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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.

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

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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 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.

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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
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 nonmanufacturing 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

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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
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.

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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-toDeposit 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
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

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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 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

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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 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.

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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.
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.

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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 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 sectors.
The Committee also noted that increasing MPR at this stage will thus be counter-

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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

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PERSONAL STATEMENTS BY THE MONETARY POLICY COMMITTEE MEMBERS
1. ADAMU, EDWARD LAMETEK
The 274th meeting of the Monetary Policy Committee (MPC) held against the
backdrop of sustained global economic and financial uncertainties. The
economic setbacks arising from the COVID-19 pandemic have continued to
linger, leaving both global aggregate demand and aggregate supply well
below normal levels. At the end of Q2 2020, several economies were already in
the contractionary phase of the business cycle. In June, the IMF further
downgraded its global growth outlook by an extra 1.9 percentage points,
implying a projected decline in world output of about 4.9 per cent in 2020. In the
same vein, both the World Bank and the Organization for Economic Cooperation and Development (OECD) see global output slowing by about 5.5
and 6.0 per cent, respectively, in 2020. Global trade continues to be a major
casualty of the COVID-19 pandemic and has been forecast to decline by as
much as 20 per cent in 2020, which would be higher than observed during World
War II. From accusations of espionage and concealment of COVID-19 to Hong
Kong interference, the two global trade leaders, China and the United States of
America (USA), have remained embroiled in geo-political controversies, putting
at risk a sizeable share of global trade.

Confronted by the decline in activity and a weak medium-term outlook, most
countries have continued the gradual easing of lockdowns, while also
implementing various forms of economic stimulus. The size of stimulus continues
to grow with some countries doing as much as 17 per cent of GDP. Meanwhile,
global inflation has remained muted in the advanced economies, but rising in
some emerging markets and developing economies (EMDEs). This divide has
been blamed on exchange rate depreciation driven mainly by external capital
retreat and low commodity prices. Yet, monetary policy continues to be

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generally accommodative across the advanced and EMDEs, aimed at limiting
the damage to output and employment caused by the Pandemic. Eleven (11)
out of thirteen (13) central banks routinely monitored by the CBN had reduced
their policy rates at least once since March 2020. The remaining two, Bank of
Japan (BoJ) and the European Central Bank (ECB), already had zero or almost
zero rates prior to March 2020. Aligning the global trends with the domestic
context increases my persuasion about the merit of prioritizing support for
economic activity in the short- to medium-term. There is no doubt that the
lingering external vulnerabilities would continue to pressure economic activity in
Nigeria and most EMDEs especially through their impact on commodity prices
and export demand.

It is not surprising, therefore, that the challenges facing economic growth locally
have remained active. Low oil prices and the hangover effect of the lockdowns
have meant a rather slow resumption of activity. The situation is clearly
expressed by the outturn of key indices of domestic economic activity in the
second quarter of 2020. Manufacturing and non-Manufacturing Purchasing
Manager’s Indices (PMIs) stood at 41.1 and 35.7 index points in June 2020,
respectively, indicating contraction in both cases. In fact, most analysts believe
that the economy contracted in Q2 2020. There are, nevertheless, reasons to
expect improvement in the second half of the year. First, as from July, we
expect the impact of the economic stimulus by the Federal Government and
the CBN to start showing – in fact, the Bank’s in-house business outlook survey
has so suggested. Second, after hitting the floor during the lockdown, economic
activity could pick-up much faster than currently estimated to compensate for
loses in Q2, particularly as credit to the real sector continues to grow.
Technically, the next 2 to 3 months should witness businesses racing to meet
pent-up demand in many sectors of the economy. The third basis is seasonality -

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the period, August – October, traditionally witnesses substantial harvest of farm
produce, which comes with increase in commerce and related activities.

Other than low economic activity, the domestic economy faces other
important vulnerabilities to which monetary policy must respond at this time. First,
consumer price pressures have remained. In June 2020, all measures of inflation
(headline, food and core) increased. Headline inflation increased to 12.56 per
cent from 12.40 per cent in May 2020. Food inflation increased marginally to
15.18 per cent from 15.04 per cent in May, while core inflation inched up to
10.13 per cent from 10.12 per cent. Since June 2019, inflationary pressures have
been building particularly in the food segment, owing to persistent conflict in the
major food-producing regions of North-East and North-Central geo-political
zones of the country and other supply factors like the partial closure of the
country’s land borders. The COVID-19 supply disruptions aggravated the supply
shortfall, stoking more consumer price pressures in the domestic economy as
from April 2020. The increase in headline inflation in June 2020, like in the
previous month, was largely driven by food inflation. Staff forecasts indicate that
headline inflation could maintain an upward trajectory up to August, driven
largely by food prices, but with earliest moderation coming in September 2020.
Inflation risks in the economy are generally stemming from food supply
bottlenecks, exchange rate pressure, energy cost and system liquidity.

Second, the country’s Balance of Payments (BOP) remained in deficit in Q1 2020
but with some improvement in the current accounts where deficit narrowed to
about US$4.9 billion from US$6.9 billion in Q4 2019. Weak external position, which
means pressure on the naira exchange rate, has been aggravated by low oil
prices and slowing global economy. The naira exchange rate depreciated at
the I&E window by about 6.4 per cent, year-to-date, mainly due to the rate
adjustment at the interbank window. Following a higher rate of depreciation at

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the BDC segment, the premium between the I&E and BDC rates had widen
lately.

The depreciation pressure on the naira exchange rate combined with upward
trending inflation creates complexity for monetary policy at a time when
economic activity requires a boost. This complexity calls for a cautious
approach that is underpinned by instrument diversity. The Bank’s interventions in
the real sector have remained robust and well-tailored to deliver speed in
employment elastic sectors including agriculture, manufacturing and solid
minerals.

It is gratifying to note that the economy has received and continues to receive
substantially higher amounts of credit compared with periods of similar crisis in
the past. Between June 2019 and June 2020, total credit rose by N3.46 trillion
(about 22 per cent), of which new credit in June 2020 alone accounted for N773
billion, up from N412.7 billion in May 2020. The number of new credits (recipients)
similarly rose by about 42,000 to 93,578 from 51,700 in May. The huge credit
output in the economy was underpinned by improved resilience of the banking
system. As at end-Q2, most financial soundness indicators (FSIs) performed well
relative to regulatory benchmarks. In spite of macroeconomic challenges,
banking industry tier one capital accounted for 87.22 per cent of the total
qualifying capital at end-June 2020; capital adequacy ratio (CAR) stood at
14.96 per cent with non-performing loans (NPLs) ratio of 6.4 per cent and
provision ratio of 118.9 per cent.

The surge in new credit and its major destinations including agriculture and
manufacturing in recent months, obviously lend credence to the efficacy of
extant real sector support (policy) initiatives of the Bank - the minimum loan-to-

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deposit ratio (LDR), the differentiated cash reserves requirement (DCRR) and the
development finance interventions.

Having signaled an easy direction for monetary policy in support of economic
activity at the May 2020 meeting of the Monetary Policy Committee, I felt
persuaded to vote for a hold on all policy parameters at the July 2020 meeting. I
did so with the understanding that the Bank’s routine sterilization actions will be
sustained to keep system liquidity as close as possible to its optimal path. I also
saw a compelling ground to wait and see more of the impact of the previous
100 basis points policy rate cut and the stimulus packages most of which will
continue to run through the second half of the year.

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2. ADENIKINJU, ADEOLA FESTUS
International Economic Development
COVID-19 pandemic continues to exert a cloudy and uncertain effect on the
global economy. The possibility of a second wave of infections from the virus,
given the recent spikes in some countries is casting a doubt on expected ‘V’
shape recovery of the global economy. While oil prices continue to be strong
and equity markets rebound in many advanced and emerging economies, the
rise in unemployment and weak economic growth for Q2 2020 in many
countries are major challenges. Aggregate demand and aggregate supply
remain weak and volatile. In short, the immediate outlook of the global
economy is still tenuous and volatile. The trade tensions between the USA and
China, and the lack of clear guidance on the nature of exit agreement
between the UK and EU at the end of 2020 will also affect global recovery.
World trade is already projected to contract by -11.5% in 2020. The recovery in
2021 will be influenced by how existing geopolitical issues are resolved and the
emergence of an effective vaccine for the coronavirus. Central banks in most
countries continue to implement quantitative easing to support economic
growth, restore market confidence and boost aggregate demand.
Domestic Economic Development
The presentation by the Bank’s Staff on the Banking System Stability shows that
the banking system remains resilient, strong, and coping well under the current
challenging environment. The Financial Soundness Indicators (FSI) remain solid.
The Capital Adequacy Ratio (CAR), and Non-Performing Loans (NPLs) ratio are
trending in the right direction. The Loan to Deposit Ratio (LDR) policy has
boosted aggregate credit to the economy without impacting negatively on the
NPLs ratio. Measures of bank performance like assets, deposits and credits to the
economy also continue on a northward trajectory. Banking credit grew, albeit

