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CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 149 OF THE MONETARY
POLICY COMMITTEE MEETING
HELD ON MONDAY 24th AND TUESDAY 25th JULY 2023
The Monetary Policy Committee (MPC) met on the 24th and 25th of July
2023, against the backdrop of continued uncertainties in the global and
domestic economies. This included geo-political tensions, threats to
globalization and the multilateral economic system. On the domestic
front, output growth continued at a moderate pace, while the general
price level remained elevated as markets adjust to the new policies
introduced by the
Federal
Government. Consequently, these
developments at both the global and domestic levels continue to pose
significant challenges to the policy environment.
The Committee assessed these developments and the outlook for the
rest of the year.
Eleven (11) members of the Committee attended this meeting.
Global Economic Developments
The Committee reviewed developments impeding the smooth recovery
of the global economy. Notable amongst these, is the continued
hostility between Russia and Ukraine, as Russia reneged from further
renewal of the Black Sea Agreement. This development would likely
push commodity prices much higher than current levels. In addition,
China’s slow recovery is dampening global trade, while the increasing
polarization of the global economy with several economies seeking

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macroeconomic alliances with the group of BRICS countries, is
increasing uncertainty in the direction of trade flows.
Inflation across several Advanced Economies has continued to
moderate but remains considerably above their respective long-run
objectives even as monetary policy tightening progresses. In the
Emerging Markets and Developing Economies, inflationary pressure
remains broadly elevated, though there are signs of moderation in some
countries. Global Inflation is, thus, expected to remain elevated through
2023, despite broad measures by several central banks to ease the
pressure.
In the global financial markets, financial conditions remain tight and
may exacerbate further as monetary policy normalization progresses.
Investors’ preference is thus, shifting to advanced economy fixedincome securities with improved yields as well as safe haven assets.
The International Monetary Fund (IMF), in its July 2023 World Economic
Outlook, revised the 2023 output growth forecast for the global
economy upwards to 3.2 per cent, from 2.8 per cent in its April forecast.
The improved outlook was due to the sustained resilience of the global
economy to the prevailing headwinds in the first half of 2023. Global
growth is however, projected to moderate downward to 3.0 per cent in
2024.
Domestic Economic Developments
Available output data from the National Bureau of Statistics (NBS)
showed that, Real Gross Domestic Product (GDP) grew by 2.31 per cent
(year-on-year) in the first quarter of 2023, compared with 3.52 per cent

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in the preceding quarter. While growth moderated, it has remained
positive since Q4 2020. This steady and positive performance was driven
largely by sustained growth in the services and industry sectors,
supported by broad-based measures by both the monetary and fiscal
authorities.
Staff projections showed that output growth recovery in 2023 would
remain positive as economic agents adjust to the recent policies on zero
subsidy on the price of Premium Motor Spirit (PMS) and convergence of
exchange rates.
On price development, the Committee noted the continued uptick in
inflationary pressure, as headline inflation (year-on-year) rose by 38 basis
points to 22.79 per cent in June 2023 from 22.41 per cent in the previous
month. This was driven by the moderate increases to both food and
core components. Legacy headwinds, including security challenges in
major food-producing areas; high cost of transportation driven by the
rising cost of energy; and inadequacies in public infrastructure, continue
to drive the rise in food and core inflation. Key developments that would
likely sustain upward pressure on domestic prices, in the short to medium
term, are the recent deregulation of petrol price and the transition to a
unified and market-determined exchange rate. The unfolding dynamics
in the policy environment and the resultant pass-through to domestic
prices would thus require greater collaboration between the Bank and
the fiscal authority.
Broad money supply (M3) in June 2023 grew by 24.35 per cent (year-todate), compared with 6.70 per cent in May, driven largely by the

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increase in both Net Foreign Assets (NFA) and Net Domestic Assets
(NDA). Money market rates reflected the level of liquidity in the banking
system. Consequently, the monthly weighted average Open Buyback
(OBB) and Interbank Call rates decreased to 9.12 and 11.61 per cent in
June 2023, from 12.60 and 12.31 per cent in May, respectively.
In the Banking System, Financial Soundness Indicators (FSIs) remained
stable and strong. The Capital Adequacy Ratio (CAR) stood at 11.2 per
cent, Non-Performing Loans (NPLs) ratio of 4.1 per cent and Liquidity
Ratio (LR) of 48.4 per cent, as at end June 2023.
In the financial market, equities remained bullish through the review
period, with the All-Share Index (ASI) and Market Capitalization (MC)
increased to 60,968.27 index points and N33.20 trillion, respectively, on
June 30, 2023, compared with 51,251.06 index points and N27.92 trillion
as at December 30, 2022. This indicates continued investor confidence
in the Nigerian market as investors foresee a more stable
macroeconomic environment once the current policies of the Bank and
Federal Government fully permeate the economy.
Gross external reserves improved marginally to US$33.97 billion as at July
20, 2023, from US$33.75 billion in June 2023, as accretion to external
reserves remains weak while foreign exchange demand pressures
persist.

Outlook
The overall outlook for the recovery of both the global and domestic
economies moderated, however uncertainties remain. At the global

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level, legacy headwinds such as the war in Ukraine and slow recovery of
the Chinese economy as well as ongoing bricsification are key downside
risks to output growth. In the domestic economy, factors precipitating
the uncertainties remain the continued insecurity, particularly in farming
communities; high prices of PMS and other energy products; as well as
pressure in the foreign exchange market.
Forecasts for key macroeconomic indicators for the Nigerian economy
indicate that the economy will continue to recover moderately through
2023 to grow by 2.66 per cent (CBN), 4.20 per cent (FGN) and 3.20 per
cent (IMF).

The Committee’s Considerations
The Committee’s considerations focused on the persistent rise in inflation
and its potential adverse effect on output growth and household
income. The continued uptick in inflation (month on month), driven by
increase in both the food and core components of the CPI, in the view
of members, remained a key challenge. The members also expressed
concerns that the recent policy decisions around subsidy removal,
exchange rate liberalization and disbursement of palliatives, would
have pass-through effects to inflation. Members therefore called for
decisive measures, by the Bank, to address the likely liquidity surfeit from
these developments, including using appropriate monetary policy
instruments.
The Committee urged the monetary and fiscal authorities to sustain its
collaboration towards addressing the inflationary pressure and
incentivise domestic investment to reduce unemployment and boost

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output growth. It enjoined the Federal Government to continue to
explore policies to improve investor confidence in the Nigerian
economy and pave way for foreign and domestic investments.
Members emphasized the need to attract investments, particularly, to
auto manufacturing, aviation, and rail industries to boost non-oil
revenues. The Committee, thus, expressed the view that, key policy
mechanisms to shield the Nigerian economy from persisting global
shocks and other emerging domestic shocks, are urgently required for
the economy to continue to post positive growth.
The Committee also recognized the several measures put in place by
the Bank to boost foreign exchange liquidity. Particularly, Members were
of the view that the recent policy on foreign exchange market reform
would increase market transparency and encourage more foreign
capital inflows. It, therefore, urged the Bank to leverage on effective
policies to attract remittances from diaspora to help moderate
exchange rate pressures.
The Committee commended the Bank’s role in the effective oversight
of the banking system, evidenced by the relative stability in key financial
soundness indicators and resilience of the sector, despite tight global
and domestic financial conditions. Members, however, noted the
potential impact of the recent policy reforms on financial system stability
and called on the Management to act proactively to ringfence the
banking system from any possible second-round effects. The MPC, thus,
urged the Bank to sustain its macro-prudential surveillance over the
banking system.

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The Committee’s Decision
Following the outlook for the domestic economy, Members were of the
view that the Committee was confronted with only two policy options,
to hold or hike the policy rate to offset the moderate increase in
headline inflation.
Considering the option to hold, the Committee reviewed the impact of
the continued rise in inflation on various macroeconomic variables,
noting the potential dampening effect on output growth. Members
agreed unanimously that the previous series of rate hikes had indeed
greatly moderated the pace of price increases.
The option to continue to hike the policy rate, albeit moderately, also
presented a strong alternative. This is premised on the expected liquidity
injections into the economy from the recent policy developments and
the likely impact on inflation.
The Committee remained cautious in arriving at a policy decision as
Members noted the need to continue to support investment which will
ultimately lead to the recovery of output growth. The balance of these
arguments thus, leaned in favour of a moderate rate hike, to sustain
efforts at anchoring inflation expectation, narrow the negative real
interest rate gap, and improve investor confidence.
The MPC, thus, resolved by a majority vote to raise the Monetary Policy
Rate (MPR). Six (6) Members voted to raise the MPR: Four (4) Members
by 25 basis points and two (2) Members by 50 basis points. Five (5)
Members voted to hold the MPR constant. All Members voted to narrow

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the asymmetric corridor from +100/-700 to +100/-300 basis points around
the MPR.
In summary, the MPC voted to:
I.
Raise the MPR by 25 basis points, from 18.50 to 18.75 per cent;
II.
Adjust the asymmetric corridor to +100/-300 basis points around the
MPR;
III.
Retain the CRR at 32.5 per cent; and
IV.
Retain the Liquidity Ratio at 30 per cent.
Thank you.

Folashodun A. Shonubi, OFR
Ag. Governor,
Central Bank of Nigeria
25th July 2023

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PERSONAL STATEMENTS BY THE MONETARY POLICY COMMITTEE MEMBERS
1. ADAMU, EDWARD L.
The Monetary Policy Committee (MPC) met in July 2023 against the backdrop of
slowing global growth prospects owing to geo-political tensions, high energy
prices, and continued anti-inflation policy stances. In April 2023, the International
Monetary Fund (IMF) lowered its world output growth projection to 2.8 per cent
for 2023 mainly on account of these headwinds. In June, the World Bank
announced a much lower projection of 2.1 per cent premised on similar fears.
In the domestic economy, the balance of risk remains titled against price
stability given the short- to medium term economic outlook. Whereas the
monetary policy rate (MPR) is at record high, effectively underpinning high
lending rates and potentially constraining output, interbank rates as well open
market operations (OMO) and Nigerian Treasury Bills (NTBs) rates continue to be
low, suggesting a weakening of the interest rate transmission channel. Unless this
situation is remedied, the economy could suffer output loses from policy
tightening without commensurate disinflation gains. I saw the need, in this
regard, to reinvigorate the monetary policy implementation framework starting
with a firmer MPR corridor. I therefore voted at the July meeting to narrow the
gap between the Bank’s standing/lending facilities, and in furtherance of the
tightening orientation of monetary policy commenced about a year ago.
Details of my considerations are presented subsequently.
The period May-July 2023 witnessed two major policy shifts in the economy. First,
the subsidy on petroleum motor spirit (PMS) was removed and this led to an
immediate jump in the pump price of the fuel. Second, the Bank unified the
various exchange rate windows which translated to a significant devaluation of
the naira at the erstwhile investors and exporters (I&E) window. Both policies had
immediate effect on prices, partly reflected in upticks in all the measures of
inflation in June 2023. The outlook for inflation in the rest of the year reflects

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continued impact of these policies, justifying therefore a tight policy stance over
the short- to medium term.
As it is expected, the effect of the recent policy shocks would transcend their
impact on prices. We have seen, for example, a jump in government revenue
arising from a higher FX conversion rate. Also noticeable is asset revaluation
gains (and loses) for corporates including financial institutions majorly. Though
persuaded by the need to keep monetary policy tight in view of the inclement
outlook for inflation, the full ramification of the effect of these policies is yet to be
seen. This, in part, underscored my cautious disposition at the July meeting of
the Committee. Among others, we could see a major contraction in activity in
the coming months which might change current trade-offs and other policy
calculations.
Already, major indicators of activity are giving signs of weakness. The composite
purchasing managers index (PMI) stood at 50.2 index points in June 2023
indicating a slower pace of expansion in economic activity compared with 54.4
index points in May 2023, just as Industry Composite Index (ICI) fell to 50.3 in June
2023 from 53.6 points in May 2023. Services Composite Index (SCI) recorded a
contraction, falling below the 50.0 threshold for the first time since April 2022. It
stood at 49.0 index points in June 2023, compared to 53.9 index points in May
2023. These trends deserve to be monitored carefully as they broadly suggest
that the headroom for tightening might be narrowing faster than previously
envisaged.
In terms of the choice of policy instrument, I had indicated in my May 2023
statement the possibility of looking at other instruments. The MPR was already at
record high, notwithstanding which, nearly all the measures of liquidity showed
unfavorable outturns in June 2023. Average open-buy-back (OBB) rate (monthon-month) declined to 9.12 per cent in June 2023 from 12.60 per cent in May
2023, due to increased liquidity in the banking system - net liquidity balance

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averaged N567.43 billion in June 2023, up from N328.36 billion in May 2023.
Correspondingly, the standing deposit facility (SDF) surged while the standing
lending facility (SLF) substantially declined. Apparently, actual stance of
monetary policy has not fully reflected the intended, owing partly to transmission
imperfection. Given this consideration, I opted to look at the corridor for further
adjustment instead of the MPR at the July meeting.
Meanwhile, it is comforting that the banking system continues to be resilient.
However, it may be too early to judge the impact of recent developments on
the industry financial soundness indicators (FSIs). Amongst others, preserving the
stability of the system continues to be a key priority on its own, and for effective
transmission of monetary policy impulses. I see the recent wave of banking
system troubles in the United States and Europe as an important learning point –
that we could never take for granted the stability of the domestic banking
system. Already there are warnings coming from some of the indicators like the
capital adequacy ratio (CAR) which, though still within the regulatory threshold,
has gravitated slowly to 11.23 per cent from 14.11 per cent a year ago. Much as
the situation is not yet alarming, ignoring it could prove sub-optimal in the
medium- to long-term. Slowing the pace of upward adjustment in interest rate
could cushion any underlying vulnerability in the banking system.
Overall, I see widespread vulnerabilities – from output to inflation to financial
system stability. I see, also, prospects with the extant policy paths. The stock of
credit remains sizeable, which is good for economic activity. Besides, the
proposed targeted fiscal actions in the agricultural sector and transport
palliatives could also go a long way in supporting economic activity.
Notwithstanding the shocks from the removal of PMS subsidy and exchange rate
harmonisation, effective liquidity management should have a significant
dampening effect on consumer price pressures over time. On financial stability,
macro-prudential levers remain very important. Conter-cyclical buffers are

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especially helpful in preserving stability in periods of macroeconomic
uncertainty. I therefore support immediate activation of relevant prudential
levers by the Bank towards ensuring continued resilience of the banking system.
Ultimately, there can be no better time for effective coordination of monetary
and fiscal policies than now. This will minimize surprises and enable economic
policy to properly anchor market expectation. As more data and analyses
become available, it might then be auspicious to onboard other instruments to
more rapidly rein-in excess liquidity and consumer price pressures.
In summary, I voted to:
1. Retain the MPR at 18.5 per cent.
2. Reduce asymmetric corridor to +100/-300 basis points around the MPR.
3. Retain the CRR at 32.5 per cent.
4. Retain the Liquidity Ratio at 30 per cent.

