CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 142 OF THE MONETARY POLICY
COMMITTEE MEETING HELD ON MONDAY 23rd AND TUESDAY 24th May 2022
The Monetary Policy Committee (MPC) met on the 23rd and 24th of May 2022
confronted with declining global growth and heightened uncertainties
associated with adverse price developments across the world. These
developments partly reflect the aftermath of the ongoing war in Ukraine, the
backlash from the numerous sanctions imposed on Russia by major Advanced
Economies, as well as persisting supply chain disruptions in major trading routes.
At the same time, the Chinese economy remained confronted with the
lingering impact of the COVID-19 pandemic, total lockdown of major cities,
significant distortions in the property market and modest inflationary pressures.
Consequently, Advanced Economy and Emerging Market Economy central
banks alike, are switching to monetary tightening to curb the sharp rise in
inflation globally.

Even as global output growth recovery moderates, the domestic economy is
expected to remain on the current path of recovery through 2022. This is hinged
on the continued impact of stimulus by both the monetary and fiscal authorities
to support the economy following the outbreak of COVID-19 pandemic. The
Committee assessed these developments and the outlook for the rest of the
year.

Eleven (11) members of the Committee attended this meeting.

Global Economic Developments
Global output growth commenced a broad slowdown in the first quarter of
2022, as a result of the conflict between Russia and Ukraine, after recovering
considerably in 2021. This led to massive supply constraints, with the backlash of
sanctions against Russia creating huge macro-economic imbalances for
several countries. Consequently, the uncertainties that have arisen are buoyed
by the resumption of the spread of the COVID-19 pandemic in China, a key hub
of global manufacturing. This has given rise to upside risks to inflation and
downside risks to growth.

In addition, the huge amount of stimulus deployed by various countries to ease
the downsides of the COVID-19 pandemic, particularly in 2021, has predisposed
the global economy to huge debt levels, considering the current burgeoning
global private and public debt portfolios. Central banks in both the Advanced
and Emerging Market Economies have thus commenced monetary policy
tightening to curb rising prices. This could impact the recovery negatively and
result in a rise in debt default as global financial conditions tighten. Furthermore,
China has also re-introduced constraining measures to mitigate the spread of
a new wave of the COVID-19 pandemic within its major industrial cities, resulting
in a slowdown in production. In light of these headwinds, the International
Monetary Fund (IMF) downgraded its forecast for global output growth for 2022
and 2023 to 3.6 per cent apiece from 4.4 and 3.8 per cent, respectively,
reflecting the severity of setbacks to the global recovery.
Inflation continued to rise unabated across several Advanced Economies and
is projected to remain high, at least in the medium term, as food and energy
prices pushed higher to levels not previously recorded in four decades. This is
due to tightening supply amidst closure of major trade routes that supply inputs
for food and fertilizer, as well as the high price of energy. In the Emerging Market
and Developing Economies (EMDEs), inflation also remained high due to a
combination of persisting high food and energy prices; supply chain disruptions

associated with the impact of sanctions against Russia; exchange rate pressure;
capital flow reversals; as well as underlying legacy constraints.
In the global financial markets, investor confidence is gradually being restored,
evidenced by portfolio rebalancing with the gradual decline in gold price. The
demand for advanced economy equities and bonds has improved with the
commencement of interest rate lift-off led by the US Fed and the Bank of
England, resulting in the outflow of capital from emerging market securities.
Global financial conditions are thus, expected to tighten in the near term, as
risk-averse investors reassign substantial portions of their portfolios from
perceived riskier, though more rewarding Emerging Market securities to less risky
advanced economy securities.
In general, the global economy and financial markets, are confronted with
significant risks in the medium term as the huge build-up of both private and
public debt may push several fragile economies into a new era of recession.
Domestic Economic Developments
According to the National Bureau of Statistics (NBS), Real Gross Domestic
Product (GDP) grew by 3.11 per cent in the first quarter of 2022, compared with
3.98 per cent in the fourth quarter of 2021 and 0.51 per cent in the
corresponding period of 2021. This is the sixth consecutive quarter of real output
expansion, following the economy’s exit from recession in 2020. This steady
positive performance, was driven largely by the growth in aggregate
consumption, arising from the continued policy support at the onset of the
pandemic and gradual recovery of aggregate demand.
Headline inflation (year-on-year) ticked up to 16.82 per cent in April 2022 from
15.92 per cent in March 2022, 90 basis points increase. This is the third
consecutive increase in inflation since the commencement of the year 2022,
attributable to the rise in both the core and food components to 14.18 and
18.37 per cent in April 2022 from 13.91 and 17.20 per cent in March 2022,
respectively. The rise in headline inflation resulted from rising energy prices

associated with the epileptic supply of Premium Motor Spirit (PMS), high cost of
Automotive Gas Oil (AGO), mostly used in transportation and production as well
as a progressive hike in electricity tariffs. The increase in the food component
was driven by shocks to food prices associated with persisting security
challenges in major food-producing areas and legacy infrastructural problems
which continue to hamper food supply logistics and storage across the country.
Broad money supply (M3) rose significantly to 6.22 per cent in April 2022,
compared with 4.19 per cent in March 2022. This was largely driven by strong
growth in Net Domestic Assets (NDA) of 11.86 per cent in April 2022, compared
with 8.82 per cent in the previous month. The growth in NDA was attributed to
the increase in claims on the Federal Government and other sectors (public
non-financial corporations, private sector, and state and local governments).

Money market rates oscillated within and outside the Standing Facilities Corridor
(SFC), reflecting the prevailing liquidity conditions in the banking system.
Consequently, the monthly weighted average Open Buyback (OBB) and
Interbank Call rates increased to 7.49 and 8.67 per cent in April 2022, from 6.62
and 4.50 per cent in March 2022, respectively. The increase in rates was an
indication of the tight liquidity conditions in the banking system during the review
period.
The performance of the equities market remained strong and positive in the
review period, with the All-Share Index (ASI) and Market Capitalization (MC)
increasing significantly from 46,965.48 and N25.31 trillion on March 31, 2022, to
52,979.48 and N28.56 trillion on May 20, 2022, respectively.

In the Banking System, the Capital Adequacy Ratio (CAR) and the Liquidity Ratio
(LR) remained above their prudential limits at 14.6 and 43.7 per cent,
respectively. The Non-Performing Loan (NPL) ratio stood at 5.3 per cent in April
2022, compared with its prudential limit of 5.0 per cent, reflecting sustained

stability in the banking system, though there remains a need to bring this down
to the prudential limit.
Gross external reserves declined moderately to US$38.36 billion as at May 19th,
2022 from US$39.28 billion at end-March 2022. This was attributed to the weak
accretion to the reserves from exports and the high cost of importation of refined
petroleum products.
The Committee reviewed the performance of the Bank’s intervention schemes
targeted at stimulating productivity in agriculture; manufacturing/industries;
energy/infrastructure; healthcare; exports; and micro, small and medium
enterprises (MSMEs).

Between April and May 2022, the Bank released the sum of N57.91 billion under
the Anchor Borrowers’ Programme (ABP) to 185,972 new projects for the
cultivation of rice, wheat, and maize, bringing the cumulative disbursement
under the Programme to N1.01 trillion, disbursed to over 4.2 million smallholder
farmers cultivating 21 commodities across the country.

The Bank further disbursed the sum of N1.50 billion, under the Accelerated
Agriculture Development Scheme (AADS), to one (1) new youth-led project,
piloted and funded through the Government of Ondo State for the acquisition
of assets for oil-palm cultivation and the establishment of poultry farms. This
brings the total disbursement under the Scheme to N21.23 billion for 10 state-led
and three (3) private sector-led projects.

In addition, the Bank released N21.73 billion to finance seven (7) large-scale
agricultural projects under the Commercial Agriculture Credit Scheme (CACS).
The funds were utilized for the establishment of a ranch and milk processing
facility; procurement of feed and medication for livestock/dairy production;
construction of a 300 metric-tonne per day oil mill in Gusau, Zamfara State;
acquisition and installation of an agrochemical factory; as well as purchase and
stockpiling of homegrown maize for animal feed production. This brings the

cumulative disbursement under this Scheme to N741.05 billion for 674 projects in
agro-production and agro-processing.

Under the Paddy Aggregation Scheme (PAS), N6.20 billion was disbursed by the
Bank to three (3) new projects for the purchase and mopping-up of home-grown
rice paddy. This brings the total funds disbursed to 42 integrated rice millers under
the PAS to N106.39 billion.

To support the growth of the manufacturing sector, the Bank disbursed the sum
of N436.85 billion to 34 new projects under the N1.0 trillion Real Sector Support
Facility (RSSF). This was utilized for both greenfield (new) and brownfield
(expansion) projects under the COVID-19 Intervention for the Manufacturing
Sector (CIMS) and the Real Sector Support Facility from Differentiated Cash
Reserve Requirement (RSSF-DCRR). Cumulative disbursement under the RSSF for
the financing of 402 real sector projects across the country, currently stands at
N2.10 trillion.

The Bank disbursed N55.34 billion, under the 100 for 100 Policy on Production and
Productivity (100 for100 PPP), to 44 projects, comprising 24 in manufacturing, 17
in agriculture, 2 in healthcare, and 1 in the services sector.

In the healthcare sector, the Bank disbursed N17.70 billion to four (4) healthcare
projects under the Healthcare Sector Intervention Facility (HSIF), bringing the
cumulative disbursements to N130.49 billion for 126 projects, comprising 58
hospitals, 31 pharmaceuticals and 37 other healthcare services.

The Bank released the sum of N21.00 billion Under the Export Facilitation Initiative
(EFI), for three (3) projects in domestic production and value addition of cocoa
and sesame seed. This intervention is targeted at further expansion of the
economy’s non-oil export basket towards improving foreign exchange revenue
earnings for the country.

To support micro, small and medium enterprises (MSMEs), the Bank disbursed
N1.50 billion to 2,718 new projects through the Agri-Business Small and Medium
Enterprises Investment Scheme (AgSMEIS) for activities in fish farming, rice
processing, wheat farming, poultry farming, livestock farming, ICT and tailoring
amongst others. This brings the cumulative disbursements under AgSMEIS to
N136.13 billion.

Under the Micro, Small, and Medium Enterprises Development Fund (MSMEDF),
the Bank disbursed N2.79 billion to support youths engaged at various nodes of
the agricultural value chain, bringing the total disbursement under this
intervention to N98.88 billion to 749 MSME projects across the country.

In energy/infrastructure, the Bank released N15.71 billion to power sector players
including generation companies (GenCos) and gas companies (GasCos),
under the Nigeria Bulk Electricity Trading Plc – Payment Assurance Facility
(NBETPAF), bringing the cumulative disbursement under the facility to N1.30
trillion. The sum of N22.67 billion was also released to Distribution Companies
(DisCos) for their Operational Expenditure (OpEx) and Capital Expenditure
(CapEx), under the Nigeria Electricity Market Stabilisation Facility – Phase 2
(NEMSF-2). Cumulative disbursement under the NEMSF-2 currently stands at
N251.93 billion.

Additionally, under the National Mass Metering Programme (NMMP), the Bank
has disbursed N0.19 billion to DisCos for the procurement of electricity meters,
bringing the cumulative disbursement for the procurement and installation of
865,956 meters across the country to N47.82 billion. Interventions in
energy/infrastructure are designed to improve investment and develop
enabling infrastructure in the Nigeria Electricity Supply Industry.

Outlook

The broad outlook for both the global and domestic economies in the
mediumterm, remains clouded with uncertainties arising from the lingering war
between Russia and Ukraine, the unfolding impact of the extensive sanctions
imposed by several countries on Russia, and the downside risks from the
continued spread of the COVID-19 Pandemic.
Global growth is thus confronted with significant headwinds which may derail
the current projection further. The persisting rise in inflation, is also set to
undermine the recovery of output growth, due to the associated build-up of
uncertainties around the cost of inventory and other production inputs. The rise
in global debt is also an unfolding dilemma which policy makers must carefully
evaluate and address to avert a near-term global financial crisis. In summary,
while global aggregate demand remains strong and growing, the numerous
supply-side constraints will continue to undermine the recovery effort, at least in
the short to medium term.
In the domestic economy, data on key macroeconomic variables indicate that
the recovery of output growth will continue, probably at a more subdued pace,
considering the unfolding domestic and external shocks to the economy.
Domestic price development is, however, expected to maintain an upward
pressure in the light of the build-up of increased spending related to the 2023
general elections.

Consequently, the Nigerian economy is expected to grow, in line with CBN
forecast of 3.24 per cent in 2022. However, the FGN forecast is at 4.20 per cent,
while the IMF projects Nigeria’s growth in 2022 to be 3.40 per cent.

