CBN Monetary Policy Review

CHAPTER ONE

1.0
OVERVIEW
his
chapter
summarises
key
economic
and
financial
developments and the attendant
policy responses by the Bank that
shaped monetary policy during the
second half of 2021. These include
developments in output, prices, financial
market,
liquidity
management
and
monetary policy in the global and
domestic economies.

On the global front, while progress has
been made in subduing the COVID-19
pandemic,
including
lowering
of
restrictions and reopening of several
economies, the rapid mutation into new
and deadlier strains of the virus continue
to pose downside risks to the recovery of
the global economy. Also, the uneven
access to vaccines across several
countries was a significant risk to the
attainment of global herd immunity. The
rise in inflation above the long run
objectives
in
some
advanced
economies, although expected to be
transient, re-enforces the fear that
central banks in this bloc may soon
commence
monetary
policy
normalization. The Emerging Market and
Developing Economies recorded mixed
inflationary
outcomes
with
some
recording higher rates, owing largely to
capital flow reversals, supply chains
disruptions, exchange rate pressures,
high energy costs and poor response to
policy
stimulus
to
combat
the
macroeconomic slowdown associated
with the pandemic.
In the domestic economy, uncertainties
surrounding the containment of the
pandemic
continued
to
pose
challenges to the recovery of output
growth. In addition, the slow pace of
vaccination
across
the
country
remained a source of concern for
monetary policy. Other factors were:
lingering security challenges; legacy
issues of infrastructural deficits; rising cost
of energy; oil theft and exchange rate
pressure with passthrough to domestic
prices. Nevertheless, headline inflation
(year-on-year) decreased from 17.38
per cent in July to 15.63 per cent in
December 2021.

In the second half of 2021, the Nigerian
economy sustained its growth recovery
towards the pre-pandemic level. The
recovery was largely due to the steady
stimulus provided by both the Federal
Government
and
Central
Bank
of
Nigeria.
Key
policies
sustained
to
revitalize businesses and households
deeply affected by the COVID-19
pandemic
were
the
Federal
Government’s Economic Sustainability
Plan,
and
development
finance
interventions by the Bank in the critical
sectors,
particularly
agriculture,
manufacturing and health.

Data from the National Bureau of
Statistics (NBS) showed that real Gross
Domestic Product (GDP) grew by 4.03
per cent (year-on-year) in the third
quarter of 2021 in contrast to the
contraction of 3.63 per cent in the
corresponding period of 2020 and the
growth of 5.01 per cent in the preceding
quarter. The growth was driven largely
T
CBN Monetary Policy Review

by 5.44 per cent growth of the non-oil
sector, in contrast to the contraction of
2.51 per cent in the corresponding
period of 2020 and growth of 6.74 per
cent in the preceding quarter. The oil
sector, however, contracted by 10.73
per cent (year-on-year) in the third
quarter,
which
was
a
moderation
compared with the deeper contractions
of 13.89 and 12.65 per cent in the
corresponding period of 2020 and the
preceding quarter of 2021, respectively.

During the fourth quarter of 2021, the
domestic economy sustained its growth
trajectory,
owing
to
continued
implementation of various economic
and development finance interventions
of the Government and the Bank.
Accordingly,
real
Gross
Domestic
Product (year-on-year) grew by 3.98 per
cent in the fourth quarter compared
with the growth of 0.11 and 4.03 per cent
in the corresponding period of 2020 and
the preceding quarter, respectively. The
growth was mainly driven by the 4.73 per
cent expansion in the non-oil sector,
compared with the respective growth
rates of 1.69 and 5.44 per cent in the
corresponding period of 2020 and the
preceding quarter. The contraction in
the oil sector, however, moderated
during the fourth quarter to 8.06 per cent
compared with contractions of 19.76
and 10.73 per cent (year-on-year) in the
corresponding period of 2020 and the
preceding quarter of 2021, respectively.

Inflationary pressure subsided during the
review
period,
due
largely
to
moderating impact of the COVID-19
pandemic. Headline and food measures
of inflation maintained a downward
trend,
while
core
inflation
rose
moderately. Food inflation (year-onyear) decreased by 3.66 percentage
points to 17.37 per cent in December
2021 from 21.03 per cent in July. Core
inflation, however, rose moderately by
0.15 percentage point to 13.87 per cent
in December 2021 from 13.72 per cent in
July. Consequently, headline inflation
decreased by 1.75 percentage point to
15.63 per cent in December 2021 from
17.38 per cent in July. Thus, the food
measure was the major driver of the
overall moderation in headline inflation
during the period.

The exchange rate was relatively stable
as oil earnings increased due to the
improvement in global demand. The
development was attributed to the
resumption of economic activities as
most countries further eased restrictions
associated
with
the
COVID-19
pandemic.
Nonetheless,
the
passthrough of the exchange rate to
domestic prices has been significant,
causing core inflation to accelerate.
Thus, the naira remained under pressure
prompting the decision by the Bank to
adjust
the
exchange
rate
from
N410.88/US$ to N412.99/US$ in late 2021.
In addition, the adjustment also aimed
at aligning the exchange rate with
market realities. The Bank continued its
foreign
exchange
demand
management
coupled
with
other
measures which included the Naira-4Dollar scheme to attract diaspora
remittances, continued restriction of
access to foreign exchange for 43 items,
CBN Monetary Policy Review

and the suspension of foreign exchange
sales to BDCs.

The tension in the Nigerian financial
market persisted during the second half
of 2021, due to the impact of lingering
shocks from the COVID-19 pandemic as
the mutation of the virus into new strains
such as the Omicron variant continued.
Accordingly, the Bank sustained the use
of the following instruments to achieve its
objectives of price and macroeconomic
stability in the
review period: the
Monetary Policy Rate (MPR); the Cash
Reserve Requirement (CRR); Liquidity
Ratio; Open Market Operations (OMO);
and Discount Window Operations in
addition to periodic interventions in the
foreign exchange market. The Monetary
Policy Rate (MPR) remained the Bank’s
key instrument for signalling monetary
policy stance. The MPR was unchanged
at 11.5 per cent along with the
asymmetric corridor of +100/-700 basis
points, showing the Bank’s commitment
to an accommodative policy stance.

Open
Market
Operations
(OMO)
remained
the
main
instrument
for
liquidity management. Total sale of
OMO bills increased marginally by 2.95
per cent to N6,319.47 billion in the
second half of 2021 from N6,138.58 billion
in the corresponding period of 2020. The
development
also
represented
a
significant increase in sales of 252.40 per
cent from N1,793.25 billion in the first half
of 2021. The increased operations were
attributed to liquidity surfeit in the
banking system.

The money market witnessed increased
activities with slight fluctuations in the
second half of 2021, reflecting liquidity
conditions in the banking system. This
was informed by statutory monthly
disbursements to both the States and
Local governments by the Federation
Account Allocation Committee (FAAC),
maturing government securities, sale of
CBN bills and various CBN interventions.
The interbank call segment of the market
recorded less trading days in the period
under
review,
resulting
in
lower
transaction volumes compared with the
OBB
segment.
For
instance,
no
transaction
was
recorded
in
the
interbank segment in December 2021.
The
collateralized
OBB
instrument
continued to be preferred by market
participants due to the perception of
counter-party
risks
among
market
participants.

The performance of the Nigerian capital
market in the second half of 2021 was
bullish, driven primarily by improved
activities
in
the
equities
segment,
reflecting strong investor confidence.
The increased attraction to the market
was largely attributed to improved
corporate
earnings
and
foreign
exchange liquidity. In the bonds market,
real yields declined progressively with
rising inflation. Consequently, the AllShare Index (ASI) increased by 12.69 per
cent from 37,907.28 at end-June 2021 to
42,716.44
at
end-December
2021.
Market
capitalization
(MC)
also
increased by 12.85 per cent from N19.76
trillion at end-June 2021 to N22.30 trillion
at
end-December

which
CBN Monetary Policy Review

represented an increase of 5.89 per
cent, year-on-year.

Federal Government of Nigeria (FGN)
securities largely dominated activities in
the bond market, accounting for 44.75
per cent in the second half of 2021.
Corporate and State/Local Government
bonds followed, with the latter recording
the least share by market volume.

In terms of the outlook, the domestic
economy is expected to maintain its
output recovery trajectory through the
first half of 2022. This is premised on
implementation of the 2021 - 2025
National
Development
Plan,
improvement in aggregate demand,
recovery in global commodity prices,
and positive impact of CBN interventions
in
growth-enhancing
sectors.
The
downside risks to this outlook include the
continuing COVID-19 infections across
the globe and possibility of the spread of
new variants which could lead to
renewed
lockdowns
and
other
restrictive measures that may affect
economic activities. These would be in
addition,
to
the
persisting
security
challenges, legacy infrastructural issues,
foreign exchange demand pressures,
continuing capital reversals, high public
debt, and constrained fiscal space.
Consequently, the Federal Government
forecasts real GDP to grow by 4.20 per
cent in 2022.

In terms of price outlook, staff projections
indicate that headline inflation would
moderate to 14.48 per cent at end-June
2022, which is above the upper limit of
the Bank’s indicative range of 6–9 per
cent. Upside risks to inflation in the nearterm,
remain
the
combination
of
monetary and structural factors which
include
the
continuing
impact
of
COVID-19
on
the
economy,
expectations of the removal of fuel
subsidy, lingering security challenges,
especially in major food producing
areas of the country, liquidity impact of
the implementation of the 2022 budget
and preparation for the 2023 general
elections. With this outlook in mind,
monetary
policy
formulation
and
implementation will aim at containing
the emerging challenges to achieve the
Bank’s objective of price and financial
system stability conducive to inclusive
growth.


CBN Monetary Policy Review

CHAPTER TWO
THE GLOBAL ECONOMY DEVELOPMENTS

2.1
Global Output
he International Monetary Fund
(IMF) estimated global growth at 5.9
per cent in 2021 from a contraction
of 3.1 per cent in 2020. This was due to
improved
but
divergent
recoveries
across the advanced and the emerging
market
economies
as
a
result
of
differences in vaccine rollouts to contain
the pandemic and associated fiscal
support.

A combination of factors, however,
constituted headwinds to global output
growth in the review period. These
included supply chain disruptions, the reintroduction of movement restrictions in
some countries due to a resurgence in
COVID-19 cases from the Omicron
Variant; and elevated inflation across
countries which dampened aggregate
demand.

In the advanced economies, output was
estimated at 5.0 per cent in 2021
compared with a contraction of 4.5 per
cent in 2020. The development was
partly attributable to the realization that
many of the advanced economies
made good progress in vaccinations,
though
hesitancy
to
receive
the
vaccines in some areas constrained
further gains. In the United States (US),
output growth was estimated at 5.6 per
cent in 2021, from -3.4 per cent in 2020.
In the euro area, growth was estimated
at 5.2 per cent in 2021, from -6.4 per cent
in 2020. In Japan, output growth was
estimated at 1.6 per cent in 2021 from a
contraction of 4.5 per cent in 2020. In
Canada, growth was estimated at 4.7
per cent in 2021 from -5.2 per cent in
2020. The United Kingdom (UK) recorded
the highest growth rate in the group at
7.2 per cent in 2021 from a contraction
of 9.4 per cent in 2020 due largely to the
effectiveness
of
its
widespread
vaccination campaign.

In the Emerging Market and Developing
Economies (EMDE), output growth was
estimated at 6.5 per cent in 2021 from -
2.0
per
cent
in
2020.
Improved
conditions for commodity exporters and
stronger
domestic
demand
in
key
regional
economies,
particularly
emerging and developing Europe, were
the strong drivers of the outcome.
However, uneven access to vaccines,
slow employment growth and supply
side bottlenecks continued to constrain
output growth in some other economies.
Output
growth
in
Emerging
and
Developing Asia was estimated at 7.2
percent in 2021 from a contraction of 0.9
per cent in 2020. India's economy grew
by 9.0 per cent in 2021 from a
contraction of 7.3 per cent in 2020.
China recorded higher growth of 8.1 per
cent in 2021 from 2.3 per cent in 2020,
despite
disruptions
to
industrial
production as a result of power outages;
weak recovery of private consumption;
and plummeting real estate investment.
In Emerging and Developing Europe,
Russia grew by 4.5 per cent in 2021 from
-2.7 per cent in 2020. In Latin America
and the Caribbeans, Brazil grew by 4.7
percent in 2021 from -3.9 per cent in
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CBN Monetary Policy Review

2020, while Mexico expanded by 5.3 per
cent in 2021 from -8.2 per cent in 2020.

In Sub-Saharan Africa, growth was
estimated at 4.0 per cent in 2021, from -
1.7 per cent in 2020, reflecting higher oil
and metal prices, stronger domestic
agricultural and industrial production,
positive spillovers from improved global
activity, and some progress in the
control of the pandemic. The recovery,
however, remains fragile given the
resurgence of the virus, slow pace of
vaccination, increased food insecurity,
reduced capital inflows and conflict in
some low-income countries. Output
growth in Nigeria was estimated at 3.4
per cent in 2021 from a contraction of
1.92 per cent in 2020. South Africa grew
by 4.6 per cent in 2021 from -6.4 per cent
in 2020.

2.2
GLOBAL INFLATION
Global inflation remained high in the
review period due to a combination of
demand and supply side factors. As
countries relaxed lockdown measures,
rising
demand
for
agricultural
commodities, production inputs, and
crude oil exerted upward pressure on
prices. On the supply side, persisting
bottlenecks associated with restrictions
to contain the spread of the coronavirus
hampered production and distribution,
resulting in disruptions to the smooth
delivery of goods and services. Inflation
remained elevated throughout 2021,
averaging 3.1 per cent in the advanced
economies and 5.9 per cent in the
emerging
market
and
developing
economies.
In the advanced economies, inflation in
the United States (US) averaged 4.69 per
cent in 2021 compared with 1.25 per
cent in 2020, reflecting rising cost of
energy, transportation, food and shelter.
In the Eurozone, it averaged 2.59 per
cent in 2021 from 0.25 per cent in 2020
driven largely by surging energy and
beverage prices, amongst others. In the
United Kingdom, average inflation rose
to 2.59 per cent in 2021 from 0.85 per
cent in 2020, largely reflecting the surge
in global energy prices as well as rising
cost
of
housing
and
utilities.
The
Japanese
economy,
however,
remained in deflation at -0.26 per cent in
2021 compared with -0.03 per cent in
2020.

In the Emerging Markets and Developing
Economies, consumer price inflation in
China declined to 0.85 per cent in 2021
from 2.39 per cent in 2020. In India,
inflation averaged 5.52 per cent in 2021
compared with 6.18 per cent in 2020,
while in Russia, it averaged 6.69 per cent
in 2021 from 3.38 per cent in 2020, as the
cost of food, non-food products and
services rose sharply.

In Latin America and the Caribbeans,
inflation in Brazil averaged 8.3 per cent
in 2021 compared with 3.2 per cent in
2020, reflecting increased demand as
the economy reopened as well as
inflation
pass-through
from
the
weakening currency. In Sub-Saharan
Africa, inflation in South Africa averaged
4.55 per cent in 2021 from 3.28 per cent
in 2020, driven by high energy prices and
legacy labour market issues. In Nigeria,
inflation rose to 16.95 per cent in 2021
CBN Monetary Policy Review

from 13.25 per cent in 2020. The
development was the result of persisting
structural
factors
hampering
food
supply; the impact of the pass-through
from
several
adjustments
to
the
exchange rate; and rise in domestic
energy prices. In Ghana, consumer price
inflation averaged 9.98 per cent in 2021
compared with 9.89 per cent in 2020,
driven by the cost of transportation,
housing & utilities.

2.3
Global
Financial
Market
Developments

2.3.1 Money Market and Central Bank
Policy Rates
During the review period, most central
banks across the globe indicated desire
to
commence
monetary
policy
normalisation in the face of build-up of
inflationary pressure. In the advanced
economies,
most
central
banks
continued in the accommodative mode
with strong guidance of the likely
commencement of monetary policy
normalisation in the first half of 2022.
Several emerging market central banks,
however, have moved towards interest
rate
lift-off
to
counter
the
likely
haemorrhage of capital associated with
policy normalisation in the advanced
economies.

Of the fourteen (14) central banks
surveyed between July and December
2021, five raised their policy rates, one
lowered, while the rest maintained. Four
emerging market central banks, the
Central bank of Brazil, Central Bank of
Russia, Reserve Bank of South Africa and
Bank of Ghana, raised their policy rates
by between 25 to 125 basis points. These
actions were targeted at forestalling
capital
outflows
to
US
dollar
denominated assets when the US Fed
commences interest rate lift-off. The
Bank of England was the only advanced
central bank to commence interest rate
lift-off, while maintaining its current stock
of asset purchases. It raised its policy rate
by a moderate 15 basis points, the first
hike since August 2018. Other advanced
economy central banks – the US Fed, the
ECB and the Bank of Japan, maintained
their policy rates in the review period.
The People’s Bank of China was the only
emerging
market
economy
that
lowered its rate in the review period to
support its ongoing recovery from the
COVID-19 pandemic. Even though the
US Federal Reserve Bank retained its
policy rate, it was amongst the first of the
advanced economy central banks to
commence tapering of its bond buying
programme with guidance of an early
return to interest rate hike. The European
Central Bank and the Bank of Japan
both retained their policy rates and
continued
their
bond
buying
programmes, thus maintaining a broad
accommodative policy stance. Several
other emerging market central banks
such as the Reserve Bank of India, Bank
Indonesia, Central Bank of Kenya and
the Central Bank of Nigeria kept their
policy rates unchanged.

The US Fed is expected to completely
taper
its
US$120bn
monthly
asset
purchase programme during the first
quarter of 2022 and announce its first
policy rate hike thereafter. This may
CBN Monetary Policy Review

result in a sharp rise in capital outflow
from Emerging Market Economies to
safer
dollar
denominated
securities
unless their central banks respond with a
sizeable rate hike. The impending era of
tighter financial conditions would thus
portend a portfolio shift from emerging
market economies to the advanced
economies as investors seek higher and
less risky returns. Given the trend towards
rate hike in the advanced economies
and with Nigeria moving towards an
election
year
in
2023,
naira
denominated
securities
face
an
increased risk of a price slump due to the
usual rise in sovereign risk preceding
election periods. The Central Bank of
Nigeria
should
factor
these
developments into its monetary policy
process
to
address
the
likely
haemorrhage
of
capital
from
the
economy towards the end of 2022 and
into 2023.

Table 2.1: Policy Rates of Selected Central Banks
Jan. 2021 – Dec. 2021
Country
July

August

Sep-

Oct-

Nov-

Dec-

Egypt

Kenya

S. Africa

Ghana

Nigeria

Brazil

USA

Japan

Euro
Area

India

Russia

China

UK

Indonesia


Source: www.cbrates.com
2.3.2 Global Capital Market
The performance of major global stock
markets was generally positive in the
review
period
reflecting
improved
recovery from the COVID-19 challenges.
Thus, despite the emergence of various
COVID-19 variants, economic activities
continued to improve, occasioned by
widespread rollout and administration of
vaccines.

In Europe, the UK FTSE 100, French CAC
40 and the German DAX indices
increased by 3.8, 9.1 and 1.9 per cent,
respectively in the second half of 2021.
In North America, the United States S&P
500, Canadian S&P/TSX Composite and
Mexican Bolsa indices increased by 10.7,
5.1 and 5.7 per cent, respectively. In
South America, Argentine Merval and
Colombian COLCAP indices increased
by 33.9 and 12.2 per cent, respectively.
Conversely, the Brazilian Bovespa stock
index decreased by 17.3 per cent,
during the review period. In Asia, the
Japanese Nikkei 225, Chinese Shanghai
SE and Indian BSE Sensex indices
increased by 0.3 per cent, 1.4 per cent,
and 11.3 per cent, respectively. In Africa,
the
Nigerian
NGX
All-Share,
South
African JSE All-Share, Egyptian EGX CASE
30 and Ghanaian GSE All Share indices
increased by 12.7, 10.6, 16.5 and 5.3 per
cent,
respectively.
Conversely,
the
Kenyan Nairobi NSE 20 index decreased
by 1.3 per cent, during the review
period.
CBN Monetary Policy Review

Table 2.2: Selected International Stock Market Indices as at December 31, 2021
Country
Index
31-Dec-20
30-Jun-21
31-Dec-21
Dec 31, 2020 - Dec 31,
2021 % Change
June 30, 2021 - Decembe
31, 2021 % Change
AFRICA
Nigeria
NSE All-Share Index

South Africa
JSE All-Share Index

Kenya
Nairobi NSE 20 Share index

Egypt
EGX CASE 30

Ghana
GSE All-Share Index


NORTH AMERICA
US
S&P 500

Canada
S&P/TSX Composite

Mexico
Bolsa

SOUTH AMERICA
Brazil
Bovespa Stock

Argentina
Merval

Columbia
COLCAP

EUROPE
UK
FTSE 100

France
CAC 40

Germany
DAX

ASIA
Japan
NIKKEI 225

China
Shanghai SE A

India
BSE Sensex

Selected International Stock Market Indices as at December 31, 2021

Source: Bloomberg

2.3.3 Bond Market and Sovereign Yields
Using the 10-year U.S. Treasury bond as
a
benchmark
to
gauge
the
performance of similar bonds in other
countries as follows: Ghana, Brazil,
Nigeria, Mexico and China with yield
spreads of 960, 295, 247, 140 and 125
basis
points
respectively,
were
considered higher credit risk countries
than the US.

In contrast, Germany, France, Japan,
Portugal, Spain, UK, Italy, Greece and
Canada with yields of minus 171, 146,
133, 106, 96, 56, 35, 23 and 6 basis points
respectively, suggest stronger credit
worthiness than the US.
The yield spreads on Nigerian sovereign
bonds of 247 basis points, higher than
the yield on the U.S 10-year benchmark
bond indicates a high-risk premium and
therefore attracts a high return for
investors. However, Ghana with a yield
spread of 960 basis points higher than
the yield on the U.S. 10-year benchmark
bond suggests a higher risk premium
than the Nigerian sovereign bond.
CBN Monetary Policy Review

Table 2.3: Sovereign Yields Spreads (Benchmark 10-Year Government Bonds) as at December 31, 2021
Country
June 30,

Yield (%)
August 31,

Yield (%)
September
1, 2021
Yield (%)
October 29,
2021 Yield
(%)
December
31, 2021
Yield (%)
Change in
Yield
(Basis
Points)
December 30,
2021 Spread
over the U.S.
(Basis points)
Nigeria


Ghana
6.1

9.95
11.12
5.02

Canada

Mexico


US


Brazil


France

Germany

Greece

Italy

Portugal

Spain

UK

China


Japan

AFRICA
NORTH AMERICA
SOUTH AMERICA
EUROPE
ASIA
Source: Bloomberg

2.3.4 Global Commodity Prices
During the second half of 2021, global
commodity prices increased due to
strong global demand as economies reopened fully following the sustained rollout
of
COVID-19
vaccines.
Consequently,
the
IMF
primary
commodity price index rose by 15.40 per
cent to 186.9 points at end-December
2021 compared with 161.7 points at endJune
2021.
Nevertheless,
the
performance of the sub-indices under
the primary commodity index were
mixed. While the sub-indices of energy
and edibles rose by 40.54 and 4.18 per
cent to 241.3 points and 134.7 points at
end-December 2021 from 171.7 points
and 129.3 points at end-June 2021,
respectively, the sub-indices of non-fuel,
industrial inputs and metals decreased
by 3.62, 17.27 and 19.88 per cent,
respectively, to 149.3, 168.6 and 190.2
points at end-December 2021 from
154.9, 203.8 and 237.4 points at endJune 2021.

CBN Monetary Policy Review

In the oil sector, actual prices per barrel
of the OPEC Reference Basket rose by
5.94 per cent to US$77.97 per barrel at
end-December 2021 from US$73.6 per
barrel at end-June 2021.

The Food and Agriculture Organization
(FAO) Food Price Index rose by 6.7 per
cent to 133.7 points at end-December
2021 from 125.3 points at end-June 2021.
The sub-indices of vegetable oils, sugar,
cereals, dairy and meat all increased, by
13.19, 8.08, 7.83, 7.59 and 0.27 per cent,
respectively, to 178.5, 116.4, 140.5, 129.0
and 111.0 points at end-December 2021
from 157.7, 107.7, 130.3, 119.9 and 110.7
points at end-June 2021.

2.3.5 Global Foreign Exchange Market
In the second half of 2021, most
currencies continued to depreciate
against the US dollar as in the first half of
the year. This was attributable to the
strengthening
of
the
US
economy
resulting from vaccine roll-out and
further easing of restrictions imposed to
contain the spread of the coronavirus as
well as broad fiscal support.

