The Central Bank of Nigeria (CBN), which raised its rate by 100 basis points in November 2014, also harmonized its reserve requirements on public and private sector deposits, which it said had "constrained" the policy space and could inspire moral hazard by private market participants.
As additional tightening measures were not considered appropriate now, CBN imposed a 31 percent requirement on private sector deposits, up from the current 20 percent, and 31 percent on private sector funds, sharply below the 75 percent that was imposed in January last year in an attempt to support the naira's exchange rate.
The naira fell sharply from November last year until March when it started to stabilize after the central bank introduced a series of measures that would limit the purchase of dollars in the interbank market in an effort to prevent speculative trading and save declining foreign reserves.
The naira has also been supported by rebounding portfolio inflows after investors' nerves were soothed following a peaceful outcome to elections in late March. The incoming government of Muhammad Buhari takes office on May 29 after President Goodluck Jonathan lost the election.
Africa's largest oil producer has been hit hard by last year's fall in oil prices and its Gross Domestic Product shrank by 11.57 percent in the first quarter from the fourth quarter for annual growth of only 3.96 percent compared with a rate of 5.94 percent in the fourth quarter and 6.21 percent in the first quarter of 2014.
The CBN "expressed concern about the weakening economic momentum," but noted that other oil exporters are suffering from the same conditions, suggesting the need to accelerate initiatives to diversify the country's economy.CNB expects growth to decline to 5.54 percent this year from 6.22 percent in 2014.
Nigeria's gross official reserves rose to $30.05 billion as of May 15 from $29.34 billion end-March.
Nigeria's inflation rate rose to 8.7 percent in April from 8.5 percent in March, the fifth consecutive month of accelerating inflation, and the CBN said it was "concerned about the creeping headline inflation," but noted the rise was largely due to transient factors, such as high demand in the period around the elections, along with the pass-through effects of the naiba's exchange rate.
Commenting on the risks to the global economy, CBN noted the possible tightness in global financial markets and the diverging stance of monetary policy in advanced economies, "which portend grave consequences for capital flows, exchange rate stability and inflation expectations."
Turning the United Kingdom, CBN said that with UK inflation turning negative in April - the first time on record - it said "the size of its asset purchase program of 385 billion pounds may be revised by the Treasury."
The Central Bank of Nigeria issued the following statement:
"The Monetary Policy Committee met on 18th and 19th
May, 2015 against the backdrop of fragile but
moderate growth and accentuating discrepancies in
global output across regions and intensification of
weaknesses in the domestic economy. In
attendance were 11 out of the 12 members. The
Committee reviewed the fragilities in the global
economic and financial environment in the first four
months of 2015, and reassessed the short to medium-
term policy options for the domestic economy.
higher aggregate demand in addition to creating conditions for accommodative monetary policy
especially in Japan and the euro area where
recovery appears to suffer severe setbacks due to
structural bottlenecks and the threat of deflation. For
the Eurozone, however, the massive quantitative
programme of the ECB opens a new growth vista,
halting the slide in potential output and engendering
a more solid recovery.
International Economic Developments
The Committee noted that global economic recovery continued at a modest but uneven pace partly because most countries were just shedding the deadweights of 2014. The IMF has projected a marginal increase in global output from 3.4 per cent in 2014 to 3.5 per cent in 2015, although with considerable variation across regions and major economies. The softening oil prices have continued to support an uptick in growth of oil importing countries but dampening growth prospects in major oil exporting economies. Overall, economic activities have gained some traction particularly in the US, underpinned by sustained monetary easing, ebbing fiscal consolidation, improvements in housing market conditions, lower financing cost, rising private consumption and increase in real household income. Elsewhere, low commodity prices continued to boost
The Committee noted that global economic recovery continued at a modest but uneven pace partly because most countries were just shedding the deadweights of 2014. The IMF has projected a marginal increase in global output from 3.4 per cent in 2014 to 3.5 per cent in 2015, although with considerable variation across regions and major economies. The softening oil prices have continued to support an uptick in growth of oil importing countries but dampening growth prospects in major oil exporting economies. Overall, economic activities have gained some traction particularly in the US, underpinned by sustained monetary easing, ebbing fiscal consolidation, improvements in housing market conditions, lower financing cost, rising private consumption and increase in real household income. Elsewhere, low commodity prices continued to boost
Global growth is expected to accelerate to 3.8 per
cent in 2016 but with significant downside risks.
