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CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 132 OF THE MONETARY POLICY
COMMITTEE MEETING HELD ON 21ST AND 22ND SEPTEMBER, 2020
The Monetary Policy Committee (MPC) met on Monday, 21st and Tuesday, 22nd
September, 2020, in the light of lingering uncertainties associated with the
COVID-19 pandemic and downturn in crude oil prices. These uncertainties
which centered primarily on when the pandemic will be fully subdued and the
oil market return to normalcy, have resulted in persistent weak aggregate
demand, disruptions in global supply chains, mixed price development, volatile
and downward trending oil prices, as well as rising unemployment.
The Committee reviewed these developments and assessed their impact on the
domestic economy in the first three quarters of 2020 and noted the outlook for
the rest of the year.
Ten (10) members of the Committee were in attendance.
Global Economic Developments
The Committee observed the moderate improvement in global output
performance with widespread recession in the second quarter of 2020. This
followed the sharp decline in output growth in the Advanced Economies and
some Emerging Markets and Developing Economies (EMDEs), as well as the risk
of further deterioration in global output growth, associated with the lingering
shocks from the COVID-19 pandemic. Global exports and international travels,

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however, showed signs of gradual, but sluggish recovery, as countries relax
restrictions to allow for resumption of economic activities.
The International Monetary Fund (IMF), therefore, remained cautious of its global
growth forecast for 2020, which was hinged on the near-term containment of
the pandemic. The likelihood of a second-round spike in the rate of infection is,
however, undermining hopes of an early return to normalcy. Oil exporting
countries are also likely to face further revenue shortfalls as a result of the
decision by OPEC+ to reduce its production ceiling from 9.6 million barrels per
day to 7.7 million barrels per day. Due to these headwinds, we suspect that the
global economy may suffer a deeper contraction in 2020 than the 4.9 per cent
projected by the IMF. This may also dampen the projected recovery in 2021.
The MPC observed the huge injection of monetary and fiscal stimulus into the
global economy, noting its medium-term inflationary potential. In major
advanced economies, inflation mostly remained below their 2.0 per cent longrun objectives, as the recovery of both global aggregate demand and supply
remained stalled. Across the group of Emerging Market and Developing
Economies, price development remained mixed, reflecting the diverse structure
of these economies. The exchange rates of EMDEs continued to be under
pressure as global capital flows were subdued, reflecting investor’s preference
for gold as a safe haven. With the unprecedented and coordinated injection of
liquidity by central banks and fiscal authorities globally, the risk of another
financial crisis post-COVID-19 can no longer be overlooked as this may likely
crystalize into a double deep global recession when central banks across the
globe move to normalize monetary policy.
In the global financial markets, conditions remain relatively tight reflecting
continued uncertainties. Thus, while markets are showing moderate signs of
recovery, financial conditions are yet to ease fully as investors remain cautious
of the lingering risk of a second-round of lockdown.

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Domestic Economic Developments
Available data from the National Bureau of Statistics (NBS) showed that real
Gross Domestic Product (GDP) contracted by 6.10 per cent in the second
quarter of 2020 compared with expansions of 1.87 and 2.12 per cent in the
preceding quarter of 2020 and the corresponding period of 2019, respectively.
The development ended, the three-year trend of low, but positive real GDP
growth recorded in Nigeria since the end of the 2016/17 recession. The
contraction in Q2 2020 was largely driven by the poor performance of both the
oil and non-oil sectors due to the lockdown to contain the spread of the
pandemic in Q1 2020. The oil sector contracted by 6.63 per cent in Q2 2020 from
-5.03 per cent in the previous quarter, while the non-oil sector contracted by
6.05 per cent in Q2 2020, compared with an expansion of 1.55 per cent in Q1
2020.
The MPC noted the continued weakness in economic activities as indicated by
the Manufacturing and non-Manufacturing Purchasing Manager’s Indices
(PMIs), which remained below the 50-index point benchmark. In August 2020,
the Manufacturing and non-Manufacturing PMIs were 48.5 and 44.3 index
points, respectively, compared with 42.4 and 43.3 index points in July 2020. This
was attributed to slower growth in production, business activities, new orders,
supply delivery time, employment level, new export orders and raw materials
and input prices. Similarly, the employment level index component of the
Manufacturing and non-Manufacturing PMIs in August 2020 was 44.6 and 44.3
index points, respectively, compared with 40.0 and 41.1 index points in July 2020.
The Committee was, however, optimistic that with the easing of the lockdown
and gradual resumption of economic activities, the PMIs will improve in the
short-to medium term.
The Committee expressed deep concern on the continued uptick in inflation for
the twelfth consecutive month as headline inflation (year-on-year) rose to 13.22

