CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO 112 OF THE
MONETARY POLICY COMMITTEE MEETING OF 20TH AND 21ST
MARCH 2017

1.0. Background
The Monetary Policy Committee met on the 20th and 21st of
March, 2017, against the backdrop of persistent uncertainty
in the global economy, stemming from economic and
socio-political developments around the world. On the
domestic front, while the Q4 2016 GDP figure was better
than the last two consecutive quarters, the economy
remained in recession with inflationary pressures continuing
unabated. These adverse external and domestic conditions
continued to complicate the policy environment.
In attendance at the meeting were 10 members of the
Committee. The Committee assessed the global and
domestic economic and financial environments in Q1 2017
as well as the outlook for the medium-term.

External Developments
The global economy witnessed greater momentum in Q4
2016, facilitated by gains in both developed, emerging
markets and developing economies which propelled global
GDP growth to 2.7 per cent year-on-year in Q4, 2016, a 0.2
percentage point improvement over Q3 2016.
In spite of this improvement, the external environment
continued to be plagued by political, economic and
financial market uncertainties, with the defining issues being:
Brexit,
growing
protectionist
and
anti-globalization
sentiments, divergent monetary policies of the advanced
economies’ central banks and volatile commodity price
movements. The protectionist stance of the new U.S.
administration could impact negatively on global trade and
economic recovery.

The MPC noted the slip in oil prices against the backdrop of
fears of a supply glut, fuelled by increased activities in US
Shale oil production, which threatens to undermine the
rebalancing effects of the last OPEC decision to cut output.
The Committee also noted the increase in the target range
of the US Fed funds rate at the last meeting of the FOMC
and the potential spillover effects on global capital flows
and interest rates, especially given the still tepid global
economic activity and weak demand. Challenges in the
emerging markets and developing economies persist, as
they struggle with strong headwinds from low commodity
prices, rising inflation, currency volatility, receding real
income and capital reversals.

Overall, the Committee noted the dampening effects of
economic stagnation and uncertainty on global trade and

investment. In spite of these constraints, however, the IMF
estimates that the global economy would witness a slight
improvement in growth from 3.1 per cent in 2016 to 3.4 per
cent in 2017.
Global inflation continued its moderate but steady rise
against
the
backdrop
of
improved
oil
prices
and
depreciated currencies in several emerging markets.
Amongst the major advanced economies, the U.S Fed
maintained its tightening stance, with a further upward
adjustment1 in March 2017. Meanwhile the Bank of Japan
(BOJ), Bank of England and the European Central Bank,
maintained the soft policy stance at their most recent
meetings.


1 The Federal Reserve again raised its benchmark Federal Fund rate by 25 basis points in March 2017, to a range of
0.75 to 1.00 per cent, having raised rates by the same margin in December, 2016, and also provided indication of
further rate hikes in 2017

Domestic Output Developments
Data released by the National Bureau of Statistics (NBS) in
February 2017 showed that the economy contracted
marginally by 1.30 per cent in Q4 2016, effectively remaining
in recession since Q2 2016. Overall, in 2016, the economy
contracted by 1.51 per cent, with the contraction in Q4
being the least since Q2 2016. The non-oil sector grew by
0.33 per cent in Q4, largely reflecting the slowdown in the
agricultural sector, which decelerated to 4. 03 per cent in
Q4 2016 from the 4.54 per cent recorded in Q3 2016. The
Committee remains of the conviction that fiscal policy
remained the most potent panacea to most of the key
negative undercurrents i.e. stunted economic activity,
heightened unemployment and high inflation.
In spite of the recent moderate recovery in oil prices, the
Committee approached developments in commodity

prices cautiously. It noted that the era of high oil prices was
over, thus making diversification away from oil more
imperative today than ever.

Developments in Money and Prices
The committee noted that money supply (M2) contracted
by 5.73 per cent in February 2017, annualized at -34.38 per
cent in contrast to the provisional growth benchmark of
10.29 per cent for 2017. Similarly, Net Domestic Credit (NDC)
contracted by 1.41 per cent in February, 2017, annualized
to 8.46 per cent, being significantly below the 17.93 per
cent provisional growth benchmark for 2017. Likewise, net
credit to government contracted at an annualized rate of
49.74 per cent, representing 82.86 per cent below its
programmed target of 33.12 per cent. In effect, all the
major monetary aggregates contracted by end-February

and
underperformed
their
programmed
provisional
benchmarks for fiscal 2017.
Headline inflation (year-on-year), however, declined for the
first time in 15 months, dropping by 0.94 percentage point to
17.78 per cent in February, from the 18.72 per cent
recorded in January 2017, and 18.55 per cent in December,
2016 seemingly reversing the monthly upward momentum
recorded since January, 2016. The moderation in headline
inflation in February, 2017 reflected base effect as well as
decline in the core component, which fell by 1.90
percentage points from 17.90 per cent in January to 16.0
per cent in February, 2017. The food index, however, rose to
18.53 per cent in February, a 0.71 percentage point
increase over the 17.87 per cent recorded in January, 2017.
The Committee, similarly, observed a continuous upward
trend in the month-on-month inflation rate in February,

having slightly moderated between December 2016 and
January, 2017. It noted the sustenance of the structural
factors mounting pressures on consumer prices, such as the
high cost of power and energy, transport and production
factors, as well as rising prices of imports. Nonetheless, the
Committee remains optimistic that the adopted policy
stance and other ancillary measures directed at improving
the agricultural and other relevant sectors of the economy
would combine to restart growth and drive down prices in
the short to medium-term.
Money market interest rates moved in tandem with the level
of liquidity in the banking system. Rates were relatively
stable during the review period, the interbank call rates
opened at 6.25 per cent on January 25, 2017 and closed at
13.14 per cent on February 28, 2017. However, the average
inter-bank call rate rose to 100.00 and 133.84 per cent on

