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CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 126 OF THE
MONETARY POLICY COMMITTEE MEETING OF THURSDAY 19th AND
FRIDAY 20th SEPTEMBER 2019
The Monetary Policy Committee (MPC) met on the 19th and 20th of
September 2019, in the light of softening global growth and weakerthan-anticipated domestic output recovery. The Committee
evaluated developments in the global and domestic economies
and examined the outlook for the rest of the year. It noted the buildup of vulnerabilities in major Advanced Economies and its spill-over
to the Emerging Markets and Developing Economies (EMDEs). Nine
(9) out of the eleven (11) members of the Committee were present
at the meeting.
Global Economic Developments
Output growth across major advanced economies remained
subdued, confronted by legacy headwinds, including the
subsisting trade war between the US and China, regional hostilities
in the Middle-East, rising debt levels, growing uncertainties around
BREXIT and increasing political tensions between the US and Iran,
including fragilities in the financial markets. In the EMDEs, output
growth remained broadly mixed with some economies performing
stronger than others.

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Consequently, the International Monetary Fund (IMF) revised its
projected global growth forecast to 3.2 per cent in 2019 from 3.6
per cent.
Price developments continued to soften across the major
advanced and EMDEs as aggregate demand continually weaken,
resulting in softening monetary policy by major central banks to
address downward trending prices and to strengthen aggregate
demand.
Domestic Economic Developments
Data from the National Bureau of Statistics (NBS) showed that real
Gross Domestic Product (GDP) grew by 1.94 per cent in the second
quarter of 2019, compared with 2.10 and 1.50 per cent in the
preceding and corresponding quarters, respectively. This mediocre
growth, we believe, is consistent with global trends of dampening
output growth and was driven mainly by the oil sector, which grew
by 5.15 per cent while the non-oil sector grew by 1.64 per cent. At
57.7 and 58.0 index points, the Manufacturing and NonManufacturing
Purchasing
Managers’
Indices
(PMI)
grew
moderately for the 30th and 29th consecutive months, respectively,
in September 2019. Staff projections indicate that real GDP in Q3
and Q4 2019 would average 2.11 and 2.34 per cent, respectively,
driven primarily by the non-oil sector. This optimism in growth
prospects is anchored on the new momentum of rising credit to the
private sector. However, the headwinds to the growth prospects

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remain high unemployment, rising public debt and heightening
insecurity across the country.
The Committee noted the continued moderation in headline
inflation (year-on-year) to 11.02 per cent in August 2019 from 11.08
per cent in July 2019, driven by decline in the food and core
components to 13.17 and 8.68 per cent in August 2019 from 13.39
and 8.80 per cent in July 2019, respectively. The development in the
food and core components of inflation was partly due to improved
agricultural production in the current harvest season, supported by
the Bank’s sustained intervention in the agricultural sector as well as
the continued stability in the foreign exchange market. The
Committee, however, noted the upward pressure imposed on
prices due to rising insecurity in the food producing areas of the
country, increased liquidity injection from FAAC disbursements and
late budget cycles. It also highlighted the imperative to address
the economy’s infrastructural deficits, such as power supply,
upgrade of transport and production infrastructure as a means of
reducing cost-push inflation.

The Committee observed that broad money supply (M3) grew by
5.65 per cent in August 2019, compared with the level at endDecember 2018, annualized to 8.48 per cent, but remaining below
the 2019 indicative benchmark of 16.08 per cent. The growth was
largely driven by the increase in Net Domestic Credit (NDC), which
grew by 24.36 per cent in August 2019 from the level at endDecember 2018. The growth in NDC was accounted for by the

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significant increase in credit to Government, which grew by 94.33
per cent while credit to the private sector grew by 9.36 per cent in
August 2019. The Committee urged the Management of the Bank
to explore new initiatives to further improve lending to the private
sector, while calling on Government to adopt other ways of funding
its operations outside the banking sector.
In the review period, money market rates oscillated within the
standing facilities corridor due to prevailing liquidity conditions in
the banking system. The monthly weighted average Inter-bank Call
and Open Buyback (OBB) rates increased to 8.00 and 13.37 per
cent in August 2019 from 6.52 and 11.01 per cent in July 2019,
respectively.
The Committee observed the continued bearish trend in the
equities market, while noting the increased activity in the sovereign
bonds market, reflecting global trends and investor preference for
fixed income securities. In the light of this development, the AllShare Index (ASI) declined by 11.62 per cent to 27,779.00 index
points on September 13, 2019, from 31,430.50 index points at endDecember 2018. Market Capitalization (MC), however, grew by
15.37 per cent to N13.62 trillion on September 13, 2019, from N11.72
trillion at end-December 2018. This increase in market capitalisation
was attributed to the listing of 2.75 billion ordinary shares by Airtel
Africa in July 2019.
The MPC noted the improved performance and resilience of the
banking sector, evidenced by the continued moderation in the
ratio of Non-Performing Loans (NPLs) from 11.2 to 9.4 per cent in

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May and August 2019, respectively. While noting that this was still
above the prudential benchmark of 5.0 per cent, the Committee
called on the Management of the Bank to drive this ratio below the
prudential benchmark.
Outlook
The persistence of policy uncertainties, financial vulnerabilities and
rising geo-political tensions continued to cloud the medium-term
outlook. This is evidenced by the sustained weakening of global
growth across regions, amplified by the persisting trade tensions
between the US and its major trading partners, rising corporate and
public debt levels.
On the domestic economy, output growth in 2019 is expected to
peak at 2.1 per cent (IMF), 2.2 per cent (World Bank) and 2.27 per
cent (CBN). These forecasts remain underpinned by expectations
of favourable oil prices which would lead to higher external
reserves, stable exchange rate, moderate inflationary pressure as
government increases capital expenditure, including enhanced
flow of credit to the private sector to stimulate investment,
sustained
CBN
interventions
in
the
real
sector,
effective
implementation of the Economic Recovery Growth Plan (ERGP),
build-up of fiscal buffers, as well as improved security in the country.

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Committee’s Considerations
The Committee noted the decline in output growth in the second
quarter of 2019, partly attributable to the delay in implementation
of the 2019 budget. It however, observed that this was an
improvement over the corresponding quarter of 2018. In addition,
it noted the broad slowdown across key economies and the
response of major central banks to revise their policy rates
downwards.

On price developments, the Committee commended the
progressive moderation in consumer prices and urged the Bank to
sustain its intervention in the real sector of the economy to reduce
the output gap.

The MPC noted the improvements in the financial soundness
indicators and urged the Management of the Bank to sustain its
regulatory surveillance to ensure continued financial system
stability. The Committee, particularly noted the growth in the size of
industry loans from N15.4 trillion in June to N16.23 trillion in
September 2019. On the recent directives to deposit money banks
to increase their Loan-to-Deposit Ratio (LDR), the Committee
underscored the need to grow consumer, mortgage and
corporate credit to drive aggregate demand and ensure a
reduction in unemployment and increase in output growth.
Consequently, the Committee urged the Management of the Bank
to fast-track the development of the credit scoring system, to

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promote increased intermediation. In addition, the Committee
commended the introduction of the Global Standing Instruction
(GSI) initiative aimed at de-risking credit in the industry by
committing bank customers to repay their loans to banks. The MPC
further noted the increased supply of micro credit to key Micro
Small and Medium Enterprises (MSMEs) and efforts through the
Nigeria Incentive-Based Risk Sharing System for Agricultural Lending
(NIRSAL) Microfinance Bank to extend the reach of its credit
facilities across the country. The MPC however, observed that the
growth in credit to the private sector remained significantly low,
relative to the absorptive capacity of the economy.