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2. ADENIKINJU, ADEOLA F.
International Economic Developments
The Uncertainty persists on global economic growth as most countries continue
to battle inflationary pressures. The World Bank projected global growth to
moderate to 2.1% in 2023 from 3.1% in 2022 but rise to 2.4% in 2024. The factors
driving the trend include high but moderating inflationary pressures, tighter
financial conditions, volatile and elevated commodity, and energy prices and
worsening of geopolitical turmoil. Global PMI declined from 54.4 index points in
May 2023 to 52.7 index points in June 2023. Both global manufacturing and
global services indices also declined. Global inflation, though decelerating, is still
above central banks’ targets. Inflation in the Advanced Economies (AEs) is
expected to decline to 4.7% in 2023 and further to 2.6% in 2024. Similarly in the
Emerging Markets and Developing Economies (EMDEs), inflation is projected to
decline to 8.6% in 2023 and further to 6.5% in 2024. However, the trajectory of
food and energy prices would determine the extent of the decline. The crude oil
market was soft on fears of a weakening U.S. economy and slowing Chinese
demand. However, the announced production cut by members of the OPEC+
may alter the market balance and moderate fall in crude oil prices. Most
Central Banks around the world continue the path of interest rates
normalization, albeit at a moderate pace. Interest rates in most countries are at
the highest historical levels. Portfolio capital flows to emerging markets surged to
US$22.1billion in June 2023 from US$10.4 billion in May 2023 as investors’
enthusiasm for Emerging Market securities soars. Finally, global debt is expected
to remain elevated in 2023 and 2024, as both the AEs and the EMDEs have
ramped up debts to historical levels driven by legacy debts and slow economic
growth.

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Domestic Economic Developments
A Bank Staff presented the report on the Domestic Macroeconomic
Developments and Outlook at the Meeting. Real GDP (y-o-y) growth slowed to
2.31% in Q1-2023 from 3.52% in Q4-2022. The non-oil GDP grew by 2.77%, while oil
GDP contracted by -4.21% (y-o-y). Services output expanded by 4.35%, while
Agriculture contracted for the first time to -0.9%. Real GDP (Q-o-Q) contracted
by -15.65% in Q1-2023, driven by decline in Non-oil GDP (q-o-q) by 17.30% and
increase in Oil GDP by 20.68%. The increase in Oil GDP is driven by improved oil
production in Q1-2023. The contraction in Agricultural Sector output was the first
in several decades. Information and Communications contributed 1.67% to the
real GDP growth in Q1- 2023, followed by Finance and Insurance, 0.96%, Crop
Production, 0.38%, Trade 0.21% and construction, 0.14%. The lowest contributing
sectors were Other Services, -0.81%, Livestock, -0.56% and Mining and Quarrying
-0.26%.
Monthly composite PMI declined to 50.2 index points in June 2023, from 54.4
index points in May 2023, indicating a moderation in output in the economy.
Industry PMI declined to 50.3 points in June 2023 from 53.6 points in May 2023.
Services PMI contracted to 49.0 points in June 2023 from 53.9 points in May.
Agriculture PMI fell to 52.9 points in June 2023 from 56.3 points in May 2023. In
addition, Industry Employment PMI and Business Expectations also fell between
May and June 2023. Business expectation fell from 18.30 points in May 2023 to -
1.80 points in June 2023. Industry employment declined from 50.8 points in May
2023 to 49.4 index points in June 2023.
With respect to price developments, Headline inflation increased for the sixth
consecutive month. Headline inflation increased to 22.79% in June 2023 from
22.41% in May 2023 driven by food inflation. High costs of energy and logistics
impact on the price of staples. Food inflation rose to 25.25% in June 2023 from
24.82% in May 2023. Core Inflation also increased to 20.27% in June 2023 from

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20.06% in May 2023. The increase in core inflation came from processed foods,
transport, and education, in that order. Month-on-month, headline inflation and
food inflation also rose between May 2023 and June 2023. However, core
inflation slowed to 1.75 in June 2023 from 1.81% in May 2023, driven by reduced
costs of processed foods, health, and restaurant. Inflation expectations have
also been increasing since December 2022, suggesting de-anchoring of inflation
expectations.
Apart from Monetary Base, all the domestic components of monetary
aggregate rose between May 2023 and June 2023. Monetary Base reduced
from N17.923 trillion to N17.719 trillion due to decrease in reserve requirements
and other reserves of ODCs with the Central Bank. Broad Money (M3) rose by
annualized 48.71% above the 2023 benchmark of 28.21%, between May 2023
and June 2023. Net Foreign Assets rose by 119.28% annualised as against the
provisional 2023 benchmark of 95.57%. However, Net Domestic Assets rose by
annualized 36.18%, below the 2023 benchmark of 49.16%. Claims on Central
Government (net) rose by annualized value of 79.28% compared to the 2023
benchmark of 58.63%. Claims in the Private Sector rose at an annualized rate of
62.9%, compared to the benchmark of 44.09%. Major sources of net liquidity
increase into the economy in June 2023 were Net CRR debit (N216.32 billion),
FAAC N633.46 billion, and SWAP Transaction (N763.32 billion).
Interest rate spread month-on-month widened to 23.15% in June 2023. On
average, maximum lending and average savings rose between May and June
2023. The average OBB rate month-on-month declined to 9.12% in June 2023
from 12.6% in May 2023. Other major developments in the financial markets
include lower NTB rates at the primary auction, higher recourse to SDF than SLF
and increased OBB transactions. The Nigerian Exchange Limited (NGX) was
bullish between April 28, 2023, and July 21, 2023. All Share Index (ASI) increased
by 24.04%. from 52,403.51 on April 28, 2023, to 65,003.39 on July 21, 2023.

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The external account recorded an overall balance of payments deficit position
of US$1.62 billion (1.4% of GDP) in 2023.Q1. The goods account recorded a
surplus of US$2.68 billion in 2023Q1. The services sector deficit narrowed by 3.9%
to US$3.01 billion. Service payments for the transport, insurance & Pensions and
Telecommunication sector fell in the review period. The primary income deficit
narrowed by 18.7% to US$2.69 billion due to a rise in repatriation of dividends, by
12.1%.
As of July 20, 2023, the Gross External Reserves stood at US$33.97 billion. The
gross external reserves position at end-June 2023 could provide 10.68 months of
import cover.
Regarding the fiscal sector, both the government revenue and expenditure
underperformed between January and May 2023. FG retained revenue stood at
N1,673.15 billion, lower than the pro-rata target of N1,968.12 billion. This was due
to the underperformance of FAAC receipts, Gross independent revenue. In the
same vein, total FGN Expenditure as of May 2023, was N4,769.26 billion, 27.8%
lower than the budget estimate of N6,606.02 billion. The shortfall came mainly
from allocation for debt service, interest on Ways and Means, and capital
expenditure. Overall budget deficit reduced by -18.15% in the first five months of
2023. The underperformance of the budget is especially felt in the capital
expenditures, thus impacting negatively on economic development.
The report on the Banking System Stability Review was presented to members of
the MPC. The financial soundness indicators remain positive and showed that
the banking system remains strong, sound, and resilient. The capital adequacy
ratio (CAR) declined to 11.2% in June 2023 from 13.0% in May 2023, though still
within the prudential requirement of between 10% - 15%. Non-performing loans
(NPL) ratio declined from 4.5% in May 2023 to 4.1% in April 2023. Liquidity ratio
(LR) rose to 48.4% in June 2023, from 44.5% in May 2023. This is above the
minimum 30% recommended by the prudential requirement. Both the Return on

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Equity and Returns on Asset increased between May 2023 and Junel 2023. ROE
rose from 22.8% to 32.2%; while ROA increased from 1.7% in May 2023 to 2.3% by
June 2023. Interest margins to total operating income declined from 59.8% in
May 2023 to 48.2% in June 2023. Similarly, operating cost to total operating
income declined from 70.7% to 62.1% between May and June 2023. As I
reiterated in the last Personal Statement, the high operating cost environment of
the banking sector should be concerning and needs to be addressed. In other
climes, the ratio is 23.5% in Turkey, 50.6% in Brazil, 41.0% in Malaysia, 62.0% in
South Africa, 43.2% in Angola, 35.2% in Egypt, Kenya is 45.2% and Ghana, 46.1%.
Finally, all the measures of banking size, assets, deposits, and credits also rose.
Total Assets of the banking industry grew by N30.92 trillion or 47.21% between
end-June 2022 and 2023. Industry credit increased by N10.75 trillion or 39.73%
between end June 2022 and end-June 2023. Gross credit has been on an
upward trajectory since 2019. Total industry deposits increased by N15.92 trillion
or 37.86% between the end of June 2022 and 2023. The stress tests conducted
on the industry show that despite the several headwinds in the economy, the
banking system remains resilient.

My Consideration
The headwind in the international market persists, including the refusal of Russia
to sign the grain deal with Ukraine. The softening of the Chinese economy and
the ongoing efforts by the AEs to rein in inflation pose significant challenges to
both the global and the Nigerian economy.
The domestic economy also witnessed significant changes brought by the
policy reforms of the Tinubu government. The removal of petrol subsidy and the
unification of the foreign exchange markets brought significant shocks on the
economy. These policy changes have brought about economywide effects

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impacting on prices and real income. The June inflation figure partly captures
some of the price effects, as well as the contraction noted with the PMIs. Hence,
June figures reported rise in inflation, and depreciation of the naira. While the
gap between the official market and parallel market exchange rates seems to
have narrowed, there is still an appreciable difference between the rates in the
two markets.
The monetary and financial market indicators also showed evidence of liquidity
surfeit in the economy. Annualised growth rates of Net Foreign Assets and Net
Domestic Assets components exceeded the provisional levels. The rise in FAAC
in July because of the petrol subsidy removal and narrowing of the FX market
rates must be managed so as not to increase the liquidity in the economy. The
rise in FAAC overtime would help in managing the recourse of the FG and
Subnational units on debts to finance government activities. This would also
reduce Ways and Means finance and eventually reduce inflationary pressures
from the monetary side.
The FG and some states have also announced different packages of
interventions to boost household incomes, expand agriculture output in the
medium to long term, shift demand from petrol to other substitutes like CNG and
support transportation costs. The FG has also announced other tax incentives to
reduce costs of production for firms, several agricultural support initiatives, as
well as several subsidized credits to different categories of firms, especially the
MSMEs in the economy.
The palliatives were suspended because of the public outcry on the amount
that was planned to be spent as well as on the integrity of the social register that
was to be used to disburse the money. However, I felt that the absence of
effective communication on the part of the government and a robust defense
of the essence of the palliative as a short-term compensatory measure to
support the very poor members of society was a missed opportunity.

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The Bank Management should use the full range of the instruments available to
it to address the liquidity surfeit including the Open Market Operations, and
other indirect measures that offer appropriate returns to money market
instruments and mop up excess liquidity, as well as attract foreign portfolio
investment that would increase liquidity in the FX market. Private companies
should also be incentivized to issue commercial papers to provide alternative
investment instruments to investors.
The current economic reforms of the government are much welcomed to
restore the economy to the path of long-term economic growth. However, the
initial reforms must be complemented by other policies around security,
increase in petroleum output, expand electricity supply, and support human
development sectors. The government must also invest in timely communication
to ensure that members of the public continue to support the reform.
The continuous closure of the borders should also be reviewed. This is to allow to
expand food and non-food supply to the economy and forced down domestic
prices, especially food.
My Vote
The MPC needs to sustain its current tight monetary policy stance to dampen
inflationary pressures. However, I am also aware of the enormous pressures and
headwinds that domestic economic agents are grappling with under the
current economic reforms. The President has also announced policies to boost
the supply side of the economy. Hence, I am really torn between raising the
MPR on the one hand and allowing the Bank to use other measures to control
liquidity, without further raising lending rates in the economy, on the other hand.
I chose to pause the interest rate increase at this meeting. Hence, I vote to:
1. Maintain the MPR at 18.5 per cent.

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2. Reduce the asymmetric corridor around the MPR to +100/-300 basis
points.
3. Retain the CRR at 32.5 per cent.
4. Retain the LR at 30.0 per cent.