In Africa, the Nigerian naira at the
Investors and Exporters (I&E) window
depreciated against the US dollar by
12.41 per cent. Similarly, the South
African rand, Ghana cedi, Kenya shilling,
and the Egyptian pound all depreciated
by 10.71, 6.03, 3.47 and 0.45 per cent,
respectively. The low foreign exchange
earnings
from
export
of
primary
commodities
due
to
weak
global
recovery, coupled with capital reversals
as a result of forward guidance by the
Fed to commence monetary policy
normalization, resulted in exchange rate
pressure and depreciation in the subregion. In North America, the Canadian
dollar and Mexican peso depreciated
by 3.94 and 1.33 per cent, respectively.
In South America, the Argentina peso,
Colombian peso and Brazilian peso all
depreciated by 8.71, 6.15 and 5.39 per
cent, respectively. The prolong impact
of COVID-19 pandemic and associated
lockdowns as well as capital reversals in
pursuit of higher yields contributed to
currency depreciation. In Europe, the
euro
and
the
Russian
ruble
all
depreciated against the dollar by 6.05
and 1.48 per cent, respectively, due to
resurgence of COVID-19 infections and
low production activities, while the British
pound appreciated by 87.21 per cent. In
Asia, the Japanese yen and the Indian
rupee all depreciated by 5.15 and 1.01
per cent, respectively, while the Chinese
renminbi appreciated by 1.42 per cent.
CBN Monetary Policy Review

Table 2.4: Exchange Rates of Selected Countries (value in currency units to US$)

Source: Bloomberg


CBN Monetary Policy Review

CHAPTER THREE
THE DOMESTIC ECONOMY

3.1
Output in the Domestic Economy
n the second half of 2021, the Nigerian
economy remained on a positive
recovery path towards attaining its
pre-pandemic output growth level. The
sustained recovery was largely due to
the combination of monetary and fiscal
support, targeted at easing growth
challenges imposed by the pandemic.
In addition to the provision of vaccines,
the
Government
sustained
the
implementation
of
the
Economic
Sustainability Plan to revitalize businesses
and households affected by the COVID19 pandemic. The Central Bank also
initiated various development finance
interventions
in
the
real
sector,
particularly
in
agriculture,
manufacturing and Small and Medium
Scale Enterprises (SMEs), to complement
fiscal efforts to revamp the economy.

As
a
consequence
of
these
developments, data from the National
Bureau of Statistics (NBS) showed that
real Gross Domestic Product grew by
4.03 per cent (year-on-year) in the third
quarter of 2021 compared with a
contraction of 3.63 per cent in the
corresponding period of 2020 and
growth of 5.01 per cent in the preceding
quarter. The development was largely
driven by a 5.44 per cent growth in the
non-oil sector, compared with -2.51 per
cent in the corresponding period of 2020
and growth of 6.74 per cent in the
preceding quarter. The key drivers of the
non-oil
sector
performance
were:
Services (8.41%); Industry (4.55%); and
Agriculture
(1.22%).
The
sector’s
contribution to real GDP rose to 92.51 per
cent in the third quarter from 91.27 per
cent in the corresponding period of 2020
but declined marginally compared with
92.58 per cent in the preceding quarter
of 2021.

The oil sector, however, contracted by
10.73 per cent (year-on-year) in the third
quarter
of
2021,
a
moderation
compared with deeper contractions of
13.89 and 12.65 per cent in the
corresponding period of 2020 and
preceding quarter of 2021, respectively.
Accordingly,
average
daily
oil
production fell to 1.57 million barrels per
day (mbpd) in the third quarter of 2021
compared with 1.67 and 1.61 mbpd
recorded in the corresponding period of

and
the
preceding
quarter,
respectively. The development was due
mainly
to
production
shut-ins
and
divestment by major international oil
companies occasioned by oil theft,
pipeline sabotage as well as agitations
by local communities over oil spills.

During the fourth quarter of 2021, the
domestic economy sustained its growth
trajectory,
owing
to
continued
implementation of various economic
and development finance intervention
programmes of the Federal Government
and the Central Bank of Nigeria.
Accordingly,
real
Gross
Domestic
Product grew by 3.98 per cent in the
fourth quarter of 2021 compared with
0.11 and 4.03 per cent (year-on-year) in
the corresponding period of 2020 and
the preceding quarter, respectively. The
I
CBN Monetary Policy Review

performance was mainly driven by the
4.73 per cent growth in the non-oil
sector, compared with the respective
growth rates of 1.69 and 5.44 per cent in
the corresponding period of 2020 and
the preceding quarter. The key drivers of
the non-oil sector growth were Services
(5.58%), Industry (3.60%) and Agriculture
(3.58%). Its share in real GDP rose further
to 94.81 per cent in the fourth quarter
from 94.13 and 92.51 per cent in the
corresponding period of 2020 and the
preceding quarter of 2021, respectively.

The
contraction
in
the
oil
sector
moderated to -8.06 per cent (year-onyear) in the fourth quarter compared
with -19.76 and –10.73 per cent in the
corresponding period of 2020 and the
preceding quarter of 2021, respectively.
Average daily oil production fell further
to 1.50 million barrels per day (mbpd) in
the fourth quarter of 2021 from 1.56 and
1.57
mbpd
recorded
in
the
corresponding period of 2020 and the
preceding quarter, respectively.

Figure 3.1: Gross Domestic Product Growth Rate
(2020Q1 – 2021Q4)

Source: National Bureau of Statistics
(NBS)
3.1.1 DOMESTIC ECONOMIC ACTIVITIES
In the second half of 2021, real GDP
was driven by activities in both the nonoil and oil sectors. The non-oil sector
grew by 5.44 per cent in the third quarter
of 2021 compared with -2.51 and 6.74
per cent in the corresponding period of

and
the
preceding
quarter,
respectively. The sub-sectors that drove
the overall growth were: financial &
insurance (23.23%); transportation &
storage (20.61%); electricity, gas steam
& air conditioner (14.36%); water supply,
sewage & waste management (12.97%);
and trade (11.90%). These compare
unfavourably
with
their
respective
growth rates of 6.80, -42.98, -3.66, 7.10
and -12.12 per cent in the corresponding
period of 2020. Oil
sector output
contracted by 10.73 per cent in the third
quarter
of

compared
with
contractions of 13.89 and 12.65 per cent
in the corresponding quarter of 2020 and
the
preceding
period
of
2021,
respectively.
Average
daily
oil
production in the third quarter of 2021
fell to 1.57 mbpd from 1.67 mbpd in the
corresponding period of 2020 and 1.61
mbpd in the preceding quarter of 2021.
The development was due to the
decrease in production as a result of
leakages,
fire
incidents,
and
a
declaration of a force majeure arising
from the collapse in infrastructure on the
Forcados, Qua Iboe, and Agbami oil
facilities along with emergency halts in
operation due to maintenance.

During the fourth quarter of 2021, the
non-oil sector grew by 4.73 per cent
compared with 1.69 per cent in the

Q1-2020
Q4-2020
Q3-2021
Per cent
CBN Monetary Policy Review

corresponding period of 2020 and 5.44
per cent in the preceding quarter of
2021, respectively. The performance of
the non-oil sector activities were driven
mainly by Mining & Quarrying (43.50%),
Transport & Storage (29.72%), Water
Supply, Sewage & Waste Management
(28.84%), Finance & Insurance (24.14%);
Human Health & Social Services (5.14%),
Information & Communication (5.03%),
Arts,
Entertainment
&
Recreation
(4.31%),
Crop
Production
(3.87%),
Construction (3.46%), Administrative &
Support
Services
(2.70%),
and
Manufacturing (2.28%). These compare
with their respective growth rates of
43.42, -5.95, 1.92, -3.63, 3.05, 14.95, -1.52,
3.68, 1.21, -5.31 and -1.51 per cent in the
corresponding period of 2020. During the
quarter, the contraction in the oil sector
moderated to -8.06 per cent (year-onyear) compared with -19.76 and –10.73
per cent in the corresponding period of
2020 and the preceding quarter of 2021,
respectively.
Average
daily
oil
production fell further to 1.50 mbpd in
the fourth quarter of 2021 compared
with 1.56 and 1.57 mbpd in the
corresponding period of 2020 and the
preceding quarter, respectively.

Figure 3.2: Non-oil Sector Performance (2020Q1 –
2021Q4)

Source: NBS
Figure 3.3: Performance of oil Sector (2020Q1 –
2021Q4)

Source: NBS

3.1.2 Sectoral Analysis
The key factors that contributed to
output growth in major sectors in the
review period are analysed in this
section.

3.1.2.1 Agriculture
During the third quarter of 2021, growth
in real agricultural output moderated to
1.22 per cent compared with 1.39 and
1.30 per cent in the corresponding
period of 2020 and the preceding
quarter of 2021, respectively. Growth in
the sector was driven by forestry which
grew by 1.98 per cent compared with
2.55
and
1.08
per
cent
in
the
corresponding period of 2020 and the
preceding quarter, respectively. This was
followed by crop production which grew
by 1.36 per cent in the third quarter 2021
compared with 1.38 per cent apiece in
the corresponding period of 2020 and
the preceding quarter. Livestock also
grew moderately by 0.12 per cent in the
third quarter of 2021 compared with 2.29

2020Q1
2020Q2
2020Q3
2020Q4
2021Q1
2021Q2
2021Q3
2021Q4
Per cent
Agriculture

Q1-2020
Q4-2020
Q3-2021
Per cent
CBN Monetary Policy Review

and 0.13 per cent in the corresponding
period of 2020 and the preceding
quarter, respectively. Growth of the
sector was, however, moderated by
contraction in the fishing sub-sector of
3.97 per cent compared with -2.07 and
2.27 per cent in the corresponding
period of 2020 and the preceding
quarter of 2021, respectively. The share
of the agriculture sector in overall GDP
fell to 29.94 per cent in the third quarter
of 2021 from 30.77 in the corresponding
period of 2020, but was an improvement
compared with 23.78 per cent in the
preceding quarter, respectively.

In the fourth quarter of 2021, real
agricultural output growth improved to
3.58 per cent compared with 3.42 and
1.22 per cent in the corresponding
period of 2020 and the preceding
quarter of 2021, respectively. Growth in
the sector was driven mainly by Crop
production which grew by 3.87 per cent
in the fourth quarter of 2021 from 3.68
and 1.36 per cent in the corresponding
period of 2020 and the preceding
quarter, respectively. This was followed
by Fishing which grew by 1.69 per cent in
the fourth quarter compared with
contractions of -3.60 and -3.97 per cent
in the corresponding period of 2020 and
the
preceding
quarter
of
2021,
respectively. Forestry also grew by 1.41
per cent in the review period from 1.24
and 1.98 per cent in the corresponding
period of 2020 and the preceding
quarter, respectively. Livestock grew by
0.41 per cent compared with 2.38 and
0.12 per cent in the corresponding
period of 2020 and the preceding
quarter, respectively.
The share of
agriculture sector in overall GDP stood at
26.84 per cent in the fourth quarter from
26.21 and 29.94 per cent in the
corresponding period of 2020 and the
preceding quarter, respectively.

Figure 3.4: Contribution to Agricultural Sector
Growth (2020Q1 – 2021Q4)

Source: NBS

3.1.2.2 Agricultural
Policies
and
Institutional Support
In the review period, the agricultural
sector continued to enjoy a number of
existing
initiatives
and
institutional
support, as highlighted below:

3.1.2.2.1 Commercial Agriculture Credit
Scheme (CACS)
Under the Scheme, ₦13.27 billion was
disbursed in the second half of 2021,
representing a decrease of 18.24 per
cent compared with ₦16.25 billion in the
first half of 2021. A total of ₦47.79 billion
was repaid in the review period, which
represented an increase of 138.83 per

Per cent
Crop Production
Livestock
CBN Monetary Policy Review

cent over the repayment of ₦20.01
billion in the first half of 2021.

3.1.2.2.2 Micro, Small and Medium
Enterprises Development Fund (MSMEDF)
In view of the contribution of the MSME
to job creation, financial inclusion and
poverty reduction, the threshold for the
MSMEDF was increased from ₦200.00
billion to ₦1.00 trillion in 2020. A total of
₦10.85 billion was disbursed during the
second half of 2021. Repayments during
the review period stood at ₦11.72 billion,
compared with ₦2.91 billion in the first
half of 2021, reflecting an increase of
302.75 per cent.

3.1.2.2.3 Anchor Borrowers’ Programme
(ABP)
In the second half of 2021, the sum of
₦246.67 billion was disbursed to 986,716
smallholder farmers across the country
for the production of rice, maize,
cassava, cotton, ginger, fish, onion,
cocoa, soya beans and sesame. This
represents
a
significant
increase
compared with ₦176.30 billion disbursed
to 1,008,457 smallholder farmers in the
preceding period. Also, repayments
under
the
Programme
increased
significantly by 343.19 per cent to
₦210.47 billion compared with ₦47.49
billion in the preceding period.

3.1.2.2.4
Accelerated
Agriculture
Development Scheme (AADS)
The Scheme disbursed ₦36.12 million in
the second half of 2021 compared with
₦1.50 billion in the first half of 2021. The
sum of ₦5.19 billion was repaid in the
period under review as the projects’
moratorium expired.

3.1.2.2.5
Agribusiness/
Small
and
Medium Enterprises Investment Scheme
(AGSMEIS)
In the review period, ₦22.92 billion was
disbursed to 8,538 projects, compared
with ₦9.79 billion to 1,067 projects in the
first half of 2021. This represents 134.12
and 700.19 per cent increase in value
and numbers of projects, respectively,
compared with the first half of 2021.
Repayment in the review period was
₦1.16 billion, compared with ₦135.47
million
in
the
first
half
of
2021,
representing an increase of 759.26 per
cent.

3.1.2.2.6 Paddy Aggregation Scheme
(PAS)
There was no disbursement in the
review period, compared with ₦4.17
billion released to one (1) project in the
first half of 2021. There was a repayment
of ₦4.67 billion during the review period,
compared with no repayment in the first
half of 2021 due to the extension of
moratorium granted to beneficiaries.

3.1.2.2.7
National
Food
Security
Programme (NFSP)
There was no disbursement in the
review and preceding periods under this
scheme. Repayment at end-December
2021 was ₦2.47 billion compared with
₦8.31 billion at end-June 2021.

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3.1.2.2 Industry

3.1.2.2.1 Industrial Production
The industrial sector contracted by 1.63
percent in the third quarter of 2021,
compared with -6.12 percent in the
corresponding period of 2020 and -1.23
per cent in the preceding quarter of
2021. The development in the sector was
driven mainly by Mining & Quarrying
which contracted by 10.56 per cent in
the third quarter of 2021 compared with
-13.22 and -12.29 per cent in the
corresponding period of 2020 and the
preceding quarter, respectively. Crude
Petroleum and Natural Gas was the
main driver of contraction in the Mining
and Quarrying sub-sector, contracting
significantly by 10.73 per cent in the third
quarter compared with -13.89 and -12.65
per cent in the corresponding period of

and
the
preceding
quarter,
respectively.

Other sub-sectors in the industrial sector
grew during the review period. The
Electricity, Gas, Steam & Air Conditioner
grew by 14.36 per cent in the third
quarter of 2021 compared with -3.66 per
cent in the corresponding period of 2020
and 78.16 per cent in the preceding
quarter of 2021. Water supply, sewage &
waste management also grew by 12.97
per cent in the third quarter compared
with 7.10 and 18.48 per cent in the
corresponding period of 2020 and the
preceding quarter of 2021, respectively.
Manufacturing grew by 4.29 per cent in
the review period compared with -1.51
per cent in the corresponding period of
2020 and 3.49 per cent in the preceding
quarter of 2021. Construction expanded
by 4.10 per cent compared with 2.84
and 3.70 per cent in the corresponding
period of 2020 and the preceding
quarter of 2021, respectively. The share
of the industrial sector in overall GDP
declined to 20.41 per cent from 21.59
and 20.57 per cent in the corresponding
period of 2020 and the preceding
quarter of 2021, respectively.

In the fourth quarter of 2021, the
contraction of the industrial sector
moderated to -0.05 per cent compared
with -7.30 and -1.63 per cent in the
corresponding period of 2020 and the
preceding quarter, respectively. The
main driver of contraction in the sector
was
Mining
&
Quarrying
which
contracted by -6.16 per cent in the
fourth quarter of 2021 compared with -
18.44 and -10.56 per cent in the
corresponding period of 2020 and the
preceding quarter, respectively. Crude
Petroleum and Natural Gas drove the
contraction
in
the
sub-sector,
contracting by -8.06 per cent in the
fourth quarter compared with -19.76 and
-10.73 per cent in the corresponding
period of 2020 and the preceding
quarter, respectively. Other sub-sectors
grew
during
the
review
period.
Accordingly, Water supply, sewage &
waste management expanded by 28.84
per cent in the fourth quarter compared
with 1.92 and 12.97 per cent in the
corresponding period of 2020 and the
preceding quarter of 2021, respectively.
Construction grew by 3.46 per cent
compared with 1.21 and 4.10 per cent in
the corresponding period of 2020 and
the
preceding
quarter
of
2021,
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respectively. Electricity, Gas, Steam & Air
Conditioner also grew by 2.78 per cent
in the review period compared with -
2.51 per cent in the corresponding
period of 2020 and 14.36 per cent in the
preceding quarter of 2021. This was
followed by Manufacturing which grew
by 2.28 per cent in the review period
compared with -1.51 per cent in the
corresponding period of 2020 and 4.29
per cent in the preceding quarter of
2021. Accordingly, the share of the
industrial sector in overall GDP declined
to 18.05 per cent from 18.77 and 20.41
per cent in the corresponding period of
2020 and the preceding quarter of 2021,
respectively.

Figure 3.5: Industrial Sector Contribution by Activity
(2020Q1-2021Q4)

Source: NBS

3.1.2.2.2 Industrial Policy and Institutional
Support
During the second half of 2021, the
industrial sector benefited from existing
policy initiatives and incentives some of
which are highlighted below:

3.1.2.2.2.1
Real
Sector
Support
Facility (RSSF) Using Differentiated Cash
Reserve Ratio (RSSF-DCRR)
The Facility disbursed the sum of
₦420.19 billion to 39 projects in the
second half of 2021, compared with
₦199.69 billion to 32 projects in the first
half of 2021, representing increases of
110.42 and 21.88 per cent in value and
number of projects, respectively. A total
of ₦80.72 million was repaid in the
second half of 2021, compared with
₦1.97 billion in the preceding period.

3.1.2.2.2.2
Non-Oil
Export
Stimulation Facility (NESF)
The Facility disbursed ₦1.76 billion in the
period under review. A total of ₦3.79
billion was repaid, compared with ₦0.58
billion in the preceding period.

3.1.2.2.2.3
Creative
Industry
Financing Initiative (CIFI)
In the second half of 2021, a total of
₦214 million was disbursed to 31 projects,
compared with ₦70 million to 21 projects
in the first half of 2021. The sum of ₦190.07
million was repaid in the second half of
2021 compared with ₦12.91 million in the
previous half-year.

3.1.2.2.2.4 Targeted Credit Facility (TCF)
During the period under review, ₦82.37
billion was disbursed to 136,532 projects
compared with ₦144.93 billion to 323,654
projects
at
end-June
2021.
This
represented 43.17 and 57.82 per cent
decrease in the value and number of

Q1-2020 Q3-2020 Q1-2021 Q3-2021
Per cent
Mining and Quarrying
CBN Monetary Policy Review

projects, respectively. No repayments
were made during the period as all the
facilities were under moratorium.

3.1.2.2.2.5 Health Sector Intervention
Fund (HSIF)
The Fund disbursed ₦10.41 billion to 23
projects in the second half of 2021,
compared with ₦25.16 billion disbursed
to 23 projects in the first half of the year.
There were no repayments in the review
period, compared with ₦12.50 million
repaid by 3 projects in the first half of
2021. A significant proportion of the
facilities were under moratorium.

3.1.2.2.2.6
COVID-19
Intervention
Facility for the Manufacturing Sector
(CIFMS)
In the review period, the sum of ₦140.73
billion was disbursed to 44 projects,
compared with ₦35.99 billion to 16
projects in the first half of 2021, an
increase of 291.03 per cent and 175 per
cent in value and number of projects
funded, respectively. There were no
repayments as all the facilities were still
under moratorium.

3.1.2.2.2.7
Nigeria Youth Investment
Fund (NYIF)
In the review period of the Fund
disbursed ₦936.10 million, compared
with ₦2.81 billion in the first half of 2021.
Compared with the preceding period
when the fund was under moratorium,
the sum of ₦2.62 billion was repaid in the
period under review.

3.1.2.2.2.8 Healthcare Sector Research
and Development Intervention Scheme
(HSRDIS)
Under the scheme, ₦27.50 million was
disbursed as additional tranche to the
five (5) projects/grant recipients in the
second half of 2021 to the ₦145.40 million
disbursed in the first half of 2021.

3.1.2.2.2.9 Textile Sector Intervention
Facility (TSIF)
In the review period, the sum of ₦450
million was disbursed to two (2) projects,
compared with ₦390 million to one (1)
project in the first half of 2021.

3.1.2.2.2.10
Power
and
Airline
Intervention Fund (PAIF)
In the period under review, the sum of
₦991.84 million was disbursed compared
with ₦890.27 million in the preceding
period. A cumulative sum of ₦313.76
billion has so far been disbursed under
the Scheme to 73 projects. A total of
₦6.57 billion was repaid in the second
half of 2021 compared with ₦20.20 billion
in the first half of 2021.

3.1.2.2.2.11
Nigerian
Bulk
Electricity
Trading
-
Payment
Assurance
Programme (NBET-PAF)
In the review period, the sum of ₦301.36
billion was disbursed to the Programme
through the Bank of Industry (BOI)
compared with ₦88.99 billion in the first
half of 2021. There was no repayment in
the current and preceding periods.

CBN Monetary Policy Review

3.1.2.2.2.12
Nigerian
Electricity
Market Stabilization Facility (NEMSF 1 &
2)
In the second half of 2021, ₦99.99 billion
was disbursed compared with ₦21.69
billion in the first half of 2021. A total of
₦10.44 billion was repaid during the
period as the moratorium on the Facility
has ended.

3.1.2.2.2.13
National Mass Metering
Programme (NMMP)
In the second half of 2021, the sum of
₦11.79 billion was disbursed, compared
with ₦21.69 billion in the first half of 2021,
representing a decrease of 45.64 per
cent. There was no repayment as the
programme was under moratorium.

3.1.2.2.2.14
Intervention Facility for
National Gas Expansion Programme
(IFNGP)
A total of ₦39.00 billion was disbursed in
the second half of 2021 to four (4)
projects.

3.1.2.2.2.15
Shared Agent Network
Expansion Facility
There was no disbursement in the
review period, compared with the sum
of ₦500 million disbursed to one (1)
project in the first half of 2021. The sum of
₦65.71 million was repaid in the second
half of 2021, compared with ₦401.28
million in the first half of 2021.


3.1.2.2.2.16
Presidential
Fertilizer
Initiative (PFI)
The
initiative
was
designed
to
resuscitate Nigeria’s moribund fertilizer
plants to boost food production towards
achieving food security. Although there
was no disbursement in the review
period, a total of ₦5.75 billion was repaid
compared with ₦2.5 billion in the
preceding period.

3.1.2.3 Services Sector
The services sector grew by 8.41 per
cent in the third quarter of 2021
compared with -5.49 per cent in the
corresponding period of 2020 and 9.27
percent in the preceding quarter. The
growth in the sector was driven by
Financial
&
insurance
(23.23%);
Transportation & Storage (20.61%); Trade
(11.90%); ICT (9.66%); Human Health &
Social
Services
(4.99%);
Art,
Entertainment & Recreation (3.68%);
Administration
&
Support
Services
(3.36%);
Real
Estate
(2.32%);
Accommodation
&
Food
Services
(2.09%); Education (1.37%); Professional,
Scientific & Technical Services (1.11%);
and
Other
Services
(0.73%).
These
compare with their respective growth
rates of 3.21, -42.98, -12.12, 14.56, 2.82, -
4.69, -1.21, -13.4, -22.61, -20.74, -10.31
and -7.53 per cent in the corresponding
quarter. Public Administration was the
only sub-sector that contracted by 0.15
per cent compared with a growth of
3.58 per cent in the corresponding
period of 2020.

