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CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 129 OF THE MONETARY POLICY
COMMITTEE MEETING OF MONDAY 23RD AND TUESDAY 24TH MARCH 2020
The Monetary Policy Committee (MPC) met on the 23rd and 24th March 2020,
amidst heightened uncertainty in the global macroeconomic environment
arising from major disruptions associated with the outbreak of the Coronavirus
Disease (COVID-19) and the oil price war between Saudi Arabia and Russia.
The Committee assessed the developments in the global and domestic
environments in the first quarter of 2020 and the outlook for the rest of the year,
including the threats to capital flows, growing vulnerabilities across global
financial markets, the probability of a global recession, risks to price and
financial stability as well as the quick intervention by central banks to restore
normalcy, with guidance for further action. Ten (10) members of the
Committee were in attendance at this meeting.
Global Economic Developments
The Committee noted with concern, the combined demand and supply
shocks to the global economy arising from the outbreak of COVID-19 and the
oil price war between Saudi Arabia and Russia. It also noted the weakening
performance of global output growth since January 2020, reflected in losses in
global stock values; declining primary commodity prices, disruptions to the
global supply chain associated with large scale global lockdown of mega
metropoles and whole countries; and social distancing. Also, there has been
adverse shocks to global capital flows; vulnerabilities and uncertainties in
major financial markets; as well as rising corporate debt in the advanced
economies and public debt in some Emerging Market and Developing

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Economies (EMDEs). Consequently, global output growth in 2020 is projected
to fall significantly below the initially projected level of 3.3 per cent.
Inflation in the advanced countries continues to trend below long run targets,
except in the United States, especially in the light of prevailing headwinds and
heightened global uncertainties. Central banks in the Advanced Economies
have thus engaged in a coordinated approach with peers to embrace
quantitative easing across every sector, notably in transportation, travel and
tourism, health and setting up of social safety net funds, to stem the impact of
these headwinds on aggregate demand and supply chains. In the EMDEs,
price developments remained mixed with upward inflationary pressure in some
of the key economies.
Domestic Economic Developments
Data from the National Bureau of Statistics (NBS) showed that growth in real
Gross Domestic Product (GDP) continued to improve in Q4 of 2019.
Consequently, real GDP grew by 2.55 per cent in the fourth quarter of 2019,
compared with 2.28 and 2.38 per cent in the preceding and corresponding
quarters of 2019 and 2018, respectively. Growth in Q4 2019, was driven largely
by the strong performance of the oil sector, which grew by 6.36 per cent,
though lower than 6.49 per cent recorded in the previous quarter, while the
non-oil sector grew by 2.27 per cent. The Manufacturing and NonManufacturing Purchasing Managers’ Indices (PMI) expanded, though at a
lower rate in February 2020, for the 35th and 34th consecutive months to 58.3
and 58.6 index points, respectively. Staff projections indicate that real GDP in
Q1 and Q2 2020 will slow because of the tepid global demand, resulting from
the recent outbreak of COVID-19, depressed global aggregate demand and
supply, and the oil price war which has resulted in supply glut and decline in
crude oil prices. This muted outlook for the first half of the year may thus,
dampen overall growth prospects for 2020. To mitigate this trend, the Bank took
decisive action to safeguard the Nigerian financial system and the economy
from the emerging headwinds. The key policies include: provision of extended

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moratorium on loans by an additional 1 year beginning from March 2020. This
is to ease pressure on loan repayments. The Bank also reduced interest rates
from 9 to 5 per cent on its existing intervention programmes over the next one
year; created a N50 billion fund to support households and Small and Medium
Enterprises (SMEs) affected by COVID-19; introduced credit support for the
healthcare sector; introduced regulatory forbearance to consider temporary
and time-limited restructuring of loan terms and tenors to households and
businesses affected by COVID-19, and strengthened the loan-to-deposit ratio
(LDR) policy. The Bank also announced an intervention fund of N1.1 trillion to
cushion the adverse effects of the Coronavirus outbreak on the economy. The
sum of N1.0 trillion from this amount will be used to support local manufacturing
to boost import substitution, while the balance of N100 billion will be used to
support the health services sector and products through the provision of loans
to the pharmaceutical companies, hospitals and other health practitioners to
build new hospitals and health facilities or expand existing ones to first class
health centres. This is in addition to the N1.5 trillion private sector driven Infraco
Project fund, designed to target the construction of critical infrastructure across
the country. In addition, pharmaceutical companies would be assisted
through loan interventions to re-establish drug manufacturing firms in Nigeria
and curtail the spread of the corona virus. In summary, it is expected that
through these interventions, about N3.5 trillion would be injected as stimulus to
support the Nigerian economy during this trying time.
The Committee noted the continued uptick in headline inflation (year-on-year)
for the sixth consecutive month to 12.20 per cent in February 2020 from 12.13
per cent in the previous month. The increase in inflation, was largely attributed
to increases in the food and core components, which rose to 14.90 and 9.43
per cent in February 2020, from 14.85 and 9.35 per cent in January 2020,
respectively. This was driven by shocks to food prices associated with renewed
insurgency in major food producing areas of the Country and persisting
infrastructural deficits.

