The Conduct of Monetary Policy (2024)

Over the years, the objectives of monetary policy have remained the attainmentof internal and external balance of payments. However, emphasis on techniques/instrumentsto achieve those objectives have changed over the years. There have been two majorphases in the pursuit of monetary policy, namely, before and after 1986. The firstphase placed emphasis on direct monetary controls, while the second relies onmarket mechanisms.

Conduct of Monetary Policy in 2021

In 2021, monetary policy focused on easing the impact of shocks on the Nigerian economy which emanated from the various developments in the global and domestic economies. Notable amongst these were: ongoing supply-side disruptions associated with the post-lockdown, pent-up demand; and poor acceptance and roll-out of COVID-19 vaccines even as the virus continued to mutate aggressively. In the domestic economy, the burgeoning public debt portfolio also posed a considerable challenge to the effective deployment of monetary policy as the increased accommodation by both monetary and fiscal policy to support the recovery of the global economy, could also pose some financial stability risks post-Pandemic.

As the global economy pushed ahead with the recovery, new risks emerged on the horizon associated with the early commencement of monetary policy normalization which took center stage. This risk was driven by the persistent rise in inflationary pressures across several advanced economies, driven primarily by post-Pandemic pent-up demand, supply-side constraints and rising cost of energy. Consequently, investors commenced a broad divestment from gold and emerging market securities to US dollar denominated assets as fixed income yields gradually adjusted upwards in response to the crystalized risk of monetary policy normalization. This resulted in considerable capital flow reversals from the Emerging Market and Developing Economies, leading to a new episode of exchange rate pressures and rising inflation amongst this group of economies.

Other shocks from the domestic economy resulted in broad upward pressure on prices and downward pressure on growth. Primary amongst these shocks was the heightening problem of insecurity which not only accentuated food prices as farmers were constantly unable to access their farms, but also resulted in complete destruction of entire farms in some cases. In addition to this, the economy faced considerable energy prices shocks which slowed growth further and put upward pressure on prices. The hesitant uptake and poor supply of the COVID-19 vaccine further dampened the recovery.

Data from the National Bureau of Statistics (NBS) showed that real Gross Domestic Product (GDP) grew by 0.51 per cent (year-on-year) in the first quarter of 2021, improved to 5.01 per cent in the second quarter, dropped slightly to 4.03 per cent in the third quarter and dipped further to 3.98 per cent in the 4th quarter of 2021.

In summary, inflation continued to trend above the Bank’s policy rate of 11.5 per cent following the impact of the various shocks highlighted above. Monetary policy remained broadly accommodative throughout 2021 to support the recovery. The Asymmetric Corridor was retained at +100/-700 basis points around the MPR, while the CRR and Liquidity Ratio remained at 27.5 and 30.0 per cent respectively throughout the period.

Conduct of Monetary Policy in 2020

In 2020, the thrust of the Bank’s monetary policy continued to signal an accommodativepolicy stance, reflecting developments in the global and domestic economic and financialenvironments. These developments included the protracted lockdown of economies acrossseveral regions of the world following the outbreak of COVID-19 infections and theabsence of effective treatments for the virus, which continued to drag global outputrecovery. Other factors were persisting decline in global aggregate demand and supply;disruptions in global supply chain and trade; rising sovereign and corporate debts;heightened financial market vulnerabilities; low prices of crude oil and othercommodities; and rising unemployment.

On the domestic front, the economy recorded mixed performance. The economy slippedinto recession in the third quarter of 2020 following two consecutive quarters of outputcontraction, owing to a halt to economic activities as a result of the lockdown measuresto contain the spread of the Coronavirus disease (COVID-19). Consequently, there wassustained implementation of economic stimulus by both the monetary and fiscal authorities.Data from the National Bureau of Statistics (NBS) showed that the real Gross DomesticProduct (GDP) which grew by 1.87 per cent (year-on-year) in the first quarter of 2020contracted by 6.10 and 3.62 per cent in the second and third quarters of 2020, respectively.In the fourth quarter of 2020, the economy exited recession owing to the implementation ofthe Economic Sustainability Plan (ESP) of the Federal Government as well as the sustainedinterventions in the real sector by the Central Bank of Nigeria. Accordingly, real GrossDomestic Product (GDP) grew by 0.11 per cent (year-on-year) in the fourth quarter of 2020,driven mainly by the performance of the non-oil sector, while the oil sector contracted.

On price developments, the strains on demand and supply coupled with the pressure on theexchange rate elevated the general price level as headline inflation (year-on-year) rose by3.62 percentage points from 12.13 per cent in January to 15.75 per cent in December 2020.