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In the fourth quarter of 2021, the sector
sustained
its
growth
trajectory,
expanding by 5.58 per cent compared
with 1.31 and 8.41 per cent in the
corresponding period of 2020 and the
preceding quarter, respectively. The
growth in the sector was driven by
Transportation
&
Storage
(29.72%),
Financial & Insurance (24.14%), Trade
(5.34%), Human Health & Social Services
(5.14%), Information & Communication
(5.03%),
Arts,
Entertainment
&
Recreation (4.31%), and Administrative &
Support
Services
(2.70%).
These
compare with their respective growth
rates of -5.95, -3.63, -3.20, -3.05, 14.95, -
1.52
and
-5.31
per
cent
in
the
corresponding quarter. The Sector’s
share in overall GDP rose to 55.11 per
cent in the review period from 54.28 and
49.65 per cent in the corresponding
period of 2020 and the preceding
quarter, respectively.

Figure 3.6: Services Sub-Sector Contribution,
2020Q1-2021Q4
Source: NBS


3.1.2.4 Oil Sector
During the second half of 2021, oil
sector
performance
reflected
developments in prices and domestic
production.
While
prices
improved
significantly in response to measures to
ease the impact of the COVID-19
pandemic, production was constrained
by existing domestic challenges in the
sector
including
divestment
by
oil
majors, oil theft and vandalism.

Consequently, average domestic crude
oil production fell to 1.57 mbpd in the
third quarter of 2021 from 1.67 and 1.61
mbpd in the corresponding period of

and
the
preceding
quarter,
respectively.

In the fourth quarter, the recurring
incidences of oil theft and vandalism of
oil facilities continued to affect oil
production,
as
average
daily
oil
production fell further to 1.50 million
barrels per day (mbpd). This compares
with 1.56 mbpd and 1.57 mbpd in the
corresponding period of 2020 and the
preceding quarter, respectively.

On the other hand, crude oil prices
trended upwards during the review
period, as global demand continued to
strengthen in the face of constrained
supply. The price of Nigeria’s reference
crude, the Bonny Light 370API, stood at
US$74.81 per barrel (pb) in December
2021 compared with US$50.32 pb in the
corresponding period of 2020 and
US$73.40 at end-June 2021. Overall, the
average price of Bonny Light in the
second half of 2021 of US$76.57 pb was

Q1-2020
Q3-2020
Q1-2021
Q3-2021
Trade
Accommodation and Food Services
Transportation and Storage
Information and Communications
Arts, Entertainment & Recreation
Financial and Insurance
CBN Monetary Policy Review

significantly
above
the
Federal
Government of Nigeria’s 2021 budget
benchmark of US$40 pb.

Figure 3.7: Quarterly Domestic Oil Production and
Export (2020Q1-2021Q4)

Source: NBS


Figure 3.8: Monthly Bonny Light Oil Price, January
2021 - December 2021

Source: Statistics Department


Table 3.1: Growth Rates of Real GDP by Expenditure (%), 2020-2021

Q1-

Q2-

Q3-

Q4-

Q1-

Q2-

Q3-

Q4-

GDP (Basic Price)

GDP (Market Price)

Household Consumption

Gov. Consumption Expenditures

Gross Fixed Capital Formation

Net Exports

National Disposable Income

Compensation of Employees

Operating Surplus

Other Current Transfers from RoW
Net

Source: NBS


Q1-2020
Q4-2020
Q3-2021
Million Barrels Per Day
CBN Monetary Policy Review

3.2 Domestic Price Developments
In
the
review
period,
inflationary
pressure subsided, due largely to the
moderating impact of the COVID-19
pandemic. While all three measures of
inflation: headline, food, and core
trended downwards in the second half
of 2021, headline inflation, remained
substantially above the upper band of
the Bank’s indicative corridor of 6-9 per
cent. The upward pressure on prices in
the review period was largely driven by
supply-side
factors,
reflecting
the
constraints imposed on production and
distribution activities associated with the
COVID-19 pandemic.

The supply-side factors that influenced
price development in the review period
include the disruptions to production
and distribution activities associated
primarily with the COVID-19 lockdown
and its lag effect. Others were the
persisting security challenges which
impacted food supply; uncertainties
surrounding the deregulation of energy
prices; as well as the dearth of transport
infrastructure. The deregulated price of
Automotive Gas Oil (AGO) also had a
direct impact on cost of production and
logistics. There was also significant
reduction
in
accretion
to
external
reserves
owing
to
lower
foreign
exchange receipt from crude oil thereby
constraining
the
Bank’s
ability
to
intervene in the foreign exchange
market to moderate exchange rate
pressure.
Foreign
exchange
supply
through
autonomous
sources
(I&E
window) declined by 42.53 per cent on
a
year-on-year
basis
thereby
aggravating
demand
pressures.
To
address this, the Bank introduced various
schemes and policy measures such as
the Naira4Dollar scheme targeted at
improving
diaspora
remittances,
sustained its policy on restriction of
access to foreign exchange to 43 items,
as well as the suspension of sales of
foreign exchange to BDCs.

On the demand side, the provision of
stimulus
by
both
the
Federal
Government and the Central Bank to
ease the impact of the Pandemic
affected liquidity conditions in the
money market. Accordingly, the InterBank Call and Open Buy Back (OBB)
rates remained relatively low, reflecting
liquidity surfeit in the banking system.
Maturing
securities
and
Federation
Account Allocation Committee (FAAC)
disbursements also influenced system
liquidity.

3.2.1 Trends in Inflation
Headline, food and core measures of
inflation maintained a downward trend
in the review period. The consumer price
indices (CPI) of these three measures
stood at 411.5, 477.0 and 355.9 in
December 2021 compared with 387.5,
447.2 and 338.0 in July 2021, respectively.
Food inflation (year-on-year) decreased
by 3.66 percentage points to 17.37 per
cent in December 2021 from 21.03 per
cent in July. Core inflation, however, rose
moderately by 0.15 percentage point to
13.87 per cent in December 2021 from
13.72 per cent in July. Consequently,
headline inflation decreased by 1.75
percentage point to 15.63 per cent in
CBN Monetary Policy Review

December 2021 from 17.38 per cent in
July (Figure 3.9 and Table 3.1). Thus, the
food measure was the major driver of
the overall moderation in headline
inflation during the period (Table 3.1).

Table 3.2: Inflation Rates, July – December 2021
CPI
Y-on-Y 12MMA CPI
Y-on-Y 12MMA CPI
Y-on-Y 12MMA
Jul 2021 387.51

Aug 2021 391.48

Sep 2021 395.98

Oct 2021 399.87

Nov 2021 404.18

Dec 2021 411.52

Headline Inflation
Core Inflation
Food Inflation

Source: NBS

Figure 3.9: Headline, Core and Food Inflation Rates
(July – December 2021)
CPI
Y-on-Y
12MMA CPI
Y-on-Y
12MMA
Jan 2019 276.60

Feb 2019 278.62

Mar 2019 280.81

Apr 2019 283.46

May 2019 286.61

Jun 2019 289.69

Headline Inflation
Core Inflation

Jul

Aug

Sep

Oct

Nov

Dec

Per cent
Headline (YCore (Y-on-Y
Food (Y-on-Y

Source: NBS

3.2.1.1 Headline Inflation
The major components of headline
inflation continued to decrease during
the review period. The main driver of
moderation in headline inflation was
Food & Non-Alcoholic Beverages which
decreased by 2.63 percentage points
from 12.81 per cent in July to 10.17 per
cent
in
December
2021.
Other
components that also moderated in the
review
period
are
Health
(0.77
percentage point), Recreation and
Culture
(0.75
percentage
point),
Restaurant & Hotel (0.74 percentage
point),
and
Furnishing,
Household
Equipment & Household Maintenance
(0.73
percentage
point).
Transport,
however, rose by 5.98 percentage
points to 0.87 per cent in December 2021
from -5.11 per cent in July (Table 3.2 and
Figure
3.10).
In
general,
headline
inflation decreased to 15.63 per cent in
December 2021 from 17.38 per cent in
July.

In the review period, the continued
implementation
of
the
Economic
Sustainability
Plan
by
the
Federal
Government and the interventions of the
Central
Bank
of
Nigeria
in
the
agricultural sector led to increase in food
production,
thus,
moderating
food
prices. The stability in the exchange rate
due to demand management measures
of the Bank, also contributed to the
moderation of prices. Headline inflation,
however, remained above the Bank’s
threshold of 6-9 per cent as the
economy was still confronted with
legacy challenges which include the
high
state
of
insecurity,
poor
infrastructure,
rising
energy
costs,
amongst others, which continued to
constrain economic activities.

Table 3.3a Major Components of Headline Inflation
(Y-on-Y), July - December 2021

Source: NBS


heaadline
Food &
NonAlcoholic
Bev.
Furnishing
s,
Household
Equip &HH
Maint.
Health
Transport
Communic
ation
Recreation
& culture
Education
Restaurant
& Hotels
Miscell
aneous
Goods
&
Servic
es
Jul-21

Aug-21

Sep-21

Oct-21

Nov-21

Dec-21

Differenc
e btwn
July &Dec


CBN Monetary Policy Review

Figure 3.10: Major Components of Headline
Inflation (Y-on-Y), July – December 2021

Source: NBS

On a month-on-month basis, headline
inflation increased to 1.82 per cent in
December 2021 from 0.93 per cent in
July. The major drivers of month-onmonth headline inflation were the prices
of
transport
which
rose
by
5.16
percentage points to 0.07 per cent in
December 2021 from -5.09 per cent in
July
2021.
Food
&
non-alcoholic
beverages also rose by 0.14 percentage
point to 1.30 per cent in December 2021
from 1.16 per cent in July 2021.
Furnishing,
Household
Equipment
&
Household Maintenance, Health, and
Restaurant
&
Hotels,
however,
decreased by 0.64 percentage points
apiece (Table 3.3 and Figure 3.11).


Table 3.3b: Major Components of Headline
Inflation (M-on-M), July - Dec 2021

Source: NBS

Figure 3.11: Major Components of Headline
Inflation (M-on-M July – December 2021

Source: NBS

3.2.1.2 Food Inflation
Food inflation (year-on-year) decrease
by 3.66 percentage points to 17.37 per
cent in December 2021 from 21.03 per
cent in July. The main driver of the
decrease was the price of processed
food which fell by 1.66 percentage

Jul '21
Aug '21
Sept '21
Oct '21
Nov '21
Dec '21
Headline
Food &
NonAlcoholic
Bev.
Furnishin
gs,
Househol
d Equip
&HH
Maint.
Headline
Food &
NonAlcoholic
Bev.
Furnishing
s,
Househol
d Equip
&HH
Maint.
Health
Transport
Communi
cation
Recreatio
n &
culture
Education
Restaura
nt &
Hotels
Miscellan
eous
Goods &
Services
Jul '21

Aug '21

Sept
'21

Oct '21

Nov '21

Dec '21

%Chang
e (Jul -
Dec

Jul
'21
Aug
'21
Sept
'21
Oct
'21
Nov
'21
Dec
'21
Headli
ne
Food &
NonAlcoho
lic Bev.
CBN Monetary Policy Review

points to 8.88 per cent in December 2021
from 10.54 per cent in July. Farm
produce also fell by 2.00 percentage
point to 8.49 per cent in December 2021
from 10.49 per cent in July. This was the
result of bumper harvests across key
food producing areas. Components
responsible for this were meat, sugar,
Jam, Honey, etc.

Table 3.4: Major Components of Food Inflation (Yon-Y), July - December 2021
FOOD
Processed
Food
Meat
Fish & Sea
Food
Milk, Cheese
& Eggs
Oil & Fats
Sugar, Jam,
Honey, etc.
Farm
Produce
Fruits
Vegatab
les
Yam,
Potatoes &
other tubers
Jul 2021

Aug 2021

Sep 2021

Oct 2021

Nov 2021

Dec 2021

Change btw
Jul &Dec.


Source: NBS

Figure 3.12: Major Components of Food Inflation
(Y-on-Y), July - December 2021

Source: NBS

Month-on-month
food
inflation,
however, increased by 1.33 percentage
point to 2.19 per cent in December 2021
from 0.86 per cent in July driven by
increases in the prices of both processed
food and farm produce. The price of
processed food rose by 0.68 percentage
point from 0.53 per cent in July 2021 to
1.21 per cent in December 2021.
Similarly, the price of farm produce rose
by 0.66 percentage point to 0.99 per
cent in December 2021 from 0.33 per
cent in July. All other sub-components of
food inflation maintained an upward
trend in the review period.

Table 3.5: Major Components of Food Inflation (Mon-M), July - December 2021
Food
Processed
Food
Meat
Fish & Sea
Food
Milk, Cheese
& Eggs
Oil & Fats
Sugar, Jam,
Honey, etc.
Farm
Produce
Fruits
Vegatab
les
Yam,
Potatoes &
other tubers
Jul 2021

Aug 2021

Sep 2021

Oct 2021

Nov 2021

Dec 2021

Change btw
Jul & Dec.


Source: NBS

Figure 3.13: Major Components of Food Inflation
July - December 2021

Source: NBS

Jul 2021 Aug 2021Sep 2021 Oct 2021Nov 2021Dec 2021
FOOD
Processed Food
Meat
Fish & Sea Food
Milk, Cheese &
Eggs
Oil & Fats
Sugar, Jam, Honey,
etc.
Farm Produce
Fruits
Vegatables
Yam, Potatoes &
other tubers

Jul 2021
Aug 2021
Sep 2021
Oct 2021
Nov 2021
Dec 2021
Food
Processed Food
Meat
Fish & Sea Food
Milk, Cheese & Eggs
Oil & Fats
Sugar, Jam, Honey,
etc.
Farm Produce
Fruits
Vegatables
Yam, Potatoes &
other tubers
CBN Monetary Policy Review

3.2.1.3 Core Inflation
Core inflation (year-on-year) rose by
0.15 percentage point to 13.87 per cent
in December 2021 from 13.72 per cent in
July. The development was driven by
increases in Housing, water, electricity &
other fuel (0.11 percentage point),
transport
(0.09
percentage
point),
furnishings, household equipment &
household maintenance (0.06), and
health
(0.03
percentage
point).
Processed food, however, decreased by
0.28 percentage point to 5.12 per cent in
December 2021 from 5.40 per cent in
July (Table 3.6 and Figure 3.14). The rise
in core inflation could be attributed to
supply-side challenges, rising cost of
energy
and
exchange
rate
depreciation.

Table 3.6: Major Components of Core Inflation (Yon-Y) July - December 2021
Core
Processed
Food
NonAlcoholic
Beverages
Alcoholi
c Bev.
Tobacco
& Kola
Clothing
&
footwear
Housing,
Water,
Elect.Gas
& Other
Fuel
Furnishi
ngs,
Househo
ld Equip
&HH
Maint.
Health Transport
Commu
nication
Recreatio
n &
culture
Education
Restaurant
& Hotels
Miscellan
eous
Goods &
Services
Jul-21

Aug-21

Sep-21

Oct-21

Nov-21

Dec-21

change
btwn Jul&
Dec 2021

Source: NBS


Figure 3.14: Major Components of Core Inflation (Yon-Y) July - December 2021

Source: NBS

On a month-on-month basis, core
inflation, however, decreased by 0.18
per centage point to 1.22 per cent in
December 2021 from 1.31 per cent in
July. The major drivers of the decline
were
restaurant
&
hotel
(-0.05
percentage
point),
miscellaneous
goods & services (-0.05 percentage
point), education (-0.04 percentage
point), and housing, water, electricity,
gas & other fuel (0.04 percentage point)
(Table 3.7 and Figure 3.15).

Table 3.7: Major Components of Core Inflation
(M-on-M) July – December 2021
Core
Processe
d Food
Non
Alcoholic
Beverage
s
Alcoholi
c Bev.
Tobacco
& Kola
Clothing
&
footwea
r
Housin
g,Wate
r,
Elect G
Furnish
ings,
House
hold
Health
Transp
ort
Com
munic
ation
Recreat
ion &
culture
Educa
tion
Restau
rant &
Hotels
Miscell
aneous
Goods
&
Jul-21

Aug-21

Sep-21

Oct-21

Nov-21

Dec-21

change btwn Jul
and Dec. 2021

Source: NBS


Core
Processed
Food
CBN Monetary Policy Review

Figure 3.15: Major Components of Core Inflation
(M-on-M) July – December 2021

Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Core
Processed Food
Non-Alcoholic Beverages
Alcoholic Bev. Tobacco & Kola
Clothing & footwear
Housing,Water, Elect.Gas & Other Fuel
Furnishings, Household Equip &HH Maint.
Health
Transport
Communication
Recreation & culture
Education
Restaurant & Hotels
Miscellaneous Goods & Services
Source: NBS

3.2.2
Seasonally Adjusted Inflation
Actual
headline
inflation
trended
downwards
between
July
and
November 2021. This trend, however,
reversed in December 2021 as a result of
increased spending associated with the
festive period and end of year activities.
In contrast, the seasonally adjusted
measure
maintained
an
upward
trajectory between July and November
2021 before declining marginally in
December (Table 3.8 and Figure 3.16).
Actual headline inflation reflected the
general price level in the economy,
trending below the seasonally adjusted
measure
between
September
and
December 2021. The overall downward
trend in actual headline inflation was
occasioned
by
the
continued
implementation of the Government’s
Economic Sustainability Plan, supported
by various interventions in agriculture
and manufacturing by the Central Bank
of Nigeria. These helped to create jobs
and simultaneously improve the supply
of goods and services. The upward trend
in the seasonally adjusted measure was
mainly attributed to the demand shock
associated
with
the
post-lockdown
recovery as well as festive and end-ofyear activities.

Table 3.8:
Actual
and
Seasonally Adjusted
Headline Inflation (July – December 2021)
Year
Inflation
SA Inflation
Jul-21
17.38
16.30
Aug-21
17.01
16.60
Sep-21
16.63
16.83
Oct-21
15.99
16.96
Nov-21
15.40
16.98
Dec-21
15.63
16.95
Source: NBS

Figure 3.16: Actual and Seasonally Adjusted
Headline Inflation (July – December 2021)

Source: NBS

3.2.3
Key
Factors
that
Influenced
Domestic Prices
The decline in inflationary pressure
during the review period was primarily
influenced by some moderating factors,
although cost-push and demand-pull
forces were also at play. The key
moderating factors were: the easing of
COVID-19
related
restrictions;
fiscal

Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Inflation
SA Inflation
CBN Monetary Policy Review

policy support through the continued
implementation
of
the
Economic
Sustainability Plan and initiatives by the
Central Bank of Nigeria to support
recovery through interventions in the
agricultural and manufacturing sectors.
Exchange
rate
stability
was
also
achieved
through
demand
management measures by the Bank.

3.2.3.1 Demand-side Factors
The
demand-side
factors
that
influenced headline inflation in the
review period included capital releases
for infrastructural projects, real sector
intervention
programmes,
and
the
Bank’s
accommodative
monetary
policy stance to support the recovery of
aggregate demand all boosted naira
liquidity in the system. In addition, foreign
exchange demand pressure, despite
the
Bank’s
demand
management
measures resulted in pass-through on
domestic prices.

3.2.3.2. Supply-side Factors
Supply-side factors that influenced
inflationary developments in the review
period include the persisting security
challenges,
particularly
in
farming
communities, and lagged impact of
disruptions to production and distribution
activities associated with the COVID-19
lockdown.
Others
were:
the
poor
conditions of transport infrastructure
which impacted upward pressure on the
cost of cross-country logistics; rising cost
of AGO and inflation expectations from
the proposed deregulation of energy
prices; and the declining supply of
foreign exchange through autonomous
sources, which heightened the pressure
on the naira.

3.2.3.3 Moderating Factors
The
key
factors
that
moderated
inflationary pressure in the review period
were: the Federal Government’s support
through the Economic Sustainability Plan
and the easing of COVID-19 related
restrictions as well as interventions by the
Central
Bank
of
Nigeria
in
the
agricultural and manufacturing sectors.
The
Bank’s
rigorous
demand
management policy was also central to
the moderation of demand pressure in
the foreign exchange market. This
helped in sustaining relative stability in
the foreign exchange market.

3.3
Monetary
Policy
and
Liquidity
Management
The design and implementation of
Monetary policy in the second half of
2021 was guided by emerging issues and
developments
in
the
global
and
domestic
economic
and
financial
environments.

On the global front, while relative
progress had been made in easing the
impact of the COVID-19 pandemic, the
recovery
of
the
global
economy
progressed moderately as new strains of
the virus such as delta and omicron
continued to cast a shadow on the full
recovery. This resulted in an uneven
recovery across the globe, with the
advanced
economies
making
substantially more progress than other
CBN Monetary Policy Review

developing economies, largely due to
more fiscal and monetary support at
their disposal. Following the progressive
lifting of restrictions earlier imposed to
curb the spread of the pandemic, the
global economy experienced a surge in
demand initially thought to be transient
as global supply gradually recovered to
offset the demand-supply gap which
existed post-lockdown. In this light,
inflation in the advanced economies
rose substantially above their long run
objectives over a period of time as
central
banks
in
these
economies
believed that the rise was transient. As
inflation
persisted,
however,
these
central banks began talks of tapering,
withdrawal of stimulus and interest rate
lift-off, with the US Federal Reserve Bank
at the forefront of the discourse. In the
Emerging
Markets
and
Developing
Economies, however, there was a mixed
inflationary outcome with some of the
economies
facing
higher
pressures
compared with their peers, as exchange
rate pressures, capital flow reversals,
rising energy cost, weak supply chains
and varying access to stimulus impacted
macroeconomic performance in these
economies differently.

On the domestic front, uncertainties
around the path of containment of the
pandemic
continued
to
pose
challenges
to
output
recovery.
In
addition, the slow pace of vaccination
across the country
amongst other
legacy issues remained a source of
concern for monetary policy.


3.3.1 Monetary Policy Response to
Evolving Economic Conditions
In the review period, monetary policy
formulation and implementation was
targeted at addressing the downside
risks to growth and upside risks to
inflation.
The
uneven
access
to
vaccines, unwillingness in some quarters
to be vaccinated, and the continued
mutation of the virus into deadlier strains
imposed a drag on the full recovery of
the global economy. The rising level of
global inflation associated with the
recovery from the COVID-19 pandemic
and high energy cost led major central
banks in the advanced economies to
give
forward
guidance
of
commencement of monetary policy
normalisation. This prompted concern
for capital flow reversals from emerging
markets and developing economies
with
attendant
consequence
on
exchange rate pressure and external
reserves. Accordingly, the International
Monetary Fund (IMF) revised global
output growth for 2021 downwards to 5.9
from 6.0 per cent.

In the third and fourth quarters of 2021,
the domestic economy grew by 4.03
and
3.98
per
cent
respectively,
compared with -3.62 and 0.11 per cent
in Q3 and Q4 2020, respectively.
Headline
inflation
(year-on-year)
moderated
to
15.63
per
cent
in
December 2021 from 17.38 per cent in
July, but still remained above the Bank’s
upper band of 9.00 per cent. These
developments shaped monetary policy
in the second half of 2021.

CBN Monetary Policy Review

The broad money supply (M3) grew
during the period driven by growth in Net
Domestic Assets (NDA), while net Foreign
Assets (NFA), contracted. The continued
growth in Net Domestic Assets (NDA)
was largely driven by increased claims
on the Federal Government and other
public nonfinancial corporations, private
sector and state and local governments.
In the equities market, both the All-Share
Index (ASI) and Market Capitalization
(MC) increased depicting improved
investor sentiment, following impressive
corporate earnings of listed companies
on the Exchange. This led to a new
bargain hunting drive by investors. In the
banking system, the Capital Adequacy
Ratio (CAR) and Liquidity Ratio (LR) both
remained above their prudential limits.
The Non-Performing Loan ratio (NPL)
improved, reflecting tight prudential
regime by the Bank.

The money market rates oscillated within
the standing facilities corridor, reflecting
the prevailing liquidity conditions in the
banking system. The monthly weighted
average Open Buyback (OBB) and Interbank Call rates both increased during
the period, reflecting the tight liquidity
condition in the banking system. The
gross external reserves stood at US$41.41
billion
as
at
November
18,
2021,
compared
with
US$41.34
billion
in
October 2021, a moderate increase of
0.17 per cent.

1 Details of the interventions in the review
period are contain in sections 3.1.2.2 and
3.1.2.2.2
In the second half of 2021, the policy
decisions were to retain the MPR at 11.5
per cent; retain the asymmetric corridor
of +100/-700 basis points around the
MPR; retain the CRR at 27.5 per cent and
retain the Liquidity Ratio at 30 per cent.
Also, the Bank continued its interventions
to boost aggregate demand and
investments, as well as diversifying the
economy through foreign exchange
restrictions for the importation of goods
and
food
products
that
can
be
produced in Nigeria.