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marginally, between May 2020 and June 2020. The increase in aggregate credit
to the economy in spite of the pandemic suggests that the economy is
responding well to current policy measures. Stress tests on the banking industry
also confirms a resilient sector that is able to survive the effects of COVID-19
pandemic and volatility in the oil market.
The Economic Report showed the domestic economic performance since the
last MPC Meeting in May, 2020. Although, the real GDP growth for Q2 2020 was
not available as at the time of the July Meeting, however, the Q1 2020 real GDP
growth rate of 1.87% was quite impressive against the background of Covid-19
challenges and the volatility in the oil market. Staff estimates shows that the
annual real GDP growth for 2020 would lie between -1.31% and -1.65%. This is
significantly higher than the World Bank, IMF and even the National Bureau of
Statistics (NBS) projections for Nigeria for 2020.
Headline inflation rose to 12.56% year-on-year in June 2020 from 12.40% in May
2020. Food inflation and core inflation also rose over the same period. The
growth in composite prices were driven by monetary and structural factors. The
outlook for inflation for medium term remains elevated due to constraints in
global and local supply chains arising from the effects of the COVID-19
pandemic as well as Nigeria’s idiosyncratic factors.
Total banks credit to the economy increased marginally from N46,600.82 billion
in April 2020 to N46,710.68 billion in May 2020. Equity market indicators, like
market capitalization increased by 5.83% from N12.0 trillion at end-April 2020 to
N12.7 trillion on July 17, 2020.
The foreign exchange market continues to experience significant pressures as
the exchange rate of the naira to the US dollar rose from N443.89/US$ in May
2020 to N447.71/US$ in June 2020 at the BDC window, and from N386.17/US$ to
N386.39/US$ at the Investors’ and Exporters’ (I&E) window. The depreciation in

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both markets are driven by both fundamental factors and speculative activities
of economic agents. External reserves decreased from US$36.49 billion in May
2020 to US$35.77 billion by end-June 2020, also current account balance as a
share of GDP stood at -4.25% in Q1 2020.
The fiscal operations of the Federal Government from January to May 2020
indicated that revenues underperformed with negative variance of -48.8% and
expenditure by -4.89%. Rising share of debt service in government expenditure is
worrisome and would expectedly worsen due to the impact of COVID-19
pandemic and the downturn in the global oil market.
Decision
In my view we may have passed the most serious period of the pandemic,
though significant headwinds remain. However, recent resurgence of the virus in
several countries implies that sustained global recovery will very much
dependent on the discovery and wide application of effective vaccines against
the virus. Rising inflation limits the policy options available to address the current
headwinds in the economy. It also limits the extent to which Nigeria can retain
and attract foreign capital as rising inflation erodes the real interest gap
between Nigeria and advanced economies. The high fiscal deficit and the
negative accretion to foreign reserves are challenges the economy has to
overcome in the medium to long term.
However, there are positive developments in the economy. The price of oil
stands at over US$40 per barrel. This is above the benchmark price in the revised
2020 budget. The economy and economic agents are responding positively to
the current intervention programmes of the Central Bank and the Government.
Regulatory measures to protect the financial sector are working well and should
be monitored continuously. The Central Bank should top up the Target Credit

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Facility (TCF) of N50 billion for households and SMEs to meet increasing demand
for the Fund.
The economy is slowly recovering from the effects of lockdown. It is also
responding well to the various supportive programmes. Current and planned
intervention programmes will help to expand aggregate supply and mitigate
inflationary pulses. Government must use the challenges presented by Covid-19
to deliberately support sectors that will be critical to the Nigerian economy of
the future. We need to allow existing measures to work themselves through the
economy before considering further policy changes.
Decision
On the basis of above considerations, I cast my vote as follow:
i) Maintain MPR at 12.5%
ii) Retain Asymmetric Corridor around the MPR at +200/-500 bases points
iii) Retain CRR at 27.5%
iv) Maintain Liquidity ratio at 30%.

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3. AHMAD, AISHAH N.
At the July 2020 Monetary Policy Committee meeting, I voted to reduce the MPR
by 50 basis points from 12.5 per cent to 12.0 per cent; and maintain other
parameters at existing levels - the asymmetric corridor at +200/–500 basis points;
CRR at 27.5 per cent; and liquidity ratio at 30.0 per cent. Data presented at the
meeting, which highlighted rising global and domestic uncertainties due to
COVID-19, provided justification for further loosening of the policy stance.
Coronavirus pandemic: uncertain but pervasive impact on the global economy.
Whilst its effect continues to unfold, COVID-19 has clearly had more negative
implications on global economic activities in the first half of 2020 than earlier
anticipated, with significant contraction in output, sharp slump in aggregate
demand, plummeting trade amidst escalating public and corporate debts as
evidenced. These adverse developments are partly reflected in the IMF’s
revised global growth projection of 4.9 per cent contraction in 2020 in its June
2020 World Economic Outlook update, 1.9 percentage points lower than the
April 2020 projections; solidifying the COVID-19-induced economic shock as the
worst experienced in several decades.
Although significant fiscal and monetary stimulus, and gradual reopening of
economies has helped drive some modest recovery, (unemployment rate in the
US dropped to 11.1 per cent in June 2020 compared with 13.3 per cent in the
previous month; China’s output grew quarter-on-quarter by 11.5 per cent in Q2
2020, compared with 9.8 per cent contraction in Q1 2020), reports of rising
COVID-19 infections in several countries, raises fears that a second wave of
infections would further hamper economic activities over the medium-term. As
at July 20, 2020, the World Health Organization reported total COVID-19
infections of over 14.5 million, including over 607 thousand deaths, up from 5.5
million infections and 350 thousand deaths as at May 28, 2020.

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Domestic economic momentum requires further support to forestall contraction.
While the Q2 2020 GDP numbers are being expected, leading indicators of
output growth signal significant decline in economic activity. For instance, the
Manufacturing and non-Manufacturing Purchasing Managers’ Indices were
below the 50 index-points benchmark with Manufacturing PMI declining to 41.1
index points in June 2020 from 42.4 index points in May 2020, largely attributed to
slower growth in production levels, new domestic orders and employment. Staff
forecast of a 1.03 per cent contraction in output for Q2 2020, on the back of
continued adverse impacts of the pandemic on economic activity, presses
home the urgency to build economic resilience and forestall a recession.
Although headline inflation (year-on-year) increased for the 10th consecutive
month, rising to 12.56 percent in June 2020, the rate of acceleration is relatively
slow, and hopefully may be reaching its peak as the food supply gap – a key
driver of inflation – is being contained via interventions by the CBN and other
complementary fiscal measures designed to boost domestic food production.
Monetary induced inflation also appears to be under control as money market
rates remain fairly stable, with growth in broad money supply at 1.64 per cent in
June 2020, well below the indicative benchmark of 11.74 per cent for 2020.
Slight recovery in crude oil prices from $34.8/b to $43/b between May 28 and
July 18, 2020, provide a little bright spot, although it remains low and volatile,
with negative implications for exchange rate stability and fiscal consolidation. It
will be important going forward, to improve supply and liquidity in the foreign
exchange markets to preserve price stability. Fiscal initiatives such as the
Economic Sustainability Plan and National Gold Purchase Program are steps in
the right direction.
Thankfully, the financial system has remained resilient albeit with regulatory
support. Staff reports presented at the meeting show marked increase in the
number of loans restructured; as at July 20, 2020, 22 banks submitted requests to

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restructure 35,639 loans of businesses impacted by the pandemic, representing
41.92 per cent of the total industry loan portfolio. This has partly reflected in
improved industry risk profile, as Non-Performing Loans ratio declined from 6.6
per cent in April 2020 to 6.4 per cent in June 2020. Net interest margin remains
robust despite lower interest income, perhaps due to much lower industry
interest expense, as market deposit rates continue to decline.
The Loan-to-Deposit Ratio (LDR), Global Standing Instruction, streamlining of
access to Open Market Operations securities and other complementary
measures have been strong tail winds which have strengthened intermediation
– via increased lending to the key sectors such as manufacturing, agriculture
and consumer markets (gross credit grew by an additional N300billion from
N18.6 trillion to N18.9 trillion between end-April and end-June 2020, respectively)
and lower market lending rates, which have insulated the financial system from
the worst impact of the pandemic.
These efforts are being supported by ongoing CBN interventions – the N50 billion
household and SME facility, out of which N49.195 billion has been disbursed to
over 92,000 beneficiaries, N100 billion healthcare and N1.0 trillion manufacturing
and agricultural interventions alongside significant interventions in other growth
enhancing sectors, with remarkable implementation success.
Sustained credit to the real economy – particularly for SMEs and households -
will be crucial to economic recovery, therefore maintaining banking industry
liquidity will be paramount. Thankfully, healthy industry cash reserve levels
provide adequate ammunition in this regard. Support for these important
sectors, responsible for about 48 per cent of GDP (according to NBS), will be
crucial to boost aggregate demand and bridge the existing negative output
gap, which will also help temper inflation.

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Overall, the key challenge remains preserving the positive industry performance
in the light of spillover effects from the pandemic. Given uncertainty about the
length and depth of the crisis, particularly without a vaccine and worries about
a second wave of infections, the Bank must remain vigilant for any changes in
the macroeconomic environment that pose a threat to resilience and financial
stability.
Given moderated inflation expectations, and in view of heightened global and
domestic uncertainties, the Committee has room to focus on output growth in
addition to its primary mandate of price stability, in the medium-term. In that
regard, the Committee advised the Bank to retain the LDR and Differentiated
Cash Reserve Requirement policies, while sustaining interventions in critical
sectors of the economy, given their relative successes, to help boost domestic
output and support the economic sustainability agenda of government.
A further rate cut in my view, relatively early as the economic impact of the
pandemic unfolds, will complement ongoing efforts to stimulate the economy,
providing further impetus for recovery to mitigate a recession in 2020.