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3. AHMAD, AISHAH N.
Domestic prices remain elevated as markets adjust to consequential fiscal and
monetary policy reforms
The July 2023 monetary policy committee (MPC) meetings held within an
environment of elevated risks to price stability, slowing output performance and
exchange rate pressures, amidst continued uncertainty in the global economy.
The much-anticipated deregulation of premium motor spirit price and transition
to a more market-determined exchange rate regime have expectedly exerted
further pressure on domestic prices. Headline inflation year-on-year rose for the
sixth consecutive month to 22.79 per cent in June 2023 from 22.41 per cent in the
previous month, according to the National Bureau of Statistics (NBS), driven by
the food and core components which rose to 25.25 per cent and 20.27 per cent
in June 2023 from 24.82 per cent and 20.06 per cent in May 2023, respectively.
Although the pace of acceleration in headline inflation slowed in recent
months, the trajectory appears to reverse as headline inflation month-on-month,
rose to 2.13 per cent from 1.94 per cent in May 2023, an indication that the path
of price movements remains unclear in the near term. Beyond the legacy
structural factors driving inflation (inadequate infrastructure, supply bottlenecks,
etc) the surge in liquidity levels pose further threats to price stability as presented
in staff reports and cannot be ignored.
Broad money supply (M3) in June 2023 grew by 24.35 per cent (year-to-date),
compared with 6.70 per cent in May 2023, driven largely by the increase in both
Net Foreign Assets (NFA) and Net Domestic Assets (NDA). Money market rates
also reflected this surge in banking system liquidity as the monthly weighted
average Open Buyback (OBB) and Interbank Call rates decreased to 9.12 and
11.61 per cent in June 2023, from 12.60 and 12.31 per cent in the previous
month, respectively. This trend may persist in the near term in view of expected

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liquidity injections from possible review of the minimum wage, implementation of
the proposed palliatives by the federal government and other sources.
Overall, the short-term outlook for inflation and its major drivers remains
uncertain. Indeed, the exacerbated price developments are harmful for
inflation management and must be addressed decisively. To ensure that the
desired decline in absolute inflation numbers is quickly achieved, the stance of
monetary policy needs to be firmer to improve inflation expectations; and all
actions of the Bank must be geared towards moderating domestic prices,
especially monetary induced inflation. The CBN, must, therefore remain resolute
in the use of traditional liquidity management tools such as the Open Market
Operations and issuance of CBN special bills to strategically mop up excess
liquidity in the banking system.
Developments
in
the
foreign
exchange
market
are
also
important
considerations for policy. The recent foreign exchange market reforms which
have resulted in exchange rate convergence, would increase market
transparency, and attract more foreign capital inflows.
Although the exchange rate has shown some volatility (depreciated from
N435/1USD in May 2023 to N763/1USD as of July 11, 2023 and N780/1USD as of
July 20, 2023), stability is expected over the medium term as efforts to ramp up
export proceeds intensify, alongside anticipated decline in demand of imported
refined petroleum products. Stability of the exchange rate is particularly
important due to its strategic role in anchoring investor confidence and passthrough to domestic prices. Ongoing efforts to boost foreign exchange supply
should therefore be strengthened as a more sustainable approach to stabilizing
the foreign exchange market.
Although output growth prospects remain positive, its resilience is threatened.
Data from the National Bureau of Statistics (NBS) showed that, Real Gross
Domestic Product (GDP) grew by 2.31 per cent (year-on-year) in the first quarter

Classified as
of 2023 driven largely by sustained growth in the services and industry sectors
and supported by broad-based monetary and fiscal measures. While Q12023
GDP declined compared to the preceding quarter (3.52 per cent), the
resilience of the services and industry sectors is a positive development for the
domestic economy, given the capacity of these sectors to create jobs, boost
aggregate demand and improve economic inclusion.
The moderation in output performance is also expressed in the purchasing
managers Index which declined to 50.2 index points in June 2023 from 54.4
index points in the previous month on account of decline in production levels
and new orders. This development points to the need for continued fiscal
stimulus to critical sectors, especially agriculture, manufacturing, and MSMEs to
boost aggregate supply and moderate inflation over time.
Thankfully, ongoing broad-based economic reforms, sustained credit growth to
the real economy and the robust financial system should impact positively on
growth
performance
with
a
positive
medium-term
outlook.
Therefore,
considerations about actively driving economic growth at this meeting, must
understandably take a back seat. The Monetary authority must focus on
tackling inflation while efforts to mitigate the structural challenges affecting
productivity are being pursued.
The Banking system retains its resilience and capacity to support the economy
through the headwinds, however, emerging vulnerabilities must be managed.
Credit to the economy continued to grow while non-performing loans and other
prudential ratios are within regulatory bands, nonetheless, the Bank must watch
for vulnerabilities due to removal of subsidies and other macroeconomic shocks.
At end-June 2023 industry credit increased by N10.75 trillion year-on-year and
has been in an upward trajectory since 2019. Month-on-month, industry credit
also increased significantly by N7.27 trillion between May and June 2023, an
indication that the tight stance of policy is not adversely impacting the credit

Classified as
environment as earlier anticipated. Notably, the sectors driving output growth in
the economy (manufacturing, agriculture, construction, general commerce
and information & communication) also attracted increased lending from the
banking sector during the period - which should further strengthen output
performance.
Prudential ratios also remain strong as of end-June 2023, with capital adequacy
at 11.2 per cent, non-performing loans at 4.1per cent (from 5.0 per cent in June
2022) and liquidity ratio at 48.4 per cent (above the 30.0 per cent minimum)
even as credit to the real sector continued to grow. Furthermore, total assets of
the banking industry grew by N30.92 trillion, while total industry deposits
increased by N15.92 trillion over the same period.
Risks to the financial system remain domestic vulnerabilities and persisting global
headwinds. Notwithstanding the risks, stress test results showed that industry
solvency and liquidity positions could withstand mild to moderate shocks in the
short to medium term. Nonetheless, the CBN shall continue its rigorous regulatory
oversight on the industry credit portfolio while the sector must also continue to
build adequate capital buffers as prescribed in the Basel III capital standards.
Overall, to bolster domestic investment, household demand, and aggregate
productivity, it is important to sustain innovative de-risking of critical sectors to
facilitate credit expansion. This will fast-track economic diversification and
ensure strong inclusive growth.
On the global front, the priority remains achieving sustained disinflation while
ensuring financial stability as central banks raise rates to curb inflation which
continues to weigh on output recovery. As a result, global growth is projected
by the International Monetary Fund in its July 2023 World Economic Outlook
(WEO) to fall from an estimated 3.5 per cent in 2022 to 3.0 per cent in both 2023
and 2024. While the forecast for 2023 is modestly higher than predicted in the
April 2023 WEO, it remains weak by historical trends.

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In addition, China’s slow recovery and persistent war between Russia and
Ukraine pose further threats to global economic prospects with likely spillover to
the rest of world. Building individual country resilience, thus, becomes imperative
for policy makers to minimize adverse pass-through effects and preserve the
fragile recovery.
For Nigeria, inflation, driven by global and domestic shocks, is at a level
deemed inimical to growth and forecasts suggest continued ascent, requiring
decisive actions to assertively stabilise price at levels that are conducive to
growth and productivity. Building buffers, ensuring targeted support for the most
vulnerable and improvements to the supply side of the economy would
facilitate a smoother decline of inflation toward target levels.
In the meantime, the MPC must show commitment to fighting inflation – its
primary remit - in view of the detrimental effects of inflation on economic
activities (eroding real incomes, entrenching poverty, threat to output growth,
etc). Therefore, at this meeting, I consider it important to re-anchor the
expectation of economic agents following several months of double-digit
inflation, and recent multiple shocks which makes it logical for expectation of
further price increases to build.
Thus, I, vote to raise the MPR by 50 basis points, from 18.50 to 19.00 per cent;
Adjust the asymmetric corridor to +100/-300 basis points around the MPR; Retain
the CRR at 32.5 per cent; and Retain the Liquidity Ratio at 30 per cent.

Classified as
4. ALIYU, AHMED
Global economic recovery continues to be hindered by tighter financial
conditions occasioned by the increase in policy rates by many central banks to
control inflation, and worsening geopolitical tensions particularly the RussiaUkraine war, which has had destabilising effects on the global supply chain. The
IMF in the July 2023 World Economic Outlook, projects global growth to fall from
a projected 3.5 percent in 2022 to 3.0 percent in 2023 and 2024, apiece. Out of
this, growth in the Advanced Economies is projected to moderate to 1.5 and 1.4
percent in 2023 and 2024, respectively, from 2.7 percent in 2022. Conversely,
Emerging Markets and Developing Economies (EMDEs) is expected to retain its
2022 growth rate of 4.0 percent in 2023, and inch up to 4.1 percent in 2024.
Global headline inflation remains high, even though decelerating, and
projected to decline from an annual average of 8.7 percent in 2022 to 6.8 and
5.2 percent in 2023 and 2024, respectively, driven by high input costs. The
deceleration in global inflation is linked to monetary policy tightening across the
world. In the Advanced Economies, inflation is expected to decline to 4.7
percent in 2023 from 7.3 percent in 2022, and further to 2.8 percent in 2024. In
the EMDEs, inflation is expected to moderate to 8.3 percent in 2023, from 9.8
percent in 2022, and further to 6.8 percent in 2024 (IMF July 2023 WEO).
Differences in country circumstances such as exposure to commodity price
fluctuations and exchange rate volatilities, partly account for the observed
variations in the pace of disinflation in EMDEs. Generally, while central banks
signal a slow pace in interest rate normalization, further monetary policy
tightening may be required, should conditions that cause inflationary pressure
reappear.
Development in crude oil prices remain moderated amidst fears of a weakening
US economy and slowing Chinese demand. In addition, the large build-up of US
crude oil stocks, continue to pose serious consequences for oil exporters like

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Nigeria. The Food and Agricultural Organization (FAO) has raised its projection of
world wheat production to 768 million tonnes for 2023. Expectations of price
moderation in 2023, is jeopardised by Russia’s reneging on the Black Sea wheat
passage deal, which allows Ukraine to export wheat to the international market.
Global trade outlook for the second half of 2023 is dampened by subdued
global demand, tighter global financial conditions and weak global industrial
production, as well as geopolitical tensions. Consequently, the World Bank
forecasts global trade growth to slow to 1.7 percent in 2023 from 6.0 percent
recorded in 2022, before rising to 2.8 percent in 2024.

THE DOMESTIC ECONOMY
Real Gross Domestic Product (real GDP) grew by 2.31 percent (year-on-year) in
the first quarter of 2023, from 3.11 percent and 3.52 percent, recorded in the first
and fourth quarters of 2022, respectively. The National Bureau of Statistics (NBS)
attributes the reduction in growth to the adverse effects of the cash crunch
experienced during the quarter. GDP performance in the first quarter was driven
mainly by the services sector, which recorded a growth of 4.35 percent and
contributed 57.29 percent to the aggregate GDP. The agriculture sector grew
by -0.90 percent, lower than the growth of 3.16 percent recorded in the first
quarter of 2022. Although, the growth of the industry sector improved to 0.31
percent relative to - 6.81 percent recorded in the first quarter of 2022, agriculture
and the industry sectors contributed less to the aggregate GDP in the first
quarter of 2023 compared to the first quarter of 2022 (NBS 2023).
It is noteworthy that Non-oil GDP (year-on-year) grew by 2.77 percent, the
slowest growth since Q4 2020. This is followed by Oil GDP which grew by -4.21
percent, even though, it was its best performance since Q1 2021, driven by
improved crude oil performance in Q1 2023.

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The first quarter 2023 real GDP outcome, is mirrored in the widening of the output
gap, due to underutilization in the industry, agriculture and services sectors.
Consequently, the negative output gap widened by 1.19 percentage points, to
-7.54 percent in Q12023, from -6.26 percent in Q42022. Similarly, the monthly
composite PMI, declined to 50.2 index points in June 2023 from 54.4 index points
in May 2023, indicative of a moderation in output in the economy.
Headline inflation remains elevated, increasing by 0.38 percentage points to
22.79 percent in June 2023. Increase in Headline inflation was driven by food
inflation, which rose year-on-year by 0.43 percentage points to 25.25 percent in
June 2023, on account of the increase in the cost of farm produce.
Core inflation, year-on-year, increased by 0.21 percentage points to 20.27
percent in June 2023, due to the increase in transport cost. In the same vein,
core inflation (excluding energy goods) year-on-year, rose by 0.23 percentage
points to 20.06 percent in June 2023, attributed to increased growth in money
supply. Month-on-month, inflation rose to 2.13 percent in June 2023.
Notwithstanding, inflation expectation at a high of 20.58 percent was below
actual inflation in June 2023.
Broad Money Supply (M3) increased by 24.35 percent (year-to-date) to N64.91
trillion in June 2023, driven by increase in both Net Foreign Assets (NFA) and Net
Domestic Assets (NDA). Open Buy Back (OBB) rates at 9.12 percent in June 2023,
was below the lower band of the Monetary Policy Rate, signalling liquidity surfeit.
The current account posted a surplus position of US$2.49 billion, following
sustained trade surplus and lower payment for services and improved surplus in
the secondary income account. Average crude oil price increased to US$81.87
per barrel on July 21, 2023, from US$77.64 per barrel at end June 2023. As at July
20, 2023, the gross external reserves stood at US$33.97 billion. Reserves position at
end-June 2023 could provide 10.68 months of import cover.

Classified as
Staff report indicated that the naira/US$ exchange rate depreciated by 66.43
percent from N462.88/US$ on June 9, 2023 to N770.39/US$ on July 21, 2023 after
the convergence of all foreign exchange windows.
Financial soundness indicators, sustained their resilience as the industry Capital
Adequacy Ratio (CAR) at 11.2 percent at end-June 2023 was above the 10
percent regulatory requirement. Industry Non-Performing Loans (NPLs) improved
from 4.4 percent in April 2023 to 4.1 percent in June 2023, and was below the 5
percent supervisory requirement. Return on Equities (ROE) and Return on Assets
(ROA) improved from 17.3 percent and 1.4 percent in June 2022, respectively, to
32.2 percent and 2.3 percent in June 2023, respectively. At 48.4 percent,
Liquidity Ratio remained in excess of the regulatory requirement of 30.0 percent.
Industry Total Credit increased by N10.75 trillion or 39.73 percent between endJune 2022 and end-June 2023, respectively. It is noteworthy that total credit
increased significantly month-on-month by N7.27 trillion or 23.82 trillion between
May and June 2023.
On fiscal developments, the recent removal of Petroleum Subsidy is expected to
engender significant fiscal space and improvement in Federal Government of
Nigeria’s (FGN’s) overall fiscal operations.