In order to complement the monetary
policy decisions, the Bank sustained its
intervention
programmes
to
ensure
sustainable growth, ease supply chain
challenges and drive down prices. These
interventions
were
in
manufacturing/industries,
agriculture,
energy/infrastructure, healthcare and
Micro, Small & Medium Enterprises
(MSMEs)1.

3.3.2
Monetary
Policy
Committee
Meetings
In the second half of 2021, the
Monetary Policy Committee (MPC) met
in July, September, and November. At
the July meeting, the Committee noted
the gradual recovery of output growth
and
expressed
confidence
in
the
recovery. The MPC, however, carefully
reviewed the downside risks to growth
and upside risks to inflation in the short-
to medium-term. While the economy
CBN Monetary Policy Review

has
been
gradually
reopening,
Members noted that the Pandemic was
far from over and therefore may
moderate the pace of the recovery. The
MPC was concerned about the broad
level of insecurity across the country,
noting its impact in key commodity
producing areas and urged the Federal
Government
to
intensify
security
surveillance in farming communities. On
inflation, the Committee noted the
contribution of poor infrastructure to
rising domestic prices and re-iterated
the
importance
for
the
Federal
Government to prioritize investment in
public
infrastructure
such
as
transportation networks, power supply
and
telecommunication
facilities
through Public-Private-Partnerships.

Committee members also noted the
persistent reduction in remittance of oil
revenue to the Consolidated Revenue
Fund and urged the Government to
continue to explore additional sources
of non-oil revenue, as this would reduce
the over dependence on a single
revenue source.

In the financial market, the Committee
noted the continued improvement in
the equities market, indicating sustained
investor confidence in the Nigerian
economy.
It
also
applauded
the
continued resilience of the banking
system in the face of severe shocks to
both
the
domestic
and
global
economies.

Overall, Members were confident that
the Bank was taking the right steps
toward
the
restoration
of
macroeconomic stability, while noting
the downside risks to growth and the
upside risks to price developments. On
the basis of foregoing, the Committee
decided by a unanimous voted to
maintain the monetary policy rate (MPR)
at 11.5 per cent, the Asymmetric
Corridor at +100/-700 basis points around
the MPR, the CRR at 27.5 per cent, and
the Liquidity Ratio at 30 per cent.

During the September 2021 MPC, the
Committee
noted
the
continued
recovery in output growth and urged
the Bank to maintain its current policy
measures.
It,
however,
noted
the
downside risk posed by the increasing
level of insecurity in parts of the country
and urged the Federal Government to
prioritize security surveillance particularly
in farming communities.

The Committee noted that inflation had
decelerated for the fifth consecutive
month and commended the Bank’s
effort
at
revitalising
the
Nigeria
Commodity Exchange (NCX) to improve
the supply value chain. In addition,
members
commended
the
complementary benefit of the take-off
of
the
Nigerian
Infrastructure
Corporation
(INFRACORP)
which
is
expected to markedly improve the
business environment.

On the financial market, the MPC noted
the moderate improvement in the
equities
segment,
the
progressive
decline in the non-performing loans, and
further commended the management
on the stability of the exchange rate. The
Committee thus, urged the Bank to take
CBN Monetary Policy Review

further steps to restrict the activities of
unauthorised and illegal dealers in the
foreign exchange market, and ensure
that operators adhere to stipulated
guidelines set by the Bank.

Overall,
the
MPC
assessed
the
headwinds and tailwinds to growth, as
well as the upside risks to inflation, and
consequently, decided by a unanimous
vote to hold all policy parameters at
their extant position.

The MPC at its November 2021 meeting,
noted the key downside risks to growth
and
upside
risks
to
inflation,
commending the continued recovery in
output growth in the third quarter of
2021.

The
Committee
however,
remained cautious of the need to
monitor
price
developments
while
urging
the
Bank
to
maintain
its
interventions as the pandemic was yet
to be over. Members also reiterated the
impact of poor infrastructure on rising
domestic price levels as well as the
persistence of insecurity in major foodproducing areas, noting the downside
risk to the recovery.

The Committee also commended the
gradual diversification of the economy
with the increased contribution of the
non-oil sector to Government revenues
and called for more support to increase
non-oil exports as a source of foreign
exchange earnings into the economy.
The
Committee
further
urged
the
Government
to
seek
equitable
partnerships with foreign investors and
Nigerians in diaspora to fund capital
projects.
The Committee also noted the growing
investor confidence in the Nigerian
economy
reflected
by
the
strong
position of the equities market and the
continued resilience of the banking
system.

Members
noted
the
likely
commencement of monetary policy
normalization by the US Fed and called
on the Federal Government to intensify
its drive towards a counter-cyclical fiscal
policy in view of the imminent tightening
of external financial conditions.

In
general,
the
MPC
expressed
confidence in the ongoing policies of
both the monetary and fiscal authorities
which was the hallmark of the current
recovery
and
restoration
of
macroeconomic stability in Nigeria. The
Committee
thus,
decided
by
a
unanimous vote to retain the Monetary
Policy Rate (MPR) at 11.5 per cent. In
summary, the MPC voted to retain: the
MPR at 11.5 per cent; the asymmetric
corridor of +100/-700 basis points around
the MPR; the CRR at 27.5 per cent; and
the Liquidity Ratio at 30 per cent.

The communiques of the MPC meetings
are contained in the appendix.

3.3.3
Instruments
of
Liquidity
Management
In the review period, the Bank sustained
the use of its monetary policy instruments
to achieve the objectives of price and
macroeconomic
stability.
The
instruments were: the Monetary Policy
Rate (MPR); the Cash Reserve Ratio
CBN Monetary Policy Review

(CRR); Liquidity Ratio; Open Market
Operations
(OMO)
and
Discount
Window Operations. Furthermore, there
were periodic interventions in the foreign
exchange market.

3.3.3.1 Monetary Policy Rate (MPR)
The
Monetary
Policy
Rate
(MPR)
remained the Bank’s key instrument for
signalling monetary policy stance and
management in the second half of 2021.
The MPR was kept unchanged at 11.5
per cent and the asymmetric corridor
maintained at +100/-700 basis points,
reflecting the Bank’s commitment to an
accommodative
policy
stance
to
support output growth.

3.3.3.2 Open Market Operations (OMO)
In the second half of 2021, Open
Market Operations (OMO) was the main
instrument of Liquidity Management.
Total OMO sales increased marginally by
2.95 per cent to N6,319.47 billion in the
second half of 2021 from N6,138.58 billion
in the corresponding period of 2020, but
was a significant increase of 252.40 per
cent when compared with N1,793.25
billion in the first half of 2021 (Table 3.9).
The
increased
operations
were
attributed to excess liquidity in the
Banking System.


Table 3.9: OMO Bills Auction (July – December,
2021) (N’billion)

Source: Financial Market Department

Figure 3.17: OMO Bills Auction (July - December,
2021)

Source: Financial Market Department

3.3.3.3 Reserve Requirements
In
the
review
period,
Reserve
Requirements,
namely:
the
Cash
Reserves Ratio (CRR) and Liquidity Ratio
(LR) were deployed to complement the
MPR and OMO auctions as macroprudential and liquidity management
Date

% Change
Jan
2,193.52 452.67
-79%
Feb
1,575.64 763.23
-52%
Mar
673.38 381.92
-43%
Apr
676.19 63.19
-91%
May
114.00 66.64
-42%
Jun
1,259.57 65.60
-95%
1st Half
6,492.30
1,793.25
-72%
Jul
392.76
151.26
-61%
Aug
1,037.67
1,411.89
36%
Sep
1,171.79
1,398.60
19%
Oct
988.67
772.66
-22%
Nov
1,022.11
884.22
-13%
Dec
1,525.58
1,700.83
11%
2nd Half
6,138.58
6,319.47
3%
Cumulative Figure

Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
N'Billions
OMO Sales
CBN Monetary Policy Review

instruments. The CRR and LR were
maintained at 27.5 and 30.0 per cent,
respectively. This was due to the liquidity
surfeit in the banking system.

3.3.3.4 Standing Facilities
The Standing Facilities window was
used by the Bank to meet the daily
liquidity
requirements
of
Other
Depository Corporations (ODCs) in the
second half of 2021. The asymmetric
corridor was maintained at +100/-700
basis points around the MPR.

The
requests
for
Standing
Lending
Facility (SLF) decreased by 65.03 per
cent to N3,406.45 billion in the second
half of 2021 from N9,741.84 billion in the
preceding period of 2021. This, however,
reflected an increase of 86.44 per cent
from
N1,827.09
billion
in
the
corresponding period of 2020 (Table
3.10).

Similarly, the volume of deposits under
the Standing Deposit Facility (SDF),
declined by 32.22 per cent to N1,221.95
billion in the second half of 2021 from
N1,829.90 billion in the preceding period
of
2021.
This
also
represented
a
decrease of 70.66 per cent when
compared with N4,164.78 billion in the
corresponding period of 2020 (Table
3.11).

Transactions at the Standing Facility
window resulted in a net lending of
N2,184.50 billion in the second half of
2021 compared with a net lending of
N7,911.94 billion in the preceding half
year and a net deposit of N2,337.69
billion in the corresponding half year. This
development signalled a trend towards
moderation of banking system liquidity
surfeit.

Table 3.10: CBN Standing Lending Facility (January
2020 – December 2021) (N’billion)
Date

%
Change
Jan
580.77
395.77

Feb
510.27
552.66

Mar
957.34
886.51

Apr
277.93
2,498.55

May
398.84
4,818.91

Jun
592.25
589.44

1st Half
3,317.40
9,741.84
193.66%
Jul
1,570.18
302.54

Aug
112.72
472.57

Sep
14.39
737.72

Oct
37.11
513.22

Nov
22.94
668.87

Dec
69.75
711.54

2nd
Half
1,827.09
3,406.45
86.44%
Total
5,144.49
13,148.29

Source: Financial Market Department

Figure 3.18: Standing Lending Facility (July –
December 2021)

Source: Financial Market Department


Jul Aug Sep Oct Nov Dec
N'Billions
SLF
CBN Monetary Policy Review

Table 3.11: CBN Standing Deposit Facility (January
2020 – December 2021) (N’billion)
Date

%
Change
Jan
618.49
528.33

Feb
523.41
441.51

Mar
356.80
420.36

Apr
601.53
145.52

May
549.50
123.89

Jun
442.05
170.29

1st
Half
3,091.78 1,829.90
-40.81%
Jul
459.49
218.06

Aug
593.42
207.58

Sep
838.22
200.35

Oct
734.51
128.10

Nov
794.31
237.64

Dec
744.83
230.22

2nd
Half
4,164.78 1,221.95
-
70.66%
Total
7,256.56 3,051.85

Source: Financial Market Department

Figure 3.19: Standing Deposit Facility (July -
December 2021)

Source: Financial Market Department

3.3.3.5 Foreign Exchange Intervention
In the review period, pressure in the
foreign exchange market persisted due
to the lingering challenges posed by the
COVID-19 pandemic, which affected
the global commodity and oil markets.
The Bank in response; continued the
Naira-4-Dollar
Scheme
to
further
encourage
diaspora
remittances;
directed licensed International Money
Transfer
Operators
(IMTOs)
to
pay
beneficiaries of diaspora remittances
only in foreign currency to improve
foreign exchange inflows into Nigeria;
restricted importation of Sugar to three
companies
involved
in
Backward
Integration Programmes (BIP) on sugar
production; and operationalised the
Pan African Payments and Settlements
System
(PAPSS)
to
safeguard
the
external reserves.

Accordingly, total foreign exchange
supply increased by 51.55 per cent to
US$10,543.51 million in the second half of
2021 from US$6,957.28 million in the
corresponding half of 2020, and by 88.80
per
cent
when
compared
with
US$5,831.59 million in the first half of 2021
(Table 3.12). The increased supply was
largely due to interventions in the foreign
exchange market to ensure exchange
rate stability.


Jul Aug Sep Oct Nov Dec
N'Billion
SDF
CBN Monetary Policy Review

Table 3.12: Foreign Exchange Supply by the CBN
(US$ Million)

% Change
Total FX
Supply
(including
Forward
Sales)
Total FX
Supply
(including
Forward
Sales)

1,604.27
717.05

3,364.39
714.55

3,344.29
770.08

674.87
962.80

639.76
1,283.74

680.43
1,383.37


699.92
1,641.32

1,229.16
1,405.29

1,492.34
2,133.54

1,119.27
1,717.77

1,823.26
1,880.79

6,957.28
10,543.51
51.55%
Source: Financial Market Department

Figure 3.20: Total FX Supply (including Forward
Sales) July – December, 2021

Source: Financial Market Department


3.3.4
Developments
in
Monetary
Aggregates
In the second half of 2021, monetary
aggregates grew significantly, with the
broad
measures
of
money
supply
performing
above
their
indicative
benchmarks for the year, reflecting the
growth in the components - currency in
circulation
and
deposits.
The
performance was driven by the largely
accommodative
monetary
policy
stance of the Central Bank of Nigeria
geared towards strengthening recovery
from the COVID-19-induced recession
that the country experienced in 2020.

Net Domestic Assets (NDA) performed
above its benchmark in the review
period.
Its
key
component,
Net
Domestic
Credit
(NDC)
grew
moderately, driven by growth in both
private sector and government credit.
Net Foreign Asset (NFA) grew but was
below the benchmark in the review
period, driven primarily by the monetary
authority’s foreign assets, mostly the
COVID-19
loans
and
grants
from
abroad.

3.3.4.1 Broad Money (M3, M2)
The broad measures of money supply
(M3 & M2) grew in the review period. M3
grew by 10.90 per cent to N43,818.47
billion at end-December 2021 from
N39,510.56 billion at end-June 2021.
When
compared
with
the
endDecember 2020 level of N38,904.92
billion, it increased by 12.63 per cent.
The growth of M3 (year-on-year) was
higher than the 2021 indicative growth

Jul
Aug Sep
Oct Nov Dec
US$'Million
Total FX Supply (including
Forward Sales)
CBN Monetary Policy Review

target of 9.64 per cent. Similarly, M2 grew
by 12.75 per cent to N43,817.57 billion at
end-December 2021 from N38,863.05
billion at end-June 2021. Compared with
the
end-December

level
of
N37,828.88 billion, it increased by 15.83
per cent which was significantly higher
than the indicative growth benchmark
of 10.26 per cent for 2021. During the
period under review, there was no
significant difference between M2 and
M3 measures of money supply owing to
the gradual withdrawal of the CBN bills,
which was the major driver of M3.

The increase in M2 was primarily driven
by the increase in Narrow Money (M1)
by 13.67 per cent and quasi money by
18.67 per cent in 2021 owing to the
prohibition of the non-bank public from
investing in CBN bills. Thus, the proceeds
of matured CBN bills were not rolled over
but became part of M1 deposits or
reinvested
in
other
near-money
instruments.

Figure 3.21: Money Supply (M1), (M2) and (M3)
(July – December 2021)

Source: Statistics Department


Figure 3.22: Growth in Money Supply (M1), (M2)
and (M3) (July - December 2021)

Source: Statistics Department

3.3.4.2 Narrow Money (M1)
Narrow Money (M1) increased by 13.39
per cent to N18,169.30 billion at endDecember 2021 from N16,024.39 billion
at end-June 2021. It also increased by
14.72 per cent when compared with its
level of N15,838.40 billion at endDecember 2020. The year -on -year
growth in narrow money, was lower than
the 2021 indicative growth benchmark
of 15.71 per cent (Figures 3.21 and 3.22).
The growth in M1, though relatively lower
than the indicative benchmark, was
attributed to the gradual pick-up of
economic activities which translated to
growth in the banking sector credit.

3.3.4.3 Net Foreign Assets (NFA)
Net Foreign Assets (NFA) increased by
20.87 per cent to N8,814.45 billion at
end-December 2021 from N7,292.25
billion as at end-June 2021. When
compared with N8,973.31 billion at endJul
-

Au
g-

Se
p-

Oc
t-

No
v-

De
c-

M3 39, 40, 40, 41, 42, 43,
M2 39, 40, 40, 41, 42, 43,
M1 16, 16, 15, 16, 17, 18,

Naira

Jul-21 Aug-21Sep-21 Oct-21 Nov-21Dec-21
M3 Growth
M2 Growth
M1 Growth
CBN Monetary Policy Review

December 2020, NFA contracted by 1.77
per cent in contrast to the 2021
provisional indicative growth target of
32.79 per cent. The below benchmark
performance of the NFA in the review
period was due to the decline in foreign
asset holdings of the central bank,
especially in the fourth quarter of 2021,
as well as those of non-interest, primary
mortgage, and microfinance banks.

3.3.4.4
Net
Domestic
Assets
(NDA)
Net Domestic Assets (NDA) increased
by 8.65 per cent to N35,004.03 billion at
end-December 2021 from N32,218.32
billion
at
end-June
2021.
When
compared with N29,931.62 billion at
end-December 2020, NDA grew by 16.95
per cent year-on-year, which was
significantly higher than the indicative
growth benchmark of 4.21 per cent for
2021.
The
growth
in
NDA
was
attributable to the growth in Other Items
Net (OIN) by 10.05 per cent in the review
period.

Net Domestic Credit (NDC) increased
year-on-year by 17.25 per cent, driven
largely by the growth in net credit to
government (NCg) and credit to private
sector (CPs) of 15.96 and 17.75 per cent,
respectively. The continuous increase in
CPs
reflects
the
Bank’s
regulatory
measures to improve lending to the real
sector
as
well
as
its
sustained
development
finance
interventions.
These interventions were targeted at
improving the flow of credit to critical
sectors to support the fragile recovery of
the
economy
post-COVID-19.
The
growth in CPs is an indication of
improved financing of the economy by
the banking system.

Figure 3.23: Net Domestic Asset (NDA) (July -
December 2021)

Source: Statistics Department

Figure 3.24: NDA, NDC and Other Assets (Net) (July
– December 2021)

Source: Statistics Department

3.3.4.5 Credit to the Government (Cg)
Credit to Government (Cg) increased
by 14.95 per cent to N13,326.80 billion at
end-December 2021 from N11,593.88
billion at end-June 2021. Compared with
N10,449.16 billion at end-December
2020, it grew by 15.96 per cent, which

Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
N'Billion
Jul-

Aug-

Sep-

Oct-

Nov
-21
Dec-

Net
Domestic
Asset
32,2832,7434,6434,3134,1635,00
CBN Monetary Policy Review

was significantly higher than the 2021
indicative growth target of 5.20 per cent.
Developments during the period drove
this
outcome
as
the
Federal
Government borrowed to fund the
deficit
in
the

budget.
This
development poses a challenge as
excessive and continuous borrowing by
government raises concerns about fiscal
sustainability and the crowding out of
the private sector.

3.3.4.6 Credit to the Private Sector (Cp)
Credit to the private sector (Cp)
increased by 7.87 per cent to N35,194.60
billion at end-December 2021 from
N32,625.54 billion at end-June 2021. The
development represented a growth of
17.75 per cent when compared with
N29,890.46 billion at end-December
2020, which is marginally higher than the
2021 indicative growth target of 16.79
per cent. The marginal increase in
private sector credit further stimulates
demand and promote growth in the
economy.
The
sustained
implementation of the Loan to Deposit
Ratio
(LDR)
also
supported
the
enhanced performance of the CPs.

Figure 3.25: Domestic Credit to Private Sector (July
– December, 2021)

Source: Statistics Department
3.3.4.7 Reserve Money (RM)
Reserve Money (RM) increased by 7.79
per cent to N13,295.15 billion at endDecember 2021 from N12,333.85 billion
at end-June 2021. Year-on-year, RM
increased by 1.43 per cent from its endDecember 2020 level of N13,107.92
billion. The RM at end-December 2021
was
below
the

indicative
benchmark of N13,538.85 billion by
N243.70 billion. The performance of RM
was largely due to the decline in the
total deposit liability, and the weakening
implicit cost of cash holding which
reflected in the movement of Reserve
Requirement. A summary of the major
monetary
aggregates
and
their
provisional
outcomes
as
at
endDecember 2021 is presented in Table
3.13a and b.

30,000,000.00
35,000,000.00
40,000,000.00
N'Billion
Jul-21 Aug-

Sep-

Oct-

Nov-

Dec-

Credit to
Private
Sector
32,860,633,441,733,936,534,619,935,379,135,726,9
CBN Monetary Policy Review

Table 3.13a: The Performance of Monetary Aggregates and their Implications
Variables
Actual
Actual
Actual
Benchmark
H2:2021
Deviation
from
Benchmark
Change
in H2,
2021 over
H1, 2020
H2
H1
H2

M3 (N'b)

M3 (%)

M2 (N'b)

M2 (%)

M1 (N'b)

M1 (%)

RM (N'b)

RM (%)

NDC (N'b)

NDC (%)

Cg (N'b)

Cg (%)

Cp (N'b)

Cp (%)

NFA (N'b)

NFA (%)

NDA (N'b)

NDA (%)

Source: Statistics Department


CBN Monetary Policy Review

Table 3.13b: The Performance of Monetary Aggregates and their Implications
S/N
Monetary
Aggregates
Performance
Implication

Overall
Monetary
Aggregates
Mixed
Evidence indicates fragile recovery after the
pandemic driven recession. In the external
sector, there is continued pressure on the naira
leading to the depletion of reserves.

Broad Money
(M3, M2)
Above
target
Both M3 and M2 performed above their
benchmarks. The growth signifies liquidity
surfeit, mainly arising from the prohibition of
the non-bank public from investing in CBN bills.

Narrow
Money (M1)
Marginally
below
target
The weak performance is due to the fragile
recovery post-COVID-19. Economic activities
are slow and yet to pick-up to pre-pandemic
levels. There are also increased use of epayments platforms as well as the introduction
of e-naira.

Net
Foreign
Assets (NFA)
below
target
The poor growth performance of NFA has
been persistent. This is mainly driven by the
contraction of foreign asset holdings of the
Monetary Authority especially in the fourth
quarter of 2021 as it struggles to stabilize the
exchange
rate
and
prevent
further
depreciation of the naira.

Net Domestic
Assets (NDA)
Above
target
The performance in NDA is driven by growth in
both private sector credit and credit to
government. Credit to the government, if not
checked, could crowd out credit to the core
private sector.

Credit to the
Govt (Cg)
Above
target
The performance of credit to government
indicates that government met its funding
needs
through
the
issuance
of
debt
instruments due to the growing budget deficit.

Credit to the
Private
Sector (Cp)
Close
to
target
The performance demonstrates the increasing
role of the private sector in driving economic
activities. Growth in output and employment
is as a result of credit made available to the
real sector.
Source: Statistics Department


CBN Monetary Policy Review

3.4
Domestic
Financial
Markets
Developments
In the second half of 2021, the Nigerian
financial market witnessed slight volatility
owing to lingering shocks from the
COVID-19 pandemic. Although some
progress has been made in subduing the
COVID-19 pandemic, including lowering
of restrictions and reopening of several
economies, the fast pace of mutation of
new and deadlier strains of the virus
continued to pose risks to the financial
markets. The development resulted in
stock market volatility, exchange rate
shocks among the emerging markets
and developing economies, and capital
flow reversals. Global inflation continued
to mount forcing some central banks in
advanced economies to change their
stance about its transitory nature and
began to provide forward guidance of
monetary policy normalisation, which
continue to cause volatility in the
financial market.

Foreign exchange market stability was
accentuated by the Bank’s intervention
to stabilize the naira amid increased
foreign exchange demand pressures. In
the capital market, the All-Share Index
(ASI) and Market Capitalization (MC)
increased during the second half of
2021;
largely
due
to
enhanced
economic
activities
and
improved
investors’
confidence.
The
money
market remained active in the review
period, with market rates reflecting
liquidity
conditions
in
the
banking
system. Also, the net liquidity position
and interest rates in the money market
reflected the impact of the Bank’s
liquidity
management
operations.
Accordingly,
the
monthly
average
Open Buy Back (OBB) rates rose to 12.59
per cent in December 2021 from 10.10
per cent in November 2021.

3.4.1
The Money Market
Despite the ravaging impact of COVID19 pandemic money market activities
witnessed significant increase. However,
the rates recorded slight fluctuations in
the second half of 2021, reflecting
liquidity levels in the banking system. The
development was the result of statutory
monthly disbursement to the three tiers
of
government
by
the
Federation
Account Allocation Committee (FAAC);
government securities maturities, sale of
OMO
bills
and
the
various
CBN
interventions.

