CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 123 OF THE MONETARY POLICY
COMMITTEE MEETING OF MONDAY 25TH AND TUESDAY 26TH MARCH, 2019
Background
The Monetary Policy Committee (MPC) met on the 25th and 26th March, 2019;
against the backdrop of developments in the global and domestic economic
environments in the first quarter of 2019. Eleven (11) members of the
Committee were present.

Global Economic Developments
The Committee noted with concern the weakening performance of global
output growth at the end of 2018 and observed that developments in the first
quarter of 2019 were characterised by legacy headwinds from the second half
of 2018. These include: the continued trade war between the US and China,
policy uncertainty amongst advanced economy central banks; persisting
uncertainties surrounding BREXIT negotiations; vulnerabilities in major financial
markets and rising public debt in some Emerging Market and Developing
Economies (EMDEs). Consequently, global output growth for 2019 was
downgraded by the IMF from 3.7 per cent to 3.5 per cent.
Price developments across major advanced economies, continued to
moderate in the review period alongside signals of weakening output growth.
In the light of this development, the US Fed, the Bank of England and the
European Central Bank retreated from their earlier stance of monetary policy
normalisation in favour of a monetary policy accommodation. This led to

volatilities in the financial markets of the advanced economies as the
balancing of portfolios moved capital from the equities to the bonds market.
The MPC noted the moderate appreciation of the US dollar against the
currencies of most advanced and emerging market economies. It further
noted the trend of declining long term yields in the US, and the likelihood that
capital flows may be redirected to EMDEs in the medium term.
Domestic Output Developments
Output data from the National Bureau of Statistics (NBS) indicate that real
Gross Domestic Product (GDP) grew by 2.38 per cent in Q4 2018 from 1.81 and
2.11 per cent in the previous quarter and corresponding period of 2017. The
major impetus for growth came from the non-oil sector, which grew by 2.7 per
cent in Q4 2018, while the oil sector contracted by 1.62 per cent.
The Committee welcomed the continued positive sentiments in the
Manufacturing and Non-Manufacturing Purchasing Managers’ Indices (PMIs)
for the 24th and 23rd consecutive months in March 2019. The manufacturing PMI
rose by 57.4 index points compared with 57.1 in the previous month. Similarly,
the non-manufacturing PMI increased by 58.5 index points compared with 58.4
in February 2019. The increase in both measures of PMI was driven by increases
in production, employment, raw material inventories and new orders. This
improved outlook was attributable to the continued stability in the foreign
exchange market, various interventions by the Bank in the real sector and the
effective implementation of the Economic Recovery and Growth Plan (ERGP)
by the Federal Government. Furthermore, on the current measure of national
output, the MPC noted the need to rebase the GDP, an exercise which was
last carried out in 2010.

Developments in Money and Prices
The Committee noted that broad money supply (M2) contracted by 1.98 per
cent in February 2019, below its level at end-December 2018. Net Foreign
Assets (NFA) contracted by 7.47 per cent in February 2019 relative to its level
at end-December 2018. In contrast, M3 grew by 4.31 per cent in February 2019
compared with its level at end-December 2018. Net Domestic Credit also grew
by 10.68 per cent in February 2019. The growth in NDC was accounted for by
the increase in credit to Government which grew by 17.20 per cent in February
2019 over its level at end-December 2018. Credit to the private sector also rose
by 6.41 per cent compared with its growth benchmark of 9.41 per cent. Given
the positive trajectory, the Committee urged the Management of the CBN, to
sustain the various initiatives of the Bank, particularly the partnership between
the Bankers Committee and the Nigeria Incentive-Based Risk Sharing System
for Agricultural Lending (NIRSAL) aimed at establishing a national microfinance
bank to cater for the MSMEs of the economy.
The Committee noted the continued moderation in inflation as headline
inflation (year-on-year) declined further to 11.31 per cent in February 2019 from
11.37 and 11.44 per cent in January 2019 and December 2018, respectively.
The decrease in headline inflation was driven mainly by food inflation, which
declined to 13.47 per cent in February 2019 from 13.51 per cent in January
2019, while core inflation declined marginally to 9.80 per cent from 9.91 per
cent in the previous month. On a month-on-month basis, headline, food and
core inflation declined to 0.73, 0.82 and 0.65 per cent in February 2019,
respectively, from 0.74, 0.83 and 0.81 per cent in January 2019. The Committee
noted the upside risks to inflation to include; high cost of energy, infrastructure
constraints, insecurity in some parts of the country; and anticipated increase in
liquidity from the late implementation of the 2018 budget, and noted that most
of these factors were outside the ambit of monetary policy. The MPC,
therefore, urged the Federal Government to sustain its current effort in
stimulating output growth by executing the policies approved in the ERGP.

The net liquidity position reflected the impact of OMO auctions, foreign
exchange interventions, statutory allocations to states and local governments,
and maturing CBN Bills. Consequently, the average Inter-bank call rate
increased to 16.45 per cent in February 2019 from 15.00 per cent in January
2019. The Open Buy Back (OBB) rate, however, declined marginally to 18.79
per cent in February 2019 from 19.71 per cent in January 2019. The interbank
call rates, however, closed at 8.0 per cent on March 8, 2019, while the OBB
closed at 14.39 on March 22, 2019.
The Committee noted that in spite of the recent upsurge in capital inflow into
the economy, the All-Share Index (ASI) and Market Capitalization (MC)
continued to decline, reflecting global sentiments in portfolio rebalancing from
equities to fixed income securities. This generally reflected the perceived risk at
the long end of the yield curve.
The Committee noted with satisfaction, the continued stability in the foreign
exchange market at the Investors’ and Exporters’ (I&E) window of the market.
In particular, it also observed the moderate improvement in oil prices and
stable accretion to external reserves, which stood at US$45.2 billion as at March
21, 2019, a 6.73 per cent increase from US$42.35 billion at end-February 2019.


The Overall Outlook and Risks
The medium term outlook for the global economy continues to be uncertain
with indications of increasing macroeconomic vulnerabilities and downward
revision of the forecast for global output growth.
On the domestic economy, available data on key macroeconomic indicators
for output growth in the first quarter of 2019, and forecasts for the rest of the
year, suggests continued positive outcomes. Based on recent projections, the
economy is expected to grow by 2.0 per cent (IMF), 2.2 per cent (World Bank)
and 2.74 per cent (CBN). The projection is hinged on: the enhanced flow of
credit to the real sector; sustenance of a stable exchange rate; moderating

inflation rate; CBN special interventions in growth-enhancing sectors,
especially, agriculture and non-agricultural SMEs; improved growth in the nonoil sector and the effective implementation of the ERGP by the Federal
Government, amongst others. The Committee expressed optimism that the
establishment of the NIRSAL National Microfinance Bank and the enactment
of the Secured Transactions in Movable Assets Act 2017 will stimulate lending
to small and medium enterprises.

Committee’s Considerations
The Committee observed the tepid output growth in 2018, but noted with
satisfaction that it strengthened in the last quarter of 2018 as well as the positive
forecast for 2019. It further noted with great satisfaction, the continued
moderation in all measures of inflation, sustained stability in the exchange rate
and the robust level of external reserves. It commended the recent upsurge in
capital inflows into the economy, noting this to be a demonstration of
sustained confidence by the foreign investor community in the Nigerian
economy. The Committee was, however, not unmindful of developments in
the global economy, noting the recent slowdown in growth in some advanced
economies and the dovish stance of some major central banks as an early
warning sign of broader macroeconomic vulnerabilities. It, therefore,
underscored the need to monitor the trend in capital flows and the continued
downturn in the equities market, noting that the recent surge in portfolio inflows
were concentrated in the money market.

The Committee noted the relative volatility in oil prices and its impact on
accretion to reserves which could easily undermine the stability observed in
the foreign exchange market. It, however, noted that current developments
in the oil futures market indicate that oil prices will remain considerably above
the Federal Government’s 2019 budget benchmark. The Committee,
therefore, urged the Federal Government to strengthen its current revenue

mobilization efforts as well as explore additional sources of revenue in order to
improve fiscal buffers. It further urged the Federal Government to sustain its
implementation of the ERGP, while ensuring that growth is all inclusive. It
reiterated the need to concentrate effort on addressing the problem of weak
power infrastructure, as well as support domestic manufacturing. The
Committee also called on all relevant institutions of the government to address
the menace of smuggling and dumping of goods into Nigeria; and
encouraged the Bank to continue to explore available scenarios to deal with
the activities of economic and policy saboteurs, including those involved in
dumping and smuggling, in a bid to accelerate domestic production of goods
in Nigeria.

The MPC noted the positive moderate outlook for growth and the risks in the
horizon. The Committee also noted that having achieved a relatively stable
exchange rate with price stability, it is imperative that monetary policy should
explore the next steps necessary for enhancing growth, reducing
unemployment and diversifying the base of the economy. It further observed
that per capita income growth is very negligible, while aggregate demand
remains weak. Aggregate output also remains below the potential output
level, implying sufficient headroom for non-inflationary growth. This new
direction has, therefore, become imperative against the backdrop of the
aftermath of the general national elections and strong inflow of foreign direct
and portfolio investments into the economy.

The Committee urged for the speedy passage of the other aspects of the
Petroleum Industry Bill (PIB) to fast track the development of the value chain in
the sector and create employment. It also welcomes the passage of the
National Minimum Wage Bill by the National Assembly and call for its speedy
implementation in order to boost domestic aggregate demand.

The Committee further observed that the performance of the monetary
aggregates were below their benchmarks, indicating headroom for monetary
growth. The MPC noted the encumbrances and constraints imposed on fiscal
policy and the associated vulnerabilities as it has consistently failed to mobilise
sufficient revenues to support development as enunciated in the ERGP,
leaving room for continued debt financing, not previously envisaged. Against
this backdrop, it is imperative for monetary policy to provide the much needed
leverage to support output growth and employment generation in the
country.

On a more cautious note, the Committee expressed concern and sympathises
with the fiscal authorities, over the growing fiscal deficit, external debt and
debt service, and urged the need to closely monitor the public procurement
process in order to improve efficiency in public resource management.

On financial system stability, the MPC noted the improvements in key financial
soundness indicators and commended the Federal Government for the
settlement of debt owed to oil marketers, which has considerably, helped in
reducing the non-performing loans (NPLs) portfolio of the banking industry. The
Committee, therefore, urged the Government to expedite action in settling all
outstanding contractor-related arrears so as to improve the NPLs position and
stabilise the banking system. In addition, the MPC reiterated the Bank’s
commitment to improve credit delivery, especially to small and medium scale
enterprises, while acknowledging efforts by the Central Bank of Nigeria in
coordinating the de-risking of lending to the private sector through the
collaboration between the Bankers’ Committee and NIRSAL.

In its consideration of the best monetary policy option, the Committee noted
the need for all agencies of Government to work hard, not only in
consolidating the growth so far achieved, but also in ensuring that appropriate
policies are put in place and implemented to create jobs on a mass scale and

diversify the economy in a proper direction. In doing this, the policy options
facing the MPC at this meeting is a decision between retention of the current
stance of monetary policy or a slight loosening of the policy rate, backed by
the substantial stability of the major macroeconomic indicators. The
Committee felt that given the relative stability in the key macroeconomic
variables, there is the need to signal a new direction that is pro-growth.