The MPC further underscored the linkage between high
unemployment and heightened insecurity, emphasizing the critical
need for urgent steps towards more jobs and wealth creation in the
country. As an interim solution, the Committee called on
Government at all levels to ratchet up public works programmes
aimed at easing the threat of rising unemployment in the country.
This, the Committee argued, would be achieved through efficiency
in public spending. The MPC also noted the Government’s current
drive to increase Value Added Tax (VAT), adding that this will
improve fiscal revenue to support expenditure and reduce the
budget
deficit
as
well
as
Government
borrowing
when
implemented. The Committee, however, noted that this was too
little to close the gap in Government finances. Consequently, the
MPC called on the Government to, as a matter of urgency, adopt

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what it termed a BIG BANG approach towards building fiscal
buffers by purposefully freeing-up redundant public assets through
an efficient, effective and transparent privatization process. This
would raise significant revenue for Government and resuscitate the
redundant assets to generate employment and contribute
effectively to national economic growth. The MPC noted the
unstable oil prices, its implications on accretion to external reserves
and its persistent call on the Government to build fiscal buffers.
Consequently, the Committee called on the National Assembly to
exercise restraint from increasing the oil price budget benchmark
to avoid budgetary overruns at the implementation stage of the
budget. Projections from the oil futures market, indicate that oil
prices will remain tight around the budget oil price benchmark in
the medium term.

The Committee’s Decision
In its considerations regarding the policy options to adopt, the MPC
as usual, felt compelled to review the options of whether to tighten,
hold or loosen.
The Committee noted the positive moderation in inflation, though
slowly from 11.08 per cent in July to 11.02 per cent in August 2019.
Given that this was still above the target range of 6-9 per cent, and
considering the pressure on reserve accretion caused by the
relatively weak crude oil price, the MPC felt the imperative to
tighten. On the contrary, the Committee was of the view that doing
so in the midst of a fragile growth outlook would increase the cost

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of credit, and further contract investment and constrain output
growth.
On loosening, the Committee felt that this would result in increased
system liquidity and hence, heighten inflationary tendencies in the
economy. In particular, the MPC was of the view that loosening
would drive growth in consumer credit but without a corresponding
adjustment in real sector output. The Committee was also
convinced that increased liquidity and interest rate moderation
would result in exchange rate pressures as money supply rises.
As regards the option to hold, the MPC opined that the option
requires a clear understanding of the quantum and timing of
liquidity injections into the economy, before deciding on possible
adjustments to the stance of monetary policy. The Committee was
also of the opinion that retaining the current position of policy offers
pathways to appraising the effects of the suit of heterodox
monetary policy to encourage credit delivery to the real sector,
especially in the light of the subsisting implementation of the Loanto-Deposit Ratio policy.

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.

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In summary, the MPC voted to:
I. Retain the MPR at 13.5 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
20th September, 2019

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PERSONAL STATEMENTS BY THE MONETARY POLICY COMMITTEE
MEMBERS
Decision
1. AHMAD, AISHAH N.
At the September 2019, Monetary Policy Committee (MPC)
meetings I voted to maintain the current stance of monetary policy;
retaining the MPR at 13.5 per cent; CRR at 22.5 per cent; liquidity
ratio at 30.0 per cent and the asymmetric corridor at +200/–500
basis points. My decision to hold, like all other members, reflects the
importance of balancing the price and monetary stability remit of
the Committee with the pursuit of stronger growth. Rising global
headwinds,
policy
uncertainty
and
persistent
domestic
vulnerabilities were other key considerations for my decision.
External threats persist as the spill over from US policies continue to
weigh on global economic outlook
The recent attack on Saudi Arabia’s crude oil processing facility
and
the
attendant
geopolitical
tensions,
increased
the
uncertainties plaguing the global business and economic
environment. Following the attack, crude oil prices witnessed
significant volatilities, with Brent crude rising by 14 per cent
immediately after the attack and plunging thereafter by 6 per cent.
It appears that there is no end in sight to oil price volatilities and
consequently, exchange rate and fiscal pressures for oil producing
economies; reinforcing the urgency for domestic revenue
diversification.

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The Saudi attack was the latest salvo in a global economic
environment fraught with signs of slowdown in the US, trade wars
and geopolitical tensions. In response, central banks in developed
economies are fully in accommodative monetary policy mode,
with the Fed cutting the funds rate for the second time this year and
the European Central Bank announcing new quantitative easing
measures. Whilst the Fed’s rate cut seems like good news for
emerging markets, the overall spill over effects of policy decisions
by the US underscores growing concerns about rising US hegemony
in the international financial and monetary system.
A key consideration for Nigeria has been the potential effects of
these external developments on our investment competitiveness,
reserves position and exchange rate stability. Despite the slight
decline in external reserves, its current level (US$42.5b as at 16th
September 2019) is sufficient to ward off these threats in the
medium term while more sustainable economic reforms are being
explored.
Nonetheless, the sluggish domestic output expansion amidst low
fiscal stimulus requires urgent, timely and targeted action. Growth
numbers for Q2 2019 recently released by the National Bureau of
Statistics at 1.94 per cent is again lower than desired. More
worrisome is the decline in the non-oil GDP sector growth which is a
key marker for job creation and a more diversified economy. This
fragile growth partly reflects the effect of delayed implementation
of the 2019 federal budget, which has denied the economy timely
and much required stimulus. Monetary aggregates reported by

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Bank staff further reflect a constricted liquidity position as broad
money supply (M3) slowed to 5.65 per cent in August 2019,
compared with a growth of 6.97 per cent in July 2019 and far below
its benchmark of 16.08 per cent.
Tight monetary conditions have somewhat helped keep inflation
moderated with headline inflation (Y-o-Y) at 11.02 per cent in
August 2019 moderating for the 3rd consecutive month since June
2019. The food and core indices also slowed in August 2019, (M-oM), suggesting a downward price trend in the near term. While this
trajectory is welcomed, the pace is slow, and the rates remain
outside the preferred 6–9 per cent band; reinforcing the need to
ensure that the path of disinflation is not reversed.
Whilst price stability is fairly on track, stimulating growth remains of
urgent importance, particularly through extension of credit to the
private sector. Bank staff reports clearly indicate marked progress
with the LDR Policy, introduced in July which prescribed minimum
loan to deposit ratios for Banks over a three-month period. Gross
credit grew 5 per cent on average (N15.44trn at end June 2019 to
N16.23trn on September 13, 2019); the highest figure in 19 months,
without compromising asset quality (industry NPLs remained flat at
9.4 per cent). Significant portions of the new credit were channelled
into key sectors like manufacturing, retail and commerce and
agriculture. This brightens the prospects for output expansion,
creating much needed growth momentum for the rest of the year.

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2. ASOGWA, ROBERT CHIKWENDU
Background:
Since
the
last
MPC
meeting,
the
near-term
domestic
macroeconomic data have remained broadly unchanged and
the downside risks to growth are also similar to the levels in July 2019.
There are also evidence that new Central Bank’s regulatory
directives such as ‘minimum loan to deposit ratio (LDR)’ are
gradually
yielding
the
desired
results
and
have
been
complemented by the stimulus to some selected growthenhancing sectors of the economy. The perceived optimism of an
improved output growth in the final half of 2019 however appears
to have diminished probably because of the weakening
manufacturing sector and the persistent agricultural farmers
challenge. The relatively strong household consumption may be
the moderating factor to output growth on the domestic front.
There
have
however
been
key
changes
in
the
global
macroeconomic data since the last MPC meeting as the trade war
between China and US intensified, thus weakening the outlook for
global growth, while policy rates have been loosened in several
economies.
The Monetary Policy decision at this September meeting will thus
reflect the balance of evidence on these underlying domestic
macroeconomic conditions and the shifting expectations about
the nature and potential timing of future adjustments in policy rates
by major economies. As such, an appropriate monetary policy
response now is to take cautious steps while greater clarity emerges

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in future on the uncertainties in the global economic outlook as well
as the likely path of domestic growth and inflation.
The Domestic Context:
The domestic economy remains under considerable pressure
(perhaps not as worse as in the first and second quarters of 2019).
While there are expectations that the 2019 third quarter GDP will be
stronger than the levels in the early two quarters, the divergent
signals from the weakening Manufacturing PMI amidst a relatively
strong household consumption leaves a mixed picture. The slow
and dragging growth of Manufacturing MPI based on CBN staff
survey show that the pace of expansion has indeed decelerated
since January 2019 while on the demand side, the final household
consumption has continued to be the main source of expected
growth. The softening manufacturing sector expansion despite the
recent modest increases in credit by deposit money banks to the
core private sector is rather worrisome but may also depict a
possible link to the global factors as manufacturers worldwide are
facing similar headwinds.
Inflation continues to moderate but sluggish and sticky on the
downside. Even though Headline rates dropped from 11.22 percent
in June 2019 to 11.08 percent in July 2019 and further to 11.02
percent in August 2019, it is hard to discern any pattern since May
2018 when it first dropped to 11.61 percent from 12.48 percent in
April 2018. While there are hopes that inflation may move closer to
the Central Bank single digit target soon, it appears still constrained
by structural and other macroeconomic factors. On the external