CONSIDERATION FOR VOTING
At the July 2023 MPC meeting, I noted from the economic report a triad of
lukewarm economic growth, high inflation rate, and exchange rate volatility
and depreciation. I was in no doubt that observed inflationary pressure was
propelled by a mix of monetary and structural factors. There was evidence of
liquidity surfeit as indicated by the significant growth in Broad Money Supply
(M3).

Classified as
The recent decision by Russia to end the crucial Black Sea grain deal, the
negative impact on cost of production and transportation of the increase in the
prices of Premium Motor spirit (following the removal of subsidy on PMS), the
fears about an impending domestic food crisis - heightened by the contraction
in the agriculture sector in the first quarter, exchange rate pressures, high
inflation expectations and other seasonality factors, pose significant upside risk
to inflation.
Money market rates seem not to reflect the hikes in the Monetary Policy Rate
(MPR) to be able to address the demand side inflation, as well as deal with the
supply side dynamics. It is worrisome indeed, that the expected multiplier effect
of the increase in total credit on output has not crystallised, suggesting that
credit may have ended up in the foreign exchange market, which may erode
asset quality, in the medium to long term.
On economic growth, it is notable that the output gap widened in the review
period, due to slower economic activities. This is corroborated by the decline in
the Composite Performance Managers Index, indicative of a moderation in
output and economic activities.
The decline in growth in the agriculture sector is particularly worrisome, given its
role in food production and employment generation. Targeted intervention by
the fiscal and monetary authorities in the agriculture sector is crucial to ensuring
medium to long term food security and price moderation. Recent initiative by
the CBN to offload grains from the national strategic grain reserves to lower food
prices could not have come at a more auspicious time. There is also need to
leverage on the African Development Bank (AfDB) Agro Pocket Wallet to
support farmers in the production of grains and fertilizers.
Expectations of the monetary authority should also reflect fiscal developments.
In line with the norm, I continue to advocate for a stronger collaboration
between the monetary and fiscal authorities. The decision by the Federation

Classified as
Accounts Allocation Committee (FAAC) to save about 50 percent of funds
allotted for distribution to State Governments in July, brought some calm on
price developments, and reflect some of those collaborations that I am looking
to see.
In view of the persisting increase in headline inflation, and having raised
monetary policy rate by 700 basis points since May 2022, I am keen to see that
inflation is aggressively tackled from the supply side also, by addressing structural
deficiencies that cause food and core inflation to rise. Policy should be focused
at achieving sustained disinflation, while ensuring financial stability and
economic growth. I align with the opinion that other liquidity mopping tools like
adjustment in the standing facilities should be explored. Whilst not being
insensitive to the role a tightening policy stance could play in anchoring
inflationary expectations and improving the real interest rate, I vote at this
meeting to hold the Monetary Policy Rate at its extant level, whilst adjusting the
asymmetric corridor to +100/-300 basis points around the MPR..

Classified as
5. ASOGWA, ROBERT C.
Background:
Since the previous MPC meeting in May 2023, both the domestic and external
economic environments have been characterized by key policy issues which
have direct implications for price stability. At the domestic level, the removal of
fuel subsidy and foreign exchange unification in June 2023, are largely
perceived as drawbacks to curbing the accelerating consumer price levels. At
the external level, recent production cuts by OPEC+ and the increase in the
global price for cereals after Russia’s withdrawal from the Black Sea Grain
Initiative are also new threats to the decelerating global inflation rates.
Remarkably, many advanced and emerging market economies are already
celebrating downward inflation surprises, but a persistent upward price level
trajectory still exist in several developing economies. In some of these countries,
the prolonged inflation fight is already causing a loss of momentum on the
economic recovery drive. As such, recent interest rate decisions are now being
anchored on a duality purpose. The considerations in this meeting will require an
assessment of the outlook of inflation and growth based on the evidence of
latest economic developments at the domestic and external levels.
External Economic Developments:

The pace of global economic activity appears to be moderating lately. Official
GDP figures for the second quarter of 2023 have not been released for many
countries but preliminary flash estimates seem to suggest that the global
economy weakened in the second quarter of 2023 with indicators of
consumption and manufacturing all subdued. Growth however improved
somewhat in a few countries in the second quarter compared with the first
quarter. In the United States for instance, economic growth was stronger than
expected in the second quarter with rising consumer spending and strong

Classified as
business investment. In the UK, GDP growth for the second quarter of 2023 is also
expected to be marginally stronger than the quarter one levels. In the Euro Area
however, growth probably stayed at low levels in the second quarter of 2023
following a contraction in the earlier quarters especially for manufacturing, while
the service sector continues to grow. According to CBN Staff report, growth in
China slowed to 0.8 per cent for 2023 second quarter compared with 2.2 per
cent in the first quarter of 2023 amidst declining exports and weakness in the
property sector, despite the end of its zero-Covid policy in December 2022.
There are still considerable amounts of uncertainties about the future outlook for
global economic growth as higher core inflation and interest rates persist with
the worsening geopolitical turmoil. For now, global growth is projected to slow in
2023, but pick up modestly in the second half of 2024 before strengthening fully
in 2025. CBN staff report shows that growth in advanced economies for 2023 is
projected to decline to 0.7 per cent compared with 2.6 per cent in 2022, but will
rise moderately to 1.2 per cent in 2024.
Global disinflation has continued up to June 2023 as energy and commodity
prices are falling together with further easing of global supply chain constraints.
Core inflation however remains elevated in a number of countries. CBN staff
report shows that the US year-on-year inflation rate slowed to 2.97 per cent in
June 2023 compared with 4.05 per cent in May, while in the Euro Area, the yearon-year measure fell to 5.5 per cent compared with 6.1 per cent in May 2023.
However, for both the USA and Euro Area, month-on-month inflation rose in June
2023. In the UK, while year-on-year inflation measure remained unchanged in
June 2023, the month-on-month rates moderated. In Canada, Chile, Indonesia
and Malaysia, both headline and core inflation have fallen faster than
expected in June 2023 amid lower cost factors. Overall, the inflationary
behaviour and outlook in many countries remains complex and uncertain for
several reasons. First, future global supply disruption is still an upside risk to prices
especially for food. Second, the persistence of core inflation which is more

Classified as
affected by the economy’s aggregate demand and interest rate policy may
continue for a very long period as it responds to output gap and future inflation
expectations.
Global financial conditions appear to be less tight in June and July 2023
compared to the position at the last MPC meeting in May 2023 but yields on
government bonds across several advanced economies have also risen
modestly while equity markets improved further but not as much as at the start
of 2023. In terms of currency issues, CBN staff report shows that the dollar has
recovered against a broader basket of currencies between April and June 2023.
The Euro however weakened against the dollar on average in June 2023, but
the pounds sterling appreciated on average during the same period.
For most Central Banks in the advanced economies, the moderated tightening
regime may be extended to the future as the disinflation process may take
longer than expected. There are however some countries especially in the
emerging markets that will likely focus on smoothing domestic economic growth
fluctuations, but without compromising the central bank’s fundamental
objective of ensuring price stability. The US Fed raised interest rates in July 2023,
which is the 11th increase in its last 12 meetings but by only 25 basis points while
the European Central Bank raised policy rates for a ninth consecutive time
recently by 25 basis points. At its end June 2023 meeting, the Bank of England
increased rates by 50 basis points. The scenario is somewhat different in several
emerging markets. The Central Bank of Chile lowered policy rates by 100 basis
points in July 2023 while the Central Banks of Malaysia, Brazil and South Africa at
their respective July MPC meetings kept policy rates unchanged as
considerations for economic growth deepen.

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Domestic Economic Developments:
Regarding the domestic scenario, recent economic indicators suggest some
mixed performance which have evolved in line with expectations. In 2023 first
quarter, real GDP (year-on-year) slowed to 2.31 per cent compared with 3.52
per cent in the fourth quarter of 2022. Surprisingly, agricultural sector contracted
in the first quarter, which is the first time since 1987, while services and industry
sector expanded. The poor performance of the agricultural sector has been
attributed to persistent insecurity, weather conditions and other supply related
disruptions. The return of the industry sector to positive GDP territory is on the
back of the improving investment and consumer confidence despite recent
interest rate hikes. GDP growth results for 2023 second quarter are not yet out,
but timely indicators point out that it may be slightly above the levels in the first
quarter of 2023. The composite PMI moved from 42.6 index points in March 2023
to 51.1 index points in April 2023 and further up to 54.4 index points in May,
before declining to 50.2 index points in June 2023. Consumer and business
expectations for the months ahead remain pessimistic but GDP projections by
key institutions for the third and fourth quarters of 2023 are positive.
The domestic headline inflation rates have continued an upwards trend, unlike
in the advanced and emerging economies. The year-on year headline inflation
rates in Nigeria rose further to 22.79 per cent in June 2023 from 22.41 per cent in
May, which is the sixth consecutive month of increase. Both food inflation and
core inflation increased on a year-on-year basis in June 2023. Also on a monthon-month basis, while headline inflation and the food component increased in
June 2023, core inflation which is more sensitive to monetary policy changes
decelerated by a marginal 0.07 per cent point at the same time. For now,
inflation expectations for the remaining months in 2023 show slight upwards
adjustments with increases in all components especially in the next few months.
This reflects the effects of recent policy changes in petrol subsidy and exchange

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rate unification as well as global financial market developments. There are
however expectations of some relative stability before the end of 2023.
Liquidity in the domestic economy remains ample as reflected in broad money
(M3) growth, similar to the position at the last MPC meeting in May 2023. Broad
money (M3) grew by 24.3 per cent, (year-to –date) in June 2023, and was below
the 2023 benchmark of 28.21 per cent. The recent normalization of CRR and the
increase in FAAC allocations may have contributed to the surge in overall
liquidity in the banking system, but the effect on interest rate conditions remain
minimal. Both the maximum lending rate and the average savings rate rose only
marginally in June from the May 2023 levels.
Financial system resilience in Nigeria remains solid and robust. The banking
system’s position looks stronger than during the last MPC meeting in May 2023
with significant improvements in the intermediation functions. Net loans
accelerated from 25.65 trillion Naira in May to 31.97 trillion Naira in June 2023,
which may have been propped up with the exchange rate unification. Bank
aggregate deposits rose by 15.85 per cent between May and June 2023 with
domiciliary account deposits also reflecting the effects of exchange rate
unification. The capital adequacy ratio (CAR) of the banking industry declined
to 11.2 per cent in June 2023 mainly because of the foreign exchange
unification but remains above the prudential requirement. The non-performing
loans (NPLs) ratio declined further from 4.5 per cent in May 2023 to 4.1 per cent
in June 2023. Industry profitability also increased recently, partly because of the
foreign exchange rate unification. The return on equity moved from 22.8 per
cent in May 2023 to 32.2 per cent in June 2023, while the return on assets also
increased from 1.7 per cent to 2.3 per cent during the same periods. The
domestic stock market has also remained strong and bullish, similar to the
position at the last MPC meeting in May 2023. Both the All-Share Index and the

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Market Capitalization have increased significantly between end-May to endJuly 2023.
On the external sector, the available 2023 first quarter data shows some mixed
performance. There was an overall balance of payments deficit, equivalent to
1.4 per cent of GDP in 2023 first quarter, but the economy recorded a current
account surplus of about 2.2 per cent of GDP supported by a positive trade
balance during the same period. For the second and third quarters of 2023, the
current account balance will probably sustain its momentum, while the capital
and financial accounts are expected to be more favourable than earlier
projected especially as foreign capital inflows improve on the back of
economic reforms by the new government. At the end of June 2023, the
position of external reserves remained high at equivalent of 6.7 months of
imports of goods and services and 9.1 months of import of goods only which is
above the international adequacy standard of around 3 months of imports. The
Naira exchange rate suffered a sharp depreciation in recent times as a result of
recent domestic reforms and global financial market uncertainty, but there are
positive prospects at controlling volatility with recent stabilization and
strengthening measures by the Central Bank of Nigeria.
The fiscal deficit is expected to decline in the third and fourth quarters of 2023
on the back of recent efforts by the new government to manage expenditures
better and also improve oil and non-oil revenues. With expenditure reprioritization and fiscal wisdom at both the federal and State levels, there is an
expectation that the government debt ratio may fall at least marginally by the
end of 2023.
Policy Decision:
With inflation rates still rising up to June 2023 but now at a moderated pace, a
partial shift of focus on boosting domestic economic activity which has been

Classified as
impaired by rising costs becomes necessary. As such, future monetary policy
decisions must seek to be conducive to both economic growth and price
stability. Rather than increasing policy rates at this MPC meeting which will only
add to the cost burden of key sectors, adjustments to either the asymmetric
corridor or the cash reserve ratio may be required so as to contain the high
system liquidity. There is however a real possibility of having to raise MPR in future
decisions as the MPC monitors incoming data.
I will therefore vote to:
1. Retain the MPR at 18.50 per cent.
2. Retain the CRR at 32.5 per cent.
3. Adjust the Asymmetric Corridor to +100/-300 basis points.
4. Retain the Liquidity Ratio at 30.0 per cent.

Classified as
6. OBADAN, MIKE I.
INTRODUCTION
The global economy has remained vulnerable considering the following
features:

High but moderating inflationary pressures;
Tighter global financial conditions in the face of persistent central bank interest
rate hikes, which caused poor liquidity and decline in asset prices;
Volatile and elevated commodity and energy prices; and
Worsening geopolitical tensions, especially the Russian war in Ukraine.

These features have continued to elicit concerns as uncertainty and risks persist
in global growth as the outlook remains closely linked to inflationary trends and
central banks’ monetary policy response. Various headwinds are expected to
continue to impede the speed of recovery of global output growth.