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4. ASOGWA, ROBERT CHIKWENDU
Background:
At this July MPC meeting, the global economic outlook remains uncertain and
split between early recovery from the COVID-19 pandemic and the possibility of
a second wave of the pandemic in the third quarter of 2020. Albeit this
uncertainty, the focus is on recovery, but this may still be very slow as the
lingering effects of the pandemic will severely limit growth and surely, many
countries are expected to plunge into recession in 2020. The most significant
contractions may be in the developing economies as countries that rely
extensively on commodity exports and tourism are bound to suffer
disproportionately. Generally, the global outlook may face considerable
challenges in the long term especially with new fears of another wave of
COVID-19 and the uncertainty about when an effective vaccine will be readily
available. For policymakers, the urgent task is how to ensure that current fiscal
and monetary policy responses succeed in supporting consumer and investor
confidence which can lead to a speedy normalization of both the commodity
and financial markets.
For Nigeria, fiscal balances seem deteriorating, but recent marginal uptick in oil
prices provides some hope. Inflation has been sticky upwards, but reflect more
of temporary supply shortages and structural bottlenecks. The several support
policies initiated by the Central Bank to promote lending especially for distressed
firms and households are particularly timely and may help in mitigating the
supply and demand shocks, but need some tricky balancing. Future monetary
policy actions should, therefore, seek to deepen the recovery support policies
along with dedicated monitoring to ensure quick results, and also not to worsen
the domestic inflationary outlook or jeopardise the future stability of the financial
sector.

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The Global Economic Outlook and the Recovery from the Effects of COVID-19
In the first and second quarters of 2020, the COVID-19 pandemic caused
unprecedented declines in economic outcomes across the globe. CBN staff
report shows that output growth in the US by the first quarter of 2020 contracted
by -5.0 percent compared to a growth of 2.1 percent in the preceding quarter.
In the Euro Area, growth also contracted by -3.6 percent in the first quarter of
2020 compared to 0.1 percent in the previous quarter. There were similar first
quarter contractions in the UK and in Japan. Recent downgrades to economic
growth forecasts in most countries across the globe reflect the lingering adverse
effects of COVID-19 on supply chain disruptions, tightening of financial
conditions, private sector uncertainty, drops in trade and commodity prices, as
well as, falling household disposable incomes. Overall, global growth in 2020 is
now projected at -4.9 percent, which is a further 1.9 percentage points
downgrade from earlier forecasts. For the advanced economies, the output
growth dropped from an earlier forecast of -6.1 percent to -8.0 percent in 2020
and the worst hit economies according to CBN staff report included Italy, Spain,
France, UK, USA, Germany and Japan. For the advanced economies, GDP is
expected to rebound by 4.1 percent in 2021. There have also been significant
downward revisions for developing economies reflecting the strong spread of
the pandemic in places such as Latin America and the lockdown effects in
India. In Brazil and Mexico, the GDP declines is now forecast at 9.0—10.0
percent while for India it is also expected to fall by more than 4.0 percent in
2020. The collapse in commodity prices coupled with the slowdown in tourism
has affected several other developing economies especially in Africa.
On inflation, there have been diverging trends across countries of the globe.
Several middle and low income countries including Argentina, Iran, South
Sudan, Venezuela, Ghana have been experiencing rising consumer prices since
the onset of COVID-19 pandemic. By contrast, consumer prices have declined

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in the US, UK, China and other high income countries. For those countries
experiencing price declines during this COVID-19 pandemic, the dynamics
reflects the plunge in international energy prices and the relatively stable prices
of food items. In the low and middle income countries, increased food prices
mostly arising from supply disruptions due to COVID-19 have been the key factor
driving the rising inflation rates. In few countries however, the rising price of
imports and the monetization of fiscal deficits may also have impacted inflation
during this period.
A variety of far reaching fiscal and monetary support policies have been
deployed in many countries across the globe in response to the economic and
social shocks from the pandemic. In the US for instance, the government has so
far provided fiscal support approaching US$3trillion including loans to firms,
States and Local governments as well as direct transfers to households. Besides,
the US Federal Reserve cut policy rates to near zero with several other nonconventional monetary accommodation measures including large scale
purchases of government debt, mortgage backed obligations and corporate
bonds of lower levels of government. In the Euro Area, several governments
have initiated significant fiscal support programmes to complement the
European Central Bank’s offer of low interest loans to banks and its assets
purchase programme. In Germany for instance, the government provided fiscal
stimulus worth of 4.5 percent of GDP in addition to an envelope of over 20
percent of GDP in loan guarantees for the corporate sector, while Italy
introduced a fiscal stimulus plan in excess of 4 percent of GDP. In China, the
fiscal and monetary stimulus worth over 2.8 percent of GDP included several
liquidity injections, tax relief and special bond issuances. A large number of
countries in Africa have also implemented several fiscal and monetary support
measures in addition to cuts in interest rate as a way of cushioning the effects of
COVID-19 pandemic on growth. In Egypt, in addition to the Central Bank’s
slashing of policy rates by 300 basis points on March 16, 2020, the government is

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also implementing a fiscal stimulus package of approximately 1.8 percent of
GDP which includes an extended social transfer schemes including monthly
grants to irregular workers in the worst hit sectors such as tourism. In South Africa,
CBN staff report showed that the government temporarily expanded support to
the unemployed through transfers to vulnerable households.
In many countries, these initial fiscal and monetary policy responses to the
COVID-19 crisis have been successful at least in protecting worker’s jobs and
ensuring that firms have access to liquidity. There are however suggestions that
once economic activities begin to normalize, there will be additional need to
prudently withdraw the large scale fiscal and monetary stimulus provided during
the crisis without endangering the recovery process. This will at least ensure that
future stability of the financial systems across the globe is not threatened.
The Domestic Economic Outlook:
It is clear that the COVID-19 pandemic caused declines in economic activity in
Q2 2020 compared to the first quarter of 2020, eventhough official GDP figures
are yet to be released at the time of the July MPC meeting. The contraction of
both the manufacturing and non-manufacturing PMIs between April and June
2020 showed that production levels and business activities have remained low
since the crisis. There are three key downside risks which have generally
characterized Nigeria’s domestic economic outlook since the COVID-19 crisis.
First, fiscal deficits have been widening as revenue declined because of the
pandemic. Second, inflation rates have been sticky on the downwards side as
supply disruptions affect prices of food and non-alcoholic beverages. Third,
tightening balance of payments have been threatening the stock of foreign
reserves thus creating pressures on exchange rates.
On the fiscal deficit, the depressed oil export earnings amid the COVID-19
pandemic has weighed in heavily on the fiscal revenue for 2020. Generation of

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non-oil revenue is also facing considerable challenges in 2020 because of the
low level of domestic economic activities even with the recent increases in the
rate of VAT from 5.0 percent to 7.5 percent before the COVID-19 pandemic.
Government’s recent efforts have been to marginally reduce the expected
recurrent expenditures in 2020, whilst increasing borrowing so as to maintain
current capital spending. There are however concerns that increased
dependence on borrowing with oil prices still at low levels will see the already
elevated debt servicing costs soar in the coming years. On the inflation rate
which has consistently increased month-on month even before the COVID-19
outbreak, a key concern is the effect of a prolonged regime of negative real
interest rates on the economy especially as the recovery process evolves. In the
coming months, we expect modest recovery especially as oil prices pick up and
the effect of government’s fiscal stimulus and various Central Bank’s support
measures shore up consumer demand and firms’ capacity to invest. This
recovery will, however, remain fragile given the high uncertainty of the
pandemic and the growing possibilities of a second and even third wave of
outbreaks.
On the banking sector, the outlook is similar to the position at the last MPC
meeting in May 2020 as the balance sheets of most banks remain strong with
marginal increases in the key profitability indicators (ROE and ROA) in June 2020.
CBN staff report also show monthly successive increases in the banking industry’s
deposit, credit and overall assets size, while the Non-Performing Loans ratio
declined between April and June 2020. As I suggested in my last MPC statement
of May 2020, it is necessary to have standby macro-prudential support policies
which will be ideal to maintain banking sector resilience at this crisis period whilst
promoting further lending by banks to support the economic recovery process.

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Decision:
The outlook of the Nigerian economy remains split between gradual recovery
from the third quarters of 2020 onwards if the pandemic stabilizes, and a delay in
economic recovery up to 2022 if a second or successive pandemic waves
occur. The reality, however, is that countries with stronger fiscal and monetary
policy support will have smaller permanent GDP losses than for those where
policy support has been limited or ineffective. For now, the initial monetary
policy response in Nigeria has been quite strong. Besides, cutting policy rates in
May 2020, the loan restructuring forbearance granted to banks, as well as, the
targeted credit intervention for healthcare, manufacturing, creative industry,
SMEs and households will be key for a reasonably strong bounce in the third and
fourth quarters of 2020. The challenge is to ensure that these facilities are
disbursed in time and are effective in accelerating consumer demand as well as
firms’ survival and capacity to expand which will guarantee early economic
recovery.
My preference is to allow the effects of the recent policy rate cut to gain
traction, whilst sustaining the ongoing Central Bank credit intervention
activities for some time, because removing the support too early could also stop
the recovery process in its tracks. I thus voted to:
• Retain the MPR to 12.5 %
• Retain the CRR at 27.5%
• Retain the Asymmetric Corridor at +200/-500 basis points
• Retain the Liquidity Ratio at 30.0%.