The Committee’s Considerations
At this meeting, the MPC noted the risks confronting the global economy, as
those associated with, not only inflation and prices, but also include risks
associated with weakening growth prospects across the world.
The Committee observed that whereas post-pandemic policy support has
remained broadly expansionary, at least, from a fiscal standpoint, the sharp rise
in inflation across both the Advance & Emerging Markets Economies has
generated growing concern amongst central banks, as the progressive rise in
inflation, driven by rising aggregate demand and wage growth, is putting
unsustainable upward pressure on price levels. Consequently, major central
banks such as the US Fed, Bank of England, European Central Bank, and Bank
of Canada have provided strong guidance for a progressive shift away from
monetary policy accommodation to drive market interest rate upward, which
may ultimately impact capital flow away from Emerging Market Economies.
On another hand, MPC noted that the war between Russia and Ukraine has
resulted in significant disruption of the global supply chain, at a time when the
global economy is still confronted with downside risks to growth associated with
the Covid 19 pandemic. In addition to this, global trade has been impacted by
the series of restrictions imposed by NATO countries and its allies against trade
with Russia. This has increasingly fragmented the global economy, imposing
huge strains on the tepid post-pandemic recovery. Only recently, China, the
USA, and South Africa are seeing a renewed spike in COVID-19 infections. As a
result, the Chinese government recently re-introduced lockdown in major
industrial cities, to forestall the spread of the pandemic: further disrupting the
supply chain crisis. In the view of the MPC, these two risks pose great challenges
to rising inflation globally.
For the domestic economy, the MPC noted with delight that the GDP grew by
3.11 percent in Q1, 2022 (y-o-y), highlighting a steady recovery for the 6th
consecutive quarter. Quarter on quarter real GDP grew by 9.36 percent, a slight
moderation from 11.07 percent in the previous quarter. The MPC however was

concerned about the somewhat aggressive rise in inflation by almost 90 basis
points in April, 2022. To dampen the expectation of the inflationary pressure,
MPC decided on the need to take a shift from its historically cautious approach
on interest rate, to a policy rate hike, while still adopting an accommodative
approach to development finance initiatives that have supported the growth
of the economy and sustained recovery. The MPC is of the view that rates on
the development finance initiatives of the Bank should remain at 5 percent till
March, 2023.
Consequently, as regards the decision on whether to hold. tighten or loosen,
MPC feels that loosening in the face of the rising policy rates in Advance
economies may result in a sharp rise in capital outflow and faster dry-up of
foreign credit lines. MPC also feels that loosening could lead to further liquidity
surfeit and inflationary pressure. S to whether to hold, MPC feels its stance would
strengthen the perception that the CBN has abandoned its primary mandate
of taming inflation.
On the need to tighten, MPC feels that tightening would help moderate the
inflationary trade-off from the steady growth recovery so far. MPC also feels
that tightening would help rein in inflation before it assumes a galloping trend,
considering the progressive increase in headline inflation (m-o-m), particularly
with the sharp 90 basis point increase in April, 2022.
Furthermore, MPC feels that tightening would narrow the negative real interest
rate margin, improve market sentiment and restore investor confidence.
Equally, members believe tightening would moderate inflationary pressure
pass-through to exchange rate depreciation and moderate the speed of
capital flow reversal, provide incentives for foreign capital inflows and sustain
remittances. Lastly, tightening could moderate government domestic
borrowing, as government debt servicing to revenue ratio increased
significantly in recent times, threatening debt sustainability.

The Committee’s Decision
Members expressed deep concern about the continued uptrend of inflationary
pressure. Despite the gradual improvement in output growth. The Committee
noted that the current rise in inflation may be inimical to growth, and thus hinder
the full recovery of the economy. While the MPC identified several supply-side
factors which may be contributing to inflationary pressure, emerging evidence
shows that money demand pressure is on the rise and is unlikely to abate until
the 2023 general elections are concluded. The dilemma confronting the
Committee at this meeting, therefore, is how best to drive down domestic prices
while continuing to support the fragile recovery.
In the current circumstance, the Committee was of the view that it was
confronted with the choice of either to hold all policy parameters constant to
allow previous policy measures to continue to support growth or tighten the
stance of policy to curb money demand growth and upward movement of
domestic prices. A loosening option would likely result in an increased liquidity
surfeit, rise in inflationary pressure, and further pressure on the exchange rate.
The choice of holding, in the view of Members, would not only continue to
support growth, even though moderately, but will also allow the growth of
money demand to continue at the current pace, leading to the uptick in
inflationary pressure. While growth concerns remain paramount to the
Committee, the persistent uptick in domestic price levels is clearly a downside
risk to growth, that must be addressed urgently.
While it may seem contradictory to raise rates in the face of fragile growth, this
is the dilemma that most Central banks around the world are grappling with at
the moment. Yet, on balance, it is quite clear and compelling that tackling
inflation is more urgent in the sequence of policy objectives. In this regard, the
MPC urged the Bank to redouble its efforts at supporting the priority
growthenhancing sectors of the economy while urging the Federal government
to do more to provide a safe and secure environment for economic agents to
boost activities and growth.

After carefully reviewing the developments of the last two months and the
outlook for both the domestic and global economies, as well as the benefits
and downsides of each policy option, the Committee decided to raise the
Monetary Policy Rate (MPR) to rein in the current rise in inflation as Members
were of the view that the continued uptrend would adversely affect growth.
The Bank further reaffirmed its commitment to continue to provide support to
priority sectors as the need arises to support growth until the current upward
pressure in price development abates.
The Committee thus decided by unanimous vote to raise the Monetary Policy
Rate (MPR). Six (6) members voted to raise the MPR by 150 basis points, four (4)
members by 100 basis points, and One (1) member by 50 basis points.
In summary, the MPC voted to:
I.
Raise the MPR to 13.0 per cent;
II.
Retain the asymmetric corridor of +100/-700 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
24th May, 2022

PERSONAL STATEMENTS BY THE MONETARY POLICY COMMITTEE MEMBERS
1. ADAMU, EDWARD LAMETEK
The Russia-Ukraine war continues to weigh heavily on growth prospects in nearly
all countries while also fueling inflation globally. Food, energy and chemical raw
material output and prices are some of the immediate victims of the war and
its fallouts, especially the sanctions on Russia. Like in previous crises, the impact
of these developments is likely to be uneven across economies with some
possibly reaping transitory benefits, which however may not fully compensate
for loses in other areas. In addition to the war in Ukraine, the effects of the
coronavirus pandemic continue to be present. Although GDP growth softening
is expected across a broad spectrum of countries, emerging market and
developing economies (EMDEs) could experience a more severe impact
relative to the developed economies owing mainly to limited policy support.

Weakening output growth prospects is one side of the complication monetary
policy faces globally at the present. Another, perhaps more disturbing side is
the unfavourable inflation outlook. The sweeping downgrades in growth
projections by the IMF in April 2022 did not come as a surprise. Prior to the war
in Ukraine, many countries (including Nigeria) were already experiencing
severe inflationary pressures. In response, some emerging market and
developing economies (EMDEs) like Brazil, South Africa and Russia had
commenced policy tightening. Among the advanced economies, the United
Kingdom (UK), for example, had similarly commenced tightening in response to
a rapidly deteriorating outlook for inflation. Since the war broke, many more
central banks have joined the early responders. And so, interest rates are rising
globally because of the tightening actions of central banks, casting shadows
on growth prospects. A third dimension to the complication monetary policy
currently faces, especially from EMDEs’ angle, is deteriorating outlook for
capital inflow and the attendant exchange rate volatility. Rising yields in the
advanced economies due to policy normalization and rate hikes appear to
threaten capital inflows and exchange rate stability in these countries.

Monetary policy in most EMDEs currently faces the three shades of the
complication – poor inflation outlook, weakening output growth prospects and
capital flow instability. Nigeria could well have been facing all three today if
not for the sustained pro-growth policy maneuvers and development finance
interventions by the CBN in the real sector of the economy. On account of
these, output is stabilizing – with six (6) consecutive quarters of real GDP growth
post-recession, accompanied by a positive outlook for the rest of 2022.
Meanwhile, the short- to medium-term outlook for inflation and exchange rate
stability in the domestic economy continues to be hazy. I view the balance of
risks, looking forward, as having shifted against price stability owing to some
factors I have highlighted further down in this statement. This consideration
informed my decision to tighten the monetary policy stance at the May 2022
meeting of the Monetary Policy Committee (MPC).

My assessment of risks to growth and to price stability are outlined as follows:
First, against the background of several vulnerabilities emanating from the
global and domestic environments, real GDP grew by about 3.1 per cent in Q1
2022, the 6th consecutive growth since the coronavirus-induced recession in
2020. Although there remain some downside risks to growth including the war in
Ukraine, insecurity and infrastructure challenges, the outlook for growth,
predicated on improved credit and sustained targeted interventions in critical
sectors, continues to be stable. The IMF and the CBN have projected overall
growth for 2022 at 3.4 and 3.24 per cent, respectively, leaving some room for
adjustment in policy to address inflation concerns.

Second, the last few months have seen inflationary pressures intensify across
nearly all commodity baskets. As part of the adverse spillovers from the war in
Ukraine, food and energy prices are rising globally. In fact, the IMF sees inflation
remaining elevated for much longer than previously envisaged. For 2022,
inflation is projected at 5.7 percent in advanced economies and 8.7 percent in

emerging market and developing economies. Most of Nigeria’s trading
partners are experiencing historic high levels of inflation, implying increased risk
of imported inflation. In addition, being a pre-election year, election-related
increase in both private and public spending is already showing in rapidly
expanding monetary aggregates. It is therefore not surprising that headline
inflation rose to 16.82 per cent in April 2022 from 15.92 per cent in March. This
reflected increased pressure in both food and core components. On the
month-on-month basis, all the measures of inflation rose in April 2022. The current
inflationary pressures may be explained by multiple factors - supply shocks,
demand pull, inertia and increased inflationary expectation. Importantly, the
outlook for domestic consumer prices generally appears unstable and could
deteriorate further unless it is promptly addressed.

Third, the monetary policy orientation in fiscal 2021 through Q1 2022 aimed at
easing liquidity constraint in key sectors through development finance
interventions and credit expansion , while ensuring that banking system idle
balances remained minimal. This strategy appears to have worked very well on
the output side with recovery strengthening in nearly all the sectors of the
economy. However, inflation continued to be a major challenge. To such an
extent that the major drivers of inflation are supply-related, using
unconventional instruments aimed at boosting output (supply) would be
appropriate
since
conventional
instruments
are
essentially
demand
management tools. This view has underpinned the CBN’s approach to inflation
in the last 2 years. However, given the current situation in which demand has
become an important driver, I believe it is time to bring on board extra policy
levers.

Lastly, following several months of double-digit inflation, and given recent
multiple shocks, it is logical for expectation of further increases in prices to build
. A predominant role of monetary policy is to anchor inflation expectation. In
fact, those central banks that have commenced policy rate increase have

done so in part to anchor inflation expectation. The central bank has to signal
its discomfort with an undesirable path of inflation by doing something
fundamental – like raising its policy rate. I view the evolution of consumer prices
in recent months and the unstable outlook as credible grounds for some
monetary policy action.

The opportunity for tightening policy to lock-in inflation expectation appears to
be present now that the outlook for growth is sufficiently positive. This outlook is
underpinned by a favourable outlook for credit to the real economy. At endApril 2022, all major financial soundness indicators (FSIs) suggested the resilience
of the banking system. Capital adequacy ratio (CAR) remained robust at 14.62
per cent and the ratio of non-performing loans (NPLs) stood at about the
prudential limit of 5.0 per cent at 5.3 per cent. On the strength of the resilience
of the banking system and the CBN interventions, I expect continued adequate
funding for the critical sectors of the economy.
In conclusion, there is no doubt, monetary policy currently faces enormous
challenges globally given that risks are spread across both growth and inflation
objectives in most economies. Like I stated in March 2022, I see the need for
some innovative policy maneuvers in the rest of 2022 as there might be no easy
choices. For now, I am persuaded to raise the policy rate to address the
demand factors underlying current inflationary pressures and to also dampen
expectation of further increases in prices. In effect, I voted to:

1. Raise the MPR by 150 basis points to 13.0 per cent.
2. Retain the Asymmetric Corridor at +100/-700 basis points.
3. Retain the CRR at 27.5 per cent.
4. Retain the Liquidity Ratio at 30 per cent.

2. ADENIKINJU, ADEOLA FESTUS
International Economic Developments
The international economic environment remains uncertain, as the Russian
Ukrainian war intensifies and the sanctions on Russia continued to take effects.
The war, and the lagged effects of the pandemic, China lockdown and the
supply chain constraints have impacted negatively on global economic
growth and expected recovery. Hence, in both Advanced and Emerging and
Developing Countries (EMDC), inflation continues to soar at unprecedented
levels. These developments led the IMF to downgrade global output growth for
2022 to 3.6% from an earlier estimate of 4.4%. Global Composite PMI slowed to
51.0 index points in April 2022, from 52.7 points, a month earlier.
Commodity prices remain at their elevated levels in April and May. Oil price
remained high in May, in spite of US efforts of increasing oil supply. As of May
20, 2022, Bonny Light price stood at US$116.70/barrel. The FAO Food Price Index
(FFP) averaged 158.9 points at end April 2022, 1.5 points higher than at endMarch 2022. Global financial conditions have tightened significantly in May
2022 from where it was in January and February 2022. Global trade is forecasted
to decline in 2022 to 3.0% and rose marginally to 3.4% in 2023.

In their readiness to fight historic levels of inflation, Central banks in many
Advanced Economies have raised policy rates and indicated the likelihood of
future rate increases. This will have significant effects on capital flows and
interest rates on existing and future Eurobonds.
Domestic Economic Developments
Presentations of the Global Economic Developments and Outlook Report by
Bank Staff show mixed reports on the domestic economy. Real output grew in
2022Q1 at 3.11%, positive, though it declined from 3.98% in 2021Q4. Non-oil
sector, particularly, services, agriculture and manufacturing sectors drove the
growth rates. Oil sector contracted for the eighth consecutive quarter. Other
economic indicators were not so positive. Headline inflation rose to 16.82% in
April 2022 compared with 15.92% in March 2022. Core inflation rose to its highest
level since May 2017. Food inflation also rose to 18.37% in April 2022 from 17.20%
in March 2022. The Manufacturing PMI declined marginally to 48.9 index points
in April 2022, from 49.10 in March 2022. Non-Manufacturing PMI improved
marginally to 49.5 index points in April 2022 from 48.1 index points in March 2022.
Data also showed that index of electricity production, electricity generation
and electricity consumption in April 2022 declined relative to their values in
March 2022.
The exchange rate at the I&E windows have remained stable due to the
sustained intervention in the FX market by the CBN. This stability does not
however mirror the depreciation that occurred in the Bureau de Change
segment.
Monetary aggregates also rose in April 2022, at annualized rates that were
beyond their provisional levels. M3 grew at an annualized rate of 18.66% in April
2022, compared with the 2022 benchmark value of 15.21%. The growth was
mainly driven by Net Claims on Central Government that grew at annualized
rate of 78.87% compared with 11.42% 2022 benchmark rate, claims on other
sectors grew at annualized rate of 16.50% compared with 18.05% benchmark
rate for April 2022. However, there was significant decrease in Net Foreign Asset
by -48.57% compared with the benchmark rate of 0.89% for April 2022. OBB rate