In its arguments, the Committee was convinced that doing this would further
uphold the Bank’s commitment to promoting strong growth by way of
encouraging credit flow to the productive sectors of the economy. The MPC
felt that signalling through loosening by a marginal reduction would serve to
manage the sentiments in the capital markets owing to the wider spread in
yields in the EMDEs, relative to the advanced economies. Moreover, the real
interest rate in the country would still remain positive.


The Committee’s Decision
In light of the above, the MPC decided by a vote of six out of eleven members
to reduce the Monetary Policy Rate (MPR) by 50 basis points. Two members
voted to reduce the MPR by 25 basis points, while one member voted to
reduce it by 100 basis points. Two members, however, voted to hold the MPR
at its current level. Ten members voted to hold all other parameters constant,
while a member voted to reduce the Cash Reserve Ratio (CRR) by 100 basis
points from 22.5 to 21.5 per cent.
In summary, the MPC voted to:
I. Adjust the MPR by 50 basis points from 14.00 to 13.50 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
25th March 2019

PERSONAL STATEMENTS BY THE MONETARY POLICY COMMITTEE MEMBERS
1.
ADAMU, EDWARD LAMETEK
The 266th meeting of the Monetary Policy Committee (MPC) held against the
backdrop of sustained threats to global growth prospects arising mainly from
uncertainties around BREXIT, Iran sanctions, volatile commodity (oil) prices as
well as the rather slow progress on trade negotiations between the United
States and China. Considering some of these headwinds, the IMF had, in
January 2019, revised its projection of global growth for 2019 to 3.5 per cent
from 3.7 per cent. On average, growth in the advanced economies is
expected to slow in 2019 relative to 2018. Similarly, growth in emerging markets
and developing economies (EMDEs) is expected to moderate, albeit slightly to
4.5 per cent in 2019 from 4.6 per cent in 2018. It is reasonable to estimate that
the current external conditions would pressure growth in many developing
economies especially when their impact on commodity prices is factored. For
example, owing largely to some of the global vulnerabilities, oil output and
prices have remained unsettled for months, and could discount output growth
in oil producing (developing) economies.
On the positive side, however, yields in the advanced economies are
expected to moderate on account of the slowdown in policy normalization by
the
US
Federal Reserve and the likely
continuation of monetary
accommodation by the European Central Bank (ECB) and the Bank of
England (BoE). This potentially means that EMDEs could continue to count on
inflows especially of portfolio investment without having to further constrain
their economies by raising interest rates. For Nigeria, this presents an
opportunity to support growth which is currently facing important downside
risks. Viewed alongside other opportunistic conditions in the domestic
economic environment, which I will highlight subsequently, I voted to slightly
ease the stance of monetary policy at the March 2019 MPC meeting.
Major indicators of economic growth are not as strong in the first quarter (Q1)
of 2019 as they were in the fourth quarter (Q4) of 2018. The composite

manufacturing purchasing managers’ index (PMI) slowed from 61.1 points in
December 2018 to 57.4 points in March 2019; similarly, the non-manufacturing
PMI slowed to 58.5 from 62.3. In addition, the CBN-Composite Index of
economic Activity (CBN-CIEA), which leads the Nigeria’s gross domestic
product (GDP) growth by about three quarters, indicated softening economic
growth in Q1 2019. Abstracting from these statistics, I figured that economic
growth could slow in 2019, particularly in the first half, unless it receives
additional policy push. Most of the current projections of real GDP growth for
2019 fall between 2.0 - 3.0 per cent. This is significantly below potential, and
more importantly, growth needs to be better for the economy to generate the
much needed jobs and achieve poverty reduction. Non-oil output, particularly
agriculture and services, will need to be supported considerably to drive
growth in 2019 given the weak outlook for the oil sector.
Meanwhile, consumer price developments in February resulted in a slight
moderation in the headline inflation to 11.31 per cent from 11.37 per cent in
January. On month-on-month basis, the headline index increased by 0.73 per
cent in February 2019, down from 0.74 per cent recorded in January. The
decline in headline inflation reflected the moderation in both food and core
inflation. All the measures of inflation declined on the month-on-month basis in
February 2019, suggesting that the prospect of a surge in headline inflation is
minimal over the short-term horizon. The development interventions by the
Bank especially in the area of food production have remained a major
influence on the softening stance of food inflation. Barring any major shock,
core inflation could attain single digit by the end of the third quarter. The
outlook for inflation up to August 2019 does not indicate a major departure
from current trends. However, key risks to this outlook include the in-coming
(new) minimum wage and higher energy prices. Both could stoke a transient
increase in the general price level.
The foreign exchange (FX) market has remained relatively stable on account
of sustained supply of FX by the CBN and from autonomous sources.

Consequently, the naira exchange rate continues to be stable and premiums
have virtually disappeared across the major segments. Based on the current
level of external reserves and the prospects of sustained autonomous foreign
exchange inflows, the short- to medium-term outlook for the naira exchange
rate appears good. It is comforting that the economy continued to attract
capital inflows in Q1, 2019 despite elections-related political uncertainties. In
fact, threats to capital inflow have continued to moderate especially as the
US Fed slows policy normalization and most other advanced economies are
sustaining accommodative monetary policy.
In the banking system, major financial soundness indicators (FSIs) continued to
improve in Q3 2019 owing principally to the resolution of one of the troubled
banks,
increased
surveillance
by
the
Bank
as
well
as
improved
macroeconomic conditions. However, vulnerabilities have persisted including
(high) FX exposure of banks, particularly to entities that do not earn FX;
concentration and high non-performing loans (NPLs). I believe that payment
of contractor debts by the Federal Government will go a long way in soothing
the pressures in the banking system, while improved surveillance and
deployment of sanctions against regulatory infractions will engender good
governance and stability. This is important because financial intermediation,
especially provision of credit, is highly dependent on the state of health of
financial institutions. At end-February 2019, the stock of deposit money banks’
total credit declined by about 2.5 per cent, year-on-year. This trend needs to
be halted in the face of the prevailing sluggish performance of economic
activity. In this context, the role of other financial institutions (OFIs) in the credit
arena becomes important. These institutions (micro-finance banks, finance
companies, mortgage banks, development finance institutions, etc.,) are
expected to play the very important role of closing certain gaps in the financial
system including, crucially, financial inclusion. As such, they need to be
encouraged to remain mission-focused.

Overall, the balance of risks continues to be tilted against economic growth.
In my January 2019 statement, I emphasized the need to support growth given
the weak outlook for economic activity based on indications from the oil sector
(especially the volatility in crude prices and production cuts) and sluggish
consumption demand. Of course, I noted that more clarity over the next two
months (February and March) would be helpful in deciding the direction of
monetary policy beyond Q3 2019. Clearly, the indications then have been
justified by subsequent developments particularly as shown by the CIEA, PMIs,
and the current outlook for the oil sector. My conviction about the merit of
easing the policy stance around this time has been further strengthened by
the increased opportunity for doing so. First, all the measures of inflation
continued to trend downwards in February with an outlook for achieving
single-digit core inflation by August. This means that the real challenge remains
food inflation, which may be more effectively addressed through actions
aimed at boosting production and easing distribution bottlenecks. In this
regard, the Bank’s interventions in agriculture will continue to be relevant.
Second, domestic yields had declined with the 1 year NTB rate at about 13
per cent; the monetary policy stance needed to be in sync especially as inflow
of portfolio investments remained high. Finally, the relatively good level of
external reserves and growing confidence in the economy offer some
guarantee of adequate supply of foreign exchange to the market from both
the CBN and autonomous sources. As such, the naira exchange rate is
expected to remain stable in the face of slightly easy monetary conditions. I,
therefore, voted to reduce the Monetary Policy Rate (MPR) by 50 basis points
while retaining all other policy parameters at their previous levels.
As I have always noted, a growth-supporting monetary policy orientation can
only compliment policies in other sectors of the economy to deliver broad
based economic prosperity. The structural impediments to growth and job
creation, particularly poor infrastructure, low (public) revenue effort and
insecurity have to be dealt with while also maintaining a focus on the
diversification of the economy.

2. ADENIKINJU, ADEOLA FESTUS
My decision at this Meeting is influenced by a number of factors: developments
in the global economy and within the domestic economy.
Developments in the Global Economy
There is an increasing concern about the weak state of the global economy.
There are pressure points and vulnerabilities in many regions of the world, both
in advanced economies and emerging and developing economies. Fear of
impending global recession and slow down of growth in the US to 2.6% in Q4
2018 from 3.4% in Q3, 2018, the inversion of the US Yield Curve, as well as weak
growth in Europe, China, Japan; the prevailing uncertainty around the BREXIT,
the prolong US and China Trade War, declining growth of global trade,
geopolitical tensions in the Middle East and other regions have put enormous
pressures on the global economy.
However, global inflation rates remain moderate. Oil prices continue to benefit
from geopolitical tensions and OPEC and non-OPEC oil supply cut. Hence,
price of bonny oil is close to US$70 per barrel in March. The medium outlook for
oil is generally positive.
Nigeria, like other developing and emerging countries will benefit from the
dovish monetary policy stance of the US Fed, which has put on hold the
normalization of rates that led to three rates increase in 2018. President Trump
is currently pushing for rate cuts by the Fed.
Other developed countries are also taking deliberate steps to boost their
domestic economies by extending monetary accommodation policies.
Hence, interest rates in advanced economies are likely to remain low, giving
more elbow rooms for emerging and developing countries to be more flexible
with domestic monetary policies. Egypt and Ghana have already reduced
their monetary policy rates in order to support domestic economic growth.

Developments in Domestic Economy
There are positive developments within the domestic economy since the last
meeting of the MPC in January, 2019. The real GDP grew by 2.38% in Q4 2018
compared to 1.81% in Q3 2018. This is still too low to make a major dent on
poverty and employment. Purchasing Manager’s Index rose in March, 2019
for 23rd consecutive months.
Staff reports show that there is a slack in aggregate demand and aggregate
output is below potential output. This suggests that increase in expenditure
may not necessarily translate to inflationary pressures. Monetary aggregates
M1, M2 and M3 are below their provisional levels in February 2019. The
expected increase in aggregate spending from higher minimum wage
recently signed into law by the President may help to boost real consumer
spending and raise aggregate demand which may be good for the
productive sector of the economy.
Headline Inflation rate declined marginally in February 2019 to 11.31% from
11.37% in January 2019. Food and core inflation also declined over same
periods. There has been a significant drop in inflation from peak of 18.2% in
November 2016 to 11.31% in March 2019. While this is still above the single digit
target for inflation rate, it lies within a growth neutral corridor and below a
growth hindering range estimated by the Bank Staff. The anticipated surge in
liquidity from the 2019 election spending did not show up in the NBS data.
Moreover, from available information and projection, barring any fiscal
surprises, threat of inflation in the short term seems to be low or moderate.
The Financial Soundness Indicators (FSI) showed an improvement since the last
MPC Meeting. Capital Adequacy Ratio, CAR, NPLs, and Liquidity ratios
continue to trend in the right direction. There is also a fall in total operating
costs margins by banks. Improvements in the ROA and ROE among the banks
coupled with the falling ratio of operating costs to operating income suggest
to me that the DMBs have elbow room to pass lower rediscounting rate from
the CBN to their customers.