Protracted stagnation in the Euro area could
constrain global trade while the anticipated end of
monetary easing in key industrial countries could limit
investment growth. In addition, stronger currencies in
both the US and UK may likely moderate net exports
coupled with lower capital expenditure in the energy
sector due to the softening oil prices. Furthermore, the huge asset purchase program by the UK Treasury and the Bank of Japan is an indication of divergent
monetary policy stance among key advanced
economies with the attendant widening of long-term
interest rate differentials. We are of the view that with
the UK inflation at -0.1 per cent in April, the size of its
asset purchase programme of £385 billion may be
revisited by the Treasury.
in the advanced economies which portend grave consequences for capital flows, exchange rate
stability, and inflation expectations. In addition,
sudden deterioration in liquidity conditions, volatility in
commodity and financial markets, narrowing fiscal
space, and rising geopolitical tensions are headwinds
that could constrain global output growth. Thus,
monetary policy in a number of developing countries
has to contend with the delicate choice among
supporting growth, reining in inflation and stabilizing
currencies and the financial systems.
Domestic Economic and Financial Developments
Output
For many emerging markets, the outlook for growth is
less optimistic, reflecting cyclical factors, domestic
policy tightening, political tension, and structural
factors. In China, growth is expected to decline
below the long run target of 7.0 per cent in 2015
owing to financial market vulnerabilities, declining
productivity, excess capacity, and weakening
domestic demand. It is however, envisaged that
recent policy stimuli by both government and the
Peoples Bank of China would help unwind the excess capacity and strengthen the financial system with the ultimate goal of restoring growth to the historical
path in the long run.
Developing economies as a group continue to show
relative resilience with growth projected to
accelerate from 4.4 per cent in 2014 to 4.8 per cent
in 2015. Growth in the developing economies is also
expected to remain uneven in the near term,
reflecting the pattern in the advanced economies.
Countries with high trade exposure to US and UK
would likely gain substantial momentum while those
depending on the Euro Area may experience
continuing slow down in export demand in the near
to medium-term.
Key risks to growth in the developing countries include the possible tightness in the global financial markets and the diverging stance of monetary policy
Key risks to growth in the developing countries include the possible tightness in the global financial markets and the diverging stance of monetary policy
Global inflation remains benign and is expected to
be moderate in 2015-16 due to the tailwinds from the
sharp drop in the prices of crude oil, excess capacity
and appreciation of currencies in key advanced
economies.
The deceleration in growth, which commenced in
the third quarter of 2014, intensified in the first quarter
of 2015 in the aftermath of declining crude oil prices.
The National Bureau of Statistics (NBS) estimated Real
GDP growth at 3.96 per cent in the first quarter of
2015, which is significantly lower than the 5.94 and
6.21 per cent in the preceding quarter and the
corresponding period of 2014, respectively. Real GDP
growth is projected to decline to 5.54 per cent in
2015 from 6.22 per cent in 2014. In line with trend, the
non-oil sector remained the main driver of growth in
the first quarter of 2015, recording 5.59 per cent. The
key growth drivers in the non-oil sector during the
period were services, trade, and agriculture which
contributed 2.82, 1.27, and 1.05 percentage points,
respectively. The modest improvements recorded in
the oil sector in the fourth quarter of 2014 appear to
have been reversed as oil GDP contracted by 8.15 per cent in the first quarter of 2015 compared with an
increase of 1.2 per cent in the preceding quarter.
Prices
The Committee expressed concern about the
weakening economic momentum but recognized
the relative similarity in the condition to the evolving
economic environment in virtually all oil exporting
economies, suggesting the need for acceleration of
various ongoing initiatives to diversify the economic
base of the country.
With the successful completion of the 2015 general elections and the progress recorded so far in the fight against insurgency, the Committee was optimistic that the slow pace of economic momentum would reverse in the near term.
With the successful completion of the 2015 general elections and the progress recorded so far in the fight against insurgency, the Committee was optimistic that the slow pace of economic momentum would reverse in the near term.
The Committee noted that the year-on-year headline
inflation crept upwards for the fourth consecutive
month in April 2015. The inflation rate rose from 8.2
per cent in January 2015 to 8.5 per cent in March
and further to 8.7 per cent in April. The increase in
headline inflation in April reflected increases in both
the core and food components. Core inflation rose
to 7.7 per cent in April from 7.5 per cent in March,
while food inflation increased to 9.5 per cent from 9.4
per cent over the same period.
The Committee noted that the uptick in inflationary pressures, year-to-date, was largely traceable to transient factors such as high demand for transportation, food and energy, especially in the period around the general elections as well as the Easter festivities. It also noted the roles played by system liquidity and the pass-through effects of the
recent depreciation of the naira exchange rate.
