Central Bank of Nigeria Communique No. 99 of the Monetary Policy
Committee Meeting of Monday 19th and Tuesday 20th January, 2015

The Monetary Policy Committee (MPC) met on January 19 and 20,
2015 against the backdrop of challenging external conditions and
downside
risks
in
the
domestic
economic
environment.
In
attendance were all the eleven members of the Committee. The
Committee reviewed key external developments as well as domestic
economic and financial conditions and outlook for 2015.
International Economic Developments
The Committee noted the tepid recovery of the global economy in
2014. The major impetus for global growth in 2014 came from the U.S,
and supported later in the year by the drop in oil prices. However,
both developments fell short of returning the global economy to the

pre-crisis growth path. This was mainly due to the weakness in Europe
and the much slower pace of expansion in the emerging market
economies in particular. Specifically, global growth continues to be
constrained by a number of old and new adversities including high
debt and rising unemployment in many countries; geopolitical
tensions and conflicts; the negative impact of commodity price
shocks on commodity exporting countries; weak external demand;
and the tapering and eventual exit of the US Federal Reserve Bank
from quantitative easing; triggering sharp corrections in the financial
markets. Consequently, global output rose by about 3.3 per cent in
2014, which was the same rate of growth attained in 2013. It is
estimated to strengthen to about 3.5 per cent in 2015.
The Committee, however, noted many downside risks to the outlook.
The Euro Area and Japan appear trapped in low inflation and low
growth conditions. High unemployment and debt could persist much
longer in the Euro Area in particular while a possible deflation is likely
if inflation continues on the downward trend. The Committee also
acknowledged the high likelihood of an increase in interest rates in

the United States; which portends negative consequences for
emerging and frontiers economies. Already, growth is moderating in
most industrial countries and could further be dampened by the
strengthening of the U.S dollar, more volatile capital flows and
financial system vulnerabilities arising from currency depreciations.
All of these could be compounded by increased geopolitical risks
arising from the Ukrainian stand-off, militant terrorism, armed
insurgency and the aftermath of the Ebola epidemic in some
countries
in
the
West
African
sub-region.
Furthermore,
the
divergence between the US and Euro Area monetary policy stance,
non-inclusive growth and the regional impact of falling oil prices with
acute revenue shortages in countries like Nigeria, Venezuela and
Russia add to the risk factors.
Evidently, the outlook for growth in the various economic clusters
continued to be shaped by the identified risks and opportunities. The
IMF projects the major advanced economies to grow at a modest
pace of about 2.3 per cent in 2015, premised on the sustained
growth in the U.S and some improvements in Europe. The decision of

the European Central Bank (ECB) to continue with the existing
provision
of
unlimited
short-term
liquidity
as
well
as
the
implementation of new programmes will be critical to the global
economic performance in 2015. For the emerging markets and
developing economies, , growth could be modestly maintained in
2015 at about 4.3 per cent, driven essentially by domestic
consumption and increased investment as net exports continue to
moderate in response to softening commodity prices.

Inflation is not an immediate global priority as most of Europe and
Japan
grapples
instead
with
potential
deflation
and
high
unemployment. The outlook for monetary policy suggests continued
divergence amongst the various economic blocs. The Euro Area and
Japan are expected to sustain this accommodative monetary policy
stance while the U.S authorities appear to be leaning towards
monetary tightening. Similarly, monetary policy is likely to remain
restrictive amongst developing and emerging economies in order to
stabilize their local currency, and to rein-in potential inflation

pressures. The Committee was generally of the view that monetary
policy play a pivotal role in restoring economic activity to optimum
levels globally, especially when complemented by structural reforms,
fiscal adjustments and better coordination of policy actions. In fact,
current conditions call for engagement of multiple macroeconomic
and structural policy levers.
Domestic Economic and Financial Developments
Output
The National Bureau of Statistics (NBS) estimated real Gross Domestic
Product (GDP) growth rate at 6.23 per cent in the third quarter of
2014 compared with 6.54 per cent in the second quarter. The
Committee noted the continued dominance of the non-oil sector,
particularly Services which contributed 2.53 percentage points,
Agriculture (1.21 per cent) and Trade (1.08 percentage point). The
Committee noted with satisfaction the Federal Government’s efforts
to boost power generation and supply, among others, which would
improve the economy’s job creation prospects in the medium- to
long-term.

The Committee was, however, concerned about the weakening
contribution of the oil sector to overall growth, which is now being
exacerbated by the rapid drop in oil prices since June 2014. In
addition, the Committee noted that the security challenges in some
parts of the country might also be contributing to the dampening
effects on overall growth in the country.
Prices
Headline inflation at end-December 2014 was 8.0 per cent, which
was within the range of 6.0-9.0 per cent benchmark for inflation set
by the Central Bank of Nigeria. The inflation recorded in December
2014 reflects a reduction in core inflation, seasonal factors related to
the Yuletide celebrations, as well as the stabilization in food prices.
The Committee, however, recognized some upside risks to inflation in
the near-term including the likely higher import prices on the strength
of an appreciating dollar and possible food supply bottlenecks
linked to insurgency and insecurity in some major agricultural zones
of Nigeria.

Monetary, Credit and Financial Markets Developments
Broad money supply (M2) grew by 7.29 per cent at end-December
2014 over the level in 2013. This represented a marked improvement
over the 1.32 per cent increase in 2013, but lower than the
benchmark of 15.02 per cent for 2014. The relatively slower growth of
total monetary liabilities (M2) reflected developments in both credit
to government and the net foreign assets (NFA). During the period,
credit to government contracted by 21.8 per cent, far below the
growth benchmark of 28.4 per cent. Similarly, the NFA declined by
15.02 per cent. Credit to the private sector, however, grew by about
12.1 per cent, essentially pushing aggregate domestic credit growth
of about 11.0 per cent. The weak performance of NFA was largely
due to the lower oil prices with the attendant consequence of
reduced accretion to external reserves. The Committee welcomed
the posture of fiscal policy, which reflected in the decline in credit to
government coming especially at a time when government revenue
was greatly pressured by adverse oil price developments. The
Committee noted that this orientation of fiscal policy would have an

overall beneficial effect by leaving DMBs with greater room to
support the real sector with the much-needed credit. The
Committee encouraged the Management of the Bank to continue
to implement measures aimed at providing support to enable
increased flow of credit to the private sector.
Interest rates in all segments of the money market trended upward
between 26th November 2014 and 13th January 2015. The interbank
call rate opened at 8.98 per cent on 26th November 2014 and closed
at 26.15 per cent on 16th January 2015. Similarly, the OBB and 30-day
NIBOR increased from 10.2 and 11.38 to 23.46 and 11.63 per cent,
respectively, during the period. The significant increase in these rates
particularly for interbank and OBB was mainly due to the further
tightening measures introduced at the November 2014 meeting of
the MPC.
The Committee observed that the bearish conditions in the capital
market continued as the equities market indicators trended
downwards in the review period. The All-Share Index (ASI) declined
by 16.1 per cent from 41,329.19 to 34, 657.15 between December 31,