January 21 and January 23, 2017, respectively, following the
withdrawal of liquidity from the banking system through the
sale of foreign exchange worth N137.00 billion on February
21, 2017.
The Committee noted the decline in the equities segment of
the capital market as the All-Share Index (ASI) fell by 3.07
per cent from 26,036.24 on January 31, 2017, to 25,238.01 on
March 10, 2017. Similarly, Market Capitalization (MC)
decreased by 2.68 per cent from N8.97 to N8.73 trillion
during the same period. Relative to end-December 2016,
the capital market indices, fell by 3.12 and 3.03 per cent,
respectively, reflecting the challenges still confronting the
economy.

Total foreign exchange inflows through the CBN decreased
by 8.87 per cent in February, 2017 compared with the

previous month, as foreign exchange market receipts were
significantly lower. Total outflows, also declined by 7.32 per
cent during the same period. The Committee noted that the
average naira exchange rate remained stable at the interbank segment of the foreign exchange market in the review
period.

2.0. Overall Outlook and Risks
Available data and forecasts of key economic variables as
well as the newly released Federal Government’s Economic
Recovery and Growth Plan (ERGP), indicate prospects of
output recovery in 2017. The Committee expects that the
implementation of this plan, the new foreign exchange
policy as well as the current effort by the Federal
Government to restore peace in the Niger Delta region
would help revive economic growth and stabilize prices.

The Committee identified the downside risks to this outlook
to include the possibility of a slower-than-expected rate of
global economic activity, tight monetary policy stance by
the U.S. Fed, resulting in strengthening U.S dollar, and low oil
prices.
3.0. The Considerations of the Committee
The Committee re-evaluated the implications for Nigeria of
the continuing global uncertainties as reflected in the
unfolding protectionist posture of the United States and
some European countries; sustenance of the OPEC-Russian
agreement to cut oil production beyond July 2017; sluggish
global recovery and the strengthening U.S. dollar.

The
Committee
also
evaluated
other
challenges
confronting the domestic economy and the opportunities
for achieving price stability, conducive to growth in 2017. In

particular, the Committee noted the persisting inflationary
pressures;
continuing
output
contraction;
high
unemployment rate; elevated demand pressure in the
foreign exchange market; low credit to the real sector and
weakening financial system indicators, amongst others.
Nonetheless,
members
welcomed
the
improved
implementation of the foreign exchange policy that
resulted in naira’s recent appreciation. Similarly, the
Committee expressed satisfaction on the release of the
Economic Recovery and Growth Plan, and urged its speedy
implementation with clear timelines and deliverables. On
the strength of these developments, the Committee felt
inclined to maintain a hold on all policy parameters.
Nevertheless, the Committee noted the arguments for
tightening policy which remained strong and persuasive.
These include: the real policy rate which remains negative,

upper reference band for inflation remains substantially
breached and elevated demand pressure in the foreign
exchange market. The reality of sustained pressures on
prices (consumer prices and the naira exchange rate)
cannot be ignored, given the Bank’s primary mandate of
price stability. It noted that the moderation in inflation in
February was due to base effect as other parameters,
particularly;
month-on-month
CPI
continued
to
rise.
However, tightening at this time would portray the Bank as
being insensitive to growth. Also, the deposit money banks
may easily reprice their assets which would undermine
financial stability. Besides, the Committee noted the need
to create binding restrictions on growth in narrow money
and
structural
liquidity
and
the
imperative
of
macroeconomic
stability
to
achieving
price
stability
conducive to growth.

The Committee also considered the arguments for loosening
the stance of monetary policy, noting its desirability in
stimulating aggregate demand if credit increased with
lower rates of interest. It noted the arguments that loose
monetary policy was capable of delivering cheaper credit,
making it more attractive for Nigerians to acquire assets,
thus increasing wealth and stimulating aggregate spending
and confidence by economic agents, which would
eventually lead to lower Non-performing loans in the system.
However, the counterfactual arguments against loosening
was anchored on the upward trending month-on-month
inflation and its impact on the exchange rate. Loosening
would thus worsen the already negative real interest rate,
widen the interest rate spread and reverse the positive
outlook for the current account position.

On outlook for financial stability, the Committee noted that
the banking sector was becoming less resilient as a result of
the adverse macroeconomic environment. Nevertheless,
the MPC reiterated its resolve to continue to pursue financial
system stability. To this end, the Committee enjoined the
Management of the Bank to work with DMBs to promptly
address
rising
NPLs,
declining
asset
quality,
credit
concentration and high foreign exchange exposures.
The Committee also noted the benefits of loosening at this
time which will be in line with the needs of fiscal policy to
restart growth. The MPC, however, noted that loosening
would
exacerbate
inflationary
pressures,
worsen
the
exchange rate and further pull the real interest rate into
negative territory. Since interest rates are sticky downwards,

loosening may not necessarily transmit into lower retail
lending rates.
The Committee noted the consecutive positive contribution
of agriculture to GDP in Q4 2016, a development partly
traceable to the Bank’s interventions in the sector. The
Committee remains optimistic that, if properly implemented,
the newly released Economic Recovery and Growth Plan
(ERGP) coupled with innovative, growth-stimulating sectoral
policies would help fast track economic recovery.
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 9 out of 10 members to retain the
MPR at 14.0 per cent alongside all other policy parameters.
One member voted to raise the MPR. 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
21st March, 2017