The interbank call segment of the market
recorded less trading days in the period
under
review,
resulting
to
lower
transaction volumes compared with the
OBB
segment.
For
instance,
zero
transaction
was
recorded
in
the
interbank call segment for December
2021. The development reflected the
continuing high-risk perception and
aversion of money market participants
to
open
market
lending
due
to
counterparty risk.

From July to December 2021, the
Monetary Policy Committee (MPC), held
most of its policy instruments constant.
The Bank thus retained the Monetary
Policy Rate (MPR) at 11.50 percent with
its asymmetric corridor at +100/-700 basis
points around the MPR. Furthermore, the
CBN Monetary Policy Review

Cash Reserve Ratio (CRR) and Liquidity
Ratio (LR) were retained at 27.5 and 30.0
per cent, respectively during the period.

3.4.1.1 Short-term Interest Rate
Developments
The liquidity conditions in the banking
system were indicative of the money
market activities. In addition to the
various Monetary Policy Committee
decisions, the CBN’s intervention aimed
at
moderating
foreign
exchange
demand pressures also played a vital
role in money market liquidity and the
short-term interest rates.

During the period under review, the
interbank call segment recorded lower
average rate compared with the Open
Buy Back (OBB) segment. The rate in the
OBB segment increased marginally from
11.92 per cent in July 2021 to 12.59 per
cent in December 2021, while the
interbank call rate dropped from 12.38
per cent in July 2021 to 10.50 per cent in
November, with no rate recorded in
December 2021 as there were no
transactions in the month. The 30-day
NIBOR rate which reflects the Nigerian
interbank short-term lending rates for
some selected banks decreased from
12.30 per cent in July 2021 to 10.03 per
cent in December 2021.


Table 3.14: Weighted Average Monthly Money
Market Interest Rates (Jul.-Dec., 2021)
PERIOD
Interban
k
OBB SDF MPR
SLF
NIBOR-


Jul-21
12.38
11.9

4.5

11.5

12.5

12.30
Aug-21

Sep-21

Oct-21

Nov-21

Dec-21*

Averag

Source: Statistics Department
Note: *December figures are monthly
averages

Figure 3.26: Average Weighted Monthly Money
Market Interest Rates (Jul.-Dec., 2021)

Source: Statistics Department

3.4.1.1.1
The Interbank Call Rate
The
interbank
call
segment
was
relatively inactive, reflecting market
participants’ strong preference for the
collateralised OBB instrument. During the
period under review, the interbank call
segment was characterised by scanty
trade volumes as well as several days
without trading activities as compared
with the OBB segment. No transactions
were recorded throughout December
2021.

Interbank (%)
OBB (%)
SDF (%)
MPR (%)
SLF (%)
NIBOR- 30 DAYS (%)
CBN Monetary Policy Review

The weighted average interbank call
rate stood at 12.38 per cent in July 2021
while
no
rate
was
recorded
in
December
2021.
Specifically,
the
monthly weighted average interbank
call rate rose from 12.38 per cent in July
2021 to 13.45 per cent in August 2021
representing a 1.07 percentage points
increase. However, the rate slightly
dropped to 13.21 per cent in September
2021. In November 2021, it witnessed a
slight up-tick to 10.50 per cent following
a
drop
between
September
and
October 2021. No rate was recorded in
December
2021,
as
there
was
transactions
in
the
interbank
call
segment,
during
the
month.
Nevertheless, the net flows from activities
affecting banking system liquidity (i.e.,
OMO
sales
and
maturity,
foreign
exchange interventions, CRR debits, the
Bank’s intervention facilities to stimulate
growth
and
fiscal
disbursement)
contribute to the rates recorded in the
period.

The analysis of the daily interbank call
rate showed that for days where trading
activities took place, the call rate
ranged from 4.00 per cent recorded on
trading
days
in
September
and
November 2021 to 25.00 per cent in
October 2021. The peak of 25.0 per cent
in October was largely due to the Bank’s
mopping up activities at the end of the
month. The average interbank call rate
for the period July – December 2021 was
9.92
per
cent
representing
7.09
percentage points increase from the
2.83 per cent recorded in the second
half of 2020 ,and 0.30 percentage points
higher than the 9.62 per cent recorded
in the first half of 2021.

Figure 3.27: Daily Interbank Call Rate (Jul – Dec
2021)

Source: Financial Markets Department

3.4.1.1.2 The Open Buy Back (OBB) Rate
The OBB segment of the market
experienced higher trading activities
compared
with
the
interbank
call
segment. The OBB rate and interbank
call rate varied slightly in terms of their
trends in the period under review. The
monthly average OBB rates fluctuated
which indicates an undulation between
a tightened and an improved banking
system liquidity. Within a spread of 10.10
per cent and 12.97 per cent, the monthly
average OBB rate rose from 11.92 per
cent in July 2021 to 12.97 per cent in
August 2021. After a drop to 11.11 per
cent in September, the rate further
decreased by 2.08 percentage points
from 12.18 per cent in October 2021 to
10.10 per cent in November 2021. Amidst
investors’ skepticism associated with the

Per cent (%)
CBN Monetary Policy Review

new variant of the COVID-19 (Omicron)
and funding pressures from the increase
in OMO, bonds and the Nigerian
Treasury Bills auctions, the OBB rate
witnessed
an
increase
of
2.49
percentage points to close at 12.59 per
cent at the end of second half of 2021.
In terms of the daily transactions, the
OBB rate ranged from 3.52 per cent to
21.34 per cent between July and
December 2021. Similar to the interbank
call rate, the observed spike of 21.34 per
cent at the third week of August 2021 is
associated with increase in OMO sales,
in
spite
of
maturities
as
well
as
oversubscribed bond auctions during
the period. The low rate recorded in
November 2021 was largely due to the
inflow of liquidity to the system through
OMO maturities worth N123.6 billion
within the third week of November 2021.
The average OBB rate in the second half
of 2021 stood at 11.81 per cent, which is
significantly higher than the 4.35 per
cent recorded in the corresponding
period of 2020, but lower than the 12.19
per cent recorded in the preceding half
year of 2021 (i.e., January – June 2021).
The
average
monthly
OBB
rates
recorded in the period under review
trended towards the upper band of the
MPR.


Figure 3.28: Daily Open Buy Back Rate (Jul–Dec
2021)

Source: Financial Markets Department

3.4.1.1.3
The
Nigeria
Interbank
Offered Rate (NIBOR)
The Nigerian money market reference
rate (NIBOR) also fluctuated over the
period under review. It consistently
dropped in the first three months of the
period but later fluctuated till the end of
December 2021. The 30-day weighted
average NIBOR traded from 12.30 per
cent in July 2021 to 11.86 per cent in
August 2021 and dropped further to
10.92 per cent in September 2021.
Following a slight increase of 0.46
percentage points to 11.38 per cent in
October 2021, the average monthly rate
decreased further in November 2021 to
9.49 per cent. This represents a 1.89
percentage points decrease. However,
the rate stood at 10.03 per cent by the
end of second half of 2021. The 30-day
weighted average NIBOR rate for the
second
half
of

(i.e.,
July
–
December 2021) stood at 11.00 per
cent.

Per cent (%)
CBN Monetary Policy Review

3.4.2
Foreign Exchange Market
The Continued spread of the COVID-19
pandemic remains a key contributing
factor imposing a drag on global
economic
activities.
As
economies
moved towards full lifting of associated
restrictions, the new variants of the
coronavirus emerged, leading some
economies
to
re-introduce
various
measures
of
restrictions.
This
development imposed severe global
supply-side
constraints,
and
thus
widened
the
supply-demand
gap,
resulting in a sharp rise in inflation across
several economies. To curb the demand
pressure
and
moderate
inflationary
pressure, most advanced economy
central banks provided guidance to
commence
monetary
policy
normalization which may inadvertently
tighten financial conditions and squeeze
on economic activities, causing
a
slowdown in the recovery of the global
economy.

With the tightening of external financial
conditions,
accretion
to
external
reserves has dwindled progressively,
especially as foreign investors began
their exit from the economy in pursuit of
higher yields thus increasing foreign
exchange
outflow,
resulting
in
exchange
rate
pressure
and
depreciation of the naira. To curb the
trend and safeguard the value of the
naira,
the
Bank
adopted
various
measures such as: the ban of FOREX
sales to Bureau de Changes (BDCs),
introduction of the Naira for Dollar
policy, and deployment of strategic
interventions in the FOREX market to
provide
foreign
exchange
liquidity.
Overall, the FOREX market experienced
some level of moderation in the second
half of 2021, compared with the previous
periods,
thus
demonstrating
some
relative stability.

Despite
the
threat
posed
by
the
Omicron variant, the global economy
has remained relatively open compared
with the first phase of the pandemic
when the economy went into complete
lock-down. In addition, the downward
trend in COVID-19 mortality rates has
given additional support for global
economic
recovery
thus
ensuring
continued
economic
activities
and
sustained
demand
for
crude
oil,
Nigeria’s major FOREX earner. Nigeria’s
high import bill, however, remains a
cause for concern for the stability of the
exchange rate of the naira in the near
term.

Figure 3.29: Daily Naira/US Dollar Exchange Rate
Jan –Dec 21

Source: Statistics Department

In the period under review, the CBN
maintained its development finance

I&E End-Month
I&E Monthly Average
CBN Monetary Policy Review

intervention programs to boost domestic
production
and
promote
import
substitution to curb the high demand for
foreign
exchange
for
importation.
Following the ban of FOREX sales to
BDCs, the Bank increased FOREX sales at
its official I&E window, thus providing
more liquidity to meet genuine market
demand. The Bank, in June 2021,
adopted the Investors and Exporters
window (I&E) as the default reference
exchange rate for official transactions in
the country.

3.4.2.1 Average Exchange Rates
The foreign exchange at the I&E
segment significantly appreciated by an
average of 12.27 per cent from an
average of N468.99/US$ in the first half of
2021 to an average of N411.44/US$ in the
second half of 2021.

Table 3.15: Average Monthly Spot Exchange Rate
(N/US$), Jan 2021 – Dec 2021
MONTH
I&E
January (2021)
472.40
February
476.05
March
481.22
April
481.60
May
482.72
June
419.94
Average
468.99
July
410.12
August
410.39
September
410.80
October
411.25
November
411.74
December
414.34
Average
411.44
Source: Statistics Department

3.4.2.2 End-Period (Month) Exchange
Rates
In the second half of 2021, the
exchange rate at the I&E segment was
stable at N411/ US$ but spiked to
N435/US$ in December. The sharp
increase was attributed to seasonal
demand associated with the yuletide
period. Compared with the average of
N407.76/US$ in the first half of 2021, the
exchange rate at the I&E segment
depreciated slightly in the second half of
the year by 1.77 percent to $414.97/US$.
The depreciation was due to the spike
experienced in end-December.

Table 3.16: End-Month Exchange Rate (N/US$),
Jan – Dec 2021
MONTH
I&E
January (2021)
394.13
February
410.25
March
408.67
April
410.00
May
412.00
June
411.50
Average
407.76
July
410.68
August
411.63
September
411.00
October
411.50
November
410.00
December
435.00
Average
414.97
Source: Statistics Department

CBN Monetary Policy Review

3.4.2.3 Nominal
and
Real
Effective
Exchange Rates
The Nominal Effective Exchange Rate
(NEER) appreciated by 0.77 per cent to
an average of 199.41 points in the
second half of 2021 from an average of
200.92 points recorded in the preceding
half of 2021, It however, depreciated by
6.81 per cent compared with the
average of 187.24 percent recorded in
the second half of 2020. Similarly, the
Real Effective Exchange Rate (REER),
appreciated by 5.99 per cent to an
average of 69.68 in the second half of
2021 from an average of 73.86 in the first
half of 2021. It also appreciated by 6.93
per cent from an average of 74.51 in the
second half of 2020 (Table 3.17). The
modest appreciation of the NEER implies
strengthening of the domestic currency
in recent times against the currencies of
our
trading
partners,
while
the
appreciation of the REER implies a trend
towards
improvement
in
trade
competitiveness with Nigeria’s trading
partners and the narrowing of the
inflation differentials (Table 3.17 and
figure 3.30).


Table 3.17: Average Nominal and Real Effective
Exchange Rates Indices (July 2020 – Dec 2021)
PERIOD
NEER
REER
20-Jul
183.31
75.43
20-Aug
184.74
75.2
20-Sep
185.61
74.53
20-Oct
185.68
73.49
20-Nov
188.21
73.2
20-Dec
195.86
75.23
2020: H2
Average
187.24
74.51
21-Jan
195.41
74.13
21-Feb
200.06
75.05
21-Mar
200.49
74.29
21-Apr
201.12
74.05
21-May
204.31
73.12
21-Jun
204.13
72.52
2021: H1
Average
200.92
73.86
21-Jul
201.09
71.08
21-Aug
200.55
70.4
21-Sep
201.03
69.93
21-Oct
198.88
70.69
21-Nov
197.59
68.29
21-Dec
197.32
67.69
2021: H2
Average
199.41
69.68
Source: Statistics Department

Figure: 3.30: Nominal and Real Effective Exchange
Rates Indices (Jan 2021 – Dec 2021)

Source: Statistics Department

NEER
REER
CBN Monetary Policy Review

3.4.2.4 Foreign Exchange Flows through
the CBN
Foreign exchange inflow through the
CBN stood at a total of US$26,007.93
million at the end of the second half of
2021. The inflow increased significantly
by 71.67 per cent compared with
US$15,149.77 million recorded in the
second half of 2020. Compared with the
US$14,060.38 million recorded in the first
half of 2021, it also increased by
US$11,947.55 million. Outflows through
the CBN also increased by 30.15 per
cent to $19,414.50 million in second half
of 2021 from $14,917.55 million in the
second half of 2020. It increased further
by 10.02 per cent compared with the
$17,646.13 million recorded during the
first half of 2021. The development
indicated a net inflow of US$14,659.25
million in the current period compared
with a lower net inflow of US$232.22
million in the corresponding period of
2020 and net outflow of $-2,285.24 million
in the first half of 2020. The increase in
FOREX inflows through the CBN in the
review period is primarily linked to the
relative stability at the I&E window.


Table 3.18: Monthly Foreign Exchange Flows
through the CBN (Jan 2020 – Dec 2021)

Source: Statistics Department

Figure 3.31: Monthly Foreign Exchange Flows
through the CBN (Jan 2020 – Dec 2021)

Source: Statistics Department

Period
Inflow CBN
Outflow CBN
Netflow CBN
Jan-20
5,271.65
6,652.58
-1,380.93
Feb-20
5,594.29
5,722.81
-128.52
Mar-20
4,121.73
6,997.01
-2,875.28
Apr-20
5,940.18
3,164.66
2,775.52
May-20
2,006.29
2,187.25
-180.96
Jun-20
2,105.41
2,600.48
-495.06
2020H1 TOTAL
25,039.55
27,324.79
-2,285.24
Jul-20
1,977.68
2,371.01
-393.33
Aug-20
2,576.38
2,671.52
-95.14
Sep-20
2,423.87
1,956.65
467.22
Oct-20
1,885.82
2,346.49
-460.67
Nov-20
1,148.11
1,874.29
-726.17
Dec-20
5,137.91
3,697.60
1,440.31
2020H2 TOTAL
15,149.77
14,917.55
232.22
Jan-21
1,739.28
2,832.54
-1,093.26
Feb-21
2,049.31
3,006.55
-957.24
Mar-21
3,758.90
2,882.18
876.72
Apr-21
1,686.73
2,586.14
-899.41
May-21
2,418.38
2,614.58
-196.19
Jun-21
2,407.78
3,724.15
-1,316.37
2021H1 TOTAL
14,060.38
17,646.13
-3,585.74
Jul-21
3,314.48
2,655.78
658.70
Aug-21
5,427.65
2,888.68
2,538.97
Sep-21
8,089.20
2,436.94
5,652.26
Oct-21
3,247.73
3,547.67
-299.93
Nov-21
3,048.99
3,852.52
-803.53
Dec-21
2,879.88
4,032.91
6,912.79
2021H2 TOTAL

Jan-20
Apr-20
2020H1 TOTAL
Sep-20
Dec-20
Feb-21
May-21
Jul-21
Oct-21
Inflow CBN
Outflow CBN
CBN Monetary Policy Review

3.4.2.5 Foreign Exchange Flow through
the Economy
Gross foreign exchange inflow to the
economy dropped sharply by 8.19 per
cent to US$47,048.34 million in the
second half of 2021 from US$51,243.94
million in the corresponding second half
of 2020. It however, increased by 8.01
per cent compared with US$43,559.02
million in the first half of 2021. On the
other hand, total outflow stood at
US$19,404.28 million, compared with
US$15,828.80
recorded
in
the
corresponding period of 2020, rose by
22.59
percent.
Similarly,
it
slightly
increased
by
1.90
percent
from
US$19,041.59 million when compared
with the first half of 2021. The moderate
rise in the gross foreign exchange flows
in the economy in the review period
signposts the restoration of investor
confidence
as
constrained
macroeconomic condition began to
ease.
CBN Monetary Policy Review

Table 3.19: Monthly Foreign Exchange Flows through the Economy (Jan 2020 – Dec 2021) (US$ Million)
Period
Inflow
CBN
Outflow
CBN
Netflow
CBN
Total
Inflow
Total
Outflow
Total
netflow
Inflow
Autonomous
Outflow
Autonomous
netflow
Autonomous
Jan-20

Feb-20

Mar-20

Apr-20

May-20

Jun-20

2020H1 TOTAL 25,039.55

Jul-20

Aug-20

Sep-20

Oct-20

Nov-20

Dec-20

2020H2 TOTAL 15,149.77

Jan-21

Feb-21

Mar-21

Apr-21

May-21

Jun-21

2021H1 TOTAL 14,060.38

Jul-21

Aug-21

Sep-21

Oct-21

Nov-21

Dec-21

2021H2 TOTAL 26,007.93

Foreign Exchange Flows Through the Nigerian Economy (US$' Million)
Source: Statistics Department

Figure 3.32: Monthly Foreign Exchange Flows through the Economy (Jan 2020 – Dec 2021) (US$ Million)

Source: Statistics Department

US$ Million
Total Inflow
Total Outflow
Total netflow
CBN Monetary Policy Review

3.4.3
Capital Market
The performance of the Nigerian
capital market in the second half of 2021
was bullish, primarily due to improved
activities in the equities segment of the
market, reflecting improved investor
confidence
as
corporate
earnings
improved. The attraction to foreign
investors was further facilitated by
improved foreign exchange liquidity
following the CBN’s interventions in the
FOREX market. Real yields, however,
declined significantly in the bonds
market, as inflation inched up.

3.4.3.1 Equities Market
The All-Share Index (ASI) increased by
12.69 per cent to 42,716.44 at endDecember 2021 from 37,907.28 at endJune 2021. Market capitalisation (MC)
also increased by 12.85 per cent to
N22.30 trillion at end-December 2021
from N19.76 trillion at end-June 2021.
Compared
with
the
corresponding
period of 2020, it increased by 5.89 per
cent
from
N21.06
trillion
at
endDecember 2020.

Figure 3.33: NSE All Share Index (ASI) and Market
Capitalization (MC) (December 2020 - December
2021)

Source: Nigerian Exchange Group (NGX)
Figure 3.34: NSE ASI and MC (June 2021 –
December 2021)

Source: Nigerian Exchange Group

3.4.3.1.2 Market Turnover
Aggregate stock market turnover in the
second half of 2021 stood at 42.70 billion
shares, valued at N428.74 billion in
500,858 deals. This represents an 11.72
per cent decrease compared with 48.37
billion shares, valued at N483.57 billion in
553,828 deals in the first half of 2021.
Aggregate stock market turnover also
decreased by 22.36 per cent compared
with 55.00 billion shares, valued at
N534.07 billion in 586,534 deals as at end
December 2020.

3.4.3.1.3
Sectoral Contribution to
Equity Market Capitalisation
In
the
review
period,
market
capitalisation was dominated by ‘Other
Sectors’, which comprises just a few
participants trading on the Nigerian
Stock
Exchange.
The
sector’s
contribution increased to 30.04 per cent
at end-December 2021 from 26.47 per
cent of market capitalisation at endJune 2021. The dominance of ‘Other
CBN Monetary Policy Review

Sectors’
was
largely
due
to
the
introduction
of
telecommunication
companies on the Exchange which
were categorised in this sector. Some
other
sectors
that
contributed
significantly
to
overall
market
capitalisation were Food & Beverages
and Banking, with market shares of 6.28
and 5.68 per cent respectively, as at
end-December 2021.

Figure 3.35: NSE Market Capitalisation by Sector as
at End-December 2021

Source: Nigerian Exchange Group

Figure 3.36: NSE Market Capitalization by Sector as
at End-June 2021

Source: Nigerian Exchange Group
3.4.3.1.4
The
Warren
Buffett
Valuation Metric and Nigeria’s Equities
Market
In the second half of 2021, the Warren
Buffet valuation metric indicated that
Nigeria’s
equities
market
was
overvalued. The valuation metric was
1.18 in the third quarter of 2021
indicating that current stock prices do
not fairly reflect the intrinsic values of the
stocks. In other words, Nigerian stocks
traded higher than their real or intrinsic
values. This is contrary to the forecast
valuation metric for the second quarter
of 2022
of 0.90, which predicted
undervaluation of the Nigerian stock
market. The rise in stock prices was
attributed to investor buying behaviour
rather than by genuine improvements in
market fundamentals.

Figure 3.37: Warren Buffett Valuation of Nigerian
Equities Market

< 50% = significantly undervalued; < 75% =
moderately undervalued; < 90% = fairly
undervalued; < 115% = modestly overvalued;
> 115% = significantly overvalued.
Source: NGX, NBS


NSE Market Capitalization by Sector as at June 30, 2021
Rest of Food and Beverages
Construction
Banking
Insurance
Breweries
Conglomerates
Oil and Gas
industrial goods
Dangote Cement
Dangote Sugar
NASCON (Dangote Salt)
Rest of Building Materials
Agriculture
Personal Household products
Services
MTN Nigeria
Other Sectors
CBN Monetary Policy Review

3.4.3.2 Bond Market
The Federal Government of Nigeria
(FGN) securities largely dominated the
activities
in
the
bond
market,
accounting for 44.75 per cent of the
market in the second half of 2021.
Corporate and State/Local Government
bonds followed, with the latter recording
the least share by market volume.

3.4.3.2.1 FGN Bonds
The 10-year dollar-denominated bond
yield for Nigeria increased by 119 basis
points
to
6.50
per
cent
at
endDecember 2021, from 5.31 per cent at
end-June 2021. Compared with -0.2 per
cent at end-December 2020, the yield
rose by 670 basis points (Figure 3.38).

Figure 3.38: 10-Year U.S. Dollar-denominated Bond
Yield for Nigeria (December 2020 – December
2021)

Source: Bloomberg

In the review period, the yield curve
increased at both the short and long
ends, signposting a normal shaped
curve. The shape of the yield curve
reflects a higher rate of interest for the
longer-term bonds compared with shortterm bonds, indicating a broad level of
investor confidence in the recovery of
macroeconomic fundamentals. In other
words, the upward sloping yield curve
indicates a positive outlook for the
Nigerian economy.

Figure 3.39: FGN Bond Yield Curves: September
30th, 2021 VS. November 30th, 2021 and December
31st, 2021

Source: FMDQ

3.4.3.2.2 State/Local Government Bonds
The
sub-national
bonds
market
maintained
a
steady
performance
during the review period. The total value
of outstanding state/local governments
bonds at end December 2021 was
N207.55 billion, unchanged from its
position at end-June 2021. It was
however lower, compared with N270.80
billion recorded at end-December 2020.
The reduced borrowing by states/local
governments
may
signpost
slowing
economic activities amongst these subnationals following the broad slowdown
in the global economy.

10-Year U.S. Dollar-denominated
Bond Yield for Nigeria
CBN Monetary Policy Review

3.4.3.2.3 Corporate Bonds
Activities
in
the
corporate
bonds
segment improved during the review
period.
The
value
of
outstanding
corporate bonds as at end-December
2021 increased by 0.17 per cent to
718.30 at end-December 2021 from
N717.08 billion in the first half of 2021. This
development may be associated with
increased attractiveness of fixed income
securities as the rise in inflation depresses
bond prices to adjust for higher yields.

3.4.3.3 Overall Analysis of the Nigerian
Capital Market
The value of FGN bonds increased by
14.28 per cent to N18.81N trillion at endDecember 2021 from N16.46 trillion at
end-June 2021 and higher than N13.78
trillion recorded at end-Dec 2020. FGN
bonds accounted for 44.75 per cent of
aggregate market capitalisation at endDecember 2021.