The monetary authority should continue its current efforts to reduce NPLs in
both DMBs and among the OFIs. Secondary market for trading in NPLs should
be facilitated to encourage banks with relatively higher NPLs to clean their
balance sheets and be able to create new credits.
The falling rate of total bank credit is a concern. The observed shift in bank
balance sheet from loans and advances to fixed income assets is not a good
omen to the real sector. Access to credit and high costs of credit are two of
the major constraints to real sector growth. CBN efforts using nonconventional
measures to raise domestic credit should be complemented by DMBs by
performing their primary responsibility of credit creation. The huge gap
between average lending and deposit rates is too wide and symptomatic of
lack of real competition among the banks.
On the external sector, the exchange rate markets have continued to be
relatively stable. The convergence between the I&E market and the Bureau
de Change is a reflection of the CBN efforts at enhancing stability in the
market. The Foreign reserve rose to US$44.92 billion in March 20, 2019 from
US$42.52 billion in January 2019. Foreign inflow to the economy remains
impressive showing strong confidence in the economy.
The big elephant in the room in my view is the fiscal authority, whose primary
responsibility is to drive economic growth. There is a need for speedy passage
of the 2019 Appropriation Bill, as well as its effective and timely implementation.
The huge petroleum subsidy and the poor state of the local refineries should
be addressed. Inefficient and unprofitable state assets should be disposed to
raise government revenue. Attention must focus on the passage of the PIB
after so much delay with huge costs on investments in the value chain in the
petroleum sector. Government should be committed to establish fiscal buffers
as it is the practice in many oil exporting countries. I am concern with the
overall rising debt profiles of the government, at a time when the price of oil is
above the government benchmark price.

Decision
Overall, I think it is time for the MPC to review its monetary policy stance which
has been largely effective in delivering price and exchange stability, in order
to support economic growth to address the unacceptably high rate of
unemployment and poverty in the economy. The MPR is already losing its role
as an anchor for interest rates in the economy. I have no illusion that the
reduction in MPR alone would compel the banks to lower their lending rates.
Hence, there is a need to reduce the CRR to increase banks liquidity. Other
administrative steps open to the CBN should also be used to encourage banks
to lower lending rates.
Hence, I vote:
1. To lower the MPR by 50 basis points to 13.5%
2. Reduce CRR by 100 basis point to 21.5%
3. Keep liquidity ratio at 30%
4. Maintain asymmetry corridor around the MPR by -500 and +200 basis
points

3.
AHMAD, AISHAH N.
At the March 2019 monetary policy committee (MPC) meeting, I voted to cut
the monetary policy rate by 100 basis points to 13% and retain other policy
parameters; CRR 22.5%, liquidity ratio 30%; asymmetric corridor at +200 and -
500 basis points around the MPR. My decision to vote for an accommodative
policy stance was predicated on global and domestic macroeconomic
developments and the urgent need to dramatically improve our weak output
growth.
As mentioned in previous statements, GDP growth though positive, has been
fragile since the country exited recession in 2017, whilst unemployment is high
at 23.1% in Q3 2018, up from 22.73% in Q2 2018. With output growth at current
levels of 2.38% in Q4 2018, the recovery is yet structurally delicate and grossly
insufficient to improve GDP per capita or deliver sustainable and inclusive
growth. To strengthen the recovery and reverse the rising tide of
unemployment, we must ramp up domestic productivity and dramatically
increase investment in employment elastic sectors; a rate cut is a first step to
stimulating the economy in this regard.
Latitude for monetary easing at this time is justifiable, given the MPC’s relative
success in maintaining price and monetary stability over the past few months
and continued improvement in key macroeconomic indicators. Latest reports
from the National Bureau of Statistics, (NBS), indicate that headline inflation
(year-on-year) declined progressively to 11.31% in February 2019 from 11.37%
and 11.44% in January 2019 and December 2018 respectively. This pattern of
disinflation is also seen in the food sub-index which fell from 13.56% in
December 2018 to 13.51% and 13.47% in January and February 2019,
respectively.
Moderating inflation pressure reflects declining food prices, weak consumer
demand, tight monetary policy stance and a relatively stable exchange rate.
The naira exchange rate recorded an average of N363.65/US$ between

December 2018 and February 2019 at the Investors’ and Exporters’ (I&E)
window and N360.98/US$ at the Bureau De Change (BDC) segment over the
same period, indicating improving convergence across the segments. External
reserves remained relatively robust at US$44.92 billion (March 20, 2019),
mirroring strong crude oil prices and continued net positive investment flows
into the economy. This reflects growing investor confidence, despite the
emerging market currency challenges of Q2/Q3 2018 and anticipated investor
caution ahead of the 2019 general elections.
Strengthening financial soundness indicators provides the perfect springboard
for private sector credit growth. The financial system stability profile continues
to improve as reflected in key industry prudential ratios. Industry capital
adequacy is healthy at 15.14% (February 2019), while liquidity and profitability
indicators also stayed robust. The recent settlement of contractual obligations
by the Federal government, supported by some CBN initiatives have helped
improve industry non-performing loan ratios and this is expected to impact
positively on credit to the economy which has grown slightly over the last two
months. Financial institutions are increasingly leveraging technology to
enhance retail credit origination processes and build scale; this is
commendable. However, lending rates remain higher than desirable. The CBN
is encouraged to continue its interventions in critical sectors to finance
capacity expansion and its de-risking initiatives to make real sector lending
safer and more attractive.
It is prudent to consider the probable impact of a monetary policy rate cut on
Nigeria’s competitiveness as a foreign investment destination relative to other
emerging markets. There is the potential that it could trigger a market sell-off,
exert pressure on the external reserves and exchange rate with negative
implications for inflation and growth. Portfolio flows have however, remained
strong through most of Q1 2019 especially since the Fed (and later the ECB and
BOE) halted its earlier signaled policy normalization program. This, coupled with
a relatively firm international oil price has led to net FX purchases by the CBN

at the I&E window for several weeks and continued accretion to reserves. This
marginal rate cut also keeps real interest rates positive; thus, retaining a healthy
yield for investors, but most importantly signals a focus on growth and
investment to support sustainable economic expansion. The chances that
lowering rates could reverse the disinflation gains also appear slim. Private
consumption patterns remain constricted and the threats to price stability in
the short term appear largely benign.
Notwithstanding, a rate cut alone is simply not sufficient. Age-old structural
challenges need to be tackled decisively to improve the fiscal revenue profile,
reduce vulnerabilities and improve per capita income in support of a more
resilient recovery. Implementation of the ERGP must continue, whilst the
successes recorded in developing agricultural value chains and reducing the
import bill must be replicated in other non-oil sectors such as services and
manufacturing to enhance export earnings potential.
Renewed focus on improving domestic economic productivity must be
matched with vigilance on potential external sector shocks. As anticipated,
the headwinds and uncertainties which confronted the global economy in the
second half of 2018, (protracted trade dispute between the U.S.A. and China,
geo-political tensions and uncertainty around the “BREXIT” deal), continue to
burden global economic activity. These developments have prompted
downward revisions of global growth forecasts, sent yields soaring and upset
stock markets across many countries. In fact, the IMF’s downward projections
for global growth from 3.7% to 3.5% in 2019 could deteriorate further as risks tilt
more to the downside.
Whilst the delay in rate hikes by major central banks may temporarily trigger
increased capital flows into emerging and Africa’s frontier markets, slowing
global growth prospects portends lower global demand and as a direct
consequence, lower demand for Nigeria’s crude oil exports with adverse
implications for fiscal revenue and domestic output.

Therefore, monetary policy must consolidate on price stability gains even as it
supports growth in an era of persistent global and domestic economic
uncertainties.

4.
ASOGWA, ROBERT CHIKWENDU
Background:
The second MPC meeting held in March 2019 took place at a delicate
moment for the global economy. Several advanced, emerging and
developing countries are currently losing the momentum of growth with rising
policy uncertainties. As the drumbeat of warnings about a looming worldwide
economic recession is rising, it is imperative that costly policy mistakes are
generally avoided. For monetary policy, it is important for decisions at this time
to be data dependent ensuring that inflationary expectations remain the main
anchor, while such policy choices are effectively communicated. Interestingly,
many central banks of advanced economies which had hitherto embarked
on aggressive monetary policy normalization have shifted the mode towards
a ‘pause in interest rate hikes’.
For Nigeria, one source of comfort is that the 2019 elections which apparently
was a major drag on foreign capital flows have been successfully concluded.
As such, the Nigerian Monetary Policy Committee meeting of March 2019 was
guided by the international monetary policy developments as well as local
economic conditions and pressures. The committee’s choices at this meeting
should generally reflect the need to contain any pending inflationary
pressures, ramp up foreign capital flows whilst stimulating the domestic growth
momentum with well synchronized complementary policies.
Loss of International Growth Momentum:
There has been a weak start to 2019 growth for several major economies with
clear signs and expectations of poor growth results in quarter 1. In February
2019, there was a downward revision in global growth projections by 0.2
percentage points lower for 2019 and by 0.1 percentage points for 2020 from
the earlier projections in January. These new forecasts are arising from
corresponding negative revisions in major economies including US, the Euro
Area and the United Kingdom.

In the United States for instance, the recent sharp drop in the yield curve in the
midst of a big rise in the government budget deficit is reflecting clearly investors
dampening expectations, thus suggesting even further weakening ahead. In
addition, the United States data in January and February 2019 showed that
personal income and household expenditures had fallen considerably more
than in the last five years.
In Europe, growth in 2019 is also noticeably slowing in major economies
including Germany, France, Italy and the United Kingdom. For instance, the
GDP growth forecast for 2019 in Germany has been recently downgraded to
0.7 percent from the level of 1.6 percent previously forecasted and mainly
caused by the continued drop in the purchasing managers index for German
manufacturing, which reflects the rapid loosening of business and consumer
sentiments and demand. In Italy, there are early signs of recession as the
declining weak domestic demand and the recently raised higher borrowing
costs remain key impediments to growth, while in the UK, the declining business
environment amidst the prolonged uncertainties about the BREXIT outcome
continue to dampen growth prospects. This has recently weakened the equity
market in the UK, while credit growth also appears to be stagnating.
Similarly, in key Asian Economics, the momentum of growth has also loosened
in the early months of 2019 thus lowering growth projections. In China, growth
appears to be at its lowest level in several decades also due to weakening
demand and the unsettled trade war with the United States. Despite recent
government fiscal stimulus (including billions of dollars in tax cuts and
infrastructure spending) aimed at offsetting some of the impact of the rising US
trade tariffs, the Chinese economy still faces signs of stuttering growth. In
Japan, there were earlier forecasts of considerable growth in 2019, but now,
the perceptions of growth moderation seem to be rising especially as the
financial conditions remain weak since January 2019 and the global trade
tensions still pose significant problems for the country’s exports.