When the transient causes are isolated, the Committee observed the decline in month-on-month inflation across all the measures in April as headline inflation moderated to 0.8% from 0.9% in March; core inflation moderated to 0.6% from 0.8% and food inflation moderated to 0.9% from 1.0%.
Monetary, Credit and Financial Markets
Developments
The Committee noted that the uptick in inflationary pressures, year-to-date, was largely traceable to transient factors such as high demand for transportation, food and energy, especially in the period around the general elections as well as the Easter festivities. It also noted the roles played by system liquidity and the pass-through effects of the
recent depreciation of the naira exchange rate.
When the transient causes are isolated, the Committee observed the decline in month-on-month inflation across all the measures in April as headline inflation moderated to 0.8% from 0.9% in March; core inflation moderated to 0.6% from 0.8% and food inflation moderated to 0.9% from 1.0%.
The Committee reiterated its commitment to price
stability noting that given the already tight stance of
monetary policy and the transient nature of the
incubators of the current inflationary trend, which are
outside the direct control of monetary policy, the
space for maneuver remains constrained,
necessitating the intervention of fiscal and structural
policies to stimulate output growth.
Broad money supply (M2) increased by 1.80 per cent
in April 2015, over the level at end-December 2014.
When annualized, M2 increased by 5.39 per cent,
which is lower than the growth benchmark of 15.24
per cent for 2015. The modest increase in money
supply reflected the growth in the net domestic
credit (NDC) of 9.66 per cent. Annualized, net
domestic credit grew by 28.98 per cent over the end-
December, 2014 level, which was within the
provisional benchmark of 29.3 per cent for 2015. The
significant growth in aggregate credit was traced
mainly to Federal Government borrowing which
increased by 177.26 per cent in April 2015 or 531.78
per cent on annualized basis.
In the period under review, money market interest rates were relatively volatile, reflecting the fluctuations in liquidity in the banking system.
Average inter-bank call and OBB rates, which opened at 11.92 and 10.75 per cent on 2nd March 2015, closed at 15.00 and 13.26 per cent, respectively, on April 17, 2015. Average inter-bank call and OBB rates for the period were 19.02 and 17.45 per cent, respectively.
The Committee noted a modest improvement in the equities segment of the capital market during the review period. The All-Share Index (ASI) rose by 9.3 per cent from 31,744.82 on March 31, 2015 to 34,708.11 on April 30. Similarly, Market Capitalization (MC) increased by 10.0 per cent from N10.72 trillion to N11.79 trillion in the same period. However, relative to end-December 2014, the indices increased marginally by 0.1 and 2.7 per cent, respectively. The recovery in share prices particularly in April 2015 was largely due to improvements in earnings and sentiments, amid successful conclusion of the 2015 general elections.
External Sector Developments
market. Gross official reserves rose from US$29.34 billion at end-March 2015 to US$30.05 billion on May
15, 2015.
In the period under review, money market interest rates were relatively volatile, reflecting the fluctuations in liquidity in the banking system.
Average inter-bank call and OBB rates, which opened at 11.92 and 10.75 per cent on 2nd March 2015, closed at 15.00 and 13.26 per cent, respectively, on April 17, 2015. Average inter-bank call and OBB rates for the period were 19.02 and 17.45 per cent, respectively.
The Committee noted a modest improvement in the equities segment of the capital market during the review period. The All-Share Index (ASI) rose by 9.3 per cent from 31,744.82 on March 31, 2015 to 34,708.11 on April 30. Similarly, Market Capitalization (MC) increased by 10.0 per cent from N10.72 trillion to N11.79 trillion in the same period. However, relative to end-December 2014, the indices increased marginally by 0.1 and 2.7 per cent, respectively. The recovery in share prices particularly in April 2015 was largely due to improvements in earnings and sentiments, amid successful conclusion of the 2015 general elections.
External Sector Developments
The average naira exchange rate was relatively
stable at both the interbank and Bureau-de-Change
segments of the foreign exchange market during the
review period. The exchange rate at the interbank
market opened at N197.80./US$ and closed at
N197.00/US$, with a daily average of N197.04/US$.
This represented an appreciation of N0.80k for the
period. At the Bureau-de-Change segment, the
exchange rate opened at N225.00/US$ and closed
at N217.50/US$, with a daily average of N216.75/US$.
This represented an appreciation of N7.50k for the
period.