also declined from 7.49% in March 2022 to 5.29% in April 2022, due to increase
in liquidity in the banking system. All Share Index however rose significantly from
46,638.94 index points in April 2022 to 52,979.96 on May 20, 2022.
The Fiscal performance remains alarming. Government deficit position
worsened in March 2022 relative to a year earlier, as increased in government
expenditure outpaced government revenue. Government debt rose from
N22.7 trillion end-December 2020 to about N35.10 trillion end-December 2021.
On the external sector, external reserves decreased marginally from US$39.28
billion end-March 2022 to US$39.13 billion as of April 25, 2022. Trade balance
improved marginally, while the current account balance declined between
2021Q3 and 2021Q4 respectively. Remittances rose from US$4.98 billion in
2021Q3 to US$5.03 billion in 2021Q4. FPI inflows declined from US$0.29 billion in
February 2022 to US$0.27 billion in March 2022, while FDI rose marginally by
US$100 million between the two periods.
CBN continued to make good progress in the development finance activities
as indicated in the Staff report. Between March and April 2022, total
disbursements stood at N449.83 billion on several sectors including agriculture,
MSMEs, Manufacturing, Energy and Infrastructure, Health, and Exports. These
development finance interventions impact on both the demand and supply
sides of the economy.
The Banking System Stability Review Report showed that in general the banking
system remain safe, sound, and resilient. The financial soundness indicators did
not change significantly from their levels as at the last MPC Meeting. Capital
Adequacy Ratio remained at 14.6% in April 2022, Non-Performing Loans Ratio
rose marginally to 5.3% in April 2022 from 5.1% in March 2022. Liquidity ratio also
rose to 43.7% in April 2022 from 43.1% in March 2022. There were no changes in
both returns on equity and returns on assets. However, operating cost to total
operating income rose from 75.5% in March 2022 to 77.3% in April 2022.
Measures of industry aggregates like total assets, total deposits and total credits
also maintained upward trajectories. Industry Credit increased by N4.65 trillions
between April 2021 and April 2022. This growth can be attributed primarily to

increased funding base of the industry and the CBN’s Loan to Deposit Ratio
(LDR) policy. All sectors of the economy have benefitted from the increased
lending with the top three being Oil and Gas, Manufacturing, and General.
However, governments rank as number four largest beneficiary of total credit.
In fact, in terms of sectors that recorded the highest increase in gross credit
between end-May 2019 and end-April 2022, Governments are in the top three,
after manufacturing and General (retail and personal loans). In terms of interest
on lending, 70.93% of loan recipients in April 2022, accessed those loans at 15%
or below, compared with 61.29% in March 2022. This shows more banks
customers were able to access loans at lower interest rates over the two
periods.
The Other Financial Institutions (OFIs) are also doing quite well. Between April
2021 and April 2022, OFIs grew total assets by 11%, total credit 21%, total deposits
16% and total borrowings by 11%. The OFIs provide the avenue for increasing
financial inclusiveness in the Nigerian economy.
My Concern
The Nigerian economy is projected to grow by about 3.24% in 2022. There are
downside risks to this projection including the security challenges, global oil
price developments, COVID 19 in China, uncertainty around elections in 2021,
among others. The rising inflation is also a downside risk to economic growth.
Current projection is that inflation will maintain current growth trajectory in the
near term. Inflation and positive inflationary outlook are a major threat to
economic growth, and employment generation.
I am worried that Nigeria is not able to benefit maximally from the current
upsides in the global oil market. We were not only unable to ramp up our
production levels to meet the OPEC quota, no accretion to foreign reserves is
also taking place, and government deficit and public debts are going north at
a time we should be writing down our debt profiles and even building up a
buffer for the inevitable raining days ahead,
The current food price shock is also a call for the country to reduce external
dependence and invest more on agricultural output and its value chain. The

country has sufficient land resources and favourable weather conditions to be
self-sufficient in many of the food products we import. The CBN is already doing
a lot of interventions in this area. The deposit money banks, and the fiscal must
complement the efforts of the Bank.
I am concerned about government budgetary performance. The rising share
of governments in total credit to the economy by the banking system suggests
crowding out effects of private sector borrowings. Governments should divert
to non-debt means of funding its activities. Government must grow its revenue
base, reduce waivers to economic agents, plug leakages and wastes, and
address the wasteful petrol subsidy system. The huge energy deficit must be
urgently addressed.
My Vote
My main concern in this meeting is the current elevated level of inflation.
Inflation is bad for growth, employment, and poverty reduction. The continue
increase in inflation rate since November 2021 is already affecting economic
agents. Evidence show that inflation expectations are positive, and second
round effects of inflation are already reinforcing current levels of inflation. All
our comparator countries have already raised their rates once or twice since
January 2022. It is also important to curb the appetite of the government for
debt. We must protect current growth rate and we must stick to the core
mandate of the CBN, which is price stability. I am not sure that a one-off
increase in the policy rate would do the magic of reining in inflation. However,
we must start, and we must be overly aggressive in bringing it down. This is in
addition to other administrative measures that the Bank management may
deem fit to control liquidity.
Hence, I cast my vote to increase the MPR by 150 basis points, while retaining
all other monetary parameters at their extant values. Hence, I vote to:
1) Raise MPR by 150 basis points, from 11.5% to 13.0%
2) Retain CRR at 27.5%
3) Retain LR at 30%
4) Maintain asymmetry corridor around the MPR at +100/-700 basis points.

3. AHMAD, AISHAH N.
At the May MPC meeting, I voted to raise the monetary policy rate (MPR) by
100 basis points from 11.5 per cent to 12.5 per cent, whilst keeping all other
policy parameters constant. My predilection for a tight monetary policy stance
was long considered given the steady rise in domestic prices since February
2022, the latest being a 90 bps rise in the domestic CPI to 16.82 per cent in April.

Several global and domestic macroeconomic developments make this a
difficult, yet obvious decision, given the ‘confluence of calamities’ facing the
global economy according to a recent IMF blog. The Russian invasion of
Ukraine and attendant trade related sanctions, soaring global inflation
underscored by record-high energy prices, slowdown in international trade
caused by disruptions in global supply chains as China implements its zero-covid
policy, are just a few notable headwinds facing advanced economies (AEs).
Emerging markets and developing economies (EMDEs) such as Nigeria, must
contend with the spillover effects from these global macroeconomic
developments. This is happening in the context of domestic structural
challenges such as tightening financial conditions, rising inflation due to
increases in food prices and energy costs and capital flight as advanced
economies raise policy rates to contain inflation; all within very narrow and
tightening fiscal space.
Clearly, the risks to the global economy have risen sharply and central banks
face a difficult and unprecedented policy tradeoff; aggressively contain the
high and rising inflation, but risk seriously derailing economic growth. This
probably partly explains why the International Monetary Fund (IMF) in its April
2022 World Economic Outlook, anticipates a significant slowdown in global
output growth to 3.6 per cent in 2022 and 2023 from 6.1 per cent in 2021;
reflecting the severity of setbacks to global recovery.
All about global inflation
Inflation is at record levels in AEs due to a combination of the expansionary
policies to contain the economic fallout of the pandemic and the impact of
the Russia/Ukraine war. This has prompted policy rate increases across many
central banks. For instance, the Fed raised its policy rate by a cumulative of 75
bps to 1.00 per cent between March and May this year. Similarly, the Banks of
England and Canada, raised their policy rates by increments of 25 bps to 1.00
per cent over the same period.
The impact of such quantitative tightening for Nigeria and other EMDEs is
capital flight to AEs, as assets in EMDEs become less competitive. At the same

time, EMDEs have also started to feel the whiplash from the Russia / Ukraine war
as food and energy costs push domestic prices higher, stoking inflation. In
response, a number of EMDE central banks have similarly tightened monetary
policy to contain rising prices and remain competitive to foreign portfolio
investors. The Reserve Bank of South Africa increased its repo rate by 75bps
cumulatively to 4.75 per cent between March and May 2022. Other emerging
market central banks such as Brazil, Egypt and Ghana also raised their policy
rates between 25 to 125bps in the last three months.
As noted in my March 2022 statement, tightening the monetary policy stance
for Nigeria is timely and justifiable given the growth retarding level of domestic
inflation which remains far above the Bank’s 6-9 per cent threshold with a
negative short-term outlook. This is capable of eroding real output gains if
unchecked. More-so, an upward adjustment in the MPR signals not only the
Committee’s firm commitment to price stability, but also the need to anchor
inflation expectations and minimize current negative real interest margins
(which is a disincentive to savings and investment), while preserving and
attracting capital flows in line with the Bank’s efforts to stabilize the foreign
exchange market.
According to the National Bureau of Statistics (NBS), headline inflation (yearon-year) rose for the third consecutive month to 16.82 per cent in April 2022 from
15.92 per cent in March 2022. The increase is attributable to the rise in both the
core and food components to 14.18 and 18.37 per cent in April 2022 from 13.91
and 17.20 per cent in March 2022, respectively. This reflects the effects of rising
energy prices associated with the erratic supply of Premium Motor Spirit (PMS),
high cost of Automotive Gas Oil (AGO), and the progressive hike in electricity
tariffs.
Movement in monetary indicators also validate a hawkish monetary policy
stance as broad money supply (M3) rose significantly to 6.22 per cent in April
2022 from 4.19 per cent in March 2022. This was largely driven by strong growth
in Net Domestic Assets (NDA) of 11.86 per cent in April 2022, compared with 8.82
per cent in the previous month.

Granted, the key factors driving inflation remain structural as espoused
severally. Notwithstanding, it is critical to ensure that monetary developments
do not exacerbate the situation. These structural factors include persisting
security challenges, energy costs and logistical bottlenecks related to
transportation of produce from farm to market that continue to constrict food
supply, resulting in rising food prices. This is despite significant progress with
ramping up food production as the MPC noted a marked reduction in prices of
some food items at the farm gate.
Finally, a rate hike is an important counterbalancing signal to curtail the
development of negative inflation expectations, ensuring that the monetary
authority is proactively positioned to curb rising prices expected to persist in the
medium term.
Sustaining output growth in the face of multiple macro headwinds
A possible fallout of pursuing a contractionary monetary policy is the reversal of
the economic recovery and domestic growth trajectory. Therefore, a cautious
and phased program of policy tightening is recommendable in the current
circumstances to preserve economic activities, whilst reigning in price
developments even as structural factors fueling inflation are being addressed.
Thankfully, domestic output growth is positive and relatively resilient, providing
further latitude for gradual tightening of the monetary policy stance.
According to the NBS, Real Gross Domestic Product (GDP) grew by 3.11 per
cent in the first quarter of 2022, compared with 3.98 per cent in the fourth
quarter of 2022 and 0.51 per cent in the corresponding period of 2021. This
represents the sixth consecutive quarter of real output expansion, following the
economy’s exit from recession in 2020. Notwithstanding the difficult
growth/inflation tradeoff confronting the monetary authority, the steady
positive GDP performance reflects the importance of proactive and sustained
monetary and fiscal support to drive the recovery, particularly at the onset of
the pandemic.
Continued interventions especially in growth enhancing sectors is, thus, critical
to sustain momentum in economic activity and stimulate aggregate demand,

especially in view of the manufacturing purchasing manager’s Index (PMI)
which contracted for the second consecutive month at 48.9 index points in April
2022 from 49.10 index points in the previous month.
External sector remains challenging but stable
Exchange rate stability remains a key concern and policy focus area for the
monetary authority. In particular, demand management and supply stimulation
strategies such as growing export proceeds and remittances as long term,
sustainable sources of forex supply are critical initiatives in this regard.
The importance of this focus is reflected in the current account balance position
which recorded three consecutive quarters of surpluses in the second, third and
fourth quarters of 2021, following over ten quarters of deficits. The surplus was
driven mainly by secondary income, especially remittance flows which
increased by 17.38 per cent to US$5.02 billion in the fourth quarter of 2021 from
US$4.07 billion in the first quarter of 2021.
Forex inflows also increased month-on-month by 16.84 per cent from US$6.07
billion in February 2022 to US$7.09 billion in March 2022, however, net flows
decreased marginally to US$2.64 billion in March 2022 from US$2.90 billion in
February 2022 with a marginal decline in gross external reserves by 1.71 per cent
over the same period.
Whilst EMDEs face the threat of capital flight, this risk is somewhat benign for
Nigeria, given the relatively low base of FPIs compared with pre pandemic
levels. Even so, a rise in the MPR will close the yield gap and ensure Nigeria
remains a competitive destination for offshore capital. This, coupled with
ongoing export promotion policies of the Bank and other complimentary fiscal
initiatives will be critical to maintain exchange rate stability and harness
Nigeria’s huge economic potentials.

Preserving financial system stability as monetary policy contracts
Sustaining banking sector lending to critical sectors of the economy will be
paramount as monetary policy tightens to contain inflation. Given the positive

correlation of market lending rates to the MPR, it is expected that borrowing
costs will rise, possibly restricting loan growth.
Gratuitously, the CBN’s intervention loans targeted at selected industries and
SMEs will remain at 5 per cent per annum till March 2023, which stabilizes access
to affordable finance for employment generating sectors. This should be
positive for the macroeconomy, stimulating further output growth and
positioning businesses to maintain strong cash flows whilst minimising default risk
and preserving financial stability.
Industry soundness indicators also remain strong as at April 2022, with capital
adequacy ratio at 14.6 per cent, non-performing loans ratio at 5.3 per cent
(from 5.9 per cent in April 2021) and liquidity ratio at 43.7 per cent (above the
30.0 per cent minimum) even as credit to the real sector continued to grow.
Notably, the sectors driving output growth in the economy (manufacturing,
agriculture,
construction,
general
commerce
and
information
&
communication) also attracted increased lending from the banking sector
during the period under review - a development that should further strengthen
output performance.
CBN shall continue its rigorous regulatory oversight over the industry credit
portfolio. Stress test results showed that industry solvency and liquidity positions
could withstand mild to moderate shocks in the short to medium term.
Nonetheless, the sector must continue to build adequate capital buffers -
implementing the Basel III capital standards (which prescribes additional
capital buffers) will be excellent in this direction.
In summary, global economic prospects remain confronted with significant
headwinds and a deteriorating outlook, largely driven by spillover effects from
the Russia / Ukraine conflict amidst lingering impacts of the COVID-19
pandemic. Rising global inflation as a result, has led to monetary tightening by
advanced and emerging market central banks, even as they struggle to
preserve the fragile recovery.
Similarly for Nigeria, containing inflation in line with the price stability mandate
is the appropriate monetary policy priority in my opinion. It will be prudent

however to be cautious in raising the policy rate, recognizing underlying
structural factors driving price developments and the potentially negative
effect of a sudden and significant rate hike on credit expansion, financial
system stability and economic growth.
Therefore, at this meeting, it was appropriate to vote to
-
Raise the MPR by 100 bps to 12.5%
-
Retain the CRR at 27.5%, liquidity ratio at 30% and asymmetric corridor of
+100 and -700 basis points around the MPR.