In sum, there are persisting threats to the global economy which currently
generate fears for a possible global recession. Such threats include, tensions in
trade policy that could possibly flare up again, sparking retaliations and
counter-retaliations, thus further disrupting global supply chains and possibly
aggravating financial fragilities in many emerging economies. In addition,
uncertainties and risks surrounding BREXIT at the moment remain very
heightened as a disorderly exit would raise costs for several Euro economies
which may further weaken market sentiments.
As a short term response, central banks in some key economies are adopting
a de-facto monetary policy tightening in the form of delays to rate hikes and
halts to unconventional monetary policy actions in the midst of the weakening
global economy. Specifically, the US Fed, the European Central Bank, Bank of
England and Bank of Japan have communicated officially a temporary halt
to considerations on monetary policy adjustments.

Improving Domestic Macroeconomic Fortunes with Persisting Downside Risks:
Macroeconomic indicators for Nigeria before this MPC meeting have shown
encouraging positive trends, but some potential downside risks remain. The
latest data on the manufacturing purchasing managers’ index, inflation,
external reserves, foreign exchange rates and current account balance have
shown good prospects. Similar to the position in the last January MPC meeting,
macro indicators which remain on the downside trend are; the unemployment
rates and the increasing public debt especially the external bond issuances.
CBN staff report showed that the manufacturing performance manager index
(PMI) in the month of March 2019 stood at 57.4 index points, which is higher
than the 57.1 index point recorded in February 2019, but lower than the
December 2018 rate of 61.1 points. Similarly, the non-manufacturing PMI
increased marginally from 58.4 index points in February to 58.5 index points in
March, but still lower than the December 2018 level of 62.2 index points. This
further reinforces the projection of an expected marginal GDP growth from
1.81 percent in 2018 to 2.21 percent in 2019. Also year-on-year headline

inflation declined from 11.37 per cent in January to 11.31 per cent in February
2019 and mainly because of the declines in food inflation from 13.51 per cent
in January to 13.47 per cent in February. On a month-on-month basis, both
headline, core and food inflation all declined marginally in February when
compared to the levels in January 2019. Similarly, CBN staff report showed that
the external reserves which declined consistently (eventhough marginally)
between December 2018 and February 2019, had risen very considerably by
mid-March 2019, while the monthly average exchange rates also declined
marginally between December 2018 and mid-March 2019. The recent increase
in external reserves is attributed partly to the resumption of portfolio flows to
Nigeria which has also helped in strengthening of the local currency relative to
the dollar.

The elevated public debt levels especially those arising from the external bond
issuances are likely to limit the country’s ability to aggressively pursue growth,
whilst containing any inflationary pressures. As at 31st December 2018, there
was a 12.25 per cent year-on-year growth for total public debt. While the share
of domestic debt has dropped in favour of external debt as part of
government’s strategy, the preference for external bond issuances (which is
popular amongst international investors who permanently maintain a search
for yield behaviour) rather than concessional external borrowing from bilateral
and multilateral windows raises key sustainability concerns. It is imperative that
fiscal policy in Nigeria should continually ensure that debt levels remain less
elevated,
highly
concessional,
and
sustainable
and
that
recurrent
expenditures are constantly rationalized.

Changing Domestic Financial Market Indicators:
The developments in both the international and national macro economy
have helped to fuel multiple changes in both the banking and stock exchange

markets in Nigeria. These changes have implications for the future path of
monetary policy.
In the banking market, CBN staff report showed mixed performance trend for
the risk measures (capital adequacy ratio and non-performing loans ratio) but
there are overall improvements in the profitability measures (return on equity
and return on assets) when compared to the position at the January 2019 MPC
meeting. Specifically, while the non-performing loans ratio of banks decreased
marginally between December 2018 and February 2019, the capital
adequacy ratio surprisingly decreased, but marginally within the same periods.
Interestingly, the liquidity ratio which had increased between October and
December 2019, dropped by February 2019 probably suggesting that banks
may currently be foregoing the holding of more liquid assets in favour of the
traditional lending activities. A key concern however is the month-on-month
reduction in total deposits by February 2019 compared to the January 2019
levels, but which hopefully can be reversed soon with the ongoing reforms
including financial inclusion strategies. In addition, the continued dominance
of the oil and gas sector in banks’ credit allocation to the dis-advantage of the
agriculture and manufacturing sectors is a source of concern. This credit
concentration will not only frustrate government’s economic diversification
trend, but will neutralize the intended effects of any monetary policy rates
reduction.
In the domestic capital market, CBN staff report showed that the negative
trend which persisted in December 2018 worsened up to the mid of March
2109, with the All-Share Index, the Market Capitalization, decreasing. Also, the
number of deals, volume and value of shares decreased between December
2018 and March 15, 2019. There are however hopes that with foreign investor
sentiments shifting following the halt of Monetary policy normalization in
advanced economies and the diminished 2019 election risk fears, some
resumption in capital market activities are expected soon in Nigeria.

My Policy Decision:
The considerable uncertainty surrounding the monetary policy adjustment
direction of several developed central banks shows that a turn is imminent
especially with the continued weakening global growth which may persist in
the near future. As such, a window of opportunity exists for Nigeria and indeed
other developing markets to boost their domestic financial markets whilst
introducing other liquidity measures to ease domestic funding/credit
conditions and consequently boost local private investment. With the
successful 2019 elections, quick financial market recovery is apparent in
Nigeria, but will require supportive monetary policy actions that are data
dependent and well communicated.
My strong opinion is for policy parameters to remain largely unchanged in this
March 2019 MPC meeting.
I will thus vote to:
Retain the MPR at 14.0 %
Retain the CRR at 22.5%
Retain the Asymmetric Corridor at +200/-500 basis points
Retain the Liquidity Ratio at 30.0%.

5.
BALAMI, DAHIRU HASSAN
Introduction
The weakening of global growth led to a downgrade to 3.5% in 2019 against
the projection of 3.7%. Inflation at the global level remained below the
benchmark 2% in most advanced economies. The price of crude oil remains
sticky below US$70 per barrel due partly to the glut in the oil market and United
States (US) President Donald Trump’s policy preference for lower oil price.
Growth in the advanced economies’ had also been downgraded to 2% in
2019 as against the projection of 2.3%. The slowing down of growth in the
Chinese economy (6.6%) is also a contributory factor to the weakening global
growth.
The slowdown in policy normalisation by the Federal Reserve Bank and the
continuation of asset purchase in the Euro area, as well as the uncertainties
around BREXIT negotiations, has implications for the domestic economy. At the
domestic level, output growth for 2019 is estimated by the Central Bank of
Nigeria (CBN) at 2.7%, was slightly higher than the World Bank’s estimate of
2.2%.
In spite of the weak outlook for growth, the price level and exchange rate had
remained stable, while growth rate, eventhough fragile remained positive. The
thrust therefore is to ensure that real output growth is promoted, to sustain the
growth momentum in the economy. Low level of government’s capacity to
collect adequate revenue could impair execution of the budget, and also the
late approval of the budget. These must be addressed due to the implications
on the economy.

Trend of Financial Soundness Indicator of the Banking Sector
On a month-on-month basis, the capital adequacy ratio (CAR) fell slightly from
15.26% in December 2018 to 15.14% in February 2019. Non-Performing Loans

(NPLs), somewhat improved from 11.68% in December 2018 to 11.28% in
February 2019. The downward trend is a good indicator of the effectiveness of
the recovery efforts of the banks and the regulatory support of the CBN
towards achieving lower NPLs, eventhough the ratio remains above the
prudential requirement of 5%.
The liquidity ratio at 52.96% in February 2019 over the previous month remains
above the 30% minimum prudential requirement for commercial banks and
20% for merchant banks, which is 3.4% above the December 2018 figure.
The Return on Equity (ROE) and Return on Asset (ROE) for the banking industry
were 26.12% and 2.59%, respectively in February 2019, compared with 20.54%
and 2.43% in December 2018. The banking industry’s performance is highly
positive with 65.03% total operating cost to total operating income in February
2019 as against 67.06% in December 2018. This further shows that the CBN
monetary policy is working positively.

Credit and Growth
Credit growth remains dismal, as total credit remained around the N15 billion
corridor having grown from N15.63 billion in March 2018 to a high of N15.99
billion in October 2018, but contracted to N15.69 billion in February 2019. On
annual basis, aggregate credit equally recorded a decline of 2.53% from
February 2018 to February 2019. The trend into 2019 was attributed to disposals
and write-offs.
With the continued monetary policy support for fiscal policy to grow the
economy, the Bank would continue to monitor its interventions (such as the
Anchor Borrower Programme (ABP’s) and the revitalisation of the Textile value
chain sub-sector) to ensure successful implementation. Proper advice should
be given to the government, particularly on the quality of public expenditure;
in addition to proper cooperation and coordination of fiscal and monetary
policies. It should be noted that concerns about growth remains a major

consideration because of the weakening of global growth rate, which could
further retard domestic growth. For growth to be robust to create adequate
jobs and to reduce poverty and inequality there should be aggressive policies
to stimulate aggregate production.
Consequently, there should be improvement in the supply of energy, access
to credit at lower interest rates to promote economic growth, and increase the
creation of jobs. As part of the multifaceted approach to grow the economy,
the monetary authorities should target specific sectors such as agriculture and
manufacturing, with high employment elasticity’s.
The CBN should continue to sustain the list of 41 items banned from accessing
the official foreign exchange market, and expand it to include more items that
can be produced locally. Attention also should be paid to the inflows and
outflows of Foreign Direct Investments (FDI’s) and Foreign Portfolio Investments
(FPI’s) which are critical in supporting the foreign exchange market stability, as
well as inflation and growth.
Furthermore, the external debt should not be allowed to reach unsustainable
levels, while potential interest and exchange rates shocks should be managed
properly.

Policy Choice
There is an observed deceleration in interest rate, particularly on government
bonds and treasury bills. The weighted lending rate across sectors had been
on the decline, yet the MPR has been kept at 14%. The rates of Anchor
Borrower’s
Programme,
Differentiated
Cash
Reserve
Ratio
(DCRR),
Development Bank of Nigeria (DBN) rates, Bank of Industry (BOI) loans etc. are
all in the lower double digits and below. As growth, price, and exchange rate
remain relatively stable, there is need to further promote growth in the
economy by signalling the lowering of the anchor rate to encourage the

Deposit Money Banks (DMB’s) to lower their lending rate so as to encourage
credit in the economy.

I therefore, vote to:
i. Vary MPR by 50 basis point to 13.50 percent;
ii. Retain the CRR at 22.5 percent;
iii. Retain the liquidity ratio at 30 percent; and
iv. Retain the Asymmetric Corridor at +200 and -500 basis points
around the MPR.