2013 and end-December 2014. Similarly, Market Capitalization (MC)
decreased by 13.2 per cent from ₦13.23 trillion to ₦11.48 trillion during
the same period. The Committee noted that the downward trend
has continued into January 2015 as, year-to-date, both have
declined by 16.2 and 15.7 per cent, respectively. Although this
phenomenon is driven by global economic conditions, in Nigeria in
particular, the situation is exacerbated by the declining oil prices as
foreign
portfolio
investors
divest
from
the
country.
These
developments call for closer monitoring and proactive interventions
by all institutions
concerned. The Committee reiterated its
commitment to sustaining and deepening measures aimed at
fostering confidence and stability in the financial system.
External Sector Developments
The Committee noted that significant pressure persisted in the
foreign exchange market during 2014 resulting in further weakening
of the Naira across the three segments of the market. The exchange
rate at the rDAS-Spot opened at N157.34/US$ (including 1%
commission) and closed at N164.08/US$, representing a depreciation

of N12.34 or 4.28 per cent. The inter-bank selling rate opened at
N165.7/US$ and closed at N180/US$, representing a depreciation of
N14.73 or 8.63 per cent in the period, while at the BDC segment, the
selling rate opened at N170/US$ and closed at N191.50/US$
representing a depreciation of N21.50k or 12.64 per cent.
Gross official external reserves as at December 31, 2014 stood at
$34.25 billion compared with $42.85 billion at the corresponding
period of 2013. The decrease in the reserves level was driven largely
by increased funding of the foreign exchange market interventions
to stabilize the exchange rate in the face of decline in reserve
accretion. The country’s external reserves as at the end of
December, 2014 could finance 7.44 months of imports, which we
considered very good given the average of 3 months of import that
is the standard.
Considerations
The Committee noted with satisfaction the growth performance of
the economy as well as the year-end inflation outcome. It was,
however, concerned about a number of risks including the security

challenge in parts of the country, which has continued to disrupt
farming and related activities; and the sustained decline in oil GDP.
With regard to inflation, the Committee noted the recurring
challenge of excess liquidity in the banking system and the possible
complications arising from capital flow reversal, as well as the
demand pressure in the foreign exchange market.
On the external front, falling oil prices, slowing global output
recovery, divergent monetary policy postures between the US and
Euro Area as well as non-inclusive growth remain very important risks.
The gradual normalization of monetary policy by the US Fed could
exacerbate the current retrenchment of portfolio flows and increase
pressure on currencies in emerging and developing countries
including Nigeria.
In the light of the above considerations, the Committee observed
that its decisions of November 2014 needed sometime for the effects
to crystallize in the economy and therefore, voted to retain the
current position.

Consequently, the Committee decided as follows:
Decision
(1)
All eleven members voted to retain the MPR at 13 per cent;
retain the CRR on Private Sector deposits at 20 per cent;
retain CRR on Public Sector deposits at 75 per cent; and
retain the liquidity ratio at 30 per cent.
(2)
One member, however, voted for an asymmetric corridor
around the MPR.
I thank you all for Listening

Godwin I. Emefiele, CON
Governor
Central Bank of Nigeria

20th January, 2015

PERSONAL STATEMENT BY THE MONETARY POLICY COMMITTEE
MEMBERS

1.0
ADELABU, ADEBAYO

Developments in the macroeconomy at end-December 2014
revealed intensification of weakness to adverse global economic
conditions. Apart from inflation, which was contained within the
single digit target of the Bank, almost all other key macroeconomic
indicators exhibited one form of weakness or the other. The
aggregate growth of GDP at the end of third quarter of 2014 could
be adjudged fairly impressive but the renewed plunge in oil GDP is a
cause of serious concern. Despite measures taken at the November
2014 meeting, significant volatility and pressure were evident in the
financial market particularly in the foreign exchange market. The
pressure in the foreign exchange market not only resulted in the
exchange rate at the r/WDAs veering off the 5 per cent band but it
equally created wider divergence in rates across the three segments
of the foreign exchange market. Similarly, considerable volatility was
exhibited in the money markets as both the inter-bank and Open

Buy Back (OBB) rates ascended to a new height, far above the
ceiling of the Monetary Policy Rate (MPR).
An assessment of the near to medium term outlook does not suggest
that the underpinning factors would die out soonest. The pressure in
the foreign exchange market is largely due to a variety of issues. First,
the softening oil price has not only reduced accretion to external
reserves but has led to erosion of sentiments in favour of the country
with the latest being the placement of the Federal Government
bond under watch by JP Morgan.
Some analysts have projected that the weakness of oil price may
bottom out by the second half of 2015 based on the assumption that
marginal shale oil producers may exit the market due to inability to
break even. My take is that this thesis should be taken with cautious
optimism given the unfolding developments particularly the position
of Saudi Arabia to continue pumping oil regardless of OPEC’s stand
with respect to supply cut. This is a clear signal that supply glut may
persist, at least up to mid-2016. In relation to this is the sluggish
recovery in key advanced and emerging economies. Latest data

from the IMF is indicative that the Euro zone is not completely out of
the wood even with series of monetary easing measures by the
European Central Bank (ECB) while China is expected to post about
7 per cent growth rate in the near term compared with an average
of 10 per cent in the decade preceding the global financial crisis.
This invariably suggests that global demand for crude oil would be
shrinking in the face of expanding supply.
Apart from the effect of crude oil, the stance of monetary policy in
the US is also a key consideration. After about three years of
monetary easing, normalization of monetary policy by the US Federal
Reserve is anticipated by the second half of 2015 as labour market
firms up. This would invariably scale up retrenchment of portfolio
flows in developing and emerging economies including Nigeria, thus,
accretion to external reserves could show further slowdown. The
conditions in the money markets suggest some elements of fragility.
Given the pressure in the foreign exchange market coupled with the
demand for the Standing Deposit Facilities (SDF) of the Bank, the
spikes in the interbank rates following the November 2014 meeting

could not be possibly due to tightness of the market alone. Other risk
elements particularly elevated counter party risk could probably be
at play.
In addition, the benign inflation outcomes appear vulnerable to set
back as economic agents continue adjustment to key measures,
particularly change in the mid-point exchange rate, taken at the last
meeting. Upside risk to price level in the domestic environment is
further complicated by election related expenditure which is
expected to heighten in the first quarter of fiscal 2015.
In the light of the foregoing, my take is that the tightening mode be
sustained. I would be cautious to introduce further measures in the
light of monetary policy transmission lag as empirical evidence
suggests that actions of monetary authorities take between 18-24
months to permeate the entire economy. In other words, in spite of
the seemly intensification of risks, it may be in order to wait and
ensure that the far reaching measures taken in the November 2014
meeting completely transmit to the economy in order to avoid time
inconsistency challenge.

Based on the foregoing, I vote for the retention of all monetary
policy measures in place.
2.0
ALADE, SARAH O.

This first MPC of 2015 is expected to set the tone and anchor
expectation of monetary policy direction for the year and send a
strong message to the market on the readiness of monetary policy to
weather the storm under the current falling oil prices and dwindling
reserves. Headline inflation ended the year at 8 percent, but GDP
growth for 2015 has been downgraded to about 5 percent on the
back of low international oil prices the main source of revenue for
the economy. On the global scene, there are mixed results, while the
low oil price will give boost to global growth, the boost will be offset
by the effects of declining oil price on oil exporting countries and
weak investments in some advanced and emerging economies
such as China, Russia and the euro area. These developments
suggest that monetary policy should give considerations to both
global and domestic development, thus a hold on Monetary Policy

Rate, Cash Reserve Requirement in other not to strangle domestic
growth.
Headline inflation ended the year at single digit, underpinning the
strength of monetary policy throughout the year. Headline inflation
ended 2014 at 8.0 percent in December, making it the twenty four
consecutive months that inflation has remained at single digit. Core
inflation on the other hand decreased from 6.3 percent in
November, to 6.2 percent in December. Food inflation increased
marginally to 9.3 percent in December, from 9.2 percent recorded in
November due to festivities spending. All major inflation indices,
headline, core and food inflation remained at single digit for the
whole of 2014, a remarkable achievement for the country and for
monetary policy. Despite the risk posed by the declining oil prices
and the implication for the economy, staff projection suggests a
benign outlook in inflation in the coming months. Therefore,
inflationary pressure is not a concern in the short term.

