Central Bank of Nigeria Communiqué’ No. 106 of the
Monetary Policy Committee Meeting of Monday and
Tuesday, March 21 and 22, 2016
The Monetary Policy Committee met on 21st and 22nd
March 2016 amidst uncertain global economic prospects
and continuing challenges in the domestic economy. In
attendance were 8 out of the 12 members. The
Committee appraised the international and domestic
economic and financial environments in the first two
months of 2016 as well as the outlook for the rest of the
year.
International Economic Developments
The Committee noted with concern the further decline in
global output at the end of 2015, which grew at 2.3 per

cent, year-on-year in Q4, its slowest in three years,
representing a 0.3 percentage point decline compared
with 2.6 per cent in Q3. This deceleration stemmed from
the continuous slowdown of growth in the emerging
market economies, worsened by deteriorating conditions
in the Euro area and China as well as key emerging
market economies. Other factors include sustained
pressure in global financial markets arising from US
monetary policy normalization, depressed global oil
market and persistently weakened global aggregate
demand.

The slowdown in growth in the United States to 1.0 per
cent in Q4 from 2.0 per cent in Q3 was attributed to
slowdown in private consumption expenditure (PCE) and
non-residential fixed investments. In Japan, output
declined by 1.4 percentage points in Q4, 2015 in contrast

to the 1.3 per cent growth recorded in Q3. The Bank of
Japan’s monthly asset purchase program of ¥6.7 trillion
($56.71 billion) remains substantially sub-optimal, as the
economy continues to lurch between contraction and
expansion, with the adoption of a negative interest rate
policy in January 2016.

In the Euro area, GDP grew by 1.5 per cent in Q4 of
2015, and projected to grow at 1.7 per cent in 2016. The
European Central Bank (ECB), at its meeting on 10th of
March, 2016 eased monetary policy by further reducing
its refinancing rate to 0.0 per cent and deposit rate to -
0.4 per cent. The Bank also expanded its monthly asset
purchase program from €60 billion ($65.4 billion) to €80
billion ($87.2 billion) to further stimulate output growth
and move inflation towards its long term objective of 2.0
per cent.

On the other hand, the Bank of England (BoE) sustained
its stock of assets purchase, financed through the
issuance of reserves at ₤375 billion ($536.25 billion),
while retaining its policy rate at 0.5 per cent. The BoE
further committed to investing ₤8.4 billion ($12.01
billion) of cash flows associated with redemption of the
January 2016 government securities held in the Asset
Purchase Facility, with a commitment to bring inflation
closer to the 2.0 per cent target, reducing unemployment
and promoting growth.

Uncertainties and geo-political tensions in the Middle
East, including a negotiated ceasefire agreement in Syria
and Iran’s re-entry into mainstream international oil
market may have further redefined conditions in the oil
market. The market witnessed some uptick in prices

following the resolve of the Organization of the
Petroleum Exporting Countries (OPEC) and some nonOPEC members to pursue a higher anchor price, coupled
with smaller-than-anticipated build-up in stocks at the
Cushing Oklahoma delivery hub for United States crude
futures.

The Emerging markets and developing economies
(EMDEs) were forecast to grow at 4.3 per cent in 2016,
an improvement over the 4.0 per cent recorded in 2015.
However, external and domestic challenges have
persisted, stemming from low commodity prices,
troubled financial markets, tepid global demand, policy
uncertainty as well as continuously feeble growth in
global trade. In addition, weaknesses in major emerging
market economies, diminished capital inflows, rising
borrowing costs and geopolitical factors have been

identified as possible deterrents to growth in the EMDEs.
In the environment of suppressed inflation, slow growth,
weak global demand and volatile financial markets, the
stance of monetary policy in the advanced economies is
expected to remain accommodative in 2016, while in the
EMDEs, it is expected to be underpinned by currency
adjustments and other complementary policies.
Domestic Economic and Financial Developments
Output
The Bank had adopted accommodative monetary policy
since July 2015 in the hope of addressing growth
concerns in the economy, effectively freeing up more
funds for DMBs by lowering both CRR and MPR, with
excess liquidity arising from the lower CRR warehoused
at the CBN. DMBs were to access these funds by
submitting verifiable investment proposals in the real

sector of the economy. The funds have not impacted the
market yet because the CBN was still processing some of
the proposals submitted by the DMBs. In the first
episode of easing which resulted in injecting liquidity into
the Banking system, DMBs did not grant credit as
envisaged. Moreover, the delay in passage of the 2016
Budget has further accentuated the difficult financial
condition of economic agents as output continues to
decline due to low investment arising from weak
demand. The cautious approach to lending by the
banking system underpinned by a strict regulatory
regime conditioned by the Basel Committee in the post
global financial crisis era has further alienated investors
from access to credit as banks prefer to build liquidity
profiles in anticipation of government borrowing.
In the light of these developments, domestic output
growth in 2015 remained subdued as reported by the