4. ASOGWA, ROBERT CHIKWENDU
Introduction:
The monetary policy landscape has dramatically changed since the beginning
of 2022 with the emergence of new economic uncertainties. Inflationary
pressures have intensified across developed and developing countries, while
there is a slowdown in recovery of economic activities in a number of countries
due to the Ukraine crisis and lockdown measures in China. Since our last MPC
meeting in March, many central banks have hastened the pace at which they
are withdrawing policy accommodation, yet some others remain adamant
about any monetary policy shifts, as growth concerns remain paramount in
their policy considerations. While this period really presents an exceptionally
challenging environment for all countries, the future outlook for both inflation
and growth should be critical in the immediate choice of policy instruments. My
personal opinion at this May 2022 MPC meeting therefore reflects a current
assessment of the economic outlook and balance of risks at the global and
domestic levels. While it is necessary to be sensitive to new realities, a gradual
approach in deploying policy tools should be paramount in our thinking so as
to avoid additional shocks. The considerations are briefly highlighted below.
Overview of the Global Economy:

The Russia-Ukraine conflict has dimmed prospects for robust global economic
performance in 2022, casting doubts on the earlier expected return to preCOVID-19 levels by early 2023. CBN staff report show that the pace of
economic activity in the strongest economies slowed in the first quarter of 2022,
compared with the previous period. For instance, in the US, GDP contracted by
1.4 percent in the first quarter of 2022, compared with a growth of 6.9 percent
in the fourth quarter of 2021 driven primarily by a widening trade deficit and
weak inventory investment. The Euro area also grew by 0.2 percent in the first
quarter of 2022, compared with 0.3 percent in the preceding quarter, while in
the UK, preliminary estimates suggests that the first quarter 2022 output may
have grown by 0.9 percent, compared with 1.3 percent in the fourth quarter of
2021 and 0.9 percent in the third quarter of 2021. A similar moderation is
observed in China where output grew by 1.3 percent in the first quarter of 2022,
compared with 1.5 percent in 2021 fourth quarter. Overall, global economic
growth in 2022 is now projected at 3.6 percent, which is 0.8 percent lower than
the previous estimates according to IMF’s new April forecast.
Global Inflation has risen significantly in recent months with the disruptions in
global energy at a time when supply chains were already strained. Of critical
concern is that the inflationary pressures are now higher and more volatile in
developing countries than in developed countries, contrary to earlier pattern
and forecasts. For instance, CBN staff report show that in Egypt, month-onmonth inflation rose to 3.3 percent in April 2022 compared with 2.2 percent in
the previous month and in Ghana, inflation increased to 23.6 percent in April
compared with 19.4 percent in March 2022. This contrasts the trend in some
Advanced economies, like in the Euro Area, where month-on-month inflation
decelerated to 0.6 percent in April 2022, compared with 2.4 percent in the
previous month. In Japan, month-on-month inflation remained stable at 0.4
percent in March 2022, while in the US, month-on-month inflation increased to
0.3 percent in April 2022, coming from a 16-month high of 1.2 percent in March
2022. While food prices are key drivers in Sub-Saharan Africa, in places like Latin
America, a combination of higher oil and commodity prices as well as the

existing broad accommodative monetary policy have contributed in elevating
the inflationary pressures.
Global financial markets have remained volatile driven mainly by risks
associated with the Russia-Ukraine war and also with the speed at which the
advanced economies central banks’ especially the US Federal Reserve, are
now expected to withdraw their monetary stimulus measures. Since the last
MPC meeting in March, global equity indexes have dropped further with
investor appetite for riskier assets now weaker and asset values in key markets
declining sharply. The earlier trend of exchange rate depreciation against the
dollar continues even as many countries remain vulnerable to capital outflows.
Amidst these challenges, many central banks across the globe have engaged
in massive withdrawal of monetary accommodation, while others have
announced their future intention, all in an effort to ensure that inflation remains
aligned to the target range. CBN staff report, show rate hikes in a number of
countries. For instance, the Bank of England in early May 2022, increased policy
rate by 0.25 basis points to 1 percent, while the US Federal Reserve raised its
policy rate by 50 basis points. In Brazil, the central bank adjusted its policy rate
upwards by 100 basis points in May, while the Reserve Bank of India increased
the policy repo rate by 40 basis points to 4.40 per cent also in May 2022. The
central banks of Egypt, Malaysia, Chile, Korea, Ghana and the Reserve Bank of
South Africa have also raised their policy rates in May. In terms of the future
global monetary policy trajectory, the expectation is that key central banks will
further intensify their withdrawal of monetary stimuli in 2022, given that the
Russia’s war in Ukraine may likely persist for the rest of the year and will continue
to have significant further effects on global prices.
Overview of the Domestic Economy:
Growth.
The Nigerian Economy has continued to recover, but still face several
challenges. Based on recent GDP figures, economic activity grew by 3.11
percent (y-on-y) in the first quarter of 2022, which sustains the positive growth
for six consecutive quarters after the 2020 recession. However, the recent

growth figures dropped, compared with 3.98 percent in the fourth quarter of
2021 and 4.03 percent in the third quarter of 2021. The non-oil sector has
improved rapidly supported by the lifting of restrictions and several monetary
interventions by the regulatory authorities. In specific terms, the non-oil sector
grew by 6.08 percent in 2022 quarter 1, which was 1.34 percent higher than the
rate recorded in the fourth quarter of 2021. The oil sector remains challenged
with average daily production of 1.49 million barrels per day, which is lower than
the average daily production of 1.72 million barrels recorded in the same
quarter of 2021. As a result, real growth of the oil sector was -26.04 percent
(year-on-year) in the first quarter of 2022 compared with -8.06 percent (yearon-year) in the fourth quarter of 2021. On a quarter-on-quarter basis however,
the oil sector recorded a growth of 9.11 percent in the first quarter of 2022.
The future outlook appears fairly good as GDP growth for 2022 is now projected
by CBN at 3.24 percent, slightly below the level in 2021 at 3.40 percent. This
minor downgrade is partly due to the expected moderation in global
economic growth in 2022. Available high-frequency indicators including the
Manufacturing Purchasing Manager Index (PMI) and the MAN CEO confidence
index suggests that 2022 quarter 2 growth may somewhat fall below that of
quarter 1. For instance, the manufacturing PMI stood at 48.9 index points in April
2022, lower than the 49.10 points recorded in March 2022, marking two months
of consecutive decline, below the accepted 50 index points threshold. The nonManufacturing PMI for April looks better at 49.5 index points, compared with
48.10 index points in March 2022.


Inflation.
The recent movement of the Inflation rate is rather worrisome as both year-onyear and month-on-month increases were recorded in April 2022. Headline
inflation (year-on-year) increased to 16.82 percent from 15.92 percent and
15.70 percent in March and February 2022 respectively, while it rose month-onmonth to 1.76 percent in April from 1.74 percent in March 2022. Both food and

core inflation accelerated during this period. All eleven of the food sub-groups
registered increases in April as compared with March 2022, while eight of the
thirteen core inflation sub-groups increased in April as compared with March.
Looking ahead, food inflationary pressures are likely to continue for the next few
months and may slightly abate during the harvest season. There are however
concerns that the direct impact of the rising petroleum and energy costs as well
as the emerging political developments in the country are likely to feed into the
core inflation prints in the next few months.
External Sector.
Nigeria’s external sector remains strong, similar to the position at the last MPC
meeting, characterised by a partial resilience of the Balance of Payments (BOP)
amidst the global challenges. CBN staff report show that the current account
balance has now recorded three consecutive surpluses in the second, third and
fourth quarters of 2021 after ten earlier quarters of consecutive deficits. The
prospect on the external sector looks good, despite the fact that the overall
Balance of Payments recorded a deficit in the fourth quarter of 2021. The
drawback as usual is the capital and financial account which has not been in
a ‘surplus position’ for a long time now. Emerging data for the first quarter of
2022 suggests that an improving term of trade may be sustained going forward
into the second and third quarters of 2022. The total exports increased by 23.13
percent in the first quarter of 2022 when compared with the fourth quarter of
2021, while total imports decreased by 0.67 percent in the first quarter of 2022
from the levels recorded in the fourth quarter of 2021.
Fiscal Sector and Debt.
The escalating fiscal sector deficits with the attendant rising debt ratios are part
of the weak links in the domestic economic environment. The poor revenue
growth in a period of expanding government expenditures has continued to
soar the budget deficit levels in the first quarter of 2022, similar to the trend
witnessed in 2021. The total debt stock as at the first quarter of 2022 has now
risen to N41.60 trillion as compared with N39.56 trillion in December 2021, which
represents a N2.04 trillion increase in a period of three months. As at end 2021,

the debt service to revenue ratio was 76.0 percent, but may have jumped to
about 80.0 percent by the first quarter of 2022.
Particularly worrisome about the debt structure, is the increasing accumulation
of Eurobonds in the external debt component, while minimising concessionary
loans. The unexplained government preference of Eurobonds at high interest
costs, with the associated exchange rate risk may likely hurt Nigeria sooner than
anticipated. Unfortunately, several other African countries are involved in this
excessive rush for Eurobonds. Already, Nigeria is being mentioned by the IMF as
one of the countries that may likely move into debt distress, given the
staggering $100.07 billion dollars of public debt stock as at March 31, 2022.
Financial sector.
The domestic financial sector appears not to be fully affected by these
negative global developments given the positive outlook of the banking and
equity markets, especially when compared with the position at the last MPC
meeting. The banking industry remains strong and resilient with an expanding
total asset base and an increasing dynamism in credit performance across
different sectors. There are however minor concerns about the recent negative
trend in the asset quality as the non-performing loans ratio increased marginally
from 5.1 percent in March 2022 to 5.3 percent in April, 2022, while key
profitability indicators such as ROE and ROA seems to have stagnated in recent
months.
The equity market has maintained a positive momentum, unlike in many other
countries with the All-Share Index increasing by 4.74 percent between February
and April 2022, while Market Capitalization also increased by 4.77 percent
during the same period. For the monetary conditions, the current levels still
indicate a tighter space even though broad money (M3) grew by 4.19 percent
in March 2022, compared with 2.11 percent in February 2022, but still far below
the provisional benchmark of 15.21 percent for 2022.
Policy Decision:
After careful consideration of the current and expected economic
developments both globally and domestically, it is pertinent that urgent policy

actions are needed to avoid the risk of longer-term inflation expectations
increasing to an extent that will be detrimental to the growth plans. While a
policy rate increase at this moment will be consistent with the inflation target,
defining the appropriate size of the rate increase that will be growth
accommodating is very critical. Given the prevailing high market interest rates
in Nigeria, a minimal adjustment of the policy rates at this meeting will be
sufficient to send the necessary signals, while future meetings will provide the
opportunity to review the setting based on additional information.
I will therefore vote to:
Raise the MPR to 12.0 percent
Retain the CRR at 27.5 percent
Retain the Asymmetric Corridor at +100/-700 basis points
Retain the Liquidity Ratio at 30.0 percent.


5. OBADAN, MIKE IDIAHI
INTRODUCTION

The global economy has continued to confront severe economic disturbances
arising from political shocks such as the current Russian-Ukraine war, and the
health shocks from the COVID-19 pandemic. The current developments in the
global economy show that the Advanced Economies (AEs) and some
Emerging Market and Developing Economies (EMDEs) are now facing the type
of challenge that the Nigerian economy has faced for more than six years. They
are faced with threatened economic recovery/growth and escalating inflation
to historical levels. In light of these challenges, global economies now face two
very difficult policy choices entailing a difficult trade-off between addressing
rising inflation and dwindling growth. However, their primary policy response is
movement along the path of normalisation (strong tightening of monetary
policy) through interest rate hikes and rolling back of quantitative easing to
address the rising inflation. They had used the two policy instruments to inject
large volumes of liquidity into their economies during the COVID-19 pandemic.
They can tighten monetary policy without much concern for growth because
they could rely on robust fiscal policy to support growth. But Nigeria is not in
such a position.
GLOBAL CONTEXT OF NIGERIA’S MONETARY POLICY DIRECTION
Unabated Uncertainties and Elevated Vulnerabilities.
The heightened uncertainties in the global economy in the wake of the COVID19 pandemic have further intensified since the Russian invasion of Ukraine late
February, while vulnerabilities remain unabated as a result of several
developments and the associated implications which include the following:
i.
The escalation of the Russian invasion of Ukraine into a full-scale war
which has become prolonged. With this war, global supply shortages
re-emerged much stronger, energy prices escalated, and food supply
chains disrupted with attendant rise in prices.

ii.
Global growth prospects have become dampened. The high
expectations about strong economic recovery and growth in 2022
have become subdued in light of the war and the associated
sanctions. Accordingly, the International Monetary Fund (IMF), in its

April 2022 edition of the World Economic Outlook, has further
downgraded global output growth in 2022 and 2023 to 3.6 per cent in
each year from 4.4 and 3.8 per cent, respectively as the backlash from
Western sanctions on Russia escalates supply disruptions and global
inflation worrisomely elevated.

iii.
Global inflation which rose significantly in several countries in 2021
following their gradual recovery from the impact of the COVID-19
pandemic was initially thought to be transient. But this has turned out
not to be so. In light of the recent supply-side shocks, inflation is likely to
remain elevated due to sharp increases in energy and food prices. This
will result from the persistence Russian-Ukraine war and the spread of
COVID-19 in China disrupting production and aggravating supply
chain disruptions. In 2022, inflation in the Advanced Economies is
expected to average 5.7 percent. The US inflation rate stood at 8.3
percent in April, while in the UK it reached a forty-year high of 9.0
percent. In the Eurozone, it was 7.4 percent. Food prices are expected
to rise sharply, exacerbate headline inflation and slow growth.