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per cent in August 2020 from 12.82 per cent in July 2020. The increase in
headline inflation was largely driven by the persistent increase in the food
component, which rose to 16.00 per cent in August 2020 from 15.48 per cent in
July 2020. The core component also rose to 10.52 per cent in August from 10.10
per cent in July 2020. These upticks were driven primarily by legacy structural
factors such as the inadequate state of critical infrastructure and broad-based
security challenges across the country, which dampened production activities.
Other factors include the disruptions to supply chains following restriction to
movements to curb the spread of the pandemic; adverse weather conditions,
which resulted in flooding of farmlands; as well as the inflation pass-through to
domestic prices following the depreciation in the exchange rate. The recent
increase in energy cost is also expected to further impact the domestic price
level in the short-term.
The Committee, therefore, stressed the urgent need for a combination of broadbased monetary and fiscal policy measures to curb the rise in inflation and
contraction in output growth. This will involve targeted investment by the fiscal
authorities to resuscitate critical infrastructure to improve the ease of doing
business across the country. In addition, the MPC believes the fiscal authorities
can build on earlier efforts and articulate a clear strategy to attract private
sector investment. The Bank will, however, continue to take relevant steps to
ensure that the detrimental risk of inflation to the economy is contained.
The Committee noted the various interventions by the CBN to reflate the
economy, improve aggregate supply and drive down inflation. Recent
interventions were largely in the areas of Manufacturing, Agriculture, Electricity &
Gas, Solar Power and housing constructions among others. It expressed
optimism that these initiatives will significantly ease the adverse impact of the
COVID-19 pandemic and set the economy on a path of recovery. So far, total
disbursements from the Bank’s interventions in the wake of the COVID-19

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pandemic amounted to N3.5 trillion including: Real Sector Funds, (N216.87
billion); COVID-19 Targeted Credit Facility (TCF), (N73.69 billion); AGSMEIS,
(N54.66 billion); Pharmaceutical and Health Care Support Fund, (N44.47 billion);
and Creative Industry Financing Initiative (N2.93 billion). Under the Real Sector
Funds, a total of 87 projects that included 53 Manufacturing, 21 Agriculture and
13 Services projects were funded. In the Health Care sector, 41 projects which
included 16 pharmaceuticals and 25 hospital and health care services were
funded. Under the Targeted Credit Facility, 120,074 applicants have received
financial support for investment capital. The Agri-Business/Small and Medium
Enterprise Investment Scheme (AGSMEIS) intervention has been extended to a
total of 14,638 applicants, while 250 SME businesses, predominantly the youths,
have benefited from the Creative Industry Financing Initiative. In addition to
these initiatives, the CBN is set to contribute over N1.8 trillion of the total sum of
N2.30 trillion needed for the Federal Government’s 1-year Economic
Sustainability Plan (ESP), through its various financing interventions using the
channels of Participating Financial Institutions (PFIs). The MPC is, thus, using this
medium to appeal to our important economic stakeholders to take advantage
of these intervention initiatives to help support a quick rebound in growth.
The Bank’s policy on Loan to Deposit ratio also resulted in a significant growth in
credit to various sectors from N15.57 trillion to N19.33 trillion between end-May
2019 and end-August 2020, an increase of N3.77 trillion. This growth in credit was
mainly to manufacturing (N866.27 billion), consumer credit (N527.65 billion), oil &
gas (N477.65 billion), agriculture (N287.11 billion) and construction (N270.97
billion).
On Monetary Aggregates, broad money supply (M3) rose to 6.93 per cent (yearto-date) in August 2020 from 5.23 per cent in July 2020, reflecting the increase in
both Net Foreign Assets and Net Domestic Assets. Similarly, aggregate domestic

