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CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 124 OF THE MONETARY POLICY
COMMITTEE MEETING OF MONDAY 20TH AND TUESDAY 21ST MAY, 2019, WITH
PERSONAL STATEMENTS OF MEMBERS
Background

The Monetary Policy Committee (MPC) met on the 20th and 21st of May 2019,
amidst uncertainties in the global financial, economic and political
environments. All Eleven (11) members of the Committee were present.
Global Economic Developments

The Committee reviewed developments in the global economy, noting with
concern, the declining trend in global output growth, which commenced in
the second half of 2018. Accordingly, the International Monetary Fund
downgraded global output growth from 3.7 per cent in 2018 to 3.6 per cent in
2019 and further revised it downwards to 3.3 per cent in 2019. The decrease in
the global composite Purchasing Managers’ Index (PMI) in the last three
months provides further fillip to this downgrade. The Committee noted that the
weakening global output growth continued amidst prevailing uncertainties
from familiar headwinds including: the further escalation of trade tensions
between the US and China; imposition of new rounds of

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sanctions on Iran; breakdown of BREXIT negotiations; a new wave of tension
on the Korean Peninsula; vulnerabilities in major financial markets and rising
public and private debt in some Emerging Market and Developing Economies
(EMDEs).
Despite these uncertainties, inflation in the advanced economies remained
muted and largely below their 2.0 per cent long-run targets. As a result, most
central banks in the advanced economies, including the US Fed, Bank of
England and the European Central Bank, adopted a dovish monetary policy
stance, which is expected to remain in place in the near to medium term, as
signs of weakness in the global economy re-emerged. In the Emerging Market
Developing Economies, however, developments were mixed, with inflation
rising in some, but moderating in others. In response, the financial markets
witnessed the rebalancing of portfolios from equities to fixed income securities,
and some stock markets posting losses. In the main, the Emerging Market
Developing Economies are expected to continue to benefit from the
accommodative monetary policy stance of the advanced economies
through increased capital inflows.
Domestic Output Developments

Available output data from the National Bureau of Statistics (NBS) showed that
real Gross Domestic Product (GDP) grew by 2.01 per cent in the first quarter of
2019 compared with 2.38 and 1.89 per cent in the previous and corresponding
quarters of 2018, respectively. This was largely driven by the non-oil sector,
which grew by 2.47 per cent in the first quarter of 2019 while

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the oil sector contracted by 2.40 per cent. Staff projections indicate real GDP
growth of 2.34 and 2.36 per cent in Q2 2019 and Q3 2019, respectively,
including a reduction in the unemployment rate. The Monetary Policy
Committee observed that actual output remains below potential, implying
that the economy still had sufficient headroom for non-inflationary growth. This
is expected to be driven largely by sustained stability in the financial system;
continued special interventions in Agriculture, manufacturing and SMEs
sectors, by the Bank; sustained effort in improving transport infrastructure to
address distribution challenges; continued expansion of business activities as
indicated by the PMI and increased supply of foreign exchange to growthstimulating sectors of the economy, among others.
The Committee noted the continued expansion of the Manufacturing and
Non-Manufacturing Purchasing Managers’ Indices (PMI) for the 25th and 24th
consecutive months in April 2019 and broadly welcomed this positive
development in economic activities in Nigeria. The manufacturing PMI grew
by 57.7 index points compared with 57.4 index points in the previous month.
Similarly, the non-manufacturing PMI grew by 58.7 index points compared with
58.5 index points in March 2019. The growth in both measures of PMI were
anchored by marginal increases in production, employment level and new
orders.
Developments in Money and Prices

The Committee noted the growth in broad money supply (M3) by 5.42 per cent
in April 2019 from the level at end-December 2018, annualized to 16.36

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per cent, above the indicative benchmark rate of 14.47 per cent for 2019. This
was largely driven by the growth of 19.62 per cent in Net Domestic Assets
(NDA). In contrast, Net Foreign Assets (NFA) contracted by 5.83 per cent in April
2019 relative to the level at end-December 2018. In spite of the significant
underperformance of M1 at -4.26 per cent annualised to -12.77 per cent, M2
grew by 1.85 per cent in April 2019, annualized to 5.54 per cent, which was
significantly below the benchmark rate of 12.99 per cent for 2019. This
development was largely due to the growth in time and savings deposits by
6.53 per cent. The Net Domestic Credit (NDC) grew by 19.31 per cent in April
2019 from the level at end-December 2018, annualized to 57.92 per cent,
above its indicative benchmark of 11.82 per cent. The growth in NDC was
attributed to the significant increase in credit to both government and the
private sector by 64.44 and 9.64 per cent, respectively, in April 2019, compared
with end-December 2018. The Committee noted the developments in the
monetary aggregates and enjoined the Bank to initiate moves towards
improving lending to the private sector and urged other intermediary
institutions in the financial sector to support these initiatives by improving their
credit delivery to boost output growth.
The Committee noted the uptick in inflation as headline inflation (year-on-
year) rose slightly to 11.37 per cent in April 2019 from 11.25 per cent in March
2019. The increase in headline inflation was driven mainly by food inflation
which rose by 13.70 per cent in April 2019 from 13.45 per cent in March 2019.
Core inflation, however, declined marginally to 9.28 per cent in April from 9.46

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per cent in March 2019. In April 2019, month-on-month headline, food and core
inflation increased to 0.94, 1.14 and 0.70 per cent from 0.79, 0.88 and 0.53 per
cent in March 2019, respectively. The MPC noted that the recent uptick in
inflationary pressure was seasonally driven and anticipated.
Liquidity conditions in the banking system reflected the net impact of Open
Market Operations (OMO) auctions, maturing CBN Bills, statutory allocations to
states and local governments as well as interventions by the CBN in the foreign
exchange market. Consequently, the monthly weighted average Inter-bank
call and Open Buy Back (OBB) rates increased to 13.98 and 16.15 per cent in
April 2019 from 10.80 and 12.17 per cent in March 2019, respectively. The daily
unsecured interbank and the OBB rate, fluctuated within the standing facilities
corridor, closing at 6.57 per cent and 5.55 per cent on May 10 and May 16,
2019, respectively, reflecting the reaction of the money market to the 50 basis
point reduction in the policy rate at the meeting of the MPC in March 2019.
The Committee observed the continued bearish trend in the equities market in
spite of the sustained capital inflows into the economy during the period under
review. The All-Share Index declined by 8.14 per cent to 28,871.83 index points
on May 17, 2019 from 31,430.50 index points as at end-December 2018, while
market capitalization grew by 8.53 per cent to N12.72 trillion on May 17, 2019
from N11.72 trillion at end-December 2018. The recent growth in market
capitalization reflected new listings in the market, prominent amongst which

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is: MTN and Skyway Aviation Handling Company Plc and additional listing from
the merger between Access Bank and Diamond Bank.
The Committee welcomed the continued stability at both the Bureau-de-
change (BDC) and the Investors’ and Exporters’ (I&E) windows of the foreign
exchange market, expressing optimism in the recovery of crude oil prices due
to the OPEC production ceiling and other geo-political issues affecting oil
exports.
The MPC also noted the steady accretion to external reserves, which stood at
US$45.42 billion as at May 16, 2019, an increase of 2.20 per cent from US$44.44
billion at end-April 2019.
The Overall Outlook and Risks

The overall medium term outlook for the global economy remains mixed and
uncertain
with
growing
indications
of
persistent
macroeconomic
vulnerabilities, global financial market fragilities, accommodative monetary
policy, policy uncertainties and weakening global output.
Data on the domestic economy suggests some fragility in output growth during
the second quarter of 2019 with improved outlook for the rest of the year.
Accordingly, revised output projections indicate that the economy would
grow by 2.1 per cent according to the International Monetary Fund (IMF), 2.2
per cent by the World Bank and 2.38 per cent by the CBN in 2019. This outlook
is hinged on the following key factors: the effective implementation of the
Economic Recovery and Growth Plan (ERGP);

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supportive monetary policy; enhanced flow of credit to the real sector;
sustained stability of the exchange rate; and improved fiscal buffers; amongst
others. The Committee, thus, expects that monetary policy would focus on
improving access to credit, reducing unemployment and stimulating
economic growth.
Committee’s Considerations

The Committee took into consideration the continued slowdown in the global
economy and the persisting uncertainties, including the ongoing trade wars
between the US and its major trade partners, financial fragilities in a number of
countries, the debt-constrained fiscal operations of most EMDEs, including
Nigeria, and the volatility in the oil market. The Committee, therefore, enjoined
the Federal government to urgently build fiscal buffers through a more realistic
benchmark oil price for the Federal Budget.

The MPC noted the 2.01 per cent growth in real GDP during the first quarter of
2019 compared with 1.89 per cent in the corresponding quarter of 2018.
Although output growth in the first quarter was slower than 2.38 per cent
recorded in the preceding quarter, it emphasized that actual output remains
well below the economy’s long-run potential, indicating the existence of spare
capacity for non-inflationary growth in the economy, an opportunity which
should be explored through increased credit delivery to the private sector. Not
impressed by the flow of credit from the Deposit Money Banks (DMBs) to the
private sector, the MPC called on the CBN management to urgently put in

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place modalities to promote Consumer, and Mortgage lending in the Nigerian
economy, noting that doing this will greatly and positively impact on the flow
of credit and ultimately result in output growth.

The MPC called for a close monitoring of the uptick in inflationary pressures in
April 2019, driven largely by food shortages during the Easter season, the
commencement of the planting season as well as persisting security
challenges in some of the food producing regions of the country. The
Committee, urged the relevant authorities to strengthen efforts to address the
security challenges and improve food production. It encouraged financial
intermediating institutions to ensure that loans to the agricultural sector were
channelled effectively to end users.

The MPC welcomed the improvement in financial soundness indicators (FSIs),
but noted that although the Non-Performing Loan (NPL) ratio moderated, it
remained above the prudential benchmark. Consequently, the Committee
considered and recommended to the CBN, a proposal to develop a
comprehensive administrative, legal and regulatory framework to speed up
the recovery of delinquent loan facilities of the banking system; involving
structured engagement with relevant stakeholders and authorities, in order to
mitigate credit risk and ultimately open up the credit delivery space in the
Nigerian economy.

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The Committee extended warm felicitations in an expression of gratitude to
the President and Commander in Chief of the Armed Forces of the Federal
Republic of Nigeria, President Muhammadu Buhari, and the Senate of the
Federal
Republic,
respectively,
for
the
reappointment
and
prompt
confirmation of the Governor of the Central Bank of Nigeria, Godwin I.
Emefiele, for a second 5-year term in office. In particular, the Committee noted
that the reappointment was in recognition of the contributions of the CBN to
maintaining macroeconomic stability and it would engender confidence and
build policy credibility and deliver stability to the Nigerian financial markets.

In view of the abundant opportunities available to banks for unfettered access
to government securities, which tends to crowd out private sector lending, the
Committee called on the Bank to provide a mechanism for limiting DMBs
access to government securities so as to redirect bank’s lending focus to the
private sector, noting that this would spur the much needed growth in the
economy. It called on the Government to use all machinery at its disposal to
increase tax revenue to enable the government fund its budget adequately.
The Committee’s Decision
The global and domestic developments have conditioned an environment of
low optimism in the macroeconomic and financial sector space, forcing
central banks to return to accommodative monetary policy.
As in the past, the Committee considered the options of whether to be more
accommodative, tighten or hold it position. The Committee felt that although

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the slight inflation uptick should result in tightening, it nevertheless felt that
doing this will limit the ability of DMBs to increase credit at this time, given the
need to support or redirect the focus of DMBs to new credit in support of
consumer, mortgage and other priority sectors of the economy, including,
SMEs, agriculture and manufacturing. It also felt that given the fragile state of
the economy, increasing the cost of credit would further diminish investment
flow and impact negatively on output growth.
As regards loosening, some members felt that it was desirable to aggressively
stimulate growth, restart the capital market activities and increase lending at
lower rates; which would ultimately stimulate domestic aggregate demand.