iv.
The global economy is still within the doldrums of the COVID-19
pandemic although many countries have exited lockdowns. Current
and expected lockdowns in major manufacturing hubs in China will
further constrain global supply as the rising infection toll associated with
the new wave of COVID-19 in China implies that further restrictions will
be imposed on the global supply chain.

v.
Global trade. After a strong recovery in 2021, global trade is projected
to decline in 2022 and 2023. This is due to supply shortages associated
with the Russian-Ukraine war, backlash from sanctions imposed on
Russia, persistence of price pressures in the Advanced Economies, and
re-introduction of lockdowns in major industrial cities in China. These
have depressed the prospects for the continued recovery of global
trade.

vi.
Heightened uncertainty facing global financial markets resulting from
the combined impact of the lingering COVID-19 pandemic and
backlash of the Western sanctions imposed on Russia. Investor
confidence was gradually creeping back to the markets when the war
broke out. Coupled with monetary policy normalisation in the
Advanced Economies and some Emerging Markets and Developing
Economies, there is significant tightening of global financial conditions
across most parts of the world.

vii.
Crude oil price. After a gradual and continued rally in the wake of the
recovery of global aggregate demand, post-lockdown, oil prices shot
up sharply in the last week of February up to the first week of March
2022 as hostilities between Russia and Ukraine escalated. The price of
crude oil remains high due to supply shortages associated with the
sanctions imposed on Russian oil. As at May 20, 2022, crude oil prices
were as follows: OPEC Basket, US$ 112.0/pb; Bonny Light, US$
116.70/pb; and UK Brent, US$ 112.50. However, the price of oil is
confronted with a medium-term downtrend on the back of the robust
response by the United States to pick up the supply slack attributed to
the ban on Russian oil. The US is also in close talks with Saudi Arabia to
increase its oil production output to support its efforts in closing the
global supply gap.

viii.
Monetary policy normalisation. Against the backdrop of the highly
escalated inflation rates currently in the high single digits in the
Advanced Economies that enjoyed very low rates even under the
COVID-19 environment (characterised by huge fiscal and monetary
injections to combat COVID-19 and its effects), a sizable number of
central banks are progressing with policy rate hikes much faster than
anticipated, pushing the global economy closer to the precipice of a
debt crisis, and even recession. Countries like the US, UK, Canada,
Egypt, Ghana, Brazil, South Africa, Russia have hiked monetary policy
rates for the major reason of reining in inflation, capital flows concerns,
among others. However, the Peoples Bank of China lowered its policy
rate marginally from 3.8 percent to 3.7 percent due to concerns
relating to low growth, supply chain bottlenecks, war in Ukraine and
COVID-19 developments, stress in the property sector, rising
unemployment, rising inflation, among others.

Implications of Global Developments for the Nigerian Economy
In light of the high level of globalisation of the Nigerian economy, global
economic disturbances and uncertainties have continued to be transmitted to
the domestic economy, even more intensely, since the outbreak of the RussianUkraine war with severe adverse implications for macroeconomic stability.
For example, the rise in the prices of energy and food products abroad,
accentuated by the Russian-Ukraine war, is being transmitted into higher food
and energy prices in Nigeria because of the country’s heavy dependence on

importation for supply of products such as wheat, cereals, vegetable oil, refined
petroleum products, iron and steel; consequently, the domestic rate of inflation
has tended to accelerate. Besides, under the circumstances, the exchange
rate has tended to depreciate with significant pass-through effect to the
domestic economy in the form of higher prices of imported goods and services.
Thus, the global economy has tended to generate headwinds which
undermine the nation’s economic recovery and inflation control efforts.
Importantly too, is the impact of monetary policy normalisation in the
Advanced Economies on capital flows to Nigeria. Monetary policy
normalisation is progressing in the AEs much earlier than expected and at a
pace much faster. In light of this, Nigeria and other EMDEs are very likely to be
hurt by the commencement of the normalisation as capital inflows are halted
and outflows are exacerbated and consequently exerting further upward
pressure on the exchange rates.
CURRENT FEATURES OF THE DOMESTIC ECONOMY
In light of the foregoing, the Nigerian economy has continued to exhibit
features which make monetary policy choices difficult for the policy makers, in
particular, the Monetary Authority. Two of these features are fragile economic
growth and escalating inflation. Others are high and unstable exchange rate,
uncomfortable external reserves levels (the stock at US$ 38.61 billion in April,
2022 covers 7.2 months of import of goods and services), crude oil export
regime which does not yield accretion to external reserves, weak capital inflows
and balance of payments position, bourgeoning fiscal deficits and associated
high domestic and external debt, both of which gulp a significant proportion of
government revenue in debt servicing, etc.
Output growth. Real GDP consistently recorded positive growth rates for (6)
consecutive quarters to 3.11 percent in Q1 2022 (year-on-year). The growth
pattern is as follows:
Q4 2020
-
0.11%

Q1 2021
-
0.51%
Q2 2021
-
5.01%
Q3 2021
-
4.03%
Q4 2021
-
3.98%
Q1 2022
-
3.11%
In Q1 2022, while the oil sector contracted for the 8th consecutive quarter, the
non-oil sector remained the driver of the positive output growth through
services, agriculture and manufacturing activities. However, growth remains
fragile (showing quarter-on-quarter deceleration since Q2 2021) largely due to
waning base effect and various headwinds; consequently, continuous policy
support is still required to sustain the positive growth at even a higher and
inclusive level.
Accelerating inflation. The rate of inflation accelerated to 15.92 per cent in
March 2022 with food and core inflation also trending upwards in relation to
February 2022. In April, the headline inflation rate further rose sharply to 16.82
percent, again due to increases in food inflation and core inflation, the former
from 17.20% in March to 18.37% in April, 2022 and the latter from 13.91% in March
to 14.1% in April, 2022. The contributing factors include imported inflation
triggered by global food supply shortages accentuated by the war in Ukraine,
exchange rate pass-through effects, rise in cost of transportation and housing
due to high cost of fuel/diesel and energy, seasonal factors, security challenges
which impede farm access, etc. Due to the upside risks driven by these factors,
headline inflation is expected to accelerate in the near-to-medium term unless
appropriate policy measures targeting the triggers are implemented.
Capital flows. Foreign capital inflows have remained at low levels. Year-on-year,
Foreign Portfolio Investment (FPI) inflows decreased from US$ 0.44 billion in
March 2021 to US$ 0.27 billion in March 2022. During the same period, Foreign
Direct Investment (FDI) inflow grew marginally from a paltry US$ 0.05 billion in
March 2021 to US$ 0.06 billion in March 2022 arising from increased inflow of

fresh equity capital. Desired foreign capital volume needs to be encouraged
with stable exchange rate and appropriate interest rate.
OPINION
In Nigeria, inflation, has since February 2022, been accelerating at a very
worrisome pace, eroding purchasing power of the citizens and threatening
economic recovery. If the current trend is maintained, it could trigger a
recession due to weakened aggregate demand.
Although the current inflation has visible non-monetary factors as drivers, the
influence of monetary factors cannot be ruled out in view of developments in
the monetary aggregates. Therefore, the Bank could consider tightening the
monetary policy stance by adjusting the Monetary Policy rate upwards. Along
with other complementary measures, the raised rate should lead to the desired
downward trend in headline inflation. Importantly, a hiked MPR could douse
the demand pressures in the foreign exchange market and may also spur
desired capital inflows/stem outflows as well as boost external reserves.
No doubt, in the situation of relatively low and fragile growth, monetary policy
tightening through MPR hike appears contradictory to the objective of
supporting growth through easy access to cheap credit. For this reason, the
Bank’s support to the priority real sectors of the economy will need to be
continued, more especially as it supports the price stability objective through
adequate supply of goods and services.
In sum, the complementary measures to an upward adjustment of the MPR
include the following:
Continued support to the price stability objective with the development
finance interventions;
Implementation of measures to ensure exchange rate stability;
Tackling of arbitrary increases in the prices of goods and services by
economic agents;
Elimination of scarcity in petroleum products supply;
A halt to electricity tariff hikes;

Re-doubling of efforts by the Government to ensure a safe environment
for farming in the farming communities.
In light of the foregoing, I vote to raise the Monetary Policy Rate but rather
gradually so as to avoid destabilising the financial system with huge interest rate
shock. Thus, for a start, I vote to raise the MPR by 100 basis points from its extant
level of 11.5 percent to 12.5 percent while all the other parameters remain at
their extant levels:
MPR


-
12.5%
Cash Reserve Requirement (CRR)
-
27.5%
Liquidity Ratio


-
30%
Asymmetric Corridor


-
+100/-700 basis points

6. OBIORA, KINGSLEY ISITUA
At this meeting, I could not ignore the unabating rise in
the general price level, especially as it affects fixed
income earners and real economic growth itself. In light
of these realities, I voted to: raise the Monetary Policy
Rate (MPR) to 13.0 per cent from 11.5 per cent, retain
the Cash Reserve Ratio (CRR) at 27.5 per cent, the
Liquidity Ratio (LR) at 30.0 per cent and the asymmetric
corridor of +100/-700 basis points around the MPR. I
believe this stance will contain inflationary pressures
without reversing the modest recovery.

Several factors have continued to disrupt global recovery and accelerate
inflationary pressures. These factors include the Russia-Ukraine war, the
rebalancing of demand towards services, tight labour markets, and spike in
energy prices. Apart from the death toll and displacement of millions of people,
the war continues with severe spillover effects across Europe and the rest of the
world. This is because Russia and Ukraine are among the major exporters of oil
and gas, fertilizer inputs, maize, wheat, and some precious metals. The supply
disruptions to these commodities have contributed to weakening global growth
prospects and accelerating inflationary pressures.

Reflecting these developments, inflation has reached record highs in both
advanced; emerging market and developing economies. In advanced
economies it is expected to increase by 5.7 per cent in 2022, up from 3.1 per
cent in 2021, driven by post-pandemic increasing demand, soaring commodity
prices, and the ongoing Russia-Ukraine war. In the United States, inflation is
projected to increase by 7.7 per cent in 2022, up from 4.7 per cent in 2021. In the
Euro Area, it is projected to increase from 2.6 per cent in 2021 to 5.3 per cent in
2022. These are clearly above the target rate of 2.0 per cent set by the Federal
Reserve and the European Central Bank, respectively. In Emerging and
Developing Europe, Latin America and the Caribbean, and Sub-Saharan Africa,
inflation is projected to increase by 27.1, 11.2, and 12.2 per cent in 2022, up from
9.5, 9.8 and 11.0 per cent, respectively (IMF, April WEO, 2022). Even before the
Russia-Ukraine war, inflation in Advanced Economies (AEs) and Emerging Market
and Developing Economies (EMDEs) has been accelerating due to policy
support, supply-chain disruptions, rising commodity prices and strong demand
for goods during the COVID-19 pandemic. In 2021, global inflation rose to its
highest level since 2008 and in EMDEs since 2011. It also exceeded the target of
2.0 per cent in more than half of the countries on an inflation-targeting
framework (Brookings Institute, 2022). As a result, in 2021, some emerging
markets, including Brazil, Mexico, Peru, Colombia, and Chile, started to raise their
policy rates in response to the rapid inflationary pressures associated with the
post-pandemic
effects.
However,
the
Russia-Ukraine
war
has
further
exacerbated inflationary pressures, with rising energy and food prices hitting
record highs globally.

In response to these worrying trends, central banks worldwide are rapidly raising
policy rates, which many analysts believe is the most widespread monetary
policy tightening in more than two decades. Several advanced-economy
central banks, including the Bank of England, the Federal Reserve, Bank of
Canada, Reserve Banks of Australia, and New Zealand, are raising the policy
rates to contain the rising inflation. In Africa, Egypt, Ghana, South Africa, Tunisia,
and others have increased the policy rates. The resurgence of the COVID-19
pandemic in China, however, has also added to the supply disruptions and
could accelerate global inflationary pressures. Overall, the current wide spread
of policy rate hikes by central banks across the world indicates that inflation is
now a global problem, and central banks must act to address both the external
and domestic factors driving it. Also, there is an urgent need to end this war to
avoid a global food crisis, especially in Low-Income Countries.

With these significant headwinds, the global economy is projected to slow down
in 2022. The J.P Morgan Global Composite Purchasing Managers Index declined

to 51.0 index points in April from 52.7 index points in March 2022, driven by slower
growth of new orders, declining international trade flows and rising inflation.
Accordingly, in the April 2022 World Economic Outlook (WEO), the International
Monetary Fund (IMF) downgraded the global economy growth to 3.6 per cent
in 2022 from an earlier forecast of 4.4 per cent. The downward revision was due
to the post-pandemic demand, the Russia-Ukraine war, rising commodity prices,
extensive sanctions on Russia and weak growth in China. In Advanced
Economies, growth in the United States, Germany, France, and the United
Kingdom is projected to slow down to 2.3, 2.1, 2.9 and 3.7 per cent in 2022 from
5.7, 2.8, 7.0 and 7.4 per cent in 2021, respectively. In Emerging Market Economies,
China - a significant driver of global growth, is forecast to decline by 4.4 per cent
in 2022, down from 8.1 per cent in 2021, reflecting the resurgence of the COVID19 pandemic, the lockdown measures and downturn in the property sector.

Following these global trends, the Nigerian economy is also expected to
moderate in 2022 compared with 2021. The latest figures from the National
Bureau of Statistics (NBS) revealed that the real GDP moderated to 3.11 per cent
in Q1 2022 from 3.98 per cent in the preceding quarter, driven by the non-oil
sector. The non-oil sector grew by 6.08 per cent, compared with a contraction
of the Oil sector by 26.04 per cent. The sub-sectors that recorded significant
growth included Rail Transport and Pipelines, Air Transport, Metal Ores, Financial
Institutions and Telecommunication and Information Services by 124.5, 50.68,
30.76, 25.43 and 14.50 per cent, respectively. However, Oil Refining, Crude
Petroleum and Natural Gas, Road Transport, Quarrying and Other Minerals all
contracted by 44.26, 26.04, 24.63, and 13.72 per cent, respectively. The
contraction in the oil sector amid rising oil prices was due to pipeline vandalism
and oil theft, with adverse consequences on Federal Government revenues,
accretion to external reserves and exchange rates. Also, the manufacturing
Purchasing Manager Index (PMI) contracted for the second consecutive month
at 48.9 index points in April 2022, compared with 49.10 index points in March
2022. It was driven by a decrease in production, employment levels in
manufacturing, and supplier delivery. Overall, the modest recovery was driven,
in part, by the continued intervention programmes of the Central Bank of Nigeria
(CBN).