GLOBAL ECONOMIC TRENDS
Despite ongoing efforts to reconcile both Russia and Ukraine, the war between
both countries has continued to rage. This has invariably increased global
polarization and deepened the East-West geo-political divide as more countries
seek to form an economic alliance with the China-Russia group. The tightening
of global financial conditions to contain global inflation and Russia’s war in
Ukraine continue to slow down global economic activity with heightened risk for
long-term growth. Prospects for a robust global economic recovery remain dim,
due to stubborn inflation, rising interest rates and heightened uncertainties. In
the developing countries, monetary tightening has exacerbated fiscal and debt
vulnerabilities, as rising borrowing costs and a strong dollar have increased debtservicing burdens and debt default risks.

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In light of the elevated inflationary trends and tighter monetary policy stance of
several countries, global growth forecasts had maintained a downward trend
such that the global growth forecast as at June, 2023 was 2.1 per cent
compared with an earlier forecast of 2.5 per cent. However, the July growth
forecast by the International Monetary Fund reflects optimism, standing at 3.0
per cent compared to 2.8 per cent in its April World Economic Outlook.
Nevertheless, global growth remains weak due to higher interest rates and
volatile energy prices.
Global inflation rate and the inflation rates in the Advanced Economies (AEs)
portray good news of deceleration. In the same way, inflation in the Emerging
Markets and Developing Economies (EMDEs) is projected to decline from 9.8 per
cent in 2022 to 8.6 per cent in 2023 and 6.5 per cent in 2024. However, the rates
achieved are still far above the long run targets of most central banks.
Consequently, the priority of most economies remains to achieve a sustained
reduction in inflation toward target levels by raising real policy rates until
underlying inflation clearly declines. However, policy rate hike is being done at
less aggressive pace than previously.
There has been a general decline in commodity prices in recent months on
fears of a weakening U.S economy, concern over future interest rate hikes by
the US Federal Reserve Bank alongside a large build up of US crude oil stocks,
and slowing Chinese demand despite OPEC+ decision to extend production
cuts through 2024. Indeed, OPEC+ announced a production cut which took
effect at the beginning of April, 2023. However, the data as of July 21st, indicate
upward price movement. In this direction, Brent crude price rose to US$ 81.07
per barrel on 21st July 2023, from US$ 75.41 per barrel at end-June and $72.60
per barrel at end-May 2023. The extension of OPEC+’s 1.16 million barrels a day
production cuts to the end of 2024 may raise oil prices in the second half of 2023
and early-2024. In Nigeria, according to Nigerian Upstream Petroleum

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Regulatory Commission, oil production for June 2023 rose to 1.249 mbpd.
However, the menace of oil theft remains a continued threat to the country’s
capacity to meet its OPEC quota and earn more revenue.
Global trade in goods slowed further during the first half of 2023 mirroring the
weakening global industrial production, while trade in services continued to
trend upwards as the last few COVID-19 related restrictions diminished. The
outlook for global trade in the second half of 2023 is dampened by subdued
demand, reflecting weak global industrial production. Several downside risks
continue to shape global trade outlook: worsening trade tensions between
major economies, weaker than expected global demand, tighter global
financial conditions, mounting geopolitical uncertainty, and further rise in
protectionist measures.
Against the backdrop of tighter financial conditions and high interest rates,
global public debt is expected to rise in 2023 and 2024 with the driver being the
rising debt levels in some Advanced and Emerging Market Economies. Most
EMDEs are witnessing rising debt levels while high interest rates (highest since the
first quarter of 2022) have pushed up debt service costs. Stakeholders in some
EMDEs are already calling for debt forgiveness.

NIGERIA’S KEY ECONOMIC FEATURES
As at the last Monetary Policy Committee Meeting held in May, 2023, I wrote in
my Personal Statement as follows: “The Nigerian economy has remained in a
vulnerable state with many worrisome economic issues that would confront the
new Federal Government expected to be inaugurated on the 29th of May, 2023.
The economy remains vulnerable to both internal and external shocks without
meaningful fiscal buffers to withstand the shocks. Against the backdrop of weak
fiscal management, monetary policy has been seriously stressed from attempts

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to accommodate fiscal inadequacies and keep the economy afloat”. Upon
inauguration on May 29, 2023, the new Government appreciated the enormity
of the economic challenges and swiftly went into action, leveraging on the
opportunity of change of government, to introduce strong fiscal and monetary
reforms, key among which are the stoppage of petrol subsidies payments, and
unification of foreign exchange markets and exchange rates. Upward
adjustment of electricity tariffs is also in the offing. These reform measures,
though highly desired, have serious implications for growth which has shown
weakness recently, inflation which has remained stubborn, and exchange rates
which have witnessed very sharp depreciation following the floating of the
national currency, the naira. The reforms appeared to have addressed some
problems, but others have also been thrown up, including growth concerns.
The latest economic growth indicators do not portray cheering news amid
escalating inflation rates, suggesting that the economy may be gravitating
towards a new era of stagflation. The impact of the various shocks since the last
quarter of 2022 has been very heavy on growth and inflation control. An erratic
year-on-year growth pattern has been displayed since the first quarter of 2022:
Q1 2022, 3.11%; Q2 2022, 3.54%; Q3 2022, 2.25%; Q4 2022, 3.52%; and Q1 2023,
2.31%. In Q1 2023, the quarter-on-quarter real GDP growth contracted by -
15.65%; non-oil GDP by -17.30%; agricultural output declined by -30.95%;
continued reduction in the growth of services; continued low share of industrial
output in GDP (21.05% in Q1) which is unhealthy for the economy. In the same
way, the Composite Purchasing Managers’ Index (PMI), the Sectoral PMIs, the
Industrial Employment PMI, and Business Expectations PMI all declined in Q1,
suggesting moderation in output in the economy The impact of the various
policy shocks on output indicators must thus be of policy concern.
Price inflation in the country has stubbornly maintained an upward trend. All the
three measures of inflation – headline, food, and core inflation – have

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maintained their upward trend. Headline inflation (year-on-year) increased for
the sixth consecutive month to 22.79 per cent in June 2023 from 22.41 per cent in
May 2023, driven by food inflation. Food inflation (year-on-year) increased to
25.25 per cent in June 2023 from 24.82 per cent in May 2023. Core inflation
similarly increased to 20.27 per cent in June 2023 from 20.06 per cent in May
2023. Although there are monetary elements in the inflation which should
respond to the various tight monetary measures, the persistence of structural
factors, legacy infrastructure bottlenecks, and the recent policy shocks – sharp
increases in petrol prices, significant depreciation of the exchange rate
following the liberalisation of the foreign exchange market – have continued to
blunt the effectiveness of monetary policy actions. The recent suspension of the
Black Sea Cereals Agreement by Russia may block Ukrainian export of
cereals/agricultural products and energy products and create scarcity resulting
in escalation of global inflation and of import-dependent countries like Nigeria.
The foreign exchange market situation remains very worrisome. Following the
unification of all the foreign exchange windows, arbitrage has apparently
minimised. But the naira has depreciated sharply to about N800 : US$ 1.0 as the
demand for foreign exchange continues to outstrip supply. No doubt, the
depreciation benefits fiscal policy through monetisation of foreign exchange
receipts from the oil sector at very high exchange rates. However, the resulting
liquidity injections is a source of worry for inflation control. The external reserves
stock has depleted to US$ 33.97 billion as of 20th July, 2023. Amidst unabating
demand, the fundamental problem of the foreign exchange market remains
inadequate foreign exchange supply reflecting low productivity of the
economy, inadequate export earnings, limited foreign capital inflows. Therefore,
the Bank must continue to manage available supply of foreign exchange in the
context of a managed float exchange rate regime. It must also evolve ways to
manage demand. Also, the fiscal authority needs to maximise the revenue
benefits of the exchange rate depreciation by dealing decisively with oil theft in

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the oil producing areas. A good handle on oil theft will improve the
government’s fiscal space and foreign exchange earnings through increased oil
production and export.
The fiscal deficit of the country is a structural factor that has continued to drive
inflation upwards. In the first five months of 2023, the Federal Government
recorded a fiscal deficit of -N3,677.28 billion and this has implications for inflation
considering the monetary methods of financing it. The President Bola Ahmed
Tinubu government is carrying out tax reforms aimed at boosting revenue
generation. The Government has set up a Presidential Committee on Fiscal
Policy and Tax Reforms which aims to address the issue of multiple taxes,
improved ease of doing business and business growth. The legacy petrol subsidy
that has burdened government finances for years has finally been removed
from the budget. However, deeper and broader reform of public expenditure is
imperative. The new government needs to beam its searchlight on the structure
of public expenditure with a view to eliminating unproductive and wasteful
expenditures. This means that the government should carry out meaningful fiscal
consolidation to complement the Central Bank’s tight monetary policy stance
aimed at reining in the apparently stubborn inflation.
Developments in the Monetary Sector indicate rising liquidity in the economy
which could undermine the efforts to tame inflation. Growth in liquidity has
arisen from several sources: cash reserve requirement (CRR) normalisation,
repayment of matured CBN bills, maturing Federal Government Bonds, Nigerian
Treasury Bills (NTBs), and fiscal disbursements to the three tiers of Government.
During the period, May to June 2023, the Monetary Base decreased while the
Broad Money Supply (M3) increased. Although both were below their provisional
benchmarks, growth in liquidity is of concern in a period of tight monetary policy
aimed at taming inflation.

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OPINION
In arriving at my opinion, cognisance was taken of the current state of the
global economy, characterised by continued monetary policy normalisation
aimed at taming inflation, tight financial market conditions and growing public
debt, unabating geopolitical tensions coupled with uncertainties and
vulnerabilities, and weakening growth. On the domestic front, the key
considerations are the weakening growth performance, escalating inflation rate
amidst recent domestic policy shocks, serious foreign exchange market
challenges, depreciating naira, and uncomfortable external reserves position.
On the fiscal front, although the new government is making serious efforts to
boost revenue generation, fiscal deficits and associated public debt
accumulation will continue to elicit deep concerns. Not least of the concerns is
the build-up of liquidity in the economy arising from various sources.
Inflation has moderated notably for some time now in the Advanced
Economies, especially the United States and Euro Area, as energy and food
prices have fallen significantly. Yet, the priority of most economies remained the
achievement of a sustained reduction in inflation toward target levels by raising
real policy rates. Accordingly, in June, the Federal Reserve Bank, European
Central Bank, and the Bank of England raised their policy rates. In Canada, the
Central Bank raised its policy rate and gave an indication to sustain the policy
rate hike cycle as the need arises.
In Nigeria, growth concerns have emerged, and the inflation outlook is not
favourable. In view of the surging energy and food prices and the effects of
petrol subsidy removal, and the exchange rate depreciation occasioned by the
foreign exchange market liberalisation, the inflation rate will further increase in
the short term. If Russia’s suspension of the Black Sea Cereals Agreement is not
rescinded, global prices of food and energy might further escalate and worsen
inflation in Nigeria as an import-dependent country. Thus, it is important to

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sustain a tight monetary policy stance that reflects a reduced pace of policy
rate hike.
The concern for growth, and desire for a low interest rate regime by some
stakeholders is legitimate. However, it is important to have a good handle on
the inflation rate which has far exceeded the Bank’s 12-13 per cent target,
beyond which inflation becomes detrimental to growth. When inflation peaks
and begins to decelerate, there will be an acceptable basis to begin to loosen
the tight monetary policy stance. Meanwhile, the Fiscal Authority should
endeavour to implement programmes and measures that aid growth, for
example, boosting security in the food producing areas, and in the oil
producing areas to check oil theft and enhance both naira revenue to the
Government and external reserves accretion to stabilise the naira at an
acceptable level. On the side of the Monetary Authority, it is desirable for it to
continue to complement the Fiscal Authority’s efforts by assisting with targeted
interventions in the growth and employment enhancing sectors of the real
economy.
Going forward, there is need to minimise policy shocks that tend to undermine
monetary and financial stability, ensure appropriate coordination of monetary
and fiscal policies to achieve optimal economic outcomes.
Considering the forgoing, I vote to maintain the tight monetary policy stance
but with a gradual reduction in the pace and magnitude of tightening.
Specifically, I vote to increase the Monetary Policy Rate (MPR) by 25 basis points,
maintain the CRR and Liquidity Ratios at their extant levels, and adjust the
Asymmetric Corridor to -300/ +100 basis points.

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7. OBIORA, KINGSLEY I.

In the face of high inflation, negative real interest rates, and the need to reanchor inflation expectations, I voted for another raise of the Monetary Policy
Rate (MPR) from 18.5 percent to 18.75 per cent, retain the Cash Reserve Ratio
(CRR) at 32.5 per cent, the Liquidity Ratio (LR) at 30.0 per cent and the
Asymmetric Corridor of +100/-700 basis points around the MPR. This stance in my
view will contain inflationary pressures in the short- to medium-term while
sustaining growth recovery and safeguarding financial system stability.

