be a medium to long term affair, not a short
term one in the face of the monetary conditions and market
dynamics the Committee is confronted with in the short to medium
term. Neither this meeting nor at least the next two to three
meetings of the Committee will, in my view, be auspicious for a fully
growth oriented Keynesian, as opposed to monetarist approach to
monetary policy to be unfolded.

Second, it is important to note that in countries where inflationary
growth has been pursued, it had required strong capacity of the
fiscal authorities to provide the financial resources that in Nigeria the
Central Bank of Nigeria has been constrained to provide, partly as a

result of fiscal challenges, for essential interventions to unblock
reform bottlenecks such as the recent N213 billion loan facility
provided by the Bank to defray successor debts owed to gas
suppliers by the newly privatized power generation and distribution
companies.

In other words, the Bank cannot fully perform alone as a normal
business practice economic functions that ideally belong to other
arms of government. It is certainly permissible to do so in
circumstances where a strategic intervention can make a
fundamental difference to achieve price stability that supports
economic growth and transformation. After all, the QE embarked
upon by the U. S. Federal Reserve. Bank remains unprecedented.

Third, I believed it is in fact necessary to consider the credibility of the
CBN and its MPC as the Committee considers possible scenarios for
monetary policy activity in the months ahead. Expectations will
have to be managed carefully. Strategic communication and
appropriate forward guidance remain essential.

I am persuaded that, as I noted in my statement on the July 2014
meeting of the MPC, we have cause for concern but no reason to
be alarmed about inflation and liquidity trends in the economy. Thus,
I am willing, in the face of present trends to give room for an attempt

at strategies to incentivize deposit money banks to deploy excessive
liquidity to the real economy, failing which the MPC will have to
tighten monetary policy at its November 2014 meeting. The
constraints that will face this quest to incentivize increased bank
lending to deflate liquidity include the historical experience and
empirical evidence that Nigerian banks have not responded to
incentives to lower lending rates and reduce the wide gap between
lending and deposit rates. Moreover, this approach may require
more time to work.

There is a larger debate that needs to take place in the MPC at this
time, and that is that of what type of monetary policy is best suited
for a developing country such as Nigeria. The monetarist approach,
which the CBN has adopted for the past several years, is based on
the Quantity Theory of Money which focuses on the influence of
money supply as a factor in both inflation and GDP growth. This
approach, with the late Milton Friedman as its great advocate, has
delivered price stability in Nigeria through tight monetary policy in its
current phase, and is also what has given impetus to the
unconventional method of QE which the Federal Reserve adopted
in the wake of the financial crisis to reflate the US economy. But tight
monetary policy, while containing inflationary pressures, is seen as
restricting growth because it has made access to credit difficult for
businesses with the potential to generate increased productivity. We

certainly need to think beyond merely maintaining price stability,
which is nevertheless essential because the cost of the absence of
stability is high, to how to think about how transformational growth
potential in the economy can be unlocked.

While monetarism has gained traction over the past 35 years in
monetary policy and has come to be seen as conventional wisdom,
it was not always so. The advanced economies that practice
monetarism today powered their economies through a markedly
different monetary paradigm in different, past eras, and that was
through
Keynesian,
growth-stimulating
government
spending
(frequently financed by central banks). This calls into question what
the role of central banks is, and the real answer is that there is no set
answer. Developmental conditions and strategies can dictate the
answer to this question.

The real question is whether Nigeria is ready or able, and the time is
ripe, to move away from monetarism towards a Keynesian progrowth monetary policy. Two factors point to why timing is critical is
addressing this question. The first is that the productive base of the
Nigerian economy is still relatively weak, largely because the
structural conditions to drive a massive boost in manufacturing
output is constrained by the huge gap between need, potential and
availability of electric power that would not only drive productivity,

but also drive down the cost of doing business including the cost of
credit. This suggests that the best timing to pursue an explicit progrowth monetary policy might be when this foundational condition is
addressed.

The second is that the revenue tax base of the fiscal authorities is still
relatively weak and needs to improve in order for the government to
finance growth at a more optimal level beyond the vagaries of
exogenous factors such as the fluctuations in the price of crude oil.
Beyond this, the only alternative scenario that can support a
sustained decrease in rates or a general loosening of policy stance
would be bountiful external reserves and increased fiscal savings.
While, at approximately $40 billion, the country‟s reserves are stable,
this is still way off from the level where it would have to be for the
Bank to undertake a radical shift in policy stance and have the
ammunition to manage the inherent risk if structural reforms in the
economy have not yet bedded sufficiently.

