Classified as

CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 131 OF THE 274th
MONETARY POLICY COMMITTEE MEETING HELD ON MONDAY 20TH
JULY 2020
The Monetary Policy Committee (MPC) met on 20th July 2020,
amidst elevated uncertainties across the world. The projected
global output contraction was revised downward, as many
countries had to extend the lockdown period in the wake of a
second wave of coronavirus infections, and continued lack of
effective treatment or vaccines for the Novel Coronavirus disease.
However, there is cautious optimism that the global growth
contraction would reverse to positive growth path by 2021, as the
pandemic is contained, potential treatment found, and restrictions
on business activities are lifted by most economies.
The Committee reviewed developments in the global and
domestic economic environment in the first half of 2020 and
evaluated the monetary policy options to address these
challenges.
Ten (10) members of the Committee were in attendance.

Classified as
Global Economic Developments
Global output growth weakened further, as a result of the persistent
headwinds from the COVID-19 pandemic. These headwinds
comprised: persisting decline in global aggregate demand and
supply; disruptions in global supply chain and trade; rising sovereign
and corporate debts; heightened financial market vulnerabilities;
low prices of crude oil and other commodities; and rising
unemployment.
The Committee noted, with concern, the IMF’s further downgrade
of global economic contraction to -4.9 per cent from -3.0 per cent
in 2020. The downward revision was based primarily on the
amplified negative impact of COVID-19 pandemic on many
advanced and emerging market economies, as they witnessed
extended lockdown periods and restrictions on economic
activities.
The Committee noted the general optimism of a V-shaped global
growth trajectory due to the expected early abatement of the
pandemic and the gradual resumption of economic activities.
However, the Committee believes that global recovery, while
assured for 2021, is more likely to be a U-shaped one. In this regard,
it is not surprising that the recovery has been revised downwards
from 5.8 per cent to 5.4 per cent in 2021.
The Committee observed the continued downward trend in
inflation in most Advanced Economies, particularly below the 2.0
per cent long-run target, despite the huge monetary and fiscal

Classified as
stimulus injections during the period. The Committee, however,
noted that as the lockdown eases across the advanced
economies, aggregate demand is expected to strengthen and
inflation would pick up to support the expected output growth.
Across the Emerging Markets and Developing Economies (EMDEs),
the Committee observed the divergent inflation trends, with most
developing commodity-exporting countries recording increase in
inflation compared with other more diversified economies. This
development had inadvertently exerted significant pressure on the
exchange rates of these economies as the pass-through to
domestic prices has been amplified.
The Committee observed that the unprecedented increase in
public spending to support households and businesses, in the wake
of the pandemic, may spur inflationary pressures in some
economies, as the supply shortfalls struggle to meet up with the
demand build up.
Domestic Economic Developments
Available data from the National Bureau of Statistics (NBS) showed
that real Gross Domestic Product (GDP) grew marginally by 1.87 per
cent in the first quarter of 2020 compared with 2.55 and 2.10 per
cent in the preceding and corresponding quarters of 2019. The
performance was largely driven by the 5.06 per cent growth in the
oil sector and 1.55 per cent growth in the non-oil sector. The decline
in output growth in the first quarter was largely attributed to the twin

Classified as
effect of the decline in oil prices and the shocks from the Covid-19
pandemic.
The Committee observed the gradual, but persistent decline in the
Manufacturing and non-Manufacturing Purchasing Manager’s
Indices (PMI), below the benchmark. The Manufacturing PMI
declined to 41.1 index points in June 2020 from 42.4 index points in
May 2020. Conversely though, the non-manufacturing PMI
improved to 35.7 index points in June 2020 from 25.3 index points in
May 2020. The trend in the manufacturing and non-Manufacturing
PMI was attributed, largely, to: slower growth in production levels;
new domestic orders; employment rate; raw materials supply; and
new export orders. The Committee noted the staff forecast of 1.03
per cent contraction in growth in Q2 2020, on the back of the
continued adverse impact of the pandemic on the economy.
The Committee expressed concern over the persistent, albeit
marginal, uptick in inflation for the tenth consecutive month, as
headline year-on-year inflation rose to 12.56 per cent in June 2020
from 12.40 per cent in May 2020. The increase in headline inflation
was largely driven by the increase in both food and core inflation,
which rose marginally to 15.18 and 10.13 per cent in June 2020 from
15.04 and 10.12 per cent in May 2020, respectively. The Committee
noted the contribution of the legacy structural factors in the
persistent uptick in inflationary pressure. These factors included:
disruptions to key supply channels due to security challenges from
herder-farmer
clashes,
banditry/kidnapping,
inadequate
transportation
outlay,
epileptic
power
supply,
and
low