The decline in global oil price will pose downside risk to Gross
Domestic Product (GDP) Growth. The declining oil price and the
resultant reduction in revenue and negative terms of trade shock will
imply significant downside risk to GDP growth in 2015. New estimate
for GDP growth in 2015 is between 4.8 and 5.2 percent. Although this
is still within Sub-Saharan Africa GDP estimated average of 4.9
percent for 2015, it is low for Nigeria that has maintained an average
growth rate of 6 percent for the last ten years. The decrease will
come
mainly
from
cutbacks
in
growth-enhancing
capital
expenditure as revenue from oil decreases and government
implements austerity measures. These developments suggest that
both global events and domestic challenges pose huge challenge
to growth in the coming months.
Past monetary policy actions should be allowed to take full effects
before further action is taken. Money policy action taken at the last
MPC to stabilize the market should be monitored before taking
further action. Interest rates in all segments of the money market
trended upward since the last MPC, between 26th November 2014

and 13th January 2015. The interbank call rate opened at 8.98
percent on November 26 2014, after the MPC meeting and closed
at 26.15 per cent as at January 16, 2015, signaling the effect of the
policy action on the market. Similarly, the Open Buy Back (OBB) and
30-day NIBOR increased from 10.2 and 11.38 to 23.46 and 11.63 per
cent, respectively during the period. The significant increase in these
rates particularly interbank and OBB was mainly due to the
tightening measures introduced at the November MPC. In addition,
lending rate on consumer loan increased between 200 to 300 basis
points. While the decisions were intended to stabilize the exchange
rate and conserve reserves, considerations should also be given to
domestic growth concerns.
Momentum to global growth is mixed but more balanced on the
upside than in 2014. The IMF in its January 20th 2015 World Economic
Outlook (WEO) projected global growth to 3.5 percent in 2015 up
from 3.3 percent recorded in 2014, boosted by lower oil prices as a
result higher supply. There are marked divergences among countries
both in terms of growth and monetary policy. While the USA is

experiencing
increased
growth
and
winding
down
its
accommodative monetary policy stance, the euro area and Japan
are trapped in low inflation, low growth path with accommodative
monetary policy. Overall, the main upside to growth is the lower oil
prices, although no one is sure on how long this would persist. On the
downside, the shift in sentiment in global financial markets, especially
for oil exporting countries where lower revenue have introduced
some external and balance sheet vulnerabilities. Under these
uncertain conditions, monetary policy at this time should be focused
at minimizing the downside risks and restoring confidence in the
economy.
Against this background, I support the retention of the current
stance of monetary policy. I vote for no change in Monetary Policy
Rate at 13 percent, retain Private Sector Cash Reserve Requirement
(CRR) at 20 percent, retain Public Sector Cash Reserve Requirement
(CRR) at 75 percent and retain Liquidity Ratio at 30 percent to
address both growth and macroeconomic concerns.

3.0
BALAMI, DAHIRU HASSAN

Global Economy
The most significant development in the international economy is
that crude oil prices had fallen significantly further during month of
November 2014 to mid-January 2015. This could be attributed to the
demand and supply factors, although a compendium of conspiracy
theories does exist. It is pertinent to note also that during the month
under review, some non-oil commodity prices had also weakened
significantly. For example agricultural prices had fallen by 9% after a
bumper harvest in North America and other parts of the world. In
the same vein, the price of industrial metals price had fallen by
about 2% during the month of December.
At the international level, there has been downward pressure on
inflation rates around the world. In terms of growth, the United States’
economy GDP had been revised upward. The growth performance
is also witnessed in Germany as the country’s output had bounced
back after contraction in the second quarter of last year. However,

a different manifestation of economic performance was witnessed in
Japan as the country’s GDP was estimated to have fallen by 4% in
third quarter of 2014. In China, economic activities had continued to
grow at a slower rate than seen on average since the end of the
financial crisis.
In the months of November, down to mid-January, the international
economy has witnessed lower inflation rates. This necessitates
emerging economies like China to review the country’s interest rate
downward. In the Euro zone inflation had also fallen to 3.3% in
November, with further reduction in December 2014. Re-assessment
of growth prospect of oil exporting countries by investors, have
contributed to capital out flows and recession. It should be noted
that current development in the United States of America‘s
economy is not likely to have any substantial effect on the Nigerian
economy. This is largely because the United States of America has
stopped patronizing Nigerian crude oil.

At the Domestic Level
With the local economy, the level of growth is expected to be
around 6.5%. The local economy had witnessed considerable
challenges which more often than not with vigorous polices had
been surmounted to the barest minimum. These challenges include
but not limited to the following: security in the north-east region;
falling oil prices; lower foreign reserve; volatility in the exchange rate;
outflow of reserve, and election expenditure.
It is my candid opinion, to put the economy in a proper state and to
ensure that all economic buffers are appropriately aligned the
following variables that could hamper financial system stability
should be addressed.
(i) Continuous falling oil prices
(ii) Risk of rise in Non-Performing Loans
(iii)
Loan concentration
(iv) Macroeconomic Issues (pressure on the exchange rate,
Rising inflation and unemployment).

In view of the above, there is need for monetary policy
management to be put in place Policies of reassessing inherent
risks and associated costs with the above mentioned variables. It

is expected that when the current polices put in worked itself
through, the results will be positive in terms of stabilizing the
economy. There is the need to put the major variables under
close watch in the days ahead.
On the basis of the above I vote to retain the following:
(i) MPR-Retain the MPR at 13%
(ii) MPR Corridor- Maintain +/- 200 basis points
(iii)
CRR- Retain the CRR at 20%
(iv) Liquidity Ratio- Retain the 30%
(v)
FX Rate Mid- point retain at N168/U.S$
(vi) FX band be maintained at +/- 5 point basis.

4.0
BARAU, SULEIMAN
Introduction
I entered the 242nd Monetary Policy Committee with the due
realization that every crisis comes with its opportunities. If the current
drop in oil price is to be seen in the context of a crisis, then it also
provides opportunity for us to, as it often said, "bite the bullet". I'm
therefore convinced that we need to articulate more strategic and
radical response to the issues confronting us and the current meeting
provides the opportunity for us to throw up and discuss these

strategic responses rather than an opportunity to prescribe tactical
responses in a rather rash and not well thought through fashion. I
therefore think that this is the time to hold policy actions where they
are.
Review of Current Developments
The following key issues continued to confront the MPC:
Declining oil price. Oil price closed at $48pb for Brent Futures
on 19/1/15 a decline of 50% since June 2014, riding on
unprecedented production coming from the oil fields in the US.
The sustained decline in oil price in the last few months has
threatened the efficacy of policy because of its effect on
government revenues, level of foreign reserves, foreign portfolio
flows and ultimately the exchange rate.
Sustained disturbing developments in the global economic
environment. The IMF just reviewed its global growth forecast
for 2015 from 3.8% to 3.5% it projected in October, 2014. This
downgrade is coming on the back of the fact that weaker

anticipated investment would more than offset whatever
benefit declining oil price will have on the non-oil producing
economies. The US economy demonstrated a strong rebound
in 2014. However, the developments in the Euro area and
Japan continued to be disturbing. These were compounded
by sanctions on Russia and the effect of decline in commodity
prices on the fortunes of other emerging and frontier
economies. China’s GDP growth in 2014, as an example was
7.4%, the slowest level since 1990.
These key issues also confronted the MPC to a lesser degree
and elicited its response at the last meeting. In my view the
measures taken by the MPC at the last meeting produced the
following results.
Inflation was stable. Year-on-Year Headline Inflation (HI)
marginally increased to 8% from 7.90% in December and
November respectively. YoY Core Inflation (CI) however
declined from 6.3% to 6.2% respectively on account of
reduction in the Education and Housing, Water, Electricity,

