CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO

OF
THE
MONETARY
POLICY
COMMITTEE
MEETING OF 23RD AND 24TH JANUARY

1.0.
Background
The Monetary Policy Committee held its first
statutory meeting of fiscal 2017 on 23rd and 24th
January, 2017 against the backdrop of increased
uncertainty arising from political and economic
developments around the world. Over the last few
weeks the pillars of the old order - free trade,
multilateralism and globalization have come under
intense pressure, and seemingly giving way to an

era of enlightened national interest in the conduct
of international economic relations. On the
domestic front, the economy remains in recession
and inflation pressures have yet to recede. Both
external and domestic conditions have blended to
significantly complicate the policy environment.
In attendance at the meeting were all 10 members
of the Committee. The Committee reviewed the
global and domestic economic and financial
environments in 2016 and the outlook for the short
to medium term in 2017.
External Developments

The
uncertainty
in
the
external
environment
persisted
owing
to
a

combination
of
recent
political
and
economic developments. The key issues
include:
Brexit,
the
rising
wave
of
populist and anti-globalization sentiments
anchored
by
emerging
bilateralism,
divergent monetary policy stance of the
advanced central banks and disorderly
commodity price movements. With
global
output
growth
improving
sluggishly, the outlook for 2017 remains
unchanged
owing
to
persisting
uncertainties in commodity prices and

volatility in the financial markets as well
as slowing demand in the advanced
economies and the emerging markets.
The MPC welcomed the modest increase
in oil prices following the last OPEC
decision to cut output and noted the
increase in the policy rate of the US
Federal Reserve Bank in December 2016
and the potential implications of that
decision for international interest rates
and capital flows. While noting the
materiality of the output cut on oil prices,

the Committee cautioned that the effect
could rapidly wane, given the likelihood of
a supply glut from non-OPEC members,
low level of global economic activity and
weak growth. Emerging markets and
developing economies, in particular, have
continued to confront strong headwinds
such as low commodity prices, rising
inflation, currency instability, intractable
low aggregate demand and subdued
capital flows.

Overall,
the
Committee
noted
that
whereas improved commodity prices may
provide modest tailwinds for resourcedependent
economies
in
2017,
the
medium-term outlook continues to be
muffled by stagnation and uncertainty in
the prospects for global trade, subdued
investment
and
heightened
policy
uncertainty, especially in some major
economies.
Nevertheless,
the
IMF
estimates that these constraints would
decline;
paving
way
for
mild

improvements in economic growth from
3.1 per cent in 2016 to 3.4 per cent in
2017.
Global inflation commenced a moderate
but steady rise on the backdrop of
improvements in oil prices and currency
depreciation
in
several
emerging
markets. However, amongst the major
advanced economies, only the U.S Fed
has commenced policy tightening1 while
the Bank of Japan (BOJ), the Bank of

1 The Federal Reserve raised its benchmark Federal Fund rate by 25 basis points in December 2016, to a range of
0.50 to 0.75 per cent, and also provided indication of rate hikes in 2017

England and the European Central Bank,
all retained their accommodative policy
stance at their most recent meetings.

Domestic Output Developments
Data released by the National Bureau of
Statistics
(NBS)
in
November

showed that the economy contracted
further by 2.24 per cent in Q3 2016,
having slipped into recession following
another contraction in output in Q2,
2016. Although the overall contraction in

Q3 was greater than was observed in Q1
and Q2, the non-oil sector grew by 0.03
per
cent
in
Q3,
driven
mainly
by
agriculture, which grew by 4.54 per cent.
The Committee is of the view that the key
undercurrents i.e. scarcity of foreign
exchange, low fiscal activity, high energy
prices and the accumulation of salary
arrears - cannot be directly ameliorated
by
monetary
policy
actions.
The
Committee hopes that the recent increase
in oil prices would be complemented by

production gains to provide the needed
tailwinds to sustainable economic activity.
In that regard, the Committee commends
the commitment of the fiscal authorities
to step up efforts to fill the aggregate
demand gap through a speedy resolution
of the domestic indebtedness of the
federal government to states and local
contractors. The Committee believes that
doing so will aid the effort towards
economic recovery.

