CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 125 OF THE
MONETARY POLICY COMMITTEE MEETING OF MONDAY 22nd AND
TUESDAY 23rd July, 2019
The Monetary Policy Committee (MPC) met on the 22nd and 23rd of
July, 2019, in an environment of subdued global growth and
fragile domestic economic recovery. The Committee reviewed
developments in the global and domestic macro-economy. It
noted that the global environment
is overwhelmed with
vulnerabilities and financial fragilities. Inflation in the advanced
economies is trending downwards and significantly below the
long-run objective, necessitating the adoption of accommodative
monetary policy, the global economy is poised to see another
round of loose monetary policy. All Eleven (11) members of the
Committee were at the meeting.
Global Economic Developments
Global output growth remained weak with persistent headwinds
expected to continue for the rest of the year. Key amongst these
headwinds is the rising trade tensions, particularly between the US
and its key trading partners in Europe, Canada, China and India,
rising debt levels in some Advanced Economies and Emerging
Markets and Developing Economies (EMDEs) as well as growing

political uncertainties across several regions. Consequently, the
International Monetary Fund (IMF) downgraded its 2019 global
growth forecast from 3.6 per cent to 3.3 per cent.
Price developments across the major advanced economies
remained muted alongside softening output growth. In the
Emerging Markets and Developing Economies (EMDEs), however,
inflationary developments were mixed in response to challenging
macroeconomic conditions. The Committee noted, that the return
to monetary accommodation by the advanced economies could
see a new wave of capital flows to the EMDEs as investors
continue to search for higher yields.
Domestic Economic Developments
Available data from the National Bureau of Statistics (NBS) showed
that real Gross Domestic Product (GDP) grew by 2.01 per cent in
the first quarter of 2019, driven by the non-oil sector, compared
with 2.38 and 1.89 per cent in the preceding and corresponding
quarters of 2018, respectively. The Committee noted the
continued but moderate expansion in the economy as indicated
by
the
Manufacturing
and
Non-Manufacturing
Purchasing
Managers’ Indices (PMI), which grew for the 27th and 26th
consecutive months in June 2019. The indices stood at 57.4 and
58.6 index points, respectively, in June 2019. Staff forecast indicate
a 2.11, 2.39 and 2.56 per cent growth in GDP in Q2, Q3 and Q4
2019, respectively, expected to be driven largely by the non-oil
sector. The Committee, however, noted that the downside risks to

the growth projections to include low credit to the private sector;
high unemployment; delayed intervention of fiscal policy as well
as low revenue and fiscal buffers, amongst others. The continued
intervention by the Bank in the real sector is, however, expected
to partly ameliorate the downside risks only in the short-run, while
sound fiscal policy is expected to drive growth in the medium to
the long-run.
The Committee observed that broad money supply (M3) grew by
4.97 per cent in June 2019 from the level at end-December 2018,
at an annualized rate of 9.95 per cent. It was also below the
indicative benchmark of 16.08 per cent for 2019. The growth in M3
was largely driven by the increase in Net Domestic Credit (NDC),
which grew by 17.26 per cent in June 2019 from the level at endDecember 2018. The growth in Net Domestic Credit (NDC) was
accounted for by the significant increase in credit to Government,
which grew by 55.80 per cent, while credit to the private sector
grew by 9.0 per cent in June 2019. The Committee, however,
noted that the constrained growth in the monetary aggregates as
an indication of weak financial intermediation in the banking
system and called on the Management of the CBN, to sustain the
various initiatives of the Bank to improve lending to the private
sector in Nigeria.
The Committee welcomed the moderation in headline inflation
(year-on-year) to 11.22 per cent in June 2019 from 11.40 per cent
in May 2019. This was attributed to the decline in the Food and
Core components to 13.56 and 8.80 per cent in June 2019 from

13.70 and 9.03 per cent in May 2019, respectively. It noted the
development as being partly due to the CBN’s support to the
agricultural sector and the prevailing stability in the Nigerian
foreign exchange market. The MPC further noted that although
inflation moderated in June 2019, the continued pressure on
prices continues to be associated with structural factors such as
the high cost of electricity, transport and production inputs. The
MPC, however, expects that with the commencement of the
harvest season, food prices will taper further downwards. It thus,
however, advised that the security challenges in some parts of the
country should be addressed urgently to increase agricultural
produce in order to sustain the downward trend in inflation. The
MPC reiterated its commitment to ensure the maintenance of
price stability.
The net liquidity position and interest rates in the economy
reflected the impact of liquidity injections and the Bank’s liquidity
management operations
associated with fiscal federalism,
transformation of maturing CBN Bills, Open Market Operations
(OMO)
auctions
and
foreign
exchange
interventions.
Accordingly, the monthly weighted average Inter-bank call and
Open Buyback (OBB) rates, oscillated within the MPR corridor,
increasing to 8.38 and 8.71per cent in June 2019 from 5.14 and
8.34 per cent in May 2019, respectively.
The Committee noted with concern the continued bearish trend
in the equities segment of the capital market in spite of the
sustained capital inflow to the economy, reflecting continued