The primary focus of monetary policy during the period was to strike a balance betweensupporting the recovery of output growth, while maintaining stable price developmentacross inflation, exchange rate and money market interest rates. The Monetary Policy Rate(MPR) continued to be the Bank’s key instrument for signaling monetary policy stance andmanagement. The MPR was lowered by 100 basis points from 13.5 to 12.5 per cent in May 2020,while the asymmetric corridor of +200 and -500 basis points around the MPR was maintained.In a bid to further support growth owing to the devastating impact of the COVID-19 pandemic,the MPR was further reduced by 100 basis points to 11.5 per cent in September 2020, while theasymmetric corridor was also adjusted from +200/-500 to +100/-700 basis points around the MPR.

The outlook for the domestic economy suggested a rebound in the first half of 2021 withthe gradual easing of lockdowns following optimism around COVID-19 vaccine approvalsand rollouts. This would be supported by continuous and synchronized monetary and fiscalstimuli, uptick in global commodity prices particularly the improvement in the global oilmarket, although significant downside risks remained.

Conduct of Monetary Policy in 2019

Monetary policy in 2019 was shaped by key developments in the global anddomestic economic and financial environments. On the global scene, the keychallenges were: rising external debt in Emerging Market and Developing Economies(EMDEs); vulnerabilities in major financial markets and tightening global financialconditions; slowdown in the Chinese economy resulting from trade war with the US;downturn in global manufacturing; US imposition of a new round of sanctions on Iran;uncertainties surrounding the BREXIT negotiations, and indications of renewed tensionon the Korean Peninsula. In addition, uncertainty surrounding the continuingmonetary policy normalization by the US, the European Central Bank (ECB)decision to halt its monetary policy normalization programme, and continuedasset purchase by the Bank of Japan (BoJ), signaled a broad level ofuncertainty in the global economy.

The weak recovery of the domestic economy since the exit from the recessioncontinued, although with positive growth sentiments. These sentiments were duelargely to stability in government following the successful conclusion of the 2019general elections which strengthened investor confidence in the economy. The outputgrowth was supported by improved fiscal receipts arising from increased oil productionand prices; sustenance of the Bank’s development finance interventions in the realsector; as well as stability in the foreign exchange market. Accordingly, growth inreal Gross Domestic Product (GDP) which stood at 2.10 per cent (year-on-year) in thefirst quarter of 2019, declined to 1.94 per cent in the second quarter, before risingto 2.28 and 2.55 per cent in the third and fourth quarters of 2019, respectively.

On price developments, the moderation in inflation recorded in the first half of 2019dramatically reversed during the second half following a build-up of inflationary pressuresin the domestic economy. Consequently, the headline inflation which stood at 11.37 percent in January 2019 marginally declined to 11.22 per cent in June, then rose to 11.98per cent in December 2019, driven by both food and core

The Bank’s monetary policy during the year was designed to stimulate growth, whilemaintaining inflation within a tolerable threshold. Accordingly, the Monetary PolicyCommittee (MPC) adjusted the monetary policy rate (MPR) downwards by 50 basis pointsto 13.5 per cent in March 2019. This was to signal a pro-growth stance by way ofencouraging the flow of credit to the productive sectors of the economy. The MPR wasretained at 13. 5 per cent along with asymmetric corridor of +200 and -500 basis pointsaround the MPR for the remaining part of the year.

Growth remained a challenge in the review period. Output recovery continued at amoderate pace, with the outlook indicating continued improvement into 2020.

Conduct of Monetary Policy in 2018

Monetary policy in 2018 continued to be shaped by developments in theglobal and domestic economic and financial environment. At the globallevel, the key influences were: increased monetary policy divergence amongthe advanced economies; continued uncertainties surrounding the BREXITnegotiations and sustained monetary policy normalization in the US as theFed hiked its interest rate and gave forward guidance of more, withimplications for capital reversals from the emerging markets and developingeconomies. Others included the U.S withdrawal from the Iranian nucleardeal, the emerging trade tensions between the US and other major worldeconomies as well as pockets of geopolitical tensions. These,notwithstanding, the global economy continued on the path of recovery,stemming from the strengthening of domestic investment demand andrelatively easier financing conditions in the advanced economies, as wellas the sustained recovery in oil and other commodity prices, amid limitedspillovers of trade tensions to market sentiments.

In the domestic economy the promising developments during the period were:improved fiscal receipts and accretion to reserves as a result of sustainedrecovery in oil and other commodity prices, improved oil production,improvement in the 2017 capital budget implementation which was extendedinto the first half of 2018, sustained development finance interventions inthe real sector by the Central Bank of Nigeria, and continuedimplementation of Economic Recovery and Growth Plan (ERGP). The outcome wasreflected in improving but still fragile economic recovery during the year.Consequently, Gross Domestic Product (GDP) growth moderated to 1.95, 1.50and 1.81 per cent (year-on-year) in the first, second and third quarters of2018 from 2.11 per cent in the fourth quarter of 2017.

On price developments, the Bank noted that the continuing liquidity surfeitin the banking system, notwithstanding, inflationary pressure moderated inthe review period as headline inflation declined progressively from 15.13per cent in January to 11.44 per cent in December 2018. The developmentlargely reflected the relative stability in the foreign exchange market,improvements in food supply, and stability in utility prices.

