CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 127 OF THE MONETARY POLICY
COMMITTEE MEETING OF MONDAY 25th AND TUESDAY 26th NOVEMBER 2019
The Monetary Policy Committee (MPC) met on the 25th and 26th of November
2019 in an environment of continued global macroeconomic uncertainty, but
gradual improvements in the domestic economy. The Committee appraised
the developments in both the global and domestic economies, as well as the
outlook for the rest of the year and the first quarter of 2020. All the eleven (11)
members of the Committee were in attendance.
The Committee reviewed the effect of monetary policy on developments in
the economy in 2019, particularly, price stability, improved credit delivery, low
interest rate regime, exchange rate stability, financial system stability,
reduction in non-performing loans (NPLs), job creation and output growth.
The Committee noted the use of home-grown heterodox policies used by the
Bank to successfully achieve substantial macroeconomic stability in 2019.
Amongst the policies were the use of the Global Standing Instruction (GSI) to
address the predatory impact of serial borrowers in the banking system, a
phenomenon that reduced the level of NPLs over time, the Loan to Deposit
Ratio (LDR) to boost credit delivery by the deposit money banks (DMBs) to the
real sector, Differentiated Cash Reserve Requirement (DCRR), Development
Finance Initiatives in agriculture, micro, small and medium enterprises (MSMEs)
and other real sector activities, including restriction of patronage by local
corporate and individual investors in CBN OMO bills.
Global Economic Developments
Global output growth remained weak due to the impact of the trade war
between the US and China; growing vulnerabilities in the financial markets,
downturn in global manufacturing, sustained downward pressure on oi prices,
lingering uncertainty around BREXIT, which has continued to dampen

investment growth in the United Kingdom, subdued growth in the European
Union and Japan, and dampening output growth in China. These headwinds
resulted in slowing global trade, weakening aggregate demand and
contraction in the aggregate supply chain. Major Emerging Market and
Developing Economies (EMDEs) particularly China and India also slowed, while
South Africa, Russia and Brazil, recorded slower-than-expected growth.
Consequently, there was a broad slowdown in global output. In the light of
these developments, the IMF revised global growth forecast downwards to 3.0
per cent in October 2019 from its previous projection of 3.2 per cent in July
2019.
Inflation in most Advanced Economies remained well below their long-run
objectives, with price development staying subdued and unemployment
trending mostly below the Non-Accelerating Inflation Rate of Unemployment
(NAIRU). In the US, wage growth and aggregate demand continued to
perform below the long run average even though unemployment remained
below the NAIRU. Consequently, the recent trend towards monetary
accommodation by key central banks is expected to continue into the
foreseeable future. In key EMDEs, however, prices trended upwards with the
output gaps widening and unemployment remaining relatively high.
Domestic Economic Developments
Data from the National Bureau of Statistics (NBS) showed that real Gross
Domestic Product (GDP) grew by 2.28 per cent in the third quarter of 2019,
compared with 2.12 and 1.81 per cent in the preceding and corresponding
quarters, respectively. The improved growth was driven largely by the
performance of the oil sector, which grew by 6.49 per cent, while the non-oil
sector grew by 1.85 per cent. The Manufacturing and Non-Manufacturing
Purchasing Managers’ Indices (PMI) also expanded for the 31st and 30th
consecutive months at 58.2 index points, apiece, in October 2019. Staff
projections indicate that real GDP in Q4 2019 is expected to grow by 2.38 per
cent, driven by the non-oil sector. Headwinds to this projection, include:
continued high level of unemployment, mild resurgence of anticipated

inflationary pressures towards the December festive season, rising public debt,
high level of insecurity, and slow pace of oil price recovery. Despite these
headwinds, growth is expected to pick on the back of recent actions to boost
credit to the private sector through the recent Loan-to-Deposit Ratio (LDR) and
Global Standing Instruction (GSI) initiatives, sustained interventions by the Bank
in selected employment and growth-enhancing sectors, as well as fiscal policy
measures to support growth.
The Committee noted the uptick in headline inflation (year-on-year) from 11.24
in September to 11.61 per cent in October 2019. This was anticipated as part
of the seasonal end-of-the year uptick in prices; but was further accentuated
by the border closure, an expected temporary food supply shock which will
adjust over the medium-to-long term as the economy increase investments in
food production. Consequently, food inflation rose from 13.51 to 14.09 per cent
in September and October 2019, respectively. Core inflation, the underlying
inflation in the economy, however, declined marginally from 8.94 to 8.88 per
cent in September and October, respectively. The decline observed in core
inflation was attributed to the relative stability in the foreign exchange market.
The Nigerian land borders were closed to address the incidence of increased
cross-border banditry, smuggling and dumping, insurgency and the illegal
trade practices of neighbouring countries whose economies had become
dependent on Nigeria through smuggling through the borders. The Bank’s
continued intervention in the agricultural sector is expected to improve
medium-term food supply. Indeed, there has been reports of bumper harvest
in some staples like rice, maize, etc.
The Committee observed that broad money supply (M3) grew by 5.72 per cent
(year-to-date) in October 2019, compared with the 2019 indicative
benchmark of 16.08 per cent. Growth in Net Domestic Credit (NDC)
moderated to 26.38 per cent in October 2019 from 30.33 per cent in the
previous month. This was attributed to a significant reduction in credit to
Government in October 2019 to 85.99 per cent from 114.79 per cent in the
previous month. Growth in credit to the private sector, however, improved to
13.08 per cent in October 2019 from 12.49 per cent in the previous month,