Classified as
technological adaptability. These factors have compounded the
supply chain challenges.
The Committee reiterated the need for a robust fiscal policy
strategy to attract private investment and capital, to finance the
huge infrastructure deficit in Nigeria, and strengthen the existing
initiatives by the federal government and the CBN in this direction.
The Committee recognized the supportive developmental roles of
the CBN towards addressing some of these structural issues. The
MPC specifically expressed optimism on the future impact of N50
billion Household and SME facility, out of which N49.195 billion has
been disbursed, to over 92,000 beneficiaries. The N100 billion
healthcare and N1.0 trillion manufacturing and agricultural
interventions to support the rebound in growth from the impacts of
the pandemic on the economy. The Committee further
commended the CBN coordinated CA-COVID - Private sector
intervention scheme - which had mobilized over N32 billion to
support the economy, lives and livelihoods. The Committee noted
that the CBN had disbursed over N152.9 billion to the
manufacturing sector to finance 61 manufacturing projects and
another N93.6 billion to the Healthcare sector, amongst many other
sector-specific facilities.
The Committee is hopeful that upon further drawdown of these
intervention facilities, the much needed reset and rebound of the
Nigerian economy will become a reality.

Classified as
The Committee noted that broad money supply (M3) grew by 1.64
per cent in June 2020 from 2.72 per cent in May 2020, largely due
to increases in Net Domestic Assets (NDA) and Net Foreign Assets
(NFA). The growth in M3, however, remained well below the
indicative benchmark of 13.09 per cent for 2020.
Aggregate domestic credit (net) grew by 5.16 per cent in June 2020
compared with 7.47 per cent in May 2020. The Committee
commended the CBN Loan-to-Deposit Ratio (LDR) initiative to
address the credit conundrum as the total gross credit increased
by N3.33 trillion from N15.56 trillion at end-May 2019 to N18.90 trillion
at end-June 2020. These credits were largely recorded in
manufacturing, consumer credit, general commerce, and
information and communication and agriculture, which are
productive sectors of the economy.
Money market rates remained relatively stable in the review period,
reflecting the prevailing liquidity situation in the banking system. The
monthly weighted average Inter-bank call and Open Buy Back
(OBB) rates increased to 5.75 and 11.31 per cent, respectively, in
June 2020 from 5.22 and 5.80 per cent, respectively in May 2020.
The Committee welcomed the modest recovery recorded in the
equities market as the All-Share Index (ASI) and Market
Capitalization (MC) increased by 6.33 and 6.44 per cent, on April
30 and June 30, 2020, respectively. The modest improvement
reflected the resumption of business activities which spurred

Classified as
market confidence, as Government commenced gradual ease of
the lockdown.
The Committee noted the decrease in NPLs ratio to 6.4 per cent at
end-June 2020 from 9.4 per cent in the corresponding period of
2019, on account of increased recoveries, write-offs and disposals.
The Committee expressed confidence in the stability of the banking
system and urged the Bank to monitor the compliance of DMBs to
its prudential and regulatory measures to sustain the soundness and
safety of the banking industry.
In light of the Bank’s continued effort to find innovative ways of
using local resources to diversify the sources of the country’s Foreign
Exchange Reserves, the Committee welcomed the decision of the
Central Bank of Nigeria to develop a Gold Purchase Framework
under the Federal Government’s Presidential Artisanal Gold Mining
Development Initiative. The standardised gold bars, which would
be purchased in Naira from Nigerian miners and refiners would not
only create thousands of jobs for the artisans, but would provide a
new sources of foreign exchange accretion to our reserves, and
ensure the strength and stability of the Naira.
The Committee also commended the Federal Government for the
approval to establish a CBN-led Infrastructure Development
Company, which will leverage local and international funds for
rebuilding of critical infrastructure across the country. This entity,
which will be wholly focused on Nigeria and Nigerians alone will be
co-owned by the CBN, the Africa Finance Corporation (AFC) and
the Nigeria Sovereign Investment Authority (NSIA), but exclusively

Classified as
managed by an Independent Infrastructure Fund Manager (IIFM)
that will mobilize local and foreign capital to support the Federal
Government in building the transport infrastructure required to
move agriculture and other products to processors, raw materials
to factories, and finished goods to markets. The sum of N15 trillion is
projected over 5 years for the initial run. The Committee noted with
satisfaction the CBN’s immediate work on the updates and
timelines for the establishment of this much-needed entity.
Outlook
The outlook for the global economy remains weak. The IMF’s earlier
expectations that the coronavirus pandemic will wane by the end
of the second quarter of 2020, as economies implement the various
prevention protocols, were not achieved. Several countries
witnessed a second outbreak after the initial ease in lockdown. This
necessitated the IMF’s downgrade of output growth forecast for
both 2020 and 2021.
The slow recovery in oil prices, and its attendant volatility, is
projected to continue in 2020 and well into 2021. This would further
dampen recovery prospects, particularly for most oil-exporting
countries.
With many central banks, in the advanced economies, exhausting
their conventional monetary policy headroom, unconventional
monetary policy tools would trigger global liquidity surfeit, with
consequences for many emerging market and developing