Monetary policy in the review period, was informed by key considerationswhich included; the slow output recovery; high but moderating inflationrate which remained above the Bank’s target range; continuing liquiditysurfeit in the banking system; weak macro-prudential indicators; growingsovereign debt and low fiscal buffers. These developments and the need toachieve the Bank’s mandate of price and exchange rate stability providedthe basis for the sustenance of the tight monetary policy stance during theyear. Consequently, the Bank kept the Monetary Policy Rate (MPR) at 14.0per cent and retained its standing facility corridor at +200/-500 basispoints. The Cash Reserve Ratio (CRR) and Liquidity Ratio (LR) were alsoheld constant throughout the review period at 22.5 and 30 per cent,respectively. The Bank also continued its reliance on Open MarketOperations as main tool for liquidity management, complemented with regularforeign exchange interventions. Although the Nigerian capital market openedon a bullish note in the review period, the market witnessed a significantdecline towards the end of the period, on account of a weak corporateenvironment and sustained capital reversals in response to on-goingmonetary policy normalization in some advanced economies. Consequently, theAll Share Index (ASI) only recorded a marginal increase of 17.81 per centfrom 38,243.19 at end-December 2017 to 31,430.19 at end-December 2018.

The broad outlook for the domestic economy in 2019 portends a positiveoutlook for the domestic economy. Output growth is expected to be driven byfiscal stimulus from increase in oil and non-oil receipts to support theFederal Government’s Economic Recovery and Growth Plan. The economy isprojected to grow by 2.0 per cent by the IMF, 2.2 per cent by the WorldBank and 2.28 per cent by the CBN. Key headwinds to these forecasts,however, are softening oil prices, persistent security challenges arisingfrom insurgency in the North East and herdsmen/farmers clashes in someparts of the country and perceived political risks associated with the 2019general elections. The outlook for inflation in the first half of 2019 ismixed, with the expectation of an increase in the near-term before agradual decline towards the mid-year. Outlook for the global economyremains uncertain due to the effect of on-going trade tensions between theUS and its key allies, slower growth in China, unclear direction of BREXITnegotiations and continuing monetary policy normalization in some advancedeconomies.

Conduct of Monetary Policy in 2017

During the first half of 2017, the focus of monetary policy was shaped bydevelopments in the global and domestic economic environments. The keychallenges to monetary policy-formulation on the global front were: therising wave of protectionist sentiments in major advanced and emergingmarket economies, increasing monetary policy divergence in the advancedeconomies, and resumption of monetary policy normalization in the US withits spillover effects on global capital flows. In addition, commodity pricemovements remained disorderly, with tepid recovery in crude oil prices.These developments pressured the domestic economic environmentconsiderably, manifesting in weak fiscal positions, low reserves accretionand a liquidity-challenged foreign exchange market.

The key domestic vulnerabilities were reflected in weak economic activity,persisting liquidity surfeit in the banking system, weakening financialstability indicators, contraction in private sector credit, expansionaryfiscal policy and the rising debt profile of the general government. In theface of low commodity prices and accretion to external reserves, thechallenges in the foreign exchange market intensified in the review period,necessitating both policy and administrative measures to rein-in demandpressure and stabilize the exchange rate. As a result, the Bank introducedseveral complementary measures to fine-tune existing foreign exchangemanagement practices. The measures were: the Investors' and Exporters'(I&E) Foreign Exchange Window for willing buyers and sellers of foreigncurrency, increased foreign exchange sales to BDCs, and special foreignexchange auctions to targeted sectors, as well as foreign exchange salesfor small scale importation, among others. Following these measures,speculative practices were curbed and the depreciation of the nairamoderated with favourable pass-through to consumer prices. Thus, headlineinflation moderated during the period to 15.37 per cent in December 2017from 18.72 per cent in January 2017, although it remained above the Bank'sbenchmark of 6-9 per cent. Also, with improved foreign exchange supply, andthe lowering of fiscal uncertainties following the launching of theEconomic Recovery and Growth Plan and approval of the 2017 FederalGovernment Budget, the economy gradually exited recession in the secondquarter of 2017. The economy grew by 0.77 per cent in 2017, after being inrecession for five successive quarters. The modest growth reflectedexpansions in both the oil and non-oil sectors. The growth of the oilsector resulted from the moderate firming up of crude oil prices andrestoration of production levels, while non-oil expansion was traceable toefforts at economic diversification and various real sector interventionsof the Bank.

Monetary policy during the review period was designed to address theforegoing challenges, stimulate the economy out of recession, and achieveoverall macroeconomic stability. The Bank sustained its tight monetarypolicy stance by maintaining the Monetary Policy Rate (MPR) at 14.0 percent and the associated asymmetric corridor of +200/-500 basis points aswell as the Cash Reserve Ratio (CRR) and Liquidity Ratio (LR) of 22.5 and30.0 per cent, respectively.