The global economy continues to recover with slowing economic activity,
moderating but high inflation. The global economy is grappling with slowing
growth, moderating but high inflation despite improved recovery from the shock
of the pandemic and the Russia-Ukraine war. The supply-chain disruptions have
eased to the pre-pandemic levels. Oil and non-oil commodity prices continue to
decline, leading to moderating headline inflation. Financial stability risks have
subsided after the March 2023 banking turmoil due to the swift response by the
Fed Reserve and Swiss National Bank. External financial conditions are gradually
easing, thereby reducing exchange rate pressures on emerging markets and
developing economies. However, amid these improved developments, the
Global Manufacturing Purchasing Manager’s Index (PMI) continues to contract.
It further contracted to 48.8 index points in June 2023 from 49.6 index points in
May 2023, making it the fourth consecutive month of contraction due to
operating challenges and declining global demand. Also, the pace of China’s
economic activity is moderating after an improved performance in the first
quarter of 2023. Recent data showed China’s Purchasing Managers Index
contracted for the third consecutive month. It Increased only slightly to 49.0
points in June from 48.8 points in May 2023, which is below the benchmarks of 50

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points, reflecting weak post-covid recovery. All these continue to weigh on
global economic activity.
As a result of these mixed developments, global growth is projected to
slowdown in 2023. The recent baseline forecast from the International Monetary
Fund (IMF WEO July 2023 Update) suggests that global growth will slow to 3.0 per
cent in 2023 from 3.5 per cent in 2022, driven by a tighter monetary policy
stance, the Russia-Ukraine war, a slowdown in China’s economic activity and
geopolitical fragmentation. The bulk of the expected slowdown will be driven by
Advanced Economies (AEs), where growth will decline to 1.5 per cent in 2023
from 2.7 per cent in 2022. As a result, growth in the United Kingdom and the Euro
Area is expected to decline significantly to 0.4 and 0.9 per cent in 2023 from 4.1
per cent and 3.5 per cent in 2022, respectively. In the United States and
Canada, growth rates are also expected to fall to 2.1 and 1.7 per cent in 2023
from 2.1 and 3.4 per cent, respectively, in 2022. In contrast, growth in Emerging
Markets and Developing Economies (EMDEs) will remain unchanged at 4.0 per
cent in 2023, driven by China and India, which are expected to expand by 5.2
per cent and 6.1 per cent in 2023, respectively. In Sub-Saharan Africa, growth
will slightly decline to 3.5 per cent from 3.9, with Nigeria and South Africa
expected to grow by 3.2 per cent and 0.3 per cent, respectively.
Many central banks remain committed to fighting inflation despite its potentially
cooling effect on economic activity. Global headline inflation is moderating but
remains high. It is projected to decelerate to 6.8 per cent in 2023 from 8.7 per
cent in 2022, before dropping further to 5.2 per cent in 2024 (IMF WEO July 2023
Update). In Advanced Economies and Emerging Market and Developing
Economies, headline inflation is projected to moderate from 7.3 and 9.8 per
cent to 4.7 and 8.3 per cent, respectively —all driven by the decline in food and
energy prices, the easing of disruptions to global supply chains, and monetary
policy tightening. However, in Sub-Sahara Africa (SSA), inflation, particularly food

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inflation remains persistently elevated, as about 80.0 per cent of SSA are facing
double-digit food inflation (IMF regional outlook, sub-Saharan Africa, April 2023).
While global headline inflation is moderating, core inflation remains sticky and
well above many central banks’ target. Core inflation is projected to decline
only gradually from an average of 6.5 per cent in 2022 to 6.0 per cent in 2023,
driven by an increase in the prices of services and continuous labour market
tightness. In the United States, for example, core inflation marginally decreased
to 4.8 per cent in June from 5.3 per cent in May 2023. In the United Kingdom,
core inflation also marginally decreased from 7.10 per cent in May to 6.90 per
cent in June 2023. In France, it slightly declined from 6.30 per cent in May to 6.20
per cent in June 2023. In the Euro Area, however, core inflation rose to 5.5 per
cent in June from 5.3 per cent in May 2023. Overall, it is forecast that 96 per cent
of countries with inflation targeting framework will remain above target in 2023,
before declining to 89 per cent in 2024 (IMF WEO July 2023 Update). As a result
of this persistence and stickiness of core inflation, many central banks in
advanced economies, including the US Federal Reserve (Fed), the European
Central Bank (ECB), and the Bank of England (BoE), among others, continue to
hike interest rates to firmly contain inflation and bring it down to the central
banks’ target.
Following these global developments, Nigerian economic activity has
predictably abated but remains resilient. Official data from the National Bureau
of Statistics (NBS) revealed that Nigeria’s real GDP (year-on-year) grew by 2.31
per cent in Q1 2023, downed from 3.52 per cent in Q4 2022, representing a
decline of 1.21 percentage points. This is the tenth (10) consecutive quarter of
GDP growth since the country exited recession in the fourth quarter of 2020.The
moderate growth rate was driven by the non-oil sector, especially the services
and industries sectors, which grew by 4.35 and 0.31 per cent, respectively. The
agriculture sector, however, contracted by 0.90 per cent in Q1 2023, compared

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with a positive growth of 1.88 per cent in Q4 2022. The sub-sectors that
recorded significant growth included Agriculture (Crop Production), Trade,
Information and Communication (Telecommunication), Crude Petroleum and
Natural Gas, and Real Estate, with growth of 19.48, 15.97, 14.13, 6.21, and 5.38
per cent, respectively. In terms of relative contribution to GDP, the services,
agriculture, and industries sectors contributed 57.29, 21.66 and 21.05 per cent,
respectively. The oil sector continued to contract although at a slower pace, as
it contracted by 4.21 per cent, compared with a contraction of 13.38 per cent
in Q4 2022, reflecting an increase of 21.38 percentage points. Overall, the oil
sector’s contribution to aggregate GDP increased from 4.34 per cent in Q4 2022
to 6.21 per cent in Q1 2023. The increased performance was attributed to the
improved security in the oil-producing areas. Also, the monthly composite PMI
has remained above the 50.0 benchmark for the third consecutive month.
Although it slowed down to 50.2 index points in June from 54.4 index points in
May 2023, it was above the benchmarks, indicating the resilience of Nigerian
economy. As a result, the IMF (WEO July 2023 Update) projected the Nigerian
economy to grow by 3.2 per cent in 2023 from 3.3 per cent in 2022, driven by the
non-oil sector and expected improved oil production.
The financial soundness indicators showed that the banking system remained
stable and resilient. The capital adequacy ratio (CAR) and Liquidity Ratio (LR)
have remained above the minimum thresholds. Although CAR decreased to
11.2 per cent in 2023 from 14.1 per cent, it remained above the 10.0 per cent
prudential requirement. The liquidity (LR) was also above the 30.0 per cent
regulatory minimum ratio. It increased significantly from 42.6 per cent in June
2022 to 48.4 per cent in June 2023. The Non-performing Loans (NPLs) ratio
remained below the maximum prudential requirement of 5.0 per cent. It
declined from 5.0 per cent in June 2022 to 4.1 per cent in 2023. The continuous
decline in NPL was attributable to write-offs, restructuring of facilities, Global
Standing Instruction (GSI) and sound credit risk management. Total assets of the

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banking industry grew by N30.92 trillion or 47.21 per cent between June 2022
and June 2023, largely driven by the effects of new FX policy. As a result, total
gross credit increased by N10.75 trillion or 39.73 per cent between the end of
June 2022 and the end of June 2023 due to the increase in the industry funding
base, the CBN’s directive on Loan-to-Deposit Ratio (LDR), business strategy and
competition, and changes in valuation of FX denominated loans due to
operational changes in the FX market. The credit growth was largely recorded in
oil and gas, manufacturing, general commerce, and government.

Grappling with these conditions are tricky because the outlook is fraught with
domestic and external downside risks. Global headline inflation is moderating
but remains high and continues to add to the cost-of-living crisis. The RussiaUkraine war could escalate, especially given the suspension of the Black Sea
Grain Initiative. This could not only disrupt trade and investment flows but also
add to the double-digit food inflation in many sub-Saharan African countries.
External financial conditions remain elevated and could increase capital
outflows and exert exchange rate pressures in EMDEs, leading to high-cost
borrowing, increasing debt distress, and severely impacting the domestic
investment and economic growth of EMDES, including Nigeria. Domestic
headwinds include inflationary pressures, which remain elevated. Headline
inflation (year-on-year) increased to 22.79 per cent in June 2023 from 22.41 per
cent in May 2023, driven largely by food inflation, which rose to 25.25 per cent in
June 2023 compared with 24.82 per cent in May 2023. Core inflation also
increased to 20.27 per cent in June from 20.06 per cent in May 2023, driven by
processed foods, education, clothing and footwear, and transport. The
economy continues to face external vulnerabilities, particularly oil price volatility
and low oil production, leading to more pressure on exchange rates. As a result,
the Balance of Payments (BOP) position recorded a deficit of 0.85 per cent of
the GDP in Q4 2022. Other structural challenges include lingering infrastructural

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deficits, rising unemployment, power supply shortages, rising insecurity,
inequality, and poverty.
Amid these headwinds lie opportunities to put the economy on a sustainable
path of economic growth. The Bank and the Federal Government have recently
already taken some bold measures that would lay the foundation for
sustainable macroeconomic stability. The recent adoption of a single, marketdetermined exchange rate will engender investors’ confidence, attract more
capital inflows, stabilize exchange rates, and decline inflationary pressures in the
short to medium term. Also, the elimination of the petrol subsidy by the Federal
Government has removed the unsustainable fiscal burden, thereby creating
more fiscal space for investment in public goods and services. However, more
action is required to return the economy to a sustained recovery. This would
include the need to further promote inclusive growth through increased
competitiveness, private sector investment, and innovation in various sectors of
the economy. This would help create quality jobs and accelerate poverty
reduction in the country. Also, developing a sustainable fiscal path through
increased revenue mobilization and efficient tax administration will attenuate
the impact of oil price volatility; thereby making resources available for
investment in human capital and infrastructure.

Overall, these pieces of evidence overwhelmingly suggests the need for the
MPC to remain committed to containing inflation immediately. The rising costs of
food and other necessities are eroding the purchasing power of ordinary
Nigerians. The Bank must, therefore, continue to act to bring inflation under
control by raising the monetary policy stance. This will not only help to tame
inflationary pressures in the short to medium term but also sustain growth
recovery, anchor inflation expectations, attract capital inflows and minimize the
effect of exchange rate pass-through to domestic prices.

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Based on persisting negative real interest rate and the need to be consistent
and credible, I vote to raise MPR by 25 basis points.
• Increase the Monetary Policy Rate (MPR) from 18.5 percent to 18.75
percent.
• Retain the Cash Reserve Ratio (CRR) at 32.5 percent.
• Retain the Liquidity Ratio (LR) at 30.0 percent; and Retain the Asymmetric
Corridor to +100/–700 basis points around the MPR.

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8. OMAMEGBE, MO’
Global Economic Developments
The global economic outlook has become somewhat optimistic following
upturns in global economic developments. Global growth improved albeit with
mixed outcomes across countries, against analysts’ expectations of a possible
recession at the beginning of the year. The improvement in Global growth was
driven by rising business and consumer sentiment, the opening up of the
Chinese economy as well as lower energy prices. Together, these have brought
about a deceleration in global headline inflation although core inflation has
remained sticky downwards. The global economy in 2023, despite facing
significant challenges, mainly stemming from the repercussions of the war in
Ukraine and elevated global inflation, has demonstrated remarkable resilience.
However, downside risks to global growth namely, persistent high core inflation,
rising debt levels and servicing costs still persist that put a damper on the overall
economic outlook.
The United Nations’ World Economic Situation and Prospects report for June
2023 emphasized the uncertain trajectory of the global economic recovery.
Persistent inflation, rising interest rates, and increased uncertainties were
identified as substantial challenges to global growth. Instead of a robust
rebound, there is a growing risk of prolonged low growth. Factors contributing to
this include the enduring effects of the COVID-19 pandemic, and unresolved
macroeconomic structural issues. According to the report, the projected growth
rate for the world economy in 2023 is 2.3%, with a slightly improved forecast of
2.5% for 2024. These projections reflect the prevailing economic conditions and
highlight the cautious outlook for global growth in the coming years.
The World Bank reports that emerging economies like China and India are
experiencing stronger growth compared to developed economies. Sub-

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Saharan Africa on the other hand, is equally encountering sluggish economic
growth,
primarily
attributed
to
high
inflation
rates,
global
economic
uncertainties, underperforming major economies on the continent, and a
significant deceleration in investment growth.

Domestic Economy
Nigeria's economic growth weakened in the first half of 2023, primarily due to
high and rising inflation, fiscal challenges, and global economic conditions. The
combination of declining revenues and increasing expenditures has led to a
growing fiscal deficit, necessitating borrowing and potentially fuelling
inflationary pressures. The underperformance of the oil sector, coupled with
unsustainable fuel subsidies, further exacerbates the fiscal issues.
In June 2023, the Purchasing Managers’ Index (PMI) decreased to 53.2, falling
from a five-month high of 54.0 in the previous month. This indicates an expansion
in the private sector for the third consecutive month, albeit at a slower rate than
the previous month. The expansion in new business and output lessened, as
inflationary pressures impacted demand. Input and output costs soared partly
as a result of the removal of fuel subsidy. There was an overall drop in business
confidence bringing it to a near record low.
Headline inflation rates in June 2023 rose to 22.79%, a 0.38% increase compared
to the previous month. This marked the 6th consecutive monthly increase and
the highest inflation rate since 2005. Food inflation increased to 25.25%, and
core inflation reached 20.27% during the same period. The year-on-year
headline inflation rate was 4.19% higher than in June 2022. Although core
inflation showed a slight decrease year-on-year, overall persistent inflationary
pressures remain a cause for concern.

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Export earnings continue to decline despite higher oil prices recorded in the first
half of the year. Revenues from oil exports will further depress in the future if the
perennial structural challenges plaguing the petroleum sector are not
addressed.
The recent PMS and foreign exchange reforms have significant implications for
the economy. These reforms if well implemented present a tremendous
opportunity to address the growing fiscal challenges in the medium to long term
and creates a foundation to build long term fiscal sustainability and economic
growth. In the near term, the reforms will lead to sharp price increases which will
directly and significantly impact the poor and most vulnerable households. The
need for government targeted assistance to this demographic to cushion the
effects of the price increases cannot be over emphasized. Further, these reforms
provide an added opportunity to grow the fiscal space if spending is controlled
and targeted while utilization of additional revenues mobilized should be
prudently and optimally deployed.

