CENTRAL BANK OF NIGERIA COMMUNIQUE NO. 121 OF THE MONETARY POLICY
COMMITTEE MEETING OF WEDNESDAY 21ST AND THURSDAY 22ND NOVEMBER,

Background
The Monetary Policy Committee (MPC) met on the 21st and 22nd of
November, 2018, amidst a resurgence of global inflationary pressures,
increased fragilities in the global financial markets, weakening crude oil
prices,
continuous
capital
flow
reversal
and
moderate
currency
depreciations, especially in the emerging markets as well as a strengthening
US dollar and subdued global economic growth outlook. The Committee
appraised recent developments in the global and domestic macroeconomic
and financial environments, as well as the economic outlook for the first half
of 2019. In attendance were eleven (11) members of the Committee.
Global Economic Developments
The Committee noted the contraction in global output, underpinned largely
by escalating trade tensions resulting in widespread uncertainty and waning
investor confidence. Consequently, global growth in 2018 has been
downgraded to 3.7 per cent from the earlier projection of 3.9 per cent.
Growth softened in major advanced economies in the third quarter of 2018.
In the Emerging Markets and Developing Economies (EMDEs), growth
remained divergent, reflecting a combination of country-specific factors.
Thus, growth in the advanced economies is expected to remain at 2.4 per
cent in 2018, supported by strong output growth in the US projected at 2.9

per cent. The U.S. expansionary fiscal stance, strong wage growth and
continued inflow of capital into U.S. dollar denominated assets, are expected
to provide the impetus for growth. In the United Kingdom, growth remained
weak, hampered by uncertainties around Brexit negotiations. Growth in the
Euro Area, projected at 2.0 per cent, appears to be subdued by low
domestic aggregate demand amidst relatively high unemployment and
reduced global trade. In the Emerging Markets and Developing Economies,
growth was revised downwards to 4.7 per cent from the earlier projection of
4.9 per cent, largely in anticipation of a slowdown in China as the country is
confronted with an adverse external trade environment.
Overall, the downside risks to global economic activity remained: elevated
financial fragilities and policy uncertainties, the gradual erosion of rule-based
multilateral trading system, tighter financial conditions with latent disruptive
portfolio adjustments, increased capital flow reversals with potentials for
heightened exchange rate depreciation and some volatility, fiscal fragilities
and increased debt burden, geo-political tensions and increasingly
depressed aggregate demand in some countries. These factors will continue
to shape developments for the rest of 2018 and into 2019.
The MPC also noted that monetary policy in most advanced economies,
particularly the US, continued on a path of normalisation in view of strong
wage growth and declining unemployment. The Bank of England hiked its
policy rate in August 2018, while the European Central Bank (ECB) has given
guidance to terminate its asset purchase programme in December 2018. The
Committee was concerned that these developments will in the medium
term, accentuate capital flow reversals from emerging and developing
economies, including Nigeria.
Domestic Output Developments
The Committee noted the positive outlook for output growth, evidenced by
the Manufacturing and Non-manufacturing Purchasing Managers Indexes
(PMI), which stood at 56.8 and 57.0 index points, respectively, in October

2018, indicating expansion for the 19th and 18th consecutive months. This was
attributed to the stability in the foreign exchange market, implementation of
the 2018 capital budget and the on-going intervention of the Central Bank of
Nigeria (CBN) in the real sector of the economy. However, the recent
incidence of flooding across the country and the impact of herdsmen attack
on farming communities could affect output growth for the rest of the year.
Overall, the Committee believes that, even though output recovery remains
fragile, the effective implementation of the 2018 capital budget, relative
improvements in power supply, progress with counter-insurgency in the NorthEast and sustained intervention by the CBN in the real sector, will improve the
investment climate and reduce unemployment. Consequently, the MPC
reaffirmed its support for all initiatives designed to stimulate domestic output
growth.
Developments in Money and Prices
The Committee noted that broad money (M2) grew by 6.52 per cent in
October 2018 over its level at the end-December 2017; and annualised to a
growth rate of 7.82 per cent, which was below the provisional benchmark of
10.48 per cent for 2018. The growth in M2 was largely due to the significant
growth in Net Foreign Assets (NFA) which grew by 20.71 per cent in October
2018, annualised to 24.85 per cent which is above the 2018 provisional growth
benchmark of 14.50 per cent. Credit to Government and Net Domestic
Credit (NDC) expanded by 7.43 and 2.71 per cent, annualized to 8.92 and
3.26 per cent, respectively; but below the annual benchmark of 13.10 and
17.40
per
cent,
respectively.
Credit
to
the
private
sector
grossly
underperformed as it grew by 1.94 per cent, annualised to 2.33 per cent,
below the 2018 benchmark of 12.40 per cent. The underperformance of the
monetary aggregates was of concern to the MPC, which urged the CBN to
ensure improved credit delivery to the small and medium scale industries,
particularly to the unbanked urban and rural populations.
The Committee noted the benign performance of inflation, as headline
inflation (year-on-year) decreased to 11.26 per cent in October 2018 from