National Bureau of Statistics (NBS). Consequently, real
GDP grew by 2.11 per cent in the last quarter of 2015,
more than half a percentage point lower than the 2.84
per cent recorded in the third quarter and 3.83
percentage points in the corresponding period of 2014.
Overall, growth in 2015 was estimated at 2.79 per cent,
compared with 6.22 per cent in 2014. The major impetus
for growth continued to come from the non-oil sector
which grew by 3.14 per cent in Q4, 2015 compared with
3.05 per cent in the preceding quarter. The key drivers
of growth in the non-oil sector were Services, Agriculture
and Trade; contributing 1.23, 0.83 and 0.76 percentage
points, respectively.

The Committee noted that the sluggish growth in output
was directly attributable to certain fiscal uncertainties,
which inadvertently hampered movement of labor and

goods; fuel scarcity, increased energy tariffs, foreign
exchange scarcity as well as slow growth in credit to
private sector in preference to high credit growth to the
public sector. The Committee noted that many of these
factors were outside the control of monetary policy and
given these limitations, in the absence of complementary
fiscal and structural policies, the only option was to
continue with the existing measures. The MPC believes
that complementary fiscal and structural policies are
essential for reinvigorating growth.
Prices
The Committee noted the increase in year-on-year
headline inflation to 11.38 per cent in February 2016,
from 9.62 per cent in January and 9.55 per cent in
December, 2015. The increase in headline inflation in
February reflected increases in both food and core
components of inflation. Core inflation rose sharply for

the first time to 11.00 per cent from 8.80 per cent in
January after a lull of three consecutive months at 8.70
per cent through December, 2015. Food inflation also
inched up to 11.35 per cent from 10.64 per cent in
January and 10.59 per cent in December, 2015. The rising
inflationary pressure was traced to the lingering scarcity
of refined petroleum products, exchange rate pass
through from imported goods, seasonal factors and
increase in electricity tariff. The Committee noted that
the factors responsible for rising inflation were more
structural in nature than monetary, but reaffirmed its
commitment to monitor the developments closely and to
work with the relevant authorities to address the
underlying drivers of the upward price movements.

Monetary, Credit and Financial Markets Developments
Broad money supply (M2) grew by 2.29 per cent in
February, 2016 in contrast to 1.69 and 0.25 per cent in
January 2016 and February 2015, respectively. When
annualized, M2 grew by 13.74 per cent in February 2016
against the provisional growth benchmark of 10.98 per
cent for 2016. Net domestic credit (NDC) grew by 3.71
per cent in the same period, annualized, at 22.26 per
cent. At this rate, the growth rate of NDC was below the
provisional benchmark of 17.94 per cent for 2016. Credit
to the private sector grew by 1.45 per cent in February
2016, which annualized to a growth of 8.70 per cent,
below the benchmark growth of 13.28 per cent. The
Committee noted with concern, the dismal performance
of growth in credit to the private sector, noting that even
at that, credit went primarily to low employment

elasticity sectors of the economy. This had a significant
negative impact on output growth.
Money market interest rates reflected the liquidity
situation in the banking system. Average inter-bank call
and OBB rates, which stood at 0.5 and 2.77 per cent on
25 January 2016, closed at 4.00 and 5.00 per cent,
respectively, on March 9, 2016. Between January 25th
and end-February 2015, interbank call and OBB rates
averaged 1.43 and 2.68 per cent, respectively. This was
traced to liquidity surfeit in the banking system. The
deposit money banks were, however, reluctant to grant
new credit because of rising non-performing loans
(NPLs), mainly in the oil sector, amongst other reasons.
The Committee also noted the slight improvement in the
equities segment of the capital market during the review
period. The All-Share Index (ASI) rose by 8.1 per cent
from 23,916.15 on January 29, 2016 to 25,853.58 on

March 14, 2016. Similarly, Market Capitalization (MC)
rose by 8.02 per cent from N8.23 trillion to N8.89 trillion
during the same period. However, relative to endDecember 2015, the indices declined by 9.73 per cent
and 9.74 per cent, respectively.

External Sector Developments
The average naira exchange rate remained stable at the
inter-bank segment of the foreign exchange market
during the review period. The exchange rate at the
interbank market opened at N197.00/US$ and closed at
N197.00/US$, with a daily average of N196.99/US$
between January 25 and March 14, 2016. The Committee
reiterated its commitment to maintaining a stable naira
exchange rate. The MPC took note of the level of activity
in the autonomous foreign exchange market as well as
the rising demand in the interbank market but observed

that the data on demand for foreign exchange, was being
overshadowed by speculative demand. However, the
Committee charged the Bank to speed up reforms of the
foreign exchange market to improve certainty and
eliminate noise and opportunities for arbitrage.

