CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO 116 OF THE
MONETARY POLICY COMMITTEE MEETING OF MONDAY 20th AND
TUESDAY 21st NOVEMBER, 2017

Background
The Monetary Policy Committee met on the 20th and 21st of
November, 2017 against the backdrop of a relatively optimistic
global
economic
outlook.
The
Committee
reviewed
key
developments in the global and domestic economies during the
first ten months of 2017 and assessed the risks to price and
financial stability in the short- to-medium term as well as outlook
for the first half of 2018.

Nine (9) members of the MPC were present at the meeting.

External Developments
Global output is projected to improve to 3.6 per cent in 2017 from
3.2 per cent in 2016. The revised growth forecast reflects the uptick
in global economic activity, strengthened by the recovery in oil
and other commodity prices and leading to improved aggregate
demand. Growth in the advanced economies is projected to
improve to 2.2 per cent in 2017 from 1.7 per cent in 2016. Similarly,
emerging markets and developing economies are forecast to

grow at 4.6 per cent in 2017 up from 4.3 per cent in 2016. The
MPC, however, noted some risks to the outlook for global growth
to
include:
continued
tension
in
the
Korean
Peninsula,
complexities arising from the BREXIT negotiations and financial
market uncertainties due to monetary policy normalization in the
US.

The Committee noted that the pace of increase in inflation in the
advanced economies, with the exception of the UK, is expected
to be considerably slow towards the end of 2017. In the emerging
market economies, inflationary pressures have abated as key
economies exit recession and their currencies stabilize. Inflation is
projected at 1.7 and 4.2 per cent in 2017 in the advanced and
developing economies, respectively. The Committee observed
that the outlook for global monetary policy remains largely
accommodative, in support of economic recovery and growth.

Domestic Output Developments
Data from the National Bureau of Statistics (NBS) indicate that real
Gross Domestic Product (GDP) grew by 1.40 per cent in the third
quarter of 2017, up from 0.72 per cent, and contraction of 0.91 per
cent in the second and first quarter of 2017, respectively. The
major drivers of real GDP growth were agriculture (0.88%) and
industry
(1.83%).
Some
subsectors
contracted,
including:
construction (0.01%), trade (0.29%) and services (1.02%). Overall,
non-oil real GDP contracted by 0.76 per cent in Q3 2017, giving

credence to the argument that more work is required to
consolidate the recovery process; by putting in place policies that
will boost growth through the non-oil sector.

The Committee also noted the continuous positive outlook based
on the Manufacturing Purchasing Managers Index (PMI), which
stood at 55.0 index points in October 2017, indicating expansion in
the manufacturing sector for the seventh consecutive month.
Eleven of the sixteen sub-sectors reported growth in the review
period. Also, the composite PMI for the non-manufacturing sector
stood at 55.3 index points in October 2017, indicating growth for
the sixth consecutive month. The Committee hopes that, while the
economic recovery appears to remain fragile, a tenacious
implementation of the 2017 budget and quick passage of the
2018 budget would boost aggregate demand and confidence in
the economy.

Developments in Money and Prices
The Committee noted that money supply (M2) contracted by 5.54
per cent in October 2017 (annualised), in contrast to the
provisional growth benchmark of 10.29 per cent for 2017. The
development in M2 is largely due to the contraction of 37.50 per
cent in other assets net (OAN). Similarly, M1 contracted by 7.79
per cent (annualised to -9.35 per cent). Net domestic credit (NDC)
expanded by 1.18 per cent, annualized to 1.42 per cent, driven
primarily by net credit to government, which also expanded by

7.60 per cent against the programmed growth of 33.12 per cent.
Credit to the private sector, however, contracted by 0.24 per cent
in October 2017, compared with the provisional benchmark of
14.88 per cent. The MPC also noted the structural constraints in the
transmission of credit to the real sector of the economy as well as
the rising unemployment level. The Committee urged the
Management of the Bank to continue to encourage the deposit
money banks to accelerate the rate of credit growth to the real
sector of the economy.

Inflationary pressures in the economy continued to moderate with
headline
inflation
(year-on-year)
receding
for
the
ninth
consecutive month to 15.91 per cent in October 2017 from 15.98
per cent in September 2017. Food inflation fell marginally to 20.31
per cent from 20.32 per cent in September, while core inflation
increased slightly to 12.14 per cent from 12.12 per cent during the
same period. These developments were attributable to the
contraction in money supply, favourable but dwindling base
effects, and the relatively stable naira exchange rate. In spite of
the marginal decline in food inflation in October, the Committee
noted that the rate remained high, traceable to cross border
sales, distribution bottlenecks, high prices of farm inputs and
supply shortages.

Money market interest rates oscillated in tandem with the level of
liquidity in the banking system as the average inter-bank call rate,

which opened at 12.00 per cent on October 3, 2017, closed at
5.38 per cent on November 16, 2017. The OBB rates opened at
10.41 per cent and closed lower at 6.02 per cent in the same
period. However, the average inter-bank call and OBB rates for
the period stood at 10.94 and 10.15 per cent, respectively. The
development in net liquidity positions and flows reflected the
effects of Federation Account payments to states and local
governments; remittances by the Nigerian Customs, Federal
Inland
Revenue
Services;
OMO
sales;
foreign
exchange
interventions and maturing CBN Bills.

The Committee noted the continuing improvement in the level of
external reserves and the equities segment of the capital market.
External reserves grew to US$34.9 billion at the close of business on
November 16, 2017. Similarly, the All-Share Index (ASI) rose by 3.38
per cent from 35,504.62 on August 31, 2017 to 36,703.58 on
November 17, 2017. Market Capitalization (MC) improved by 4.35
per cent to N12.77 trillion from N12.24 trillion during the same
period. Relative to end-December 2016, capital market indices
rose by 36.57 and 38.10 per cent, respectively, indicating rising
investor confidence, due to improvements in foreign exchange
supply.