The outlook indicates that the economy would remain on a growth path intothe first half of 2018, supported by positive developments in the oilsector and other government initiatives. The near term risks to thisoutlook, however, remain the delay in the passage and implementation of theFGN 2018 budget, slow credit growth and poor transmission of monetarypolicy impulses to the real economy, which could undermine output inaddition to the perennial challenges of infrastructure deficit. Also, theshort to medium-term outlook for price development indicate that inflationwould continue to moderate. The key risks to inflation, however, wouldinclude: the implementation of the proposed expansionary 2018 FederalGovernment budget and election-related spending in preparation of the 2019general elections in the country, high energy costs and continued poorpower supply, increased cost of transportation and the disruptive effectsof the clashes between farmers and herdsmen, which are likely to feed intohigher domestic prices. Nevertheless, monetary policy would remainproactive to minimize the threats to the achievement of the objective ofprice stability conducive to sustainable economic growth.

Conduct of Monetary Policy in 2016

Monetary policy environment in 2016 was shaped by a number of global anddomestic economic developments. The global developments included theslowdown in global growth; the US monetary policy normalization and theassociated policy divergence in the advanced economies; protractedfinancial market turbulence worsening global risk aversion; geopoliticaltensions as well as China’s continuing transition to a balanced growthpath. In addition, lower oil and other commodity prices, the growing clamorfor protectionism in Europe and United States and weaker activities fromsome emerging market and developing economies in recession, were some ofthe developments that challenged policy making during the period. On themonetary side, the US Federal Reserve Bank continued its normalization ofmonetary policy by raising its benchmark policy rate in December 2016,giving forward guidance of more rate hikes in the near future. Thedevelopment caused the US dollar to appreciate against major currencies inboth the advanced economies and some emerging market and developingeconomies.

Although the global economy witnessed a modest recovery in the prices ofcrude oil and other commodities in 2016, government receipts remained low,thereby pressuring the domestic economy. This resulted in limited fiscalspace, low accretion to foreign reserves, continuing depreciation of thenaira and the slippage of the economy into a recession. These headwindsweakened consumer and business confidence, as well as domestic spending,and slowed economic activity. The net effect of these challenges wascontinued output contraction as the Gross Domestic Product (GDP) shrank by1.5 per cent in 2016 which compares with the growth of 2.79 per cent in2015. Price developments continued to impose significant headwinds to theefficacy of monetary policy as both the exchange rate and consumer pricepressures intensified throughout the period. Monetary policy in the reviewperiod, though focused on addressing these challenges, was constrained fromadjusting rapidly to avoid further hurting growth and deepening theon-going recession. While the core mandate of the Central Bank of Nigeriaremains price stability, the Bank considered that rapid upward adjustmentsto the monetary policy rate could adversely affect the economy's recoveryprospects. In consideration of the balance of risks, a cautious monetarytightening course was adopted during the review period. Thus, the MPR wasraised from 11.0 to 12.0 per cent and the asymmetric corridor narrowed to+200/-500 basis points around the MPR in March 2016.The Bank furtheradjusted the monetary policy rate from 12.0 to 14.0 per cent in July 2016while it retained the standing facilities corridor at +200/-500 basispoints. The Cash Reserve Ratio (CRR) and Liquidity Ratio (LR) were alsoheld constant at their respective rates of 22.5 and 30.0 per centthroughout the review period. The pass-through of exchange ratedepreciation to domestic prices owing to uncertainties surrounding theimplementation of flexible exchange rate regime as well as increases in theprices of petroleum products and energy, exacerbated pressure on thedomestic price level. Consequently, headline inflation rose to 18.55 percent in December 2016 from 9.62 per cent in January 2016.

The Bank’s monetary policy in the review period, accordingly, focused onrestarting economic growth, curtailing inflation, reducing unemploymentrate, boosting external reserves to stabilize exchange rate and moderatingliquidity levels in the banking system.

The outlook for the domestic economy in the near term is promising. On theoutput side, the economy is expected to recover from recession withmoderate growth by the end of 2017. The outlook for domestic pricedevelopments in 2017 indicates a moderation in inflation outcomes, althoughachieving the Bank's single digit objective is unlikely. The upside risksto inflation in the near-term, were exchange rate volatility, costpressures emanating from poor power supply, and rising cost of petroleumproducts with continuing deregulation in the downstream sector. Withadequate monetary and fiscal policy coordination, the economy is likely toreturn to the path of price stability conducive to long-run output growth.The Bank will therefore, continue to manage liquidity conditions in thedomestic economy, to ensure that the upside risks to inflation areminimized.