Overall consideration
Despite consistent and synchronous monetary tightening, high inflation persists
globally. The effect of tightening has started to yield some fruit in certain parts of
the world with reduction in headline inflation and resilience displayed by
western economies despite bleak growth forecasts. On the domestic front, a
combination of factors keep prices elevated. The surge in consumer price
inflation is attributable to factors such as increased money supply, fiscal
imbalance, monetization of the fiscal deficit, exchange rate depreciation and
the impact of recent policy reforms. Global food and energy price spikes have
further exacerbated the situation. A recent World Bank report notes that the

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inflationary pressure escalated in 2022, resulting in the fastest consumer price
increases in 17 years.
The pace of consumer price increases defied market expectations in June 2023
as the anticipated price increase due to the newly introduced policy reforms
was somewhat muted. However, Headline inflation still increased to a new 18year high. The fuel subsidy removal and the impact of managed float of the
currency may not have been fully reflected in the CPI numbers for June 2023.
The expectation is that July 2023 numbers will further bake in the impact of these
policy changes and the rates will likely trend higher.
Foreign exchange inflows remain limited and The Nigerian Upstream Petroleum
Regulatory Commission reported that total crude oil production, both blended
and unblended including condensates recorded a moderate increase of 1.47
mbpd in June 2023. This bodes well for our foreign exchange reserves but
production increase should be consistent and sustained. Increasing crude oil
production and consequently revenues is critical to improving our foreign
exchange liquidity position in the short to medium term. This will no doubt
positively impact our foreign exchange reserves with important exchange rate
implications.
Overall inflation remains sticky, and the trilemma – an attempt to simultaneously
reduce persistent inflation, contain downside growth risks while maintaining
financial stability – remains a major challenge. The significant and rapid
monetary policy tightening undertaken to combat rising prices reflects the
central bank's commitment to its price stability mandate. Some have called for
caution as the effects of continuous rate increases could pose systemic risk to
the financial system and negatively impact growth. This is a legitimate concern.
However, the evidence suggests a less than moderate stress in the financial
system due to tightening and does not reflect a high risk of stress that will lead to
a systemic crisis at this time.

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We continue to see the impact of fiscal factors as the significant drivers of rising
prices. This calls for the need for fiscal policy tightening to complement the
monetary policy efforts. Supply side reforms especially a reduction in
government spending, growing non-oil tax revenues, increasing crude
production and fiscal policy coordination remain areas that need urgent
Government attention.
The growth of money supply continues on the uptrend and the consequent
challenge of taming rising prices remains daunting. Though the fight to reduce
inflation presents downside risks to growth, the focus should remain steadfast on
the primacy of price stability to keep inflation within target levels. This is more so
given that we cannot sustain growth without keeping inflation under control.
The calls for a handshake between monetary and fiscal policy to control rising
prices are credible and will be positively impactful, however, the role of tackling
the menace of inflation remains primarily that of the Bank. Consequently, all the
monetary tools should be deployed to stem rising price levels.
With the recent policy pronouncements and the potential upside inflation risk in
the near term, it will be harmful to prematurely stop tightening as this will likely
dislodge inflation expectations. We should remain resolute and forceful in
addressing persistent price pressures and resist a premature policy reversal at this
time.
My Policy Decisions
I therefore vote to:

1. Raise MPR by 25 basis points to 18.75 per cent;
2. Adjust the Asymmetric Corridor to +100/-300 basis points around the MPR;
3. Retain the CRR at 32.50 per cent;

Classified as
9. SALISU, MOHAMMED A.
Global Developments and Outlook

Global recovery of global supply chains from the COVID-19 pandemic has
largely contributed to the expansion of global output. However, some of the
forces that hindered growth in the past year or so have continued to slow the
pace of global economic recovery. For example, the repercussions of the
ongoing war in Ukraine as well as high food and energy costs have continued to
constrain economic activity. Despite these challenges, global economic activity
was resilient in the first quarter of 2023, driven largely by the services sector. The
International Monetary Fund (IMF) projected global growth to decelerate from
an estimated 3.5 per cent in 2022 to 3.0 per cent in 2023 and 2024 (IMF, World
Economic Outlook – WEO – July 2023), with the balance of risks to global growth
tilted to the downside, including slow recovery of the Chinese economy and the
ongoing efforts at the enlargement of the BRICS (Brazil, Russia, India, China and
South Africa) economy.

Global inflation has continued to decline on account of moderation in prices
across several Advanced Economies (AEs). As a result, the IMF has projected
global headline inflation to fall from 8.7 per cent in 2022 to 6.8 per cent in 2023
and 5.2 per cent in 2024 (WEO July 2023), while core inflation is projected to
decline more gradually. In the Emerging Markets and Developing Economies
(EMDEs), however, inflation remains high and will remain elevated in the
foreseeable future despite broad measures by several central banks to ease the
inflationary pressure. Thus, inflation across EMDEs could remain high and may
even rise if unexpected global shocks occur, including those from an
intensification of the war in Ukraine and extreme climate change related events.

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Domestic Economic Developments
Despite rising inflation and high unemployment, the Nigerian economy has
continued to sustain positive output growth since it exited from recession in 2020.
The National Bureau of Statistics (NBS) reported that Real Gross Domestic
Product (GDP) grew by 2.31 per cent (year-on-year) in the first quarter of 2023,
compared with 3.52 per cent in the fourth quarter of 2022. While growth
decelerated, the sustained positive performance of the economy was driven
largely by rapid growth in the services and industry sectors, supported by broadbased measures by both the monetary and fiscal authorities. The positive
economic growth is projected to continue following the removal of subsidy on
the price of Premium Motor Spirit (PMS) and convergence of multiple exchange
rates in the medium- to long-terms. These factors could, however, exacerbate
uncertainties due to high prices of PMS and other energy products and pressure
in the foreign exchange market. The general level of insecurity in the country,
particularly in the farming communities, could also precipitate uncertainties.
Despite the perceived uncertainties, the economic outlook for Nigeria for 2023
remains solid based on the forecasts by the CBN (2.66 per cent), Fiscal
Authorities (4.20 per cent) and the IMF (3.20 per cent).

On inflation, the headline inflation (year-on-year) continued its upward
pressures, rising to 22.79 per cent in June 2023, from 22.41 per cent in the
previous month, driven largely by the food prices. For instance, food inflation
rose to 25.25 per cent in June 2023, from 24.82 per cent in the preceding month.
Some of the key drivers of food inflation include the continued security
challenges in major food-producing areas; rising cost of energy, high cost of
transportation; poor rural road infrastructure; and post-harvest losses. Uptick in
core inflation also contributed to inflation pressures. For instance, according to
National Bureau of Statistics (NBS) data, year-on-year core inflation excluding
energy items rose from 19.83 per cent in May to 20.06 per cent in June 2023, As

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the MPC’s Communique rightly states, “The unfolding dynamics in the policy
environment and the resultant pass-through to domestic prices would thus
require greater collaboration between the Bank and the fiscal authority.”

In terms of monetary aggregates, CBN Staff report shows that broad money
supply (M3) grew by 24.35 per cent (year-to-date) in June 2023, compared with
6.70 per cent in May, driven largely by the increase in both Net Foreign Assets
(NFA) and Net Domestic Assets (NDA). The monthly weighted average Open
Buyback (OBB) and Interbank Call rates decreased to 9.12 and 11.61 per cent in
June 2023, from 12.60 and 12.31 per cent in May, respectively.

In the Banking System, Financial Soundness Indicators (FSIs) remained stable and
strong, as the Capital Adequacy Ratio (CAR), Non-Performing Loans (NPLs) ratio,
and Liquidity Ratio (LR) stood at 11.2 per cent, 4.1 per cent, and 48.4 per cent,
respectively, at the end June 2023.

Furthermore, the recently introduced government policies have spurred a surge
in investor confidence in the Nigerian financial market as investors foresee a
more stable macroeconomic environment. Consequently, equities remained
bullish with the All-Share Index (ASI) and Market Capitalization (MC) increasing
to 60,968.27 index points and N33.20 trillion, respectively, on June 30, 2023,
compared with 51,251.06 index points and N27.92 trillion as at December 30,
2022.

In the foreign exchange market, the policy on convergence of the multiple
exchange rates led to market-determined rate for the naira, effectively
abolishing the Investors and Exporters (I&E) Window. Gross external reserves
remained relatively flat at US$33.75 billion and US$33.97 billion in June and July

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2023, respectively, due primarily to weak accretion to external reserves and
demand pressures on the foreign exchange.

Policy Decision
Based on the foregoing analysis on the international and domestic
developments, it is apparent that inflation pressure poses a serious threat to
output growth in Nigeria as the recent policy decisions around subsidy removal,
exchange rate liberalization and disbursement of palliatives, would have passthrough effects to inflation. This calls for decisive measures, including use of a mix
of monetary policy instruments by the CBN to address the potential adverse
liquidity challenges.

It is noteworthy, that despite hiking the policy rate in the past eight meetings of
the MPC, inflation has continued to rise, albeit at a slower pace. This shows that
either the monetary policy rate (MPR) has not been effective enough or that
other monetary and fiscal factors are driving inflation in Nigeria. In this case,
tightening the policy rate may not help matters. Similarly, loosening the MPR
now may not be a good option as it will boost spending. This leaves us with a
“hold” option, that is holding the MPR constant in combination with other
monetary and fiscal policy instruments, including sustained collaboration
between monetary and fiscal authorities on joint policies that would attract
domestic and foreign investments to shore up the economy, create jobs, boost
output and reduce prices.

Accordingly, I voted to:
1. Hold the MPR constant at 18.5%.
2. Retain the CRR at 32.5%.
3. Retain the Asymmetric Corridor at +100/-700 basis points around the MPR.
4. Retain the Liquidity Ratio at 30.0%.

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10. SANUSI, ALIYU R.
Decision
My decision to vote for a raise on the MPR is predicated on the need to
continue to tighten the monetary policy stance as inflationary pressure
continues unabated. Indeed, as economic agents adjust to the two major
policy reforms of the new government, inflationary pressure is expected to rise in
the short to medium term. On the one hand, for example, I expect the resultant
exchange rate depreciation to elevate the inflationary pressure directly, given
the substantial exchange rate pass-through and its second-round effects, and
indirectly through the consequential liquidity injections as the exchange rate for
oil revenue monetisation adjusts upward. On the other hand, the substantial
upward adjustment of the pump price of PMS due to the subsidy-removal would
raise costs and exert additional inflationary pressures. In my opinion, these new
policies would exacerbate the existing inflationary pressures arising from food
and energy occasioned by the external and domestic legacy headwinds. Data
and staff forecasts show that output growth will remain moderately positive but
inflation will rise. With inflation sticking above the growth-retarding level and
threatening to continue rising, I believe the optimal monetary policy response to
rein in inflation is further tightening.
Background and Justification
Global Economic Development
The global economic and political environment has continued to remain
uncertain as Russian-Ukraine hostilities continue to exert pressure on global food
and energy prices amidst rising threats to multilateralism, while the slow recovery
in China and continued cycles of rate hikes weigh on global trade and
exacerbate debt vulnerabilities.

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The policy environment has continued to be challenged by the continued
uncertainties in global economic and geopolitical developments. These
developments include the rising geo-political tensions arising from the continued
hostilities between Russia and Ukraine, especially the failure by Russia to renew
the black sea grains agreements that allowed safe passage of food exports
from Ukraine; the increasing global polarisation that is deepening the East-West
geopolitical divide as more countries show interest in joining the new BRICS
currency challenging the dominance of the dollar in global trade and reserve
currency. This bricsification, if successful, is expected to have a substantial effect
on global trade volumes and directions as about 41 countries have already
indicated an interest in joining the new BRICKS reserve currency as of the end of
June 2023. The World Bank has forecasted global output growth to moderate to
2.1% in 2023 but rise to 2.4% in 2024 due to the high, but moderating global
inflationary pressures, volatile but elevated energy prices, tighter financial
conditions and worsening geopolitical tensions. In the Advanced Economies
(AEs), output growth is forecasted to moderate to 0.7% in 2023 from 2.6%
achieved in 2022, but rise to 1.2% in 2024 due mainly to the monetary tightening,
and slow growth in the Euro area and the UK. Output in the US expanded by
2.0% in Q1 2023 compared with 2.6% in Q4 2022 and is expected to rise by 1.6%
in 2023. Output in the UK economy remained flat at 0.1% in Q1 2023 but is
expected to contract by -0.3% in 2023. In the Euro area, output growth declined
by -0.1% in Q1 2023, the same as in Q4 2022 due to decreased household and
public spending. Japan’s output expanded by 0.7% in Q1 2023, from 0.1% in Q4
2022 but is forecasted to rise to 1.3% in 2023. The composite Global Composite
PMI of JP Morgan has moderated to 52.7 index points in June 2023 from 54.4
index points in May 2023, indicating moderation in global economic activity
(both manufacturing and services).