The banking system remained sound, stable and resilient. Total assets of the
banking industry grew by 20.97 per cent from N53.17 trillion in April 2021 to N64.32
trillion in April 2022, driven by balances with CBN/banks, OMO bills, and credit to
the real sector of the economy. As a result, the total flow of credit to the
economy increased to N26.10 trillion in April 2022 from N21.45 trillion in April 2021,
representing an increase of 21.66 per cent. Some sectors with the increased

credit
included manufacturing,
consumer
credit,
general
commerce,
information and communication, and agriculture. The Non-Performing Loans
(NPLs) ratio stood at 5.31 per cent at the end of April 2022, slightly above the
prudential threshold of 5.00 per cent. It was, however, an improvement from 5.89
per cent at the end of April 2021, reflecting recoveries, restructuring of facilities
and sound management practices by Other Depository Corporations (ODCs). In
the interbank market, the Open Buy Back (OBB) rate trended upward from 6.62
per cent in March to 7.49 per cent in April 2022, indicating a tight banking
liquidity condition, which helps rein in inflationary pressures and safeguard a
stable banking system.

Despite this modest recovery and stable financial system, short-to-medium
challenges remain. Although the economic recovery is on track, it is still
fragile. Domestic crude oil production continued to trend below the OPEC
quota of 1.74 mbpd and the budget benchmark of 1.88 mbpd. In April 2022, the
average crude oil production declined to 1.35 mbpd from 1.39 mbpd in the
previous month. The shortfall was due to increased oil theft and pipeline
vandalism, making it difficult for the Federal Government to benefit from the
rising oil prices. Also, while the manufacturing and non-manufacturing
Purchasing Managers' Indexes (PMIs) improved, they are still below the 50 index
points. Inflationary pressures persisted in April 2022 as headline inflation rose to
16.82 per cent from 15.92 per cent in March 2022, driven by food and core
components. Food inflation increased to 18.37 per cent in April 2022 from 17.20
per cent in March 2022. Core inflation stood at 14.18 per cent in April 2022, up
from 13.91 in March 2022. Furthermore, limited fiscal space, high unemployment,
lingering insecurity, and infrastructural deficits continue to fraught recovery.

The outlook is confronted with significant downside risks. The IMF projected a
slowdown in global economic activity in 2022. It is also expected that global
inflation will remain elevated longer than previously projected. The resurgence
of the COVID-19 virus in China could disrupt production and add to inflationary
pressures. Furthermore, continued monetary policy tightening by advanced
economies to tame inflation would result in more capital outflows from EMDEs.
Capital reversal from these economies will increase by 30.0 per cent, up from an
earlier projection of 20.0 per cent (Global Financial Stability Report, April 2022).
It will increase the cost of borrowing, diminish accretion to external reserves,
depreciate local currencies, and further push up the prices of goods and
services in EMDEs. In the domestic economy, despite the modest recovery,
growth is still fragile and expected to remain subdued in 2022. The forecast also
showed upward trend inflation at a double-digit territory, which is far above the

implicit inflation target of 6-9 per cent. This will imply an increase in the negative
real interest rate and a shift upward in inflation expectations.

All of these suggest a difficult policy environment for Central Banks and fiscal
authorities around the world. This is because they are now faced with the
challenging trade-off between rising inflation and dwindling growth. Supporting
growth that is still fragile would suggest an accommodative policy stance, and
that would help promote growth and job creation for the unemployed and
underemployed youth. But Nigerians also need low and stable inflation that
preserves the value of their hard-earned income and savings - and this will
require a tightening policy stance. High inflation affects everyone, including
households, firms, and businesses. It particularly hurts the lower-income group
because it easily erodes their purchasing power, and exacerbates poverty and
inequality. Furthermore, the current inflationary pressures are not only driven by
structural issues but also by monetary factors partly due to the buildup to the
2023 general election.

Although the recovery is dwindling, it has witnessed six (6) consecutive quarters
of growth after exiting a recession in the fourth quarter of 2020. This modest
growth was, in part, due to the CBN continued intervention programmes to
stimulate growth across multiple sectors of the economy, including MSMEs,
agriculture, manufacturing, healthcare and individual households. To further
sustain this modest recovery, the Bank has extended the concessionary interest
rate of 5.0 per cent of its various interventions by one year, ending March 1, 2023.
Therefore, having achieved some modest recovery with the continued support
from the Federal Government and the CBN, the time is appropriate to contain
the rising inflationary pressures to avoid reversal of this recovery.

Having carefully considered this trade-off between inflation and growth, I
believe the best course of action is to aggressively increase the MPR. This will
help contain inflationary pressures in the short-to-medium term, sustain the
recovery, moderate capital outflows, and minimize the effect of exchange rate
pass-through to domestic prices. On this basis, I voted to:

Increase the Monetary Policy Rate (MPR) to 13.0 per cent from 11.5 per
cent.
Retain the Cash Reserve Ratio (CRR) at 27.5 per cent.
Retain the Liquidity Ratio (LR) at 30.0 per cent; and
Retain the asymmetric corridor to +100/–700 basis points around the MPR.

7. OMAMEGBE, MO’
Global Economic Developments
Around the world, there are warning signs of a recession. The uncertainty and
fears of its likelihood is negatively impacting financial markets. Economists are
steadily downgrading their forecasts for global growth. The IMF projects that
global growth will slow from an estimated 6.1 percent in 2021 to 3.6 percent in
2022 and 2023. Beyond 2023, global growth is forecast to decline to about 3.3
percent over the medium term.
Stock markets in United States, Europe and Asia-Pacific region are falling as
investors worry over weakening global growth. Emerging markets hit by the mix
of rising rates and slower growth dims the outlook for developing economies
around the world.
Central banks are raising interest rates to try to control inflation. In the US,
Inflation was a growing concern throughout 2021, but the central bank only
began hiking rates in March 2022. The Federal Reserve chair announced a 50basis point increase in interest rates, the largest hike in over two decades. The
US central bank would continue to raise rates by half a percentage point at the
conclusion of each meeting until inflation is under control. Inflation rates are
near 40-year highs and most economists agree that the Fed should raise interest
rates in order to reduce economic demand and maintain price stability. The
Fed is convinced it can raise rates without pushing the economy into a
recession.
Britain is on course to enter a technical recession in the second half of this year,
already living standards is being impacted by surging prices. UK inflation hits 40year high of 9.0%. The Bank of England warned of double-digit inflation and a
possible recession as it raised its key interest rate by a quarter percentage point.

China's economy, the world's second largest, is stalling, threatening to drag
down global growth. The progressive staggered lockdowns in China continue
to disrupt supply chains.
The war in Ukraine triggered higher food and energy prices, which is eroding
households’ disposable incomes. Food prices are rising, energy bills are rising,
petrol cost, taxes, food bank use, the number of people in poverty is rising. The
war-induced commodity price increases and broadening price pressures have
led to 2022 inflation projections of 5.7 percent in advanced economies and 8.7
percent in emerging market and developing economies.
Rising US interest rates make emerging markets relatively less attractive to
investors, prompting many to pull their money out of riskier economies. The
Russia’s invasion of Ukraine strengthened currencies of commodity-exporting
countries including Brazil and South Africa. At the same time, it has engineered
shocks in global commodity markets which is straining the external and fiscal
balances of commodity-importing countries.
Domestic Economic Developments
The International Monetary fund (IMF), in its April 2022 Economic Outlook, has
revised its growth projection upward for the Nigerian economy in 2022 to 3.4
percent. The IMF had earlier forecasted a 2.7 percent growth for the Nigerian
economy in 2022, suggesting an increase of 0.7 percent. Also, the forecast for
2023 was revised upward from 2.8 percent, indicating an increase of 0.4
percent. Despite the upward revision, Nigeria’s growth forecast still lags behind
the Sub-Saharan growth rate of 3.8 percent and the world growth rate of 3.6
percent.
There is a dramatic deterioration in the real purchasing power of people’s
incomes. Data obtained from the National Bureau of Statistics has revealed that
the Consumer Price Index rose to 16.82 per cent in April from 15.92 per cent in
March. The rise in the inflation rate in April shows that Nigeria is not left out in the
global inflation surge as both components of inflation – core and food went up.
Recently, the World Bank stated that COVID-19 pandemic-induced inflation

pushed about 23 million Nigerians into a food crisis in 2021. On the fiscal side,
deficits are increasing and external debt growing.
According to the Organization of Petroleum Exporting Countries (OPEC) May
2022 oil report, Nigeria’s oil production fell in April 2022 due to low investment
and other factors, including persistent oil theft and pipeline vandalism. Nigeria
produced an average of 1.22 million barrels per day (mb/d) of crude oil in April
2022. This production level is approximately 18,000 barrels per day (b/d) lower
than 1.24 mb/d recorded in March 2022. In addition, total production is about
500,000 b/d lower than 1.74 mb/d OPEC assigned quota for the country. The
shortfall in production results in a loss of crude oil export earnings valued at over
US$50 million per day, which also indicates a shortfall in government revenue
from crude oil royalty. Nigeria is not maximizing additional oil revenue
associated with the surge in crude oil prices in the international market since
Russia’s invasion of Ukraine.
Latest data released by the Central Bank of Nigeria (CBN) shows that Nigeria’s
external reserves dipped by US$742.59 million to US$38.84 billion on May 18 2022
from US$39.58 billion on April 29 despite higher crude oil prices.
The naira has weakened to N598 per dollar at the black market as a result of
increased demand. In March this year, several Nigerian banks announced the
reduction of the monthly spending limit to US$20 from US$100, while some
temporarily suspended the usage of the naira-denominated debt cards for
international transactions.
Nigerian Capital Market
Amid uncertainties in the global economy and rising insecurity in the country,
the nation’s stock market continued its bull-run. The equities market has
recorded an unprecedented upbeat since the beginning of the year to
emerge the best performing market in Africa and third in the world. The Nigerian
Stock Exchange (NGX) All Share Index (ASI), crossed the 53,000 mark to hit a 14year high for the first time since 2008, amid improved earnings, dividends
reinvestment and the roll out of derivatives.

The capital market performance has remained relatively strong despite the
various global and local head winds including rising inflation, supply chain
challenges, rising cost of energy, threat of global food crisis, insecurity and
interest rate hikes in some leading economies.
-
NGX All Share index returned year-to-date figures of 19.21% in Q1 2022;
the best performing in Africa and moving further to close the week of 20th
May 2022 on a year-to-date increase of 24.03%. While the index has
trended upwards, there has been bouts of sell offs leading to decline in
the NGX ASI. Total turnover in FMDQ markets as at 31st March 2022 was
N15.16trillion increasing by 6.54% over February 2022.
-
JP Morgan delisting of Nigeria from its emerging markets list would impact
negatively on international perception of the country, denting
international confidence in the economy which would affect the flow of
international capital including FPI into the country. Loss of confidence
would invariably raise the cost of borrowing internationally for both the
country and domestic borrowers.
-
Global interest rate hikes in the bid to tame inflation can encourage
capital flight from emerging markets including Nigeria as foreign investors
pull funds from those markets to developed ones and reduce new
inflows. Higher rates may also push up international borrowing costs and
reduce the ability to borrow.
-
Increased global interest rates and inflation will most likely reduce
Diaspora remittances to developing countries including Nigeria.
Overall Consideration
There are many uncertainties threatening the Central Bank’s inflation and
growth objectives. Several macroeconomic headwinds ranging from the
global shocks emanating from the Ukrainian war, continued supply chains
disruptions and COVID-19 lockdowns in China, to slowing global economic
growth and persisting inflationary and exchange rate pressures.
We are faced with food and fuel prices that are rising. Inflation has to be
tackled as it is eroding purchasing power with the most impact on the living
standard of the poorest amongst us. As rising inflation rates becomes a global
phenomenon, Nigeria face imported inflation with 18 out of 21 countries of our
trading partners battling record high inflation rates.

While increasing the MPR is a lever for slowing down inflation, it may be harmful
to growth. To be effective in tapering inflation, rates typically need to be raised
to a level that discourages borrowing, investments and spending which
ultimately reduces job growth. However, the potential negative impact on
growth highlighted above may be blunted by targeted intervention on key
sectors.
Exchange rate pressure need to be addressed. Very simply put, we need
foreign exchange to fund imports and we import what we do not produce.
There should be a relentless focus on boosting local production. In the medium
to long term, we can only produce our way out of the foreign exchange
challenge.
There is an urgent need for a combination of broad-based monetary and fiscal
policy measures to curb the rise in inflation and contraction in output growth.
The Committee is faced with a difficult set of policy choices, requiring tradeoffs. Policy options are limited in this scenario and tradeoffs must be made.
My Policy Decision:
My policy decision is based on the above assessment of developments likely to
affect growth and inflation outlook in 2022.
I therefore vote to:
Raise MPR by 100 basis points, from 11.5% to 12.5%;
Retain the Asymmetric Corridor of +100/-700 basis points around the MPR;
Retain the CRR at 27.5 per cent;
Retain the Liquidity Ratio at 30 per cent.

8. SALISU, MOHAMMED ADAYA
Global Developments and Economic Outlook
Just as the global economy has started recovering from the aftermath of the
Covid-19 pandemic, it is now being hit by the effects of the Russia-Ukraine war.
The spillovers from the war are leading to severe disruptions in supply chains,
fuelling inflation, especially rising food and energy prices, financial vulnerability,
policy uncertainty and constrained fiscal space.
Against the backdrop of this challenging environment, the global economy is
expected to experience its sharpest deceleration in decades. Accordingly,
major multilateral institutions such as the International Monetary Fund (IMF) and
the World Bank have downgraded their global growth forecasts for this year.
For instance, the IMF has downgraded its 2022 growth forecast to 3.6 per cent
from 4.4 per cent (WEO, April 2022), while the World Bank has revised its growth
projection for 2022 from 3.1per cent to 2.9 percent (Global Economic Prospects,
May 2022).