Those against loosening felt that given that there was a marginal increase in
headline inflation for April 2019, there is need to restrain from loosening in order
not to exacerbate inflationary pressures. They also felt the economy would
experience liquidity surfeit and without corresponding increase in real sector
output, inflationary pressures could be elevated; resulting in likely exchange
rate pressures.
As for members who favoured a hold position, maintaining monetary policy
rate at its present level was essential for better understanding of the
momentum of growth before determining any possible modifications. They
also felt that retaining the current policy stance provides an avenue for
evaluating the impact of the Bank’s intervention policies to support lending to
the priority sectors of the economy.

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Consequently, the MPC decided against the backdrop of these developments
by a vote of 9 members out of 11, to hold all parameters of monetary policy
constant. Two members voted, however, to reduce the monetary policy rate
by 25 basis points.


In summary, the MPC voted to:

I. Retain the MPR at 13.50 per cent;

II. Retain the asymmetric corridor of +200/-500 basis points around the MPR;

III. Retain the CRR at 22.5 per cent; and

IV. Retain the Liquidity Ratio at 30 per cent.


Thank you.

Godwin I. Emefiele

Governor, Central Bank of Nigeria
21st May, 2019


PERSONAL STATEMENTS BY THE MONETARY POLICY COMMITTEE MEMBERS

1. ADAMU, EDWARD LAMETEK

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The 267th meeting of the Monetary Policy Committee (MPC) held against the
backdrop of sustained global economic and financial uncertainties. Drivers of
rising risks in the world economy include BREXIT, Iran sanctions, volatile
commodity (oil) prices as well as the trade war between the United States of
America (USA) and China. Financial markets have remained on the edge in
the face of multiple vulnerabilities connected especially to the dangling US
sanctions, weak growth prospects and absence of a clear pathway to non-
disruptive exit of the United Kingdom from the European Union (EU). Mindful of
these setbacks, the International Monetary Fund (IMF) has further reviewed
downwards its projection of global growth for 2019 to 3.3 per cent on the heels
of lower growth expectations across developed, emerging markets and even
developing economies. On average, growth in the advanced economies is
expected to slow to 1.8 per cent in 2019 from 2.2 per cent in 2018. Similarly,
growth in Emerging Markets and Developing Economies (EMDEs) is expected
to moderate to 4.4 per cent from 4.5 per cent in 2018, owing mainly to low
commodity prices and likely spillovers from weakening global trade and geopolitics.
Amid concerns about global growth, trade and financial markets’ unease,
most central banks (CBs) are holding back on policy tightening. From the
advanced economies, the indications are much clearer. In Europe, neither the
European Central Bank (ECB) nor the Bank of England (BoE) is currently looking
to increase policy interest rate. In April, the Bank of Japan clarified its intension

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to maintain the extremely low rates into 2020. Similarly, the US Fed had offered
guidance to the market suggesting that any future rate hikes would be
gradual. With global inflation remaining benign, central banks’ appetite for
tightening should moderate across board with those in EMDEs moving
gradually towards synchronizing their monetary policy postures with their
counterparts in the advanced economies.
The generally cautious approach to monetary policy underlines the fact the
CBs have not forgotten the unwholesome lessons of the last global economic
and financial crisis and are therefore quite mindful of current risks to growth
and financial stability. Aligning this global trend with the domestic context
increases my persuasion about the merit of protecting growth over the
medium-term. There is no doubt, the lingering external vulnerabilities would
pressure growth in many developing economies especially through their
impact on commodity prices and export demand generally. Nigeria’s oil
export already faces both price and demand uncertainties, adding to the
pressures on aggregate domestic output.
In Q1, 2019, real GDP grew by about 2.0 per cent, representing moderation
when compared with the last quarter of 2018. Key indicators suggest
expanding economic activity in the second quarter of 2019, albeit slowly. Both
manufacturing and non-manufacturing PMIs stood at 57.8 and 58.9 points,
respectively, in May 2019. Nevertheless, the overall outlook for economic
growth remains fragile as shown by the CBN’s Composite Index of Economic
Activity (CBN-CIEA), owing largely to external risks, domestic insecurity and

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slowing credit to the private sector. Against this background, the current
projection of 3.01 per cent real GDP growth for 2019 could prove too optimistic
unless growth-promoting policies are vigorously pursued. Clearly, economic
growth needs to be much better to be able to positively impact
unemployment significantly, in view of the growing number of new entrants
into the labour market. Given the protracted slack contribution of the oil sector,
the impetus for speedier economic growth could only be expected to come
from the non-oil sector. In particular, agriculture and services will continue to
require considerable support to move the economy out of the apparent low
growth trap.
Meanwhile, traditional pressures on prices appear to be ameliorating
notwithstanding the slight uptick in inflation in April. Banking system liquidity
continued to be moderate on account of the Bank’s sterilization actions (OMO
auctions and foreign exchange sales by the CBN). These actions have
continued to offset injections from FAAC, repayment of maturing bills and
rediscounting of bills. Consequently, broad money supply (M3) rose only
moderately in March 2019, driven mainly by claims on the Federal
Government. In line with the decision of the MPC in March, interbank rates
(OBB and IBR) moderated (on average) in April (11.50 and 12.32%) relative to
March 2019 (16.71 and 18.09%). However, transmission to the entire term
structure of interest rates remains a key policy challenge. Relatedly, the foreign
exchange (FX) market continues to be relatively stable on account of
sustained supply of FX by the CBN and from autonomous sources.
Consequently, the naira exchange rate has remained stable with a positive

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medium-term outlook deriving mainly from the relatively good level of external
reserves and prospects of sustained inflow of capital. Threats to capital inflow
are moderate especially as advanced economies tilt monetary policy towards
accommodation owing to uncertainties around trade and economic growth.
Given the foregoing background, it is not surprising that core inflation has
maintained a downward path even as headline inflation rose to 11.37 per cent
in April 2019 from 11.25 per cent in March. On the month-on-month basis, the
headline index increased by 0.94 percent in April 2019, up from 0.79 percent in
March. The increase in headline inflation came primarily from food inflation
which rose to 13.7 per cent in April from 13.45 per cent in March. The outlook
for inflation up to October 2019 shows relative stability, with the headline
measure expected to be around 11.0 per cent, barring any major shock. This
outlook is predicated largely on sustained sterilization, naira exchange rate
stability and early commencement of food harvest. In this regard, the Bank’s
interventions in agricultural production will continue to be particularly relevant
in addressing high food prices in the short- to medium- term.
In the banking system, major financial soundness indicators (FSIs) further
improved in April 2019 due mainly to recoveries, loan disposals and write-offs.
Industry capital adequacy ratio (CAR) increased marginally to 15.60 per cent
in April 2019 from 15.14 per cent in February 2019, while Non-Performing Loans
(NPLs) decreased to 10.95 per cent from 11.28 per cent. However, the NPLs
ratio is still higher than the prudential limit of 5.0 per cent. Other vulnerabilities
in the industry include high concentration and contagion risks as well as

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significant FX exposure. These conditions have tended to increase averseness
to risk in the industry leading to some form of asset substitution. It is especially
concerning that credit to the private sector is declining and this needs to be
halted and possibly reversed to strengthen economic activity and job
creation.
In arriving at a decision at the May MPC meeting, I reckoned that the effects
of the downward adjustment of the MPR in March had not fully manifested and
that downside risks to growth were quite strong. Although, interbank rates
slightly eased in response to the adjustment in the policy rate, retail rates
remained sticky downwards. More importantly, credit to the real economy
declined. In my statements following the immediate past 2 MPC meetings, I
underscored the need to support growth given the weak outlook for economic
activity based on indications from the oil sector, external vulnerabilities and
sluggish consumption demand. I am persuaded to sound a similar tone in this
statement given that the outlook for growth and employment continues to be
hazy and largely uncertain in view of multiple risks at home and abroad.
Much as openness offers numerous benefits, it certainly increases exposure to
external risks and vulnerabilities, which economic policy must continuously take
onboard. I perceive, at the moment, that the external threats to medium-term
economic stability of Nigeria are quite strong, meriting a coordinated policy
shield in the form of building buffers (fiscal and monetary) and clear signals to
the markets.
I voted to retain all the policy parameters at their levels prior to the May

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meeting of the MPC principally to allow some more time for the policy
adjustment in March 2019 to fully unleash its effects. Finally, it is important to
note that the challenge posed by rising food prices demands action beyond
monetary policy and CBN’s intervention in the sector. As I have stated in the
past, insecurity and distribution bottlenecks need to be addressed holistically
to ease food supply across the country.


2. ADENIKINJU, ADEOLA FESTUS
International Economic Developments
International economic environment has not changed significantly from the
last meeting of the MPC in March. Global economy remains fluid with
significant vulnerabilities and uncertainties. Global growth is projected to slow

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from 3.6 per cent in 2018 to 3.3 per cent in 2019. Given that global economic
growth is the most important determinant of evolution of international
commodity prices, the uncertainties surrounding the health of the global
economy is a potential threat to the Nigerian economy that depend so much
on oil prices and financial flows. However, in the short term, the geopolitical
tensions in the Middle East, the accommodating monetary policy of the Feds
and in many other western economies, and moderation in inflation rates in the
advanced economies, may positively impact on oil prices and private capital
flows to emerging and developing economies. Hence, there is a strong
probability that oil price will stay above the budget benchmark price.