portfolio reallocation from equities to fixed income securities.
Consequently, the All-Share Index (ASI) declined by 9.11 per cent
to 28,566.79 index points on July 12, 2019, from 31,430.50 index
points at end-December 2018. Market Capitalization, however,
grew by 18.77 per cent to N13.92 trillion on July 12, 2019, from
N11.72 trillion at end-December 2018. This was due largely to the
additional listing of new firms during the review period.
The Committee welcomed the continued stability in the foreign
exchange market and the steady accretion to external reserves,
which stood at US$44.88 billion as at July 19, 2019, representing a
0.38 per cent increase from US$44.71 billion at the end-June 2019.
The MPC also noted the steady moderation in the Non-Performing
Loans (NPLs) ratio of the banking industry to 9.36 per cent in June
from 10.95 per cent in May 2019. While this remained above the
prudential benchmark of 5.0 per cent, its continued moderation
indicates the improved resilience of the banking system. The
Committee thus emphasised its resolve to further drive down the
Non-Performing Loans (NPLs) in the industry so as to strengthen the
strategic health of banks in the Country.
Outlook
The overall medium-term outlook for the global economy remains
mixed with indications of continued softening of global output
due
to
persisting
policy
uncertainties
and
sustained
macroeconomic
vulnerabilities.
These
are
likely
to
be
accentuated by the increasing trade tensions between the US

and its major trading partners, rising debt levels and geo-political
tensions.
On the domestic economy, output growth in 2019 is expected to
remain weak, peaking at 2.27 per cent, while inflation is projected
at 11.37 per cent by the CBN staff projections by end-2019. The
underlying arguments in favour of this forecast include: favourable
oil prices; stable exchange rate; moderate inflationary pressures;
enhanced flow of credit to the private sector; sustained CBN
interventions in the real sector; effective implementation of the
Economic Recovery and Growth Plan (ERGP); building fiscal
buffers; and improved security in the food producing areas of the
country.
Committee’s Consideration
In its considerations, the Committee noted the need to boost
output growth through sustained increase in consumer credit and
mortgage loans and granting loans to our Small and Medium
Enterprises companies. It also observed that the Management of
the Bank had started the prescription of using benchmark loan-todeposit ratios to redirect the banks focus to lending. To mitigate
credit risk, the Committee enjoined the Management of the Bank
to de-risk the financial markets, via the development of a reliable
credit scoring system, similar to what applies in the advanced
countries as this will encourage Deposit Money Banks (DMBs) to
safely grow their credit portfolios.

The MPC called on the fiscal authorities to expedite action on
expanding the tax base of the economy to improve government
revenue and stem the growth in public borrowing. It further urged
the
fiscal
authorities
to
build
fiscal
buffers
to
avert
macroeconomic downturn in the event of a decline in oil prices.
The Committee also called on the Bank to intensify efforts to
encourage Nigerians in the diaspora to use official sources for
home remittances, noting that the effort will complement other
measures geared towards improving Nigeria’s current account
balance. It enjoined the Bank to consider introducing incentives
such as the reduction of charges on diaspora home remittances
into Nigeria.
On the African Continental Free Trade Agreement (AfCFTA), the
Committee urged the Federal Government to put in place
measures to aid the economy in realising the benefits and full
potentials of that Agreement. In particular, it noted the need to
resuscitate moribund industries in Nigeria and improve key
infrastructure in order to strengthen the productive base of the
economy, create job opportunities as well as boost exports.
The Committee noted the positive developments towards the
creation of a common currency in the West African Zone by
January 2020 and commended Government and the Central
Bank for pushing forward the initiative. The Committee, however,
enjoined the Bank to ensure that Nigeria is properly positioned to
maximise the benefits of monetary integration.

In consideration of the specific policy options to adopt; to hold,
loosen or tighten, the MPC made the following observations:
(i)
Whilst the focus on growth was imperative, the mandate of
price stability remains sacrosanct;
(ii)
Given the happenings in the external sector and the fact
that inflation is moderating, tightening of monetary policy should
not be an option at this time, as restriction of the capacity of the
DMBs to create money could curtail their credit creation
capabilities.
On the contrary, the Monetary Policy Committee (MPC) was of
the view that, whilst loosening could increase money supply,
stimulate
aggregate
demand
and
strengthen
domestic
production, the economy could be awash with liquidity especially
if
loosening
drives
growth
in
consumer
credit
without
commensurate adjustment in aggregate output.
On holding the current monetary policy position, the Monetary
Policy Committee (MPC) observed that given the recent actions
of the Bank’s management involving the prescription of minimum
lending thresholds by the deposit money banks to our Deposit
Money Banks (DMBs), it is safe to assume that this action, targeted
at stimulating credit growth to the real sector would increase
credit delivery to the real sector and accelerate investment and
economic growth. It also observed that since interest rates were
currently trending downwards, it is safer to await the full impact of

these policy actions on the economy before a review of the
position of monetary policy.

The Committee’s Decision
In consideration of the foregoing, the Committee decided
unanimously by a vote of all members present to retain the
Monetary Policy Rate (MPR) at 13.5 per cent and to hold all other
policy parameters constant. The decision was informed by the
conviction of members that key macroeconomic indicators are
trending in the right direction.
Consequently, the MPC unanimously voted to:
I. Retain the MPR at 13.5 per cent;
II. Retain the asymmetric corridor at +200/-500 basis points around
the MPR;
III. Retain the CRR at 22.5 per cent; and
IV. Retain the Liquidity Ratio at 30 per cent.

Thank you.
Godwin I. Emefiele
Governor, Central Bank of Nigeria
23rd July, 2019