Conduct of Monetary Policy in 2015

In 2015, the Bank‘s monetary policy was shaped largely by continuing marketexpectations of the normalization of US monetary policy, weak global growthand falling crude oil prices in the international market with its negativeimpact on foreign exchange reserves and the exchange rates, as well as theheightened risks from geopolitical tensions in some part of the world. Thefall in the level of external reserves and the depreciation of the exchangerate, as well as the liquidity impact of election-related and post-electionspending, impact of the insurgency in some parts of the country amongstothers put immense pressure on the domestic price level, despite the tightmonetary policy stance of the Bank throughout 2015.

Consequently, headline inflation rose to 9.55 per cent in December 2015from 8.0 per cent in December 2014. The price of food & non-alcoholicbeverages remained the major driver of headline inflation in 2015. Otherfactors included the prices of housing; water; electricity; transport;clothing and foot wear.

The lower oil prices in the international market, coupled with reduceddemand for Nigeria‘s crude oil abroad led to reduced accretion to theforeign reserves. The sustained demand pressure on the foreign exchangemarket following the reversal of capital flows from the normalization of USmonetary policy, led to the depreciation of the exchange rate. The taperingof QE3 and its conclusion in October 2014, led to a redirection of globalcapital flows out of emerging and developing markets, owing largely torising sovereign risk in these countries, and the prospect of improvedinterest rate regime in the U.S., Data from the National Bureau ofStatistics (NBS) showed that the Gross Domestic Product (GDP) growth in2015 stood at 2.79 per cent, compared with 6.22 per cent in 2014. Thedevelopment was partly attributed to reduced public spending due to lowercrude oil prices and receipts.

There was intense pressure on the exchange rate in all segments of theforeign exchange market during the review period, despite the increasedfunding of the market. The pressure was as a result of the crash of oilprices in the international market, lower demand for Nigeria‘s crudeabroad, depletion of the foreign exchange reserves, and expectation ofmonetary policy normalization in the US. Consequently, the Bank in itseffort to stem speculative activities, closed the official foreign exchangewindow but continued to intervene at the interbank foreign exchange market.This was complemented with administrative restrictions on access to foreignexchange for the importation of a list of items, that could easily beproduced domestically. The choice of monetary policy instruments in thereview period therefore was guided by the objectives of price stability andoverall health of the macroeconomy. The Bank, accordingly, deployed a rangeof monetary policy instruments including: the monetary policy rate (MPR),Cash Reserve Ratio (CRR), Open Market Operations (OMO) and Discount windowoperations. During the period, the MPR was reduced from 13.0 per cent withthe symmetric corridor of +/-200 basis points around the midpoint to 11.0per cent with the asymmetric corridor of +200 and -700 basis points themidpoint. The Monetary Policy Committee (MPC) harmonized the CRR on bothprivate and public sector deposits at 31.0 per cent to improve the efficacyof monetary policy, curtail abuses, stem moral hazards and the tendency ofoverheating the economy. The Committee (MPC) later reduced the CRR to 20.0per cent of total reservable deposits with a caveat that the liquidityarising therefrom would only be channeled towards employment generatingactivities such as agriculture, infrastructural development, solid mineralsand industry. The Liquidity Ratio was also kept unchanged at 30.0 per centto address liquidity surfeit in the banking system. The performance ofmonetary aggregates in 2015 was weaker than projected, partly due to thesustained tight monetary policy stance and lower fiscal injections arisingfrom falling crude oil prices. Also, there was a significant increase incredit to government, invariably crowding out private sector credit.

The money market remained active with transactions mainly in CBN bills andgovernment securities in the first half of 2015. Money market interestrates were largely influenced by changes in the CRR, FAAC statutorydisbursem*nts and NTB maturities/auctions and introduction of the TreasurySingle Account (TSA). The OBB segment witnessed greater activity relativeto the interbank call segment, due to enhanced confidence of DMBs in thecollaterized segment of the market from the migration to the new RTGS andScripless Security Settlement System (S4). Nigeria‘s reference rate, theNIBOR, was relatively stable across tenors in the review period. Theperformance of the capital market weakened in the review period whencompared with the corresponding period in 2014. The All- Share Index (ASI)decreased by 17.36 per cent to 28,624.25 at end-December 2015, from itslevel of 34,657.15 at end-December 2014. The decline was attributable touncertainties surrounding the global and domestic economy as well as theoutcome of the 2015 general elections, lower oil prices, and weak corporateearnings.

The Federal Government of Nigeria (FGN) bonds continued to dominate thefixed income securities market in Nigeria. Sub-national government andcorporate bonds witnessed some activities, with the corporate bonds segmenthaving the least share by market volume. The yield on the 10- yeardollar-denominated bond increased to 8.48 per cent at end- December 2015,from 6.23 per cent at end-December 2014. The development was attributed toimproved investors preference for higher premium to compensate forperceived higher sovereign risk as well as a successful transitionprogramme to a new government in the country.