Total foreign exchange inflow through the central bank declined
by 6.61 per cent in October 2017, compared with the previous
month and attributable to the decline in crude oil and gas

receipts as well as revenues from petroleum profit tax (PPT) and
royalty payments. Total outflows, however, increased by 18.77 per
cent during the same period, as a result of interbank sales, direct
payments and JVC calls.

The Committee noted the gradual convergence between the
rates
at
the
bureau-de-change
(BDC)
and
the
Nigeria
Autonomous Foreign Exchange (NAFEX) market segments, as well
as the stability of the exchange rate at the inter-bank segments of
the foreign exchange market during the review period. Similarly,
the Committee viewed with satisfaction, the growing patronage
at the Investors’ and Exporters’ (I&E) window of the foreign
exchange market and attributed the development to increased
confidence by foreign investors and the preference of Nigerian
investors’ and exporters’ for the window compared with all other
windows. The MPC noted that the I&E window had increased
liquidity and boosted confidence in the market with over US$18.70
billion in transactions since its introduction in April 2017.

2.0. Overall Outlook and Risks
Forecasts of key macroeconomic variables indicate a positive
outlook for the economy up to Q1 2018. This is predicated on
continued implementation of the 2017 budget into early 2018,
anticipated improvements in government revenue from the
implementation of the Voluntary Asset and Income Declaration
Scheme (VAIDS) as well as favourable crude oil prices. The

development finance initiatives by the CBN in the real sector,
particularly in agriculture, are expected to continue to yield
positive results in terms of output expansion and job creation.
Focusing on the downside risks to the outlook, the Committee
noted the low fiscal buffers and weak aggregate domestic
demand. On the external front, widening global imbalances, and
rising geo-political tensions were some of the crucial risks
identified.

3.0. The Considerations of the Committee
The Committee noted with satisfaction the second consecutive
quarterly growth in real GDP following five quarters of contraction.
In addition, Members welcomed the relative stability in the
exchange rate, particularly the narrowing premia and the very
slow deceleration in consumer price inflation, largely attributable
to base effects. Overall, the economy has begun to show strong
signs of recovery as public investment has picked up with
increased housing construction at the Federal and state levels, as
well as shipping activities at the ports. The Committee was,
however, of the view that policy makers must not relent in their
aggressive policy initiatives aimed at continuing the positive
growth trajectory. The Committee was also concerned about
potential adverse external developments and the cautious
approach to lending and financial intermediation by domestic
deposit money banks.

The Committee similarly evaluated other concerns in the domestic
economy
and
the
opportunities
for
strengthening
output
recovery, noting that some highly critical subsectors were yet to
resume growth. The Committee noted the significant contribution
of food prices to headline inflation and observed that the benefit
of base effect on overall headline inflation had substantially
dwindled. Members, however, expressed confidence that the
tight stance of monetary policy and the stability in the exchange
rate of the naira should continue to positively weigh in on price
developments. The Committee reaffirmed its commitment to
maintaining price stability, which is crucial to sustainable
economic growth and development.

The Committee welcomed the review of the Economic Recovery
and Growth Plan (ERGP), in an effort to realise the objectives of
the plan. In the same vein, the Committee urges a quick passage
of the 2018 Appropriation Bill by the National Assembly, so as to
keep fiscal policy on track and deliver the urgently needed reliefs
in terms of employment and growth of the economy.

On financial stability, the Committee noted the concentration of
non-performing loans in a few sectors but observed that the
overall condition and outlook for the banking system was stable as
deposit money banks’ balance sheets remained strong. This
assessment is strengthened by developments in the national
accounts and the expectations that the affected sectors are

returning to growth. Nonetheless, the Committee urged further
strengthening of supervisory oversight and deployment of early
warning systems in order to promptly identify vulnerabilities and
proactively manage emerging risks in the banking system. The
Committee further observed that government was increasing
debt, both domestically and externally, thus crowding out the
private sector.

4.0. The Committee’s Decisions
In arriving at its decision, the Committee appraised potential
policy options in terms of the balance of risks. The Committee also
took note of the gains made so far as a result of its earlier
decisions; including the stability in the foreign exchange market
and the moderate reduction in inflation and thus extensively
deliberated the options regarding whether to hold , tighten or
ease the policy stance.

While tightening would strengthen the impact of monetary policy
on inflation with complementary effects on capital inflows and
exchange rate stability, it nevertheless could also potentially
dampen the positive outlook for growth and financial stability. On
the other hand, whereas loosening would strengthen the outlook
for growth by stimulating domestic aggregate demand through
reduced cost of borrowing, it could aggravate upward trend in
consumer prices and generate exchange rate pressures. The
Committee also feels that loosening would worsen the current

account
balance through increased importation.
On
the
argument to hold, the Committee believes that key variables
have continued to evolve in line with the current stance of
macroeconomic policy and should be allowed to fully manifest.
Members noted that the developments in output and inflation in
particular required effective close monitoring in order to gain
clarity on the medium term optimal path of monetary policy.

In consideration of the foregoing, the Committee decided by a
vote of 8 to 1 to retain the Monetary Policy Rate (MPR) at 14.0 per
cent alongside all other policy parameters. One member voted
to reduce the MPR by 100 basis points.

Consequently, the MPC voted to:

(i)
Retain the MPR at 14.0 per cent;
(ii)
Retain the CRR at 22.5 per cent;
(iii) Retain the Liquidity Ratio at 30.0 per cent; and
(iv) Retain the Asymmetric corridor at +200 and -500 basis points
around the MPR.

Thank you for listening.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
21st November, 2017