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indicators, some considerable pressures still exist as the conditions
of external reserves and current account balance seems to have
worsened in between the MPC meetings. CBN staff report show
that gross external reserves as at end of August 2019 declined by
4.7 percent when compared to the levels at end July and there are
expectations of additional declines by the fourth quarter of 2019.
There are however fears that this declining trend in external reserves
may affect exchange rate stability in the near future.
The huge concerns expressed in the last MPC meeting about the
increases in total public debt remain unabated. Based on the Bond
Issuance Calendar of the Debt Management Office (DMO), there
were three additional FGN Bond Auctions in July, August and
September to raise money to part-finance the 2019 Federal Budget
while additional Issuance of Eurobond is expected in the late part
of 2019 or early 2020. As the threat of debt vulnerability continues,
a coordinated domestic revenue expansion with simultaneous
fiscal prudence as suggested in the last MPC meeting still remain
the key to addressing the weak fiscal position of the economy.
Between last MPC meetings, key credit risk and bank performance
indicators remained largely stable. CBN staff report show that
capital adequacy ratio as at August 2019 stood at 15.8 percent
(against a regulatory minimum requirement of 10-15 percent). The
non-performing loan ratio reduced from 11.0 percent in April to 9.4
percent in June and maintained the same level in August 2019 and
this decline has progressed apparently since August 2018. The key
profitability indicators (ROE and ROA) have also remained stable

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between the last MPC meeting and now, reaching 24.3 percent
and 2.3 percent respectively as at August 2019. Interestingly, the
total bank credit which had reduced in June 2019 recorded
modest increases in July and August 2019 and partly attributed to
the modest declines in the prime lending rate as well as new CBN
directives on minimum loan to deposit ratio.
The Global Economic Outlook:
Similar to the situation in the previous 2019 MPC meetings, the
global economy has continued to falter with trade and
manufacturing
further
weakening
amidst
rising
economic
uncertainty triggered mainly by the prolonged trade tensions
between China and the USA. Major economies across all regions
have suffered GDP contractions in second quarter of 2019. There
were 2019Q2 output decelerations in the Euro Area (especially
Germany and Italy). The US economy also slowed in 2019 Q2
compared to the Q1 levels even though it grew by 2.0 percent. The
UK economy shrank by 0.2 percent in Q2 2019, its worst
performance since 2012 amid broad based weakness including the
uncertainties arising from Brexit controversy. The output slowdown
also affected some emerging markets and developing economies
in East Asia and the Pacific, including China. These growth
challenges led to lower commodity prices and weaker demand for
Africa’s commodity exports thus invoking some turbulence in the
currency market of several African countries. Even though there
have been predictions of a modest rebound in global output in the
last quarter of 2019, the recent re-escalation of trade conflict

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between China and US in August is already fuelling greater
uncertainty about the direction of global output in the coming
months.
In response to this slack in output growth and the perverse
uncertainties, major Central Banks have continued to loosen
monetary policy rates with signals of more accommodation
stances in future amidst moderating inflation levels. The US in midSeptember cut the benchmark rate by 25 basis points, which was
the second interest rate cut in over a decade after the first one in
July 2019. By early September, the European Central Bank lowered
its deposit rate by 10 basis points to -0.5 percent from -0.4 percent
and restarted its quantitative buying programme thus providing
additional easing credit to banks. Prior to this MPC meeting, several
other emerging markets had also reduced policy rates. For
instance, in Indonesia, the policy rate was cut by 50 basis points in
July while the Reserve Bank of India, the Central Banks of Egypt and
New Zealand all eased rates in August, and the Central Banks in
Turkey and Thailand followed by lowering rates in early September.
There are however some advanced and emerging countries who
perhaps have kept rates unchanged appearing to adopt a wait-
and-see approach. The Central Bank of China are yet to lower
policy rates but have cut the required reserve ratio for banks for the
third time in 2019, thus enabling them to boost the volume of their
lending. The Bank of Japan at its July 2019 meeting also kept its
monetary policy rate unchanged.

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The recent widespread easing of monetary policy may have
somewhat affected the financial markets. Bond yields declined
across these economies with market expectations of more
accommodative policies. While some emerging market, and
developing economies benefited from this global decline in yields,
others seem to have suffered from capital outflows. For instance,
while there have been capital re-flows to Egypt, in contrast,
Argentina has since July suffered significant capital outflows forcing
it to impose capital controls by late August because of the rapid
loss of foreign currency reserves. For Nigeria, evidence of capital reflows is not yet clear, but there are projections that capital flows will
probably increase positively if the current stance of monetary
loosening in major economies continues while there are
corresponding improvements in the domestic socio-economic
factors.
My Decision:
There is strong argument that the two successive interest rate cuts
in the US and the easing stance in other major economies provides
a welcome breathing space for Nigeria and indeed other
developing and emerging economies to reduce their own policy
interest rates as well. The uncertainties about the future stance of
monetary policy may however require a wait and see approach
on MPC decisions about the key policy rates for now. This seems
appropriate especially given that the current CBN easing stimulus
to key sectors look somewhat effective. Besides, the emerging signs

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of willingness to resolve the US-China trade conflict might lead a
possible reversal of the yield curve sooner than anticipated.
The 3rd quarter domestic output figures are not yet out but there are
huge expectations of mild recovery as compared to the second
quarter figures. As such, other supportive macro policies will be key
to sustaining output growth in the near future.
My opinion therefore, is that policy parameters should remain
largely unchanged at this September 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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3. BALAMI, DAHIRU HASSAN
GLOBAL ECONOMIC AND FINANCIAL ENVIRONMENT
Output Growth
The global output growth in the Developed, and Emerging Market
Economies (EMEs) have remained weak due to persistent
uncertainties across the globe occasioned by the trade war
between United States of America (US) and its major trading
partners including Europe and China; conflict in the Persian Gulf
Crisis; trade dispute between Japan and South Korea, prolonged
and unresolved BREXIT; and increasing tension in Hong Kong.
In addition, the volatility in the oil price and changes in its demand
and supply on account of increasing geographical tension which
was further heightened by the attack on oil facilities in Saudi Arabia.
All these contributed to the down grading of global growth to 3.2%
for 2019 by the International Monetary Fund (IMF) from earlier 3.6%
Amongst several advance economies, output group had
remained sluggish as automobile industry weaken in Europe, the
German economy slowed by to depressed manufacturing, equally,
there was low output in France, Italy and Turkey. Output however
remained modest in Japan. To promote growth, the European
Central Bank (ECB) resorted to new Quantitative Easing (QE)
measures to buy 20 billion Euro bonds every month starting in
November 2019. There major factors therefore driving down global
growth includes:

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Trade
Global trade weakened to 2.7% in 2019 from 4.1% in 2018 due to
persisting trade tensions and uncertainties at the global level, the
lowest since the Global Financial Crisis (GFC). Global trade
continued to fall in Q2 2019, but is expected to improve in 2020. The
sharp drop in trade volume is expected to weaken global output
growth shown by the downward trending global Purchase
Managers Index (PMI) in August 2019.
Financial Market
The uncertainties in the Global financial markets were deepened
by pronouncement of new tariffs against China and Europe by the
US, as well as additional sanctions against Iran. Certain economic
and political developments such as growing threats to central
banks independence including the US Federal Reserve, the Reserve
Bank of India, Central Bank of Turkey and the criticism of the
governing council of European Central Bank (ECB) as well as
sanctions on the Central Bank Iran and its sovereign wealth by
President Trump of US.
Inflation
As reflected in my last Personal Statement, inflation remained
below 2% in most advanced countries including the US and Euro
Area except in the UK where it inched up to 2.1% in July 2019 from
2.0% in June 2019. In the emerging markets economies however,
due to structural challenges and aggregate demand dynamics,
inflation was mixed. In South Africa inflation was 4.09%, in Egypt