Another factor to consider is that, while tight monetary policy may
constrain growth potential, inflation, which the prevailing monetary
policy stance has successfully contained in Nigeria, is the most
regressive tax on the poor, the vast constituency that Keynesian
monetary policy asserts to support. Rising inflation, without real
productivity as a possible policy trade-off, would hurt the poor far

more than high interest rates. It can be argued, of course, that the
growth that is achieved in a high interest-rate regime is often not
inclusive growth that can lift the poor out of poverty and enable
them create wealth. Lower policy rates will make investments in
Treasury Bills and other instruments, as well as the CBN Standing
Deposit Facility less lucrative for banks and thereby possibly stimulate
lending by banks. But, is the wider environment conducive to
guaranteeing this outcome? This is doubtful.

The reality thus remains that if ongoing structural economic reform
continue with success, in another three to five years the conditions
will exist in the real economy to support an unabashedly pro-growth
monetary policy in which the exchange rate can be supported by
endogenous factors rather than merely exogenous ones such as
foreign portfolio investment and the price of crude oil because
increased power generation, distribution and transmission will trigger
more robust productivity from manufacturing and the establishment
of private sector petroleum refineries will exert less pressure on our
import bill and on demand for foreign currencies. This, by the way, is
an important justification for targeted developmental interventions
by the CBN that can contribute to achieving this goal, where the
Bank‟s balance sheet allows.

I am also persuaded by the need to weigh the implications of further
tightening at this time on financial stability. Against this background,
while we watch the situation carefully and take the required
administrative and strategic actions calculated to reducing interest
rates in the medium to longer term, I will vote for a hold at this time,
without prejudice to the possibility of further tightening in the short
term should monetary conditions warrant it.

I therefor vote to:

i.
Hold the Monetary Policy Rate at 12%
ii.
Hold corridor in a syndetic stance at plus or minus 2%
iii.
Hold the Cash Reserve Ratio at 75% for public sector deposits
and 15% for private sector deposits
iv.
Hold the Liquidity Ratio at 30%.


9.0 SALAMI ADEDOYIN

The prelude to this meeting saw the release of data showing the sixth
monthly rise in aggregate prices. Even though, at 0.5percent, the
Month – on – Month change in aggregate prices in August was the
lowest since February, 2014, the outlook provided by Bank Staff show
that prices will continue rising until year-end. Indeed, with Headline

Inflation for December 2014 projected at 8.8percent, the possibility
of missing the target band looms large!

My inability to support the majority of my colleagues in deciding to
leave the stance of policy unchanged stems from the following –

• A worsening global and domestic outlook; and
• The need, in the face of worsening outlook, to preserve the
credibility/reputation of the Central Bank with regard to its
inflation mandate;

My perspective on the outlook for the global economy is that it is
largely unfavourable to Nigeria. Easing oil prices, despite continuing
uncertainty and conflict in the Middle East, coupled with OPEC‟s
announcement of cutbacks in Oil production Quotas – albeit in
effective 2015 – in my view, poses a challenge to our fiscal balance.
Beyond oil prices, announcement of the end of Quantitative Easing
by the Federal Open Market Committee (FOMC) of the US Fed.
Reserve has potentially disadvantageous implications for Nigeria.

A stronger US dollar resulting from rising American interest rates will
challenge our FPI dependent build – up in Forex reserves – how
badly will be revealed in time. In passing, having noted easing oil
prices, the impact of the anticipated strengthening of the US$ on oil

market dynamics – quantity and then prices – is an issue which,
though not for immediate consideration, should not be ignored.

On the domestic front, rising food prices show that beneficial impact
of easing international food prices have not „passed through‟ to the
food price index. Indeed, the suspicion is that increasingly expensive
locally produced food is overwhelming any „pass through‟ of
international food prices. While monetary policy affords no solution
to rising food prices, there are number of non-food issues including –

i.
The build-up of banking sector liquidity;
ii.
Rising CBN intervention in FOREX market which is indicative of
growing pressure on the currency;
iii.
Continuing portfolio allocation decisions against the Naira
which suggest to me that tighter monetary policy is appropriate
at this time.

