July 25, 2016/CBN

The Monetary Policy Committee met on 23rd and 24th May 2016 against a backdrop of challenging global and domestic economic and financial conditions. The Committee assessed the global and domestic macroeconomic and financial developments, the short-to medium-term prospects for the domestic economy and the outlook for the rest of the year. In attendance were 9 out of the 12 members.

International Economic Developments

The Committee noted with concern, the tapered growth and continued decline in global output since 2014. At an estimated 3.2 per cent, global output in 2016 was only 0.1 percentage point below the 3.1 per cent in the corresponding period of 2015. The sluggish global output was traced to weak fundamentals in both the advanced economies and Emerging Markets and Developing

Economies (EMDEs), including increased volatility in global financial markets, sustained softness in commodity prices, sluggish global trade, resulting in persistent fragility, particularly in the EMDEs.

The United States (US) economy slowed to 0.5 per cent in Q1 2016, a steep decline compared with the 1.4 per cent growth recorded in the last quarter of 2015. The deceleration in US growth was attributed to contraction in non-residential fixed investment and energy businesses, a strong dollar which harmed exports, slowdown in government spending and moderation in private consumption expenditure (PCE).

Japan which is currently in deflation is projected to grow by 0.5 per cent in 2016, the same as in 2015, on the back of persistently weak aggregate demand. The Bank of Japan’s (BoJ) monthly asset purchase of ¥6.7 trillion (US$61.73 billion) resulted in the Bank holding about one-third of outstanding government bonds, while the economy remained largely intractable with a credit crunch, indicating that the programmme may have lost its steam. In response to the contraction in credit, BoJ since January 2016 adopted a negative interest rate policy.

CBN Communique No 107 of the MPC Meeting of Monday and Tuesday 23rd and 24th May 2016