Conduct of Monetary Policy 2014

In 2014, monetary policy was focused on achieving the objective of price and exchange ratestability. Accordingly, the Bank sustained its tight policy stance with a view to ensuring thatelectioneering spending did not result in uptick in inflation. Headline Inflation remainedwithin single digits, and fluctuated between 7.7 and 8.5 per cent, in the review period due tothe combined effect of the declines in the prices of clothing and footwear; and transportcomponents as well as the relative stability in the price of education in response to the tightliquidity measures taken at the MPC meetings during the year.

The exchange rate experienced significant pressure especially during the second half of thereview period, due largely to the impact of the US Fed tapering, declining oil prices, depletionthe foreign exchange reserves, and the absence of fiscal buffers. As a response, the Bank movedthe exchange rate mid-point from N155/US$ to N168/US$ and widened the band around the midpointfrom +/-3 per cent to +/-5 per cent.

The financial market was generally stable for 2014, although, significant fluctuations werenoticed towards the end of the year. A number of policy instruments were deployed to achieveprice and financial system stability, with a view to boosting investor confidence and reduceconcerns about declining foreign exchange reserves.
The policy instruments used to achieve price and financial system stability objectives were theMonetary Policy Rate (MPR), and other intervention instruments such as Open Market Operations(OMO), Discount Window Operations, Cash Reserve Ratio (CRR) and Foreign Exchange Net OpenPosition (NOP) limit. During the period, the MPC raised MPR by 100 basis points from 12.0 to13.0 per cent while maintaining the symmetric corridor of +/- 200 basis points around the MPR.The CRR on private sector deposits was raised by 500 basis points from 15.0 to 20.0 per cent,while CRR on public sector deposits was raised from 50.0 per cent to 75.0 per cent. The MPC alsoretained the Liquidity Ratio at 30.0 per cent, in order to address liquidity surfeit in thebanking system.
OMO was principally used to mop up or inject liquidity into the system as a strategy formonetary management by the Bank. OMO auction increased over the corresponding period of 2013 asa result of injections into the system arising from maturity of FGN Bonds and NTBs as well asAMCON bonds. In the period under review, the economy continued to experience fluctuations inliquidity levels. To compliment OMO, the CRR was also used to manage liquidity in the system inorder to smoothen the liquidity cycle, and reduce pressure on the exchange rate. Reserve moneyand its components trended upwards relative to their volume in the first half of 2014. Relativeto the end-June 2014 values, the broad measure of money supply trend upwards, while narrowmeasures of money supply fell, reflecting the liquidity surfeit attributable to cyclical FederalAccount Allocation Committee (FAAC) allocations and increased spending towards the 2015 generalelections.
The money market remained active in the second half of 2014 with CBN bills and governmentsecurities actively traded in the market. The improvement in liquidity conditions in thefinancial sector continued to influence market activities along with the demand pressure in theforeign exchange market. The interbank and open buy back (OBB) rates remained locked-in withinthe retained policy rate corridor of MPR +/-200 basis points in the review period, except inDecember, 2014. Despite the rebound in the activities of the uncollateralized segment of themoney market, OMO and standing facilities dominated activities in the market. The daily NigerianInterbank Offered rates (NIBOR) experienced occasional spikes but were generally stable,reflecting periods of liquidity tightness.
The performance of the capital market declined in the second half of 2014, relative to the firsthalf of 2014 and the corresponding period of 2013. The All Share Index (ASI) fell by 18.42 percent to 34,657.15 at end-December 2014, from its level of 42,482.48 at end-June 2014, and by16.14 per cent, when compared with 41,329.19 recorded at end- December 2013. The development wasdue largely to external factors such as the recovery in some developed economies and the effectsof the US Federal Reserve tapering of its quantitative easing (QE) programme. Othermacroeconomic developments that affected equities included the declining oil prices, depletionof external reserve, insurgency, and the uncertainties surrounding the 2015 generalelections.
The Federal Government of Nigeria (FGN) bonds continued to dominate the fixed income securitiesmarket in Nigeria with fewer transactions recorded in the State/Local Government and CorporateBond segments of the market. Activities in the global financial markets were characterized byuncertainties about economic recovery. For instance, while there have been rebounds in growth inthe USA, growth in the EU, Japan and developing and emerging market economies continued to beconstrained by a number of old and new fragilities. Accordingly, the exchange rates of majorinternational currencies experienced mild fluctuations; and regional currencies such as theGhanaian cedi, Kenyan shilling, the South African rand and the Egyptian pound alsofluctuated.
The outlook for inflation is that the economy may experience a gradual rise in consumer pricesbut within single-digit target in the first half of 2015, due to increased spending in the runup to the 2015 general elections; depletion of the external reserves fuelling depreciation ofthe naira and its impact on food prices. These would be exacerbated by security concerns,disruption of agricultural activities and poor harvest in some areas affected by insurgency inthe northern part of the country. Headline inflation is projected to oscillate around 8.6 and9.4 per cent in the first half of 2015, and could rise to 10.8 per cent by year end. Thisoutlook is premised on the assumption that the reduction in the pump price of refined fuels isexpected to ameliorate the impact of import costs on domestic prices and that the Bank willcontinue to pursue a tight monetary policy stance.
Output growth in the third quarter of 2014 was 6.23 per cent down from 6.54 per cent in thesecond quarter. Output is projected to grow by 6.2 per cent in 2014 and 5.5 per cent in 2015.The downward projection of growth forecast of 5.5% (FGN 2015 Budget) is conservative, comparedwith the 7.3 per cent estimated by the IMF (Oct 2014 WEO). This is against the backdrop ofemerging global developments such as falling oil price, security challenges, and infrastructuralconstraints. With declining oil prices and production challenges in an oil-dependent economy,achieving the growth projection requires better coordination of fiscal and monetary policies ina way that supports the non-oil sector.