Domestic Economic Developments

On the domestic front, output growth retains its fragile but positive trajectory in
Q1 of 2019. The real GDP grew by 2.01 per cent in Q1 2019 compared with
1.89 per cent in Q1 2018, fueled mainly by the non-oil sector. The oil sector
contracted by 2.4 per cent. Purchasing Manager’s Index (PMI) continues its
positive trajectory. Exchange rate across the various windows remain stable,
with the naira appreciating slightly in the Investors’ and Exporters’ (I&E)
segment of the market. Foreign reserves which stood at US$45.42 billion by midMay still provides respectable import coverage. Measures of both the output
gap and unemployment gap suggest underutilization of domestic
resources and spare capacity in the economy.
Headline Inflation (year-on-year) increased from 11.25 per cent in March 2019
to 11.37 per cent in April 2019, driven largely by food inflation. Core inflation

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however fell to 9.30 per cent in April 2019 from 9.46 per cent in March, 2019.
The rising food price is partly due to seasonal effects and rising insecurity across
the country.
Broad money aggregates, M3, and M2 performed significantly below their
targeted benchmarks in April 2019. Reserve money grew by 9.69 per cent
month on month in April, 2019. This was 13.87 per cent above the Q2 2019
provisional benchmark. The Nigerian stock market underperformed Emerging
Markets stocks on the average in Q1 2019.
The financial system indicators (FSI) since the last MPR meeting continue to
trend in the right direction. The NPLs ratio is trending downward but is still
significantly above prudential benchmark, requiring more actions by the
Central Bank and by the DMBs. The preference shown by the DMBs for fixed
income government assets over credit to the real sector of the economy is
worrisome. Credit to real sector is not only low but decreasing in relative terms
in asset portfolio of DMBs, and is concentrated on low employment generating
sectors. Banks seems to have abandoned their primary role of intermediation.
This unhealthy trend should be strongly discouraged. Banks continue to focus
on easy ways of making money, including through its various charges on
customers and government securities, at a time when the economy is in dire
needs of banks’ credit.
The Nigerian economy needs a vibrant consumer credit system in order to drive
private consumption and expand domestic supply. Consumer credit is a
major driver of growth in a capitalist economy. However, the ecosystem and
institutions needed for a successful consumer credit system must be

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established.
It is also disappointing that the decrease in the MPR in March has not impacted
in expected way on rates at the retail end of the credit market, although rates
on intermediate financial assets decrease. Maximum and prime lending rates
rose in April, while rates on consolidated demand, savings and terms deposit
declined, further worsening the gap between the average lending and
deposit rates.
Coordination between monetary policy and fiscal policy is important to ensure
that current policy interventions have the desired impacts on the economy.
Fiscal deficit is high and worrisome, government debt is rising in the face of
underperforming revenue, and security is a major challenge, posing significant
threat to investment and economic growth. One viable way to address
revenue under performance is for the government to explore alternative
funding sources for infrastructure projects.
Decision

There is need to allow the previous cut in the MPR to work itself through the
system. Staff report shows that current MPR is consistent with Taylor rule
estimates, suggesting that the present monetary policy stance appears to be
appropriate.
Short- and medium term inflationary outlook suggests
that inflationary build up is moderate. Protecting and deepening economic
growth rate to reduce high unemployment and poverty in Nigeria is quite
important. I am interested on how the policy direction of the new
administration and the implementation of the national minimum wage would
impact on the future trajectory of the economy.

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Hence, I cast my vote to hold the existing monetary policy parameters.


3.
AHMAD, AISHAH N.
Background

At the March 2019 meeting, the monetary policy committee (MPC) cut the
monetary policy rate by 50 bps to 13.5 per cent, following several meeting
cycles of a hold in the policy rate. This decision was predicated on the need to
strengthen the fragile economic recovery and spur stronger output growth in

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view of the relative price and monetary stability achieved in recent months.
Accelerating domestic output expansion is further supported given worsening
global growth prospects and heightened fears of some advanced economies
(AEs) slipping into recession in the near future; this portends significant
headwinds for emerging market and developing economies (EMDEs) like
Nigeria.
Thus, in the first MPC meeting since the rate cut, my primary considerations
were to review developments in key macroeconomic variables - particularly
inflation, exchange rate, the factors that support these, and examine
improvements, if any, in economic expansion and growth prospects.
Slight uptick in Inflation attributed to seasonal effects

As the committee focuses on growth, it is important to closely monitor any
potential negative effects of its monetary policy decisions aimed at stimulating
aggregate demand on price and monetary stability, its primary remit.
According to the National Bureau of Statistics (NBS), headline inflation (yearon-year) inched up 0.12 per cent points in April 2019 to 11.37 per cent due to
increase in food inflation from 13.45 per cent to 13.70 per cent over the same
period, while core inflation declined to 9.30 per cent from 9.46 per cent. The
NBS attributes increases in food inflation to seasonal factors; whilst current
increases in the price level was anticipated by Bank staff in their inflation
outlook issued at the January meeting. These submissions indicate that the
slight growth in inflation is not a result of the recent rate cut.
It appears safe to conclude that downside risks to consumer price stability
remain low in the medium-term. NBS maintains that structural (not necessarily

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monetary) factors currently hold sway. Furthermore, results of research
conducted by Bank staff provided at the May meeting indicate positive
impact for growth with minimal effects on inflation in the current range of rate
cut. Finally, whilst the new minimum wage is a potential headwind for inflation,
its effects are expected to be benign, given persistently low aggregate
demand.
Exchange rate stability persists amidst volatile oil prices and portfolio flows

A key consideration at the March meeting was the potential effect of a policy
rate cut on portfolio flows which have helped buoy the exchange rate and
accretion to reserves; i.e. if a lower rate would reduce Nigeria’s
competitiveness relative to other emerging markets, spurring flow reversals
thereby creating a headwind for the exchange rate stability.
Whilst foreign exchange inflows dipped noticeably in April 2019, net flows
remained positive at US$4.7billion reflecting strong investor confidence,
supported by accommodative policy stance in AEs. These factors, combined
with crude oil price levels which have remained above US$60p/b over the last
six months, have supported stability and fueled further accretion to reserves -
US$45.42 billion as at May 16th, 2019. Although there is some volatility in crude
oil prices, along with uncertainty in global growth prospects,
the naira exchange rate is expected to remain relatively stable in the
medium-term even in the face of slight easing in domestic monetary
conditions.
Domestic output growth positive but weak

Although real GDP grew by 2.01 per cent in Q1 2019, compared with 1.89 per

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cent in Q1 2018, growth remains weak and far below the pre-2016 recession
levels of 6.34 per cent (Q1 2012); suggesting the economy is still at the recovery
stage of the business cycle which requires significant stimulus to forestall any
reversals. Similarly, the Purchasing Managers’ Index, a leading indicator of GDP
performance showed expansion of economic activities, but at a slower pace
from 58.5 points to 57.7 points in January and April 2019 respectively. More
importantly, unemployment remains high at 23.1 per cent (Q3 2018) and most
projections for Nigeria’s real GDP growth for 2019 hover around 2.0-3.0 per cent
which remain below the levels required to reduce vulnerabilities and improve
development outcomes. This underscores the importance of significantly
stimulating the domestic economy, in view of the limited fiscal space, whilst
supporting growth in the non-oil sector which remains the key driver of output
growth.
Banks as a catalyst for economic growth

This sluggish domestic output growth environment underscores an urgency to
dramatically enhance investment and expansion in the real sector via new
credit. Positive financial soundness indicators suggest that the banking industry
is well-positioned to play a bigger role in this respect. Industry capital
adequacy, liquidity and profitability continue to improve whilst non -
performing loans (NPLs) reduced between February and April 2019. This
picture of financial resilience is at odds with the current low levels of real sector
lending, especially in the light of burgeoning lending to government observed
in banks’ outsized subscriptions to risk-free treasury securities. For instance,
information from Bank staff reveals contraction in credit to the private sector

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between February and March 2019, even as income from trading activities
increased vis a vis a reduction in non-interest income from credit activities.
Whilst factors such as residual low risk appetite in the light of recent high levels
of NPLs and significant asset portfolio write-offs are duly noted, the industry
must dramatically increase lending to the real sector to strengthen the
economic recovery, bolster domestic productivity and create jobs. In addition,
banks are encouraged to ramp up investments in technology to facilitate
efficient retail loan distribution and explore using behavioral analysis and
artificial intelligence to enhance credit decisions, particularly for loans to the
informal sector.

These must be supported by other institutions and initiatives designed to de- risk
lending to SMEs such as micro finance banks, (including the new national micro
finance bank), collateral registry (to expand small and micro credit collateral
options) and the CBN’s interventions in employment elastic sectors like
agriculture and more recently textile and creative industries which will help
bridge the credit gap and lower lending rates in the long run.
Policy Decision
Notwithstanding relative stability in key macroeconomic indicators, we must
remain mindful of risks from an increasingly vulnerable global economy. The
escalating trade war between the United States and China has created
stronger headwinds, while other familiar headwinds continue to threaten
global growth prospects. In consideration of these developments, the IMF has
further revised downward global growth projections for 2019 from 3.6 per cent

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to 3.3 per cent. Although a 3.3 percent global expansion is relatively
reasonable, the outlook for many countries remains challenging, with
considerable uncertainties in the short term especially for oil dependent
EMDEs, like Nigeria operating within a volatile international crude oil market
and constricted fiscal space.

The foregoing implies a balance of risks tilted against output growth. My March
2019 statement emphasized the need to urgently ramp up investments to
support growth given the fragile recovery and persistent vulnerabilities.
However, pursuit of stronger growth must be balanced with the imperatives of
price and monetary stability, the primary mandate of the committee. Whilst
the medium-term path of inflation suggests a downward trajectory, its current
level remains above the target band and thus calls for vigilance. Furthermore,
to support the relative FX stability, it is critical to maintain an appropriate
interest rate that sustains capital inflows in the short term, alongside
implementing long-term initiatives designed to grow fiscal revenues and
improve fiscal consolidation.
As further impact of the rate cut is allowed to manifest, the present policy rate
maintains stability and creates conditions that support growth and overall
economic resilience. Therefore, I vote to retain the current monetary policy
stance, by keeping MPR at 13.50%; Cash Reserve Ratio at 22.5%; Liquidity Ratio
at 30% and Asymmetric corridor at +200 and -500 basis points around the MPR.

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4. ASOGWA, ROBERT CHIKWENDU

My Decision:

At the March 2019 Monetary Policy Committee meeting, the MPR was cut to
support economic activity and the decision was largely underpinned by the
lower inflationary risks, long periods of exchange rate stability and higher levels
of external reserves. Eventhough inflation rates increased marginally in April
2019 due to rising food prices, the general expectations as well as CBN staff
projection is that lower inflationary pressures are likely to re-emerge in the near
future. Amidst this recent marginal inflation uptick and with the increased

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uncertainty in the external economic environment, there may be genuine
reasons for moderate monetary tightening. These considerations may however
not be ideal at this time given that the anticipated gains from the March 2019
MPR cut are yet to fully materialize, especially in the credit market. In a real
sense, the Monetary Policy Committee and indeed other policy makers in
Nigeria at this time still face an increasingly challenging task of supporting
growth while reining in possible price increases and moderating any domestic
financial market imbalance.
My opinion is that policy parameters should remain largely unchanged at this
May 2019 MPC meeting. I will thus vote to:
• Retain the MPR at 13.5 %
• Retain the CRR at 22.5%
• Retain the Asymmetric Corridor at +200/-500 basis points
• Retain the Liquidity Ratio at 30.0%.