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The MPC observed that broad money supply (M3) contracted for the second
consecutive month by 2.29 per cent (year-to-date) in February 2020, reflecting
the decline in Net Foreign Assets and Net Domestic Assets. Specifically, the
contraction in M3 was driven primarily by a decline in securities other than
shares and currency outside depository corporations in the review period. Net
Aggregate Credit, however, grew by 1.34 per cent in February 2020.
The Committee noted with satisfaction the growth in aggregate credit by
N2.35 trillion since the inception of the LDR policy, reflecting the potency of the
policy and thus urged the Management of the Bank to sustain the current
momentum of improved flow of credit to the private sector in Nigeria. It
emphasized the need for coordination with the fiscal authorities, to strengthen
access to credit to some critical sectors of the economy, including the weak
and vulnerable population, particularly those in the informal sector through the
setting up of a special fund, as well as support the enforcement of credit
recovery. Accordingly, sectoral distribution of credit between end-May 2019
and end-February 2020 was as follows: Manufacturing (N533.06 billion);
General Retail and Consumer Loans (N380.71 billion); General Commerce
(N229.87 billion); Agriculture, Forestry and Fishing (N163.04 billion); Information
and Communications (N163.69 billion); Finance and Insurance (N131.20
billion); Construction (N112.25 billion); and Transportation and Storage (N45.42
billion), amongst others.
The Committee noted the dismal performance in the equities market as the
All-Share Index (ASI) decreased by 17.30 per cent and Market Capitalization
(MC) by 10.73 per cent between end-December 2019 and March 20, 2020. The
decline was largely attributed to profit taking and divestment by foreign
portfolio investors, the delisting of shares of three quoted companies and
capital outflow associated with the COVID-19 and subdued global economic
activity.
The MPC noted the continued resilience of the banking system, evidenced by
the further moderation in the ratio of Non-Performing Loans (NPLs) from 6.59

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per cent in January to 6.54 per cent in February 2020. Although the ratio
remained above the prudential benchmark of 5.0 per cent, the Committee
expressed confidence in the Bank’s regulatory regime and commitment to
maintaining stability in the banking system.
Outlook
The overall medium-term outlook for the global economy remains uncertain
with increased deterioration in financial market conditions and weak global
output growth. The major headwinds to the current projection for global
growth includes: disruption to the global supply chain arising from the COVID19 pandemic; oil price downturn as a result of subdued global demand,
vulnerabilities in major financial markets; rising corporate debt in the advanced
economies and public debt in some Emerging Market and Developing
Economies; as well as broad uncertainties leading to adverse shocks to foreign
investment flows.
On the domestic front, available data on key macroeconomic variables
indicate the likelihood of subdued output growth for the Nigerian economy in
2020. Based on the current downturn in oil prices, staff projections indicate that
output in the 2020 would be less than earlier envisaged. The major downside
risks to this outlook, however, include: the continued spread of COVID-19;
further decline in crude oil prices and the reduction in accretion to external
reserves; reduced government revenue leading to weak aggregate demand;
declining non-oil receipts; as well as infrastructural and security challenges.
These headwinds will, however, be partly mitigated by: the timely and
effective response of the monetary and fiscal authorities in containing the
spread of the COVID-19 viral infection, the recalibration and adjustment of the
2020 Federal Budget to the revised thresholds while pegging expenditure to
critical sectors of the economy, adoption of a new fiscal regime to encourage
the build-up of fiscal buffers; sustained CBN interventions in selected sectors;
enhanced flow of credit to the real sector and deliberate policies to diversify
the Nigerian economy.

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The Committee’s Considerations
The Committee reviewed the prevailing adverse conditions in the global
economy such as the COVID-19 pandemic and the oil price shock as well as
the likelihood of continued oil supply glut into the near future, focusing on the
impact of these headwinds on the Nigerian economy.
The Committee observed that not only will the COVID-19 pandemic result in
health crises, it will also result in massive economic crises that will force many
countries into recession, including the leading industrialised countries. The MPC
took into cognisance the impact of the decline in oil prices on accretion to
external reserves and the emergence of exchange rate pressures. The
Committee thus commended and endorsed the Management of the Bank for
its prompt response with the adjustment of the exchange rate to uniform
market rates and the removal of distortions. It, however, took note of the likely
impact of the exchange rate adjustment on the economy.
The Committee noted the weakened revenue position of the Federal
Government, arising from the sharp drop in oil prices. It reiterated the need for
government to urgently reduce reliance on oil revenue by gradually
diversifying the economy and improving tax collection. To this end, the MPC
noted the speedy response of the Federal Government to the oil price shock
by the revision of the 2020 budget downwards by N1.5 trillion and the oil price
benchmark to US$30 per barrel. The MPC urged the NASS to fully cooperate
with the Federal Government in coming up with a budget that reflects our new
realities. In addition, the Committee noted the introduction of price
modulation measures, resulting in reduction in the pump price of PMS from
N145 to N125 per litre and its contributory effect in boosting aggregate
demand, lowering inflation and improving the welfare of the ordinary
Nigerians.
The MPC further noted the persistence of inflationary pressures attributed to a
combination of monetary and structural factors, and thus urged the Federal