Conduct of Monetary Policy (2013)
Monetary policy in 2013 aimed primarily at sustaining the already moderated rate of inflationwhich was achieved in the first half of 2013. The benign headline inflation rate of 8.0 per centat end-December 2013, from 8.4 per cent at end-June 2013, is evidence of the effectiveness ofthe policy. Besides, monetary policy also aimed at limiting pressure on the exchange rate,boosting the external reserves position, sustaining stability in the money market and reducingthe spread between lending and deposit rates. These goals were largely achieved through amixed-grill of a number of instruments, which helped to strengthen investor confidence in theeconomy.

The Monetary Policy Rate (MPR) was the principal instrument used to control the direction ofinterest rates and anchor inflation expectations in the economy. The other interventioninstruments included Open Market Operations (OMO), Discount Window Operations, Cash ReserveRatio (CRR) and foreign exchange Net Open Position (NOP).

Open Market Operations (OMO) was the other major tool for liquidity management in 2013; achievedthrough the issuance of CBN bills. The sale of CBN bills declined by 52.8 per cent in the secondhalf compared with the first half. In the second half, the volume of transactions of thestanding lending facility window rose by 30.66 per cent, while that of standing deposit facilitywindow rose by 53.6 per cent, compared with the first half.
The Monetary Policy Committee (MPC) held six regular meetings during the review period, and theMPR was successively maintained at 12.0 per cent with a symmetric corridor of +/- 200 basispoints. The MPC introduced a higher Cash Reserve Ratio (CRR) for public sector deposits with theDeposit Money Banks (DMBs), in order to further tighten money supply.
Beside the change in the CRR on public sector deposits, other existing policies were retained,and complemented with administrative measures. The Net Open Position (NOP) limit was sustainedat 1.0 per cent, Liquidity Ratio (LR) at 30.0 per cent and the mid-point of the exchange rate atN155/US$ +/-3.0 per cent. The decision of the MPC to retain most of the existing measures was toassure the market of the continuity of the tight monetary policy regime.
Monetary policy continued to contribute significantly to the robust performance of the economyafter the shock of the global financial crisis in 2008 (on the one hand and the domestic bankingcrisis of 2009 on the other). In spite of these developments, output remained relatively highwhile inflation decelerated in 2013.
Most measures of inflation moderated throughout the period in response to the policy measuresimplemented by the Bank. Year-on-year headline inflation decreased to 8.0 per cent in December2013, from 8.4 per cent in June 2013 and 12.0 per cent in December 2012. Food inflation alsodeclined marginally to 9.3 per cent from 9.6 per cent over the same period. However, coreinflation rose from 5.5 per cent to 7.9 per cent between June and December 2013.

Conduct of Monetary Policy (2012)

The monetary policy environment in 2012 was characterized by continuing threat of inflationarypressures against the backdrop of declining trend in output growth. Other key concerns includedsustaining a stable exchange rate for the naira, creating a buffer for the external reserves,sustaining stability in money market rates, narrowing the spread between the lending and depositrates and mitigating the impact of the continued slowdown in global economic activities on thedomestic economy. In view of these multi-dimensional challenges, monetary policy during theperiod focused on deploying the mix of appropriate instruments to deliver on price stability. Inaddition, the slow pace of recovery in the advanced economies, the reduced growth momentum inthe emerging economies and the prolonged financial fragilities in the Euro Area were some of thekey considerations that defined the thrust of monetary policy in the period

Accordingly, the Bank continued with its tight monetary policy stance, which commenced in thethird quarter of 2010, using the Monetary Policy Rate (MPR) as the signaling interest rate toaffect money supply and rein-in inflation expectations. Open Market Operations (OMO) continuedto be used as the main instrument of monetary policy, supplemented by Repurchase Agreements andDiscount Window Operations to ensure optimal liquidity management. These tools were complementedwith prudential requirements such as cash reserve requirement (CRR), liquidity ratio (LR) andforeign exchange Net Open Position (NOP) limit for Deposit Money Banks. Primary markettransactions in government securities and foreign exchange market interventions were also usedfor monetary management. The Bank sustained efforts towards improving communication with marketoperators and other stakeholders.