6.
ISA-DUTSE, MAHMOUD
A. EXTERNAL ECONOMIC CONDITIONS
The IMF global growth forecast for 2019 was downgraded to 3.5% against the
earlier projection of 3.7% as the global slowdown which commenced in 2018
has persisted and may even worsen. The weakening output growth in major
advanced economies is increasingly giving way to accommodative monetary
policies in a bid to ward-off economic recession. The US suspended its initial
plan of at least two policy rate hikes in 2019 following growth decline to 2.6%
in Q4 2018 from 3.4% in Q3 2018. The Bank of England placed its normalization
agenda on hold since mid-2018, while the European Central Bank recently
returned to monetary accommodation as the Euro Area is projected to see
growth slowed to 1.6% in 2019 as against 1.8% in 2018. Developing Economies
such as Nigeria that are dependent on commodities exported to these regions
may therefore need to re-strategize.
Inflation in advanced economies is expected to decline to 1.7% in 2019 from
2.0% in 2018, but in developing economies, inflation is projected to rise to 5.1%
in 2019 from 4.9% in 2018 partly due to the pass-through effect of currency
depreciations to domestic prices as the US dollar appreciated against most
currencies. Nigeria has however enjoyed a stable exchange rate regime with
the naira recently appreciating against the dollar in the Bureau de Change
(BDC) segment and the Investors’ & Exporters’ (I & E) window. Thus,
depreciation-induced inflationary pressure may pose no serious challenge.
Moreover, with the price of crude oil hovering above US$67 per barrel,
accretion to foreign reserves to support the foreign exchange market is
expected to continue.
B. DOMESTIC ECONOMIC CONDITIONS
The uptrend in real GDP growth in Nigeria has progressed over several quarters
– growing at 1.5%, 1.81% and 2.38% in Q2 2018, Q3 2018 and Q4 2018,
respectively. The oil sector, however, contracted by 1.62% between Q3 2018

and Q4 2018, while the non-oil sector grew by 2.70% with the major growth
drivers being the services and agricultural sectors. On yearly basis, real GDP
growth stood at 1.93% in 2018 compared to 0.82% achieved in 2017. The need
to promote growth in the real economy is supremely important for economic
diversification, poverty reduction and employment generation. Regrettably, it
seems unlikely with less than two years before the end of 2020 that the target
of 7% real GDP growth set out in the Economic Recovery and Growth Plan
(ERGP) will be achieved. The national unemployment rate at 23.1% in Q3 2018
calls for serious concern, especially when compared with the 11.23% in the
Economic Recovery and Growth Plan document. Whilst recognizing that the
primary mandate of the monetary authority is to promote price stability, in a
developing economy context, it should give more than normal weight to the
need to stimulate job-oriented growth and poverty reduction.
Inflationary pressures in the economy continued to moderate in the review
period as all indicators (headline, food and core) declined both on year-onyear and month-on-month basis. Food inflation (year-on-year) decelerated to
13.47% in February 2019 from 13.51% in the previous month, while core inflation
declined to 9.80% in February from 9.91% in the preceding month. For the yearon-year headline inflation, the decrease has been sustained for three
consecutive months with inflation ticking down from 11.44% in December 2018
to 11.37% and 11.31% in January and February 2019, respectively. The inflation
outlook or forecast in the short term shows that inflationary pressures will
continue to moderate. There is a high probability that the ERGP inflation target
of 9.90% p.a. by 2020 is achievable as the inflation outlook for August 2019
stands at 10.48%. Consequently, with inflation well anchored, it is rational to refocus on attaining the ERGP growth target.
It is noteworthy that most of the key monetary aggregates underperformed
relative to the provisional benchmarks. In February 2019, M3 grew by 4.31% -
well below the benchmark of 14.47%, while M2 and Net Foreign Assets (NFA)
contracted by 1.98% and 7.47% relative to benchmark figures of 12.99% and

18.66%, respectively. These statistics indicate that monetary policy has been
quite restrictive and that money supply may be constraining the growth
momentum in the economy. Thus, there is a need to review the current
monetary policy stance to promote growth.
Financial market conditions indicate that maximum lending rate remains high
at 30.56% in February 2019, whereas the yawning gap between maximum
lending rate and consolidated deposit rate is as wide as ever at 26.23%. This
picture is not growth-friendly. Reviewing the policy rate in a downward
direction seems to be the right way to go in the absence of direct controls.

C. VOTING DECISION
In view of the foregoing observations – an external environment tilting towards
softer monetary policy to avert global recession; a fragile domestic growth
record with real GDP much below ERGP target; moderating inflation; and
paucity of credit to optimally promote private-sector led growth, I voted to cut
the policy rate by 50 basis points and to hold other parameters constant:
MPR at 13.50% per cent
The asymmetric corridor at +200/-500 basis points around the MPR
Liquidity ratio at 30.0% per cent
CRR at 22.5% per cent

7.
NNANNA, OKWU JOSEPH
The economy achieved tepid growth, but showed signs of an uptick and
resilience. Available data from the National Bureau of Statistics (NBS) reveal
that the economy grew by 2.38 per cent in 2018 Q4, as against 1.81 per cent
in 2018 Q3. In particular, services recorded the highest share of total output
growth in 2018 Q4, followed by agriculture, construction, trade, and industry
sub-sectors. Oil sector contracted by 1.62 per cent, but less than 2.91
contraction in 2018 Q3. Longstanding structural constraints of high
unemployment, huge infrastructural gap, weak revenue mobilisation and
narrow structural diversification remain the binding constraints to growth.
Inflationary pressure in the economy is moderating, supported by improved
food supplies and exchange rate stability. Latest data revealed that headline
inflation (year-on-year) fell marginally to 11.31 per cent at end-February 2019,
compared with 11.37 and 11.44 per cent in the preceding month and endDecember 2018, respectively. Food inflation also declined to 13.47 per cent in
February 2019 compared with 13.51 per cent in the preceding month. Similarly,
core inflation fell to 9.80 per cent from 9.91 per cent at end-January 2019.
Overall, headwinds to the inflation outlook include high transportation cost,
energy cost and incipient demand-pull inflation from the expected
implementation of the national new minimum wage.
Relative expansion in broad money supply during the period is clearly,
inadequate to sufficiently drive economic growth amidst weak credit
transmission to the growth enhancing sectors. While financial conditions are
softening
coupled
with
declining
non-performing
loans
(NPLs),
the
phenomena of crowding out and banks risk-aversion continue to be the
binding constraints to credit growth. Credit to the core private sector grew by
5.93 per cent in February 2019 relative to end-December 2018. Net credit to
the government increased by 17.20 per cent in February 2019 over the endDecember 2018. In tandem with the liquidity conditions, money market rates

generally trended downwards in the review period; and remained largely
within the monetary policy rate corridor.

Subsisting inadequate fiscal buffers clearly weakens the potential for
implementing an inclusive growth strategy. Given the track record of weak
revenue mobilisation and absence of strong fiscal buffers, further monetary
tightening will further elevate yields on fixed-income securities and worsen the
already precarious debt service obligations. The expectation in the near-term
is for an urgent step towards a reduction in consumption subsidies and reform
in tax administration. These should create the fiscal space to undertake
efficient public investments
Nigeria’s external sector has shown impressive resilience as all the key metrics
showed relative stability. The overall balance of payments position recorded
a surplus in Q4 2018 driven largely by lower import bills, (arising from enhanced
import substitution), narrowed deficits in the income account and higher
surplus in the current account. Gross external reserves, as at March 14, 2019,
stood at US$$44.64 billion, boosted by positive foreign exchange earnings from
crude oil receipts and swap transactions. Overall, continuous improvement in
the ease of doing business should keep FPI and FDI in the positive trajectory.
Let me note the substantial moderation in inflation, the relative positive yield
curve which has sustained investors’ confidence in the economy and
concomitantly, the exchange rate stability that has been achieved. Against
this backdrop I consider it expedient to signal the need to pursue inclusive
growth and address the dual challenge of poverty and unemployment. On
the balance of risks, I am convinced that monetary easing at this time is
consistent and pareto optimum. Thus, I vote to reduce the MPR by 50 basis
points and keep all the other policy metrics at their current levels.

8.
OBADAN, MIKE IDIAH
In recent times, monetary policy direction in various countries has been
informed by global economic and financial developments, and even political
developments, against the backdrop of the inter-connectedness of
economies through globalization. Also, domestic developments, especially
economic and policy shocks are critical influencers of monetary policy
direction. It is therefore important to review aspects of these developments as
basis for decisions on monetary policy direction in Nigeria in the next few
months.
Global Growth and Monetary Policy Stance
In the global economy in which Nigeria is active, there have been strong
concerns about growth prospects for 2019. Indications from various credible
international organisations suggest the likelihood of growth slowing in 2019 in
both advanced and Emerging Markets and Developing Economies (EMDEs).
Accordingly, global growth in 2019 has been downgraded to 3.5 per cent
compared to 3.7 percent in 2018 and is expected to weaken further on the
basis of developments in some major economies. These developments include
the lingering likelihood of the US economy going into recession in 2020,
increasing uncertainty around BREXIT, weakening growth in Europe as major
economies like Germany, Italy and France are confronted with internal
weaknesses, slowing growth in China due to the impact of its trade war with
the US and tighter financial regulations, amongst others.

With significant uncertainties brewing around the major economies that are
expected to lead growth, output in the advanced economies was
downgraded from 2.3 per cent in 2018 to 2.0 per cent in 2019. While the US is
projected to lead this group of economies, the country’s 2019 growth is also
expected to trail its performance in 2018 as it continues to grapple with issues
such as trade tensions with major allies, political uncertainties at home and
conflicts between monetary and fiscal policies. In Europe, the European

Central Bank (ECB) formally downgraded its growth forecast for 2019 and gave
indications of returning monetary accommodation to address emerging
weaknesses in the Euro area economy. In the Emerging market and
Developing Economies, growth is projected to slow moderately to 4.5 percent
in 2019 from 4.6 percent in 2018.
The concerns about global growth in 2019 are such that:
In a recent interview by the Chairman of the US Federal Reserve Bank
(Fed), the initial guidance of at least two rate hikes in 2019 was
withdrawn. He stated that the Fed had renewed evidence of a
weakening
global
economy
vis-à-vis
a
strong
US
economy.
Consequently, in support of its mandate of fostering maximum
employment and price stability, the US Federal Open market
Committee, in a Federal press Release of January 30, 2019 conveyed
the decision to maintain the target range for the federal funds rate at
2.25 – 2.5 percent. This halt to its monetary policy normalization is in view
of a slowing global economy and threats to the US economy.

Out of a total of fourteen (14) central banks surveyed by the Monetary
Policy Department of the Central Bank of Nigeria (CBN) between
January and March 2019, three of the central banks in the survey
reduced their policy rates while all others left the rates unchanged.
o After its August 2018 rate hike, the Bank of England continued to
refrain from further rate hikes to avert a recession as the uncertainty
around BREXIT threatens to dampen growth as the parliament
entered into a deadlock in the weeks and days leading up to Britain’s
final exit from the European Union.

o After providing guidance of its intention to progress with policy
normalization in December 2018, the European Central Bank (ECB)
has reversed its stance by returning to monetary accommodation

through the provision of low cost loans to commercial banks. The ECB
has also confirmed that there is no likelihood of a rate hike till the end
of 2020 as inflation continues to linger well below its long-run
objective.

o With unemployment on the rise in South Africa, the Reserve Bank of
South Africa retained its policy rate in March 2019 to support the
economy’s recovery from recession. The Central Bank of Brazil, a
major oil producing country, also held its rate constant in March 2019
to support its slow post-recession recovery as output growth nudged
up moderately to 1.1 per cent in 2018.

o Other central banks such as those of Egypt, Ghana and India eased
their policy rates to accommodate growth concerns as global
indicators show a broad slowdown in economic activities. The Bank
of Ghana, and the Central Bank of Egypt lowered their policy rates
by 100 basis points each, as inflation receded quite comfortably, thus
providing the policy space to boost growth. All other central banks in
the survey such as the Bank of Japan and the Peoples Bank of China
retained their policy rates in response to prevailing uncertainties in
the global economy.