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inflation fell from 8.7% in July to 7.5% in August, but inched up
Ghana from 9.1% in July to 9.4% in August 2019.
The developments in the global economy may have significant
implications for the Nigerian economy due to its trade relationship
with China, the United Kingdom and the US. Threat of further
appreciation of US dollar against the naira should be carefully
monitored to ensure that adequate preparations were made
against any foreign exchange shock. It is advisable therefore, to
build buffers for the same purpose. A positive outcome of the
global uncertainties is a possibility of capital flows to emerging
economies including Nigeria, if the security situation and
investment climate improve.
THE DOMESTIC ECONOMY AND FINANCIAL ENVIRONMENT
Output Growth
Data from the National Bureau of Statistics (NBS) showed that Real
Gross Domestic Product (RGDP) moderated to 1.94% in Q2 2019
compared with 2.10% and 3.8% in the preceding quarter and Q2
2018. The headwinds affecting the growth included: shocks in the
global oil price, declining manufacturing performance, low
Purchase Managers Index (PMI), low domestic credit to the private
sector though moderating, and weak aggregate demand. Others
were poor infrastructural facilities challenge, increasing insecurity in
the North-East and other parts of the country. Again, the level of
unemployment rate remains high.

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Staff forecast of the Central Bank of Nigeria (CBN) for crude oil price
showed it would remain above the budget benchmark, while
growth was projected at 2.7% in 2019. It should be noted that the
oil and gas sector, is the prime driver of growth in Nigeria, and oil
grew by 5.15% in Q2 2019. The moderate growth for Q2 recorded
was driven by information and communication technology (ICT);
agriculture; quarrying and mining; transportation; and services. The
services sub-sector was the highest driver of growth in Q1 2019 at
38.35%.
The major risks and vulnerabilities to Nigeria were security
challenges, slow economic growth, low government revenue, and,
growing Federal and state government debts.
Financial Sector
The Nigerian banking sector is resilient as presented by data on the
Capital Adequacy Ratio (CAR), NPLs, Liquidity Ratio (LR), and
Return on Equity (ROE) and Return on Assets (ROA). The resilience
of the banking industry in Nigeria is not unconnected with the
effectiveness and efficient regulation and monitoring efforts of the
CBN policies.
Credit default was on the decline with moderating Non-Performing
Loans (NPLs), concentration of credit by sector, and exchange rate
risks arising from banking industry exposure to foreign assets and
liabilities, and cyber-risks were headwinds of the sector.
With the performance recorded by the financial sector in August
2019, the CBN therefore, should continue to monitor closely the

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working of such financial institutions for early corrective measures to
enhance the stability of the financial system. The moderation of the
NPLs at 9.4% is evidence that CBN monetary policy is effective.
Although, NPLs was moderating, more efforts are needed to
reduce the NPLs further.

Policy Choice
The policy decisions are informed by crucial economic and
financial developments in the global and domestic environments.
It should be noted that a lot of policies are being implemented by
the CBN. These include among others, policies on growing credit to
the real sector of the economy, financial inclusion, cashless policy,
and stamp duty. The CBN and autonomous sources of foreign
exchange interventions should be continued to stabilize the foreign
exchange market.
The MPC proposed a “big bang” approach to intensify the
privatisation to free redundant assets as to raise revenue for
government and build fiscal buffers, as well as support increase in
Value Added Tax (VAT) to raise revenue for Government to reduce
fiscal deficits. The border closure is also a step in the right direction
because of impact of the policy on the economy. On job creation,
Government is advised to employ “public works” as an effective
means of reducing unemployment and raising income in the
economy.

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Taking into consideration the Q2 growth rate at 1.9%, improvement
in financial sector indicators and inflation at 11.02% in August 2019,
I vote to hold because tightening will further slowdown growth,
while loosening will be inflationary.
I therefore vote to:
i.
Retain MPR at 13.5%;
ii.
Retain CRR at 22.5 %;
iii.
Retain liquidity ratio at 30%, and;
iv.
Retain the asymmetric corridor of +200 to -500 basis point
around the MPR.

Classified as
4. NNANNA, OKWU JOSEPH
Growth remains muted amidst bumpy road to economic recovery
while the longstanding problems of high unemployment and
infrastructure deficit persist. Data from the National Bureau of
Statistics (NBS) reveal slower than anticipated growth in real GDP at
1.9 per cent in Q2 2019, up from 1.5 per cent in the corresponding
period of 2018 but down from 2.1% in Q1 2019. The oil sector grew
by 5.2 per cent in Q2 2019 compared with -1.5% in Q1 2019, while
non-oil sector growth fell from 2.5 per cent in Q1 2019 to 1.6% in Q2
2019. Non-oil growth was supported by continued strengthening in
information and communication sector, which grew by 9.0 per cent
in Q2 2019. Agriculture, mining and quarrying, transportation and
storage and other services also recorded moderate growth rates.
Indices of manufacturing (PMI) and non-manufacturing (PMI) stood
at 57.9 and 58.8 index points in August 2019 respectively, reflecting
continued
improvements
in
the
manufacturing
and
nonmanufacturing sectors.
Inflation is decelerating but remained outside the target corridor of
6-9%. Headline inflation decreased marginally to 11.02 in August
2019 from 11.08 per cent in July 2019. Its component, food inflation
remains elevated but declined to 13.17 per cent in August 2019
from 13.39 per cent in July 2019, while core inflation declined slightly
to 8.68 per cent in August 2019 from 8.80 per cent in July 2019.
Financial conditions have remained tepid, and credit to the private
sector remains largely below target. Broad money (M3) slowed to

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5.65 per cent in August 2019, compared with a growth of 6.97 per
cent in July 2019, reflecting largely, the claims on federal
government and discounted OMO bills. The annualized growth rate
of M3 is 8.48%, which is below the benchmark of 16.08 per cent.
Credit to private sector increased to 9.36 per cent in August 2019
from 6.97 per cent in July 2019. Core private sector credit also
increased to 10.55 per cent in August 2019 from 7.55 per cent in July
2019. Interest Rates in all Segments of the money market fluctuated
in line with the level of liquidity in the money market. The weighted
average OBB rate was 15.89 per cent on July 24, 2019 and closed
at 8.52 per cent on August 30, 2019, while the weighted average
inter-bank call rate opened and closed at 9.00 per cent on July 31,
2019 and August 08, 2019, respectively. Weak aggregate demand
and manufacturing production, coupled with socio-political
tensions continued to weigh down on Nigeria's stock market. The
All-Share Index (ASI) decreased by 8.15 per cent from 29, 966.87 on
June 28, 2019 to 27,525.81 on August 30, 2019. Market Capitalization
(MC) rose by 1.40 per cent from 13.21trillion on June 28, 2019 to
13.39trillion on August 30, 2019.
External buffers (reserves) are more than adequate to finance
Nigeria’s import needs in the medium-to-long term but fiscal buffers
remain inadequate to finance capital expenditure. Gross external
reserves as at August 30, 2019 stood at US$41.999 billion. The lower
than expected revenue collection is responsible for the fiscal
deficit, which exceeded the budget benchmark. Clearly, we need

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a “BIG Bang” approach, (not incrementalism) to strengthen the
weak fiscal buffer.
Global economic development during the period has been
relatively favorable though with simmering geopolitical tensions
and trade wars.
Domestically, the financial system, is stable and resilient but the
need to diversify the production base and improve the
infrastructure cannot be overstated.
Overall, the macro economy is at a cross road and the economy
may
witness
a
twin
deficit.
Monetary
policy
has
been
overburdened and its limitations have become evident, as seen in
the neutrality of the Monetary Policy rate. The critical pressure points
that policy should address in the near term include; job creation
through the implementation of a robust public works programme,
encompassing infrastructure improvement and strengthening of
key institutions.
In view of these developments, I vote to hold on all the policy
metrics constant.