Classified as
economies, including, volatility in international financial system and
markets.
Provisional data on key domestic macroeconomic variables
indicate that the Nigerian economy may record negative quarterly
GDP growth in the 2nd quarter of 2020, but there is cautious optimism
that the year may end in marginal negative territory, with strong
recovery prospects in 2021.
The Committee’s Considerations
The
Committee’s
considerations
were
guided
by
the
developments in the global and domestic economic environment.
The MPC noted that the current coordinated efforts by the Federal
Government to contain the COVID-19 pandemic would reposition
the economy on a sustainable path of rapid recovery. The
Committee welcomed the government’s articulated fiscal stimulus
to cushion the impact of the pandemic on households and
businesses, through various palliatives and fiscal incentives and
reiterated the need for effective and timely implementation.
The MPC expressed the utmost need for both the monetary and
fiscal authorities to collaborate, for the optimal synergy for
measures targeted at reviving the economy. The Committee called
on the government to sustain its efforts at diversifying revenue
sources and ensure fiscal prudence, particularly, with the use of the
recent grants and multilateral concessionary loans. The Committee
encouraged the adoption of counter-cyclical fiscal policy
framework to shield the economy from persistent revenue shocks.

Classified as
The MPC noted the Bank’s overarching commitment to maintaining
price stability and encourage the Bank to sustain the current
measures targeted at moderating inflation, including addressing
some of the supply-side structural challenges.
The Committee urged the Bank to continue to give particular
attention to its mandate of exchange rate stability, given the
recent volatility in the international financial system, to avoid
excessive demand pressures in the foreign exchange market.
The MPC commended the Bank on its efforts in sustaining the
soundness and resilience of the financial system, particularly, in the
face of severe economic challenges. The Committee noted the
Bank’s drive to accelerate credit growth to the private sector,
especially to micro, small and medium scale enterprises and the
recent monetary stimulus packages to households and businesses
affected by the pandemic.
The Committee’s Decision
The Committee reviewed the policy options before it and argued
that the option of tightening at this time would contradict the noble
initiative of expansion of affordable credit to the real sector, noting
that this would heighten the cost of production which will translate
to higher prices of goods and services and harder economic
condition for people.
On the other hand, loosening monetary stance would provide the
desired succour for stimulating output growth and rapid recovery,
but with implications for domestic private investment and capital

Classified as
mobilisation to support the huge domestic financing gap. Further
cut in MPR may not necessarily lead to a corresponding decrease
in market interest rate, considering the current economic
challenges. The Committee was also mindful of the cut in policy
rate at the last MPC meeting and the need to allow time for the
transmission effect to permeate the economy.
Given the plethora of monetary and fiscal measures recently
deployed to address the impending economic crisis, following the
COVID-19 outbreak, it would be a relatively cautious option to hold,
in order to evaluate the effectiveness of these tools at addressing
the current challenges, particularly with the mounting uncertainties
within the domestic economy, as well as the external vulnerabilities.
After reviewing the three options, the MPC noted that the
imperative for monetary policy at the May 2020 meeting was to
strike a balance between supporting the recovery of output growth
and reducing unemployment while maintaining stable prices. The
Committee noted at this meeting that the economic fundamentals
have marginally improved by the end of June 2020, following the
gradual pick-up of economic activities as the positive impacts of
the various interventions permeate into the economy.
As a result, the Committee noted that the earlier downward
adjustment of the MPR by 100 basis points to 12.5 per cent to signal
the loosening monetary policy stance is yielding positive impact as
credit growth increased significantly in the economy. The
Committee also noted the positive impact of the various fiscal and
monetary interventions on households, SMEs and manufacturing

Classified as
sectors. The Committee also noted that increasing MPR at this stage
will thus be counter-intuitive and will result in upward pressure on
market rates and cost of production.
In view of the foregoing, the Committee decided by a majority vote
to retain the Monetary Policy Rate (MPR) at 12.5 per cent and to
hold all other policy parameters constant.
The Committee decided by a vote of eight members to Hold and
two members voted to Reduce MPR. All members voted to retain
all other policy parameters.
In summary, the MPC voted to:
I. Retain the MPR at 12.5 per cent;
II. Retain the asymmetric corridor of +200/-500 basis points around
the MPR;
III. Retain the CRR at 27.5 per cent; and
IV. Retain the Liquidity Ratio at 30 per cent.

Thank you.
Godwin I. Emefiele
Governor, Central Bank of Nigeria
20th July, 2020