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The Considerations:

The key considerations for monetary policy choice at this meeting follows an
assessment of two underlying trends:
• Global Macroeconomic Situation,

• Domestic Economic Prospects including the Financial Market Conditions
Global Macroeconomic Situation: On the global issues, trade tensions and
policy uncertainties continue to diminish global growth prospects. As such,
growth projections for many developed and developing economies have
once again been downgraded for 2019 and 2020. Similar to the
macroeconomic situation in the last MPC meeting, trade tensions have
escalated, Brexit uncertainty has persisted longer than expected, geopolitical
tensions and domestic political uncertainties have intensified in several regions
and there have also been some localized natural and weather-related shocks.
As a result, trade and investment have moderated drastically especially in
Europe and China and the manufacturing sector where global vale chains
prevail is expected to remain in this low gear for some time in future. In specific
terms, for 2019, subdued growth is expected in most advanced economies,
especially those where trade and manufacturing play important roles, such as
in Germany where GDP growth is now projected to remain below 1 percent
and Japan projected to grow by
1.0 per cent. Similarly, GDP growth for 2019 is expected to moderate in the

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other Euro Area countries as well as in China, while the forecasts for Australia
and New Zealand have also been revised down slightly. In the United States,
eventhough the momentum of growth was high in the early parts of this year,
it has since started to moderate as the fiscal policy support earlier introduced
begins to wane. For the emerging market economies there are diverging
trends of growth prospects for 2019. For instance, the short term outlook for
Argentina, Mexico, Turkey is expected to be sluggish and subdued as a result
of poor investment and industrial production while some moderate growth
strengthening is projected for India, Brazil, Republic of Korea and Malaysia.
The inflationary pressures in many economies appears to have been
dampened and generally below central bank targets and in several of these
cases caused largely by the weak domestic demand. In the US, despite the
rising wage growth, headline inflation still hovers below the 2 per cent target,
which is similar to Europe where inflation remains subdued and it is expected
to remain steady in 2019 even with the increasing upward wage pressure. In
Japan, inflation has been projected to stay well below the 2 percent target in
2019 and 2020 while across South Asia, inflation rates are forecast to remain
largely similar to the levels in 2018.
The monetary policy stances of major central banks across the globe have
shifted slightly towards an easier approach reflecting these lower inflationary
trend and the slowing levels of economic activity. In March 2019, US Federal
Reserve lowered general expectations from two interest rate hikes to none in
2019 while the European Central Bank has also delayed any possible increase

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in interest rates until at least 2020. The Bank of Japan has recently provided
strong indications to continue with its quantitative and qualitative monetary
easing programme while in China, the easing of credit conditions has
continued with a further lowering of reserve requirement ratios for banks in
early 2019 so as to improve domestic liquidity conditions. India has also cut
interest rates in February and April of 2019, while in the Republic of Korea, the
central bank has removed any reference to a possible monetary policy
tightening in the near term. Similarly, few countries in Africa (Angola, Nigeria,
Egypt, Gambia, Ghana, Malawi) have opened monetary policy space by
cutting interest rate since the beginning of 2019 so as to support economic
activity. Interestingly, the pausing of monetary policy normalization process in
the developing economies seems to have also reduced the threats and
pressures of capital outflow from these African countries that recently reduced
policy rates, but many of the countries including Nigeria still face the challenge
of translating the capital inflows into productive domestic investments.
Domestic Economic Prospects and Financial Market Imbalances:

As at May 2019, the macroeconomics dynamics in Nigeria remained weak
despite moderate GDP upticks in the 2019 Q1, thus casting a shadow over the
prospects of achieving the Economic Recovery and Growth Plan (ERGP)
targets as well as the Sustainable Development Goals (SDGs). More worrisome
is the seemingly unpredictable financial market (banking, debt

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and stock market) conditions even in the midst of rebounding portfolio capital
flows to Nigeria.
Recent output estimates show that although there was an improvement in real
GDP growth in Q1 2019 at 2.01 percent when compared to the corresponding
period of Q1 2018 at 1.89 percent, but it fell short of the 2.38 percent growth
recorded in Q4 2018. While the non-oil growth rate declined from 2.70 percent
in Q4 of 2018 to 2.47 percent in Q1 of 2019, the oil growth rate contracted
further from -1.62 percent in Q4 2018 to -2.40 in Q1 of 2019. Except for the
agricultural and construction sectors which performed better in Q1 of 2019
when compared to Q4 of 2018, all other sectors including Industry, Trade and
Services had a sluggish start in 2019 when compared to the last quarter of 2018.
The growing output divergence between sectors in Nigeria at a time of high
unemployment rates and low domestic demand is worrisome and will require
fiscal and quasi-fiscal government support to complement monetary policy
efforts. Such a combination can address the current output weakness,
especially the sector divergence and boost long term growth in a sustainable
way.
Inflation also remains a crucial macroeconomic challenge in Nigeria
eventhough there have been relatively subdued pressures in recent times. An
upward trend emerged in April 2019 as the headline inflation (y-o-y) rose to
11.37 percent from 11.25 percent in March 2019 and this was largely due to
increases in food prices. Recent trend show that core inflation has been
moderating consistently since April 2018, while food inflation has been largely

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unpredictable. Given that the expenditure share of food items in the
consumption basket underpinning the consumer price index is high in Nigeria,
then achieving price stability and curbing inflationary pressures in the near
term will depend heavily on food price inflation which may sometimes be less
sensitive to prevailing market interest rate.
Furthermore, financial market conditions have remained poor and sluggish
since the start of 2019 and the recent easing of monetary policy at the March
2019 MPC meeting seems not to have stabilized these conditions. The All Share
Index and equity market capitalization have maintained continued declines
in 2019 similar to 2018 due to poor activity at the primary segment of the
market. Even though there was a temporary rebound of market capitalization-
by early May, the upwards daily movements have not been sustained. The
expected impact of the MPR cut on other market rates are yet to materialize.
While maximum lending rate rose by 0.05 percent between March and April
2019, the prime lending rate grew by 3.30 percent. The spread between the
maximum lending rate and the consolidated deposit rates according to CBN
staff report stood at 26.56 percent in April 2019, which is huge while the
continued daily volatility in the interbank and OBB interest rates also does not
yet depict any correlation with the monetary policy rate (MPR). Of importance
is the current trend in total bank credit which also seems not to have
responded to the March monetary policy shifts as staff report show a decline
between March and April 2019. In addition, the bank profitability indicators
responded poorly to the easing of monetary policy and

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have remained volatile eventhough such soundness indicators as capital
adequacy ratio and non-performing loans ratio are on the positive trajectory.
While it may appear too early for the monetary policy rate cut in March 2019
to have reduced some short term risks on the financial market so as to
guarantee improved credit supply, additional monetary policy rates cut now
are unlikely to reverse credit trend or even boost domestic demand. Rather,
there is a short term likelihood that it could spur additional financial market
imbalances, which may further raise the risks to financial stability. Given this
limited monetary policy space, a moderate fiscal stimulus but with less
elevated public debt levels would be very useful for further bolstering growth
in critical underperforming sectors of the economy.

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5.
BALAMI, DAHIRU HASSAN

The global economy is being challenged by familiar headwinds which include
the following: trade tensions between the United States of America (US) and
key allies such as the China and the European Union (EU); unsuccessful
negotiation between the US and North Korea; secondary sanction against Iran;
heightened uncertainty around BREXIT negotiations; diminishing pace of
normalisation in the US monetary policy; European Central Bank (ECB)
returning to monetary accommodation, and UK refraining from monetary
normalisation. The above headwinds have implications on the Nigerian
economy.
Growth

Global output growth in 2019 is expected to moderate to 3.3 percent, down
from 3.6 and 3.8 percent in 2018 and 2017, respectively. In the advanced
economies growth is projected at 1.8 percent, for Emerging Markets and
Developing Economies (EMDEs), it is projected at 4.4 percent, while for Sub-
Saharan Africa, output growth is estimated at 3.5 percent in 2019 against 3.0
percent in the previous year. It should be noted that the potential output
growth is driven partly by strong total factor productivity (TFP) and capital
accumulation in China and other emerging market economies such as India
due to technological growth and economic efficiency. The output growth in
Q1 2019 by country showed that the US economy slowed to 3.2 percent in Q1
2019. In China output continued to slow down due to the effects of US trade
tariffs and the rebalancing programme. The expectation on the Nigerian and

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the South African economies is that they may continue on the path of recovery
but at a slow pace due to volatility in price of crude oil. For South Africa
problem of power supply and labour issues may weigh on growth. It is worth
noting that the Gross Domestic Product (GDP) in 2018 in selected advanced
economies; the Euro area, United Kingdom (UK), and Japan slowed down. The
direction of world trade continues to be characterised by heightened trade
tension, thus depressing global trade volume by 1.7 percent month- on- month
in February from 2.1 percent in January 2019.
Inflation

In terms of inflation, the advanced economies are locked up in low inflation
trap, while the EMDEs are in high inflation trap, each responding appropriately
to their economic environment. In Euro area, inflation inched up moderately
to 1.7 per cent in April 2019 from 1.4 percent in the previous month. The
European
Central
Bank’s
(ECB’s)
new
requirement
of
monetary
accommodation kicked in following indication of weakening macroeconomic
fundamentals. In Japan, inflation remained low in spite of continued
government stimulation, inching up marginally to 0.5 percent in March 2018
from 0.2 percent in the previous month as food, transport and housing prices
increased moderately.
Similarly, inflation in the UK continued to trend below Bank of England (BoE)
long run target of 2.0 percent remaining flat at 1.9 percent in March 2019. While
there were mixed price development in Emerging Market and
Developing Economies, inflation rates in most countries reviewed moved

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upwards with the exception of Egypt. In India, inflation was projected at 3.9
percent in 2019 up from 3.5 percent in 2018. In China, inflation forecast for 2019
indicate a 2.3 percent rise in consumer prices from the 2.1 percent figures in
2018 due to expected rise in food prices. Inflation in Ghana rose to
9.5 percent in April 2019 from 9.3 percent in the prior month. In Egypt, inflation
rate fell to 13 percent in April 2019 from 14.2 percent in the prior month,
reaching its lowest level since January, 2019. In Brazil inflation rose further to
4.94 percent in April 2019 from 4.54 per cent in the previous month and slightly
below market expectations of 5.0 per cent. Across advanced economies,
given the fall in commodity prices inflation is likely to remain muted. It is
expected that currency depreciation in some EMDEs could pass through to
higher domestic prices and partially offset downward pressure on low
commodity prices.
Exchange Rates

Generally, most currencies depreciated against the US dollar as shown by data
on the global financial markets. In Europe, the British pound, and the Euro
depreciated against the US dollar by 0.92 and 0.60 percent respectively
between March 29 and April 26 2019. In Asia, the Japanese yen, the Chinese
yuan and the Indian rupee all depreciated marginally against the US dollar by
0.68, 0.25 and 1.24 percent respectively, over the same period. In North
America, the Canadian dollar depreciated by 0.79 percent, while the Mexican
peso appreciated 2.59 percent. In South America, the Brazilian real, Argentine
peso and Colombian peso all depreciated against the US dollar by

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0.28, 5.62, and 1.61 percent. In Africa, the naira remained relatively flat against
the dollar in the review period. South Africa’s rand and Egyptian pound and
Ghanaian cedi appreciated by 0.76, 0.86 and 0.05 percent. Kenyan shilling
however depreciated against dollar by 0.68 percent. The pass through effect
of depreciation can be inflationary if not properly handled.
Policy Rates

From March 2019 and May 2019, central banks survey revealed that only
Nigeria reduced her policy rates, while others held their policy rate constant.
These included the Fed, Bank of England, ECB, Reserve Bank of India, Bank of
Japan and Peoples Bank of China, all of which retained their policy rate in
response to the prevailing uncertainties in the global economy.
The global development have implications for the domestic economy. For
example the weakening signal from the oil future market will affect the CBN
ability to support the naira if oil spot prices follow the direction of the futures
market. This shows the need to build buffers to enable the CBN respond to
anticipated changes in the global economy. Capital flows to emerging market
economies, such as Nigeria, may likely increase, particularly if the post-election
security situation in the country improves. CBN should work closely with the
fiscal authority to improve the investment climate. There is need to monitor
current portfolio investment inflows into Nigeria which are being lumped up at
short end of the yield curve.

