The Monetary Policy Committee (MPC) met on 19th and 20th May, 2014 against the backdrop of continuing modest recovery in the US economy, lingering fragile recovery in Europe, slowing output growth in the emerging market economies and possible risks to domestic price stability. In attendance were 9 members including Mr. Adebayo Adelabu, the new Deputy Governor, Financial System Stability. The Committee considered major developments in both the global and domestic economies up to May 2014, and the outlook for the rest of the year.

International Economic Developments

The Committee noted the prospects of improved global growth in 2014 predicated on expectations of sustained favorable developments in the US and the euro area.

Driven by the recovery in the advanced economies, global growth strengthened in the second half of 2013, averaging 3.6 per cent from the 2.6 per cent recorded during the first half. In the United States, improved domestic demand continues to strengthen growth outlook.

In Europe, a pickup in growth in the core states continued to compensate for the decline in most of the peripheral states even as debt, low inflation, financial fragmentation and unemployment persisted as threats to sustainable long term economic recovery in the region.

Growth in the emerging markets and developing economies is projected to rise from 4.7 per cent in 2013 to 4.9 per cent in 2014. The effects of tighter financial conditions in these economies are expected to be moderated by improved external demand from the advanced economies.

Global inflation is generally expected to remain subdued in 2014 with sustained sizable negative output gaps in the advanced economies, weaker domestic demand in several emerging economies, and falling commodity prices. In the euro area and the United States, headline inflation at about 1.5 per cent is projected to remain below the long-term inflation expectations. Lower world commodity prices in U.S. dollar terms would help reduce price pressures, although in some economies, exchange rate depreciation continues to pose a threat to consumer price stability.