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5. ISA-DUTSE, MAHMOUD
A. INTRODUCTION
The earlier expectation that the Covid-19 pandemic would be contained by
end-June 2020 has faded following the continuing battle to arrest the spread of
the virus in many countries. Moreover, the fear of a second wave of infection
only serves to aggravate the problem. This scenario has significantly slowed
down the pace of global economic recovery as business confidence wanes.
On this account, the International Monetary Fund (IMF) recently downgraded its
growth forecast for the second time in three months to underscore the unabating uncertainties in the world economy.

Given the interconnectedness of economies around the globe, Nigeria will
continue to reel from the effects of the global pandemic, particularly as policy
headroom gets tighter. Therefore, it becomes necessary for the authorities to
intensify effort aimed at addressing security challenges and other headwinds
constraining the country’s growth and development.
B. EXTERNAL ECONOMIC CONDITIONS
The global economy is expected to shrink further in 2020 due to the unrelenting
pandemic and slower than expected pace of re-opening of economies. Thus,
the IMF projected that global output would now contract by -4.9% in 2020 – a
downgrade of 1.9 percentage points from the forecast of -3.0% in April. The
revised forecasts cut across all regions of the world. In particular, growth in the
advanced economies is forecast to contract by as much as -8.0% in 2020, while
emerging market and developing economies (EMDEs) are expected to witness
a -3.0% contraction in output. Sub-Saharan Africa is expected to witness a
“nose-dive” with growth of -3.2%.

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Broadly, global inflation is projected to decelerate in both the advanced
economies and EMDEs on account of the persisting demand and supply shocks.
However, mild inflationary pressures have continued on an upward trajectory in
Nigeria due largely to endemic structural factors that constrain domestic
production.

Taking into cognizance the production cuts by OPEC+ members, the drop in US
crude inventories and the gradual opening of economies from long periods of
lockdown, crude oil price is projected to hover around US$40/barrel for the rest
of 2020. Although price recovery is sluggish, yet the current trend seems to
provide some assurance that the Nigerian Government’s fiscal policy as
contained in the revised 2020 budget will be implementable given the oil
benchmark of US$27pb. The stabilization of oil prices at low levels has serious
consequences for portfolio flows, external reserves and foreign exchange rate
management. The IMF (June 2020) observes that portfolio flows into emerging
markets have recovered after the record outflows in the first quarter for
countries with stronger credit ratings. Thus, it becomes imperative to strengthen
effort at improving the investment climate in Nigeria.

Major financial markets around the world have commenced an upward trend
on the back of gradually rising economic activities. However, the subtle fear of
a second wave of pandemic may constrain faster recovery of markets as the
downside risks to full economic activities linger. In Nigeria, a similar trend is
evident as both the All Share Index (ASI) and Market Capitalization increased by
5.50% and 5.85%, respectively, between April 30 and July 17 2020, but are yet to
fully climb back to pre-crisis level.

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C. DOMESTIC ECONOMIC CONDITIONS
Although the growth data for Q2 2020 is still being awaited from the National
Bureau of Statistics (NBS), in-house projections by the CBN indicate that real GDP
is expected to contract by -1.03% in Q2 2020 which translates to a reduction of
2.9 percentage points when compared to the actual growth rate of 1.87%
obtained in Q1 2020. However, the annual real GDP predictions from multiple
sources are grimmer for 2020. The World Bank and IMF project that the Nigerian
economy will contract by -3.0% and -5.4%, respectively, in 2020, while CBN
forecast suggests a possible contraction not exceeding a magnitude of -1.65%
in 2020. Moreover, the World Bank avers that the pandemic may throw as many
as five million Nigerians into poverty. Therefore, the goal of growth with equity
should be pursued relentlessly by both the fiscal and monetary authorities to
scale down the projected negative impact of the pandemic on the Nigerian
economy.

The continuing uptick in the general price level has resulted in a negative real
interest rate as headline inflation, year-on-year, stood at 12.56% in June 2020
compared with 12.40% in the preceding month. On a month-on-month basis,
headline inflation also rose to 1.21% from 1.17% during the review period.
Between May and June 2020, both food and core inflation (year-on-year) rose
from 15.04% and 10.12%, to 15.18% and 10.13%, respectively but on a month-onmonth basis, core inflation declined, while food inflation inched up. The monthon-month decline in core inflation points to the fact that Nigeria’s inflationary
challenge is more of a structural phenomenon than monetary. A closer analysis
shows that the key contributor to annual headline inflation is the food and nonalcoholic beverages component. In particular, there is need for more
investment in the domestic production of wheat, rice, milk products and fishery
resources to douse the momentum of imported inflation. Consequently, a major

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imperative is the creation of a secured environment to boost agricultural
production.

The forbearance measures deployed by the regulatory authority have
promoted confidence and stability in the Nigerian banking system as the risk of
short-term losses has been curtailed through the restructuring of loan terms and
conditions in response to Covid-19 pandemic. At the same time, new credit
continues to find its way into businesses and households. This scenario should not
only be sustained but further proactive measures should be designed to
facilitate continued smooth operations in this critical period of seemingly
unavoidable recession may be Nigeria’s worst since the 1980s.

D. VOTING DECISION
A tightening policy option may dampen inflationary pressures, promote portfolio
flows and reserve accretions but it may also constrain credit extension and
worsen the pandemic - induced slump in output. A loosening stance of
monetary policy on the other hand may be considered appropriate in view of
the current recessionary quagmire confronting the country. However, the
economy is already in a loosening mode given the recent policy rate cut in May
2020. Moreover, the huge monetary and fiscal stimulus being pumped into the
economy has increased liquidity. Therefore, it is reasonable to maintain a policy
status quo to allow enough time for recent initiatives to permeate the economic
system. In view of the foregoing, I voted to hold all policy parameters as follows:
• MPR at 12.50% per annum
• The asymmetric corridor at +200/-500 basis points around the MPR
• Liquidity ratio at 30.0% per annum
CRR at 27.5% per annum.

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6. OBADAN, MIKE I.
INTRODUCTION
With the coronavirus pandemic not showing signs of early containment in most
countries, the global economy has continued to exhibit uncertainties and
vulnerabilities. In the United States which boasts of the largest economy in the
world, a second wave of covid-19 infections has been raising great concerns
leading to threats by a number of states to re-lockdown their economies. The
same scenario is playing out in several other countries which had re-opened
their economies rather pre-maturely. Generally, the pattern in some countries
has been lockdown of economic activities, easing of lockdown, fresh wave of
infections and lockdown/threats of return to lockdown due to spikes in COVID19 infections. These create uncertainties and continue to have serious
implications for recovery of the global economy and individual economies. For
Nigeria, in particular, whose economy is not diversified and continues to rely
precariously on crude oil for domestic revenue and foreign exchange earnings,
the implications of a weak global economy remain highly worrisome.
GLOBAL DEVELOPMENTS
Against the backdrop of poor growth performance of most economies in the
first quarter of 2020, there are doubts about global economic growth and trade
prospects. In the first quarter, most advanced economies contracted and could
go into recession in the second quarter. Against expectations, the COVID-19
pandemic has not been contained in a satisfactory way and the development
and availability of a vaccine considered as the possible cure appears not to be
insight. Consequently, the IMF has downgraded its 2020 growth forecast for the
world economy from -3.0 percent in April, 2020 to -4.9 percent in June. The
output forecast for the advanced economies has also been downgraded from -
6.1 percent to -8.0 percent in 2020. Indeed, the major international organisations

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– IMF, OECD, World Bank – and national regional central banks have forecast
negative growth for the world major advanced and Emerging Market
Developing Economies (EMDEs) except China in 2020. The global economy and
most national economies had been forecast to grow strongly in 2021, for
example, the global economy by 5.4 percent. But this is no longer certain as
covid-19 seems not to be in a hurry to go away.
Like global growth, global trade has continued to perform poorly due to
international trade and travel restrictions, weak global aggregate demand,
lockdown of economic activities, notable supply chain disruptions, among
others. In the first quarter of 2020, global trade contracted by 3.9 percent. In
2020, international organisations – World Trade Organisation, UNCTAD, IMF,
World Bank and OECD – have projected global trade to decline by between
11.0 and 20.0 percent. Weak growth and trade increase poverty and impact
negatively on citizens’ welfare.
The oil market has continued to experience uncertainties and volatility amidst
concerns over a second wave of the covid-19 pandemic. It remains vulnerable
to several shocks – supply, demand, economic lockdowns, etc. The impact of
the pandemic and disagreement between Russia and Saudi Arabia on oil
supply was very pronounced. Consequently, the average monthly oil price
declined steadily from US$66.7 per barrel at end-January 2020 to US$32.3 per
barrel at end-March 2020 and further to US$14.3 per barrel at end-April 2020.
Thereafter, oil prices witnessed slow recovery following agreements on oil
production cuts by OPEC+ countries and gradual easing of lockdowns by most
countries. At end-May 2020, prices improved to US$27.9 per barrel and was
US$44.7 per barrel on July 17th, 2020. Although the recent rebound is
encouraging, uncertainties remain on the future direction of oil prices.
In Nigeria, the volatile nature of oil prices will continue to have implications for
the
country’s
macroeconomic
aggregates:
domestic
revenue,
foreign

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exchange earnings, exchange rate development, price formation, capital
inflows, external reserves, balance of payments position, etc. Besides, the
impact of continued lockdown of major economies and restrictions on travel
and trade will continue to be felt by the Nigerian economy through: short-supply
of essential imports; rise in inflation through high import prices and exchange
rate depreciation; and impact of continued uncertainties and volatility of the oil
market on macroeconomic stability.
Also, developments in the global financial markets are not helpful to the
Nigerian economy. For example, the volatilities in those markets amid lockdown
of economic activities has resulted in dwindling net capital flows to Nigeria. And
as global sovereign and corporate debt is forecast to rise in 2020, for both
advanced and emerging market and developing economies, Nigeria may face
the challenge of servicing external debt due to low accretion to external
reserves and exchange rate depreciation.
The major advanced countries have responded appropriately to the impact of
COVID-19 with robust fiscal and monetary stimulus packages. Large-scale fiscal
and monetary injections have been implemented to stimulate recovery of
output growth and/or mitigate recession in individual economies and the global
economy. With central banks of several advanced economies having moved
into the zero-lower bound with respect to their policy rates, they have resorted
to increased use of unconventional monetary policy measures, especially
quantitative easing, to inject liquidity directly into their economies. This
vindicates the stance of the Central Bank of Nigeria in its use of unconventional
monetary measures in support of fiscal policy to address the challenges of
growth and development in the country.