Gas etc segments. YoY Food Inflation (FI) was literally flat
while Imported Food Inflation increased from 7.98% to 8.16%
during the review period on account of substantial pressure
from other Edible Oils segment.
In effect, the various measures taken by the MPC and
implementation of these produced the desired result.
The exchange rate continued to come under speculative
pressure. This was and continues to be supported by
existence of sustained liquidity in the banking system. The
Naira depreciated by 7.90%, 12.57% and 11.34% in rDAS,
Interbank and BDC segments respectively. The adjustment
and widening of the reference band for rDAS from 3% to 5%
around the midrate and the adjustment of the midrate from
N155/USD to N168/USD should have narrowed premium
between the three market segments and reduce aggregate
demand for foreign exchange. However the speculative
demand supported by systemic liquidity has elicited the
reverse outcome; widening of premium and increased

demand across all market segments. Rates closed at
N169.68, N180.00 and N191.50/USD at rDAS (effective),
Interbank and BDC respectively on 31/12/14. There still exist
pressures on exchange rates in the interbank and BDC
segment with rates trending above N181 and N191/USD
respectively. The major driver for the speculative demand
continues to be the decline in oil price. It is normal for
market operators to panic during periods of oil price
declines. It is however unjustifiable for operators to decide
the rate at which Naira should be exchanged without any
due consideration of CBN’s assurances and determination to
meet legitimate demand, the decent levels of foreign
reserves (over $35 billion) and in circumvention of various
complementary measures taken to check abuses. In my
view there are four factors driving this unjustified market
behavior.
Market distortions and imperfection that has created a
window for arbitrage and rent seeking.

Existence of implied subsidy at rDAS window which has
supported
or
exacerbated
this
arbitrage.
A
determination has to be made as to whether the
benefits of rDAS outweigh the costs. The benefits are
that in view of abuses observed, we should facilitate
unfettered access by legitimate buyers of foreign
exchange for healthy growth of the economy. The
unintended cost includes fueling of arbitrage, creation
or perception of a subsidy window by operators and
absence
of
a
unified
and
market
determined
exchange rate.
Existence of sustained market liquidity.
Sustained tendency by operators to continue to exploit
the foregoing in order to make easy profits.
In my view, MPC should take a strategic decision as to
whether it is in the overall interest of the national economy to
allow these tendencies and subsequently elicit appropriate
responses.

The level of foreign reserves continued to be impressive. At
the $35.4 billion, though lower than prior year period level,
compares well with $35.2 billion and $34.2 billion in
November and December 2014 respectively. The supply
issues that impacted negatively on accretion to reserves
include reduction in oil price, reversal of portfolio flows and
reduced production/oil theft. At the same time we witnessed
unjustified increase in demand due largely to speculative
tendencies that have rather been supported by sustained
liquidity and the desire of operators to make quick profits.
The desired adjustment in the mid reference rate for rDAS
from N155 to N168/$, and the ensuing depreciation in the
interbank and BDC segment have shockingly aggravated
rather than stem the demand pressures.
Similarly, a review of the flows into and out of our foreign
reserves shows that total inflow in 2014 was $54.8b. Staff
estimates also showed that utilization during same period
was $65b compared to slightly over $32b five years ago. It is

therefore clear that the significant rise in the demand for
foreign exchange in the last few years are for reasons other
than those directly related to the growth in national output.
It is obvious that the current foreign exchange windows have
supported increasing appetite for acquisition of foreign
assets, increased use of foreign currencies as store of value
and increased appetite for consumption of foreign made
goods. These justify the demand measures taken by CBN
and the need for more measures in the face of the current
realities in order to elicit exchange rate stability.
Current level of systemic liquidity remains a concern to me.
Volatilities in money market rates are also a concern. These
volatilities are aggravated by the monthly FAAC allocations
and have in a way supported swings in liquidity and pressure
on the exchange rate. Smoothing the effect of FAAC
disbursements on systemic liquidity, which appears feasible
and desirable, must be part of the strategic response to our
exchange rate management equation. Another strategic

issue to resolve relates to determining the level of liquidity
that is not harmful to financial stability. In other words should
any liquidity beyond the minimum required ratio of 30% be
considered undesirable in the context of the current pressure
on exchange rate? If this is so, then we clearly need to take
this out using the most appropriate instruments available and
in the context of the need to concurrently ensure financial
stability.
Challenges/Outlook
These include:
Uncertainty with respect to the direction of oil price. Further
decline will complicate policy
Continued pressure on the exchange rate due largely to
continued speculative attack
Continued downward pressure on foreign reserves.
The risk of increased fiscal deficit given the limited room for
radical cut in projected expenditure.
Impact of sustained liquidity on inflation and exchange rate.
Upside risk to inflation as shown by staff estimates.

Other challenges such as high lending rates and the need for
increased lending to the real sector.
Conclusion
The current realities and the above challenges/outlook call for
deeper and more strategic response to the issues. I believe that
the traditional spaces for tactical responses are rather limited for
us.
In the light of this, I have decided that the best course of action
for now, and in further reflection of the overall success of policy, is
to hold the tight monetary policy actions where they currently are.
Recommendation
I have therefore voted to hold:
MPR at 13%
Private sector CRR at 20%
Public sector CRR at 75%
Symmetric corridor at minus and plus 2% around the MPR
for SDF and SLF respectively.

5.0
DANIEL-NWAOBIA, ANASTASIA

The recent slowdown in the global oil industry leading to declining oil
prices and dwindling reserves made it imperative for the Monetary
Policy Committee (MPC) to realign the value of the Naira from a
previous band of USD-NGN155 (+/-3%) to a new band of USDNGN168 (+/-5%) at its November, 2014 meeting. The fear of a further
depreciation of the naira as oil prices continued to fall may induce
current portfolio holdings to exit rapidly in order to avoid future loss in
value while potential investors may hold off speculatively to gain on
weak Naira. Policy tools that will stabilize the Naira should therefore
remain the primary focus of monetary policy in the short run.

The Nigerian economy is projected to grow by 6.1 and 5.9 per cent
in 2015 and 2016, respectively. The positive outlook is based on
sustained implementation of the on-going economic reforms
through the Federal Government transformation agenda, which is
expected
to
continue
to
stabilize
and
support
various
macroeconomic policies. The continued implementation of the

power sector reform, as well as the accompanying investments in
the sector is expected to improve power generation and supply.
However, the continued slow recovery in the developed countries,
slowdown in China, tighter global financial conditions, declining oil
price and terrorism may constrain growth in 2015.

The headline inflation rate has remained in single digit consecutively
for twenty four (24) months since January, 2013 confirming the
effectiveness of the sustained tight monetary policy adopted during
the period. Projections indicate that for the next six months, the yearon-year headline inflation will accelerate from 8.0 per cent in
December, 2014 to 8.6 per cent in January 2015 and further to to 8.8
per cent in March, 2015 and 9.4 per cent in June 2015, respectively.
Thus, inflationary pressure is expected to intensify in the coming
months. In particular, the exchange rate pressure could induce
higher core and imported inflation while the food supply shock
arising from disruptions to agricultural activities on the back of
insurgency in the North- East could negatively affect food inflation.