The growing level of liquidity will be exacerbated by the imminent
redemption of a further tranche of AMCON Bonds. The forwardlooking nature of Monetary Policy convinces me that now is the time
to tighten. Perhaps most significant issue from my perspective is that
care MUST be taken not to convey the impression that the MPC has
lowered the priority it accords inflation management.

10.0 UCHE, CHIBUIKE U.

This MPC meeting was a very difficult one for me especially given the
fact that most of the economic indices that determine the health of
the Nigerian economy are pointed in the wrong direction. The
decline in both oil prices and oil production in our mono product
economy continues to put enormous pressure on our foreign
exchange rates and reserves. Increasing demand for foreign
exchange,
growing
food
shortage
which
is
mainly
as
a
consequence of the crisis in the North East geopolitical zone and
political uncertainties which are in part a consequence of the
upcoming 2015 elections have also not helped matters. In fact, a
number of critical inflation indices have continued to creep upward
for some time now.

It is based on the above troubling factors that I have come to the
careful conclusion that there is now again the need to further
tighten money supply. Although I have consistently argued that the
monetary stability mandate of monetary policy is not an end in itself,
to do nothing at this stage will in my view send a strong signal to
speculators and foreign investors that indeed the CBN may soon
throw in the towel in defending the exchange rate of the Naira.
While tightening money supply will increase interest rates, which will
be detrimental to the interest of the productive sectors of our
economy, the inflation and possible devaluation consequences of

doing nothing will in my view be even more detrimental to the said
sectors of our economy.

It is also important to note that both maintaining the status quo and
tightening money supply at the present time portend danger for
financial system stability. Available statistics for instance show that
tightening money supply at this stage may cause a few banks to fail
critical financial stability ratios. On the other hand, the uncertainties
and possible inflationary and exchange rate consequences of doing
nothing, in my opinion, pose even greater danger for our country‟s
financial system stability both in the short and medium term. This is
because any major devaluation at this stage, given our peculiar
mono product economy, will likely distort the productive base of our
economy, discourage long term investments and attract more short
term investors and currency speculators.

Based on the above analysis, the critical question for me at this MPC
meeting is therefore not whether to tighten but what type of money
tightening instrument(s) to use. In reaching a decision, it is important
to point out that since I joined the MPC in January 2010, few have
disputed the fact that fiscal indiscipline has been a major
impediment to effective monetary policy formulation in Nigeria. It
was as a consequence of this that we introduced discriminatory CRR
on public sector deposits. The fundamental reasoning for this policy

action was the appreciation of the fact that charging CRR on
government deposits is in itself an anomaly. This is so because the
Central Bank of Nigeria is by statute the banker to government. The
maintenance of the accounts of government and its agencies in
commercial banks therefore contravenes the CBN statute.

Unfortunately despite all the positive noises the government has
been making for some time now that it would implement a Treasury
Single Account (TSA), this is yet to come to fruition. My suspicion has
always been that the pecuniary interests of government officers and
agents have been central to preventing the adoption of TSA. Bluntly
put, thanks to brokerage incentives, it is not uncommon for
government agencies to have huge sums of money in their current
accounts with commercial banks yielding little or no interests while at
the same time borrowing huge sums of money at double digit
interest rates from commercial banks.

Unfortunately, such practices have had unpalatable consequences
for monetary policy formulation in Nigeria. Government through its
imprudent fiscal practices inadvertently complicates monetary
policy by creating an unhealthy base for real sector economic
development to take place. Scarce government resources that
could be profitably channeled to improving developmental
infrastructure is wasted because of pecuniary gains of government

servants and agents. It is the inability of government to correct long
drawn out base anomalies like the absence of the TSA that has no
doubt helped in fuelling the widespread perception that corruption
in Nigeria has been institutionalized. Thankfully, it is within the powers
of monetary policy to correct this anomaly. Increasing CRR on
government deposits to 100 percent simply removes the incentive for
banks to cooperate with government agents and servants to
sabotage the TSA policy.

For the avoidance of doubt, I do not share the view that our Central
Bank, which has branches in all the states of the Federation may not
be ready to undertake its statutory function of serving as banker to
the Government. I am simply not convinced that the basic income
and expenditure accounting structure of Nigerian government
agencies is too complicated for our increasingly IT driven Central
Bank especially in this era of cashless policy. This is in part because
unlike most individuals, the expenses of governments (and
companies) can mainly be done through cheques and bank
transfers. My position that government should be forced to maintain
a TSA is further reinforced by my personal belief that with the 75
percent CRR on public sector deposits, banks may have changed
tactics by using such deposits to fuel and take advantage of our
increasingly divergent official and parallel foreign exchange markets
through arbitrage.