Developments in Money and Prices
The committee noted that money supply
(M2) grew by 19.02 per cent in 2016,
being 8.0 percentage points higher than
its programmed limit. It underscored the
necessity
of
keeping
the
economy
adequately lubricated in the face of
declining output. Growth in Net Domestic
Credit (NDC) was 24.79 per cent at endDecember 2016, being 17.94 per cent
above
its
provisional
benchmark
for
2016. Likewise growth in net credit to

government,
at
58.84
per
cent,
surpassed its programmed target of 47.4
per
cent.
In
effect,
all
the
major
monetary
aggregates
exceeded
their
programmed provisional benchmarks for
fiscal 2016.
Headline
inflation
(year-on-year)
continued
to
rise,
creeping
up
in
December 2016 to 18.55 per cent from
18.48 per cent in November, and 18.33
per cent in October, thus sustaining the
upward momentum since January 2016.

The increase in headline inflation in
December 2016 was driven by increase in
the food component, which inched up
from 17.19 per cent in November to
17.39
per
cent
in
December.
Core
inflation, on the other hand, moderated
slightly to 18.05 per cent in December
2016 from 18.24 per cent in November.
The Committee observed the increases in
the month-on-month inflation rate in
November and December, in contrast to
successive declines between June and

September 2016. It noted that the
structural factors driving the sustained
pressure on consumer prices, such as the
high cost of power and energy, transport,
production factors, as well as rising prices
of imports are yet to abate. Nonetheless,
the Committee estimates that the current
policy
stance
and
other
measures
directed at improving food production
would combine with base effect to usherin some moderation in consumer prices in
the short to medium term.

Money market interest rates fluctuated in
tandem with the level of liquidity in the
banking system. Thus, average interbank call rate, which stood at 15.34 per
cent on 21st November 2016, closed at
9.90 per cent on December 30, 2016.
Between these periods, the interbank call
rate averaged 13.59 per cent. The
average interbank call rate however, fell
to 3.00 per cent on December 9, 2016,
due to an increase in net banking sector
liquidity to N495.48 billion on December

8,
2016,
following
the
payment
of
statutory revenue to states and local
governments as well as maturity of CBN
bills during the period.
The Committee welcomed improvements
in the equities segment of the capital
market as the All-Share Index (ASI) rose
by 2.84 per cent from 25,499.00 on
November 21, 2016, to 26,223.54 on
January
20,
2016.
Similarly, Market
Capitalization (MC) increased by 2.5 per
cent from N8.80 trillion to 9.02 trillion

during the same period. Relative to endDecember
2016,
the
capital
market
indices, however, fell by 2.04 and 2.05
per cent, respectively, reflecting the
challenges confronting the economy.

Total foreign exchange inflows through
the CBN increased significantly by 82.45
per cent in December 2016 owing mainly
to the increase in oil prices. Total
outflows, however, spiked during the
same period. The Committee noted that

the
average
naira
exchange
rate
remained
stable
at
the
inter-bank
segment of the foreign exchange market
in the review period.

2.0.
Overall Outlook and Risks
The medium term outlook based on
available
data
and
forecast
of
key
economic
variables
indicate
a
more
resilient economy in 2017. Growth is
expected to turn positive in fiscal 2017,
as prior policy lags converge and the

fiscal
space
becomes
more
accommodative.
In
addition,
the
agricultural sector is expected to play a
bigger role in driving growth, given the
expansion
of
the
Anchor
Borrower
Program, as well as other developmental
initiatives of the Government. Likewise,
the prospects for moderation of price
developments appear to be strengthening
on the heels of positive developments in
the food sub-sector.

The Committee identified the downside
risks to this outlook to include the
possibility of a slower-than-expected rate
of global economic activity, fluctuating oil
prices and production shut-ins due to
vandalism of oil installations.
3.0.
Summary of Considerations
The
Committee
re-assessed
the
headwinds which confronted the economy
in

and
the
opportunities
for
recovery in 2017. In particular, the MPC

evaluated the implications of the rising
wave of nationalistic ideologues across
the West, the re-evaluation of trade
agreements and the possibility of rapid
monetary policy normalization in the
United
States,
with
adverse
consequences
for
other
countries,
including
Nigeria.
The
uncertainties
underpinning
the
implementation
of
Brexit and the apparent retreat from
globalisation and free trade were also
important points of reflection.