11.28 per cent in September 2018 after two consecutive months of marginal
increases. The drop in headline inflation was driven by food inflation, which
moderated to 13.28 per cent in October from 13.31 per cent in September
2018. Core inflation, however, inched up marginally to 9.9 per cent in
October 2018 from 9.8 per cent in the previous month. On a month-on-month
basis, headline and food inflation also moderated to 0.74 and 0.82 per cent
in October from 0.84 and 1.0 per cent in September 2018, respectively, while
core inflation increased from 0.64 per cent in September 2018 to 0.80 per
cent in October 2018.
The Committee noted that the moderation in inflation was largely seasonally
driven and was therefore, unsustainable as prices were expected to pick
towards the end of the year. However, the MPC observed that the near-term
upside risks to inflation remained; the disruption to agricultural production
and distribution arising from flooding, insurgency in the North-East, herdsmenfarmer crisis, high cost of energy, anticipated spending in the run-up to
Christmas festivities and campaign-related spending towards the upcoming

general
elections.
Accordingly,
the
Committee
enjoined
the
appropriate authorities to continue to address these challenges and to
sustain the implementation of the 2018 budget and the Economic Recovery
and Growth Plan of the Federal Government to ameliorate the supply side
constraints.
Money market interest rates oscillated throughout the review period,
reflecting fluctuations in banking system liquidity. Inter-bank call and Open
Buy Back (OBB) rates, which stood at 16.00 and 17.08 per cent, respectively,
on September 26, 2018, declined moderately to 14.00 and 16.31 per cent,
respectively, on October 24, 2018. On average, interbank call and OBB rates
rose from 8.68 and 7.64 per cent in September 2018 to 14.18 and 13.93 per
cent, respectively, in October 2018, closing at 10.00 and 9.72 per cent,
respectively, on November 21, 2018. The developments in net liquidity
position and flows which culminated in higher market rates reflected the
impact of higher risk perception in the market, withdrawals from the banking

system for monthly statutory disbursements to states and local governments;
OMO sales and foreign exchange interventions.
The average naira exchange rate remained relatively stable and converging
at both the Bureau-de-Change (BDC) and the Investors’ and Exporters’ (I&E)
window segments of the foreign exchange market during the review period.
The exchange rate at the I&E window opened at N364.00/US$ and closed at
N363.90/US$ with a daily average of N363.87/US$ between September 26
and November 16, 2018. At the BDC segment, the exchange rate opened at
N360.00/US$ and closed at N361.85/US$, with a daily average of N360.98/US$,
over the same period. The relative stability in the foreign exchange market,
the MPC noted, was attributable to the sustained policies of the Bank to
increase the supply of foreign exchange from autonomous sources. Gross
official reserves decreased from US$42.60 billion at end-September, 2018 to
US$41.53 billion on 16th November, 2018.
The Committee noted the bearish trend in the equities segment of the capital
market during the review period. Thus, All-Share Index (ASI) decreased by
8.70 per cent from 34,848.45 on August 31, 2018 to 32,058.28 on November 16,
2018. Similarly, Market Capitalization (MC) decreased by 8.72 per cent from
N12.72 trillion to N11.70 trillion during the same period. Relative to the endDecember 2017, the indices decreased by 19.29 and 16.32 per cent,
respectively. These developments largely reflect the sustained profit taking
activities by portfolio investors as foreign yields become increasingly more
attractive abroad. The MPC, however, believes that this trend will reverse in
the medium term given the current efforts at further improving investor
confidence and the relative stability in the Investors and Exporters (I&E)
window of the foreign exchange market.