Classified as
5. OBADAN, MIKE IDIAHI
Uncertainties and tensions have continued to permeate the global
economy with serious implications for global growth and trade, and
macroeconomic stability of individual economies.
1. RELEVANT DEVELOPMENTS IN THE GLOBAL ECONOMY
Key among these are the unrelenting uncertainties and tensions.
The uncertainties emanate from various sources, among which are
the following:
• The US-China trade war has lingered on with the
accompanying tensions. Until recently, both countries had
escalated threats of new and proposed sanctions against
each other. This unending trade tension between the US and
its trading partners, especially China and Europe, has had the
effect of prolonging the cyclical slowdown of the global
economy. The contemplation of exchange rate depreciation
by China as one of its policy responses has been interpreted
by the US as an act of war by China.

• Inconclusiveness of BREXIT and the growing uncertainties
surrounding it. The uncertainties have contributed to a broad
depression of output growth across the United Kingdom and
the European Union (EU), as businesses hold back investments
towards the proposed October 31, 2019 exit date. Even this
date now has uncertainty surrounding it.

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• Uncertainty in global financial markets. The major global
financial markets have continued to experience volatility
against the backdrop of pronouncements of new tariffs
against China and Europe as well as economic sanctions
against Iran indicating the likelihood of weakening asset
prices. The uncertainties have led to falling bond yields as
market participants price-in downward policy rates and falling
inflation expectations.

• High volatility in oil prices due to increasing geopolitical
tensions and changes in demand for and supply of oil. OPEC
Reference Basket monthly average crude oil price declined
by 9.02 percent from US$ 64.71 per barrel in July 2019 to US$
59.69 per barrel in August. Oil futures prices are on a gradual
decline for the foreseeable future. Indeed, the price of oil is
expected to hover around the US$ mid-50s for the foreseeable
future due to significant uncertainties clouding both the
demand and supply sides of the market. Possible disruption to
oil prices include the following: US strategy to depress prices in
the oil market through increased supply of shale oil; trade
stand-off between China and the US; US - Iran political tension;
growing tension in the Middle East; Crisis in Venezuela; and
increased global competition from new oil production centres
in Africa and Argentina.

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2. IMPACT/IMPLICATIONS OF THE GLOBAL DEVELOPMENTS
Key among these are the weakening economic growth rates in
both the advanced and Emerging Market and Developing
Economies (EMDEs), weakening global trade and the growing
concerns about recession in 2020 in regions that are critical to
global growth.
Global growth has continued to soften since the second half of
2018 as various factors continue to play-out including the on-going
trade tensions and increased economic uncertainty. Global
growth is projected to slow to 3.2 percent in 2019 from 3.6 percent
in 2018. In the advanced economies, output growth has been
modest and in some cases, heading towards a recession, In the US,
there are indications of a broad slowdown as recent employment
numbers fell below forecasts and is expected to continue in this
direction into 2020. In the European Union, the recession in the
German manufacturing industry has been deepening with the
Purchasing Managers Index recording the lowest level in the last
seven years. Overall growth is projected to slow to 1.3 percent in
2019 from 1.8 percent in 2018. In the United Kingdom, output
contracted by 0.2 percent (quarter-on-quarter) in Quarter 2 (Q2)
2019 from 0.5 percent in Quarter 1(Q1) 2019. In the EMDEs, growth
in output has also remained subdued with the earlier forecasts for
growth in 2019 and 2020 downgraded in light of strong headwinds
which continue to derail projections. Growth in these economies
was projected to slow moderately to 4.1 percent in 2019 from 4.5
percent in 2018.

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The very challenging global economy is not only impacting on
global output growth but also on global trade which has continued
to weaken arising from the persisting high trade tensions and
uncertainties. Trade has declined significantly in 2019 with adverse
impact on global growth. In this direction, world trade volume
worsened to -0.7 percent in Q2 2019 from -0.3 percent in Q1 2019.
As for the combatants in the trade war, the US and China, trade
volume between them has continued to fall as they await the
resumption of trade talks in October 2019. Overall, projected global
trade volumes for 2019 and 2020 are expected to be considerably
lower than those of 2018.
The above developments have conditioned the policy directions in
world countries, especially the advanced countries. The prospects
of their economies sliding into recession in 2020 has jolted them to
respond with implementation of policy measures aimed at
preventing recession and/or stimulating growth and employment.
One of the policy responses is the turn-around in monetary policy
normalization and then softening of monetary policy in the
Advanced and EMDEs. The general trend is towards monetary
accommodation by both advanced and EMDEs. This is reflected in
the directions of the policy rates and quantitative monetary
measures. In the Central Bank of Nigeria’s survey of 14 central
banks, 7 of them lowered their rates while the others held rates
constant with some introducing other operational measures of
accommodation.

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For example, the US Federal Reserve Bank (Fed) changed course
by switching from an aggressive pace of monetary normalisation
entailing raising the policy rate to accommodation by lowering the
policy rates – by 25 basis points in July 2019 and another 25 basis
points in September 2019 to now have 1.75 – 2.00 percent. President
Donald Trump, in adding a political dimension, has insisted that the
rate cuts are not deep enough. The prospect of another rate cut
before the end of the year is there. The concern is the need to avert
a recession in an election year 2020. In Europe, the European
Central Bank (ECB) retained the policy rate at the zero-lower bound
– at the September meeting – and adjusted the overnight rate
deeper into the negative territory by 10 basis points to -0.5 percent,
all with a view to averting recession. It has also introduced new
quantitative easing measures to take effect from November 2019
at a pace of 20 billion euros monthly. And following the broad
trends towards monetary accommodation, EMDEs’ central banks,
for example, Egypt, Brazil, India and South Africa, also lowered their
rates by 125, 50, 25 and 25 basis points, respectively. The aims are
inter-related – growth concerns, easing sharp rise in unemployment,
prevailing uncertainties in the global economy, etc. Thus, the
general monetary policy direction in most countries, especially the
advanced countries, is towards accommodation. In light of this,
Nigeria may be able to attract increased capital inflows if
macroeconomic policy conditions are right and structural and
security issues are effectively addressed. The macroeconomic
conditions include the monetary policy stance.

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3. DOMESTIC DEVELOPMENTS
The above global developments, their implications and policy
responses along with key domestic developments inform my
monetary policy opinion stated below. The developments are:
growth trend, external reserve position, and international capital
inflows flows position.
Nigeria’s economic growth rate has remained weak and fragile
reflecting a weak recovery path from recession. The most recent
data from the National Bureau of Statistics show a moderation of
the real GDP growth rate to 1.94 percent in the second quarter of
2019 compared to 2.1 percent in Q1 of 2019 and 1.5 percent in Q2
2018. Thus year-on-year, from Q2 2018 to Q2 2019, growth actually
increased by 0.44 percent. Nevertheless, the second quarter 2019
growth shows fragility, is below the projected rate while the
economy continues to operate below the potential as indicated
by a negative output gap of about 5 percent. If the CBN staffs’
projected growth rate of 2.27 percent or the IMF’s rate of 2.1
percent is to be realised or exceeded, then the economy needs to
be further stimulated with monetary accommodation measures
complementing fiscal measures.
In recent months, external reserves have trended downwards,
declining from US$43.971 billion as at July 31, 2019 to US$ 41.79 billion
as at September 16, 2019 or by US$ 2.181 billion or 4.9 percent –
reflecting weakening oil prices and CBN interventions in the foreign
exchange market to ensure exchange rate and price stability.
Although this stock of reserves could finance over 9 months of

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imports of goods and services at end July 2019, there is need to
watch this level considering that the reserves stock at the end of
June 2019 could finance over 12 months imports. More importantly,
the level of reserves has implications for capital inflows and
outflows. A weakened net capital inflows position, due to
weakening oil prices and external reserves position is helpful to
exchange rate stability or the easing of monetary policy stance. This
thus suggests the need to avoid monetary policy responses that
could worsen the capital flows position and, hence external
reserves and exchange rate stability.
As was noted above, the global oil market has been very volatile.
The price of the crude oil of interest to Nigeria –Bonny Light – has
witnessed unfavourable developments in recent months. As at
September 16, 2019, the price of Bonny Light crude stood at US$
60.00 per barrel compared to US$ 68.27 per barrel on July 16, 2019.
Both are however improvements over the price of US$ 45.41 per
barrel on January 1, 2019. But the futures market indicates oil futures
price hovering around US$ mid-50s per barrel. This is not good news
at all for Nigeria. It has adverse implications for the country’s budget
performance, external reserves and stability of the exchange rate
as well as the desire for improved growth performance.
On the inflation front, there has been good news since the last three
months. Year-on-year headline inflation continuously declined from
11.22 percent in June 2019 to 11.02 percent in August. Indeed, all
measures of inflation (headline, food and core) moderated in
August 2019, largely driven by food, housing, clothing, transport,