The stability and modest appreciation in the two segments of the market was largely due to the closure of the rDAS market and the modified two- way quote trading at the inter-bank segments of the
The stability and modest appreciation in the two segments of the market was largely due to the closure of the rDAS market and the modified two- way quote trading at the inter-bank segments of the
Committee’s Consideration
The Committee noted the salutary effects of the successful conduct of the 2015 general elections on the macroeconomic environment. The Committee expressed optimism that the confidence and goodwill arising from the successful elections would stem the spate of capital reversal, reduce pressure in the foreign exchange market and stabilize the financial markets in the short to medium term. A combination of the renewed confidence and recent administrative measures around the foreign exchange market have eased pressure on the naira, resulting in relative stability in all segments of the foreign exchange market.
First, the prospects of monetary policy normalization
in the US with attendant increase in global interest
rates and accentuating capital flow reversal which
could further exacerbate tightness in global financial
conditions and create further pressure on the naira.
Third, the anemic recovery in the Euro Area and
Japan and tepid growth conditions in China
constitute an additional drag on crude oil exports
prospects. Consequently, the decline in trade
balance, which commenced in the second half of
2014, could persist over a much longer period with
further implications for public revenues and external
reserves.
Furthermore, the Committee considered that the
current discriminatory CRR on public and private
sector deposits has not only constrained the policy
space but could inspire moral hazard by private
market participants. Consequently, it was recognized
that while additional tightening measures may not be
appropriate now to avoid overheating the economy,
a harmonization of the CRR was imperative in order
to curb abuses and improve the efficacy of
monetary policy.
+/- 200 basis points around the midpoint;
deposits at 31.0 per cent."
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The Committee noted the salutary effects of the successful conduct of the 2015 general elections on the macroeconomic environment. The Committee expressed optimism that the confidence and goodwill arising from the successful elections would stem the spate of capital reversal, reduce pressure in the foreign exchange market and stabilize the financial markets in the short to medium term. A combination of the renewed confidence and recent administrative measures around the foreign exchange market have eased pressure on the naira, resulting in relative stability in all segments of the foreign exchange market.
The Committee was concerned about the creeping
headline inflation since January 2015 but noted that
the causal factors were largely transient and outside
the purview of monetary policy. Furthermore, the
significant rising trend in credit to government was
regarded as potential headwinds to growth with
negative spillovers to the already elevated lending
rates, credit to the private sector and aggregate
domestic investment including inflationary pressures.
The Committee expressed deep concern over the
lackluster performance of the external sector arising
from a number of significant global shocks.
Second, the continued glut in crude oil supplies
amidst softening prices, anchored by sluggish global
output expansion could further threaten foreign
exchange earnings and accretion to external
reserves over a much longer period. A near- term
rally in oil prices is further undermined by the
diminishing market power of the Organization of the
Petroleum Exporting Countries (OPEC).
In the light of these developments, therefore, the
Committee stressed the need for proactive measures
to protect the reserve buffer to safeguard the value
of the domestic currency and engender overall
stability of the banking system. It was, however,
noted that monetary policy is gradually approaching
the limits of tightening and would, therefore, require
complementary fiscal and structural policies.
The Committee’s Decisions
In view of these developments, the Committee decided by a unanimous vote to retain the current tight stance of monetary policy. One member voted to increase CRR on private sector deposits from 20 to 25 per cent and retain CRR on public sector deposits at 75 per cent while another member voted to retain the CRR on private sector deposits at 20 per cent and increase CRR on public sector deposits from 75 to 100 per cent. Nine members, voted to harmonize the public and private sector CRR at 31 per cent. Two members voted to remunerate a portion of the CRR. All members voted to retain all other decisions taken at the last meeting of the MPC while improving the implementation of the CRR regime.
Consequently, the MPC voted to:
(i) Retain the MPR at 13 per cent with a corridor of
In view of these developments, the Committee decided by a unanimous vote to retain the current tight stance of monetary policy. One member voted to increase CRR on private sector deposits from 20 to 25 per cent and retain CRR on public sector deposits at 75 per cent while another member voted to retain the CRR on private sector deposits at 20 per cent and increase CRR on public sector deposits from 75 to 100 per cent. Nine members, voted to harmonize the public and private sector CRR at 31 per cent. Two members voted to remunerate a portion of the CRR. All members voted to retain all other decisions taken at the last meeting of the MPC while improving the implementation of the CRR regime.
Consequently, the MPC voted to:
(i) Retain the MPR at 13 per cent with a corridor of
ii) Retain the Liquidity Ratio at 30 per cent; and
(iii) Harmonize the CRR on public and private sector
(iii) Harmonize the CRR on public and private sector
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