The Overall Outlook and Risks
Forecasts of key macroeconomic variables indicate a positive outlook for the
economy in Q4 of 2018. The Committee expects that the effective
implementation of the Economic Recovery and Growth Plan (ERGP) and the

2018 budget, improvements in the security challenges, enhanced flow of
credit to the real sector and stability in the foreign exchange market will
redirect the economy on a path of inclusive and sustainable growth.
Increased production in the oil and the non-oil sectors are also expected to
drive output growth in the medium term. The Committee, however,
acknowledged the downside risks to this outlook to include: reduced portfolio
inflows, weak of fiscal buffers, low domestic credit, and sluggish aggregate
demand.
The inflation outlook suggests continued but moderate inflationary pressure to
the end of 2018, based largely on increased consumer spending for the
Christmas festivities, election-related expenditure and increased pace of
implementation of the 2018 Federal government budget. Improvements in
the security, increased harvests as well as a stable exchange rate are
expected to moderate the rise in inflation.
Overall, the outlook for the economy remains positive with a growth
projection of 1.75 per cent in 2018.
Committee’s Considerations
The Committee assessed the macroeconomic environment in 2018 and
noted the modest stability thus far achieved in domestic prices, output
growth and the financial system. The Committee noted that the economy
was on the right path but some key sectors continued to experience
significant challenges. The MPC, however, expressed concern about the
tepid growth expectations and growing uncertainty in the global financial
markets arising from the poor reception of the Brexit deal by British politicians,
continuing trade war between the US and her major trading partners, as well
as the commencement of US sanctions on Iran.
The Committee believed that although the domestic economy was
recovering modestly from recession, however, the recovery was tepid and
efforts should be stepped up to strengthen aggregate output and demand.
In this regard, the Committee urged the CBN to deepen and broaden access

to finance to high employment elastic sectors with particular emphasis on
small and medium scale enterprises. The Committee called on the CBN to
extend the success recorded under the Anchor Borrowers Programme to
other items including fish and palm oil, etc. by introducing more stringent
measures to curb access to foreign exchange for products that can be
produced within Nigeria.
The MPC welcomed the moderation in inflation in October, reflecting
declining food prices. The Committee believes that given the negative
output gap, the proposed increase in the national minimum wage would
stimulate output growth due to prolonged weak aggregate demand arising
from salary arrears and contractor debt. Consequently, its impact on the
aggregate price level would be largely muted, given that the monetary
aggregates have largely underperformed in fiscal 2018. In addition, the
prevailing stability in the foreign exchange market would continue to
moderate pressures on the domestic price level.
The MPC noted the improvements in the financial stability indicators,
including non-performing loans, capital adequacy and liquidity ratios of the
Deposit Money Banks (DMBs). It urged the Bank to sustain its surveillance over
the Banking industry by taking prompt corrective measures to further improve
stability in the system. The Committee also called on the fiscal authorities to
build significant buffers to strengthen the efficacy of monetary policy.
Overall, the MPC considered the options to loosen, hold or tighten. The
Committee continues to hold the view that although loosening would
encourage the flow of credit to the real sector, help in reduction of the
aggregate cost of credit and spur business spending and investment, thereby
reinforcing the CBN’s support for output growth and economic recovery, it,
however, believed that doing so will reverse more rapidly, the gains of price
and exchange rate stability achieved so far given the liquidity impact that
would entail. The ensuing liquidity will exert pressure on the exchange rate in
the light of increased capital flow reversals arising from monetary policy
normalisation by the US Fed. This would further depress the capital market.

As for tightening, The MPC hold the view that, while tightening will strengthen
the stability of the foreign exchange market because of its dampening effect
on the demand for foreign exchange, it was however convinced that this
would simultaneously dampen investment growth, widen the output gap,
depress aggregate demand and weaken output growth.

The MPC recognises the fact that it had held the policy rate and other policy
parameters constant over the last several meetings. The Committee
underscores that by holding its policy position constant, it has confidence in
the various policies and administrative measures deployed by the Bank which
have resulted in the moderation in domestic price levels and stability in the
foreign exchange rate. Thus, a hold position is an expression of confidence in
the policy regime, given the gradual improvements in both output growth
and price stability. On this premise, the downside risks to growth and upside
risks to inflation appears contained.
The Committee’s Decision
In light of the above, the MPC decided by a vote of all eleven (11) members
present to HOLD.
In summary, the MPC voted to:
1. Retain the MPR at 14 per cent;
2. Retain the asymmetric corridor of +200/-500 basis points around the
MPR;
3. Retain the CRR at 22.5 per cent; and
4. Retain the Liquidity Ratio at 30 per cent.

Thank you.
Godwin I. Emefiele
Governor, Central Bank of Nigeria
22nd November, 2018