The Committee’s Considerations
The Committee noted the weakening macroeconomic
environment, reflected particularly in foreign exchange
shortages, slowing GDP growth rate and rising inflation.
Overall economic growth slowed significantly in 2015,
particularly in Q4. Apparently, the conditions responsible
for the slowdown – uncertainty around fiscal policy,
adverse external environment, security challenges in
some parts of the country affecting production and
distribution of agricultural produce, low electricity
supply, fuel shortages, and sluggish growth in credit to

the private sector – have continued in the first quarter of
2016.
On the monetary side, contrary to the notion of liquidity
overhang in the financial system, the wider economy
appears starved of the needed liquidity to spur growth
and employment. Recent performance of the monetary
aggregates lends credence to this fact. With the
exception of credit to government, growth in all the
monetary aggregates remained largely below their
indicative benchmarks, yet; headline inflation spiked to
11.38 per cent in February 2016, substantially breaching
the policy reference band of 6 - 9 per cent. Apart from
liquidity, the increase in inflation was driven by structural
factors such as fuel scarcity, increased electricity tariff,
persistent insecurity, exchange rate pass through and
seasonality of agricultural produce. The conflicting
signals from slowing growth and rising inflation present a

difficult policy challenge. Though mindful of the
limitations of monetary policy in influencing the drivers
of the current price spiral, the Committee stressed the
need to urgently address the key sources of the
pressures. In this regard, the Committee reaffirmed its
commitment to closely monitor the development while
encouraging
relevant
authorities
to
address
the
structural bottlenecks.
From the monetary data, the Committee noted that the
excess liquidity in the banking system was contributing to
the current pressure in the foreign exchange market with
a strong pass-through to consumer prices. The
Committee further noted that previous efforts to reflate
the economy in order to spur growth did not elicit the
required response from DMBs, hence; the surfeit of
liquidity in the interbank market. Obviously, the
attendant low rates at that market have not transmitted

to the term structure of interest rates. Concerned about
the need for low interest rates to support growth and
employment, the Committee urged the CBN to explore
innovative ways of ensuring the unhindered flow of
credit at low cost to key growth sectors even as
monetary policy has to, under the circumstance, address
the liquidity surfeit in the banking system as well as the
pressure on exchange rate and consumer prices. The
Committee hopes that fiscal and other structural policies
would soon be deployed to strengthen the overall
response of macroeconomic policy to the shocks.
The Committee was also concerned that with headline
inflation at 11.38 per cent, noting that the policy rate had
become negative in real terms. This development has the
potential of keeping both foreign and domestic
investments on hold. As part of measures to address the
supply constraint in the foreign exchange market, yields

on domestic instruments have to be competitive to
attract the much needed foreign inflows. On the
administrative side, this will have to be complemented
by a comprehensive reform of the foreign exchange
market which is currently being undertaken. For the
avoidance of doubt, the Bank would continue to allow
domiciliary account holders unfettered access to funds in
their accounts.
The Committee also urged speedy passage of the 2016
Budget in order to halt the depressing effect of the
uncertainty that engulfs the waiting period, hoping that
the implementation of the budget would go a long way in
boosting business confidence, and reinvigorating the
financial markets. In the circumstance, the Committee
urged the Bank to continue to upscale its surveillance of
the financial system with the aim of promptly detecting

and managing vulnerabilities to ensure sustained
stability.
Finally, the Committee remains committed to price
stability across the range of consumer prices, exchange
rate and interest rate, which is fundamental to reviving
economic growth and employment generation. In the
meantime, the Bank would continue to leverage its
development finance policy to support critical sectors of
the economy. The MPC also stressed the need to sustain,
deepen and speed up reforms designed to ensure
focused coordination of monetary and fiscal policies.
The Committee’s Decisions
The Committee, in its assessment of relevant internal
and external indices, came to the conclusion that the
balance of risks is tilted against price stability. The MPC
therefore, voted to tighten the stance of monetary

policy. One member voted to retain the CRR at 20.00 per
cent while another member voted to retain the current
width of the asymmetric corridor.


In summary, the MPC voted to:
(i) Raise MPR by 100 basis points from 11.00 per
cent to 12.00 per cent;
(ii) Raise CRR by 250 basis points from 20.00 to
22.50 per cent;
(iii) Retain Liquidity Ratio at 30.00 per cent; and
(iv) Narrow the asymmetric corridor from +200 and
-700 basis points to +200 and -500 basis points

Thank you for listening.

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