reflecting the impact of the Bank’s recent policy on loan-to-deposit ratio. An
increase in absolute gross credit, amounting to N1,169.70 billion, was recorded
between end-May and end-October 2019. Consequently, the manufacturing
sector received N459.69 billion, the highest in two decades. This was followed
by consumer loans of N356.65 billion, General Commerce (N142.98 billion),
Information and Communications (N82.07 billion), Construction (N74.52 billion),
Agriculture, Forestry and Fishing (N73.20 billion), Mining and Quarrying (N3.64
billion) and Transportation and Storage (N3.09 billion), amongst others. The
Committee, therefore, urged the Management of the Bank to sustain its
current efforts to improve lending to the private sector and to explore other
initiatives to provide funding to other critical sectors of the Nigerian economy.
In the review period, money market interest rates reflected the prevailing
liquidity conditions in the banking system. Overall, the monthly weighted
average Inter-bank call and Open Buy Back (OBB) rates fell to 7.87 and 7.22
per cent, respectively, in October 2019, from 11.41 and 10.73 per cent,
respectively, in September 2019.
The Committee noted that the persisting bearish trend in the equities market,
had started to abate in November 2019, and was pleased by the increased
patronage in the sovereign bonds market. The All-Share Index (ASI) grew by
2.41 per cent to 26,991.42 index points on November 22, 2019, from 26,355.35
index points at end-October 2019. Market Capitalization (MC) also grew by
1.54 per cent to N13.03 trillion on November 22, 2019, from N12.83 trillion at endOctober 2018, due largely to portfolio shift from short-term Government
securities to the equities market.
The MPC also noted the improved resilience of the banking system, as the NonPerforming Loans (NPLs) ratio declined further to 6.56 per cent at end-October
2019 from 6.67 per cent at end-September 2019 and from 14.05 per cent in
October 2018. The Committee, however, noted that this figure remained
above the prudential benchmark of 5.0 per cent, and urged the Bank to
sustain its current efforts, which have created this exorable prudential regime.

Outlook
Overall, the medium-term outlook for the domestic and global economies
continue to be clouded with uncertainties, associated with the persisting trade
wars between the US and its major trading partners, financial vulnerabilities,
rising levels of public and corporate debts, pockets of geopolitical tensions
and weakening global output. However, the reforms underway in the
domestic economy; aimed at diversification away from oil over the last three
years have provided adequate shock absorber to withstand the headwinds.
However, the Committee urged the fiscal authorities to invest massively in
public works programme and improve fiscal buffers to complement these
efforts.
Forecasts of key macroeconomic variables, however, indicate prospects of
improved output growth for the economy. Based on recent revised
projections, the economy is expected to grow in 2019 by 2.3 per cent (IMF
estimate), 2.1 per cent by the World Bank, and 2.20 per cent by the CBN. The
Committee noted the tailwinds to these developments, to include: sustained
stable exchange rate; enhanced flow of credit from the Deposit Money Banks
(DMBs) to the private sector; expected improvements in tax revenue and
efficiency in public expenditure; continued improvement in the business
environment and activities; and the sustained interventions by the Bank in the
real sector.
The Committee’s Considerations
The Committee welcomed the improvements in output growth in the third
quarter of 2019, noting that the current direction of the Purchasing Managers
Index suggests stronger growth in the fourth quarter. It however, re-emphasized
the need for diversification to strengthen the productive base of the economy
and reduce dependence on oil. Diversification has become necessary now
that Nigeria has signed the African Continental Free Trade Agreement
(AfCTA). To achieve this, the Committee urged the Federal Government to
continue to improve the investment climate and ease of doing business to
attract Foreign Direct Investment. Particularly, Government should, as a

priority, improve conditions for global auto manufacturers, including for
aviation and rail industries to invest in the country.
The Committee commended the expansion in manufacturing output, noting
that it was a direct fallout of the policy on loan-to-deposit ratio. The
Committee, called on Government to urge the Pensions Commission to
improve the prudential requirements for Pension Funds to refocus their
investment portfolio away from their traditional choice of Government
securities in favour of other viable long-term investments in real estate,
manufacturing and agriculture; and indeed infrastructure. Moreover, the
Committee called for strong visibility of fiscal and structural policies to improve
infrastructure and investment conditions in the economy. It expressed strong
optimism that the current policies of the Bank, in a regime of solid fiscal and
structural policy support, would yield strong dividends in closing the current
negative output gap in the medium to long term, and place the economy on
a sustainable and self-sufficient path of output growth.
As a key pillar of economic diversification, the MPC directed the attention of
the fiscal authorities to the immense potentials of the gas sub-sector and the
urgency to encourage horizontal integration through private sector
participation. This, the Committee argued will improve domestic power supply
and export earnings.
On price developments, the Committee considered the moderate uptick in
headline inflation in October 2019, attributing it partly to an expected
temporary shortfall in food supply because of the recent land border closure
and rise in demand as the festive season approaches. Although it noted that
the price increase was not unexpected, the Committee believed that the
medium to long-term benefits far outweigh the short-term cost. Consequently,
it noted the need to drive down food prices through increased support for
local production of staples foods, including rice, fish, poultry, palm oil,
tomatoes etc. It also urged the Government to follow through with a
sustainable policy on backward integration in the milk industry and other
priority sectors of the economy.