Classified as
furnishing and education. The Bank’s tight monetary policy stance
and stable exchange rates played vital roles in the downward
trend in prices.
4. OPINION
The observed downward trend in inflation would have provided a
headroom to loosen the monetary policy stance in view of the
need to stimulate growth and generate employment. But the need
to sustain a robust external reserves position, take advantage of the
reversal of monetary policy normalisation by the major advanced
countries, and hedge against weakening oil prices suggest caution
in loosening monetary policy. At the same time, any tightening of
monetary policy beyond the current stance will be at variance with
the much-desired high inclusive economic growth that is
employment-generating and poverty-reducing. Therefore, I will
support the option of holding policy parameters at the extant
levels, i.e.:
Monetary Policy Rate: 13.5%
CRR:

22.5%
Liquidity ratio: 30.0%
Asymmetric Corridor: +200 / -500 basis points
But then, the fiscal authority would need to appreciate the urgency
of implementing fiscal reforms aimed at boosting non-oil revenue
mobilization significantly, particularly, tax revenue. The present
fiscal and public debt positions are unsustainable. It is in light of this
that I fully endorse the plan to raise the Value Added Tax to 7.5

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percent from its current level of 5.0 percent. Indeed, as a lowhanging fruit, it could have been 10.0 percent as I had argued in
my article in Business Day newspaper in April 2015. The government
needs to realise that hard policy choices are inevitable under the
present economic circumstances to be able to make the lives of
the citizens better in the medium-long term. There is need to relieve
the Central bank
of
its current
burden of continuously
accommodating the excesses of fiscal policy with implications for
its balance sheet and the price stability goal.

Classified as
6. SANUSI, ALIYU RAFINDADI
1.0 Decision:

My decision to vote for a hold on all the policy parameters in
today's meeting was informed by the increased uncertainties
occasioned by domestic and global economic developments.
These developments, including the weakening global output, the
accommodative monetary policy stance in major advanced
economies, the developments in the international oil market, as
well as the evolution of domestic prices and output have waned
the desirability of adjusting the current monetary policy stance.
Therefore, my vote to hold was to allow for the cloud on the
medium-term outlook to clear as the effects of the recent policy
actions work themselves out.

2.0
Background and Justification

2.1
Global Economic Developments
The global uncertainty associated with the lingering US-China trade
war, BREXIT, Persian Gulf crises, rising debt levels, and global
financial vulnerabilities continues to weaken output growth and
cause a downward trend in prices in major advanced economies,
causing them to adopt accommodative monetary policy stance.
This, along with uncertainties in the international oil market, have
important implications for capital flows into the Emerging Markets
and Developing Economies (EMDEs).

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The weakening of global output growth that started in the second
half of 2018 continues as a result of the persistence of the US-China
trade war, the Persian Gulf crisis, and the uncertainties surrounding
BREXIT continues. The IMF's forecast for output growth in 2019 has
been revised downwards to 3.2%, a 40-basis point lower than in
2018. This is due to lower global trade flows, which declined from
4.1% to 2.6% in the first six months of 2018 and 2019, respectively.
Global manufacturing output has also been adversely affected
due to exports. The weak global output growth is caused by the
weakening growth in both advanced economies as well as EMDEs.
In the advanced economies, output growth is forecasted (by IMF)
at 1.9% in 2019 compared with the 2.2 per cent achieved in 2018.
In EMDEs, output growth is expected to grow by 4.1% in 2019
compared with 4.5% in 2018. Monthly trend in the JP Morgan’s
Global Composite Output Index also shows a decline in global
output from 51.6 index points in July 2019 to 51.3 in August 2019.
Growth of the Global Potential Output, estimated by Bank of
Canada, was also revised downwards from 3.3% to 3.0% in 2019 as
the escalating uncertainties adversely affect capital growth and
total factor productivity.

Price developments in the advanced economies are expected to
continue to moderate to 1.6% in 2019 from 2% in 2018. In the Euro
area, inflation remained at 1% in August 2019 due to the fall in the
cost of Energy. In the US, inflation declined to 1.7% in August 2019
from 1.8% in July 2019. UK inflation has increased from 2.0% in June

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2019 to 2.1% in July 2019. In Japan, inflation declined to 0.5% in July
2019 from 0.7% in June 2019. Price developments in the EMDEs were
mixed, but IMF’s forecast inflation to remain at 4.8% in 2019.

The medium-term outlook in the international oil markets also
continues to be clouded. As US sanctions on Iran remain in force,
the attack on Saudi Arabia's oil installations introduces an
additional source of uncertainty by adding dimension to the Middle
East crisis. Prices of Bonny Light stood at US$63.12 on September 12,
2019 compared to the US$45.41 in January 2019. The uptick in the
oil price is as a result of the production cutting agreement between
OPEC and its allies that was extended till the end of 2019. Futures
prices are on the decline and are expected to hover around mid50s for the foreseeable future because of the uncertainties in both
the demand and supply sides.

The combination of weak aggregate demand, declining output
growth and moderating price developments have prompted
accommodative monetary policy stance by major central banks.
Bloomberg's Global Financial Conditions Index (GFCI), which
remained significantly below zero since August 2019, shows
increased easing in the global financial conditions, signalling
increased financial vulnerabilities. While the dovish monetary policy
stance in advanced economies may be expected to induce
capital flows into EMDEs, the spill over effects of the financial
vulnerabilities from the advanced economies also constitute risks of
reversal as capital flees to safety. This implies that capital flows are

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more likely towards the EMDEs that are also resilient. The weak
aggregate demand in advanced countries also implies weaker
demand for Nigeria’s crude exports and lower fiscal revenues.

2.2
Domestic Economic Developments and their Implications
Although the latest data shows a slowdown in both the output
recovery and the disinflation process, there are encouraging signs
that the heterodox policy interventions are working to improve
bank lending as well as improve banking sector stability.
Latest data shows that output recovery remains positive at 1.94% in
the second quarter of 2019, lower than the 2.01% achieved during
the first quarter of 2019, but higher than the 1.5% achieved in the
corresponding quarter in 2018. The relative decline in output growth
was driven by the lower growth of the non-oil sector (91.18% of the
total GDP), which grew by 1.64% in Q2 of 2019, compared to the
2.47% achieved in Q1 of 2019. The lower growth in the non-oil sector
was, in turn, driven by the lower growth achieved in the four subsectors that contribute over 60% of the GDP. These sub-sectors are
Agriculture (which contributes 22.82% of GDP, grew at 1.79 in
2019Q2 compared with 3.17% in Q1 of 2019), Trade (which
contributes 16.01% of GDP, contracted by -0.25% in 2019Q2
compared with positive growth of 0.84% in 2019Q1), Real Estate
(which contributes 6.44% of GDP, contracted by -3.84% in 2019Q2
compared with positive growth of 0.93% in 2019Q1) and
Manufacturing (which contributes 9.1% of GDP, contracted by -0.13
in 2019Q2 compared with the positive growth of 0.85% in 2019Q1).
Data on the Industrial Production Index (IPI) shows a slower growth

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of 0.74% in 2019 Q2 relative to the preceding quarter mainly due to
the decline in the manufacturing production occasioned by
inventory build-up and weak demand. Clearly, therefore, improved
consumer credit to strengthen aggregate demand, and improved
security in the rural agricultural areas to enable greater production,
could significantly support output recovery, going forward. Staff
forecasts show that output growth in the third and fourth quarters
of 2019 would average 2.11% and 2.34%, respectively.