Thus, MPR decisions have tended to be shaped by global growth trends,
country growth concerns, recovery prospects, unemployment, and global
uncertainties, among others. Although in most developed and developing
countries, the pre-eminent mandate of the central banks / primary objective
of monetary policy is price stability, this is being pursued without losing sight of
the objectives of sustained economic growth and higher employment. Price
stability (low inflation) remains a most important condition for economic
growth. But in view of a slowing global economy in perspective, most central

banks are now confronted with the need to ensure that their policies support
rather than choke off growth.

For an emerging market economy like Nigeria, with the signals of ECB’s return
to monetary accommodation and the US and UK refraining from monetary
policy normalization in the short term, capital flows to the country may likely
increase, particularly as the post-election security situation in the country
improves contrary to earlier fears. Tinkering with the Monetary Policy Rate in a
downward direction is not likely to deter capital inflows, especially as yields in
the fixed income segment of the financial market are already in the range of
12 – 13 percent, below the MPR. This suggests that factors other than monetary
policy rate (MPR) actually propelled the recent upsurge in capital inflows to
that market.

Developments in the Nigerian Economy
My opinion on the monetary policy direction in the next few months is informed
by both global economic and financial trends and developments in the
Nigerian economy. The Monetary Policy Committee meeting was held against
the backdrop of generally improved macroeconomic fundamentals including
the economic growth rate, foreign exchange market stability as reflected in
the exchange rate, external reserves which grew to nearly US$ 45.0 billion or
about 13 months imports cover, moderated inflation rate, capital inflows,
financial system soundness indicators, among others. With respect to the latter,
besides the improvement in the Non-Performing Loans (NPLs) ratio, there is also
improvement in the provisions made for NPLs which stood at 98.59 percent
coverage at end-February, 2019 compared to 78.27 percent at end-February,
2018. This should inspire greater confidence in the financial system. However,
there are concerns relating to weak and fragile growth, high unemployment,
limited economic diversification, and weak money supply growth in relation to
private sector credit needs. Three of the developments are elaborated upon
as follows.

GDP Growth and Unemployment
Since the Nigerian economy exited recession in the second quarter of 2017,
the economic growth rate has remained positive, but low and fragile,
averaging 0.83 percent in 2017 and 1.93 percent in 2018, indicating a 1.11
percentage increase. There was an uptick in real GDP growth in quarter 4 (Q4)
2018 as it grew by 2.38 per cent compared with 1.81, 1.50 and 1.95 percent in
quarter 3 (Q3), quarter 2 (Q2) and quarter 1 (Q1), respectively. The real growth
was driven by the non-oil sector, which remained the main driver of growth
since Q4 2017. Thus, generally, the Nigerian economy continued on a slow
recovery path in 2018 from its last recession. However, the economy could
recover appreciably from the weak growth experienced in 2018 as oil price
development is expected to remain above the budget benchmark. The price
of Bonny light on March 13, 2019, stood at US$ 67.48 per barrel, haven
recovered from much lower prices. The reduction in production by OPEC and
non-OPEC by 1.2 million barrels per day contributed to the recent uptick in oil
price. However, oil price continued to witness volatility as uncertainties about
the direction of global trade and broadly weakening global economy pose
significant challenges to global aggregate demand.
Under the circumstance, Nigeria’s output is projected to grow in 2019 as
follows:
o 2.0% (IMF)
o 2.2% (World Bank)
o 3.01% (Federal Government)
o 2.74% (Central bank of Nigeria)
Although the macroeconomic fundamentals portray a favourable outlook,
the prospects of growth in output remains constrained by external
uncertainties, reflected by weak global growth trends, volatilities in oil market
prices, trade tensions between the US and major trading partners. Under the
circumstance, domestic initiatives aimed at stepping up growth through
monetary policy support to fiscal actions are inevitable. No doubt, the Central

Bank of Nigeria has so far, through its unconventional monetary policy
interventions in development through cheap financing, has played a highly
acknowledged role in stimulating production of goods and services in critical
sectors of the economy, such as agriculture, manufacturing, small and
medium enterprises, etc. The atmosphere seems right at this time to provide
further support to economic growth activities through a downward adjustment
of the Policy Rate in the expectation that it will be reflected in lower lending
rates and greater credit availability to real sector operators.

Arising from the phenomenon of low and non-inclusive and job-creating
growth is the challenge of unemployment in the country which remains
considerably high. The national unemployment rate stood at 23.1 percent in
Q3 of 2018. The total combined unemployment and underemployment rates
increased from 40.0 percent in Quarter 3, 2017 to 43.3 percent in Quarter 3,
2018. As at Q3 2018, 55.4 per cent of the youth population (15 – 34 years) of
the labour force were either underemployed or unemployed compared to
52.6 per cent in the corresponding quarter of 2017. Thus, unemployment in the
country which has remained a very worrisome problem could be abated by
monetary policy that supports job-creating production.

Inflation
All measures of inflation, headline and core, moderated in February 2019.
Headline inflation moderated from 11.44 per cent in December 2018 and 11.37
per cent in January 2019 to 11.31 per cent in February 2019 driven largely by
the food component. Food inflation decreased to 13.47 per cent in February
2019 from 13.51 per cent in January 2019. Core inflation also decreased to 9.80
per cent from 9.91per cent in January 2019. The downward trend in domestic
prices partly reflects the Bank’s tight monetary policy stance coupled with
stable exchange rate and its pass-through to domestic prices and moderation
in food prices due to irrigation farming. However, inflation at 11.31 per cent in

February 2019 is outside the Bank’s benchmark corridor of 6-9 per cent.
Nevertheless, inflation has remained below the monetary policy rate.

Structural factors, including poor transport infrastructure, high cost of energy,
insurgency and insecurity in the North East; and the announcement effect of
the upward review in salaries and wages could constitute an upside risk to
inflation in the short to near-term. However, experts have indicated that
inflation could maintain a downward trend considering that the feared
headwinds to inflation have not materialized. Importantly, consumption
expenditure is still low, the effect of increased investment spending on inflation
may be minimal, especially if it stimulates increased output/productivity, and
with the existence of output gap, supply can easily be generated to meet
increased demand.

Thus, the year-on-year inflation rate is moderating, while the month-on-month
annualized is moderating towards the Bank’s single digit inflation target range
of 6-9 per cent, reflecting partly the effectiveness of Bank’s tight monetary
policy stance. This development provides space to ease the current tight
monetary policy stance.
Monetary Developments
Developments in monetary aggregates suggest scope to expand money
supply to drive economic growth. Broad money supply (M2) declined by 1.98
percent in February 2019 below the level at end-December, 2018. The
annualized growth of M2 stood at -11.91 percent compared to the 2019
provisional benchmark of 12.99 percent. On the other hand, annualized
growth of broad money aggregate (M3) at 25.88 percent was, however,
above the 2019 provisional benchmark of 14.47 percent.
Although M3 grew largely because of increase in CBN bills, the M2 component
contracted in January and February 2019, respectively, reflecting tight

monetary policy stance of the Bank. Overall, money supply still remains weak
to drive the growth momentum in the economy.

Two Pertinent Issues
There are other pertinent issues, some of which impinge on the effectiveness
of monetary policy. Among these are the following:
i.
Bourgeoning fiscal deficit, rising debt and debt servicing levels.
Analysis of fiscal operations of the Federal Government between
January
and December 2018 showed
the
actual
Federal
Government revenue as N3,909.94 billion, while the total expenditure
for the period January – December, 2018 amounted to N7, 538.03
billion, resulting in a fiscal deficit of N3,628 billion. The Federal
Government borrowed N669 billion from the domestic markets
through the issuance of FGN bonds, to partly finance the budget
deficit. The larger portion was financed from external borrowings,
while the net deficit was accommodated by the CBN. The public
debt level stood at US$73.213 billion out of which US$21.592 billion or
29.5 percent represents external debt. In the last few years, external
debt has built up in a very uncomfortable manner.

The Federal Government’s actual fiscal deficit has continued to
widen and concurrently, the debt level and debt service have
continued to rise. A major driver of the deepening fiscal deficit and
debt levels is the under-performance in revenue generation largely
due to non-diversification of revenue and continuing weakness in
domestic economic performance in spite of slight recovery in the
international price of crude oil. Another major concern is the rapidly
growing cost of debt servicing, fuelled by increasing public debts with
the potential for crowding out the private sector. Therefore, the
government needs to step up domestic revenue mobilisation and

significantly reduce the pace of external debt accumulation
because of the challenges of rising external debt servicing, as well as
interest rate and exchange rate shocks. The proposed increase in
VAT is in the right direction.
ii.
Apparent inefficiency in the financial sector. While stability issues in
this sector are gradually being addressed by the CBN, contradictions
abound. A good number of the operators, especially the deposit
money banks, appear to be doing well as reflected by profitability
indicators, rates of return, among others. However, inefficiency and
monopoly practices seem to abound. Unacceptable interest rate
spread persists. The maximum lending rate stood at 30.56 percent in
February, while the Prime lending Rate stood at 16.08 percent in the
same month. On the other hand, consolidated demand, savings and
term deposit rates declined by 0.02 percentage points to 4.33
percent in February 2019 from 4.35 percent in January 2019. The
spread between the maximum and consolidated deposit rates stood
at 26.23 per cent in February 2019. This spread suggests exploitation
and remains unacceptable in view of the adverse implications for
savings, investment and welfare. It is important that regulatory
actions are introduced to redress the situation.
Also, there is the phenomenon of high returns on Equities (ROEs) and
Assets (ROAs). Nigeria’s financial industry operators have higher ROEs
and ROAs than comparator countries like Turkey, South Africa and
Malaysia. Yet, these countries have better financial soundness
indicators and asset quality indicators. The contradictions would
need to be looked into with a view to reducing the interest rate
spread and enhancing competitiveness and efficiency in the sector.

Opinion
For quite some time now, the Central Bank through the Monetary Policy
Committee, has refrained from raising its policy rate. The policy rate has
remained constant at 14.0 per cent since July 2016 because of considerations
to move the economy out of recession. The 14.0 percent policy rate itself
reflects tight monetary policy stance. Even in the face of this, interest rates
have been trending downwards in the various markets in recent times with
implications for the relevance of the monetary policy rate. However, this
momentum provides an additional opportunity to adjust the MPR downwards
in the hope that the deposit money banks would behave and make more
credit available to the real sectors of the economy at lower interest rates. This
will complement the extant unconventional monetary policy strategy of the
CBN which makes credit available to priority sectors, for example, agriculture
and manufacturing, at single digit interest rates. It must be understood that by
implementing unconventional monetary strategies to complement fiscal
policy initiatives aimed at promoting growth, employment and diversification,
the CBN has not abdicated its primary responsibilities. Under the highly
incapacitated fiscal policy environment of the last few years, the monetary
policy interventions have provided succor which needs to be appreciated.
Even some advanced economies tailor monetary policy to promoting growth
and employment in addition to maintaining monetary and price stability.
Under the circumstances of poor economic governance and conspicuous
market failures in the country, monetary policy intervention becomes
inevitable.