In recognition of the seemingly inevitable
structural shift in the global economy, the
Committee reiterated the need to be
more inward looking and hasten efforts
towards
economic
diversification
to
support
the
domestic
economy
and
improve life for the Nigerian people.
Consequently,
members acknowledged
the imperative of sectoral policies and
greater coordination of monetary and
fiscal policy.

Conscious
of
the
prevailing
market
sentiments in favour of a rate cut, the
Committee reasoned that most of its
decisions in 2016 were informed by the
need to address the delicate balance
between
price
stability
and
growth.
Noting that the pressures on consumer
prices were yet to abate and even as the
economy continued to be in recession
despite the intervention support by the
Central Bank, the Committee stressed

that it was not oblivious of the full
ramifications of the economic challenges
facing the country.
The MPC was concerned that the current
situation was not amenable to simplistic
analyses and quick fixes such as have
found expression and increased attention
at different fora and the media. The
domestic
economic
challenges
which
include a chronically import dependent
consumption
culture,
lack
of
competitiveness of many sectors of the

economy
and
yawning
infrastructural
gap, have combined with an unfavorable
external environment to complicate the
macroeconomic policy environment. The
Monetary
Authority
had
on
many
occasions, and to the extent feasible,
taken extra-ordinary steps to support
other policies as well as compensate for
aspects of structural gaps in the economy
even at the expense of its core mandate.

The Committee specifically noted the
positive contribution of agriculture to GDP
in the third quarter, mostly attributable to
the Bank’s interventions in the sector.
The Committee hopes that given the
thrust
of
the

budget
and
accompanying sectoral policies, output
growth should resume in the short to
medium term. The MPC, therefore, lends
its voice to efforts for an early finalization
of the 2017 Federal Budget by the
authorities concerned, and the resolve to

pursue a non-oil driven economy, as
these will go a long way in stimulating
aggregate
demand
and
restoring
confidence
in
the
economy.
The
Committee also urged the authorities to
seriously consider using the Public Private
Partnership
(PPP)
model
in
its
infrastructure development programme
as a means of cushioning any possible
shocks to budgeted revenue.

The
Committee
further
noted
that
Inflationary pressures would begin to
subside as non-oil output recovers and
the naira exchange rate stabilizes. Until
then, it stressed, a rate cut would worsen
the inflationary conditions and undermine
the current outlook for stability in the
foreign exchange market. The Committee
also feels that doing so would further
aggravate
demand
pressures
while
undermining existing income levels in the
face
of
the
already
expansionary

monetary
policy
and
increasing
inflationary pressure which will make the
economy unattractive for foreign and
domestic
investment.
Given
these
limitations, the Committee was reluctant
to lower the policy rate on this occasion
but remained committed to doing so
when the conditions permit.

From a financial stability standpoint, the
Committee noted the possible impact of
the
inclement
macroeconomic

environment on banking sector resilience.
The MPC urged the Management of the
Bank to engage industry operators to
discuss likely issues of asset quality,
credit concentration and high foreign
exchange exposures.

Given the growth in money supply arising
from
unconventional
monetary
policy
operations of the Bank and implications
for
price
and
exchange
rate
developments,
the
Committee
is

committed
to
moderating
growth
in
narrow money in the 2017 fiscal year in
line with the Bank’s monetary growth
benchmarks.

4.0.
The Committee’s Decisions
The Committee, in consideration of the
headwinds in the domestic economy and
the
uncertainties
in
the
global
environment, decided by a unanimous
vote to retain the MPR at 14.0 per cent
alongside all other policy parameters. In
summary, the MPC decided to:
(i) Retain the MPR at 14 per cent;

(ii) Retain the CRR at 22.5 per cent;
(iii)
Retain the Liquidity Ratio at
30.00 per cent; and
(iv)
Retain the Asymmetric corridor
at +200 and -500 basis points
around the MPR
Thank you for listening.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
24th January, 2017