The value of state/municipal bonds and
corporate bonds were N207.55 billion
and N718.30 billion, accounting for 0.49
and 1.71 per cent of aggregate market
capitalisation, respectively.

The value of Supranational bonds was
not reported in the review period.

The equities market contributed 53.03
per
cent
of
aggregate
market
capitalisation at end-December 2021,
while the bond market comprising FGN
bonds,
state/municipal
bonds,
corporate bonds and supranational
bonds accounted for the balance of
46.97 per cent (Figure 3.40).

Figure 3.40: Structure of the Nigerian Capital
Market (December, 2021)

MARKET CAPITALISATION (N' MILLIONS)
FGN Bonds
State/Municipal bonds
Corporate bonds
Equities

Source: Nigerian Exchange Group


CBN Monetary Policy Review

CHAPTER FOUR
ECONOMIC OUTLOOK AND RISKS

4.1
Outlook for Global Output
lobal
output
growth
was
projected to moderate to 4.4
per cent in 2022, from 3.8 per
cent in 2023. The projected growth
decline
was
predicated
on
the
continuing disruptive effects of the
persisting COVID 19 pandemic on supply
chains, coupled with the tapering of
monetary accommodation by major
advanced economies’ central banks.
The scenario is expected to persist in the
medium term as output is expected to
decline further to 3.8 per cent in 2023.
(IMF WEO Update of January 2022).

Output in advanced economies was
projected to moderate to 3.9 per cent in
2022, and 2.6 per cent in 2023. The
moderation of growth in the group is
underpin
by
prolonged
supply
disruptions in the US, the euro area and
the
United
Kingdom
(UK),
earlier
withdrawal
of
monetary
accommodation
in
the
US,
softer
external demand in Canada, and
COVID disruptions in the euro area and
the UK. Consequently, output growth in
the US was revised downwards to 4.0 per
cent in 2022, and 2.6 per cent in 2023. In
Canada,
growth
was
revised
downwards by 0.8 percentage points to
4.1 per cent in 2022, and 2.0 per cent in
2023. There was also a 0.4 percentagepoint downgrade of projected output
growth in the euro area to 3.9 per cent
in 2022, and 2.5 per cent in 2023.
Projected output growth in the UK was
downgraded by 0.3 percentage point to
4.7 per cent in 2022, and 2.3 per cent in
2023.

In the emerging market and developing
economies, output was projected at 4.8
per cent in 2022, and would remain
steady at 4.7 per cent in 2023. However,
in the Emerging and Developing Asia,
projections
had
been
revised
downwards by 0.4 percentage points to
5.9 per cent in 2022 and 5.8 per cent in
2023. China’s output growth is projected
at 4.8 per cent in 2022, and 5.2 per cent
in
2023,
backed
by
deteriorating
conditions in the housing sector, lower
prospects
for
employment
in
the
construction
sector,
and
mobility
restrictions to achieve a strict zeroCOVID strategy.

Output was projected to grow at 2.4 per
cent in the Latin America and the
Caribbean Group in 2022 and 2.6 per
cent in 2023. A stronger monetary policy
response to curtail inflation is expected
to negatively affect domestic demand
in Brazil and Mexico. Also, lower output
growth in the US is expected to dampen
the
prospects
of
stronger
external
demand in Mexico. Thus, output growth
in Brazil is projected at 0.3 per cent in
2022, and 1.6 per cent in 2023. Similarly,
output growth in Mexico is projected at
2.8 per cent in 2022, and 2.7 per cent in
2023.

In Emerging and Developing Europe,
output growth is estimated at 3.5 per
cent in 2022, and 2.9 per cent in 2023.
Output in Russia is anticipated to grow at
2.8 per cent in 2022, and 2.1 per cent in
2023. The marginal downgrade from
G
CBN Monetary Policy Review

October 2021 WEO reflects an expected
weak harvest and a possible third wave
of the COVID pandemic in the country.
In Sub-Saharan Africa, output growth
was projected at 3.7 per cent in 2022,
and 4.0 per cent in 2023. Business
sentiment in South Africa remained
subdued and is expected to negatively
impact investment. Thus, output growth
in South Africa is estimated at 1.9 per
cent in 2022, and 1.4 per cent in 2023.
Output growth in Nigeria is projected to
remain steady at 2.7 per cent in 2022
and 2023.


Table 4.1 Global Output and Inflation Outlook

2022*
2023*
A. World Output


World Output

Advanced Economies

USA

Euro Area

Japan

UK

Canada


Other Advanced Economies

Emerging & Developing Economies

Latin America and the Caribbean

The Middle East and Central Asia Africa

Sub-Saharan Africa

B. Commodity Prices (US Dollars)


Oil

Non-fuel

C. Consumer Prices


Advanced Economies
1.4


Emerging & Developing Economies

Source: IMF WEO, January 2022
*Forecast


CBN Monetary Policy Review

4.2
Outlook for Global Inflation
Outlook for global inflation remained
elevated in the near-to-medium term as
commodity prices continue to recover
on the back of increased demand
associated with the sustained recovery
of global output growth.

With the continued easing of COVID-19
restrictions, resumption of airline services,
and leisure & entertainment industries,
aggregate demand will likely receive
boost which may increase the pace of
price development in the short to
medium term. Inflation is, thus, expected
to
rise
substantially
above
prepandemic levels, thus necessitating a
response from central banks in the short
term.

The various indicators discussed thus far,
point to a highly uncertain outlook for
inflation.
The
baseline
projections
indicate that inflation is expected to
moderate to its pre-pandemic range in
2022, as supply-demand mismatches
are resolved. This is motivated by three
pieces of evidence: Firstly, labour market
slack remains large, even as job postings
have increased, with employment rates
typically below their pre-shock levels.
Secondly,
in
large,
advanced
economies, inflation expectations are
still
well
anchored,
according
to
benchmark market-based measures.
Finally, structural factors that have
lowered the sensitivity of prices to
shrinking labour market slack such as
increasing
automation
continue
to
operate
or
are
even
intensifying.
However, the lagged pass-through to
broader inflation from higher food and
oil prices for importers means that price
pressures
are
anticipated
to
stay
elevated into 2022 in some emerging
markets and developing economies. In
economies where the stock of vacant
dwellings is low, the pandemic shock
and low borrowing costs have also
spurred an increase in house prices.

Table 4.2 Global Inflation Outlook

2021*
2022*
Global Outlook
3.2
3.1
3.5
Advanced
Economies
0.4
2.0
1.8
USA
1.2
4.3
3.5
Euro Area
0.3
2.2
1.7
Japan
0.0
-0.2
0.5
Emerging &
Developing
Economies
3.1
5.7
2.3
China
2.4
1.1
1.8
Russia
3.4
5.9
4.8
India
6.2
5.6
4.9
Sub-Saharan Africa
10.3
10.7
8.6
Nigeria
13.2
16.9
13.3
Ghana
9.9
9.3
8.8
Angola
22.3
24.4
14.9
LIC
13.1
10.6
8.3
Ethiopia
20.4
25.2
.
Source: IMF WEO, October 2021
*Forecast

4.3 Outlook for Domestic Output Growth
The domestic economy is projected to
sustain its growth trajectory in the first half
of 2022. This is predicated on the
implementation
of
the

-2025
national
development
plan,
improvement in aggregate demand,
recovery in global commodities prices,
and positive impact of CBN interventions
CBN Monetary Policy Review

in
growth-enhancing
sectors.
The
downside risk to the growth prospects
remained
the
intractable
security
challenges; including banditry, farmers
and pastoralists clashes, kidnapping and
other terrorist activities that constitute
disruptions to the production chain,
particularly in the northern part of the
country. Furthermore, the rising cases of
COVID-19 infections across the globe
and the emergence of more infectious
variants could precipitate restrictive
measures which would severely affect
income
and
compress
aggregate
demand. Other downside risks include
foreign exchange pressures; capital flow
reversals;
a
deficit
in
critical
infrastructure; rising public debt; and
narrow fiscal space.

Consequently,
the
International
Monetary Fund (IMF) projected Nigeria’s
output growth for 2022 at 2.7 per cent,
while the World Bank estimated the
growth at 2.8 percent. Staff projections
at the Central Bank of Nigeria (CBN)
forecasts real GDP growth at 2.72 per
cent in 2022. The projection for real GDP
growth was based on assumption of
crude oil prices of US$80 per barrel.


Table 4.3: Possible Variations in Nigeria’s GDP growth outlook
PESSIMISTIC
BASELINE
OPTIMISTIC
Scenario 1
Scenario 1 COP-$60/b
COP-$60/b Scenario 2
Scenario 2 COP-$65/b
COP-$65/b Scenario 3
Scenario 3 COP-$70/b
COP-$70/b Scenario 4
Scenario 4 COP-$75/b
COP-$75/b Scenario 5
Scenario 5 COP-$80/b
COP-$80/b Scenario 6
Scenario 6 COP-$85/b
COP-$85/b Scenario 7
Scenario 7 COP-$90/b
COP-$90/b
2020Q4

2021Q1

2021Q2

2021Q3

2021Q4f

2021f

2022Q1f

2022f

Source: CBN Staff Estimates

CBN Monetary Policy Review

4.4 Outlook for Domestic Inflation
Headline inflation is projected to
reverse
the
upward
movement
experienced since December 2021. The
year-on-year
headline
inflation
is
expected to decline to 15.52, 15.15, and
14.73 per cent in January, March, and
May 2022, respectively from 15.63 per
cent in December 2021. Staff projections
indicate that inflation is expected at
14.48 per cent by end-June 2022, above
the
upper
limit
of
the
indicative
benchmark of 6–9 per cent. Upside risk to
inflation in the near-term remains a
combination of monetary and structural
factors, including the continuing impact
of
COVID-19
on
the
economy,
(especially with the new wave of the
Omicron
variant)
which
further
heightens macroeconomic uncertainty.
Others include expectations of fuel
subsidy
removal,
lingering
insecurity/banditry
in
agricultural
producing areas of the country thereby
causing food shortages, implementation
of the 2022 budget, and electioneering
expenses
in
preparation
for

elections. Other factors which could
potentially induce inflationary pressure
include
increased
fiscal/quasi-fiscal
interventions,
rising
fiscal
deficits,
exchange rate pressures due to a ban
on the sale of forex to BDCs, and capital
flow reversals. Some attenuating factors,
however, include the broadly loose
stance
of
monetary
policy
and
increased intervention in the agricultural
sector to support growth recovery. As
the Bank continues to manage liquidity
conditions
through
a
mix
of
conventional and heterodox policies in
the domestic economy, inflationary
developments will be monitored to
ensure that the risks of inflation to growth
and financial stability are minimized.


CBN Monetary Policy Review

Table 4.4: Inflation Forecast
YEAR-ON-YEAR INFLATION RATE

12-MMA INFLATION RATE
Status
Month
Headline
inflation
Food
inflation
Core
inflation
Status
Month
Headline
inflation
Food
inflation
Core
inflation
Actual
Jul-21
17.38
21.03
13.72
Actual
Jul-21
0.93
0.86
1.31
Aug-

17.01
20.35
13.41
Aug-

1.02
1.06
0.77
Sep-

16.63
19.57
13.74
Sep-

1.15
1.26
1.24
Oct-

15.99
18.34
13.24
Oct-

0.98
0.91
0.80
Nov-

15.40
17.21
13.85
Nov-

1.08
1.07
1.26
Dec-

15.63
17.37
13.87
Dec-

1.82
2.19
1.12
Forecast
Jan-

15.52
16.92
13.72
Forecast
Jan-

1.40
1.44
1.12
Feb-

15.40
16.66
13.42
Feb-

1.43
1.66
0.94
Mar-

15.15
16.39
13.22
Mar-

1.34
1.67
0.89
Apr-

14.98
16.12
12.96
Apr-

0.82
0.76
0.76
May-

14.73
15.92
12.69
May-

0.79
0.88
0.99
Jun-

14.48
15.70
12.42
Jun-

0.84
0.93
0.58
Source: NBS, and CBN Staff Estimates

Figure 4.1: Fan Chart of Inflation Forecast

Source: CBN Staff Estimates


CBN Monetary Policy Review

4.5
The Outlook for Monetary Policy
in The First Half of 2022
The
Medium-Term
Expenditure
Framework
(MTEF)
of
the
Federal
Government of Nigeria will continue to
provide the anchor for the Bank’s
monetary
policy
formulation
and
implementation in the first half of 2022.
The objective of monetary policy during
the period remains the achievement of
price and financial system stability with
inclusive growth. In line with the MTEF,
the CBN would manage expectations,
provide time-consistent policies and
react to temporary shocks to strengthen
the ongoing recovery and maintain the
external and internal balance of the
economy.

The Bank will continue to observe global
developments
as
they
affect
the
Nigerian economy. The risks to global
output
may
include
uncertainties
surrounding
the
evolution
of
new
variants of the COVID-19 virus, as well as
the pace of vaccine uptake; rising
consumer
prices
in
advanced
economies and consequent monetary
policy normalization. The IMF World
Economic
Outlook
(WEO)
projects
global growth to moderate from 5.9 in
2021 to 4.4 per cent in 2022 (WEO,
January 2022). The growth prospects
were limited due to the spread of the
new Omicron COVID-19 variant, forcing
countries
to
reimpose
mobility
restrictions; coupled with rising energy
prices
and
supply
disruptions
that
resulted in higher and more broadbased inflation, notably in the United
States and many emerging markets and
developing economies. There is also the
ongoing retrenchment of China’s real
estate
sector;
and
slower-thanexpected
recovery
of
private
consumption.

With regards to the domestic economy,
monetary policy may face challenges
including
unabating
inflationary
pressures; security challenges which
continue to pose significant risks to
medium-term growth with the potential
effect on other key macroeconomic
indicators. These include rising level of
domestic debt which could dampen
investor confidence in the domestic
financial markets, uncertainty around
fuel subsidy removal with implications on
prices, and uncertainty around crude oil
prices given the complex interplay of
political and economic factors at the
global level, with implication for external
reserves accretion and exchange rates.
Monetary
policy
formulation
and
implementation will therefore aim at
containing these challenges to achieve
price and financial system stability
supportive of inclusive growth.

4.6 The Risks to the Outlook

4.6.1 Risks to the Global Output
The
evolution
of
the
pandemic
remained the principal downside risk to
global output growth, given the slow
global suppression of the disease. The risk
stems from the emergence of more
infectious, deadly, and vaccine-resistant
variants. All regions thus remained
exposed to renewed outbreaks of the
pandemic. This uncertainty coupled with
CBN Monetary Policy Review

unequal vaccine access and high
vaccine hesitancy had hampered the
ability of some countries to fully reopen
and further increased the divergence in
economic prospects across regions.
According to the IMF (Oct 2021 WEO),
nearly 60 per cent of the population in
advanced
economies
were
fully
vaccinated while 96 per cent of the
population
in
low-income
countries
remained unvaccinated. Moreover, the
resurgence of the pandemic through
the highly transmissible Delta variant had
also increased socio-economic risks and
vulnerabilities in many countries, further
heightening
the
downside
risks
to
growth. Although the economic impact
of the Delta variant has been relatively
mild in countries with high vaccination
rates,
particularly
most
advanced
economies, growth prospects have
been significantly lowered in other
regions,
particularly
low-income
countries and some emerging market
economies.

In terms of production, the effect of the
renewed pandemic outbreaks on the
global supply chain have fuelled supplydemand mismatches and accentuated
inflationary pressures in many advanced
economies.
This
had
been
compounded by labour shortages in
some service sectors, higher energy
prices, as well as higher shipping and
commodity prices. Other downside risks
to
global
output
growth
include:
tightening financial conditions amplified
by elevated debt levels, rising food
prices as well as rising conflict and social
unrest. In addition, the growing adverse
social and economic effects of climate
change, particularly the rise in global
temperatures and other natural disasters
have constituted further constraints on
growth in the near to medium term.

4.6.2 Risks to Domestic Output
According to the IMF January 2022
WEO Update, the Nigerian economy is
forecast to grow by 2.7 per cent in 2022
and 2023, following an improvement of
3.0 per cent in 2021. The projection is
anchored on improved performance of
both oil and non-oil sectors. The oil sector
is
expected
to
improve
due
to
anticipation of growing global demand,
and increased oil production quota as
the economies continue to remain open
and production activities continue to rise
in the advanced economies. The non-oil
sector is expected to sustain its recovery
due to the sustained interventions by
both fiscal and monetary authorities to
stimulate the economy. However, the
risk
to
the
outlook
remains
rising
inflationary
pressure
in
advanced
economies, re-emergence of a new
and more deadly strain of COVID-19,
and legacy structural and security
challenges which continued to hinder
the full recovery of the output growth.

4.6.3 Risks to Domestic Inflation Outlook
The headline inflation has remained
above the upper band of the Central
Bank of Nigeria's inflation benchmark
range of 6.0-9.0 per cent despite the
gradual rise in economic activities,
following CBN and Federal Government
incentives in the real sector. However,
inflation is expected to moderate in the
CBN Monetary Policy Review

medium-term during 2022 owing to the
increased output of some agricultural
products
and
the
effective
implementation
and
monitoring
of
various CBN intervention schemes in the
real sector. The depreciation of the
naira, insecurity in major food-producing
areas, large fiscal deficits and debt
overhang, upward pressure on the price
of diesel, and high cost of electricity
could, however, dampen the rate of
moderation in prices in the medium
term.

Supply chain disruptions in farming
communities owing to banditry and
kidnapping;
lingering
supply
chain
interruptions as a result of insecurity
along major logistic channels and poor
road
networks
connecting
farming
communities to major towns and cities;
the general increase in insecurity in both
urban and rural areas; and seasonal
shocks could also impact on prices. The
anticipation of a further increase in the
pump prices of premium motor spirit
(PMS), as well as the exchange rate
pass-through effect could also exert
pressure on the overall price level.


CBN Monetary Policy Review

APPENDICES

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO.

OF
THE
MONETARY POLICY COMMITTEE MEETING
HELD ON MONDAY 26th AND TUESDAY
27th JULY, 2021

1.0
Background
The Monetary Policy Committee (MPC)
met on the 26th and 27th July, 2021 faced
with cautious optimism for the recovery
of both the global and domestic
economies. The performance of the
global economy in the first two quarters
of the year had been favourable and is
expected to continue for the rest of the
year.
There
is,
however,
renewed
downside risk to this optimism associated
with the fast spread of new and deadlier
strains of the COVID-19 virus. The high
rate of vaccination across the globe
seems promising to drive herd immunity
to
reduce
mortality
rates.
In
the
domestic
economy,
the
continued
support by both the monetary and fiscal
authorities,
is
expected
to
yield
favourable outcomes and hopefully
return the economy to a strong recovery
path in the next few quarters. The
Committee reviewed the developments
in the global and domestic economic
and financial environments over the
second quarter of 2021 and the outlook
for the rest of the year.

Nine (9) members of the Committee
were in attendance at this meeting.


Global Economic Developments
The Committee noted that while there
has been reasonable gains in subduing
the Pandemic, lowering of restrictions
and reopening of several economies,
the fast pace of mutation of new and
deadlier strains of the virus is posing a
downside risk to the full recovery of the
global
economy.
In
addition,
the
uneven access of vaccines across
several countries is a significant risk to the
attainment of global herd immunity.
Despite
the
above
challenges,
governments all over the world have
continued to ease restrictions to enable
the recovery of supply chain networks
and enhance aggregate demand. The
expected rebound in global output
growth is dependent, therefore, on the
efficient
deployment
of
COVID-19
vaccines with the expectations that the
evolving deadlier strains would be
subdued. Even with the current outlook,
the International Monetary Fund (IMF)
projects global growth at 6.0 per cent in
2021, compared with the last projection
of 5.5 per cent. In line with this, the
Advanced Economies are projected to
grow at 5.1 per cent while the Emerging
Markets and Developing Economies are
projected to grow at 6.7 per cent.

Price
development
across
several
economies
is
expected
to
remain
moderate in the short to medium term
with some prospects of a mild uptick. The
Committee further noted the rise in
inflation above the long run objectives of
some
key
Advanced
Economies,
although reported as transient and
therefore not expected to lead to an
CBN Monetary Policy Review

adjustment of the stance of monetary
policy. There however, remains the
lingering risk of an early return to
monetary policy normalization, should
price development continue to trend
upwards.
Across
several
Emerging
Market and Developing Economies,
inflationary trend was on average
mixed, with some of the economies
recording higher rates, compared with
their peers. This was largely due to
exchange rate pressures, capital flow
reversals, high energy costs, weak supply
chains and poor response to policy
stimulus to combat the macroeconomic
slowdown
associated
with
the
Pandemic.

In the global financial markets, the
Committee
noted
the
increased
demand
for
equity
securities,
an
indication
of
improved
investor
confidence in the global recovery. In
addition, it observed the progressive
weakening of long-term sovereign bond
yields, as the demand for equities pick
up.
The
MPC
further
noted
the
moderation
in
the
price
of
gold,
signaling reduced demand, as investors
return to the financial markets. The
unprecedented stimulus provided by
monetary and fiscal authorities to ease
the impact of the Pandemic has,
however, heightened the risks of global
financial crisis post-Pandemic and calls
for central banks across the globe to
remain vigilant, should the need for
sudden policy adjustments arise.


Domestic Economic Developments
Real Gross Domestic Product (GDP)
grew by 0.51 per cent in the first quarter
of 2021, compared with 0.11 per cent in
the preceding quarter. In the non-oil
sector, Agriculture and Industry subsectors, were the major drivers of growth,
with growth rates of 2.28 and 0.94 per
cent, respectively. The oil sector, year-on
year, contracted by -2.21 per cent in first
quarter of 2021, compared with -19.76
per cent in the previous quarter. The
weak performance in the oil sector was
attributed to several factors, including
the declining quality of oil infrastructure,
lack of new investment in the sector and
the need to comply with the OPEC+
production quota.

The
Committee
noted
that
the
Manufacturing Purchasing Managers’
Index (PMI), improved to 46.6 index
points in July 2021, compared with 45.5
index points in June 2021. Though it
remained below the 50-index point
mark, the improvement is an indication
of gradual recovery of output growth in
the economy. The Non-Manufacturing
Purchasing Managers’ Index (PMI) also
increased to 44.8 index points in July
2021, compared with 43.0 index points in
June 2021.

The employment level index for July 2021
stood at 46.5 index points, relative to the
preceding month’s figure of 45.0, but,
remained below the 50.0-index point
threshold. The Committee welcomed
the sustained monetary and fiscal
stimulus
to
revamp
the
domestic
economy
and
hoped
that
the
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distribution of vaccines to subdue the
Pandemic will continue unabated.

The Committee noted the continued
moderation in headline inflation (yearonyear) to 17.75 per cent in June 2021
from 17.93 per cent in May 2021, the third
consecutive month of decline. The
decrease was attributed to a marginal
decline in both the food and core
components to 21.72 and 13.09 per cent
in June 2021 from 22.28 and 13.15 per
cent in May 2021, respectively. The MPC
noted that, though, headline inflation
remained well above the ceiling of the
Central Bank’s 6-9 per cent corridor, it
expressed optimism that the current
interventions by the Bank in various
sectors of the economy will further
depress inflationary pressure as output
growth improves and the negative
output gap closes.

On the performance of
monetary
aggregates, the Committee noted that
broad money supply (M3) declined to
2.02 per cent in June 2021, compared
with 2.99 per cent in May 2021. This
development was largely driven by a
slowdown in the growth rate of Net
Domestic Assets (NDA) and Net Foreign
Assets
(NFA).
Net
Foreign
Assets
contracted by 3.65 per cent due to the
contraction of foreign asset holdings of
the central bank, as well as non-interest,
primary mortgage, and microfinance
banks. The marginal decline in Net
Domestic Assets reflected the slowdown
in
aggregate
credit
net,
which
decreased to 4.30 per cent in June 2021,
from 4.79 per cent in May 2021.

Accordingly, aggregate credit at endMay 2021 stood at N24.23 trillion,
compared with N22.68 trillion at endDecember 2020. This represents a yeartodate increase of N1.55 trillion.

Under the Bank’s development finance
initiatives, the Bank granted N756.51
billion to 3,734,938 small holder farmers
cultivating 4.6 million hectares of land, of
which N120.24 billion was extended for
the 2021 Wet Season to 627,051 farmers
for 847,484 hectares of land, under the
Anchor Borrowers’ Programme (ABP); for
the Agribusiness/Small and Medium
Enterprise
Investment
Scheme
(AGSMEIS), the sum of N121.57 billion
was disbursed to 32,617 beneficiaries;
and for the Targeted Credit Facility
(TCF), N318.17 billion was released to
679,422
beneficiaries,
comprising
572,189 households and 107,233 Small
and Medium Scale Enterprises (SMEs).