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DEVELOPMENTS IN THE NIGERIAN ECONOMY
The Nigerian economy has continued to feel very strongly the adverse impact of
COVID-19 because of its heavy inter-dependence with the global economy,
undiversified economy, and rather precarious dependence on crude oil
earnings from exports. But the impact on food security is moderated by the
Government and CBN’s successful interventions in the area of food production.
With international restrictions on trade in an era of economic lockdowns, the
story could have been different. However, the aggregate economic growth
position remains weak.
The oil sector contribution to real GDP growth is significant: 5.6 percent
compared to 1.55 percent for non-oil GDP in the first quarter of 2020. Growth in
the second quarter may be worse than the 1.87 percent recorded in the first
quarter, while a contraction is likely in the third quarter due to; lockdown/partial
lockdown of economic activities as the number of COVID-19 cases maintains an
upward trend in the country, low oil prices and earnings. However, the
containment of the pandemic and effective implementation of the COVID-19
response packages of Government, CBN and private sector-led initiatives could
limit the extent of possible output contraction and/or avert a recession.
Emerging stagflation. The country appears to have returned to a stagflationary
era with sharp reduction/contraction of economic activities/shrinking growth
and rising inflation. In June 2020, all measures of inflation (headline, food and
core) increased, moving headline inflation further away from the implicit target
corridor of 6.0 – 9.0 per cent. Headline inflation (year-on-year) increased to 12.56
per cent in June 2020 from 12.40 per cent in May 2020 maintaining a trend
which has been on for about ten months. Inflation has continued to inch up
despite weakening aggregate demand and rising unemployment due to both
structural and monetary factors. Normally, stagflation creates a policy dilemma
which would be addressed with monetary policy focusing on price stability,

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while fiscal policy addresses the growth challenge. However, the fiscal space is
very limited to address the growth objective alone. Hence, while monetary
policy may remain relatively tight, unconventional monetary measures should
continue to support fiscal policy. Increased production of output/supply by the
sectors supported should moderate the inflationary effects from the monetary
injections.
In the external sector, vulnerabilities have heightened while the key variables
have deteriorated in the COVID-19 environment of a health shock and oil price
shock: weak trade and balance of payments position, limited accretion to
external reserves, capital flows reversal and external debt build-up. Without
containment of the coronavirus the prospects of these aggregates improving
do not seem to be bright.
It is not all bad news at this point in time. The financial sector has cheering news
suggesting resilience. The financial soundness indicators as at July showed
improvements: non-performing loans ratio, capital adequacy ratio, return on
earnings and assets, and ratio of operating costs to income. Also, bank deposits,
assets and gross credit improved in terms of upward trend and growth. There is a
drastic change in the composition of banking assets in favour of loans and
advances as opposed to safe government securities which had elicited strong
concerns hitherto. This, combined with the priority sectors of manufacturing,
agriculture, oil and gas attracting a significant proportion of the increase in
credit, indicates that CBN’s policy of Loan-to-Deposit ratio is working. There is
need to sustain the effective implementation of this and related policies by the
CBN.
Fiscal operations of Government. The fiscal operations have come under much
more pressure under the COVID-19 environment. With declining revenues and
absence of fiscal buffers, fiscal deficits and public debts have continued to rise.
Federation Account Allocating Committee (FAAC) allocations to the three tiers

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of government have reduced significantly since early in the year due to the
challenges in the world oil market. The Federal Government fiscal operations, as
at May 2020, recorded a deficit of N2.4 trillion, while the projected fiscal deficit
in the revised Federal Government budget is over N5.0 trillion. Nigeria’s public
debt stock as at March 31, 2020 stood at N28,628.49 billion with external debt
representing 34.89 per cent, while the Federal Government’s projected debt
service is about 50.0 percent of expected revenue. The public debt build-up
poses a significant threat to debt sustainability.
Now, two things are clear. First, in the present environment of weakened
economic activities and provision of tax reliefs by the Government to SMEs to
bolster economic activities, the space for enhanced non-oil revenue is limited.
However, one area of reform that the government needs to look into seriously
relates to remittances from the operating surpluses of government departments
and agencies which at present are underestimated by the agencies.
The government should initiate actions to amend the Fiscal Responsibility Act
(FRA) 2007 to provide for an effective method of determining remittances by
MDAs to the Consolidated Revenue Fund (CRF). To this end, one suggestion is to
amend Section 22(1) and (2) of the FRA to require Ministries Departments and
Agencies (MDAs) to deposit at least 25 percent of their revenue into the CRF
instead of 80 percent of their operating surplus which they arbitrarily determine.
This will improve availability of funds for financing government activities and
reduce fiscal deficits and massive borrowings.
Secondly, the reforms to reduce fiscal deficits must especially be on public
expenditure. This is one key driver of the high cost of governance which
stakeholders have continued to decry. The issue of inefficient spending and high
cost of governance needs to be frontally addressed by the government.

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The fiscal and monetary stimulus packages. The array of interventions and
measures of both the fiscal authority and the CBN to contain the coronavirus
pandemic, stimulate economic recovery/avert recession, improve livelihoods
and mitigate the adverse effects of the pandemic are very encouraging under
the circumstance of serious financial resource constraint. Notable among
Government’s measures is the N500.00 billion Intervention Fund to upgrade
Federal/states healthcare facilities and finance a Special Public Works
Programme, and the N2.3 trillion Economic Sustainability Plan which covers
virtually all the sectors including payroll support to SMEs. Also of note is the tax
relief to SMEs. On the part of the CBN, besides the extant interventions on which
more reliefs have been provided and regulatory forbearance to banks to
restructure facilities across sectors, it has an array of new interventions. These
include: the N50.00 billion Targeted Credit Facility for COVID-19 affected
households and SMEs, N100.00 billion intervention to the healthcare sector, and
N1.0 trillion loan facility to boost manufacturing and production across critical
sectors. It is also leading a N15 trillion Infrastructure Company (InfraCo) Project
for building critical infrastructure.
Implementation of most of these policies, measures and interventions have
begun. In the case of the N50.0 billion Targeted Facility, it has been oversubscribed by households and SMEs. This will need to be augmented by the
Bank while implementation of all the policy measures should be vigorously
pursued in order to realise the set objectives.

OPINION
This is formed against the backdrop of the foregoing issues of the domestic
economy: weak and fragile growth situation, stagflation, and challenging
external sector, the fairly robust fiscal and monetary policy measures and the

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monetary policy stance at the last MPC meeting. Even with the cut in the
monetary policy rate at the last meeting, the monetary policy stance is still
relatively tight. But given the need for monetary policy actions to complement
fiscal actions to prevent recession during the year, monetary policy should not
be tightened further. A dose of monetary inflation can be tolerated for now.
Reducing the MPR is desirable. But it could worsen the liquidity problem
especially when combined with the huge fiscal and monetary injections in the
stimulus packages. Importantly, the response of the deposit money banks to the
last MPR cut as to whether they reduced the lending rates and increased
lending is not yet clear in the general environment of reduced economic
activities. Therefore, it will be necessary to further monitor the situation to be
able to assess the effectiveness or otherwise of the last monetary policy
decision. Accordingly, my vote is to hold the monetary policy parameters at
their extant levels:
MPR:


12.5%
CRR:


27.5%
Liquidity Ratio:


30.0%
Asymmetric Corridor:

+200/-500 basis points around the MPR.