However, reduction in pump prices of petroleum could moderate
inflationary pressures.

Gross official reserves as at December 31, 2014 stood at US$34.25
billion compared with US$42.85 billion at the corresponding period of
2013. The decline in the reserves level was driven largely by
increased funding of the foreign exchange market interventions in
the face of decline in accretion to the reserves.

Given the continued demand pressure on foreign exchange,
coupled with the declining oil prices as well as the dwindling
reserves, efforts need to be made to minimize speculative demand
and stabilize the exchange rate in the short run.
The key challenges to monetary policy currently remain: excessive
liquidity in the banking system; pressure on the exchange rate and
decline in external reserves. Also, as emphasized in my last
statement, efforts need be made towards addressing the issue of

high lending rates as well as ensure the flow of credit to the real
economy in order to engender growth and create employment.
Given the current challenges to monetary policy, I will advise that
the current monetary policy stance be sustained. However, policy
measures should be put in place to address the dwindling foreign
exchange reserves and engender the stability of the naira exchange
rate.
Consequently, I vote as follows:

(i) The Monetary Policy Rate (MPR) to be retained at the current
level of 13% and corridor of +/- 2% for the inter-meeting
period.

(ii) The Private sector CRR should also be retained at 20 per cent,
given the current banking system liquidity profile. The policy
relating to 75% CRR on public sector deposits should also be
sustained in order to discourage banks’ reliance on such
deposits.

(iii)
The liquidity ratio should be retained at 30 per cent.

6.0
GARBA, ABDUL-GANIYU

I am still convinced that “far too much is expected of monetary
policy in Nigeria and globally today” in the context of the extant

institutional environment, market malfunctions, fiscal operations,
fiscal dominance and the underlying games (state and non-state). I
also maintain a preference for (1) a forward-looking creative and
strategic approach to monetary policy; (2) systemic and forward
looking monetary-fiscal coordination that strengthens both fiscal and
monetary policies to deliver low-inflation and high employment
elastic growth and (3) building the capacity of the economy to
seamlessly (i) transit from the globalized regimes of quantitative
easing to a post-quantitative easing regime and (ii) exit from the
high interest rate trap.
Given that interest rate corridors and exchange rate corridors are
the core of a Hong Kong type monetary framework, the short term
requires addressing key vulnerabilities (the fiscal and political risks)
and the “arbitrage gap” particularly between the RDAS and
Interbank markets. There is obvious evidence of speculative currency
substitution. In the short term, the challenge is that of closing the
arbitrage gap by changing the auction system from one that is
historically inefficient and tends consistently to widen spreads and

shatter the ceiling of the exchange rate corridor. It is “most critical”
to make the necessary market functioning adjustments through
institutional changes of the rules of the game and underlying
incentive structures. Further tightening are unlikely to potently correct
the fundamental market structure and market function problems.
This was why I argued at the last MPC in November 2014 that:
“market segmentation and arbitrage spread make arbitrage,
currency substitution, sharp practices and short positions rational . . .
Auction theory is clear that in repeated auctions such as
RDAS/WDAS, the likelihood of collusion is very strong. Indeed, at least
three Nigerian studies have provided strong evidence of collusive
behaviours in Nigerian foreign exchange auction markets.” I had
argued that it was important “to ensure that the auction systems in
the financial markets are no longer rigged against the goals of
monetary policy or the commonwealth. The Monetary Policy
Implementation process would support policy effectiveness if it gives
priority to quick detection and punishment of collusive behaviours.”

I still stand on my argument. It is important support the policies at the
last MPC by actively and decisively correcting the market failures
that work together to guide financial markets further from policy
goals. In the short term therefore, the more potent tool in my
reasoned view is changing the forex game by institutional and
operational changes that eliminate the arbitrage gap and the
leakages. Removing the subsidy in the forex market is an important
first step. However, it must be backed by an efficient and effective
operational system for ensuring that all players play by the rules and
infractions are such that the net potential gains are negative.
In addition, I am convinced that an asymmetric corridor is more
effective than quantitative restrictions on the SDF window. The
argument is that (1) if MPR in the interest rate corridor framework is a
signal to players about the desired level of the interbank rate; (2) if
the desired interbank rate in the interbank market is expected to
impact on aggregate demand and inflation through short term
interest rates, then (3) the shrinking of the interbank market in 2013-14
weakened policy effectiveness and efficiency of the market as an

allocative and rationing device. An asymmetric corridor with plus
200 basis points on SLF and -600 basis points on SDF without any
quantitative restrictions is a better incentive to the DMBs than
quantitative restrictions. I believe the asymmetric corridor has a
greater likelihood of reducing pressures in the foreign exchange
market and in stimulating play in the interbank market.
The real challenge for economic management (monetary, fiscal
and political economy) still remains that of steering the economy
seamlessly through the turbulence of a post quantitative easing era.
The turbulence will not be limited to commodity prices and
currencies. It will more likely involve asset prices, volatile financial
flows in response to policy and performance divergence between
the US and its European and Japanese allies and policy shocks like
the “SWISS Shock” of January 15 as Central Banks act to minimize
perceived potential damages that expected policy and market
outcomes could inflict on their national interests.
I will continue to argue for (1) the institutionalization of a purpose
driven rule-based and performance oriented forward looking fiscal

strategy and budgeting system and (2) the elimination of distortions
that undermine markets, the fiscal system and monetary policy. I am
still convinced that the economic circumstance of Nigeria today is
best viewed as an opportunity for policy makers on the monetary
and fiscal sides to work together to build medium to long term
resilience of the economy through creative approaches to
vulnerabilities, systemic coordination, commitment problems and
market functioning problems. It is more difficult if not impossible to
walk efficiently, effectively and sustainably on one foot.
7.0
LAWSON, I. STANLEY

Global Economy
During year 2014, the global economy experienced a fragile
recovery as it grew marginally from 2.5% recorded in 2013 to 2.6 %.
The recorded growth level of 2.6% fell below the initial projection for
2014, a common pattern of disappointing outcomes that has
spanned a few years now. The international economic landscape
was shaped by several major political and economic developments
occurring together in the year 2014. Specifically, there were

significant corrections in the financial markets due to the exit of the
US Federal Reserve Bank from its quantitative easing program. There
is also the issue of the obvious widening economic and monetary
policy divergence among the leading economies of the world. The
implications of these economic and monetary policy divergences
among the major economies can be broadly seen in the
appreciation of the US dollar to about 6% during the year, as against
the depreciation of the euro by 2%, and the Japanese yen by 8%
during the same period. Also the currencies of several emerging
economies and some crude oil exporting countries have been
severely weakened during the period leading to volatile capital
flows and financial system vulnerabilities in these areas. Geopolitical
tensions and armed conflicts have also contributed significantly to
the constrained global growth during the period. The sharp drop in
crude oil prices during the period has also led to acute revenue
shortages in countries like Nigeria, Venezuela and Russia. All of these
risk factors have led to weak external demand; high debt and rising
unemployment
in
many
countries
(both
industrialized
and

developing); and a near deflation situation in the Euro area and
Japan.
In terms of performance of the major economies across the world,
the United States of America and the United Kingdom recorded
moderate growth in the year 2014. China continued to experience a
phase of managed slowdown with its growth rate in 2014 standing at
7.4%, whilst in the Euro area and Japan, the risk of protracted
stagnation or deflation still looms large. The foregoing downside risks
to global economic growth, combined with rising geo-political
tensions and increasing threats to financial markets in the emerging
and frontier economies have resulted in the global economy
experiencing moderate but uneven growth in 2014. The poor global
economic outcomes across the various regions of the world have
resulted in the World Bank recently lowering its forecast for the 2015
global economic growth to 3%. Even at that, global economic
growth may be further worsened by several on-going and escalating
regional crises around the world.

