CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 126 OF THE
MONETARY POLICY COMMITTEE MEETING OF THURSDAY 19th AND
FRIDAY 20th SEPTEMBER 2019
The Monetary Policy Committee (MPC) met on the 19th and 20th of
September 2019, in the light of softening global growth and weakerthan-anticipated domestic output recovery. The Committee
evaluated developments in the global and domestic economies
and examined the outlook for the rest of the year. It noted the buildup of vulnerabilities in major Advanced Economies and its spill-over
to the Emerging Markets and Developing Economies (EMDEs). Nine
(9) out of the eleven (11) members of the Committee were present
at the meeting.
Global Economic Developments
Output growth across major advanced economies remained
subdued, confronted by legacy headwinds, including the
subsisting trade war between the US and China, regional hostilities
in the Middle-East, rising debt levels, growing uncertainties around
BREXIT and increasing political tensions between the US and Iran,
including fragilities in the financial markets. In the EMDEs, output
growth remained broadly mixed with some economies performing
stronger than others.

Consequently, the International Monetary Fund (IMF) revised its
projected global growth forecast to 3.2 per cent in 2019 from 3.6
per cent.
Price developments continued to soften across the major
advanced and EMDEs as aggregate demand continually weaken,
resulting in softening monetary policy by major central banks to
address downward trending prices and to strengthen aggregate
demand.
Domestic Economic Developments
Data from the National Bureau of Statistics (NBS) showed that real
Gross Domestic Product (GDP) grew by 1.94 per cent in the second
quarter of 2019, compared with 2.10 and 1.50 per cent in the
preceding and corresponding quarters, respectively. This mediocre
growth, we believe, is consistent with global trends of dampening
output growth and was driven mainly by the oil sector, which grew
by 5.15 per cent while the non-oil sector grew by 1.64 per cent. At
57.7 and 58.0 index points, the Manufacturing and NonManufacturing
Purchasing
Managers’
Indices
(PMI)
grew
moderately for the 30th and 29th consecutive months, respectively,
in September 2019. Staff projections indicate that real GDP in Q3
and Q4 2019 would average 2.11 and 2.34 per cent, respectively,
driven primarily by the non-oil sector. This optimism in growth
prospects is anchored on the new momentum of rising credit to the
private sector. However, the headwinds to the growth prospects

remain high unemployment, rising public debt and heightening
insecurity across the country.
The Committee noted the continued moderation in headline
inflation (year-on-year) to 11.02 per cent in August 2019 from 11.08
per cent in July 2019, driven by decline in the food and core
components to 13.17 and 8.68 per cent in August 2019 from 13.39
and 8.80 per cent in July 2019, respectively. The development in the
food and core components of inflation was partly due to improved
agricultural production in the current harvest season, supported by
the Bank’s sustained intervention in the agricultural sector as well as
the continued stability in the foreign exchange market. The
Committee, however, noted the upward pressure imposed on
prices due to rising insecurity in the food producing areas of the
country, increased liquidity injection from FAAC disbursements and
late budget cycles. It also highlighted the imperative to address
the economy’s infrastructural deficits, such as power supply,
upgrade of transport and production infrastructure as a means of
reducing cost-push inflation.

The Committee observed that broad money supply (M3) grew by
5.65 per cent in August 2019, compared with the level at endDecember 2018, annualized to 8.48 per cent, but remaining below
the 2019 indicative benchmark of 16.08 per cent. The growth was
largely driven by the increase in Net Domestic Credit (NDC), which
grew by 24.36 per cent in August 2019 from the level at endDecember 2018. The growth in NDC was accounted for by the

significant increase in credit to Government, which grew by 94.33
per cent while credit to the private sector grew by 9.36 per cent in
August 2019. The Committee urged the Management of the Bank
to explore new initiatives to further improve lending to the private
sector, while calling on Government to adopt other ways of funding
its operations outside the banking sector.
In the review period, money market rates oscillated within the
standing facilities corridor due to prevailing liquidity conditions in
the banking system. The monthly weighted average Inter-bank Call
and Open Buyback (OBB) rates increased to 8.00 and 13.37 per
cent in August 2019 from 6.52 and 11.01 per cent in July 2019,
respectively.
The Committee observed the continued bearish trend in the
equities market, while noting the increased activity in the sovereign
bonds market, reflecting global trends and investor preference for
fixed income securities. In the light of this development, the AllShare Index (ASI) declined by 11.62 per cent to 27,779.00 index
points on September 13, 2019, from 31,430.50 index points at endDecember 2018. Market Capitalization (MC), however, grew by
15.37 per cent to N13.62 trillion on September 13, 2019, from N11.72
trillion at end-December 2018. This increase in market capitalisation
was attributed to the listing of 2.75 billion ordinary shares by Airtel
Africa in July 2019.
The MPC noted the improved performance and resilience of the
banking sector, evidenced by the continued moderation in the
ratio of Non-Performing Loans (NPLs) from 11.2 to 9.4 per cent in

May and August 2019, respectively. While noting that this was still
above the prudential benchmark of 5.0 per cent, the Committee
called on the Management of the Bank to drive this ratio below the
prudential benchmark.
Outlook
The persistence of policy uncertainties, financial vulnerabilities and
rising geo-political tensions continued to cloud the medium-term
outlook. This is evidenced by the sustained weakening of global
growth across regions, amplified by the persisting trade tensions
between the US and its major trading partners, rising corporate and
public debt levels.
On the domestic economy, output growth in 2019 is expected to
peak at 2.1 per cent (IMF), 2.2 per cent (World Bank) and 2.27 per
cent (CBN). These forecasts remain underpinned by expectations
of favourable oil prices which would lead to higher external
reserves, stable exchange rate, moderate inflationary pressure as
government increases capital expenditure, including enhanced
flow of credit to the private sector to stimulate investment,
sustained
CBN
interventions
in
the
real
sector,
effective
implementation of the Economic Recovery Growth Plan (ERGP),
build-up of fiscal buffers, as well as improved security in the country.