The Monetary Policy Committee (MPC) held six regular meetings in the review period, during whichit maintained the MPR at 12.0 per cent with a symmetric corridor of +/- 200 basis points. Tofurther sustain the tightening stance, CRR was raised from 8.0 to 12.0 per cent and NOP limitreduced from 3.0 to 1.0 per cent at the July 2012 meeting. The LR was retained at 30.0 per centwith the mid-point of exchange rate maintained at N155/US$ within a band of +/-3.0 per cent.

Conduct of Monetary Policy (2011)
The maintenance of price stability remained the main focus of monetary policy in the second halfof 2011. The challenge of managing the excess liquidity from monetary easing of 2009 – 2010fiscal years combined with the expansionary fiscal stance, and the relatively uncertain globaleconomic outlook, defined the monetary policy stance in the review period. The CBN employed theMonetary Policy Rate (MPR) to anchor short-term interest rates, and to rein-in inflationexpectations. Open market operations (OMO) supported by reserve requirements and discount windowoperations (including the Standing Facilities, repos and reverse repos), remained the majorinstruments of monetary policy in the second half of 2011.

Efforts were made to improve communication through more regular dialogue with market and othercritical stakeholders, to shape-up market sentiments and to track the pace of economic activityduring the review period. The Monetary Policy Committee (MPC) held three regular meetings andone extraordinary meeting and increased the Monetary Policy Rate (MPR) by a cumulative 400 basispoints to 12.0 per cent during the review period. The Bank also implemented some administrativeand regulatory measures to rein-in excess liquidity and the attendant pressures in the foreignexchange market.

Monetary Policy Performance in 2008 - 2011
The conduct of monetary policy by the Central Bank of Nigeria since 2008 has beendesigned to: influence the growth of money supply consistent with the required aggregateGross Domestic Product (GDP) growth rate, ensure financial stability, maintain a stableand competitive exchange rate of the naira, and achieve positive real interest rates.

The conduct of monetary policy in the review period was largely influenced by the globalfinancial crisis which started in 2007 in the U.S. and spread to other regions and emergingmarkets including Nigeria. The crisis created liquidity crisis in the banking system, largequantum of non-performing credits, large capital outflows and pressure on the exchange rate,decline in oil prices and falling external reserves, sharp drop in government revenue, hugefiscal injections and collapse of the capital market.

Consequently in the wake of the global financial crisis, the Bank largely adopted thepolicy of monetary easing to address the problem of liquidity shortages in the bankingsystem from September 2008 to September 2010. The monetary policy easing measures takenduring the period included:

Stoppage of aggressive liquidity mop-up since September 18, 2008
Progressive reduction of monetary policy rate (MPR) from 10.25 to 6.0 per cent
Reduction of cash reserve requirement (CRR) from 4.0 to 2.0 and 1.0 per cent
Reduction of liquidity ratio (LR) from 40.0 to 30.0, and 25.0 per cent
Introduction of Expanded Discount Window (EDW) to increase DMB'saccess to facilities from the CBN, and by July 2009 was replaced with CBNGuarantee of interbank transactions
Reduction of Net Open Position (NOP) limit of deposit money banks from20.00 to 10.00, 5.00 and 1.00 per cent
Injection of N620 billion as tier 2 capital in 8 troubled banks

Following the restoration of stability and re-emergence of liquidity surfeit in the bankingsystem, the Bank adopted a tightening stance from September 2010 to December 2011. The monetarypolicy easing measures coupled with huge fiscal expansion put much pressure on inflation,exchange rate and external reserves. To curtail these threats the stance of monetary policychanged from monetary easing to tightening, from September 2010 to December 2011 and the followingmonetary policy actions were taken during the period:

The Resumption of active Open Market Operations for the purpose of targeted liquiditymanagement
Progressive increase in the monetary policy rate (MPR) from 6.00 to 12.00 per cent
Increase in the Cash Reserve Requirement (CRR) from 1.00 to 2.00, 4.00 and 8.00 per cent
Increase in liquidity ratio (LR) from 25.00 to 30 per cent
Introduction of reserve averaging method of computing Cash Reserve Requirement (CRR), whichwaslater stopped
Increase of Net Foreign Exchange Open Position (NOP) of banks from 1.00 to 5.00 per cent;but laterreduced to 3.00 per cent
Shift in the mid-point of the foreign exchange band from N150/US$1 +/-3 per cent toN155/US$1 +/-3 per cent

The above policy actions taken by the CBN were within the statutory mandate of the Bank, and in theoverall interest of the Nigerian Economy. The Bank's monetary policy decisions strengthenedfinancialsystem stability and supported the growth of the Nigerian economy.

The links below detail the conduct of monetary policy in the followingcategories.

2007 |
2005 | 2004 |2003 |2002 |2001 |2000 |1999 |1998| 1997 |1996
1995 |1994 |1993 |1992 |1991 |1990 |1989 |1988 |1987 |1986

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