Under the National Youth Investment
Fund (NYIF), the Bank released N3.0
billion to 7,057 beneficiaries, of which
4,411 were individuals and 2,646 SMEs.
Under the Creative Industry Financing
Initiative
(CIFI),
N3.22
billion
was
disbursed to 356 beneficiaries across
movie production, movie distribution,
software development, fashion, and IT
verticals.

Under the N1.0 trillion Real Sector Facility,
the Bank released N923.41 billion to 251
real sector projects, of which 87 were in
light manufacturing, 40 in agrobased
industry, 32 in services and 11 in mining.
On the N100 billion Healthcare Sector
Intervention Facility (HSIF), N98.41 billion
CBN Monetary Policy Review

was disbursed for 103 health care
projects,
of
which,

are
pharmaceuticals and 77 are in the
hospital services. Similarly, the sum of
N232.54 million was disbursed to 5
beneficiaries under the CBN Healthcare
Sector Research and Development
Intervention (Grant) Scheme (HSRDIS) for
the development of testing kits and
devices for Covid-19 and Lassa Fever.

On
the
National
Mass
Metering
Programme (NMMP), N36.04 billion was
disbursed to 17 Meter Asset Providers, to
nine (9) DisCos, for the procurement and
installation of 657,562 electricity meters.
On
the
Nigerian
Electricity
Market
Stabilization Facility - 2 (NEMSF-2), the
CBN released N120.29 billion to 11
DisCos, to provide liquidity support and
stimulate
critical
infrastructure
investment needed to improve service
delivery and collection efficiency.

On money market development, the net
liquidity position and interest rates in the
economy reflected the impact of the
Bank’s
liquidity
management
operations. Accordingly, the monthly
weighted average Inter-bank Call and
Open Buy Back (OBB) rates rose to 16.87
and 16.39 per cent in June 2021 from
15.95 and 16.18 per cent in May 2021,
respectively.

The
Committee
noted
the
weak
performance of the equities market
despite the recent increasing patronage
by domestic investors. The All-Share
Index (ASI) decreased by 1.28 per cent
to 37,947.18 on July 16, 2021, from
38,437.88 on May 31, 2021. Similarly,
Market Capitalization (MC) decreased
by 1.30 per cent to N19.77 trillion on July
16, 2021, from N20.03 trillion on May 31,
2021.

The MPC noted that the Capital
Adequacy Ratio (CAR) and the Liquidity
Ratio (LR) both remained above their
prudential limits at 15.5 and 41.3 per
cent, respectively. The Non-Performing
Loans ratio (NPLs) at 5.70 per cent in
June

showed
progressive
improvement, compared with 6.4 per
cent in June 2020. The Committee,
however, urged the Bank to sustain its
tight prudential regime to bring NonPerforming Loans (NPLs) below the 5.0
per cent prudential benchmark.

The Committee noted the marginal
increase in the external reserves which
rose to $33.83 billion on 22nd July 2021
from US$32.78 billion as at 30th June 2021.

Outlook
The overall outlook for both the global
and
domestic
economies,
remain
clouded with downside risks despite the
upbeat forecast for a speedy recovery.
These risks include lingering uncertainties
surrounding the path to the termination
of the Pandemic, as new and deadlier
strains of the virus continue to pose a
significant threat to the efficacy of the
COVID-19 vaccines. In addition, the
uneven access to the vaccines across
the globe is undermining the realization
of the current forecast.

Capital
flows
to
emerging
market
economies, remain uncertain as the
CBN Monetary Policy Review

pace of price development in the
advanced economies pick up. While the
US Federal Reserve Bank and other
major
central
banks
have
given
indications that the current rise in
inflation is transitory, and may not require
policy adjustment, inflation is confronted
with a significant upside risk. This may
result in an early return to monetary
policy
normalization,
with
adverse
consequences
for
financial
system
stability.

Available data and forecasts for key
macroeconomic
variables
for
the
Nigerian economy suggest a broad
improvement for the rest of the year. This
is hinged on continued progress with the
containment of the Pandemic, as well as
ongoing monetary and fiscal support. As
a result, the Nigerian economy is
forecast to grow in 2021 by 3.15 per cent
(CBN), 3.0 per cent (FGN) and 2.5 per
cent (IMF).

The Committee’s Considerations
The Committee noted the gradual
recovery in output growth following
positive growth in the first quarter and
improving PMI in subsequent months,
expressing confidence that the second
quarter output result will show further
improvement.

The MPC carefully accessed the options
confronting it in the short to medium
term, analysing the downside risks to
growth and upside risks to inflation. It
commended the continued effort by
both the monetary and fiscal authorities
as well as public health agencies in
stemming the Pandemic and its impact,
thus, returning the economy to a path of
recovery. While the economy has been
gradually reopening, Members noted
that the Pandemic was far from over
and therefore continued to hinder the
recovery. It thus, urged the Presidential
Task Force on COVID-19 to intensify
efforts towards procurement of more
vaccines to ensure that herd immunity is
achieved in Nigeria.

The MPC was concerned about the
broad level of insecurity across the
country, noting its impact on business
confidence
and
overall
economic
activities.
It
noted
the
persisting
insecurity in key commodity producing
areas
and
urged
the
Federal
Government
to
intensify
security
surveillance in farming communities to
ensure uninterrupted farming activities.
Committee
members
expressed
optimism about the likely moderating
impact of the forthcoming harvests on
food prices, as this would contribute to
the
ongoing
broad
reduction
in
headline inflation. The CBN will continue
to release maize from its strategic maize
reserve directly to feed-millers as part of
its strategic response to address rising
food prices and moderate the price of
maize across the country.

Members further noted the contribution
of poor infrastructure to rising domestic
price levels, re-iterating their call to the
Federal
Government
to
prioritize
investment in public infrastructure such
as improved transportation networks,
power supply and telecommunication
facilities. Funding for such projects, the
CBN Monetary Policy Review

Committee noted, could be sourced
through Public-Private-Partnerships, as
well as the issuance of diaspora bonds. It
emphasized the complementary role
these bonds would play to boost foreign
exchange supply, improving accretion
to reserves and easing the exchange
rate pressure.

Notwithstanding, the moderate decline
in market indices, the Committee noted
that the equities market remained in a
good
place,
indicating
sustained
investor confidence in the Nigerian
economy.

The MPC applauded the continued
resilience of the banking system in the
face of severe shocks to both the
domestic
and
global
economies.
Members noted Management’s effort in
maintaining a reasonably low level of
non-performing loans ratio, even though
aggregate credit moderated slightly.
The Committee encourages Nigerian
banks
to
extend
more
credit
to
consumers
and
firms
to
enhance
consumption and production activities
necessary to strengthen the recovery.

Committee
members
noted
the
persistent reduction in remittance of oil
revenue to the Consolidated Revenue
Fund, stemming largely from rising levels
of
cost
under-recovery
and
other
obligations, particularly to Joint Venture
Contracts. The Committee thus, urged
the Government to continue to explore
additional sources of non-oil revenue, as
this would reduce the over dependence
on a single revenue source.

Members applauded the efforts by the
Federal Government to encourage the
use of gas in motor vehicles and the
payment for conversion of 1 million
Premium
Motor
Spirit
(PMS)-driven
vehicles to gas-driven, to reduce overall
cost
of
PMS
consumption.
The
Committee
encouraged
the
participation of private sector initiatives
to
develop
and
expand
modular
refineries while it frowns at cross-border
smuggling of PMS.

The
Committee
also
noted
the
increased contribution of the non-oil
sector to Government revenue in recent
times which reflected the gradual
diversification of the economy and
reduce reliance on crude oil export
proceeds and called for increased
support for the non-oil sector in the
country.

Overall, Members were confident that
the Bank was taking the right steps
toward
the
restoration
of
macroeconomic stability, while noting
the downside risks to growth and the
upside risks to price developments.

The Committee’s Decision
At this meeting, the MPC was delighted
that inflation had begun to trend
downwards, while output growth had
remained
positive.
Committee,
however, was of the opinion that there
was a need to continue to put in place
policy measures that will further and
faster drive down inflation, while at the
same time accelerate output growth to
levels above population growth rate.
CBN Monetary Policy Review

Whereas, the arsenal at its disposal had
almost become fully exhausted, MPC
believe that there is the need to
continue to use those tools that had
been adopted so far, even in a more
aggressive manner. MPC, therefore,
encourage the Bank to continue using its
existing administrative methods to rein-in
inflation by the use of its discretionary
CRR policy to mop-up liquidity from the
banking system as the need arises.

The Committee also encouraged the
Bank
to
continue
the
use
of
its
intervention mechanism to deploy funds
to output-stimulating and employmentgenerating sectors of the economy,
such as, the Targeted Credit Facility,
AGSMEIS,
Agriculture
and
Manufacturing.

In the Committee’s view, the current
situation,
neither
gives
room
for
tightening, as this will hurt output growth,
nor, loosening, as this will exacerbate
inflationary pressures.

On tightening, MPC feels that whereas
this will limit excess liquidity available to
attack the foreign exchange market, it
nevertheless feels that tightening will
reduce money supply and thus, inhibits
the ability of Deposit Money Banks
(DMBs) to create credit that is needed to
stimulate manufacturing output which
could also help to moderate prices.

On loosening, whereas MPC feels this
should transmit into lower market interest
rates which could improve the ability of
obligors to repay their loans and reduce
NPLs, it nevertheless feels loosening
would not only exacerbate inflationary
pressure,
but
this
would
increase
negative
real
rate
of
return
and
discourage investments in the domestic
economy.

Based on the above considerations, the
MPC made the decision to hold all
policy parameters constant; believing
that a hold stance will enable the
continued permeation of current policy
measures in supporting the recorded
growth recovery and macro-economic
stability.

The Committee thus decided by a
unanimous vote to retain the Monetary
Policy Rate (MPR) at 11.5 per cent.
In summary, the MPC voted to:

i
Retain the MPR at 11.5 per cent;
Retain the asymmetric corridor of
+100/-700 basis points around the
MPR;
iii
Retain the CRR at 27.5 per cent; and
iv Retain the Liquidity Ratio at 30 per
cent.

Thank you.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
27th July 2021


CBN Monetary Policy Review

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ NO. 138 OF THE 281ST
MONETARY POLICY COMMITTEE MEETING
HELD ON THURSDAY, 16th AND FRIDAY,
17th SEPTEMBER 2021

1.0
Background
The Monetary Policy Committee (MPC)
met on the 16th and 17th September,
2021, on a relatively comforting note of
a moderate global output growth
recovery and improved global trade.
The
performance
of
the
global
economy in the first two quarters of the
year
and
into
the
third
quarter,
remained
favourable
with
positive
outlook for the rest of the year. However,
cautious
optimism
persists,
driven
primarily by mutating and more fatal
strains of the COVID-19 virus and
disparities in the progress of vaccinations
across several countries. In the domestic
economy, output growth performance
continued to improve, signposting the
positive impact of the unwavering fiscal
and monetary support by both the fiscal
and monetary authorities to revive and
sustain
economic
growth,
post
pandemic. The Committee reviewed
the developments in the global and
domestic economic environments in the
third quarter of 2021, as well as the
outlook for the rest of the year.

Ten (10) members of the Committee
attended this meeting.

Global Economic Developments
The Committee noted the continuing
rebound in the global recovery as
several
advanced
and
emerging
market economies posted promising
second quarter output growth figures,
despite
the
uneven
progress
in
vaccination coverage. The MPC noted
that the uncontained spread of the
COVID-19
virus
continues
to
pose
downside risks to global recovery in 2021
and into 2022. The MPC further noted
that despite the strong output growth
identified
in
some
Advanced
Economies,
several
developing
economies
were
still
lagging
in
vaccination
progress.
Members,
emphasized
that
the
widespread
availability of vaccines, remained vital
to surmounting the Pandemic and
attaining full and all-inclusive recovery of
the
global
economy.
Despite
the
challenges posed by the ongoing
mutation
of
the
coronavirus,
governments across the globe remain
focused on easing business restrictions
and resuscitating economic activities.
Consequently,
the
International
Monetary Fund (IMF), maintained its
aggregate projection for global growth
in 2021 at 6.0 per cent, but increased its
projection for the Advanced Economies
to 5.6 per cent from a previous 5.1 per
cent, while that for the Emerging
Markets and Developing Economies
(EMDEs) was downgraded to 6.3 per
cent from 6.7 per cent.

Price
development
across
several
Advanced Economies has remained on
a sustained uptrend and exceeding
their long run objectives. This is expected
to continue in the short to medium term
as against earlier forecasts that the
upward
shift
was
transient.
CBN Monetary Policy Review

Consequently, several central banks of
advanced economies are currently
considering early commencement of
monetary policy normalization, even
though policy rate adjustments are not
expected in the medium term. Across
several
Emerging
Market
and
Developing
Economies,
inflationary
pressures remained mixed, as some
economies had much higher rates than
their peers, due to lingering exchange
rate pressures, capital flow reversals,
high
energy
costs,
supply
chain
disruptions and poor response to policy
stimulus
resulting
from
structural
bottlenecks.

In the global financial markets, the
Committee noted that while demand
for
equities
remained
strong,
an
indication
of
renewed
market
confidence, gold price still maintained
its post-Pandemic high, reflecting the
hedging by investors against a possible
rebound of the Pandemic. Long-term
sovereign bond yields are expected to
improve with the commencement of
monetary
policy
normalization
by
central banks of advanced economy.
Committee
members,
however,
expressed cautious optimism for a
gradual
normalization
of
monetary
policy by these central banks, as a sharp
retreat of policy stimulus may plunge the
global economy into a financial crisis
again. This may also increase the
uncertainty around the full recovery of
several
Emerging
Market
and
Developing
Economies.
The
MPC,
therefore, called on the Bank to put in
place measures to moderate the likely
impact of the normalization of monetary
policy on the domestic economy.

Domestic Economic Developments
In the second quarter of 2021, there
was a significant improvement in the
real Gross Domestic Product (GDP),
which grew by 5.01 per cent compared
with 0.51 and -6.10 per cent in the
previous quarter and corresponding
quarter
of
2020,
respectively.
This
recovery was attributed to the non-oil
sector, driven by a rebound in services
sector
and
continued
growth
in
agriculture
sector.
The
oil
sector
contracted further by -12.65 per cent
(year-on year) in the second quarter of
2021, compared with -2.21 per cent in
the
previous
quarter.
This
deeper
contraction, was attributed to several
factors: including declining crude oil
production at two crude streams in the
country, associated with leakages in two
major
pipelines;
deteriorating
oil
production infrastructure; poor pipeline
maintenance; and the need to comply
with OPEC+ production ceiling.

The Committee noted the moderate
improvement in both the Manufacturing
and
Non-Manufacturing
Purchasing
Manager’s Indices (PMIs), though still
below the 50-index point benchmark,
showed a marked improvement over
time. In August 2021, the Manufacturing
and non-Manufacturing PMIs improved
to 46.9 index points apiece, compared
with
46.6
and
44.8
index
points,
respectively, in July 2021. This was
attributed to an increase in new orders,
driven largely by rising demand, uptrend
CBN Monetary Policy Review

in
business
activity
and
further
normalization of economic activities.
Similarly, the employment level index
component of the Manufacturing and
non-Manufacturing PMIs in August 2021
improved to 49.4 and 48.8 index points,
respectively, compared with 46.5 and
47.0 index points in July 2021. The
Committee expressed optimism that
with the current level of monetary and
fiscal stimuli, as well as efforts to increase
vaccination and contain the Pandemic,
the economy will continue to improve in
the short-to medium term.

The
Committee
reviewed
the
performance of the Bank’s interventions
to sustain the recovery of output growth
and address the downside risks to other
external and domestic shocks to the
economy.
Interventions
continued
largely in Manufacturing, Agriculture,
Energy/infrastructure and Micro, Small,
and Medium Enterprises (MSMEs).

The Bank under its Anchor Borrowers
Programme
(ABP) has cumulatively
released the sum of N798.09 billion to 3.9
million smallholder farmers cultivating 4.9
million hectares of land across the
country. Out of this for the 2021 wet
season farming, the Bank released the
sum of ₦161.18 billion to 770,000 smallholder farmers cultivating seven (7)
commodities on 1.10 million hectares
across the country. While harvesting for
the

dry
season
under
the
Programme is rounding up, harvesting
activities have commenced for the 2021
wet season cultivation. The Strategic
Maize Reserve Programme of the CBN
has been useful in moderating maize
prices by directly targeting large feed
mill producers. Under its Commercial
Agriculture Credit Scheme (CACS), the
CBN has supported 657 large-scale
agricultural projects, to the tune of
N708.39 billion.

To support MSMEs across the country,
the Bank disbursed N134.57 billion to
38,140
beneficiaries
under
the
Agribusiness/Small
and
Medium
Enterprise
Investment
Scheme
(AGSMEIS), and for the Targeted Credit
Facility (TCF), the sum of N343.21 billion
has
been
released
to
726,198
beneficiaries,
comprising
602,730
households and 123,468 Small and
Medium Enterprises.

Under the Real Sector Facility, the Bank
released the sum of N1.00 trillion to 269
real sector projects, of which 140 are in
light manufacturing, 71 in agro-based
industry, 47 in services and 11 in mining.
Under
the
Healthcare
Sector
Intervention Facility (HSIF), N103.02 billion
has been disbursed for 110 healthcare
projects,
of
which

are
pharmaceutical, 77 hospitals and 6
other healthcare service projects. The
Bank has also disbursed a total of
N145.99 billion under its Non-Oil Export
Stimulation Facility (NESF). The CBN has
revised the guidelines, working with
Nigerian Export-Import Bank to improve
access to the intervention and stimulate
non-oil export growth in Nigeria.

Under the National Mass Metering
Programme (NMMP), N41.06 billion has
been disbursed to ten (10) DisCos, for the
procurement and installation of 759,748
CBN Monetary Policy Review

electricity meters. Under the Nigerian
Electricity Market Stabilization Facility - 2
(NEMSF-2), the Bank has released the
sum of N145.66 billion to 11 DisCos as
loans to provide liquidity support and
stimulate
critical
infrastructure
investment to improve service delivery
and collection efficiency.

In furtherance of its intervention in the
energy sector, the Bank has disbursed
N39.20 billion to six (6) beneficiaries to
improve gas-based infrastructure to
support the Federal Government’s AutoGas Conversion Programme. The Bank
has also encouraged Deposit Money
Banks (DMBs) to participate in the Solar
Connection Facility (SCF) to improve
energy access in the rural areas.

To
promote
entrepreneurship
development among Nigerian youth,
the
Bank
recently
approved
the
implementation of the Tertiary Institutions
Entrepreneurship Scheme (TIES). The
Scheme
is
designed
to
promote
entrepreneurial activities and foster job
creation among Nigerian youths.

The
Committee
applauded
the
continued
moderation
in
headline
inflation for the fifth consecutive month
to 17.01 per cent (year-on-year) in
August 2021 from 17.38 per cent in July
2021. The continued decrease was
attributed to a marginal decline in the
food component to 20.30 per cent in
August 2021 from 21.03 per cent in July
2021.
The
core
component,
also,
declined to 13.41 per cent in August
2021 from 13.72 per cent in July 2021. The
MPC noted that headline inflation
remained
well
above
the
Bank’s
benchmark corridor of 6 – 9 per cent, but
expressed optimism that with sustained
interventions
by
the
Bank,
food
production will continue to improve, thus
moderating headline inflation further.
The Committee, thus, urged the fiscal
authority to build on earlier efforts to
articulate a clear strategy to attract
private
sector
investment
while
resuscitating critical infrastructure to
improve the ease of doing business in
the country.

Members observed that broad money
supply (M3) rose to 5.83 per cent in
August 2021, compared with 2.91 per
cent in July 2021. This was largely driven
by the growth of Net Foreign Assets and
Net Domestic Assets by 12.35 and 4.30
per cent in August 2021, compared with
1.84 and 3.17 per cent in July 2021,
respectively. The growth in Net Foreign
Assets was largely driven by increase in
foreign asset holdings of commercial
and merchant banks. The increase in
Net Domestic Assets reflects the boost to
aggregate credit net, which increased
to 8.14 per cent in August 2021, from 5.71
per cent in July 2021.

In the money market, the monthly
weighted average Inter-Bank Call and
Open Buyback (OBB) rates increased to
13.45 and 12.97 per cent in August 2021
from 10.72 and 11.60 per cent in July
2021,
respectively.
This
increase
reflected the tight liquidity conditions in
the banking system during the review
period as the Bank curtailed excess
system liquidity.
CBN Monetary Policy Review

The
MPC
noted
the
moderate
improvement in the equities market in
the review period, as the All-Share Index
(ASI) increased by 2.67 per cent from
37,907.28 on June 30, 2021, to 38,920.50
on
September
14,
2021.
Market
Capitalization (MC) also increased by
2.63 per cent from N19.76 trillion to
N20.28 trillion over the same period,
reflecting
improvement
in
investor
confidence following the strengthening
of output growth.

The MPC noted that the Capital
Adequacy Ratio (CAR) and the Liquidity
Ratio (LR) both remained above the
prudential limits at 15.2 and 41.7 per
cent, respectively at end-July 2021. The
Committee,
also,
welcomed
the
improvement in the Non-Performing
Loans (NPLs) ratio at 5.4 per cent in July
2021, compared with 5.7 per cent in
June 2021. The Committee thus, urged
the Bank to sustain current efforts to
bring NPLs below the 5.0 per cent
prudential benchmark.

The Committee noted the improvement
in lending to the real sector following the
introduction of the Loans-to-Deposit
Ratio (LDR) in 2019. Industry gross credit
increased by N6.63 trillion from N15.57
trillion at end-May, 2019 to N22.20 trillion
at end-July, 2021. The credit growth was
largely recorded in manufacturing, oil
and gas and agriculture sectors.

The Committee noted the significant
increase in the external reserves which
rose to US$35.97 billion at end-August
2021 from US$33.49 billion at end-July
2021,
representing
an
increase
of
7.41per cent. It also welcomed the
further increase to US$36.03 billion on
September 13, 2021.

Outlook
The outlook for both the global and
domestic economies appears mixed.
This is due to lingering uncertainties over
the end of the COVID-19 pandemic as
well as continued mutation of the virus.
The
slow
and
uneven
pace
of
vaccination in developing economies is
also compromising the achievement of
global herd immunity, thus imposing a
considerable
headwind
to
the
attainment
of
the
global
growth
forecast.

Some
central
banks
in
advanced
economies have given guidance of
intended commencement of monetary
policy normalization as monetary and
fiscal policy across major advanced and
emerging
market
economies
have
remained robust. This would constitute a
further headwind to the full and inclusive
recovery of the global economy due to
the likely rise in cost of capital. The global
economy is confronted with more
headwinds than tailwinds, evidenced by
the multitude of conflicting signals
emerging
from
various
major
economies.

Available data and forecasts for key
macroeconomic
variables
for
the
Nigerian
economy,
suggest
further
rebound in output growth for the rest of
the year. This will however be hinged on
the continued stability in oil price and
robust vaccination in Nigeria and across
CBN Monetary Policy Review

other
countries.
Foreign
exchange
market stability, further reduction in
inflationary pressure in the economy and
continued
interventions
by
the
monetary and fiscal authorities are very
important factors to sustain the recovery
momentum. Consequently, the Nigerian
economy is forecast to grow in 2021 by
2.86 per cent (CBN), 3.0 per cent (FGN)
and 2.5 per cent (IMF).

The Committee’s Considerations
The Committee noted the recovery in
output growth and improving PMIs in the
second quarter and urged the Bank to
maintain the momentum of its current
policy measures to sustain positive and
inclusive real GDP growth.

The increasing level of insecurity in parts
of the country remained a crucial point
of concern for the MPC as its persistence
could
adversely
impact
business
confidence and derail the recovery. It
continued to call on the Federal
Government
to
prioritize
security
surveillance in farming communities as
the increased supply of food would play
a
significant
role
in
stabilizing
macroeconomic fundamentals.

The Committee applauded the steady
but moderate decline in domestic prices
as inflation decelerated for the fifth
consecutive
month
with
forecast
indicating
a
continued
downward
trend. The Committee also welcomed
ongoing efforts towards revitalising the
Nigeria Commodity Exchange (NCX) to
improve the supply value chain, curtail
the speculative activities of middlemen
in
the
agricultural
sector,
and
consequently drive down prices of key
commodities such as paddy rice, maize,
wheat and sorghum, amongst others.