Classified as
7. OBIORA, KINGSLEY ISITUA
In light of the continued pernicious impacts of the COVID-19
pandemic, I voted to reduce the MPR by 100 basis points to 11.5
percent, while retaining the CRR at 27.5 percent, the LR at 30.0
percent and the asymmetric corridor of +200/-500 basis points
around the MPR. I believe this stance would further support a
robust recovery of economic activity and growth, in the face of
significant and persistent headwinds.
The spread of the Novel Coronavirus Disease (COVID-19) has intensified in many
parts of the world. Since the last MPC meeting in May, global cases have risen
from 5.6 million confirmed cases and 350,000 deaths to over 14 million confirmed
cases and 600,000 deaths, according to the World Health Organization.
Globally, the stringency of lockdown restrictions has eased, with many countries
reopening and global travel beginning to pick up. Consequent upon these
relaxations in lockdowns, we have seen a resurgence of cases in a number of
locations, including some States in the U.S., parts of Europe and even in Japan
and Australia. This has forced several governments to re-impose certain
restrictions and roll back re-opening plans. Accordingly, in June, the IMF revised
downwards by 1.9 percentage points its World Economic Outlook forecasts for
global growth to a contraction of 4.9 percent in 2020. This includes contractions
of 8.0, 10.2 and 10.2 percent in the United States, the United Kingdom and the
Euro area, respectively; and contractions of 6.6, 9.0 and 5.4 percent in Russia,
South Africa and Nigeria, respectively.
Nevertheless, the global economy has begun to rebound, supported by strong
policy responses from monetary and fiscal authorities. J.P. Morgan’s Global
Manufacturing Purchasing Manager’s Index (PMI) rose by a record of 5.4 points
from 42.4 in May to 47.8 in June 2020. Although this remains a contraction
(below 50.0), it exceeds levels in February and March this year before global

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lockdowns were imposed. China’s economy rebounded in the second quarter
of 2020, with year-on-year headline growth of 3.2 percent. Global financial
conditions
have
also
eased,
even
for
emerging
markets,
following
unprecedented actions taken by central banks across the world. As an
example, the US Federal Reserve has continued to build up its outright holdings
of securities, which have increased from US$5.9 trillion on 27 May 2020 to US$6.2
trillion on 16 July 2020.
Following these trends, Nigeria’s economy has also started to recover, as
lockdown measures have been eased. According to the National Bureau of
Statistics’ COVID-19 National Longitudinal Phone Survey (NLPS), the proportion of
people working rose from 43 percent in April/May 2020 to 71 percent in June
2020, driven particularly by commerce, services and agricultural sectors. Since
the last MPC, oil prices have continued to rise, from US$36 per barrel to US$43
per barrel, although it must be noted that oil price changes transmit to Nigeria’s
economy with about a 90-day lag. A further boost to economic activities has
been the resumption of domestic flights across the country, as evidenced by
higher occupancy rates in hotels and pick-up in taxi activities in major cities.
Under the circumstances, the financial system has maintained a sound and
stable position, following effective interventions by the Central Bank. Net
aggregate domestic credit grew by 5.16 percent in June 2020, compared to the
previous month. Stimulated by the policy on Loan-to-Deposit Ratio (LDR), the
past year has seen total gross credit increase from N15.56 trillion at the end of
May 2019 to N18.90 trillion at the end of June 2020. This has been driven
especially by manufacturing, consumer credit, general commerce, information
and communication, and agriculture. Short-term interest rates continue to
suggest some surfeit in the system with average Open Buy Back (OBB) and interbank call rates rising to 5.75 and 11.31 percent in June 2020, from 5.22 and 5.80
percent in May 2020, respectively. Non-performing loans (NPLs) decreased to 6.4

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percent at the end of June 2020, compared to 9.4 percent in the corresponding
period of 2019, reflecting recoveries, write-offs and disposals.
Notwithstanding these improvements, the economy continues to face significant
headwinds to a robust recovery. The number of COVID-19 cases now exceeds
36,000, cumulatively, and continues to rise. The headline inflation rate increased
slightly to 12.56 percent in June from 12.40 percent in May, with food inflation at
15.18 percent. The share of COVID-19 National Longitudinal Phone Survey
respondents who are working remains below pre-pandemic levels of 85 percent.
Furthermore, 87 percent of households owning non-farm businesses have
highlighted difficulties in raising money for their enterprises.
Globally and locally, it is clear that the economy faces an uncertain path, with
long-lasting consequences for the livelihoods of many. The decisive efforts of
governments and central banks across the world have provided a strong
foundation for the current recovery. However, it would be remiss to assume that
the crisis is now over, especially as there remain many unknowns regarding the
virus. In Nigeria, the Central Bank has acted proactively and forcefully through
numerous successful interventions. To highlight a few: so far, 92,000 household
and SME beneficiaries have received financial support to the tune of N49.2
billion and 61 manufacturing projects have been catalysed by injections of
N152.9 billion, whilst the healthcare sector has been strengthened by support of
N93.6 billion. However, these disbursements are rapidly approaching the limits of
these respective funds. Whilst the impact of these policies on the economy is
undeniable, even more action is required to truly match the scale of effect of
the pandemic.
It is in light of both the depth of this crisis and the unexpected prolongation of
the virus’s spread that I voted to reduce the MPR. The economic fallout from
COVID-19 has proven to be more pernicious than initially foreseen, and we must
seize the opportunity to further act. Whilst the outlook has improved somewhat,

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the full recovery and transformation of Nigeria’s economy will continue to face
significant resistance. The recent improvement in global financial conditions has
provided a window for aggressive monetary policies, as exemplified by certain
emerging market central banks even embarking on their own forms of
quantitative easing. This reprieve in the markets could be temporary, especially
if COVID-19 takes a turn for the worse.
On this basis, I voted to:
• Reduce the Monetary Policy Rate (MPR) to 11.5 percent from 12.5
percent;
• Retain the Cash Reserve Requirement (CRR) at 27.5 percent;
• Retain the Liquidity Ratio (LR) at 30.0 percent; and
•
Retain the Asymmetric Corridor of +200/-500 basis points around the MPR.

Classified as
8. SANUSI, ALIYU RAFINDADI
1.0
Decision:
In today’s meeting, I voted to hold on all the parameters to allow for the
combined effects of the COVID-19 intervention funds, reduction in the MPR as
well as the heterodox policy interventions to work themselves out. At least two
reasons informed this decision: First, although as I argued in my Personal
Statement of May 2020 that the optimal monetary policy response to an
impending recession is easing of the monetary policy stance, the current threat
of inflation amidst rising exchange rate pressure suggests that such policy must
be cautiously executed. Secondly, I feel it is optimal to hold all the parameters
given the encouraging report from the banking system stability review, including
the increased credit flows.
2.0
Background and Justification
2.1
Global Economic Developments
The worst global economic recession since the Great Depression, triggered by
the COVID-19 pandemic, is expected to be followed by a slow recovery in 2021.
Possibly another lockdown, due to a possible second wave of the COVID-19
pandemic, could further threaten the slow recovery expected in the global
output growth, international trade and oil prices.
The effect of the containment measures against the spread of the highly
infectious coronavirus disease (COVID-19) on the global economy is the worst
economic recession the world has seen since the Great Depression of the 1930s.
As of June 2020, the IMF has estimated that the output lost by the world
economy between January and June 2020 is US$12.5trillion, and most
economies are drifting into recession. Global output, which grew by 2.9% in
2019, is forecasted to decline by 4.9% in 2020 (revised from the -3.0% projected

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in April), but grow at the rate of 5.4% in 2021 (IMF's projections). Given the
impact of the pandemic, the strength of the expected recovery in 2021 is
uncertain. Even as economies start to ease restrictions and open up, sectors
whose activities require physical contacts such as hospitality, travel and tourism
continue to face depressed demand. Also, there are serious concerns about a
possible second wave of the COVID-19 infection this Fall, between September
and December as the winter approaches, which may necessitate another
lockdown. As output growth for the year 2020 is expected to be mostly negative
in both the Advanced Economies and in the Emerging Markets and Developing
Economies (EMDEs), uncertainties in the international oil market are also
expected to continue, keeping global oil demand moderated amidst concerns
about a global supply glut.
Consequently, oil price, which was US$43.80/b (OPEC Basket) as at 17th July,
2020, is forecasted to average US$41/b in 2020 and rise slightly to US$50/b in
2021 (US Energy Information Administration, EIA). Global trade volumes, which
has started to recover, is projected to decline by between 11.4% (OECD's
forecast) and 20% (UNCTAD's forecast) in 2020. Global exports and international
travels are likewise expected to decline by 11.5% in the possible event of a
second-wave of the COVID-19 infection. Key implications of this development
for the domestic economy includes lower fiscal revenue, current account
balance and foreign exchange receipts, with a potentially adverse effect on
public debt, exchange rate stability and external reserves accretion.
Inflation in the Advanced Economies has remained very low and well below
their long-term target of 2% since March 2020. As a group, inflation in the
Advanced Economies is expected to fall to 0.5% in 2020 from 1.3% in 2019. In
June 2020, inflation in the US declined to 0.1% from 0.6% in May. In the Euro area,
inflation rose to 0.3% in June 2020 from 0.1% in May 2020. In the UK, inflation
increased to 0.6% in June 2020 from 0.5% in May 2020. In the EMDEs, inflation is

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forecasted to decline slightly to 5.1% in 2020 from 6.5% in 2019. In China, Ghana,
Egypt and Nigeria, however, inflation increased in June 2020. Consequently,
global monetary policy has continued to be generally accommodative to
provide liquidity to businesses. At the same time, fiscal injections target
households to provide relief against the job and income losses.
2.2
Domestic Economic Developments and their Implications
Although new data is not available yet, the monthly Purchasing Managers Index
(PMI) and Industrial Production Index (IPI) for April, May and June 2020 suggest
that output is expected to fall during the second quarter of 2020. The
Manufacturing and Non-Manufacturing PMIs, for instance, fell below the breakeven benchmark of 50 points in April for the first time in 36 months. In May 2020,
the Manufacturing PMI stood at 42.4 index points. The Non-Manufacturing PMI,
which was worse hit by the lockdown, improved slightly from 25.3 points in
March 2020 to 35.7 in June 2020 as some restrictions were eased. Although
below the break-even point of 50, the monthly Manufacturing and nonManufacturing Employment Level indices have both improved in June 2020. The
IPI for 2020Q2 declined by 8.8% compared with 2020Q1 due to contraction in
manufacturing, mining, and electricity production. Staff estimates show that the
domestic output gap continues to be negative at 2.35% in 2020Q1, indicating
room for non-inflationary output growth.
Although the international price of crude oil increased steadily since April 2020,
domestic oil production declined by 13.14% from 1.75 mbpd in May 2020 to 1.52
mbpd at the end of June 2020 in compliance with the OPEC+ production cut
agreements and the shutdown of Offshore Bonga oil field. Available data
showed that while the actual oil price was above the revised fiscal benchmark
of US$28pb, the actual production during the quarter remained below the
revised fiscal benchmarks of 1.8 mbpd. Consequently, fiscal (oil) receipts for the
quarter are likely to fall below the budgeted, with possible adverse implications