On the fiscal sector, the Committee identified the need for institutional reforms
through policies that would automate day to day processes of key revenue
generating and security agencies such as the Nigerian Customs. This would
provide additional advantage of stemming smuggling, kidnapping and the
migration of terrorists into the country. The MPC reiterated the need for
increased efficiency in public expenditure and the building of fiscal buffers.
On the impact of the recent closure of Nigerian land borders on domestic food
prices, the Committee noted that any upward price movement arising from
the closure was reactionary and therefore temporary. Moreover, significant
investment has been made over the last three years to sustainably increase
domestic food supply. It noted some of the key initiatives in this direction to
include: the Commodity Development Initiatives, designed to finance the
agricultural value chain of ten ((10) commodities namely; Cassava, Cocoa,
Cotton, Rice, Tomato, Poultry, Livestock and Dairy, Fish, Oil Palm and Maize,
which has received N171.66 billion in funding. Four of these crops received over
140.12 billion naira or 81.6 per cent of total disbursements (Cassava, 11.44
billion naira; Cotton, 40.47 billion naira; Rice, 53.40 billion naira; Oil palm, 34.81
billion naira). It is, therefore, expected that the outcome of these interventions
will close the supply gaps already envisaged in the medium to long term,
including dampening domestic prices. It thus, expressed support for the
temporal closure of Nigeria’s land borders, noting that securing the country’s
land borders should be further enhanced.
On crude oil price, the Committee noted the lull in the futures market,
suggesting that prices would remain relatively weak into the foreseeable
future. The Committee, therefore, urged the Federal Government to
reconsider its 2020 budget oil price benchmark of US$57 per barrel, to build
fiscal buffers.
The Committee was confident that despite the weaknesses from the external
sector, efforts to ramp-up domestic production, through several measures by
both the monetary and fiscal authorities, would douse the adverse effects on
the domestic economy in the medium term, through the reduction of
importation of food and other commodities.

The Committee’s Decision
The MPC reviewed the upsides and the downsides of the options to tighten,
hold or loosen. It was conscious that, while tightening may encourage capital
inflows, it also has the downside consequence of constraining the already
nascent recovery in output growth. The Committee also noted that a
reduction in the policy rate will improve growth prospects, but in view of the
uptick in inflationary pressures, it decided that the balance of risks was in favour
of protecting price stability. Considering the recovery, decline in market
interest rates, growth in domestic credit amongst other positive developments,
the Committee felt that there would be more gains in the short to medium term
in holding policy at its current position.
In its consideration to hold, the MPC noted with pleasure, the positive outcome
of actions already taken by the Bank. These actions include: current policy on
loan-to-deposit ratio, which has resulted in loans and advances rising by over
N1.1trillion between June to October 2019. It further noted that these actions
have assisted in boosting credit to the agricultural and manufacturing sectors,
hence, the positive outcome on the GDP. The MPC is hopeful that the LDR
initiative must be sustained as interest rates being paid by borrowers have so
far dropped by up to 400 basis points between June and October 2019. These
have happened with corresponding decline in NPLs to 6.5 per cent at endOctober 2019. The MPC is, therefore, of the view that sustaining the MPR at its
current level is crucial for better understanding of the unfolding impetus of
growth before deciding on any probable variations. The MPC also feels that
holding its current policy position offers pathways for appraising the effect of
the heterodox policies to encourage lending by the banking industry without
varying the policy rate as the downside risk to growth and caution on inflation
looks stable. The MPC is also of the view that the improvements in the
macroeconomic indicators such as the GDP, NPLs, CAR, and the LDR, suggest
that current monetary policy stance is yielding results. It therefore, feels that
maintaining the current stance would be necessary in order to sustain the
improvements.

In view of the foregoing, the Committee decided by a unanimous vote to
retain the Monetary Policy Rate (MPR) at 13.5 per cent and to hold all other
policy parameters constant.

In summary, the MPC voted to:
I. Retain the MPR at 13.5 per cent;
II. Retain the asymmetric corridor at +200/-500 basis points around the MPR;
III. Retain the CRR at 22.5 per cent; and
IV. Retain the Liquidity Ratio at 30 per cent.

Thank you.
Godwin I. Emefiele
Governor, Central Bank of Nigeria
26th November 2019