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Domestic Level

At the domestic level, factors such as volatility in crude oil prices, high NPLs,
infrastructure deficit, low capacity for revenue generation, and insecurity such
as boko haram, herders/farmer conflicts, kidnaping and cybercrime
hampered economic activities. The growth in the economy is driven by the
non-oil sector, which grew from 2.87 percent in first quarter of 2018 to 2.4
percent in the first quarter of 2019. The economy registered a positive growth
rate of 2.01 per cent in the first quarter of 2019, which was far below the
potential productive base of the economy. The growth rate is weak as it is
below the population growth rate of 2.82 percent, thus reflecting a fall in per
capita output. Increase in output growth is extremely critical for the growth of
the economy.
Further on domestic developments, the current inflation rate of 11.37 percent
is above the CBN target of 6 – 9 per cent. Unemployment in the economy is
above the Natural Rate of Unemployment (NAIRU). To promote growth and
reduce inflation, there is need for demand side and supply side management
policies to be formulated and implemented. It has been identified that there is
demand gap in the economy and therefore, banks should embrace consumer
credit. This would impact on consumption, production and growth in the
economy. Private credit bureau or system be created, engage stakeholders
to contribute their quota and how to honour their obligations, and alternative
dispute resolution system be established. The

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credit channel for monetary policy will aid growth and will have high impact
in housing, mining, and transportation value chain.
Banking Industry Financial Soundness

The capital adequacy ratio (CAR) improved from a low of 15.14 percent in
February 2019 to 15.60 percent in April 2019. This is remarkable because it is
slightly above the prudential requirement by 0.60 percentage point. On the
non-performing loans (NPLs) ratio, there was improvement as the ratio
declined from 11.28 percent in February 2019 to 10.95 percent in April 2019. The
reduction in the NPLs was driven by write offs and recoveries. There was also
increase in provisioning by banks for NPLs in the review period. Similarly, the
industry liquidity ratio (LR) rose further from 51.05 percent in February, 2019 to
52.61 percent in April 2019. This performance was 4.81 percentage points
higher when compared with of the ratio at end-April 2018. Overall, the Nigerian
banking sector remains sound and resilient.
Policy Decision

The decision taken was based on developments in the global and domestic
economic and financial environment. Given the above, I am of the opinion
that we hold, but advised that consumer credit should be pursued vigorously
to promote growth. There is need for sustained policy support because GDP
growth is still fragile.

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I therefore, vote to:

i. Retain MPR at 13.5 percent;

ii. Retain the CRR at 22.5 percent;

iii. Retain the LR at 30 percent; and,

iv. Retain the Asymmetric Corridor of +200/-500 basis points.

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6.
ISA-DUTSE, MAHMOUD

A. INTRODUCTION

The waning momentum in the global economy which became evident in the
second half of 2018 is expected to intensify in 2019. This scenario is directly
attributable to a confluence of factors plaguing key advanced and emerging
economies, such as, the escalating trade tensions between the US and China
that saw tariffs jump from 10% to 25%; the enforcement of Iranian sanctions; the
uncertainty of a no-deal Brexit; the underperformance of some key economies
in Europe; and the continuing effort at re-balancing the Chinese economy
away from external demand and credit-driven investment to higher domestic
demand. On the domestic front, the economy is still confronted with
headwinds that threaten sustainable growth.
B. EXTERNAL ECONOMIC CONDITIONS

The seemingly unending whirlwinds buffeting the global economy led the IMF
to cut its global growth estimate for 2019 from 3.6% to 3.3% which represents
the third time the IMF has downgraded its growth forecast within a period of six
months. In tandem with the slowing global economy, global trade in goods
and services will increase at a weaker rate of 3.4% in 2019 as compared with
the 3.8% growth achieved in 2018.
Growth in the advanced economies is expected to decline from 2.2% in 2018

to 1.8% in 2019. The key economic blocs accounting for the slide include: the

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US, where growth will plummet to 2.3% in 2019, down from 2.9% in 2018; the Euro
Area that will see output nose-dive to 1.3% in 2019 compared with 1.8% in the
previous year. In line with the global pattern, economic growth in Emerging
Market and Developing Economies (EMDEs) is to witness marginal deceleration
from 4.5% in 2018 to 4.4% in 2019 which is a reflection of the continuing
slowdown in the Chinese economy. It is worth noting that the softening
industrial production in the world’s major economies and the weakening
global demand lead to reduced international trade with broad implications
for primary commodity exporting countries like Nigeria where potential decline
in exports may result in falling aggregate demand, output and employment.
Moreover, the expansionary policy response to the growth conundrum by the
advanced economies range from monetary accommodation in the Euro Area
to ‘no rate hike’ in the US and UK, and outright lowering of rate in New Zealand
with implications for financial market development in EMDEs. Given that policy
normalization is no longer on the front burner, the moderation in the speed of
financial flows into US dollar-denominated assets is expected to remain while
correspondingly, inflows into EMDEs are expected to rise. The increasing
portfolio flows into the Nigerian economy will continue to support and further
sustain the relative stability in the foreign exchange market. Consequently,
import-induced inflationary pressures will remain subdued in the foreseeable
future in Nigeria.

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The international price of crude oil is projected to remain above $60/barrel in
2019 and is now hovering around $70/barrel. With this favourable swing, there
is re-kindled hope that Nigeria can build fiscal buffers, increase foreign reserves
and facilitate stability in the foreign exchange market.
C. DOMESTIC ECONOMIC CONDITIONS

The recent data from the National Bureau of Statistics (NBS) underscores the
fragility in domestic economy with a real GDP growth of 2.01% in Q1 2019 which
was 0.37 percentage point less than the 2.38% recorded in Q4 2018. The same
trend is evident on a disaggregated basis as the contraction in the oil sector
growth rate worsen from 1.62% in Q4 2018 to 2.40% in Q1 2019 while the non-oil
sector growth declined by 0.23 percentage point from 2.7% in Q4 2018 to 2.47%
in Q1 2019. These are pointers to the existence of spare productive resources
in the economy. Thus, the unemployment rate remains high as CBN in-house
research reveals the yawning gap between the unemployment rate and the
Non-Accelerating Inflation Rate of Unemployment (NAIRU). Therefore, there is
need for a multi-pronged approach to address the binding constraints to rapid
and inclusive growth.
The data from NBS indicates that there is a gradual build-up in inflationary
pressures as headline, core and food inflation (month-on-month) rose to 0.94%,
0.70% and 1.14% in April 2019 from 0.79%, 0.53% and 0.88% in March 2019,
respectively. On a year-on-year basis, the outcome is mixed as headline
inflation stood at 11.37% in April 2019 compared with 11.25% in the
previous month while core inflation fell by 0.16 percentage point and food

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inflation rose by 0.25 percentage point between March and April 2019,
respectively. The annual headline inflation rate for April 2019 is not particularly
alarming when compared with the 11.37% and 11.44% of January 2019 and
December 2018, respectively. Nevertheless, an appropriate policy mix should
be put in place to nip this developing inflationary pressure in the bud against
the backdrop of the numerous upside risks to inflation, which include: upward
adjustments in wages and salaries; high liquidity injections arising from the
continuing implementation of the 2018 FGN budget; and increased liquidity
prompted by massive interventions, high inflow of capital and home
remittances. On a salutary note, the current level of external reserves of over
$44 billion and the moderately high price of crude oil in the international
market, provides the platform for sustainable foreign exchange rate stability (in
the near term) and mechanisms to rein-in imported inflation.
Broad monetary aggregates, M3 and M2 increased during the reporting
period even though, they exhibited significant negative deviations
(underperformed) from their indicative benchmarks in April 2019. M3 and M2,
at 5.42% and 1.85%, were 9.05 and 11.14 percentage points below the 2019
benchmarks of 14.47% and 12.99%, respectively. Maximum and prime lending
rates however increased from 30.83% and 14.92% in March 2019 to 30.89% and
18.23% in April 2019, respectively. These developments have negative
implications for credit extension to the real sector.
The banking system development is mixed as the industry performed well in the
areas of good capital adequacy, cost effective operations, high liquidity

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and robust returns on investments. However, while the deposits and liquidity
trends increased progressively, the total credit growth remained negative and
new credits fell in terms of value against the background of declining nonperforming loans (NPLs), even though these still remain high. The falling trend in
new credits in Q1 2019 correlates well with the increase in real GDP at a
decreasing rate during the first quarter of 2019. At this time, the poor credit
delivery to the private sector by banks cannot be attributed to low system
liquidity because the converse is the case. It is thus inappropriate to
contemplate a further policy rate cut as this will add fuel to the liquidity
overhang and jeopardize the price stability mandate of the Bank, especially in
the light of the uptick in the general price level in April 2019. It is more
appropriate to decisively deal with the numerous factors which account for
the high level of NPLs in the system to create a conducive environment for
banks to lend for both production and consumption.
C. VOTING DECISION

A loosening policy option will appear time inconsistent – there is need to allow
a reasonable time lag to judge the impact of the recent policy rate cut.
Moreover, any further rate cut will aggravate liquidity problems and will be out
of tune with the buildup of inflationary pressures. On the other hand, a rate
increase is likely to undercut the nascent growth in output and exacerbate the
high level of unemployment and underemployment in the economy.
Therefore, I voted to retain all existing policy parameters as follows:
• MPR at 13.50% per annum
• The asymmetric corridor at +200/-500 basis points around the MPR

• Liquidity ratio at 30.0% per annum

• CRR at 22.5% per annum

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7.
NNANNA, OKWU JOSEPH

Growth remains muted amidst sub-optimal credit to the private sector and
commercial banks’ preference for public sector lending. Aggregate demand
was relatively weak and the financial conditions reveal a banking industry
overwhelmed by adverse selection and risk aversion. Data from the NBS reveal
that Real GDP grew by 2.01 per cent in 2019Q1, relative to 2.38 per cent in
2018Q4 and 1.89 per cent in the corresponding quarter of 2018. Against this
backdrop, the need to diversify the productive base by channeling more
resources to the agricultural sector cannot be overstated.
Despite the reduction in Non-Performing Loans (NPLs), credit to growth-
enhancing sectors continued to be weak. At 5.42 per cent growth in April 2019,
compared to end-December 2018, broad money (M3) was below target and
inadequate to significantly drive growth. Though banking industry data reveal
that non-performing loans (NPLs) remain elevated, its downward trend
indicates that the industry remains resilient. Despite the soundness of the
sector, growth in credit to the core private sector was tepid at 9.79 per cent in
April relative to end-December 2018. At 64.4 per cent growth, credit to
government was significantly crowding out the private sector. Money market
rates were relatively stable, with modest oscillations in line with liquidity
conditions.

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Incipient inflationary pressures persist on account of structural and food supply
shocks. Headline inflation (year-on-year) increased marginally, after three
consecutive months of decline to 11.37 in April 2019 from 11.25 per cent in
March 2019. Similarly, food inflation rose to 13.70 per cent (year-on-year), from
13.45 per cent in the same period. However, core inflation declined to
9.30 per cent from 9.50 per cent in March 2019. With this development, I see
strong merit in pursuing tight monetary policy in the short-run, while ensuring
that farmers and operators in the agricultural value chain space are
adequately funded.


The fiscal space to scale up well-targeted capital expenditure was further
constrained by rapidly growing public sector debt, rising debt service
obligations and low revenue collections. These developments represent
headwinds to the implementation of the N8.92 trillion 2019 Budget and
achievement of inclusive growth. Accordingly, the urgent need to enhance
the fiscal buffer cannot be overemphasized.
The balance of payments continued to be viable, supporting external reserves
accretion and exchange rate stability. A balance of payment surplus of
US$0.002 billion was recorded in 2018Q4, while external reserves of US$45.42
billion was achieved. This performance revealed resilience which will sustain
investors’ confidence and bolster exchange rate stability.
Despite the overwhelming need to grow the economy, pursuing an

expansionary monetary policy at this juncture, is contemporaneously time

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inconsistent. What is needed is a combination of fiscal and structural policies
to improve the infrastructure deficits and diversify the productive base of the
economy. Thus, I vote to retain the current policy metrics.