It is noteworthy, however, that the global growth forecast trend masks
considerable variation in growth across the regions of the World, with the

growth performance in emerging markets and developing economies (EMDEs)
likely to outperform that in advanced economies, especially the Euro Area,
whose economies are largely dependent on Russia and Ukraine’s energy and
agricultural commodities and inputs. For instance, in advanced economies,
growth is projected to decelerate from 5.1 percent in 2021 to 2.6 percent in
2022. In contrast, growth in EMDE is projected to decelerate from 6.6 percent in
2021 to 3.4 percent in 2022 (GEP May).

The effect of the Russia-Ukraine war can also be felt on global consumer prices,
which have been rising across the world since start of the war on 24 February
2022. Inflation in many countries is reaching multidecade highs and is now
above target in most advanced economies and EMDEs. For example, in the UK,
the Consumer Prices Index (CPI) rose by 9.1 per cent in the 12 months to May
2022, the highest in many decades. Similarly, in the US, inflation reached 8.6 per
cent in May 2022, the highest since 1981. And in the Euro Area, inflation stood
at 8.1% in May 2022, up from 7.4% in April 2022 (Eurostat, May 2022).


Domestic Developments
Since it exited recession in Q4, 2020, the Nigerian economy experienced
improved growth performance in six successive quarters. According to data
released by the National Bureau of Statistics (NBS), Nigeria’s real GDP grew by
3.11% (year-on-year) in Q1 2022 compared with the 0.1% in Q4 2020. Thus, the
observed trend since the fourth quarter of 2020 is an indication of a gradual
economic stability. Growth during the past quarter was driven largely by ICT,
Agriculture, Trade, Financial and Insurance services. In contrast, the Industrial
sector shrank by 6.81%, largely driven by the decline in the Crude Petroleum
and Natural Gas sector (-26.04%), Coal Mining (-12.97), Quarrying and Other
Minerals (-13.72), and Oil Refining (-44.26). The poor performance of the oil

sector, which accounted for only 6.08% of GDP in Q4, 2022, was occasioned by
a lower volume of oil production caused by crude oil theft and vandalism.

Although the positive growth performance is expected to continue over the
short- to medium-term period, the full growth potential would be undermined
by the spillovers from the Ukraine war via rising inflation (especially food
inflation) and crude oil prices. In the case of energy prices, in the past, higher
oil prices had improved Nigeria’s fiscal and external positions, boosting exports
and government spending. It also had spillover effects on the non-oil economy,
particularly services and manufacturing sectors. However, in contrast to the
past episodes of high oil prices, Nigeria is unlikely to reap full benefits from higher
oil prices now for two reasons. First, oil production is far below Nigeria’s full
capacity and the OPEC’s quota; and secondly, the higher crude oil price leaks
into higher cost of imported PMS leading to higher PMS subsidy. So long as fuel
subsidy is in place, it will continue to erode the revenue gains associated with
higher oil price.

In the case of inflation, which stood at 17.70 per cent in May 2022, it is largely
driven by food inflation, which stood at around 20 per cent. The war in Ukraine
will exacerbate food inflation through scarcity in agricultural commodities such
as wheat as well as farm inputs such as fertilizer. Thus, higher prices of fertilizer
induced by the ongoing crisis between Ukraine and Russia is not without effect
on Nigeria’s production outlook in the coming season(s). It is noteworthy that
fertilizer prices in Nigeria have more than doubled and farmers are likely to cut
down on fertilizer applications on farmlands which could seriously limit food
production unless concerted intervention efforts are put in place.

Other drivers of inflation, especially food inflation, in Nigeria include disruption
to farming activities and inter-state trade because of worsening security
conditions, rural road infrastructural deficits, persistent supply chain disruptions,

post-harvest losses, and sustained exchange rate pressures with pass-through
to domestic prices.

The consequences of sharply rising prices are that inflation adversely affects all
Nigerians, especially the poor, by reducing the value of savings and purchasing
power. It also reinforces expectations and reduces Nigeria’s price
competitiveness with regard to the country’s international trading partners.
Thus, reducing post-harvest food losses, reducing cost of governance and
redirecting resources saved to development of rural infrastructure can have
immediate impacts in reducing inflation in Nigeria. Some of the immediate
measures needed to tackle food inflation include timely provision of
emergency agricultural interventions in the current wet and dry seasons to
boost agricultural production as well as addressing the insecurity challenges by
(i) improving the capacity of security forces to gather advanced intelligence
to enable them act proactively; (ii) increasing co-ordination between
stakeholders and regional organisations to improve safety for farmers; (iii)
hastening the implementation of agricultural reform policies especially
transformation of livestock farming to reduce potential for conflict; (iv)
undertaking a comprehensive exercise to reduce access to arms and
ammunitions including through cooperation and coordination with trading
partners; and (v) detailed scrutiny of security funding to ensure that security
votes are used efficiently and judiciously.

Policy Decision
Against the backdrop of headwinds to global and domestic economic growth
and outlook, it is apparent that maintaining economic growth and reducing
inflation will be the twin policy objectives of government policy. The uncertainty
around the Ukraine war as well as geopolitical tensions around world suggest
that inflation will remain elevated for longer and at higher levels than previously
assumed. This has prompted central banks in the Advanced Economies and
other EMDEs to use monetary policy instruments to contain inflationary

pressures. Here, in Nigeria, inflation expectations will continue to rise in the run
up to the 2023 General Elections, in addition to the lingering effect of the
Ukraine war on commodity prices. Thus, the rapidly rising inflation poses a serious
risk to the Nigerian economy and has created additional monetary policy
challenges. I believe that we can address these new pressures without unduly
impairing the recovery through clear and effective communication as well as
a steadfast commitment to credible monetary frameworks, including
maintaining
the
resilience
of
financial
institutions
through
effective
macroprudential regulation. This calls for a restrictive monetary policy stance.

Therefore, the time has come for the CBN to take a more aggressive monetary
stance on inflation by raising the Monetary Policy Rate (MPR) substantially.
Efforts by the CBN should, however, be complemented by the fiscal authorities
for maximum impact. However, there is a need for collaboration and
coordination between the fiscal and monetary authorities to tackle the
headwinds, reduce inflation and boost economic growth. There is also the need
for effective monitoring and evaluation of many of the government policies, as
Government often approves important policy recommendations
but
implementing agencies of government fail to implement them fully, resulting in
sub-optimal outcomes.

Consequently, I voted to:
Raise the MPR by 150 basis points to 13 %
Retain the CRR at 27.5%
Retain the Asymmetric Corridor at +100/-700 basis points around the MPR
Retain the Liquidity Ratio at 30.0%

9. SANUSI, ALIYU RAFINDADI
1.0
Decision
In today’s meeting, I voted with the conviction that the interactions of three
domestic and international developments, which threaten inflation have
necessitated a tightened monetary policy stance so as to rein in inflation. On
the domestic side, the prolonged food and energy price inflation has
significantly raised production costs and inflation expectations, thereby causing
significant second-round effects on the core inflation. Secondly, the monetary
effects of the fiscal and monetary interventions in response to the COVID-19
pandemic amid persisting supply chain disruptions may be an important source
of inflationary pressure. Thirdly, the Russian-Ukrainian war as well as the
associated trade sanctions have significantly affected global commodity
prices, including prices of domestic production inputs as well as energy prices.
Fourthly, Central Banks in both Advanced Economies and Emerging Markets
and Developing Economies (EMDEs) have raised their policy rates and began
monetary policy normalisation, which can cause capital outflows and raise
foreign exchange market pressure. Given the potential effects of the
interactions of these developments, as well as the available data and staff
forecasts, I am convinced that monetary tightening is required to rein in inflation
and mitigate the adverse consequences of these developments on the
domestic economy.
2.0
Background and Justification
2.1
Global Economic Developments
The Russia-Ukraine war has continued to dampen the prospects for the muchexpected global economic recovery in 2022 by exacerbating the pre-existing
inflationary pressures and causing further disruption to the global supply chain.
Consequently, global inflation is likely to remain elevated as energy and food

prices increase, while global output growth slows down. Central Banks across
the world are, therefore, faced with the difficult trade-off between focusing the
rising inflations and dwindling output growth.
The blockades associated with the Russia-Ukraine war and the trade as well as
financial sanctions imposed by the US and EU on Russia and Belarus have
continued to stifle the global economic recovery. Global spillovers of the
conflict are expected to continue to impact on the commodity, trade and
financial markets with their attendant adverse effects on global food and
energy prices and global financial conditions. Consequently, IMF’s forecasts for
global output in 2022 have been further downgraded from the 3.8% earlier
expected to 3.6%, compared with the 6.1% achieved in 2021 (IMF WEO April
2022). In the Advanced Economies (AEs), output is similarly forecasted to
progressively decline from the 5.2% achieved in 2021 to 3.3% in 2022, and further
to 2.4% in 2023. In the EMDEs, output growth is also forecasted to slowdown from
the 6.8% achieved in 2021 to 3.8% in 2022 and then rise to 4.4% in 2023.
Crude oil prices have moderated owing to the increase in supply by US and
Saudi. As at 20th May 2022, the oil price stood at $112/b (OPEC Basket) and is
expected to remain elevated. Global prices of agricultural products, especially
wheat and corn, have also risen following the disruptions in the global grains
market. The global food price has increased by 12.6% between February 2022
and March 2022 mostly due to sharp rises in the prices of vegetable oils, cereals,
and meat.
Global inflation is expected to remain elevated in the near to medium-term due
to worsening supply-side constraints, rising costs of freight and the sharp
increase in food and energy prices arising from the Russia-Ukraine conflict.
Global inflation is, therefore, expected to maintain its trend beyond 2022.
Inflation in the Advanced Economies is forecasted to rise to 5.7% in 2022 from
3.1% in 2021, but will decline to 2.5% in 2023. In April 2022, US inflation was 8.3%,
having slightly moderated from the 40-year high of 8.5% recorded in March
2022. In the Euro Zone, inflation has further increased to yet another all-timehigh rate of 7.4% in April 2022, driven by prices of food, energy, alcohol &

tobacco, non-energy industrial goods and services. In the UK, inflation has risen
to 9.0% in April 2022. In the EMDEs, Inflation is expected to rise to 5.9% in 2022
from 5.7% in 2021, but will decline to 6.5% in 2023. As at April 2022, inflation (yearon-year) has risen in all the major EMDEs economies including China (2.1%) India
(7.79%), Kenya (6.47%), South Africa (5.9%), Egypt (13.1%), Ghana (23.6%) and
Nigeria (16.82%).
The forecast for global trade is revised downward to 3.0% from 4.7% in 2022 and
3.4% in 2023 owing to the disruptions from the Russian-Ukraine conflict.
Commodity prices have, therefore, risen significantly including prices of food,
energy, fertilizers, oils, metal, woods and plastics.

Central Banks in many Advanced Economies and EMDEs have raised their
policy rates in response to the rising inflation. The Bank of England has raised its
repo rate by 25 basis points twice in March 2022 and May 2022. The US Fed also
raised its rate to 0.75% to 1.0% and indicated that further rises are likely. Most
central banks in EMDEs have also shifted to tightening by raising their policy
rates as they respond to the rising inflation amidst weak output growth. South
Africa has increased its repro rate by 25 basis points in March 2022 to 4.25% in
response to rising inflation due to oil prices, increased shortages amid strong
demand and depreciation of its currency, the rand. Similarly, Egypt, Brazil,
Russia, and Ghana have all raised their key policy rates by between 25 basis
points and 125 basis points in response to rising inflation anticipated capital flow
reversals arising from policy normalisation in the AEs. The emerging market
economies have started experiencing capital flow reversals. In March 2022 and
April 2022, portfolio flows into the Emerging Markets have been negative to the
tune of $9.8 billion and $4.0 billon, respectively.
2.2
Domestic Economic Developments and their Implications
Available data shows that domestic output has grown by 3.11% in Q1 2022
compared with 3.89% in Q4 2021. The growth was driven by the non-oil sector,
by particularly Services, Agriculture and Manufacturing, as a result of the
rebound in economic activities and sustained support to the real sector.