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on the level of public sector borrowing requirements amidst a rising public debt.
Also, accretion to external reserves and excess crude accounts would be
adversely affected.
Inflation data from NBS shows that the upward trend in the headline inflation (yo-y), which started since September 2019 when all the land borders were
closed, had continued. In June 2020, headline inflation rose to 12.56% (y-o-y)
from 12.4% in May 2020 due to increase in both food and core inflation. These
increases are the highest since April 2019, reflecting the effect of the COVID-19
containment measures. Food price inflation (y-o-y) rose from 15.04% in May
2020, to 15.18% in June 2020, driven by prices of farm produce. Core inflation (yo-y) rose from 10.12% in May 2020, to 10.13% in June 2020, due to the rise in
prices of furnishings, household equipment & household maintenance.
Data on the monetary aggregates shows that Broad Money Supply, M3, grew
by 1.64 % in June 2020 (3.27% annualized), below its provisional benchmark of
11.74% for 2020. Aggregate credit to the economy grew by 5.16% in June 2020.
Credit to the private sector grew by 9.32%, annualized as 18.65%, which is well
above its programmed target of 14.94% for 2020. Reserve Money, however,
grew by 52.91% to N13,257.04 billion in June 2020, which was 6.31% above its
provisional target of N12,470.52 billion for Q2 2020. This increase was due to the
implementation of the recent increase in CRR.
Report on the Banking System Stability Review shows that despite the challenges
posed by the COVID-19 lockdown, the banking system remained sound and
resilient. The industry capital adequacy ratio had increased to 15% in June 2020,
which meets the industry prudential benchmark. The Non-performing loans ratio
(NPL) has declined to 6.4% in June 2020 from 6.6% in April 2020 and 9.36% in the
corresponding period of 2019. Total Assets of the industry has continued to rise,
standing at N47.82 trillion as at end-June 2020. Total banking industry credit to
the economy has continued to increase even during the months of the

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lockdown, standing at N18.9 trillion as at end-June 2020. Following the
introduction of the LDR policy, total gross credit increased by N3.33 trillion
between May 2019 and June 2020. Most of this increase in credit was extended
to manufacturing, consumer credit, general commerce, ICT and Agriculture.
Reports of the implementation of the CBN's COVID-19 intervention shows
significant progress in disbursements. Over 152.9 billion (or 15.2%) of the N1
trillion targeted support for the Manufacturing sector has been disbursed. Out of
the N100 billion Healthcare funds, N26.278 billion (or 26.3%) have been disbursed
to fund 20 projects in the healthcare sector. Additional 16 applications totalling
N67.413 billion were under processing. Out of the N50 billion Targeted Credit
Facility for Households and MSMEs, N49.195 billion have been disbursed to 91,736
beneficiaries, and N1.5 billion was disbursed to 169 beneficiaries under the
Creative Industry Financing Initiative. Under AGSMEIS, N41.41billion has been
disbursed to 11,613 beneficiaries.
Given that these facilities were given at 5% interest rate, successful and timely
disbursement of the entire N3.5trillion will go a long way in providing the needed
low-cost liquidity to businesses and households as the economy gradually reopens. Staff projections suggest that, with a successful implementation of the
Federal Government's Economic Sustainability Plan, real output growth is
expected to range between -0.39% and -0.16% in 2020, and between 0.7% and
1.48% in Q1 2021 depending on the level of oil price. Inflation is forecasted to
continue on its upward trend throughout 2020 due to the rising exchange
market pressure, higher food costs due to the supply chain disruptions, the
continued closure of all land borders, insecurity in the food-producing areas,
and higher transport costs. Review of the domestic economic developments
suggests that the heterodox policies and the COVID-19 interventions are
showing good signs of effectiveness as credit flows to the private sector
continue to increase despite the lockdown.

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3.0
The Basis for My Policy Choice
While I believe monetary policy must be eased in the face of an impending
recession, a key consideration is the threat of inflation. Also, the various
heterodox policies and COVID-19 intervention funds have significant potential
for injecting the needed liquidity at a relatively low cost. Although the monetary
aggregates under-performed in the quarter, the potential liquidity injection from
the implementation of these policies in the face of rising inflation calls for
caution in the execution of the needed policy easing. I, therefore, voted to hold
all policy parameters, for now, to allow for the combined effects of these
policies to work themselves out.
Consequently, I voted to:
Retain the MPR at 12.50 per cent;
Retain the CRR at 27.5 per cent;
Retain the asymmetric corridor at +200/–500 basis points; and
Retain liquidity ratio at 30.0 per cent.

Classified as
9. SHONUBI, FOLASHODUN A.
Uncertainties about the timing and path of recovery of global economy from
the disruptions of Covid-19 pandemic, have heightened, due to swelling cases
of infection around the world. The spill over strain on the domestic economy is
further aggravated by price instability in the global oil market, amidst output
reduction, in compliance with the OPEC+ oil production quota cut deal. Even as
emerging data on actual output loss in few jurisdictions are less than projected,
the overall negative impact of the pandemic has surpassed anticipated levels,
on account of deeper disruptions in most economies. Imminence of an
unprecedented global economic recession notwithstanding, muted initial
impact in the first half of 2020 amidst sustained largescale monetary and fiscal
interventions in critical sectors provide a glimpse of hope for a less damaging
effect on the domestic economy.

Global and Domestic Economic Developments
The global economy continued to experience significant downturn as a result of
widespread shut-ins, induced by extended lockdowns and continued disruption
to the global supply chain, due to Covid-19 containment measures. Worsening
sentiments and difficulty of navigating the aftershock of the health crisis across
many jurisdictions, as well as, near total freeze of global trade, have further
deepened output loss in the first half of 2020. Despite the preliminary indication
of gradual resumption of activities in some advanced economies, cautious
restart by enduring businesses trying to implement workplace safety practices
and slower recovery in economies with decreasing infection rates have dimmed
hopes for quicker recovery. The IMF, in its latest forecast, predicated on higherthan-usual uncertainty, projected a global economic contraction of 4.9 per
cent in 2020.

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On the domestic scene, accelerated increase in general prices continued for
the 10th consecutive month, with domestic headline inflation at 12.56 per cent in
June 2020, compared with 12.40 per cent in May 2020. Food inflation rose to
15.18 per cent, from 15.04 per cent in the preceding month, as persisting
shortage in supply of imported food, as well as, disruption to production and
distribution of local food push prices up. Core inflation rose marginally to 10.13
per cent in June 2020, from 10.12 per cent in May 2020, possibly indicating
dissipating exchange rate pass through effect to prices.

Slowdown in output growth to 1.87 per cent in the first quarter of 2020, on
account of moderated expansion in both the oil and non-oil sector reflected
the impact of disruption to economic activities due to measures to contain the
pandemic, and low oil price. Though employment level index for manufacturing
PMI impressively to 38.8 per cent in June 2020, from 24.5 per cent in May 2020,
other indicators of production activity, including composite manufacturing PMI
and index of mining production declined, relative to the levels in May 2020.

Major prudential indicators in the banking sector were within acceptable levels,
underscoring the resilience of the sector. Growth in the size of the sector
continued, as total assets, deposits and credit maintained their upward trend.
Industry capital adequacy ratio was at 15.0 per cent, same as the minimum
prudential requirement, while liquidity ratio moderated to 37.0 per cent but was
above the 30.0 per cent regulatory threshold. Non-performing loans ratio
improved marginally to 6.4 per cent in June 2020, from 6.6 per cent in April 2020.
Returns on equity and investment remained positive.

The fiscal authority continued to struggle with challenges of low revenue, high
expenditure and growing deficit. Despite the revision of 2020 budget,
expenditure remained significantly above projected revenue, resulting shortfall is

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to be financed by increased borrowing. Though import has reduced
significantly, corresponding decline in both oil and non-oil export heightened
vulnerability in the external sector. Shrinking foreign exchange revenue due to
low oil price and production, as well as, drying capital flow and remittances
have precipitated an overall Balance of Payments deficit, with implications for
exchange rate pressure.

The monetary sector and financial markets were characterised by mixed
developments. Annualized growth of broad money supply (M3) and credit to
government were below the indicative benchmark for 2020, while growth of
credit to the private sector surpassed the target. Money market rates generally
trended lower, on account of high banking sector liquidity buoyed by increased
intervention stimuli. Stock market capitalization rose, due to listing of additional
securities, while the All Share Index fell, on account of profit taking by investors.

Considerations and Decision
Though slight rebound in the Asian economy may have rekindled hope for lesser
damage to the global economy, extended disruptions in other regions have,
however dimmed prospects for faster recovery. With the unprecedented
amount of monetary and fiscal support helping to keep economies running at
minimal levels, resurgence of Covid-19 infection rate and rising geopolitical
tensions are likely to further slowdown recovery. For emerging markets and
developing economies like Nigeria, low capital flow, drying remittances,
troubled oil market, tighter financial conditions and rising debt highlights the
need to intensify measures that fully leverage peculiar robust resource base to
achieve a reset of the dynamics of the domestic economy towards sustainable
growth and development.