Domestic Economy
On the domestic front, our national economy declined marginally
between the 3rd Quarter and the 4th Quarter of 2014, as a result of
the sharp drop in the price of crude oil to about $58 by the year end.
The resultant reduced revenue profile of the country and the
attendant consequence of reduced accretion to external reserves
put a lot of pressure on the exchange rate during the period. The
supply gap in the foreign exchange market widened substantially
and huge arbitrage opportunities naturally led to currency
substitution and the dollarization of domestic bank deposits. Despite
several policy and administrative measures taken by the Central
Bank of Nigeria, our external reserves was substantially depleted from
$42.85billion at the end of 2013 to $34.25billion at the end of 2014.
Inflation during the period remained relatively stable and stayed all
through within the range of 6.0-9.0 per cent benchmark for inflation
set by the Bank. Headline inflation in December 2014 was 8.0 per
cent. In the money market, the interbank call rates, the open buy
back rates, and the 30-day NIBOR rates moved up substantially

towards the end of 2014, but dropped back to previous levels by the
2nd week of January, 2015.
Though our domestic economic outlook as represented by the 2014
growth performance and inflation outcome appears satisfactory,
several existing and unfolding internal and external risk factors pose
a cause for concern and need to be closely monitored. Internally
there are issues like security challenges in parts of the country, the
recurring challenge of excess liquidity in the banking system, the
demand pressure in the foreign exchange market, the ever
increasing arbitrage opportunity that exists in the market, and the
possible complications arising from capital flow reversal. On the
external front, there are issues like the falling oil prices, slowing global
output recovery and the divergent monetary policy postures
between the leading economies of the world.
Conclusion
Flowing from the foregoing, it is my honest view that the decisions
reached at the Committee’s meeting of November, 2014, and the
administrative interventions in the foreign exchange market made

subsequently by the Management of the Central Bank of Nigeria be
sustained. At this time, I am inclined to permit the allowance of time
for the maturation and objective assessment of what I consider to be
well-reasoned decisions of the Committee at its meeting of
November 24 and 25, 2014. Though the recent downward fall in
crude oil price poses a major challenge and shift in the country’s
revenue profile since the last MPC, most of the other risks and
opportunities in the global and domestic economic environments,
earlier identified during the Committee’s meeting in November,
2014, have not changed significantly. While I vote for the retention of
all indices at this time, I am mindful of the need to closely monitor
the internal and external risk factors I have highlighted with a view to
taking proactive and stringent monetary and fiscal measures as and
when they become necessary.
Consequently, I vote as follows:
i.
Retain the MPR at 13 per cent;
ii.
Retain the CRR on Private Sector deposits at 20 per cent;

iii.
Retain CRR on Public Sector deposits at 75 per cent; and
iv.
Retain the liquidity ratio at 30 per cent.

8.0
UCHE, CHIBUIKE U

At the November 2014 Monetary Policy Committee meeting, far
reaching steps were taken to tighten money supply in our mono
product
oil
dependent
economy.
Specifically,
the
meeting
increased MPR by 100 basis points from 12.00 to 13.00 percent; and
increased CRR on private sector deposits from 15.00 to 20.00
percent. Despite the above, MPC still considered it necessary to
move the midpoint of the rDAS exchange rate from US$155 to
US$168 and widen the band around the exchange rate midpoint
from +/- 3 percent to +/ - 5 percent. Such measures were at least in
part necessitated by the sliding oil prices which put pressure on our
balance of payment and foreign exchange reserve.
Although at the time I supported monetary tightening, I was of the
opinion
that
this
could
be
better
achieved
through
the
implementation of the Treasury Single Account. Specifically, I voted

for an increase in CRR on public sector deposits from 75 percent to
100 percent. At the very least this could help minimize the anomaly
where government departments and agencies hold huge amounts
of money in current accounts attracting little or no interests while at
the same time borrowing funds at double digit interest rates from
banks. More important however is the fact that it will also encourage
banks to focus on their core mandate of intermediation and thus
begin to engage more actively with the real sector of the Nigerian
economy. It was on the basis of the above that I was pleased to
learn that the Federal Government has now set a deadline of end
February 2015 for the full implementation of the Treasury Single
Account.
The implication of the above is that money supply will be further
tightened before our next MPC meeting in March 2015. Since we are
yet to see the full effect of our November 2014 decisions and in the
light of the above expect further tightening of money supply, I
consider it unwise to advocate for further tightening at the present
time.

The above however does not detract from the fact that these are
indeed very difficult times for monetary policy formulation in Nigeria.
As already mentioned, a major threat to the Nigerian economy and
indeed to the formulation of effective monetary policy is the
relatively low international crude oil prices that have persisted for
some time now. This clearly has put pressure on the country’s
exchange rates and reserves. Equally important is that this
undesirable trend has the potentials to threaten banking system
stability in Nigeria. This is obvious especially given the rentier nature
of our economy.
In the light of the above, I am of the humble view that the only way
to ensure monetary stability in the medium and long term is to
diversify our economic base. Although this may not be easy
especially given the fact that the current unhealthy situation has
existed for decades, I believe that it should be possible. I also
believe that monetary policy has a role to play in promoting the
above goal. A starting point will be to discourage the attraction of
short term foreign capital/ portfolio inflows into the country. With

respect to the above, few will disagree that such portfolio inflows are
unhelpful to our long term economic growth and development.
Although such portfolio inflows may have helped to sustain the value
of our local currency in the past, this was only for a time. Within the
last year, we have increasingly witnessed the negative effects of the
volatility of such portfolio flows on our Naira exchange rate. It is
obvious that the main motivating factor that influences the
investment behavior of portfolio managers is the pursuit of profit. The
sophistication and complexities of today’s financial markets have
made it easy for portfolio fund managers to exploit international
investment regulations and interest rate arbitrage in their pursuit of
profit. From experience, we also know that increasing interest rates in
order to retain such foreign capital is both unhealthy and
unsustainable.
In the light of the fact that we have for some time been witnessing
net foreign capital outflows, there can be no better time than now
to begin to introduce some measure of capital account control in
our economy. At the very least, incoming portfolio investments

should be made to stay in our country for a minimum of one year.
Capital that exits before one year should be seen as speculative
capital and punished as such. If adopted, such a policy should not
be retroactive. It should therefore not affect existing foreign capital
currently invested in Nigeria.
Another major concern for me is the widening gap between the
rDAS and interbank exchange rates for the Naira. It is not my
intention to comment on the wisdom of subsidizing foreign
exchange for preferred sectors of an economy. My concern in this
report is the fact that banks are taking advantage of the arbitrage
opportunities to roundtrip the subsidized foreign currencies to the
detriment of the objectives set out by the government subsidy
policy. This in my view is economic sabotage and should be treated
as such. Unless offenders are appropriately punished, there is little
chance that such government policies will ever achieve their set
objectives.
Another major concern that we should try to address is the
increasing margins between deposit and lending rates charged by

commercial banks. Reducing the rates of interest charged on loans
and advances is critical to the need to encourage lending to the
real sector in order to diversify our economy away from its
overdependence on oil rents. Since inflation is still in single digit
territory, it is my humble opinion that there is room for a gradual
reduction in the current levels of interest rates on loans and
advances.
In the light of the above factors, I hereby vote as follows: (1) to retain
MPR at 13 percent with interest rate corridor of + 200/- 200 basis
points; (2) to retain CRR on private sector deposits at 20 percent; (3)
to retain CRR on public sector deposits at 75 percent, and; (4) to
retain Liquidity Ratio at 30 percent.
9.0
SALAMI, ADEDOYIN
Even though prices were recorded to have risen 8.0 percent in
December 2014 compared with 7.9 percent the previous month, this
was yet another meeting where the rate of increase in prices
weighed least on my mind. Past interventions had put downward

pressure on the rate of increase in general prices thereby keeping
inflation within the target band of 6 – 9 per cent.