At another level, the move towards TSA will enable banks to focus on
their core mandate of acting as intermediaries between excess and
deficit units of the economy. In the long run, this has the potentials to
force banks to lend to and grow the productive sectors of the
Nigerian economy. This is by far the most plausible way to guarantee
banking sector stability.

In the light of the above factors, I hereby vote as follows: (1) to retain
MPR at 12 percent with interest rate corridor of + 200/- 200 basis
points; (2) to retain CRR on private sector deposits at 15 percent; (3)
to increase CRR on public sector deposits from 75 percent to 100
percent, and; (4) to retain Liquidity Ratio at 30 percent.


11.0 YAHAYA, SHEHU

I vote to for a slight tightening of monetary policy through an
increase on the CRR on private sector deposits, while maintaining
the MPR at its current level of 12%, along with the symmetric corridor
of +/-2%, the CRR on public sector deposits at the current level of
75%.
My decision is based on the following considerations:

International Economic Environment
Economic recovery is underway in the US, despite the stutter in
Q12014. Output continues to recover, unemployment is gradually
falling and prices slowly rising. The asset purchase program by the
Fed is scheduled to stop in October 2014. The main concern for
developing and emerging economies is of course whether the
ending of the asset purchase program will raise interest rates in the
US and precipitate capital flight from the developing countries.

In the case of Europe, it is expected that the purchase of assetbacked securities to help stem deflationary trends will keep interest
rates down and partially offset the effect of rising interest rates in the
US. Stable demand growth in China continues to provide a source of
demand for primary products and therefore growth for developing
countries.

As far as prices are concerned, world prices continue to be fairly
stable and are indeed declining in some OECD countries. For the
most part therefore, there are no current concerns for significant
imported inflation.

In the case of oil prices, there is already a downward trend, with the
price of Bonny Light dipping below the US100/barrel mark for the first
time in a while. OPEC has been concerned enough to try and

reduce supply. As the production of shale oil in the US continues
(indeed it is at a historical peak now), and considering slow growth
pick up in Europe, there is a risk that oil prices may fall further.

Domestic Economy
Growth in the country in Q2 2014 is fairly robust at 6.54% and is
expected to be around 6.75% for the year. The risks to sustained
growth in the country emanate mainly from the effects of the
insurgency in the North Eastern part of the country, possible decline
in oil prices in the face of lower than planned output levels, as well
as low domestic investment levels. On the other hand, there are
prospects for investments in infrastructure and agriculture impacting
positively on the real sector and on jobs.

Price levels have maintained an upward trend each month since
March 2014 and are currently at 8.3 per cent. Headline inflation is
projected to trend upwards up to the early part of 2015 on the back
of persistent excess liquidity in the banking system, prospects of
increased fiscal expenditure in the run-up to the election, as well as
pressure on the forex market.

The exchange rate is currently under significant pressure. This is
emerging from a number of directions, including a significant outflow
of US$4.1 billion in the first half of 2014 and the downward trend in

the price of Bonny light crude in the face of production challenges.
These factors may put significant pressure on foreign reserves, which,
although showing signs of recovery, are still vulnerable.

The government on the other hand has demonstrated considerable
fiscal prudence- both reducing borrowing and expenditure in the
face of revenue slippages. This has helped give some headroom for
monetary policy. The challenge is to maintain this fiscal stance in the
run-up to the elections. The downside is that the burden of fiscal
prudence has fallen disproportionately on capital expenditure. While
credit to government has fallen, credit to the private sector has also
been quite slow, despite the liquidity surfeit in the banking system.

In the money market, inter-bank rates fairly stable. Interest rates
remain high and the spread between lending and deposit rates are
still widening

Conclusion
The main factors to be considered relate to the pressure on the
exchange rate, the downside risk to oil prices, the risk of accelerated
reversals of portfolio investment and the upward-creeping price
levels. It is clear to me that something must be done to stem these
pressures.

At this time, it may not be the best approach to raise MPR because
of the probable effect on interest rates and the possible truncation
of the positive trends in credit support for some real sectors.
Nevertheless, excess liquidity has to be addressed in order to help
avert its possible inflationary and exchange rate effects. I therefore
vote for a small rise in CRR on private sector deposits so as to help
stem the pressure on prices and the Naira exchange rate.