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On the domestic front, while various interventions by the Bank and Government
have significantly mitigated the negative impact of the pandemic, the
economy remained challenged by uptick in inflation, weak output and
productivity, high unemployment, tighter fiscal space and heightened external
sector vulnerability. Proactive measures in the banking sector by the CBN,
including the Forbearance and LDR policies, have helped to forestall significant
asset deterioration that may have arisen from the impact of the pandemic. The
policies have also allowed banks to provide much needed credit to critical
sectors. I believe that by sustaining the stringent supervisory and interventionist
measures, we will be able to preserve the resilience of the sector.
The fiscal authority, as the biggest spender, obviously need all available
resources to effectively play its role of major stimulator of economic activity. I
therefore urge the authority to not only strive to mobilise needed resources,
including exploring the low interest rate regime in the domestic environment to
fund the Economic Sustainability Plan (ESP), but more importantly ensure
judicious implementation to further reduce negative impact of the pandemic.
Sub-optimal performance of major monetary aggregates continued to provide
room to accommodate upscale of monetary and fiscal stimuli to facilitate
increased economic activities.
In the external sector, I note with some concern that, while imports have fallen,
the more than proportionate decline in oil and non-oil export is an unusual trend
that is creating a different form of vulnerability. Persisting deficit trade balance
effectively exposes fragility of the sector. I therefore opined that we pursue more
aggressively, measures designed to ensure continuous growth of oil and non-oil
tangible exports to achieve a favourable trade balance. The indigenous Gold
purchase initiative also provide an opportunity to strengthen our external sector.
Addressing high inflation and interest rate, is of course a major concern for the
Bank, especially towards maintaining price stability. However, considering the
devastating impact of the pandemic and the resulting productivity, output and

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job losses, the task of facilitating expansion of economic activities and
promoting output growth has become imperatively urgent. Moreover, our
experience in recent times has shown that interest rate in particular, responded
more to the intervention activities of the Bank than changes in the MPR, which
now serve more as a signaling and less as an anchor rate.
To date, our interventions, largely to promote consumption and production,
have generated tremendous outcomes, including better opportunities for
household members to pursue their aspirations, ramping up of agricultural
output, establishment of micro, small and medium enterprises, as well as,
capacity expansion in large corporations. These have deepened ability of the
economy to effectively absorb the impact of the present shock. Hence, while
we quickly appraise the impact of our actions, to identify gains and gaps, it is
rational to allow some more time for the full effects of our most recent
intervention activities and adjustment of the policy rate, to fully permeate the
economy. We can make the third quarter of 2020 a critical turning point, if we
sustain the productivity enhancing support for agricultural and industrial sectors.

As we sustain the progress, by taking advantage of our peculiar strength and
allowing internal forces to drive growth, I believe the next priority is to
aggressively facilitate intervention in the infrastructure space to significantly
reduce the deficit, thereby unlocking constraints that limits ability of enterprises
to achieve their optimal productivity and potential output levels.

I therefore vote to retain:
• MPR at 12.5 per cent;
• The Asymmetric Corridor of +200/-500 basis points around the MPR
• Cash Reserve Ratio (CRR) at 27.5 per cent; and
• Liquidity Ratio at 30.0 per cent.

Classified as
10. EMEFIELE, GODWIN I.
GOVERNOR OF THE CENTRAL BANK OF NIGERIA AND CHAIRMAN, MONETARY
POLICY COMMITTEE
Global macroeconomic stability was significantly impaired in the first half of
2020 due to the widespread covid-19 pandemic, leading to a high degree of
uncertainty in the short-term outlook. Though many countries have begun to
ease lockdown measures and relax social-distancing restrictions, the protracted
adverse effects on households (in terms of income losses) and on businesses
(with withered cashflows and weakened activities) are expected to acutely
undermine productivity, delay recovery, and diminish prospects in most
economies. Accordingly, growth forecasts are being downgraded while global
output stabilisation is deferred. IMF estimate of 2020 global output contraction
worsened to –4.9 percent from the –3.0 percent previously forecasted. This
downgrade affected all countries and regions, with growth lowered by about
2.0 percentage points in both advanced economies and EMDEs; though
positive global growth is projected to re-emerge in 2021.
Headwind from the covid-19 pandemic also debilitated business activities and
weakened sentiments in the domestic economy while dampening near-term
growth prospects. Combined with the concomitant softening of crude oil
prices, this caused elevated FX market pressure, constricted fiscal space,
destabilised household and business incomes, and decelerated economic
activities. Accordingly, 2020 GDP growth may fall below the 1.9 percent
recorded in 2020q1 with a genuine possibility of contractions in the remaining
quarters, if not well-managed. Recent realities indicate the need for
coordinated efforts among policymaking authorities to ensure a quick rebound
of the economy and strengthen short-term outlook. Deteriorating prospects,
due to global headwinds and local imbalances, provide opportunity for us to
reposition the economy, prop domestic productivity, and strengthen demand.

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With the non-oil sector as the critical base of the economy, complete and
accelerated diversification of the economy is imperative now, more than ever.
In this regard, and in view of the current covid-induced adverse shocks, the
CBN has increased the scale and scope of development financing and will
intensify efforts at resolving underlying structural deficiencies. I note the CBN’s
liquidity assistance and targeted support to incentivize domestic production,
bolster supply and stimulate the Nigerian economy. The N50 billion Household
and SME facility and the N100 billion healthcare intervention (both aimed at
neutralising the adverse effects of the pervading shocks) have been extensively
disbursed. Likewise, the N1 trillion manufacturing and agriculture intervention to
spur the rebound of the economy through high impact productive sectors are
being disbursed purposefully.
On domestic prices, the rising inflationary trend which began in September
2019 due to structural factors was aggravated by the pandemic-derived supply
shocks. From 12.4 percent in May 2020, year-on-year headline inflation rose to
about 12.6 percent in June 2020, reflecting increases in both food and core
components. This is partly attributable to the lingering effects of disruptions and
challenges
around
agricultural
belts,
and
infrastructural
complications
(aggravated by covid-19 setbacks to interstate distribution network). The spillover effects of these adverse impulses are expected to persist in the short-term
and abet inflation inertia for much of 2020.
Liquidity outturn in June 2020 was sub-par as monetary expansion fell below the
indicative benchmark while money market rates rose. Weighted average interbank call and open-buy-back rates increased from 5.2 and 5.8 percent,
respectively, in May 2020 to 5.8 and 11.3 percent in June. Annualised at 3.3
percent, expansion of broad money stock (M3) fell below the targeted 13.1
percent. This expansion fundamentally reflected the 13.2 percent annualised
growth in private sector credits.

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Data indicate that total gross credit grew by N3.3 trillion since May 2019 to
N18.9 trillion in June 2020 showing increased lending to manufacturing,
consumer credit, general commerce, ICT, and agriculture. This illustrates the
continued potency of CBN’s LDR policy. Even with an increasingly fragile global
macro-financial condition and rising domestic credit, the Nigerian banking
sector remained largely resilient with NPLs ratio continuing to moderate from
11.2 percent in May 2019 to 6.4 percent in June 2020. Yet, I note the imperative
of sustained credit flows to the private sector, especially at this critical time
when the productive machinery of the economy needs liquidity support to
prop domestic supply. To help local firms cushion the consequences of the
pandemic, the CBN is working with banks to restructure lending and grant
increased forbearance to businesses which require such to survive. The CBN will
continue its drive to de-risk lending and increase targeted intervention to
strategic high impact private sector ventures through effective collaboration of
all stakeholders, especially on the backdrop of the imminent economic
downturn.
In my consideration, I acknowledge that the objective of price and exchange
rate stability remain central without losing sight of the need for output
stabilisation. I note that both inflation and exchange rate expectations are
elevated in the short-term while growth outlook is weakened. Economic
contraction is almost certain in the 2020q2 and slowdown likely throughout
2020. This holds undesirable ramifications for poverty, unemployment and
potential output. I resolutely favour measures to forestall a recession or at least
curtail its lifespan and severity. Yet, it is important to ensure that measures to
support growth do not undermine price stability.
I note that tightening at this time, to curb inflation, will not only negate our last
decision to ease, but will further constrict domestic productivity and avoidably
plunge the economy into a deeper and more painful contraction. Conversely,

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a further easing of policy stance will evidently support growth but will worsen
inflation inertia. Besides, further rate cuts will elicit negative real MPR which
could destabilise investment decisions and potentially lead to indeterminate
domestic equilibrium. I am of the view that since impulses from the last policy
adjustment are still filtering-through the system, it is imperative to be cautious
with our decisions.
With rising inflation expectations and weak growth outlook, my inclination is to
maintain the current stance of monetary policy and hold all parameters. This
will allow a sustained permeation of recent policy actions –including the various
counter-covid interventions– and avoid undue policy shocks to the system. In
my view, an adjustment could complicate the impulse-response traverse of
recent changes and culminate to indeterminate outcomes. Maintaining the
status quo could, however, balance the long-run objectives of price stability
and output stabilisation without disrupting the path of equilibrium. Therefore, I
vote to:
1. Retain the MPR at 12.5 percent;
2. Retain the asymmetric corridor at +200/–500 basis points;
3. Retain the CRR at 27.5 percent; and
4. Retain liquidity ratio at 30.0 percent.

GODWIN I. EMEFIELE, CON
Governor

July 2020