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Output in the Emerging Market and Developing Economies (EMDEs) is
forecasted to grow by 4.0% in 2023, from 3.7% in 2022, but is expected to
moderate to 3.9% in 2024. Output growth in China declined to 0.8% in Q2 2023
from 2.2% in Q1 20123. It is forecasted to grow by 5.2% in 2023. In Russia, output is
forecasted to expand by 0.7% in 2023 and is expected to expand by 1.2 in 2024.
In South Africa, output contracted q-o-q by -0.4% in Q1 2023, compared with an
expansion of 1.1% in Q4 2022. In 2023, output is expected to grow by 0.1%. In
Nigeria, q-o-q output declined by 15.65% in Q1 2023 compared with 10.99% in
Q4 2022, driven largely decline in the oil sector. Output is expected to grow by
3.2% in 2023.
Global inflation has continued to decline but is expected to remain elevated
above pre-pandemic levels throughout 2023. IMF forecasts global inflation to be
7% in 2023 from 8.7% in 2022, but decline to 4.9 in 2024. In the AEs, IMF
forecasted inflation to decline to 4.7% in 2023 from 7.3% in 2022 due to a decline
in non-fuel commodity prices and the effects of the ongoing monetary
tightening. It is expected to decline further to 2.6% in 2024. In the US, inflation has
continued to decline since July 2022 and dropped to 3.0 % in June 2023, while it
stood at 5.5% in the Euro area and 7.9% in the UK. In the EMDEs, inflation is
forecasted to decline to 8.8% in 2023 and further to 6.5% in 2024 due to the
expected decline in food and energy prices, continued monetary tightening,
and easing of disruptions to the global supply chains. As of June 2023, year-onyear inflation declined in China to 0.0%, in Saudi Arabia to 2.7%, in South Africa
to 5.40% but increased in India to 4.8%, in Russia to 3.2%, and in Nigeria to
22.72%.
Domestic Economic Developments and Their Implications
In addition to the legacy headwinds that confront the domestic economy,
including the security challenges in the major food-producing areas and, the
high cost of transportation caused by rising energy costs, the recent

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government policies are expected to increase inflationary pressure as well as
dampen the slow output recovery in the short to medium term. The two major
reforms of the new administration, which aim to improve the government's fiscal
space and long-term growth prospects of the economy, are expected to have
a substantial influence on the evolution of the domestic economy over the
short-to-medium term. Output, Money and Prices are expected to adjust to
both the zero-subsidy policy on the pump price of PMS and the substantial
depreciation of the naira as the bank attempts to unify the various exchange
rate windows. On the one hand, the zero-subsidy policy will have a direct effect
on prices and output through higher costs of production and transport and
dampened demand. The resultant depreciation of the naira following the
exchange rates unification will directly, via the pass-through effect, raise prices.
On the other hand, the monetization of the resultant higher revenue (owing to
subsidy savings) from oil with a more depreciated exchange rate will be a
significant source of liquidity injections. This impending liquidity, if not sterilized,
will be an additional source of inflationary pressure. These policies and their
potential impact on output and inflation have underscored the greater need for
coordination of fiscal and monetary policies going forward. As the positive
effects of policies crystalise and expand the fiscal space, a new framework for
effective macroeconomic policy coordination will be required to achieve
output growth with low inflation. This would allow the central bank to return to
the traditional use of its market-based tools for liquidity management.
Available data shows that output recovery has remained positive, for ten
consecutive quarters, but weak. In Q1 2023, the domestic output slowed to
2.31% (y-o-y) from the 3.52% achieved in Q4 2022. This was driven by the non-oil
sector, which grew by 2.77%, particularly Services, (4.35%). Agriculture declined
by -0.9%. However, the oil output contracted by a much smaller rate of -4.21%
due to improved oil production in Q1 2023. On a q-on-q basis, output
contracted by -15.65% in Q1 2023, driven by the decline in the Non-oil GDP.

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Agricultural output contracted by -30.95% while services output contracted by14.12%. These contractions reflect the effects of the cash crunch as a result of
the cashless policy during the quarter. Oil GDP, however, expanded by 20.68%
reflecting improved production.
In June 2023, inflation continued to increase for six consecutive months. Yearon-year, the headline inflation increased by 38 basis points, from 22.41% in May
2023 to 22.79% in June 2023, driven by both the food and core components.
Food inflation rose to 25.25% in June 2023 from 24.82% in May 2023, driven by a
38-basis point increase in prices of farm produce. Core inflation also increased in
June 2023 by 0.21 percentage point to 20.27% from 20.06% in May 2023, due
mainly to increased prices of processed foods, education, and transport. Survey
data shows that expected inflation continued to rise in June 2023 but has
remained below actual inflation since September 2022.
Monetary sector developments showed that broad money (M3) growth
increased by 24.35% in June 2023 year-to-date (annualized at 48.71%, above
the benchmark of 17.18% for 2023). This increase was driven by the rise in the Net
Domestic Asset (NDA), which grew 18.09% (year-to-date) in June 2023
(annualized at 36.18%, above the benchmark of 15.78%). The key driver of the
growth in NDA was net claims on government which grew by an annualized
rate of 79.28% (y-t-d) in June 2023, above the 2023 benchmark of 19.64%. Net
Foreign Assets (NFA) also increased by 59.64% in June 2023 (annualised at
119.28%, above the benchmark of 38.82% for the year).
Staff forecasts showed that headline inflation would increase from 22.79% in
June 2023 to 23.22% in July 2023 due to the high cost of Premium Motor Spirit
(PMS) and Automotive Gas Oil (AGO) leading to high costs of transport and
logistics, high electricity tariff, exchange rate pass-through, and seasonality in
food production.

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A review of the banking system stability report shows that the banking system
continues to remain safe, sound, and resilient. Capital Adequacy Ratio (CAR)
stood at 11.2% as of end-June 2023, which was above the regulatory minimum
of 10%. The Non-Performing Loans (NPLs) ratio was 4.1%, which was below the
regulatory maximum of 5%. Furthermore, Liquidity Ratio stood at 48.4%, above
the regulatory minimum of 30%. Data also shows that the banking industry’s Total
Assets and Gross Credit to the economy have maintained their upward trends in
June 2023. Total industry assets grew year-on-year by N30.92 trillion or 47.21% to
N96.4 trillion between end-June 2022 and end-June 2023. The upward trend in
total credit to the economy stands at N37.81 trillion as of June 2023 and has
increased by N10.75 trillion or 39.73% between the end of June 2022 and the
end of June 2023. The credit growth has continued since 2019 following the
Bank’s Loan-to-Deposit Ratio (LDR) policy.

The Basis for My Policy Choice
I am concerned that new and legacy forces would substantially influence the
evolution of prices in the medium term and, given the already high level of
inflation, hurt output growth. The new exchange rate policy that led to the
depreciation of the naira, for instance, would directly feed into prices in the
short-to-medium term. Along with the expected subsidy savings, the
monetization of oil proceeds under the current exchange rate regime would
mean a substantial increase in government revenues. While this brings the
much-needed improvement in the fiscal space, it also could mean increased
liquidity injections, especially in the context of a weak legal framework for saving
windfalls. This expected liquidity, unless fully sterilised, could raise the existing
inflationary pressures and eventually depress output. In my opinion, therefore,
there is a need for effective coordination between monetary and fiscal policy
to sustainably achieve low inflation and high output growth. In deciding

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between loosening, holding, or raising the MPR, I choose to raise the policy rate
because loosening would compound the inflationary pressure, negate the
present efforts at taming inflation and accelerate capital outflows. Holding, at
the moment, could erode the gains made from the previous policy rate hikes. I,
therefore, voted for a further tightening, albeit by a lower rate in consideration
of the potential impact of the new policy reforms on the financial system
stability. Consequently, I voted to:
1. Raise the MPR by 25 basis points to 18.75% per cent;
2. Retain the CRR at 32.5 per cent;
3. Adjust the asymmetric corridor to +100/–300 basis points around the MPR;
and
4. Retain the liquidity ratio at 30.0 per cent.

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11. SHONUBI, FOLASHODUN A.
Faced with a high chance of prolonged Russia-Ukraine crisis, as well as the
dampening effect of high global inflation and tight financial conditions, the
prospect for global economic growth remains weak. Many economies are thus
struggling with how to sustain the fight against inflation, without hurting financial
system stability, while also working to preserve the fragile growth. Domestically,
we are determined to sustain efforts in achieving an enduring policy regime that
will not only protect the domestic economy from global shocks and assure nearterm stability, but also put the economy on the path of sustainable long-term
growth and development.


Global and Domestic Economic Developments
Disruptions recovery of the global economy continued during the review
period, with slowing momentum, growing uncertainties, and fragile outlook.
Widespread tight monetary policy to curb inflation constrained aggregate
demand and dampened growth prospects, while also constituting threat to
financial system stability. Although global inflation has started declining in some
key economies, elevated cost pressures in labour markets and lingering supplydisruptions have kept inflation above long run targets. Consequently, IMF
expects global growth to weaken from 3.5 per cent in 2022 to 3.0 per cent in
2023 and 2024.

Domestic Conditions Review
Upwardly trending inflation in a period of weak and fragile output growth
indicate a delicately stable short-term prospect for the Nigerian economy.
Unintended and transitory effects of recent supply-correcting reforms
(stoppage of petroleum subsidy and foreign exchange market liberalisation) in
the domestic economy are combining with global headwinds to aggravate
inflation, weaken household demand and dampen economic activities.

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Hence, developments in the domestic macro-economic environment in the
review period reflected the sentiments and dynamics in the various sectors of
the economy, as triggered by the policy induced shocks.

Domestic GDP growth, at 2.31 per cent in 2023Q1, was below the 3.52 per cent
in the preceding quarter, indicating largely robust performance of the non-oil
sector. The services and industry sub-sectors were the major drivers of non-oil
sector growth. The fragile outcome in 2023Q1 reflected mainly the effects of
temporary unintended policy induced weakening of effective demand and
disruptions to economic activities in the review period.

At 22.79 per cent in June 2023, from 22.41 per cent in May, domestic headline
inflation rate remained broadly elevated on account of increase in both core
and food inflation. On a month-on-month basis, inflation rose by 2.13 per cent,
compared with 1.94 per cent in May. Rising inflation showed the impact of both
supply-side (infrastructure, insecurity, energy prices, transportation, exchange
rate) and demand-side (mainly liquidity overhang) factors driving inflation.

Significant growth of key monetary aggregates in the review period highlighted
the challenge of excess liquidity in the economy. Annualised growth in broad
money supply, at 48.71 per cent vis-à-vis the programmed target of 28.21 per
cent, was driven by expansion in both net domestic and net foreign assets.
Overall, increased systemic liquidity in June 2023, on account of higher FAAC
allocation, temporary effect of CRR normalisation and sustained increase in
banking system credit, were major contributors to liquidity surfeit and expansion
of monetary aggregates. Accordingly, money market interest rates eased as
the weighted average OBB and the interbank call rates, fell to 9.12 and 11.61
per cent, respectively, in June 2023, from 12.60 and 12.31 per cent in May 2023.

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The banking sector continued to be in safe, sound, and healthy state as
financial soundness indicators remained largely within the prudential limits.
Similarly, developments in the capital market were positive as market
capitalisation and all-share index both improved on the back of improved
investor confidence and trust in the new macroeconomic and policy
environment.
Exchange
rate
convergence
due
to
the
recent
liberalisation
was
accompanied by marginal accretion to external reserves. As the market was
liberalised, rates converged, thereby narrowing arbitrage premium. Though
demand pressures slackened slightly, residual rigidities and imperfections, as
well as short-term stickiness remained major challenges.

My Considerations and Decision
Apparent uncertainty in global macroeconomic conditions, on account of the
widespread tightness due to restrictive monetary policy actions to curb high
inflation and persisting disruptions to global supply chain portends downside risk
to global growth. I note that weak global demand, elevated global inflation,
and rising interest rate could potentially impact the domestic economy; a
threat which we must adequately mitigate with effective countervailing
measures.

Domestic output is projected to remain subdued as the economy adjusts
gradually to the recent reforms, just as the current elevated inflation constitutes
a significant threat to macroeconomic stability. In-house estimates forecast a
moderate growth of 2.66 per cent in 2023, while the IMF projects domestic
growth at 3.2 per cent in 2023 on account of potential consolidation of
economic activities. However, I am positive about moderate improvement in
the short to medium term, as expected improvement in operations of the oil
sector begin to contribute rather than being a drag on the economy.

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At 22.79 per cent, inflation has not only remained high but maintained an
upward trend, thereby impairing household wealth and domestic consumption.
The recent subsidy removal and exchange rate liberalisation are forecast to
keep inflation sticky downward in the near-term, although an adequately tight
monetary policy can engender inflation deceleration. Today, in my view, rising
inflation is a far greater concern to us than growth deceleration. Various inhouse analyses of the outlook highlight the need to resolutely curb inflation in
the short-term, to ensure long-run macroeconomic stability.

I emphasise that current inflation trend, fuelled by expected impacts of petrol
subsidy removal and exchange rate pass-through, is inimical to growth and
needs to be tackled. Aside the structural drivers of inflation, month-on-month
surge in banking system liquidity, as highlighted by the expansion in monetary
aggregates, contributed significantly to inflation dynamics. To complement the
policy rate, it is imperative that we unreservedly adopt an array of other
instruments at the Bank’s disposal to tighten systemic liquidity. Nonetheless, I
note that the series of policy rate hikes have been effective enough, in
moderating the pace of inflation uptick in the face of global shocks and
domestic rigidities.
I note further that the recent liberalisation of the exchange rate, which was
accompanied by significant depreciation of the naira, is expected to have
some effect on inflation. But I envisage a low inflation pass-through, as much of
the price adjustment was already priced in. Eventual stability of the foreign
exchange market, over the medium-term, will further help to achieve price
stability. Besides, the recent removal of subsidy could have a favourable effect
on price stability as increased crude oil receipts by the government will bolster
reserves, engender exchange rate stability, and help to moderate inflation.

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Overall, the transmission of monetary policy must be strengthened to ensure
that market indices respond optimally to the Bank’s rate adjustments and in line
with liquidity profile of the economy. I reiterate that excess liquidity doesn’t just
affect inflation but also the exchange rate and as such the Bank must deploy
all tools in its kit to constrain excessive liquidity expansion.

Overall Considerations and Decision
Today, I support further tightening to tackle inflation and ensure price stability.
While this could constrain growth, inordinate inflation, with implications for
future expectations, constitutes greater danger to overall domestic stability.
Inflation needs to be combated resolutely as we creatively establish measures
to cushion its impact on output. I believe that an adequately tight liquidity
condition and measured rate hikes will deliver the goal of price stability that will
support long-run growth.
Therefore, I vote to:
1. Raise the MPR by 50 basis points to 19.00 per cent;
2. Adjust the asymmetric corridor to +100/-300 basis points from +100/–700
basis points around the MPR;
3. Retain the CRR at 32.50 per cent; and
4. Retain liquidity ratio at 30.00 per cent.

FOLASHODUN A. SHONUBI, OFR
Ag. Governor
July 2023