12.0 EMEFIELE, I. GODWIN, GOVERNOR OF THE CENTRAL BANK OF
NIGERIA AND CHAIRMAN, MONETARY POLICY COMMITTEE,

Key macroeconomic indicators in the domestic economy revealed
a mixed signal. Output expansion at 6.54 per cent during 2014Q2
could be adjudged fairly robust while external reserve level of about
US40 billion in the face of rising demand pressure is still comparable
with the level in most emerging economies. A reasonable degree of
stability is also discernible in the financial markets particularly with the
resurgence of transactions in the interbank market following a fairly
prolonged lackluster performance of that segment of the money
market. This is particularly welcomed in view of its salutary impact on
the transmission mechanism of monetary policy.

A major concern however is the rising inflationary trend with headline
inflation accelerating to 8.5 per cent in August. Against this
background and coupled with the inherent risks in the near to

medium term outlook, therefore, policy choices at this meeting
appear limited.

The risks in the near- to medium-term could be dimensioned into
global and domestic. From the global side, the massive monetary
stimulus of the Federal Reserve Bank is expected to cease with effect
from October 2014 thereby reducing the supply of foreign capital,
which enters the financial markets of emerging and frontier markets.
To confront this risk, a number of central banks in emerging
economies have held policy rates at elevated levels since the
beginning of QE3 tapering in the latter part of 2013. Thus, it is
advisable to keep the monetary policy rate (MPR) at the subsisting
level of 12 per cent which is adjudged competitive with the risk
adjusted level in comparable jurisdictions.

Another major issue in the external sector emanates from the
commodity price developments, particularly the falling crude oil
prices engendered by ample supply by rising shale oil production in
the US. The worry is magnified by continuous softening in the price of
crude oil despite the geo-political conflicts in oil-producing countries:
Russia, Iraq, Syria, and Libya and also the war in Ukraine. This
development portends considerable risk to Nigeria‟s fiscal revenue
performance as well as accretion to external reserves.

In the domestic environment, factors such as election related
expenses, likely increase in electricity tariffs, global rise in food prices,
and supply shocks due to insurgency constitute upside risks to the
medium term inflation outlook. Perhaps, more importantly, food
inflation is projected to cross the single digit border over the next six
months, heightening apprehension about the Bank‟s ability to
maintain its short- to medium-term target on headline inflation. Also,
money market rates have been virtually below the policy rate for a
considerable part of fiscal 2014, suggesting persistence of liquidity
surfeit with the attendant possibility of pressure in the foreign
exchange market or the alternative burden of mopping up. The
situation is expected to be complicated by the redemption of
AMCON bonds to the tune of about N0.9 trillion by end-October. The
foregoing scenario points to one policy direction: some form of
tightening.

Before taking my decision, however, it is imperative to equally
consider the evolving paradigm on monetary policy which is price
stability with inclusive growth as articulated in my strategic vision
document upon assumption of office. As a consequence, other key
development indicators particularly the deteriorating trend in
unemployment and poverty should be considered. My view is that
further tightening either through raising the MPR or CRR would affect

the already elevated lending rates with implications on the quality of
banking assets.

This demands that we begin to explore unconventional means to
address the issues in the macroeconomy. Credit to the private sector
grew by a mere 5.36 per cent at end-August 2014, translating to an
annualized rate of 8.04 per cent compared with our annual target of
15.85 per cent. Aggregate money supply grew by 2.94 per cent
during the same period, annualizing to 4.41 per cent against the
annual target of 15.52 per cent. This analysis suggests that the
liquidity surfeit only exists in the banking system while the economy as
a whole is short of liquidity. The challenge for monetary policy,
therefore, is to devise innovative means to channel the excess
liquidity within the banking system to the economy rather than
sucking them up. In the interim, however, I would advocate for moral
suasion on the banks to deploy their excess liquidity into the real
sector instead of gilt edged government securities and related
investments.

In the light of the foregoing, I vote to keep steady all the subsisting
measures of monetary policy. Specifically, MPR at 12 per cent with
symmetric corridor of 200 basis points; Private sector CRR at 12 per
cent; public sector CRR at 75 per cent; and Liquidity ratio at 30 per
cent.