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8.
OBADAN, MIKE IDIAHI

As at the last Monetary Policy Committee meeting held in March, 2019, there
were indications of strong concerns about the effects of uncertainties and
vulnerabilities in the global economy on global economic activity, financial
flows and economic policies. The uncertainties related to the likelihood of the
US economy going into recession in 2020, non-resolution of issues surrounding
BREXIT, weakening growth in Europe as major economies like Germany, Italy
and France are confronted with internal weaknesses, slowing growth in China
due to the impact of its trade war with the US and tighter financial regulations,
amongst others. These developments conditioned domestic policy measures,
in particular, monetary measures across the globe.

Global Economic Developments

The above uncertainties across the global economy, arising from various
economic and political developments, had not abated by the time of the
MPC meeting on 20th and 21st May, 2019; indeed, they had intensified in some
cases. The concerns about them derive from their implications for growth and
trade volumes both for the global economy and individual economies as well
as monetary policy directions. Examples are the following:
• Downgrading of global output growth. In light of the uncertainties and
vulnerabilities, global growth in 2019 has been further revised downward
by the International Monetary Fund (IMF) to 3.3 per cent from the earlier
3.5 compared to 3.6 percent in 2018. This is against the
backdrop of the advanced economies that are expected to lead

Classified as
growth in 2019 continuing to contend with uncertainties looming around
them. Output growth in this group of economies has been further
downgraded by the IMF from 2.2 percent in 2018 to 1.8 percent in 2019
from an earlier 2.0 percent projection. The speculation that the US
economy may dip into recession sometime in 2020 remains relatively
strong while the European Central Bank (ECB) has revised its growth
forecasts for 2019 and gave indications of some recovery as it returned
to monetary accommodation in the wake of macroeconomic
weaknesses observed in the first quarter of the year. Growth in the
Emerging Market and Developing Economies (EMDEs) is projected to
slow moderately to 4.4 percent in 2019 from 4.5 percent in 2018. Other
major world economies are projected to have mixed growth
performance: China is expected to continue to weaken to 6.3 percent
in 2019 from a peak of 6.6 percent in 2018 while India is projected to
have a robust growth of 7.3 percent in 2019, up from 7.1 percent in 2018.
Ghana is projected to have moderate growth in 2019 while Kenya’s
growth is projected to decline to 5.8 percent in 2019 from the growth of
6.0 percent in 2018.
• Continued trade war between the US and China. Recently, following the
apparent breakdown of trade negotiations, the US raised tariffs from 10
percent to 25 percent on US$ 200.0 billion goods imported from China.
In retaliation, China has announced plans to impose 25 percent tariffs
on US$ 60.0 billion imports from the US. Even though President
Donald Trump has indicated readiness to enter into trade negotiations

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with China, it appears the stage is set for a tariff/trade war which may
ultimately benefit no one as prices shoot up in both countries, volumes
of trade fall and consumer welfare is sharply eroded. In contrast, the US
has eliminated high tariffs on steel and aluminum from Mexico and
Canada to pave the way for a new trade deal. This, notwithstanding,
the direction of world trade continues to be characterized by
heightened trade tensions which depress global trade.
• Phenomenon of slowly rising inflationary pressures. Price development in
the advanced economies has remained muted and, indeed, trending
below 2.0 percent in some key advanced economies while in the EMDEs,
it averaged 4.9 percent. With prices receding faster in some of the
economies and much slower in some others, many central banks have
receded into a dovish stance with respect to a possible return to
monetary accommodation in the face of signs of weakness in the global
economy.
• Uncertainties around BREXIT. In the United Kingdom, uncertainties
surrounding BREXIT have persisted with the increasing likelihood of a no-
deal BREXIT and a second referendum. The prospects of a second
referendum has become higher on the agenda even though the
European Union has further extended the exit date to October 2019.
Meanwhile, investors appear to have adopted a wait-and-see posture
with British and European assets as developments around BREXIT unfold
gradually.

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• Volatility of oil prices remain. The price of Bonny light on May 7, 2019,
stood at US$ 61.85 per barrel compared with US$ 67.48 per barrel on
March 13, 2019 and the opening price of US$ 45.41 per barrel on January
1, 2019. Even though, the reduction in production of oil by both OPEC
and non-OPEC members by 1.2 million barrels per day, effective from
January 2019, has contributed to the recent uptick in oil prices, the
increasing investment in shale oil production by the US remains a
significant threat to future oil price increases. US crude oil production is
reported to have averaged 12.1 million barrels per day in March, 2019.
It is forecast to average 12.4 and 13.1 million barrels per day in 2019 and
2020, respectively. Futures market data suggest that the price of crude
oil will fall to just over US$ 60.0 in 2021. And if Russia declines to back an
extension of the production cut agreement at the end of June, as has
been indicated, oil prices may become much lower in line with the
expectations of the US oil production strategy and to the detriment of
the oil exporting countries.

All the above point to a global economy that is grappling with challenging
times. The developments have several implications, some of which are sources
of concern generally.

o Weak growth leads to a slowdown in global aggregate demand and
weak export revenue.

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o The growth concerns have led many central banks to adopt dovish
stances on monetary policy such that policy rates are being maintained
or reduced. The US Federal Reserve Bank (Fed) has abandoned its initial
forward guidance of at least two policy rates hikes in 2019. The Fed no
longer sees any compelling need to adjust the policy rate in either
direction. While it is jealous of its independence vis-
a.vis President Trumps attempted interference, the Fed is not unmindful
of indications of the likelihood of the economy going into recession in
2020 and the consequent need for monetary accommodation.
Generally, because of the weak growth projections and the need to
avert recession and generate employment, most central banks have
gone into accommodation mode by keeping the policy rates constant
or reducing it. Out of 14 central banks surveyed by the CBN between
March and April, 2019, two of them (Central Bank of Nigeria and Reserve
Bank of India) reduced policy rates while the others held the rates
constant.
o With the return of ECB to monetary accommodation and the US and UK
moving away from normalization of monetary policy in the short- term,
capital flows to EMDEs such as Nigeria may likely increase. This requires
creating the necessary conditions for this to materialize.
o The uncertainty associated with BREXIT negotiations and the US’
mercantilist trade policy towards its trading partners, particularly, China,
Europe, Mexico and Canada, has a significant negative impact

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on trade and investment flows resulting in the slowdown of the global
economy.
Thus, at a time of increasing vulnerabilities in the global economy, with possible
negative implications for domestic economies, Nigeria’s monetary policy
direction would have to take cognizance of the economy’s slow recovery from
recession and the need to improve growth performance as well as
employment
generation,
poverty
reduction
and
overall
economic
diversification. Specific developments in the domestic economy are also
important in determining policy direction.

Domestic Economic developments

GDP growth performance. Well-thought-out fiscal, monetary, trade and other
policies as well as recovery of the world oil market, moved the economy out
of recession since the second quarter of 2017. But the growth attained remains
low and fragile, very much below the economy’s potential and below the
country’s worrisome high population growth rate. The growth rate has also
tended to fluctuate, standing at 1.81, 2.38 and 2.01 percent in quarters 3 and
4, 2018 and quarter 1 in 2019, respectively. The baseline growth projections for
the economy in 2019 are also below 3.0 percent although the annual budget
puts the average at 3.01 percent. However, the output gap suggests room to
expand the economy and make it to grow fast. The gap can be closed when
the economy is stimulated with appropriate policy measures including
monetary accommodation. In this regard, the
major focus would be the non-oil sector which has continued to drive growth.

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Inflation rate. The headline inflation rate increased marginally in April, 2019
after three months (January, February and March) of successive moderation.
The year-on-year headline inflation rate stood at 11.37 percent in April
compared to 11.25 percent in March. The month-on-month headline inflation
rate also inched up from 0.79 percent in March to 0.94 percent in April. But, the
year-on-year core inflation rate reduced while the month-on-month core
inflation rate inched up. The price of food and non-alcoholic beverages was
the primary source of the uptick in headline inflation as the prices of most other
items remained constant. The uptick in headline inflation at this time is not
unexpected considering that the harvest season has gradually been replaced
by planting/farming season. Supply challenges have begun to surface
compounded by farmers-herders conflict which has impacted food supply
negatively. This factor, along with other structural impediments to agricultural
production would need to be effectively addressed. The Central Bank of
Nigeria’s heterodox policy interventions in agriculture, manufacturing and
SMEs development would need to be sustained to boost domestic production,
food security, dampen inflation expectations, raise employment, reduce
poverty and advance the economic diversification objective.

Banking System Performance. The available data indicate that improvements
have continued to be recorded in capital/asset based financial soundness
indicators – Capital Adequacy Ratio, Liquidity Ratio and Non-Performing
Loans Ratio (NPL). Nevertheless, the NPL ratio is still high and above the

Classified as
prudential limit. And even though the return on equity and return on asset
showed decline between February and April, 2019, they are still high
compared to comparator countries where efficiency and management levels
are much higher. The assets of the banking industry have continued to trend
upwards driven by increased investment in government securities. This leads us
to the issue of concern in the industry’s asset structure. The proportion of
government securities in the banking industry’s asset structure is growing while
that of loans and advances is declining; loans and advances are being
displaced by banks’ investment in government securities which have become
seductive to them because of their high yields and risk-free nature. This cannot
be allowed to continue as it implies abandonment of their primary mandate
of intermediation to the detriment of production, distribution and exchange
that are yearning for loans financing. Even though the number of new credits
increased strongly in April, 2019 compared to December, 2018, the value of
such credits is much lower while the credit is highly concentrated in a few
obligors. Therefore, a way must be found to limit banks’ purchase of
government securities so that they can focus on their primary functions of
deposit mobilization and lending. At the same time, the Central Bank would
need to expedite the implementation of its planned measures aimed at
assisting the banks to minimize non-performing loans and boosting loans
repayments. This will further encourage the banks to focus on delivering on their
primary mandate of intermediation and hence avoid crowding out the nonbank public in the government securities market.

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Government’s fiscal operations. These have been characterized by weak
revenue mobilization, unstable and inadequate oil revenue receipts, and fiscal
deficits. Year-in-year-out, government revenue projections are not realized
while expenditures are large, resulting in huge fiscal deficits, public debt
accumulation and pressure on the monetary authority. The fiscal deficit in 2018
was N3.6 trillion, financed by domestic borrowing, external borrowing, and the
monetary authority (net deficit). Consequently, the country’s public debt has
grown and become highly worrisome with debt servicing accounting for a very
significant proportion of revenue and the annual budget. The total public debt
as at December 31st, 2018 stood at N24.387 trillion with external debt
accounting for 32 percent. As the country would not like to return to the pre2005 era of external debt crisis, control must be exercised on future foreign
borrowing while efforts are further intensified to grow the economy, diversify
the revenue base and mobilise significant non- oil revenue. Greater stability will
be achieved when the country begins to rely more on taxation rather than
unstable oil receipts to finance development.
Opinion

This opinion takes cognizance of the foregoing, especially the need to
strengthen growth and economic diversification. It also takes cognizance of
the Staff quantitative assessments of the impacts of the various monetary
policy options relating to loosening, tightening and maintenance of the status
quo. Even though the inflation rate inched up in April, the assessments show
that a reduction in the Monetary Policy Rate (MPR) would accelerate GDP
growth, moderate inflation rate while the monetary aggregates would not

Classified as
exceed their provisional benchmarks for 2019. The Interbank Call Rates for the
entire 2019 would be lower than what prevailed in the second quarter.
Consequently, I vote to reduce the MPR by 25 basis points while holding the
other monetary policy indicators – Cash Reserve Requirements, Liquidity Ratio
and Asymmetric Corridor - at their extant levels.