Consistent with the relatively slower recovery in the employmentelastic sectors of the economy (Agriculture, Construction, Real
Estate and Trade), the unemployment situation continued to
worsen as the number of entrants into the labour market (5.4 million
people in the year) continues to outstrip the new jobs created
(450,000 jobs in the year). However, according to Staff estimates,
the output of these sectors are both credit and employment elastic,
suggesting that improving credit flows into these sectors could raise
both output and employment significantly. This provides some
evidence supporting the suit of heterodox monetary policy of the
Bank, including the Differentiated & Dynamic CRR regime, the new
regulatory requirement on Loan to Deposit Ratio and the various
interventions in the agricultural sector that aim to direct cheap
long-term credit into these sectors.

Domestic prices continue to decline, albeit marginally, towards the
Banks long-term inflation target. Headline inflation declined (yearon-year) from 11.08% in July 2019 to 11.02% in August 3019. The

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disinflationary process is characterized by persistence, with prices
being sticky downwards. The key drivers of these price
developments continue to be dominated by the food price
component, which declined (Y-o-Y) from 13.35% in July to 13.17% in
August 2019. Core inflation also declined, year-on-year, from 8.8%
in July 2019 to 8.68% in August 2019. On Month-on-Month basis, the
headline inflation and its food and core inflation components also
declined in August 2019. The analytical measures on inflation
suggest that changes in the market-driven prices are driven by the
tradable prices, which further highlights the important role of import
prices (hence exchange rate stability) on the inflationary process.
In addition to improving the supply-side production activities,
therefore, maintaining the stability of the exchange rate is curtail to
the sustenance of the current disinflationary process. Staff forecasts
suggest that inflation would continue the downward trend.

Available data shows signs of a significant improvement in credit
flows to the private sector. Total credit to the private sector
increased by about 2.7 percentage points from 6.97% in July 2019
to 9.36% in August 2019. At an annualized rate of 14.05%, it is about
0.44% short of the provisional benchmark of 14.49% for the year
2019. Credit to the Core Private Sector also increased to 10.55% in
August 2019 from 7.55% in July 2019. As a result of the new regulatory
measures to improve lending to the real sector, available data
shows that gross lending has increased by N610 billion between the
end of May and September 13, 2019, representing 3.9% increase.
The distribution of this increased lending appears to be in the

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desired direction as lending to Manufacturing recorded the highest
increase (N194.88 billion), followed by general retail and consumer
lending (N122.33 billion, then commerce and agriculture (with
N107.6 and 70.61 respectively). Between the end of May 2019 and
end of June 2019, credit to agriculture, Manufacturing and general
(consumer and retail) has increased by 11.16%, 13.99% and 68.74%
respectively. Reports show that the banking industry remains sound
and has recorded a significant reduction in Non-Performing Loans
(NPLs), which is now 9.4%. The new policy measures, including the
introduction of Global Standing Instruction (GSI), are expected to
help sustain the declining trend in the NPLs.

3.0
The Basis for My Policy Choice

In considering the policy options, I was convinced that, while
loosening the current monetary policy stance may complement
the various heterodox policy interventions in raising credit, it could
also raise inflationary pressure and jeopardize the downward trend
in inflation. It may also raise pressure on the foreign exchange, the
stability of which is important for the current disinflationary process.
Further tightening would further depress aggregate demand and
hurt the fragile output recovery, thereby exacerbating the high
unemployment situation. As the data shows, I am convinced that
the several heterodox policy actions taken by the Bank are still
working themselves out. Therefore, I voted for a hold to appraise
their effects.
Consequently, I voted to:

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

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7. SHONUBI, FOLASHODUN A.
Global Economic Developments
Weakened international trade, on account of trade tensions and
volatility in the global oil market remained the major headwinds to
global growth. Hence, moderating external demand in China,
weak investment sentiment in the euro-area and mounting risks
(from trade tensions) in the US exacerbated slow-down in the
developed economies. Near-term growth prospects remain
subdued in the emerging and developing economies, due to
uncertainties in the commodity market and spill over effects of
declining trade. Consequently, weak global growth and low
inflation in the major developed economies in the third quarter of
2019 reinforced the condition for adoption of accommodative
monetary policy. Though the increasingly dovish global policy
stance provide respite from possible pressure on currency and
opportunity for further policy easing, domestic policy posture must
avert external sector imbalance, while pursuing domestic
economic prosperity.

Domestic Economic Environment

Real GDP growth in the second quarter was lower, when compared
with the first quarter. The expansion rate was, however, higher than
the rate recorded in the corresponding period of 2018, just as the
trend was historically consistent. Driven, mainly, by the 5.15 per cent
expansion in the crude oil and natural gas sector, the gross

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domestic product (GDP) grew by 1.94 per cent in the second
quarter, compared with 2.10 per cent in the first quarter of 2019.
Growth, however, remained fragile and weak, especially as the
1.64 per cent growth of the non-oil sector reflected slower growth
of the agricultural sector and contraction of the manufacturing
sector. The expansion rate in the second quarter was 0.4
percentage point higher than growth in the second quarter of 2018,
highlighting the possibility of higher growth in the coming quarters
as agricultural harvest commence and manufacturing activities
pick-up.
Inflation maintained a downward trend for the second consecutive
month in August 2019, underscoring the relative stability of the
general price level. Decline in food and core inflation led to further
moderation in the headline inflation from 11.22 per cent in July 2019,
to 11.08 per cent in August 2019. Increased activities and supply in
the agricultural sector has continued to maintain relative stability in
the prices of agricultural products, though increased insecurity in
many agrarian communities is hampering production and
threatening supply. Also, sustained exchange rate stability has
contributed to preserving the downward trend in core inflation.
The monetary sector and financial markets remain challenged by
less than benchmark growth of critical monetary aggregates, as
well as, persisting disconnect between trends in monetary
aggregates, financial market indices and developments in the real
sector. Growth in credit to the private sector, annualised to 14.05
per cent, was below the indicative benchmark of 14.49 per cent,

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while credit to the government expanded by 94.33 per cent,
against the indicative benchmark of 58.78 per cent. Growth in
broad money supply (M2), annualised to 2.87 per cent, compared
with 13.11 per cent growth bench mark, reflected the contraction
of narrow money supply and net foreign asset, against their
respective growth benchmark of 17.20 and 18.32 per cent. Despite
the higher net banking system liquidity in August over the level in
July 2019, the weighted average inter-bank call and Open-BuyBack rates rose, while the spread between the lending and deposit
rates remained high. Declining fortunes in the capital market
reflected bearish sentiments in the global market, as investors’ flight
to safety is underscored by increased activity in the bonds market.

Growth in credit by the banking sector seems to have found a new
impetus, probably in response to recent measures by the CBN.
Sustained moderation in financial soundness indicators highlight
the resiliency of the banking sector. It is gratifying to note the
sustained improvement in the various measures of banking sector
resilience. The industry capital adequacy and liquidity ratios
remained above the minimum threshold, just as the non-performing
loans ratio fell to 9.4 per cent in August 2019, from 11.0 per cent in
May 2019, though it remained above the regulatory minimum.
The economy continued to enjoy the benefit of relatively stable
exchange rate and rebound in non-oil exports, though the external
sector remained challenged by heightened uncertainties in the
international oil market and trade tensions. On account of

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sustained supply management by the CBN, the exchange rate
remained relatively stable. This moderated the impact of
challenges to the balance of payment and external reserve
accretion, from volatile oil market and decline in global
international trade.
Overall Considerations and Decision
The intensifying trade war has shaken the global economy, with its
effect on consumption and investment sentiments, thereby causing
significant slowdown of growth. With possibility of escalation of the
trade war and generally lower than benchmark inflation, central
banks are rising up to the occasion by adopting largely
accommodative policy. Though a generally accommodative
global policy stance provides opportunities for emerging and
developing economies, including Nigeria, strategies must ensure
that resources are deployed to enhance domestic economic
capacity and productivity.
On the domestic front, sustained deceleration in inflation for the
second consecutive month is a welcome development, especially
as we move into the harvest season, a condition that is expected
to lead to further reduction in food inflation. Although, headline
inflation remained at double digit, it is very likely that in the absence
of any major external shock or disturbance, the current trend in the
components of the composite index, supported by sustained
exchange rate stability, would eventually move the headline
inflation into the desired territory.