Simply stated, how should Nigeria’s monetary policy react to an
uncertain global environment? Notwithstanding moderate inflation
and robust output growth, domestic policy would have to respond
to
the
challenges
posed
by
international
and
domestic
uncertainties. Despite the diversification of output, Nigeria remains
vulnerable to external shocks transmitted through oil-dependent
exports and capital flows. While the impending elections create
domestic uncertainty, lack of clarity about the specifics of policy
reaction to external developments pose arguably the biggest
internal doubt.

Even though the Federal Government had presented its budgetary
proposals to the National Assembly for consideration, the pace of
external events had overtaken the proposals. The oil price
assumption in the budget, though revised downward to US$65/barrel

from the US$75/barrel set out in the Medium Term Expenditure
Framework, looks optimistic in the light of current realities. What is
clear is that unless the current characteristics of the external
environment improve significantly in the short term, the year ahead
will be very challenging.

In reflecting on the decision at this meeting, 2 issues dominate my
thinking –
(i) The outlook for the external environment; and
(ii) The need to ensure internal coherence and consistency of
policy that safeguards the hard won credibility of Monetary
Policy in Nigeria.

With regard to the influence of the external environment, it is clear
that its direction is unfavourable to Nigeria – fragile growth, lower oil
prices and a stronger US Dollar. In consequence of this, my
expectation is for pressure on the Naira as export earning diminishes
significantly leading to a Current Account deficit. The expected
outflow of Foreign Portfolio investment capital is well underway.

In this context, I have recently argued that monetary policy will have
to choose between continuing to keep the currency stable as a
means of lowering price pressures; and allowing a weaker and more
volatile currency in order to enable monetary policy escape the
present constraints and exert greater discretionary influence on the
cost of capital. The issues of domestic policy reaction to
developments in the global environment are complicated by the
approaching election. In my view, 2015 will divide into 3 distinct
periods as far as policy management is concerned. Q1 will see a
complete shift from Policy to politics. Between March and August,
there will be a transition. Policy normalcy will only be restored in the
latter part of Q3-2015. If I am correct, monetary policy will have its
work cut-out in the months ahead.

The uncertainty of the outlook for Crude Oil prices and the domestic
fiscal policy reaction suggests to me that a greater premium should
be placed on the conservation of FOREX reserves in contrast to
maintaining a stable exchange rate. Trying to maintain a stable

exchange rate whilst conserving FOREX reserves by continual resort
to administrative measures and moral suasion – especially, when
external conditions are unfavourable and there is a price differential
in excess of 20 per cent between the ‘official’ and Bureau de
Change segments of the FOREX market - is not only based on an
unduly optimistic view of human nature, it is market distorting!
Furthermore, it runs the risk of incoherence which markets will
doubtlessly interpret as reactionary, destabilizing and consequently
lacking in credibility!

Whilst it is already clear that Nigeria will have to adjust to the
emerging trends in the global and local environment, the absence
of clarity around the domestic and external outlook suggest that we
retain the status-quo and wait to get a greater sense of magnitudes.
10. YAHAYA, SHEHU

I vote to maintain the current monetary stance: MPR at 13%, along
with the symmetric corridor of +/-2%; CRR for public sector deposits
at 75%; CRR for private sector deposits at 20%. It is also critical that

steps are taken to address the gap between rDAS and the interbank rate in the foreign exchange market to reduce opportunities
for arbitrage and to stem speculative demand. My reasons are
outlined below.
Global Economic Developments
The dominant factor affecting the world economy is the dramatic
fall in crude oil prices due to both demand and supply factors.
Moreover, the prognosis is that prices are expected to remain low for
some time, probably beyond mid-year. While the fall in prices could
have a marginal overall positive effect on global growth as well as in
Africa, it definitely adds to uncertainty, elevates many risks and
complicates the deflationary challenges facing Japan and many
countries in the Eurozone.
Growth in the US is strengthening along with falling unemployment.
The prospect of rising interest rates posits additional challenges to
the capital markets and reserves of emerging and developing
country economies. Moreover, growth recovery in the US will mainly
have a positive effect on countries that can take advantage of the

opportunity to expand exports to the country, especially given the
rise of the US dollar against most major currencies. However, the
strengthening of the US dollar will impose an additional burden on
many developing countries with respect to debt service for foreign
country loans.
Growth in the Eurozone has still not gained traction and
unemployment remains a challenge. There are near-term prospects
for a commencement of a government bond-buying program. QE
continues in Japan and is commencing in China. There are positive
signs of recovery in South Africa, which will be assisted by the fall in
oil prices. Prospects for growth in 2015 are good for particularly the
non-oil exporters in Africa and the opportunities for expanding intraAfrican trade should be explored.
Global food and general prices are expected to remain low for
some time.

Developments in the Domestic Economy
Crude Oil Prices
The main challenge for the Nigerian economy is the collapse of
crude oil prices and the disappearance of part of the crude oil
export market (the US). This is obviously putting enormous pressure on
government revenue, reserves, Naira exchange rate, is spooking
international investors, particularly portfolio investors and thereby the
capital market, and is likely to dampen growth
The resulting depreciation of the Naira has undermined business
confidence, strengthened reverse capital flows and may put
pressure on price levels, especially for imports and importdependent sectors. Efforts to slow the Naira depreciation have
contributed to a reduction in external reserves to US$35.14 billion,
20% lower than in December 2013. Equally important is the
substantial divergence between the official exchange rate at rDAS,
the inter-bank market and BDC rates, which provides powerful
incentives for arbitrage.

Growth
GDP growth rate in 2014 is estimated at 6.33%, but due to the
reduced oil export earnings and other factors, this is estimated to fall
to around 5.5%-6.1% in 2015. This will impact on jobs
Inflation
Headline inflation has, overall remained stable, estimated at 8% in
December 2014, although prices of food, processed foods and
utilities have nudged up in December. The main concern is the
possible effect of Naira depreciation on imported items and core
inflation. Nevertheless, while headline inflation may increase, it is
expected to remain single digit in the next half-year.
The Fiscal
Since the oil sector accounts for about 70% of government revenue,
the fall in oil prices is obviously impacting heavily on government
revenues and is likely to continue to do so for some time. State
government
expenditures,
including
even
basis
recurrent
expenditure, may be particularly vulnerable.