Classified as
9.
SANUSI, ALIYU RAFINDADI

1. Decision:

My decision to vote for a hold, in today’s meeting, was informed by the need
for monetary policy stance to rein in inflation, sustain the relative exchange
stability and support output recovery. Although the increase in the headline
inflation (year-on-year), in April 2019, driven mainly by food prices may appear
to suggest that the inflationary process was driven by supply side and structural
factors, available data and as well as staff estimates of the NAIRU and Output
gap suggest that monetary policy (demand side measure) can be efficacious
in taming the sticky inflation. Further analysis of the available data and
empirical evidence from the staff estimates, therefore, shows to further reduce
inflation from its current low double-digit level and boost output growth without
compromising the relative stability of the exchange rate or reduce reserve
accretion, a delicate mix of supply-side and demand- side policies are
required. My vote to hold the rate at 13.5% was informed by the conviction
that aggressive pursuit of the heterodox policy measures could boost the shortrun aggregate supply (through interventions that increase low-cost credit)
supported by increased effective demand (through interventions that increase
consumer credit).

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2. Background and Justification

2.1.
Global Economic Developments

Global output is expected to slow down in 2019 while inflation would decline
in Advanced Economies, but marginally rise in Emerging Markets and
Developing Economies (EMDEs). Consequently, the dovish monetary stance in
the key Advanced Economies could, in the short to medium-term, raise capital
flows to the Emerging and Developing Economies.

The global economic environment continued to face uncertainties resulting
from escalation of the trade war between US and China, breakdown of BREXIT
negotiations, new US sanctions on Iran, tensions on the Korean Peninsular, rising
public & corporate debt in some EMDEs as well as rising vulnerabilities in major
financial markets. These have has resulted in the downgrade of global output
growth, by the IMF, to the 3.3 percent in 2019 compared with the 3.3 percent
achieved in 2018. The downgrade resulted from the expected slowdown in
Advanced Economies, which were projected to grow by 1.8 percent in 2019
compared with the 2.2 per cent achieved in 2018. This is mainly because of the
projected slowdown of growth in the Euro Area (to 1.3% in 2019 from 1.8% in
2018) and the US (to 2.3% in 2019 from 2.9% in 2018). Growth in EMDEs is also
projected to slow down to 4.4 percent in 2019 compared with the 4.5 percent
achieved in 2018 mainly due to the expected slowdown of the Chinese
economy as a result of the trade war (from 1.5% q-on-q in Q1 2019 to 1.4% in
Q1 2018).

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Inflation in the key advanced economies is trending below the 2% target in
Euro Zone (at 1.7% in April 2019), the UK (1.9% in March, 2019), Japan (0.5% in
March 2019), and is on target in the US (at 2% in April, 2019). Inflation is
forecasted to moderate to 1.6 percent in 2019 from the 2.0 percent achieved
in 2018. These price development, coupled with the projected slowdown in
output growth, have prompted many central banks in advanced economies
to adopt a dovish monetary policy stance, with the possibility of return to
monetary accommodation in the near to medium term. The recent cut in
policy rate by the Reserve Bank of New Zealand could be marking the
beginning of a coordinated response to the expected slowdown of the global
economy. The Bloomberg’s Global Financial Conditions Index shows that
global financial conditions are easing, thereby threating to raise global
financial market vulnerabilities. The rise of Merrill Lynch Global Financial Stress
Index, also suggests an increased global financial market stress due to
volatilities in the futures markets arising from the heightened US-China trade
war tensions.
Crude oil price volatility is expected to continue on the account of the unrests
in Libya, tensions in the Middle East, threats on military action on Iran, rising
stock piles of US Shale Oil as well as fears of depressed global output growth.
As the future direction of oil price is unclear, the likelihood of rising exchange
rate pressures in oil exporting economies also remain uncertain. These
developments have a number of clear implications for Nigeria. First, the
possibility of a return to monetary in major advanced economies suggests

Classified as
that capital flows from the advanced economies to EMDEs may increase. This
underscores the need for the real yields on the naira denominated assets need
to remain positive. Secondly, the uncertainties in directions of the oil market
remains a source of concern, especially for exchange pressures, should the
downside risks to global output heighten. Thirdly, these developments are clear
signals for Nigeria to intensify efforts aimed at diversifying the economy and
government revenue away from the oil sector.


2.2.
Implications of the Domestic Economic Developments

The available data, forecasts and Staff estimates reveal that domestic output
has risen and is expected to continue to rise; real output remains below its
potential level; unemployment lies below the NAIRU; and, inflation has risen
and is expected to rise amidst tightening monetary condition. The combination
of these developments suggests that the economy may be stuck in a short-run
equilibrium that requires both demand and supply side policies to
simultaneously reduce inflation and unemployment as well as increase output
in the near-term.

Data shows that domestic real output has sustained a positive trend since the
fourth quarter of 2017. Real output grew by 1.98 percent in 2018 compared
with 0.82 percent in 2017. Quarterly output has also significantly increased,
growing by 2.01 percent the first quarter of 2019 compared to 1.89 percent in
Q1 2018. The growth was driven by the non-oil sector, which grew by 2.47

Classified as
percent, while the oil sector actually contracted by 2.4 percent. Forecasts
show that output growth is expected to rise throughout 2019, culminating into
an annual growth rate of 2.3 percent for the year. Inflation (y-on-y), which has
increased from 11.25 percent in March 2019 to 11.37 percent in April 2019, is
expected to moderate until August 2019. The rise in inflation was driven by food
prices, which grew by 13.7 percent in April from 13.45 percent in March 2019
while Core Inflation moderated. On a month-on-month basis, however, both
Core and Food Inflation increased during the period. This underscores the
importance of supply-side and structural factors in the inflationary process. In
addition, Staff estimates show that the real output has been below its potential
level since the second quarter of 2016, while the unemployment rate lies above
the Non-Accelerating Inflation Rate of Unemployment (NAIRU). Amidst rising
inflation and rising output, these estimates of potential output and NAIRU
suggest that the dynamics of output and inflation can be approximated by
the comparative statics depicted in the simplified AD-AS framework in figure 1
for the purpose of evaluating policy options. As indicated in the figure, the
current inflation rate (πt) and real output (Yt) are determined by the short-run
equilibrium (E1) at which the short-run Aggregate Supply curve (AS0) intersects
the Aggregate Demand (AD0). This short-run equilibrium, located to the right of
the long-run equilibrium (E0), determine the current real output (Yt) that is
below its long- run potential, and current inflation rate (πt) that is above its longrun target (π*). The unemployment rate associated with the current output will
be below
the NAIRU (obtainable when Yt = Yp). As can be seen, therefore, to

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simultaneously reduce the current inflation and raise real output (or reduce
unemployment), a combination of demand management and supply side
policies are required. Tightening alone, for instance, will shift the AD to the left
thereby reducing inflation, but will also reduce output. Easing would shift the
AD to the right and raise output and reduce unemployment, but will also raise
inflation. An effective policy strategy could be to use a targeted monetary
policy intervention that increases lending to the real sector at the prevailing
interest rate to support production, which will shift the short-run AS to the right,
while holding the AD. This could be achieved if quantity of lending can be
significantly increased at the current interest rates.
3. The Basis for My Policy Choice

In the light of above analysis, I voted to hold the rate because a loosening to
support output would raise the inflation rate in the process while tightening to
reduce inflation would reduce output and raise unemployment. I therefore
voted for a hold with the conviction that, the Central Bank would intensify its
development finance interventions and other heterodox policies that support
the supply side so that both lower inflation and faster output growth can be
achieved simultaneously.
Consequently, I voted to:

• Retain the MPR at 13.50 percent;
• Retain the CRR at 22.5 percent;
• Retain the asymmetric corridor at +200/–500 basis points; and
• Retain liquidity ratio at 30.0 percent.

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Figure 1: The AD-AS Framework


LAS
AS0
Prices
AS1
E1
πt
π*
E0
AD1
AD0
Yt
YP
Output gap

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10.
SHONUBI, FOLASHODUN A.
Global Economic Developments
Economic fundamentals in some advanced economies developed more
positively than expected in the first quarter of 2019. Growth in the United States,
United Kingdom and the euro area were higher in 2019Q1, compared with the
levels in 2018Q4. Germany and Japan recorded positive growth, against zero
growth and contraction in 2018Q4, respectively. However, a number of
downside risks may constitute drag to global growth going forward. Re-ignition
of trade war between the US and China, breakdown of negotiation on Brexit
and subdued international trade flows have dimmed the horizon on global
growth. With the exception of India which had marginally higher growth,
China, Brazil, Russia and South Africa slowed in 2019Q1. Thus, the International
Monetary Fund projected global growth at 3.3 per cent in 2019 (WEO, April
2019). Inflation trended below the 2.0 per cent target in the advanced
economies and generally averaged 4.9 per cent in emerging and developing
economies, highlighting potential for higher growth to push inflation to target
levels. These developments have implications for capital and investment flows,
as well as, demand for EMDEs, including Nigeria.
Domestic Economic Environment


Recent uptick in inflation in April 2019 after the downward trend in 2019Q1
reflected, mainly, the effect of seasonal factor rather than a resurgence of

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fundamental inflationary pressure. Headline inflation, on year-on-year basis,
inched up to 11.37 per cent in April 2019, from 11.25 per cent in March 2019.
This was due wholly to the rise in food inflation to 13.70 per cent, from 13.45 per
cent
in
March
2019,
on
account
of
seasonal
factors,
including
commencement of the planting season and insecurity in some parts of the
food producing states which had disrupted production and distribution of food
items. Sustained decline in core inflation so far in 2019 highlighted the muted
effect of exchange rate pass through, as a result of generally stable exchange
rate.
Driven by expansion in the non-oil sector, output growth remained weak and
fragile with potentials for further non-inflationary growth through both
expansionary fiscal and accommodative monetary policy. Real Gross
Domestic Product (GDP) growth, at 2.01 per cent in 2019Q1, compared with
2.38 per cent in 2018Q4, reflected the 2.47 per cent expansion in the non-oil
sector. With the major growth drivers being agriculture and services sectors,
contraction in the oil sector was the major drag on output growth, as a result
of below target production, amidst positive development in international oil
price. Continued expansion of composite Purchasing Managers’ Indices (PMI)
for manufacturing and non-manufacturing sectors underscores the impact of
sustained exchange rate stability on business planning and intermediate
goods pricing. Overall, real output was well below the potential level,
highlighting the need for greater aggressiveness of fiscal and monetary

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policy measures that promote expansion of economic activities, in the face of
increasing population and unemployment.
Growth in the monetary aggregates was characterised by mixed trends, with
the narrow measures of money supply generally underperforming, while
sustained increase in securitized money pushed growth of the broader
measure of money beyond the benchmark. Growth in broad money supply
(M3), relative to the level at end-December 2018, was 5.42 per cent at end-
April 2019, annualised to 16.26 per cent, against the benchmark of 14.47 per
cent. Though net domestic credit (NDC) and time and savings deposits grew
by 19.31 and 6.53 per cent, respectively, in April 2019, narrow money supply
(M1) contracted by 4.26 per cent, while M2 underperformed at 1.85 per cent,
annualised to 5.54 per cent, compared with the benchmark of 12.99 per cent.
The less than target growth in M2 and contraction of M1, despite the significant
growth in NDC, highlights the persistent disconnect between the dynamics of
money supply components and flow of credit to the private sector in particular
and the real economy in general. This continues to be a concern.
Overall activities in the money market and movements in the rates reflected
generally positive reaction to the 50 basis points reduction in policy rate at the
preceding MPC meeting. Initial volatility that characterised movements in the
Inter-bank and Open-Buy-Back rates, eventually culminated in a decline as at
May 16, 2019. Also, low activity at the deposit and lending facility windows
showed the relative vibrancy of the inter-bank segment in the

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review period. This was also reflected in the downward trend in Nigerian
Treasury and CBN Bills rates, with implications for lower cost of liquidity
management and positive balance sheet effect for participating entities in the
money market. It, however, remained worrisome that trends in the money
market rates did not transmit to lower lending rates, highlighting the weakness
of transmission mechanism.