Committee’s Considerations
The Committee noted the decline in output growth in the second
quarter of 2019, partly attributable to the delay in implementation
of the 2019 budget. It however, observed that this was an
improvement over the corresponding quarter of 2018. In addition,
it noted the broad slowdown across key economies and the
response of major central banks to revise their policy rates
downwards.

On price developments, the Committee commended the
progressive moderation in consumer prices and urged the Bank to
sustain its intervention in the real sector of the economy to reduce
the output gap.

The MPC noted the improvements in the financial soundness
indicators and urged the Management of the Bank to sustain its
regulatory surveillance to ensure continued financial system
stability. The Committee, particularly noted the growth in the size of
industry loans from N15.4 trillion in June to N16.23 trillion in
September 2019. On the recent directives to deposit money banks
to increase their Loan-to-Deposit Ratio (LDR), the Committee
underscored the need to grow consumer, mortgage and
corporate credit to drive aggregate demand and ensure a
reduction in unemployment and increase in output growth.
Consequently, the Committee urged the Management of the Bank
to fast-track the development of the credit scoring system, to

promote increased intermediation. In addition, the Committee
commended the introduction of the Global Standing Instruction
(GSI) initiative aimed at de-risking credit in the industry by
committing bank customers to repay their loans to banks. The MPC
further noted the increased supply of micro credit to key Micro
Small and Medium Enterprises (MSMEs) and efforts through the
Nigeria Incentive-Based Risk Sharing System for Agricultural Lending
(NIRSAL) Microfinance Bank to extend the reach of its credit
facilities across the country. The MPC however, observed that the
growth in credit to the private sector remained significantly low,
relative to the absorptive capacity of the economy.

The MPC further underscored the linkage between high
unemployment and heightened insecurity, emphasizing the critical
need for urgent steps towards more jobs and wealth creation in the
country. As an interim solution, the Committee called on
Government at all levels to ratchet up public works programmes
aimed at easing the threat of rising unemployment in the country.
This, the Committee argued, would be achieved through efficiency
in public spending. The MPC also noted the Government’s current
drive to increase Value Added Tax (VAT), adding that this will
improve fiscal revenue to support expenditure and reduce the
budget
deficit
as
well
as
Government
borrowing
when
implemented. The Committee, however, noted that this was too
little to close the gap in Government finances. Consequently, the
MPC called on the Government to, as a matter of urgency, adopt

what it termed a BIG BANG approach towards building fiscal
buffers by purposefully freeing-up redundant public assets through
an efficient, effective and transperent privatization process. This
would raise significant revenue for Government and resuscitate the
redundant assets to generate employment and contribute
effectively to national economic growth. The MPC noted the
unstable oil prices, its implications on accretion to external reserves
and its persistent call on the Government to build fiscal buffers.
Consequently, the Committee called on the National Assembly to
exercise restraint from increasing the oil price budget benchmark
to avoid budgetary overruns at the implementation stage of the
budget. Projections from the oil futures market, indicate that oil
prices will remain tight around the budget oil price benchmark in
the medium term.

The Committee’s Decision
In its considerations regarding the policy options to adopt, the MPC
as usual, felt compelled to review the options of whether to tighten,
hold or loosen.
The Committee noted the positive moderation in inflation, though
slowly from 11.08 per cent in July to 11.02 per cent in August 2019.
Given that this was still above the target range of 6-9 per cent, and
considering the pressure on reserve accretion caused by the
relatively weak crude oil price, the MPC felt the imperative to
tighten. On the contrary, the Committee was of the view that doing
so in the midst of a fragile growth outlook would increase the cost

of credit, and further contract investment and constrain output
growth.
On loosening, the Committee felt that this would result in increased
system liquidity and hence, heighten inflationary tendencies in the
economy. In particular, the MPC was of the view that loosening
would drive growth in consumer credit but without a corresponding
adjustment in real sector output. The Committee was also
convinced that increased liquidity and interest rate moderation
would result in exchange rate pressures as money supply rises.
As regards the option to hold, the MPC opined that the option
requires a clear understanding of the quantum and timing of
liquidity injections into the economy, before deciding on possible
adjustments to the stance of monetary policy. The Committee was
also of the opinion that retaining the current position of policy offers
pathways to appraising the effects of the suit of heterodox
monetary policy to encourage credit delivery to the real sector,
especially in the light of the subsisting implementation of the Loanto-Deposit Ratio policy.

In view of the foregoing, the Committee decided by a unanimous
vote to retain the Monetary Policy Rate (MPR) at 13.5 per cent and
to hold all other policy parameters constant.

In summary, the MPC voted to:
I. Retain the MPR at 13.5 per cent;
II. Retain the asymmetric corridor of +200/-500 basis points around
the MPR;
III. Retain the CRR at 22.5 per cent; and
IV. Retain the Liquidity Ratio at 30 per cent.

Thank you.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
20th September, 2019