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While I recognise that the recent GDP numbers are in line with
historical trend and even showed slight improvement over the
corresponding period of 2018, there is no doubt that the present
performance is far from the potential of the domestic economy. It
is worrisome that growth is still driven by the oil sector, and more so
that growth in the non-oil sector actually lost momentum. In
particular,
agriculture
experienced
lower
growth,
while
manufacturing and trade contracted. As the CBN intensifies its
effort to promote growth through enhancement of credit flows to
the real sector, it is hoped that we will start seeing the outcome in
the near-term, as the lag effect passes.
Unfortunately, deteriorating fiscal space has limited the ability of
fiscal authority to provide the much-needed support to further
stimulate economic activities for output growth and employment
generation.
Government
revenue
has
significantly
underperformed, causing the authorities to run huge deficit for the
three quarters so far in 2019. Fiscal authorities and agencies must
therefore be innovative in their quest to enhance revenue
collection, build fiscal buffers, and eliminate wastages by disposing
unproductive and improving efficiency of their assets, while also
addressing the wave of insecurity across the country.
I commend the supervisory structure of the CBN for ensuring
sustained improvement in the health and soundness of the
institutions in the banking sector. I believe that, as resiliency of the
sector improves, it will be able to adequately support the recent
drive by the CBN to increase credit to the real sector.

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As noted in my last statement, initial feelers indicate positive
outcomes from recent strategy by the CBN to increase credit flow
to the real sector. Again, I want to reiterate that as we make
progress, the CBN must sustain its mechanisms for ensuring good
quality control and risk management. In the same vein, we must
continue to put measures in place to promote the efficiency of the
financial market for the effectiveness of monetary policy.
Overall, while there is no clear and urgent need for a tight monetary
policy stance at this time, especially as inflation remain on
downward trend, it is pertinent that we must continue to promote
growth and enhance employment generation. Moreover, the
strengthening dovish wave across central banks and relatively
competitive domestic yield provides some respite. I am therefore
persuaded that we must allow the present policy environment to
mature for the full benefit to be realised.
I therefore vote to retain the:
• MPR at 13.50 per cent;
• Asymmetric corridor of +200/-500 basis points around the MPR
• Cash Reserve Ratio (CRR) at 22.5 per cent; and
• Liquidity Ratio at 30.0 per cent.

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8. EMEFIELE, GODWIN I.
GOVERNOR OF THE CENTRAL BANK OF NIGERIA AND CHAIRMAN,
MONETARY POLICY COMMITTEE
Since the turn of the year, uncertainties in the global financial
markets have heightened vulnerabilities especially in emerging
market economies. Sentiments around global growth, inflation and
interest continue to trend southwards, given the tepid growth
prospects in key advanced economies. The downside risk to global
outlook reflects the continued trade, economic, and political
tensions and hostilities involving major economies. This is
exacerbated by fragilities in global financial markets. Accordingly
(and on the backdrop of subdued growth in advanced
economies and uneven prospects in emerging markets and
developing economies) the IMF lowered 2019 global growth
forecast to 3.2 per cent from 3.6 per cent.
Macroeconomic conditions in the domestic economy lost pace in
2018q2 as downside risks threaten short-term outlook. Real GDP
growth rate slowed from nearly 2.1 percent in 2019q1 to 1.9
percent in 2019q2. A breakdown indicates that, though the oil
sector grew by 5.2 percent during the quarter, it only contributed
about 0.5 percentage point to total growth. In parallel, the non-oil
sector, with a growth of 1.6 percent during the quarter, accounted
for the balance of over 1.4 percentage points of overall real
growth. While the huge recovery of the oil sector over the
preceding quarter is pleasing, the non-oil sector remains germane
at ensuring a more structurally balanced and well diversified

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economy. Driven largely by the non-oil activities and on the
backdrop of improved credits to high-impact private sector, real
growth is projected at 2.1 and 2.3 percent in 2019q3 and 2019q4,
respectively.
As I noted in my July statement, the need for cautious and wellbalanced policy remains incontrovertible especially as growth
stayed below potential. This is especially so as per capita income,
incidence of poverty, labour productivity and unemployment rate
are still outside tolerable levels. Besides, the modest short-term
prospect is threatened by a delicate oil price dynamics, subsisting
herder–farmer conflicts, weak aggregate demand, and adverse
global conditions. I am of the view that a favourable resolution of
these challenges, reinforced by sustained foreign exchange
stability and appropriate credit policy to the domestic real sector
will boost short-term outlook.
On domestic prices, the asymptotic decline in inflation rate
remains a development in the right direction. Headline inflation
rate fell from 11.1 percent in July 2019 to 11.0 percent in August.
This short-run disinflation reflected the 0.2 and 0.1 percentage
points decline in both the food and core components of inflation
to 13.2 and 8.7 percent, respectively. The observed inflation
dynamics is attributable to improved agricultural production in the
current harvest season, sustained development finance schemes
of the CBN in the agricultural sector, and the continued stability in
the foreign exchange market.

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Analyses of liquidity conditions show a less-than-par annualised
expansion of 8.5 percent in broad money supply (M3) in August
2019 vis-à-vis the indicative benchmark of 16.1 percent. This was
due to the considerable 94.3 percent rise in government credit,
even as private sector credit expanded by 9.4 percent during the
review month. Given the importance of the private sector at
ensuring inclusive, diversified and sustainable growth, the CBN will
continue to seek ways to de-risk key high-impact non-oil private
sector activities. The Bank will also sustain its development finance
intervention so as to channel vital funds to the real sector to boost
local productivity, spur job creation, and moderate poverty.
Assessment of recent financial systems development in key
emerging market economies indicate considerable vulnerabilities
reflected in volatile exchange rates, reserves, money market
interest rates and the capital markets of those countries. In Nigeria,
external reserves declined from US$43.9 billion in July to about
US$42 billion in August 2019. While the exchange rate in the various
windows remained largely stable, the monthly weighted average
Inter-Bank Call and Open Buyback (OBB) rates increased to 8.0
and 13.4 per cent in August 2019 from 6.5 and 11.0 per cent in July,
respectively.
In my consideration, I note that the prevailing macroeconomic
stability and short-term prospects are threatened by global and
domestic headwinds. Though the trajectory of the economy
remained generally positive, it is fragile and requires cautiousness.

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On the global scene, the heightened political tensions in many
regions and the weak economic outturns in many advanced
economies are beginning to raise prospects of another global
downturn. Besides, vulnerabilities in global financial market is
infringing emerging markets and developing economies with
noticeable capital repatriation from frontier markets, including
Nigeria. This has significant ramifications for our FX reserves,
exchange rate, and inflation. It is further exacerbated by an
indeterminate budget cycle with attendant impact on output
growth and inflations expectations.
Regardless of the desire to spur growth, there remains the need to
ensure that inflation and inflation expectations are not
undermined. Though inflation rate is declining, it remains outside
the tolerant range of the CBN. Easing at this time may resolve one
problem while aggravating a bigger one. Besides, given the
tangential impact of interest rate on portfolio flow, this may
inadvertently destabilise the FX market. It is my view that the
current policies of the Bank to increase bank lending to the private
sector is a functional tool to simultaneously increase domestic
productivity
without
undermining
inflation
trajectory.
The
prescription of the loan-deposit ratio is apt in this regard and will be
reviewed upwards in the near-term.
Given the need to avoid monetary policy actions that will worsen
FDI outflows, destabilise the fragile recovery, and infringe on
disinflation, I am inclined towards a more practical and well-

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balanced decision with considerations for output, unemployment
and poverty. Accordingly, altering the current levels of monetary
policy instruments could stir indeterminate outcomes. Since the key
mandate of the CBN remains price, monetary and exchange rate
stability, I am committed to driving inflation to single-digit levels
and building sufficient reserves buffers to defend the naira. Today,
my immediate predisposition is that the current level of real policy
rate is appropriate to balance the objectives of exchange rate
stability, price stability and output stabilisation without introducing
disruptive policy shocks. Therefore, I vote to:
1. Retain the MPR at 13.5 percent;
2. Retain the asymmetric corridor at +200/–500 basis points;
3. Retain the CRR at 22.5 percent; and
4. Retain liquidity ratio at 30.0 percent

GODWIN I. EMEFIELE, CON
Governor

September 2019