Sustained stability in the banking industry is reflected in improvement of banks’
prudential measures, though conditions highlighted the need for the Bank to
intensify current regulatory and supervisory measures to ensure further
progress. Apart from the improvement in asset quality, indicated by the steady
decline in industry non-performing loans (NPL) ratio from December 2018,
provision coverage remained high and sufficient. Similarly, industry capital
adequacy and liquidity ratios, were above the levels in March 2019 and the
prudential thresholds. Recurring challenges of the banking sector, however,
remained the lack of credit creation to support real sector activities and
growth, excessive investment in government securities, as well as, high interest
rate, which must be decisively addressed, along with prompt resolution of
outlier institutions. These will further strengthen the resilience of the industry.
Despite the decline in foreign portfolio and direct investments, viability of the
external sector was generally strengthened. Sustained stability at the Investors
and Exporters, as well as, at the Bureaux-de-Change (BDC) windows, aided

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by the steady accretion to reserve, continued to boost business planning and
investors’ confidence. Also, declining import bill, narrowing income account
deficit and increasing export of merchandise goods have combined to sustain
overall balance of payment surplus. Whereas recent decline in capital flow
may portend worrisome trend, a quick reversal is expected and already
manifesting, as competitiveness remain unchanged.
Overall Considerations and Decision

Factors within both the global and domestic economic environment
continued to condition the direction of monetary policy. On the global scene,
beyond the implications of deterioration in Brexit negotiation and the fact that
the bar for a near-term cut by the Fed is higher than most policy makers realise,
policy direction must position against the spillover effect of further slowdown in
global growth. Though recent trends in the international price of oil provides
opportunity for some respite, sufficient caution must be taken, including
building of fiscal buffers to manage likely impact of sudden reversal that may
come with resolution of the temporary impasses fueling the upbeat in oil prices.
On the domestic front, the major challenges for monetary policy remained low
credit flow to the real sector, sub-optimal output level and high
unemployment, to which the increasing insecurity has been attributed. Recent
uptick in inflation, mainly, on account of food inflation was expected, however
the prognosis over the next months is a gradual decline inflation. Moreover, as
the insecurity challenges are resolved, improved food

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distribution is expected to reduce pressure on food prices. Implementation of
the new minimum wage is not expected to have any long term impact on
general prices, just as declining core inflation, provides respite from
heightening of inflationary pressures.
Addressing the sub-optimal output level will halt rising unemployment. Growing
domestic output, however, requires a combination of fiscal and monetary
policies. Within the gradual expansion of agriculture, a quick win will be
aggressive investment along the entire value chain to harvest the gains of high
capital-output ratio. The value chain, with numerous points for value added
activities,
provides
enormous
employment
and
income
enhancing
opportunities.
To reduce the shortfall in aggregate demand and take advantage of current
negative output gap, focus of policy must include stimulating consumer
spending. Banks must expeditiously grow consumer credit for households to
take up accumulated stocks, which invariably lead to increased production
and aggregate supply, thereby dousing inflationary pressure. In addition, to
increase credit accessibility and uptake, deliberate effort must be made to
drive down interest rate, especially considering the weakness of the
transmission mechanism from the monetary policy and money market rates to
deposit and lending rates. CBN’s supply of low price credit is only to
complement what banks do.
As CBN continues its supportive and intervention activities to facilitate

expansion in the real economy, the fiscal authority must aggressively take

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actions that provide the necessary stimulus for economic growth. Specifically,
It is imperative for the authority to enhance the tax net and compliance, so as
to, grow the abysmally low tax to GDP ratio, reduce the seeming over
borrowing trend to prevent crowding out of the private sector and avoid debt
servicing pressure. Unnecessary subsidies must be discontinued, so as to
provide resources for infrastructure, improved social services and reduced cost
of doing business.
Overall, stable exchange rate and favourable returns continued to make the
Nigerian market competitive and attractive for foreign flows. Output remained
weak and fragile, but steady on an upward trajectory with potential for
significant non-inflationary growth. I believe that our policy path is forward
looking and that the CBN must intensify its activities to reduce the risk premium,
as well as, other measures to drive down lending rates and promote credit
growth.
I therefore vote to:

• Reduce the MPR by 25 basis points to 13.25 per cent;

• Retain the asymmetric corridor of +200/-500 basis points around the
MPR
• Retain Cash Reserve Ratio (CRR) at 22.5 per cent; and

• Retain Liquidity Ratio at 30.0 per cent.

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11.
EMEFIELE, GODWIN I.

GOVERNOR OF THE CENTRAL BANK OF NIGERIA AND CHAIRMAN, MONETARY
POLICY COMMITTEE
Global economic growth, which slowed to 3.6 percent in 2018, is projected to
decline to 3.3 percent in 2019. For many countries, short term outlook remains
weak due to pervasive uncertainties. These are underlain by the lingering
trade tensions between US and China, macroeconomic challenges in some
Emerging Market Economies (including, Brazil, Argentina, Turkey, and
Indonesia) leading to a considerable exchange market pressures, the auto
industry disruptions in Germany, as well as the normalization of monetary
policy in most advanced economies. Although 2019 started on a low
pedestal, the global economy is expected to strengthen in the second half of
the year. This pickup will be driven by accommodative monetary policy in
major economies, supported by retreating inflationary pressures and tapering
output gaps. The US Federal Reserve paused interest rate hikes and signalled
no increases for the rest of the year. The European Central Bank, the Bank of
England and the Bank of Japan, have all shifted to a more accommodative
stance. China has increased its fiscal and monetary stimulus to counter the
negative effect of trade tariffs.
Domestic Economic Developments

Economic activity in Nigeria moderated in the first quarter of 2019 to 2.01
percent from 2.38 per cent in the Q4 2018. The non-oil sector continue to drive
growth, contributing about 90.86 per cent to the nation’s GDP. The

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growth performance is marginally above the IMF (WEO, April 2019) projection
of 2.1 per cent growth for Nigerian economy in 2019, but lower than CBN staff
estimate of 2.38 per cent for the same period. Despite the moderation, the
Nigeria economy still enjoys favourable sentiments supported by positive PMI,
both in the manufacturing and non- manufacturing indices. The favourable
sentiment is also boosted by the continued stability in the foreign exchange
market and the drive for increased credits to the real sector of the economy.
Unemployment rate stands at an abysmal 23.1 per cent as at third quarter of
2018 with youth unemployment reaching 55.4 per cent.
Report on domestic prices indicate a slight uptick in the year-on-year headline
inflation to 11.37 per cent in April 2019 from 11.25 per cent in March. The
increase was driven by the composite food price index, which rose by 13.70
per cent as against 13.45 per cent in March 2019 even as core inflation fell to
9.30 per cent from 9.46 per cent. On a month-on-month basis, the three
components of inflation recorded upticks, indicating existence of current
pressures on inflation. However, the relative stability in the FX market continues
to anchor expectations about future prices.
The current stock of FX reserves at US$45.4 billion covering more than 13
months of imports compares favourably with the international standard of 3-
month import cover. Exchange rate has not only stabilized but has also
significantly converged across different segments of the market. The Balance
of Payments (BOP) estimates for Q4 2018 shows a substantial

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improvement in the BOP outcome. The overall balance of payments recorded
a surplus of US$2.80 million as against a huge deficit of US$4,542.08 million
recorded in the preceding quarter. The current account balance (CAB) also
improved significantly from a deficit of US$1,544.41 million in Q3 2018 to a
surplus of US$1,104.57 million in Q4 2018. These were made possible by the
significant decline in import bills due largely to our various policy initiatives,
including intervention policies and the restriction of FX supply for the
importation of 41 non-essential items.
I noted that although aggregate credit to the economy and credit to the
private sectors grew faster than their 2019 indicative benchmark, the Broad
money supply fell short of their benchmark. M3 grew by 5.42 per cent over the
preceding December 2018 relative to the benchmark of 14.47 per cent.
Similarly, M2 grew by 1.85 per cent in April as against the provisional
benchmark of 12.99 per cent.
Analysis of the overall liquidity condition of the financial system indicate that
government securities plus OMO Bills account for more than 70 percent of
total specified liquid assets of banks while interbank placements account for
a meagre 4.75 per cent, suggesting that banks have shirked their
intermediation role. Consequently, total industry credits declined by 0.58 per
cent between April 2018 and April 2019, a trend that has persisted since 2017.
This is a worrisome development given the slow and fragile economic activity
in the country.

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Key Considerations

The slowdown in global economic activity and the subdued inflationary
pressures, has prompted a shift towards easier monetary policy stances across
many developed and developing economies. Accordingly, the imperative is
to take actions that boost potential output, improve inclusiveness, and
strengthen resilience. In my March 2019 statement, I underscored the need to
support growth and create jobs to bolster our economic prosperity. The same
economic conditions that existed at that time continues to prevail even at the
current period as the outlook for economy continues to be fragile. Our
recovery process has remained slower than desired and worriedly lower than
the rate of population growth. Thus, per- capita income remains low while
unemployment rate continues to trend at a dangerously, unacceptable
region accompanied by persistent poverty which undermine productivity.
I noted with concern the ongoing asset substitution by banks as they shift their
balance sheet from loans and advances to risk free government securities. This
is a classic case of disintermediation. We need incentive structures that would
make banks lend to the real sectors of the economy. All these developments
make case for continued support for growth and job creation.
I remain mindful of the fact that inflation rate which had been trending down
for the past three months inflexed in April. However, the current level of inflation
is still below the threshold of 12.0 percent above which inflation becomes
inimical to growth. We should, therefore, utilize the small policy

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space created by this gap to pursue policies that would boost economic
activity. Policies must, at this point, address critical issues such as access to
credit, job creation and the diversification of the economy.
Policy Preference

I am, therefore, of the opinion that monetary policy should accommodate
these critical issues as we continue to search for measures that would ensure
sustainable economic growth in the long-term. My inclination today is to hold
all parameters at their current levels while stepping up our intervention
activities in critical sectors of the economy and using our OMO operations to
control liquidity in the banking system. Therefore, I vote to:
1. Retain the MPR at 13.5 percent;

2. Retain the CRR at 22.5 percent;

3. Retain the asymmetric corridor at +200/–500 basis points; and
Retain liquidity ratio at 30.0 percent

GODWIN I. EMEFIELE, CON

Governor
May 2019