However, the oil sector output contracted for the 8th consecutive quarter as
production remained well below the OPEC quota due to increased level of oil
theft and pipeline vandalism. Although the global oil price has remained high,
unchecked oil theft, vandalism and unrelieved dependence on imported
refined products for local consumption has continued to reduce Nigeria’s
benefit from the high global oil prices. According to staff forecasts, output will
grow at 2.99% in Q2 2022, and 3.24% for the year 2022. The outlook is predicated
on the effective implementation of the Medium-Term National Development
Plan (MTNDP), rebound in manufacturing activities and positive impact of CBN
interventions.
Headline inflation has increased from 15.92% in March 2022 to 16.82% in April
2022. The increase is driven both the food and core components of inflation.
The food component has increased (y-o-y prices of processed foods, bread and
cereals, and yam, potatoes & other tubers. The increase in prices of food was
attributable to supply shortages due to insecurity across the major food
producing areas, increased cost of production, processing and transportation
of the food items due to high cost of energy and global trade shock as a result
of the Russia-Ukraine war. Core inflation has increased from 13.91% in March 2022
to 14.18% in April 2022. The rise in core inflation is driven mainly by the increase in
prices of processed food, housing, water, electricity, gas & other fuel. The rise in
core inflation is attributable to a number of factors including the lingering
structural issues; external shocks; continuous foreign exchange market pressure;
imported inflation; rising prices and inadequate supply of fuel (especially PMS
and diesel), transportation and electricity. According to Staff projections,
inflation will rise to 17.31% in May 2022 driven by both the core and food
components as a result of increase in production costs associated with scarcity
of refined petroleum products, disruptions in electricity supply and spillover
effects of the Russian-Ukrainian war.
Review of the banking industry shows that the banking industry has continued
to remain resilient, with all the ratios indicating that the industry is sound. The
Capital Adequacy Ratio (CAR) of the industry was 14.6% as at April 2022, which
is above the regulatory minimum of 10%. The Non-Performing Loan (NPL) ratio
was 5.3%, slightly above the regulatory maximum of 5%. The industry’s total
credit to the economy has also increased by N4.65 trillion or 21.66% between
April 2021 and April 2022. Gross industry credit, which stood at N26.1 trillion in

April 2022, has steadily increased since 2019 largely as a result of the Bank’s LDR
policy. Analysis of the interest rate band reveals that 70.93% of customers paid
interest rates of less than 15% in March 2022, suggesting that interest rates are
declining as credit to the real sector of the economy continued to increase.
Available data shows that in April 2022 broad money supply (M3) has expanded
by an annualized rate of 18.66%, which was greater than the benchmark for
2022 of 15.21%. Similarly, the narrow money supply (M2) also expanded by an
annualized rate of 27.75%, which was also faster than the 2022 benchmark of
23.56%. the monetary expansion was driven by Net Domestic Assets. This
suggests that part of the current sources of inflationary pressures may, indeed,
be monetary.
3.0
The Basis for My Policy Choice
The domestic economy, like in rest of the emerging markets, has been under
significant pressures from domestic and external shocks that adversely affect
the medium-term outlook for both output and inflation. On the one hand, the
rising global inflation, which is exacerbated by the Russian war in Ukraine, is a
significant source of pressure for domestic inflation. The rising global inflation
means that high cost of imports will continue to be passed on to domestic
prices. In addition, as major central banks hike their policy rates, the potential
capital flow reversals may have significant impact on exchange rate and
eventually domestic inflation. On the other hand, while domestic security
challenges have sustained a prolonged increase in food price inflation, the
incessant shortages of refined petroleum products and electricity have
significantly raised energy prices, leading to significant second-round effects on
core inflation. In addition to these sources of inflationary pressures, the
significant liquidity injection expected in the pre-election year would add to the
already increasing money supply. Therefore, although the inflationary process
is mainly supply side, a significant source is demand side. Thus, in choosing
between the options to tighten, hold or loosen the current policy stance, I voted
to raise the MPR by 100 basis points in order to rein in inflation.
Consequently, I voted to:

Raise the MPR by 100 basis points to 12.50 per cent;
Retain the CRR at 27.5 per cent;
Retain the asymmetric corridor at +100/–700 basis points; and
Retain the liquidity ratio at 30.0 per cent.


10. SHONUBI, FOLASHODUN A.
Impact of spillover to the domestic economy from the slowdown in global
growth and uptick in global inflation were the major considerations at this
meeting. Prolonged bottlenecks in the global supply chain, on account of the
pandemic, is further aggravated by more disruptions caused by ongoing
Russian-Ukraine conflict and resurgence of the pandemic in China.
Consequently, reduced global trade, food and input supply shortages and the
resultant record-level inflation have negatively impacted global growth
momentum, even as many advanced and emerging market economies
began aggressive monetary policy tightening to curb inflationary pressure.

Nigeria, like many of its peers, continues to grapple with effects of the
precarious global macroeconomic environment, which has manifested in the
form of high imported inflation, slow foreign exchange inflows and a
significantly weakened fiscal space. Though recent developments indicated
subdued positive outcomes from measures targeted at promoting productivity,
growth remains fragile, while the persistent rise in domestic inflation, driven by
both domestic and external factors is becoming a threat to further growth. This
situation obviously calls for decisive action by the Bank to curb the inflationary
pressure, in line with the primacy of its price stability mandate.

Brief Review of Global and Domestic Economic Developments
Heightened uncertainties around lingering effect of past restrictions,
resurgence of the pandemic, particularly in China and disruptions arising from
the Russian-Ukraine crisis has been a major drag on global growth. Inflation has

become elevated to record levels on account of rising food and energy prices,
increased cost of trade and, supply shortages due to protracted supply chain
disruptions and production shutdowns. The International Monetary Fund has
estimated global growth at 3.6 per cent, while growth in the advanced, as well
as, emerging and developing economies are expected to slow to 3.3 and 3.8
per cent, respectively, in 2022.

Latest data from the National Bureau of Statistics indicated that Real Gross
Domestic Product (GDP) grew by 3.11 per cent in the first quarter of 2022,
compared with 3.98 per cent and 0.51 per cent in 2021Q4 and 2021Q1,
respectively. Major growth driver was the 6.08 per cent growth in the non-oil
sector, which more than offset the 26.04 per cent contraction of the oil sector.
Overall, real output growth was below the potential level, highlighting
opportunities for further expansion, especially under a condition of increasing
population and high unemployment.

Headline inflation increased further to 16.82 per cent in April 2022, from 15.92
per cent in March 2022, driven by increases in both food and core inflation at
18.37 and 14.18 per cent, respectively. Rise in energy and transportation costs,
effects of insecurity-induced disruptions to the distribution of food and
exchange rate pass-through were the major drivers of inflationary pressure.

Developments in the banking system reflected sustained resilience and
soundness as major prudential indicators remained largely within regulatory
limits. Though non-performing loans ratio, at 5.3 per cent in April 2022, was
marginally above the 5.0 per cent prudential limit, industry liquidity and capital
adequacy ratios were above the regulatory minimums in the review period.
Monetary aggregates, particularly domestic claims rose significantly, reflecting
increased credit flow from the banking sector, on account of the development
finance initiatives of the Bank. Accordingly, broad money supply (M3) grew at

an annualized rate of 18.66 per cent in April 2022, against the 15.21 per cent
benchmark for fiscal 2022.

Estimated
government
revenue
increased
in
April
2022.
However,
corresponding increase in expenditure led to further rise in the overall deficit.
The fiscal sector therefore continues to grapple with the consequences of high
debt stock and a narrow fiscal space. Despite high global oil price, bottlenecks
in the arrangements within the domestic oil sector has not allowed improved
fortunes of the global oil market to manifest in the conditions of Nigeria external
sector. The sector is characterised by low foreign exchange inflows resulting in
low external reserves and pressured exchange rate.

Considerations and Decision
On the back of gradually tightening financial conditions, slowing global trade,
huge debt and record level widespread global inflation, optimism about global
growth has waned. Moreover, disruptions caused by the Russian-Ukrainian war
and reintroduction of restrictions in China have increased uncertainties in the
global economic environment, posing new challenges to growth momentum.
Rising probability of further uptick in global inflation and spillover to the
domestic economy therefore calls for urgent domestic policy action to curb
inflationary pressure, in line with global trend.

Without doubt, the Bank has done much to promote growth and recent data
attest to the positive outcomes so far. The domestic economy expanded again
in the first quarter of 2022. Though composite manufacturing PMI was slightly
below the 50.0 basis point mark, marginal expansion shown by production and
employment indices are a good indications of prospect for more progress.
Growth, however, remains fragile and challenged by significantly elevated
price levels. Moreover, high unemployment level suggests that deliberate
measures must continue to target employment generating sectors to absorb
the teaming idle labour force and close the negative output gap.

Persistent elevation of domestic price levels and impact on purchasing power
poses major challenge to growth and authority’s effort to reduce poverty level.
On food inflation, moderated farmgate prices reflect impact of development
financing activities on agriculture. However, high cost of logistics due to rising
energy and transportation prices have continued to cause increase in market
prices, thus constituting a major driver of inflation. Imported inflation on the
other hand is further aggravated by exchange rate pass-through.

Inflation is clearly now widespread and at a level that is persistent, which if not
checked may become detrimental to sustainable growth. Without discounting
the fundamental role of non-monetary factors, current developments suggest
a strengthening monetary phenomenon as well as strong expectations about
rising cost, driven by trends in insecurity, exchange rate pressure, global
inflation, and effect of sharp market practices.

With inflation rising and purchasing power being eroded, there is need to not
only signal readiness to curb inflationary pressure but effectively anchor inflation
expectation. Rate adjustment at this time will help douse aggregate demand,
stem capital outflow, and boost external reserves, especially in an era of
aggressive wind down of accommodative policy stance globally. However,
any rate adjustment must be complemented with fiscal measures to avert
unintended consequences. Maintaining targeted interventions to promote a
system that support productive sector’s access to credit conforms with the
Banks’s strategic focus of ensuring price stability that is conducive to
investment, employment generation and poverty reduction.

I therefore vote to:
Raise MPR to 13.00 per cent.
Retain Asymmetric corridor of +100/-700 basis points around the MPR
Retain Cash Reserve Ratio (CRR) at 27.5 per cent; and
Retain Liquidity Ratio (LR) at 30.0 per cent.

11. EMEFIELE, GODWIN I.
GOVERNOR OF THE CENTRAL BANK OF NIGERIA AND CHAIRMAN, MONETARY
POLICY COMMITTEE
Though growth prospect of the domestic economy remained positive, its
resilience is threatened by the simultaneity of derailed global recovery and
quickening inflation. The Russia-Ukraine conflict, which complicated global
vulnerabilities and tumultuous conditions, increased uncertainties and upset
growth trajectory. It sparked food and energy insecurity in many countries, that
further
devitalised
vulnerable
households
and
deepened
poverty.
Macroeconomic challenges in China also impaired global conditions.
Accordingly, the IMF projected global growth to decelerate sharply from
about 6.1 percent in 2021 to 3.6 percent in 2022; mostly for advanced
economies.
Recent undercurrents exposed the output-inflation dilemma in many countries
as the inflation outcome and outlook soared strongly. The upshot of the RussiaUkraine war amplified the lingering effects of the pandemic; thus, worsening
supply-chain disruptions and accelerating inflation to decennial heights,
especially in advanced economies where rates are manifolds of target. Steep
inflation is triggering monetary tightening that could push global interest rates
upward and debilitate global demand. For EMDEs, rising yields in advanced
economies could cause disruptive portfolio adjustments that heighten
financial markets fragilities, imbalances and vulnerabilities.
Escalating global headwinds, notwithstanding, domestic outlook remained
positive, but was significantly clouded by rising inflation, diminishing effective
demand, and falling Purchasing Managers’ Index (PMI). Maintaining its
resilience, domestic recovery continued in 2022q1 as GDP grew 3.11 percent.
This was driven essentially by the 6.08 percent growth of the non-oil sector –
mainly services (7.45 percent) and agriculture (3.16 percent) sub-sectors– as oil

GDP contracted by -26.04 percent. Protracted decline of the oil sector over
the last eight quarters reflected escalating production losses, vandalism, and
theft; potentially impeding overall outlook. Yet, the satisfying performance of
the non-oil sector shows the continuing success of policy stimulus for household
and high-impact economic sectors. It equally illustrates the on-going
diversification of the domestic economy and impact of CBN interventions, to
resolve the long-standing structural bottlenecks and bolster productivity.
Spill-over from global energy price crisis amplified structural constraints that reignited a strong upward momentum of domestic inflation. This is potentially
worsened by the anticipated surge in electioneering spending during the year.
Headline inflation for April 2022 showed a significant 0.90 percentage point rise
to 16.82 percent relative to the preceding month. The observed speed-up
followed the substantial 1.17 percentage points ascent in food inflation to 18.37
percent and the 0.27 percentage point rise in core inflation to 14.18 percent.
These reflected concurrent cost-push and demand-pull effects on inflation,
especially as rising fuel and electricity costs (compounded by higher
aggregate consumption) heightened existing infrastructure and security
challenges. The observed inflationary trend needs to be decisively curtailed in
order to subdue its expectations; even as the CBN sustains its supply-correcting
interventions in agriculture, manufacturing, and particularly infrastructure.
Current inflation impetus also reflected the build-up of systemic liquidity,
signposted by financial markets conditions as the election year unfolds. Broad
monetary expansion quickened to 6.22 percent in April 2022 from 4.19 percent
in March due, largely, to the 11.86 percent increase in net domestic assets from
8.82 percent. This reflected the sustained expansion of banking system credits
to the private sector, following the CBN policy to finance high-impact sectors.
Satisfactorily, and amidst exogenous shocks, Nigeria’s banking system
remained safe, sound and stable as NPLs ratio (5.30 percent), liquidity ratio
(43.70 percent) and CAR (14.60 percent), were tolerably around their
respective thresholds. To bolster domestic investment, household demand,

and aggregate productivity, it is important to sustain innovative de-risking of
critical sectors. This will fast-track economic diversification and ensure strong
inclusive growth.
In my consideration, I note the continued improvement in the domestic
economic outlook especially as recovery consolidated over the last five
quarters. However, I note also the potential risks from worsening global
conditions and growing inflationary pressure, as subsisting Covid-19 shocks
were complicated by the Russia-Ukraine conflict and renewed supply-chain
disruptions in China. Prevailing food and energy crises are fuelling inflation
globally, towards quintupling their targets in key economies, and prompting
monetary tightening. This has implications for EMDEs, including Nigeria, as
increased capital outflows can destabilise the foreign exchange market and
set-off financial market vulnerability.
In the domestic economy, I note that the prevailing stability and positive
prospects are significantly threatened by the sharp rise in inflation. This is
exacerbated by the prospective impact of election-related spending on
inflation expectations. While the cyclical recovery of Nigerian economy
continued, it is important that inflation expectations are adequately anchored.
Today, inflation, driven by global and domestic shocks, is at a level deemed
detrimental to growth. Forecasts suggest continued ascent, if no immediate
action is taken to assertively stabilise price at levels that are conducive to
growth and productivity.
At this time, given the rising inflation expectations, the postulated policy
response is to tighten, mindful of the trade-off between inflation and output. A
rate hike could derail continued recovery, undermine productivity, and
weaken outlook. However, failure to tighten will further aggravate inflationary
pressure and adversely impact economic growth. I remain inclined towards a
cautious, practical, and well-balanced decision that promotes price stability
while optimising output considerations.

I underscore the need for continued stimulus to critical sectors, especially in
agriculture, manufacturing, and MSMEs and believe that the aggregate supply
boost from such support will considerably moderate inflation. Since the key
mandate of the CBN remains price and monetary stability, I am committed to
driving inflation to tolerable levels. Overall, I am convinced that the current
level of the policy rate is inadequate to effectively balance the objectives of
price stability and output growth. Therefore, I vote to:
i. Raise the MPR by 150 basis points to 13.0 percent;
ii. Retain the asymmetric corridor at +100/–700 basis points;
iii. Retain the CRR at 27.5 percent; and
iv. Retain liquidity ratio at 30.0 percent

GODWIN I. EMEFIELE, CON
Governor

May 2022