Now, the inflation rate has moderated and is lower than the Monetary Policy
Rate although it is still above the desired inflation benchmark. Because of weak
domestic revenue mobilization, fiscal policy is limited in its efforts to drive
growth and the need has become stronger for further monetary policy support
to the attainment of the growth, employment and economic diversification

objective. Finally, monetary growth and credit have yet to achieve the levels
that can effectively drive the economic growth momentum of the country.

In light of the foregoing, I have the conviction that the current tight monetary
policy stance should be eased by reducing the Monetary Policy Rate by 100
basis points, that is, reduce the rate to 13.0 percent. The other indicators will
maintain the extant levels.
CRR -
22.5%
Liquidity Ratio - 30%
Asymmetric Corridor - +200/ -500 basis points

9.
SANUSI, ALIYU RAFINDADI
1. Decision:
In today’s meeting, my decision to vote for a hold reflects my conviction that
the current level of real interest rate is appropriate for balancing the monetary
policy objectives of price stability and output recovery. The current policy
stance, which has brought inflation down close to the upper band its target
range, supported sustained output recovery, maintained positive net capital
inflows amidst monetary policy normalization in advanced economies, and
delivered the much-desired exchange rate stability, is still optimal for sustaining
the disinflation process amidst output recovery. Although available data shows
that headline inflation (year-on-year) continued to moderate further in
February 2019, Staff forecasts indicate that there are threats to inflation, which
would remain sticky, while output recovery would continue at a slightly faster
rate in the near term compared with that achieved in the fourth quarter of
2018. Despite the temptation to loosen to support speedier output recovery,
holding all the key parameters constant is, in my opinion, the time-consistent
optimal policy position needed for now to keep inflation low without
threatening the output recovery.

2. Background and Justification
2.1. Global Economic Developments
Global economic developments show that weak output growth and price
developments across the major advanced economies could have positive
implications for capital flows to emerging markets and developing economies.

Global output, which the IMF’s World Economic Outlook projected to grow at
3.7 percent in 2019, is now forecasted to grow at a slower rate of 3.5 percent.
This downgrade is due to the slower growth projections in advanced
economies (of 2.0 percent in 2019, compared with 2.3 percent in 2018) and

EMDEs (of 4.5 percent in 2019 compared to 4.6 in 2018). In the US, output
growth slowed down to 2.6 percent in Q4 compared with the 3.4 percent
archived in Q3 of 2018 as a result of the prolonged government shutdown,
slower household and business fixed investment expenditures. In the Euro area,
output grew by 0.2 percent in Q4, which is slower than the 0.6 percent
achieved in Q3 of 2018. In major advanced economies, inflation is moderating
and is trending below the 2 percent target. It is also forecasted to moderate
further to 1.7 percent in 2019 compared to 2.0 percent in 2018 in these
countries. In the US, for instance, inflation decreased in February 2019 to 1.5
percent, compared with 1.6 percent in January 2019. These output and price
developments have caused a dovish monetary policy stance in the major
advanced economies. The US Fed, for instance, was more dovish than
expected, by retaining the Fed funds rate and issuing a guidance note
showing its intention to pause monetary policy normalization. The European
Central Bank has also reverted to monetary accommodation by providing
low-cost loans to commercial banks. The bank has also pushed forward the
likelihood of rate hikes to the end of 2020. These developments have caused
volatility in the global financial markets as portfolio rebalancing moved capital
from equities to fixed income markets. A key implication of these
developments is the increased likelihood of capital flows towards the Emerging
Markets and Developing Economies (EMDEs). Although there was a mild
recovery in the international oil market following OPEC production ceiling, the
growing investment in the production of Shale oil in the US coupled with the
Chinese drive towards the elimination of machines that use fossil fuel by 2024
suggests that the long-term threat to oil market recovery remains real. These
developments indicate that the Federal Government should, as a matter of
urgency, intensify its current efforts at structural reforms aimed at economic
and revenue diversification to mitigate the long-term threat to economic
stability. The government should also focus on building fiscal buffers as a means
of improving the resilience of the economy to short-term oil markets
fluctuations.

2.2. Domestic Economic Developments
The real output recovery observed in the last quarter of 2018 is expected to
continue at a faster rate into the first and second quarters of 2019, while the
moderating inflation is expected to remain sticky above the upper bound of its
target band owing to moderate inflationary pressure in the near-term.

Available data shows that positive growth in domestic output was sustained in
2018. Real output grew by 1.98 per cent in 2018 compared to 0.82 percent in
2017. Indeed, on a quarterly basis, the rate of recovery has significantly
increased since the second quarter of 2018, rising from 1.5 percent in Q2 to
1.81 percent in Q3, and then to a higher than projected rate of 2.38 percent
in Q4. The non-oil sector, which contributed 92.94 percent to the real GDP, was
the primary driver of growth during Q4 as it grew by 2.7 percent. The oil sector,
which added 7.06 percent to the real GDP, contracted by about 1.63 percent
during the quarter. The primary drivers of the non-oil GDP were services and
agriculture. The growth in agriculture was attributed to the improvements in
crop and livestock production, forestry and fishing. Although industrial
production index declined, in Q4 of 2018, due to the poor performance of the
mining, the manufacturing and non-manufacturing Purchasing Managers’
Index (PMI) have increased in March 2019 due to increased consumer
demand and moderation in input prices. Staff forecasts show that output
growth will continue to rise in 2019 driven by moderating inflation, stable
exchange rate, financial system stability, enhanced credit flows to the real
sector, effective implementation of the ERGP, CBN's special interventions in
Agriculture and SMEs, addressing food supply and distribution problems
including
farmers/herders
conflicts.
Some
of
the
critical
risks
to
macroeconomic stability include moderate inflationary pressure beginning
from April 2019, low credit to the real sector, increased fiscal deficits and high
debt level.

Available data shows that headline inflation has marginally declined (year-onyear) from 11.37 percent in January 2019 to 11.31 percent in February 2019. This
decline was mainly due to the decline in food inflation from 13.51 percent in
January 2019 to 13.47 percent in February 2019. Core inflation has also
declined from 9.91 percent in January 2019 to 9.80 percent in February 2019 as
a result of moderation in the prices of processed foods, housing, water and
electricity. Staff forecasts suggest that inflation would continue to remain sticky
close to the upper bound of its target band. This is because of a moderate
inflationary pressure expected in the near-term arising from the late
implementation of the 2018 budget, increased fiscal deficits, inadequate
power supply. The stability in the exchange rate has been sustained. There was
slight appreciation (of about 0.51% compared to January) at the Investor and
Exporter (I&E) window, which averaged N361.82/US$ at the end of February
2019. It further appreciated by 0.37% to N360.47/US$ in March 2019. The BDC
rate had similarly appreciated, by 0.09%, to N359.33/US$ in March 2019. This
relative stability was achieved through the sustained intervention by the CBN
in the foreign exchange market as well as the activities of the I&E window. This
sustained intervention was enabled by the significant level of international
reserves, which stood at US$44.92 as at 20th March 2019. Indeed, the exchange
rates at the BDC segment and I&E window appear to be converging towards
a more unified rate.

3. The Basis for My Policy Choice

I voted to keep all the policy parameter unchanged in today’s meeting
because, on the one hand, as available data and staff forecasts show,
inflation will continue to be sticky above its target band. A moderate
inflationary pressure build-up is expected to begin in April 2019 and may last
until July 2019. Achieving the price stabilization objective, therefore, requires
that monetary policy should remain tight. On the other hand, output recovery
has been sustained and is expected to increase in the medium-term. Although

it is tempting to ease the monetary policy to increase the speed of output
recovery, doing so may threaten the inflation objective. Reducing the interest
rate may also raise the exchange rate pressure. Overall, I believe the current
level of real interest rate is appropriate to balance the objective of price and
exchange rate stability and sustain output recovery.

Consequently, I voted to:

Retain the MPR at 14.00 percent;
Retain the CRR at 22.5 percent;
Retain the asymmetric corridor at +200/–500 basis points; and
Retain liquidity ratio at 30.0 percent.

10.
SHONUBI, FOLASHODUN A.
Global Economic Developments
The preponderance of growth slowdown across different economic divides at
the end of 2018 has generated significant doubt on growth prospects for 2019.
Besides Japan, which grew marginally by 0.9 per cent in 2018, there were
significant slowdown in the United States, United Kingdom and the euro-area.
Similar trends were recorded in China, Russia, Brazil, India and South Africa,
among others. Consequently, the World Economic Outlook (January 2019)
projected global growth at 3.5 per cent in 2019, from 3.7 per cent in 2018,
mainly, on account of the drag in growth in most of the major economies.
Though this global macroeconomic condition poses a challenge for monetary
policy in Nigeria, the prospect for higher and stable international crude oil
prices, as well as, positive fundamentals attractive to foreign inflows provides
a reasonable buffer.

Domestic Prices and Output

Despite the projection of uptick in inflation from the expected impact of
possible changes in energy prices and wage increase, inflation has
continued to trend downward in the last two months, while the
persisting short fall in household consumption spending capacity may
constitute strong drag to inflation in the near term. Headline inflation, on
year-on-year basis, fell for the second consecutive month to 11.31 per cent in
February 2019, from 11.37 per cent January 2019, mainly, due to decline in food
inflation. This represented a reversal of the sudden uptick in the last quarter of
2018, possibly on account of seasonal spending effects. Likelihood of
adjustments in the fiscal space, however, constitutes the major near-term risk
to inflation.
Though the oil sector remained a major drag on output growth, gradual
expansion in the non-oil sector, continue to facilitate steady growth,
highlighting the positive impact of diversification efforts of the CBN and
the Federal Government. Growth remained weak from 0.82 per cent in 2017

to 1.93 per cent in 2018, reflecting upward trend from the second quarter, with
the highest growth of 2.38 per cent recorded in the fourth quarter 2018.
Expansion in the non-oil sector, at 2.0 per cent, was the major driver of overall
growth, with moderate contribution to growth observed in the agriculture,
manufacturing and construction sub-sectors. With the purchasing managers’
index and credit condition reports showing positive sentiments towards future
expansion in production and general business activities and supported by
stable exchange rate, which allows for long-term business planning, growth is
expected to be stronger and deeper. Notwithstanding the positive outlook,
the fragility of growth highlights call for intensification of growth supporting
measures at all levels of policy formulation.
Monetary and Credit Developments

Growth in the monetary aggregates were generally moderate and within
the benchmark but remained largely disconnected from real economic
activities, especially with the growth in credit to the private sector. Broad
money supply (M2) contracted by 1.98 per cent in February 2019, relative to its
level at end-December 2019, reflecting largely the 7.74 per cent decline in net
foreign asset (net). Net domestic credit, however, grew by 1.68 per cent, on
account of respective rise of 17.20 and 6.41 per cent in both credit to the
government and credit to the private sector. CBN bills held by money holding
sectors also grew by 31.40 per cent, thus growing the broader measure of
money supply (M3) by 4.31 per cent over the level at end-December 2019.
The dynamics of money market rates, continued to reflect the net
liquidity condition in the banking system, which was largely buoyed by
maturing CBN bills and fiscal injections, but moderated by Open Market
Operations and foreign exchange interventions. Money market rates,
including inter-bank and Open-Buy-Back rates generally trended lower in the
current period, underscoring the liquidity condition in the market. The spread
between the maximum lending and the average deposit rates, remained
wide, implying high borrowing cost. Developments in the capital market

reflected investors’ changing sentiments, on account of the search for longterm safety and return.