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Government to leverage on Public Private Partnership (PPP) to intensify
investment in infrastructure to increase output and employment. The
Committee cited the potentials for Foreign Direct Investment (FDI) flows to the
Nigerian auto manufacturing, aviation and rail industries, which could take
advantage of these viable and untapped domestic and regional markets.
The Committee noted the sustained improvement in the financial soundness
indicators, applauding the continued decline in the ratio of non-performing
loans, growth in assets of the banking system and profitability of the industry in
the light of increasing global uncertainties. It also recognised the success of
the Bank’s loan-to-deposit ratio policy and its potential to alleviate production
shortfalls, reduce unemployment and boost aggregate demand, urging the
Bank to pursue this and other related policies to a conclusive end.
The MPC underscored the COVID-19 pandemic as a public health crisis which
will continue to undermine any monetary or fiscal stimulus unless appropriate
measures are taken to trace, test, isolate and treat infected persons in order
to curtail the spread, while ensuring the that migration across the country is
significantly reduced. The MPC, therefore, called on the Federal Government
to take the necessary steps to safeguard the population through close
monitoring and emergency readiness measures to identify and care for
infected persons in the country, including compulsory restriction of movement
to curtail spread of the pandemic.
On the choices before the Committee, the MPC noted the recent actions of
the Bank, targeted at strengthening the resilience of the financial system and
alleviating the initial impact of the crisis. In its wisdom, the Committee felt that
tightening would result in reining in the rising trend in inflation, and that it would
support reserve accretion. However, it would reduce money supply and limit
DMBs credit creation capacity, thus resulting in increasing the cost of credit,
with adverse impact on output growth. Tightening would also result in a
reduction in aggregate demand as a fall in disposable income results in output

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compression; whereas at this time, policy emphasis should be on stimulating
aggregate supply and demand, both already weakened by COVID-19.
With respect to loosening, whereas the Committee felt it would stimulate the
economy in the short term, and boost aggregate supply and demand, the
Committee nevertheless, was of the view that there was a need to be cautious
in loosening given the fact that it would exacerbate an already worsening
inflationary condition, resulting in massive pressure on reserves and the
exchange rate.
Based on the balance of these arguments, the MPC, in taking note of the
recent actions already taken by the Management of the Bank in response to
the COVID-19, resolved to allow time for the measures to permeate the
economy while allowing the pandemic to wear out its plateau before
deciding on further supporting policy measures to boost and strengthen
aggregate demand and supply in the recovery phase of the economy. The
choice to hold also considered the subsisting LDR and the DCRR policies, which
sterilize excess liquidity in the banking system, hence an increase in the MPR
would be counter-productive.
The monetary policy stance arrived at this meeting took cognisance of the
need to address the unfolding unfavourable macroeconomic developments,
rein in inflation, support growth and employment through the extant
interventions and recent initiatives, check capital outflows and support
external reserves accretion, and dampen pressure and ensure foreign
exchange market stability.
A review of the policy options indicates relative tightness of the current
monetary policy stance. The CRR was increased at the last MPC meeting. Time
is required for its full effects to manifest. Increasing the MPR will be
contradictory to the recent reduction of interest rate in the CBN intervention
windows from 9 to 5 per cent. Besides, an increase in MPR will be taken by the
Deposit Money Banks (DMBs) as in invitation to increase lending rates and this

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will be most undesirable at this point in time when efforts are being made to
avert a recession. Besides, a reduction in the MPR, will not encourage the DMBs
to reduce lending rates. But other strategies of the CBN are making the DMBs
to reduce lending rates in furtherance of the growth objective.
The Committee’s Decision
The Committee noted the continued rise in domestic prices; the glut in oil
supplies and low oil prices in the wake of the current global shocks; exchange
rate pressure and other domestic monetary and fiscal responses to the
evolving crises. In view of the foregoing, the Committee decided by a
unanimous vote to retain the Monetary Policy Rate (MPR) at 13.5 per cent and
to hold all other policy parameters constant.

In summary, the MPC voted to:
I. Retain the MPR at 13.5 per cent;
II. Retain the asymmetric corridor of +200/-500 basis points around the MPR;
III. Retain the CRR at 27.5 per cent; and
IV. Retain the Liquidity Ratio at 30 per cent.

Thank you.
Godwin I. Emefiele
Governor, Central Bank of Nigeria
24th March 2020