Members
applauded
the
relentless
effort
by
the
Bank
and
other
collaborators in ensuring the eventual
take off of the Nigerian Infrastructure
Corporation (INFRACORP), as this will
improve
the
business
environment,
attract new investment and create new
jobs in the Nigerian economy. The MPC
further emphasised the importance of
investment in transportation networks,
power supply and telecommunication
as these have a multiplier effect on other
sectors of the economy. In addition to
the
INFRACORP
initiative,
Members
urged the fiscal authority not to relent on
other
complementary
infrastructure
initiatives
such
as
Public-PrivatePartnerships
and
engagement
of
Nigeria’s huge diaspora through the
issuance of diaspora bonds to fund
specific projects.

The
MPC
noted
the
moderate
improvement in the equities market and
commended the sustained investor
confidence in the Nigerian economy.
The Committee however called on the
Federal Government to continue to
improve the ease of doing business in
Nigeria to retain the current patronage
of the Nigerian economy by foreign
investors.

Members applauded the continued
resilience of the banking system, noting
the progressive decline in the nonperforming loans ratio, and broad
CBN Monetary Policy Review

improvement in all banking system
parameters, despite the downside risks
posed by the Pandemic to the smooth
running
of
businesses.
While
the
Committee was cognizant of the credit
risks associated with lending in the
current economic climate, it urged
Nigerian banks to extend more credit to
businesses and consumers to facilitate a
seamless recovery of output growth,
reduce unemployment and stabilize
prices.

On the management of the exchange
rate, the Committee applauded the
Bank for improving foreign exchange
supply
in
the
economy
to
meet
legitimate
business
and
consumer
demand. Members thus, urged the Bank
to take further steps to restrict the
activities of unauthorised and illegal
dealers in the foreign exchange market,
stating
that
all
foreign
exchange
transactions must be conducted at the
I&E window to ensure transparency and
stability. The Committee, thus, called on
the Bank to intensify surveillance over
foreign exchange sales and utilisation by
commercial banks and customers, to
ensure
that
operators
adhere
to
stipulated guidelines set by the CBN. The
Bank thus, maintains its resolve to
continue to restructure the foreign
exchange market and will pursue all
recent policies targeted at sanitizing the
market to improve transparency and
proper functioning to eliminate illegal
foreign
exchange
dealers
in
the
economy.

On Government revenues, members
urged the Federal Government to
improve its tax collection in order to
reduce its dependence on oil revenues
and reduce its exposure to countercyclical shocks.

The
Committee
emphasised
the
growing
need
to
improve
the
agricultural value chain, particularly in
key commodity products like cocoa,
palm oil and cashew to diversify the
country’s export receipts. It, therefore,
called
on
the
Bank
to
support
manufacturing initiatives that could
achieve this objective.

The Committee applauded the Bank for
its resilience and robust efforts in
managing the downside risks to growth
and the upside risks to inflation since the
outbreak
of
the
Pandemic,
while
charting a stable path for the economy
to continue to expand its potential
capacity
through
investment
in
infrastructure.

Overall,
the
MPC
assessed
the
headwinds and tailwinds to growth, as
well as, the upside risks to inflation,
noting the immense effort by both the
monetary
and
fiscal
authorities
to
achieve a substantial recovery in output
growth and decrease in inflation. The
Committee urged the Presidential Task
Force on COVID-19 to intensify efforts
toward procurement of more vaccines
and the vaccination of more people to
ensure that herd immunity is achieved.

The Committee’s Decision
The MPC expressed delight at the
robust recovery of output growth during
CBN Monetary Policy Review

the second quarter and the continued
decline in inflation. Members, however,
reiterated the need to put in place
further measures to drive down inflation
and improve real returns on investment.
The
MPC
noted
the
unequivocal
importance of credit growth to the
sustained recovery of output and the
moderation in price development as
supply improves. It thus, called on the
Bank to maintain adequate surveillance
on banks to ensure compliance with its
extant credit policy, while ensuring that
they are not unduly exposed to credit
risks.

The
Committee
also
noted
the
relevance
of
the
Bank’s
suite
of
interventions to the overall system credit,
urging its continued use to fund sectors
with
high
employment-generating
capacity.

MPC weighed the pros and cons of
tightening, holding or loosening the
stance of policy, noting the impact on
output growth, price development,
unemployment and exchange rate.

Members
felt
that
tightening
will
contract the current level of system
liquidity, and thus reduce demand
pressure
in
the
foreign
exchange
market, given that the current MPR at
11.5 per cent, CRR at 27.5 per cent and
liquidity ratio at 30.0 per cent is already
a tightening stance. This will, however,
raise the cost of credit and reduce the
volume of credit to the private sector.
On loosening, the Committee felt that
this would lower retail interest rates and
improve the ability of obligors to repay
their obligations, with a complementary
reduction
in
NPLs.
The
gradual
downward movement of inflation may,
however, be compromised if policy
accommodation is increased, leading
to a further widening of the negative
real interest rate and thus exacerbating
capital outflows as investment in naira
denominated
assets
become
less
attractive. Members considered that a
hold stance would allow the current
recovery of output growth and decline
in inflation to continue smoothly, thus
gradually moving the economy to a
sustainable path before adjustments are
made to the stance of policy. Based on
the above considerations, the MPC
made the decision to hold all policy
parameters constant; believing that a
hold stance will enable the continued
permeation of current policy measures
in supporting the recorded growth
recovery and macro-economic stability.

The Committee thus decided by a
unanimous vote to retain the Monetary
Policy Rate (MPR) at 11.5 per cent. In
summary, the MPC voted to:

i.
Retain the MPR at 11.5 per cent;
ii.
Retain the Asymmetric Corridor of
+100/-700 basis points around the
MPR;
iii. Retain the CRR at 27.5 per cent;
iv. Retain the Liquidity Ratio at 30 per
cent.

Thank you.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
17th September, 2021

CBN Monetary Policy Review

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO.

OF
THE
MONETARY POLICY COMMITTEE MEETING
HELD ON MONDAY 22nd AND TUESDAY
23rd NOVEMBER 2021

1.0
Background
The Monetary Policy Committee (MPC)
met on 22nd and 23rd November 2021,
in light of the continued recovery of the
global economy and improving output
growth in the domestic economy.
Though, the growth outlook for the
global economy for the rest of the year
and into 2022 remains favourable, the
uneven
pace
of
recovery
across
countries has persisted. This was driven
primarily
by
country
and
regional
disparities in COVID-19 vaccination rate,
size of policy support and regional
economic conditions. On the domestic
front, the continued support by the
monetary
and
fiscal
authorities
is
sustaining
the
growth
recovery,
notwithstanding
the
persistence
of
security
challenges
and
legacy
infrastructural
constraints.
The
Committee
appraised
the
developments in the global economy,
international financial environment and
the domestic economy, as well as the
outlook for the rest of the year and the
first quarter of 2022.

Ten (10) members of the Committee
attended this meeting.

Global Economic Developments
Global output growth has remained
upbeat as economic agents defy the
continued threat posed by the sharp rise
in infection rates associated with new
strains of the COVID-19 virus. Despite the
forecast for a robust recovery of the
global economy in 2021, the uneven
pace of vaccination across the globe
and the continued rise in infection rates
by the more fatal and mutating strains of
the COVID-19 virus, suggest that the
current two-speed recovery of the
global economy may persist longer than
anticipated. This may, however, be
remedied if governments across the
globe rally to improve coordination in
the distribution of vaccines to aid the
early
attainment
of
global
herd
immunity. The Committee noted that the
downside risks to the recovery may
persist if the spread of these new variants
is not addressed urgently.

In light of the above dynamics and
associated headwinds, the International
Monetary Fund (IMF) downgraded its
2021 growth forecast for the global
economy from 6.0 per cent to 5.9 per
cent. It also revised the projection for the
Advanced Economies downwards from
5.6 per cent to 5.2 per cent. The
downgrade was, however, offset by an
upgrade of the growth forecast for
Emerging
Markets
and
Developing
Economies (EMDEs) in 2021. Thus, the
forecast for the Emerging Markets and
Developing
Economies
was
revised
upwards to 6.4 per cent from 6.3 per
cent.

Inflation
across
several
Advanced
Economies is expected to continue its
upward trend into 2022, contrary to
earlier expectations of transiency, as
CBN Monetary Policy Review

commodity prices continue to recover
and feeding into energy and goods
prices. This is on the backdrop of rising
demand, associated with the sustained
rebound in global output growth, amid
lingering supply constraints. In response
to the persistence of price development,
the US Federal Reserve Bank has
announced its intention to commence
tapering
its
monthly
bond-buying
programme by the end of November
2021. Other advanced economy central
banks have also indicated the likelihood
of following suit in the short to medium
term. In key Emerging Market and
Developing
Economies,
inflation
remained relatively high compared with
the Advanced Economies. This is mostly
due
to
supply-side
constraints
associated
with
the
Pandemic;
exchange rate pressures; and other
legacy structural problems. The severity
of inflationary pressures in this group of
economies,
however,
varies
across
countries in relation to the specific
structure and dynamics of the individual
economies.

In the global financial markets, equity
prices largely maintained a strong
postlockdown recovery, while investors
continued to maintain a sizeable hedge
in gold, possibly to ease the impact of a
rebound of the Pandemic as infection
rates continue to rise. The financial
markets remained moderately bullish, an
indication that investors remain cautious
in view of the unabating Pandemic.

This is reflected by the price of Gold,
which
has
remained
well
above
prePandemic levels.
Domestic Economic Developments
According to the National Bureau of
Statistics (NBS), real Gross Domestic
Product (GDP) grew by 4.03 per cent
(year-on -year) in the third quarter of
2021, compared with 5.01 and -3.62 per
cent
in
Q2

and
Q3
2020,
respectively. The growth trajectory has
thus, been positive in the last four
quarters following the exit from the
recession in 2020. Quarter-on-quarter,
real GDP grew by 11.07 per cent in Q3
2021 compared with -0.79 per cent in the
preceding quarter. This improvement in
real GDP was driven by growth in both
the oil and non-oil sectors by 12.05 and
10.99
per
cent,
respectively.
The
Committee also noted the continued
improvement
in
the
Manufacturing
Purchasing
Managers’
Index
(PMI),
which though, remained below the 50index point benchmark, rose to 47.3
index points in October 2021 from 46.6
index points in September 2021. This
improvement
indicated
a
gradual
recovery of output growth, driven largely
by the increase in new orders associated
with rising aggregate demand and
upswing in business activities. The NonManufacturing PMI, however, declined
to 47.5 index points in October 2021 from
47.8 index points in September 2021 as
uncertainties persisted around the poor
security situation.

The Committee noted the continued
moderation in headline inflation (yearonyear) to 15.99 per cent in October
2021 from 16.63 per cent in the previous
month, the seventh consecutive month
of decline. The decrease was attributed
CBN Monetary Policy Review

to a marginal decline in both the food
and core components to 18.34 and
13.34 per cent in October 2021 from
19.57 and 13.74 per cent, respectively in
September 2021. Inflation, however,
remained above the Bank’s implicit
tolerance corridor of 6 – 9 per cent and
above its benchmark policy rate of 11.5
per cent despite its progressive decline.
Observing developments in monetary
aggregates, the Committee noted that
broad money supply (M3) grew by 7.10
per cent in October 2021, compared
with 4.72 per cent in September 2021.
This was driven by growth in Net
Domestic Assets (NDA) by 9.12 per cent
in October 2021, compared with 10.71
per cent recorded in September 2021.
Net Foreign Assets (NFA), on the other
hand, contracted moderately by -1.50
per cent in October, compared with -
20.85 per cent in the preceding month.
The continued growth in Net Domestic
Assets (NDA) was largely driven by
increased
claims
on
the
Federal
Government
and
other
public
nonfinancial corporations, private sector
and state and local governments.

In the financial markets, money market
rates oscillated within the standing
facilities
corridor,
reflecting
the
prevailing liquidity conditions in the
banking system. The monthly weighted
average Open Buyback (OBB) rate
increased to 12.18 per cent in October
2021 from 11.11 per cent in September
2021,
while
the
monthly
weighted
average Inter-bank Call rate decreased
from 13.21 per cent in September 2021,
to 10.00 per cent in October 2021. The
increase in the Open
Buyback (OBB) rate reflected the tight
liquidity condition in the banking system.
The
MPC
noted
the
positive
performance of the equities market in
the review period, with the All-Share
Index
(ASI)
and
Market
Capitalization(MC)
increasing
to
43,199.27
and
₦22.55
trillion
on
November 19, 2021, from 39,219.61 and
₦20.43 trillion on August 31, 2021. This
depicts improved investor sentiment,
following impressive corporate earnings
of listed companies on the Exchange.
This has led to a new bargain hunting
drive by investors.

The MPC noted that the Capital
Adequacy Ratio (CAR) and Liquidity
Ratio (LR) both remained above their
prudential limits at 15.2 and 41.2 per
cent, respectively. The Non-Performing
Loan ratio (NPL) at 5.3 per cent in
October 2021, reflected progressive
improvement, compared with 5.7 per
cent in October 2020. The Committee,
however, urged the Bank to sustain its
tight prudential regime to bring the NonPerforming Loan (NPL) ratio below the
5.0 per cent prudential benchmark.

The gross external reserves stood at
US$41.41 billion as at November 18, 2021,
compared
with
US$41.34
billion
in
October 2021, a moderate increase of
0.17 per cent.

Outlook
The overall outlook for both the global
and
domestic
economies
remain
upbeat but for the significant downside
risks clouding the path to full recovery.
CBN Monetary Policy Review

The key risks remain the unabating
COVID-19
pandemic
and
uneven
progress in vaccination. As the US
Federal
Reserve
Bank
commences
scaling down of its monthly bond-buying
programme, there is increased likelihood
that other advanced economy central
banks will follow in the same direction.
With
this
impending
development,
external financial conditions will likely
tighten for most EMDEs, in view of huge
capital flow reversals to the Advanced
Economies as yields rise. This will no
doubt deepen the growth divergence
between
these
two
groups
of
economies.

Forecasts
for
key
macroeconomic
variables for the Nigerian economy,
indicate continuing rebound in growth
recovery for the rest of the year. This is
expected on the back of continued
support by both monetary and fiscal
policy, sustained high crude oil prices
and most importantly, availability of
COVID-19 vaccines as well as high
turnout
for
vaccination
in
Nigeria.
Accordingly, the Nigerian economy is
forecast to grow in 2021 by 3.10 per cent
(CBN), 3.0 per cent (FGN) and 2.6 per
cent (IMF). Inflation is expected to
continue its downward trajectory as the
harvest
season
sets
in
and
the
government works on improving the
security situation to ease the bottlenecks
constraining food supply.

The Committee’s Considerations
The
Committee
commended
the
continued recovery in output growth
following a positive outcome in the third
quarter of 2021.

Based on the current outlook for price
development and growth, Members
carefully
reviewed
the
options
confronting the Committee in the short
to
medium
term,
taking
into
consideration, key downside risks to
growth and upside risks to inflation.
Members reiterated the need to remain
cautious and urged both the monetary
and fiscal authorities to sustain their
support
for
the
recovery,
as
the
Pandemic was yet to be over. The
Committee, however, noted that with
the sustained intervention by the Bank,
economic activities will normalize in the
short to medium term, leading to
improved output growth and lower
inflationary pressure. The MPC also urged
the fiscal authorities to sustain the
current effort to revamp the economy
through continued support to the critical
sectors of the economy.

The continued security challenge across
the country remained a major source of
concern for Members, noting its impact
on
business
confidence,
foreign
investment
inflows
and
overall
economic activities. The persistence of
insecurity in major food producing areas,
remained a key downside risk to the
recovery. The Committee called on
security agencies in the country to
increase their presence in order to boost
public confidence and facilitate the
movement
of
people,
goods
and
services
across
the
country.
With
improved security, especially in these
food
producing
areas,
Members
CBN Monetary Policy Review

expressed optimism that food inflation
will drop significantly following successful
harvests and distribution.

The Committee also commended the
gradual diversification of the economy
with the increased contribution of the
non-oil sector to Government revenues
and called for more support to increase
non-oil exports as a source of foreign
exchange earnings into the economy.

Members also reiterated the impact of
poor infrastructure on rising domestic
price
levels,
urging
the
Federal
Government to prioritize investment in
public utilities to improve the business
environment.
These
include
transportation networks, power supply,
education and health. Following the
President’s recent international call to
investors to channel investments to
Nigeria, Members were of the view that
funding for such projects could be
sourced through equitable partnerships
with foreign investors and Nigerians in
diaspora.

The Committee noted that the equities
market remained in a strong position,
signposting
continued
investor
confidence in the Nigerian economy.
Members thus urged the monetary and
fiscal authorities to build on this sustained
confidence to attract more Foreign
Direct Investment into Nigeria.

The MPC welcomed the continued
resilience of the banking system in the
face of severe shocks to both the
domestic
and
global
economies,
commending the Bank’s Management
for maintaining overall stability in the
banking system. The Committee thus,
called on the Bank to continue to push
for increased intermediation as the way
forward
to
reduce
unemployment,
enhance production, create wealth,
and improve aggregate demand to
strengthen the recovery. On this note,
Members
applauded
the
success
achieved
by
the
Bank’s
various
intervention
schemes,
which
have
contributed to both the demand and
supply sides of the economy.

The
Committee
reviewed
the
performance of the Bank’s various
interventions
aimed
at
sustaining
recovery
of
output
growth
and
addressing the downside risks to other
external and domestic shocks to the
economy.
Interventions
continued
largely
in
manufacturing/industries,
agriculture,
energy/infrastructure,
healthcare
and
Micro,
Small
and
Medium Enterprises (MSMEs). Under the
Targeted Credit Facility, the Bank has
disbursed a total of ₦363.49 billion to
766,719
beneficiaries,
comprising
638,070 households and 128, 649 small
businesses. Under its Agribusiness Small
and
Medium
Enterprise
Investment
Scheme
(AgSMEIS),
the
Bank
has
released
₦134.63
billion
to
37,571
entrepreneurs.

Between September and October 2021,
under
the
Anchor
Borrowers’
Programme (ABP), the Bank disbursed
₦43.19 billion to support the cultivation of
over
250,000
hectares
of
maize,
sorghum, soya beans and rice during the
2021 dry season; and ₦5.88 billion to
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finance six (6) large-scale agricultural
projects
under
the
Commercial
Agriculture Credit Scheme (CACS).

Cumulatively the Bank has disbursed the
total sum of ₦864 billion to 4.1 million
farmers, cultivating 5.02 million hectares.
The bank also disbursed the sum of ₦41.2
billion for the commencement of the
brown revolution, a large-scale wheat
program to wean us off imports by 35 per
cent in the first year.

In addition, the Bank disbursed the sum
of ₦261.92 billion for 42 additional
projects
under
the
₦1
trillion
manufacturing
intervention.
Cumulatively, the bank has disbursed
the sum of N1.08 trillion under this
Scheme. As part of its effort to support
the resilience of the healthcare sector,
the Bank disbursed ₦5.39 billion to Nine
(9)
healthcare
projects
under
the
Healthcare Sector Intervention Facility
(HSIF). The Bank has also cumulatively
disbursed the sum of ₦108.65 billion to
hospitals and pharmaceutical industry.
54 of the 117 projects funded are for
hospital services. Committee was
gratified that the funding under Health
sector has resulted in establishment of
two(2) new Cancer Centers, over 59 MRI
and more than 42 CT Scan Centers in
Nigeria, within the last 18 months. To
further
promote
entrepreneurship
development among Nigerian youth,
the
Bank
recently
approved
the
implementation of the Tertiary Institutions
Entrepreneurship Scheme (TIES). The
Scheme
is
designed
to
create
a
paradigm shift among undergraduates
and graduates of tertiary institutions in
Nigeria, from white-collar jobs towards
entrepreneurship
development.
The
guidelines for the implementation of the
Scheme was recently published, as Bank
of Industry (BOI) is presently partnering
with
the
Bank
for
the
pilot
implementation phase.

Under the National Mass Metering
Programme (NMMP), ₦8.69 billion was
disbursed
to
four
(4)
Distribution
Companies (DisCos) under the scheme’s
Phase-0. The sum of ₦47.66 billion has
been disbursed so far for the acquisition
of 858,026 meters. Also, in furtherance of
its intervention in the energy sector, the
Bank released ₦27.03 billion to power
sector players under the Nigeria Bulk
Electricity Trading Payment Assurance
Facility (NBET-PAF). This is in addition to
the ₦37.69 billion disbursed to eight (8)
Distribution
Companies
(DisCos)
recently, under the Nigeria Electricity
Market Stabilisation Facility (NEMSF-2).

The Bank has disbursed the sum of
₦39.2bn
under
the
Nigerian
gas
expansion program to promote the
migration to compressed natural gas
(CNG)
as
the
preferred
fuel
for
transportation and liquefied petroleum
gas (LPG) as the preferred cooking fuel.
Furthermore,
the
Bank
recently
introduced the 100 for 100 Policy on
Production
and
Productivity
(PPP),
designed to create the flow of finance
and investments to enterprises with
potential to kick-start a sustainable
economic growth trajectory, accelerate
structural
transformation,
promote
diversification, and improve productivity
in the country. It is geared to support
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private sector companies with the aim of
reducing certain imports, increasing
non-oil exports and improving the FXgenerating capacity of the economy.
The Bank will select and finance 100 of
such companies at 100 day intervals, in
line with detailed selection criteria as
contained in the guidelines, and roll this
over for another 100 companies for the
next 100 days.

The Targeted Credit Facility (TCF) was
particularly
highlighted
by
the
Committee
for
its
contribution
to
alleviating poverty at the grassroot. The
Committee thus urged the Bank to
continue its support through the TCF to
ensure that more people benefit from
this programme.

With the announcement to commence
monetary policy normalization by the US
Fed and impending interest rate liftoff by
central
banks
in
some
advanced
economies, the MPC called on the
Federal Government to intensify its drive
towards a counter-cyclical fiscal policy
in view of the imminent tightening of
external financial conditions. Committee
members, therefore, noted with concern
that
the
gradual
normalization
of
monetary policy by this group of
economies would dampen the recovery
of
several
Emerging
Market
and
Developing Economies in the short to
medium term due to the sharp reversal
of capital flows.

The Committee also evaluated the
developments in China relating to the
reoccurring Pandemic, power outages
and crisis in the property market, noting
the likely impact these could have on
Nigeria as a major trading partner.
Members thus called on the Bank to
ensure that the necessary buffers are put
in place to shield the economy from the
downside risks associated with these
developments.

In
general,
Members
expressed
confidence in the ongoing policies of
both the monetary and fiscal authorities
which in their view was the hallmark of
the current recovery and restoration of
macroeconomic stability in Nigeria.
They,
therefore,
called
on
both
authorities to look beyond the current
position and plan towards attracting
sustainable investment flows to Nigeria.
The Committee’s Decision.

At this meeting, MPC was gratified that
its policy actions in the past had started
to
yield
positive
results
given the
remarkable improvement in GDP which
stood at 4.03 per cent during Q3 of 2021
and
the
6th
consecutive
month
moderation in inflation to 15.99 per cent
in October 2021.

Given the level of its conviction about
the
efficacy
of
its
actions
on
macroeconomic variables, MPC felt that
whereas tightening would further help to
rein
in
inflation
aggressively,
it
nevertheless feels that tightening will
increase cost of funds and constrain
output growth.

On the other hand, whereas loosening
will lower policy rates, ease liquidity
pressures,
and
stimulate
additional
credit creation which will boost output
CBN Monetary Policy Review

growth, MPC also thinks that loosening
will further widen the negative real
interest rate gap and compound the
price distortions in the money markets
which could fuel inflationary pressures.
As for whether to hold its existing stance,
MPC believes that the existing monetary
policy stance has supported the growth
recovery and should be allowed to
continue
for
a
little
longer
for
consolidation to achieve the MPC
mandate of price stability that is
conducive for sustainable growth. The
Committee also feels that a hold stance
will enable it to carefully appraise the
implications of the unfolding global
development around policy tapering
and
normalization
by
advanced
economies.

Based on the foregoing, the Committee
decided to hold all policy parameters
constant
to
support
the
enabling
environment for sustained recovery.

The Committee thus, decided by a
unanimous vote to retain the Monetary
Policy Rate (MPR) at 11.5 per cent. In
summary, the MPC voted to:
i
Retain the MPR at 11.5 per cent;
Retain the asymmetric corridor of
+100/-700 basis points around the
MPR;
iii
Retain the CRR at 27.5 per cent; and
iv Retain the Liquidity Ratio at 30 per
cent.

Thank you.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
23rd November 2021