Financial System Stability Concerns
Intensification of monitoring, with special focus on targeted supervision
and corrective regulation would further strengthen the improving trend
of key prudential ratios in the first half of 2019. Banking industry liquidity
ratio, at 51.05 per cent in February 2019, was significantly above the regulatory
minimum of 30.0 per cent. Asset quality also improved, mainly, as a result of
repayment, recoveries and disposal, though the non-performing loans ratio
remained above the regulatory maximum. Industry capital adequacy ratio,
however fell, but remained marginally above the regulatory minimum. The
trends generally suggest improving health of the banking industry.

External Sector Vulnerabilities
Overall condition in the external sector indicated improved viability,
underscored by exchange rate stability, balance of payment surplus and
robust external reserves position. Despite the marginal decline in foreign
direct and portfolio investments in the review period, lower import bills,
narrowed deficits in the income account and higher surplus in the current
account contributed to enhancing external sector viability. Moreover,
sustained exchange rate stability and convergence due to effectiveness of
measures by the Bank continued to enhance investors’ confidence and
business planning.
Overall Considerations and Decision
With a largely growth neutral inflation levels in most major economies of the
world and under a slowing growth condition, the congruence of opinion is that
of easing monetary policy to support economic growth and development
outcomes. The general posture of monetary policy globally has therefore
been focused on addressing slowdown in growth and averting recession.

On the domestic front, despite the marginal decline in the industry capital
adequacy ratio in the domestic banking industry, mainly due to increased risk
weighted asset, improvement in asset quality, liquidity ratio and earnings
underscored stability of the banking industry. There is scope for measures to
ensure that growth in monetary aggregates effectively impacts real economic
activities through credit and financial intermediation, especially with the lag in
its influence on inflation. The external sector remain generally viable,
highlighting the need for intensification of current measures/policies to
promote diversification and ensure rebalancing of the economic structure.
Growth remain weak and fragile, while threat of inflation is generally muted on
account of the persistently low consumption expenditure and negative output
gap.
In the past 24 months, monetary policy has clearly achieved its objectives of
price stability, particularly with inflation and money market interest rates
trending down, stable exchange rate and robust external reserves. Over the
medium term, however, monetary policy seems to have become less potent
in its ability to indicate level and signal trend. Thus, with current global policy
driven mainly by pro-growth sentiments, it is imperative that domestic
monetary policy begin to effectively influence and signal the direction of other
rates in the economy, especially considering that there is a limit to the scope
and size of direct interventions by the Bank. Moreover, price stability devoid of
growth is more likely to be unsustainable.
Though some progress has been made, the fiscal sector, as the primary
medium for promoting growth, must within its present low capacity, take
specific measures to push growth. Including further release of capital
components of the 2018 budget; passage of the 2019 budget and Petroleum
Industry Bills; intensifying measures to block leakages/economic sabotage; as
well as build fiscal buffers. These inadequacies/uncertainties have held back
investments. Rising debt stock in time of increasing oil price is another source
of worry for sustainable growth.

Monetary policy must be time consistent to achieve its objective and thus must
now target credit access and cost to facilitate expansion in the real sector. In
this regard, downward trending money market interest rates provide
opportunity for alignment of monetary policy with the present realities. The
wide spread between deposit and lending rates also underscore limited
competition. Inflationary threat from wage increase remain muted considering
that low cadre employee to be mostly impacted already have shortfall in
purchasing capacity.
In the light of the sub-optimal level of aggregate demand and level of output
gap, easing the monetary policy stance within the present economic
conditions is more likely to enhance aggregate supply rather than being
inflationary. Moreover, returns to foreign investors remain attractive, compared
to peer investment destinations. It is thus imperative for monetary policy to
support employment generation and increase in productivity so as to address
the challenge of weak and fragile growth. As we await the economic plans of
the new government, it is necessary to underscore the fact that whatever
strategy is adopted should be growth focused. This decision is therefore a
signal of direction for both monetary and fiscal policies.
I therefore vote to:
Reduce the MPR by 25 basis point to 13.75 per cent;
Retain the asymmetric corridor of +200/-500 basis points around the MPR
Retain Cash Reserve Ratio (CRR) at 22.5 per cent; and
Retain Liquidity Ratio at 30.0 per cent.

11.
EMEFIELE, GODWIN I.
GOVERNOR OF THE CENTRAL BANK OF NIGERIA AND CHAIRMAN, MONETARY
POLICY COMMITTEE
The global growth forecast was revised downward to 3.5 per cent for 2019
and 3.6 per cent for 2020 in the January update of the World Economic
Outlook (WEO). The downward revision was partly attributable to the softer
momentum in the second half of 2018negative effects of tariff increases in the
United States and China in 2018 and lower growth forecast in Germany
following the introduction of new automobile fuel emission standards. Also, in
Italy where concerns about sovereign and financial risks weighed on domestic
demand. In addition, weakening financial market sentiment, contraction in
Turkish economy as well as softer than anticipated growth in some key
emerging market economies contributed to the downward revision.
The overall risks to global growth tilt to the downside. Tightened financial
conditions and further escalation of trade tensions remains key sources of risks
to the outlook. In addition, a “no-deal” BREXIT from the European Union and
the continued slowdown in China’s economy could worsen risk sentiment
across the globe with serious implications for growth. This could be further
aggravated by the high levels of public and private debt in the Emerging
Economies.
Despite this, Nigerian economy continues on its modest recovery. Recent
data released by the National Bureau of Statistics NBS showed that Real GDP
grew by 2.38 per cent in the last quarter of 2018, up from 1.95, 1.50 and 1.81
per cent in the first, second and third quarters, respectively. On annual basis,
the economy grew by 1.93 per cent in 2018. The growth performance was
largely driven by non-oil growth (especially in agriculture and services sectors).
IMF has projected Nigeria’s economy to grow at 2.0 per cent in 2019 and 2.2
per cent in 2020. Our in-house analysis indicates that the economy will grow
by 2.34 per cent for 2019. The favourable growth sentiment is supported by

positive Purchasing Managers’ Index (PMI) in the manufacturing and nonmanufacturing indexes – buoyed by the continued stability in the foreign
exchange market and the drive for increased credits to the real sector of the
economy.
Data on domestic prices indicated that inflation had continued to trend
downwards. Year-on year headline inflation consistently dropped from 11.44
per cent in December 2018, to 11.37 and 11.31 per cent in January and
February 2019 respectively. The decline is observed in the two components of
headline. Consequently, the composite food index declined from 13.51 per
cent in January 2019 to 13.47 per cent in February 2019, while the core
inflation, which excludes the prices of volatile agricultural produce stood at
9.8 per cent in February 2019, down by 0.1 percent when compared with 9.9
per cent recorded in January 2019. Analysis of month-on-month inflation,
showed a deceleration in the three components during the review month;
implying a possible slowdown on year-on-year rates in the short-term. Though
the current stability in the foreign exchange market continues to impact
favourably on inflation, near-term risks subsist; including the residual effects of
the 2019 electioneering spending, and supply disruptions across major foodbelts of the country.
The current stock of FX reserves at US$44.6 billion can cover more than 13
months of imports as against the international standard of 3-month import
cover. Exchange rate has not only stabilized, but also converged across
different segments of the market. The provisional Balance of Payments (BOP)
position estimates for Q4 2018 showed a significant improvement in the BOP
outcome as the overall balance of payments recorded a surplus of US$2.80
million compared to a huge deficit of US$4,542.08 million recorded in the
preceding quarter. Similarly, the current account balance (CAB) improved
from a deficit of US$1,544.41 million in Q3 2018 to a surplus of US$1,104.57
million in Q4 2018. This development was largely attributable to the significant
decline in import bills occasioned by our various intervention policies as well

as the restriction of FX supply for the importation of 41 non-essential items that
has been in existence since 2016.
Both the broad and narrow money aggregates, M2 and M1 performed below
their benchmark in February 2019. M2 contracted by 1.98 per cent over the
preceding December 2018, about 14.47 percentage points below the 2019
growth bench mark of 12.99 per cent. Similarly, M1 declined by 6.16 per cent
compared with the provisional growth bench mark of 17.08 per cent. Credit
to private sector grew by 6.41 per cent, year to date, compared to the
provisional bench mark of 9.41 per cent. Similarly, aggregate credit to the
domestic economy grew by 10.64 per cent as against its provisional bench
mark of 11.82 per cent. It is my candid opinion that the current performance
of monetary aggregates have been unsatisfactory and that, in particular, we
need to channel more credits to private sector businesses in order to provide
the much needed impetus to growth. The issue of enhancing credits to the
private sector businesses is critical to our recovery process and effective
collaboration of all stakeholders is, therefore, needed in this direction.
In my consideration, I once again, note that stability have been achieved in
some key macroeconomic indicators: inflation has stabilized for more than 10
months, exchange rate has not only stabilized, but has also converged across
different segments of the market, net capital inflow has been rising, while
present stock of external reserves at US$44.6 billion can finance more than 13
months of imports, well over the international threshold of 3 months import
cover. For the first time, we experience rising net capital inflow, declining
inflation, and currency appreciation and net accretion to external reserves
during months of general election in Nigeria. There is no doubt that the relative
stability witnessed since the end of the 2016 recession reflects the continued
potency of our past policy decisions
Despite all these, cautious policy approach is needed as growth is still low and
the recovery fragile. We need economic growth that would feed and sustain

the teaming population. Per capita income and unemployment rates are
trending outside the acceptable regions. Having achieved relative stability in
some of the key macroeconomic indicators such as price and exchange
rates, there is the need to signal a new direction that is pro-growth. Policy
should pay greater attention to boosting growth, creating jobs and
diversifying the economy. We are particularly interested in price stability
conducive to economic growth.
I remain mindful of the fact that inflation is still trending higher than the target
range of 6-9 per cent, but also note that the current level of inflation is below
the bench mark of 12.0 per cent above which inflation becomes inimical to
growth. We, therefore, have a small policy space within which we can tinker
and support growth in order to create jobs in the economy. My indication
today is, therefore, to signal support for the growth of the economy which has
been low and fragile. A marginal adjustment of the current level of policy rate
is needed to balance the objectives of exchange rate stability, price stability
and output stabilisation. Therefore, I vote to:
1. Reduce the MPR to 13.5 percent;
2. Retain the CRR at 22.5 percent;
3. Retain the asymmetric corridor at +200/–500 basis points; and
4. Retain liquidity ratio at 30.0 percent

GODWIN I. EMEFIELE, CON
Governor

March 2019