Nonetheless, it is evident that fiscal prudence has been maintained
by the government. Actual fiscal deficit in January-November 2014 is
much lower than fiscal deficit in January-November 2013. Estimated
budget deficit for 2015 is 0.79% of GDP as compared to 1.2% of GDP
in 2014. Credit to the government in Dec 2014 is 7.29% as compared
to 40.14% in December 2013. Of course fiscal deficits are likely to be
larger than anticipated due to lower than expected output and a
lower price than is assumed in the budget. It is critical therefore that
efforts to substantially raise tax revenue be strengthened. Tax/GDP
ratio in Nigeria is one of the lowest. However, careful attention has to
be paid to ensure that tax regimes are properly structured to protect
the poorer segments of society and low income earners.
Financial Sector
Despite the turbulence in the oil sector, the financial sector has
remained steady and reasonably sound with respect to prudential
ratios and NPLs. There have also been modest increases in lending
volumes. The developments in the oil sector however pose some
challenges to the financial sector due to substantial exposure to the

oil and gas sector, particularly upstream, as well as significant
amount of Eurobonds raised by Banks. Efforts need to be made by
financial institutions and regulators to swiftly address these risks.
Conclusion
As indicated earlier, the significant declines in oil income poses the
major challenge to the Nigerian economy at this time. The effect on
the foreign exchange market needs to be continuously addressed to
minimize the negative impact. Eliminating the arbitrage between
rDAS and the inter-bank market and therefore reducing the
opportunity for arbitrage will help rationalize the forex demand and
therefore the value of the Naira. There is no gainsaying the fact that
these are short term responsive measures. Tackling the problem
properly requires addressing structural, infrastructure and production
issues.
Bank liquidity is an issue, but cannot be addressed at this time
through the CRR without exacerbating destabilizing factors for the
financial sector. Giving the headwinds facing the economy, further
tightening of the MPR is also not appropriate, given its impact on the

money market and on bank interest rates. Excess liquidity should
therefore be addressed through other instruments.
Consequently, I vote to maintain the current monetary policy
stance.

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

Though the global economy received a sizeable boost from a
stronger than expected rebound of the US economy and cheaper
oil prices, it was more fragile than earlier envisaged. The tepid global
performance and the brittle outlook reflected the subdued
economic activity in the Euro Area and Japan as well as the
flagging prospects in China and Russia and some oil exporting
emerging economies. Specifically, global growth continues to be
constrained by a number of old and new adversities including high
debt and rising unemployment in many countries (both industrialized
and developing), geopolitical tensions and conflicts; the negative
impact of commodity price shocks on commodity exporting

countries; weak external demand; and the discontinuance of the
asset purchase programme of the US Federal Reserve; triggering
sharp corrections in the financial markets. Consequently, global
output rose by about 3.3 per cent in 2014, which was the same rate
of growth attained in 2013. It is estimated to strengthen to about 3.5
per cent in 2015. The lopsided performance of the global economy
portends deep and complex ramifications for the Nigerian economy
especially in terms of rising interest rates in the US and weakening
domestic demand in the Euro Area and Japan.
Despite the strong global headwinds and the spillover effects of
exogenous factors, the performance of the domestic economy
remained largely robust, especially when compared to peer
countries. The rate of economic expansion stayed above 6.0
percent throughout the first three quarters of 2014. Data from the
National Bureau of Statistics (NBS) indicated real Gross Domestic
Product (GDP) growth rates of 6.54 and 6.23 percent in the second
and third quarters of 2014, respectively. Remarkably, over 75 percent
of the latter growth was due to three dominant non-oil sub-sectors:

Services, Agriculture and Trade, which respectively contributed 2.53,
1.21 and 1.08 percentage points to growth. Slipping oil prices since
June 2014 has further debilitated the already feeble contribution of
the oil sector to overall GDP growth. I welcome the current efforts of
the Federal Government at boosting power generation and supply,
as this will bolster the economy’s supper capacity and enhance job
creation prospects in the medium- to long-term.
I note with satisfaction the continued stability of domestic prices as
consumer price inflation was contained within a single-digit range.
At 8.0 percent, headline inflation for December 2014 stayed within
the Bank’s target range of 6.0—9.0 percent. This outcome broadly
reflected the moderation of food prices heedless of the archetypal
seasonal impulses of the Yuletide festivities as well as reduction in
core inflation. On the bleak side, I acknowledge that the probable
pass-through of import price inflation due to the strengthening of the
US dollar and possible disruption to food supply owing to sustained
insurgency in important agricultural zones of the country, portend
latent upside risks to inflation.

On monetary developments, the year-on-year growth of broad
money supply (M2) at 7.29 percent was lower the target of 15.0
percent, essentially reflecting the slow growth net domestic credit of
about 11.0 percent and the 21.8 percent decline in net foreign
assets (NFA). The negative growth of NFA during the review period
was largely attributable to the waning accretion to foreign reserves
following the tumbling oil prices. Credit to government declined by
21.8 percent as against the projected growth of 28.4 benchmarked
for 2014. In this regard, I commend the prudent stance of the fiscal
authority at trimming its liabilities to the banking system, despite the
constricting revenue fallout of lower oil prices. I am of the opinion
that this fiscal orientation will have wide-ranging benefit on the
economy as it enlarges banks’ capacity to channel more credit to
the private sector, especially the real sector.
Following the tight stance adopted at the last MPC, I observe that
key money market interest rates generally trended upwards.
Between 26th November 2014 and 13th January 2015, the interbank
call rate and the OBB rose from 8.98 and 10.20 percent to 26.15 and

23.46 percent, respectively while the NIBOR climbed 25 basis points
to 11.63. Conditions in the capital market remained bearish as key
equity indices traversed southward during the under review. In the
twelve months to December 2015, the All Share Index weakened by
16.1 percent to 24,657.15 while market capitalisation dropped 13.2
percent to ₦11.48 trillion. This trend, I note, continued in January 2015
as both measures have so far lost about 16.0 percent of their endDecember values. The dwindling fortunes of the Nigerian capital
market results from the divestment of portfolio investors from Nigeria
in the aftermath of rapidly falling oil prices, which was reinforced by
exogenous global factors. I call on all relevant institutions in the
capital market to intensify their efforts and be proactive in
monitoring the market and reiterate the CBN’s commitment at
ensuring financial system stability.
In the foreign exchange market, adverse oil price movements and
profound speculative activities amplified demand pressure during
2014 causing the Naira to debilitate in all spheres of the market. From
a rate of ₦157.34/US$ at the rDAS window the Naira depreciated by

4.28 percent to ₦164.08/US$. At the inter-bank and BDC segments, a
depreciation of 8.63 and 12.64 percent were respectively recorded
with the rates closing at ₦180.0/US$ and ₦191.50/US$. The increased
pressure also reflected in the stock of foreign reserves. As at 31st
December 2014, gross official reserves at US$34.25 billion was 20.0
percent below the US$42.85 billion recorded in at end-December
2013. The rate of reserve depletion was attributable to the enlarged
interventions at the foreign exchange market aimed at stabilising the
Naira in the face of dwindling crude oil receipts.
In the light of the foregoing, it is my belief that the effects of the
decisions at the last MPC are still unfolding. I note with satisfaction
the resilient growth of the domestic economy and the continued
stability of consumer price inflation. I acknowledge the immanent
risks both domestic (possible food supply shock due to insurgency,
sustained decline in oil GDP, recurring excess liquidity, portfolio flow
reversal, and demand pressure in the foreign exchange market) and
external (cheapening crude oil and tepid cum lopsided global
recovery). Nonetheless, in order to circumvent the problem of

complex policy indeterminacy, I strongly belief that there is need to
allow the policy impulse from the November MPC to fully impact on
the economy before taking further action.
Consequently, I vote as follows:
1. Retain the MPR at 13.0 percent;
2. Retain the CRR on private sector deposits at 20.0 percent;
3. Retain the CRR on private sector deposits at its current level of
75.0 percent;
4. Retain the liquidity ratio at 30.0 percent; and
5. Maintain a symmetric corridor of ±200 basis points around the
MPR.