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credit (net) grew by 6.94 per cent in August 2020 compared with 9.43 per cent
in July 2020.
Money market rates remained relatively stable in the review period with some
mild volatility, reflecting the prevailing liquidity conditions in the banking system.
The monthly weighted average Inter-bank call rate increased to 7.38 per cent in
August 2020 from 6.25 per cent July 2020, while the Open Buy Back (OBB) rate
decreased to 8.39 per cent in August 2020 from 10.12 per cent in July 2020.
The MPC noted the moderate improvement in the equities market in the review
period, as the All-Share Index (ASI) increased by 5.78 per cent from 24,174.75 on
July 21, 2020 to 25,572.57 on September 18, 2020. On a year-to-date basis,
however, the ASI decreased by 4.73 per cent compared with 26,842.07 as at
December 31, 2019. Market Capitalization (MC) also increased by 5.98 per cent
from N12.61 trillion to N13.36 trillion over the same period. As a lead indicator,
therefore, this improvement in market indices signposts the commencement of
a broad-based economic recovery.
The Committee also noted the decrease in the NPLs ratio to 6.1 per cent at endAugust 2020 compared with 9.4 per cent in the corresponding period of 2019
due largely to recoveries, write offs and disposals.
The Committee expressed confidence in the overall stability of the banking
system as reflected in the positive performance of the financial soundness
indicators (FSIs), despite the persistence of the COVID-19 pandemic. It however,
called on the Bank to sustain its regulatory oversight on the industry in the light of
the continued fragility of macroeconomic indicators and the impact of the
COVID-19 pandemic and the growing risk of cyber-attacks on business and
economic activities.
On the external sector, the Committee noted the resumption of sales to Bureaux
de Change (BDCs) in a bid to improve liquidity and ease demand pressure in

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the foreign exchange market. Consequently, the exchange rate appreciated at
all windows. The MPC observed the recent improvement in external reserves
and urged the Bank to maintain its prudent allocation of foreign exchange
towards balancing supply and demand.
Outlook
The broad outlook for the global recovery remains uncertain, as the headwinds
associated with the COVID-19 pandemic persist, especially due to new
indications of a second spike in the rate of infections, continues to dampen
prospects of a near term recovery.
With several economies contracting deeper than expected, the global
economy may eventually contract beyond the -4.9 per cent earlier projected
by the IMF, as the second-round spike in the infection rate has resulted in
widespread localized lockdowns in some advanced and emerging market
economies. In addition, the persisting volatility in global oil prices, which is likely
to continue beyond the end of 2020 as indicated by the deliveries in the oil
futures market, signposts the likelihood of a disorderly global recovery.
The synchronized monetary policy accommodation by major central banks in
both the Advanced and Emerging Market Economies, portends the likelihood of
a medium-term debt crisis which may set the global economy into another
downturn, if not properly managed.
On the domestic economy, staff forecast suggests that the economy may
continue to grapple with the effects of the pandemic throughout the rest of the
year. With persistent focus on activities meant to reverse the contraction, the
MPC projects growth at positive levels in Q4 2020, or at the latest by Q1 2021,
based on the anticipated positive results from the coordinated and sustained
interventions by both the monetary and fiscal authorities. These interventions
include, the coordinated response of the monetary and fiscal authorities to

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curtail the spread of the COVID-19 pandemic, reverse the downturn in the
economy, improve sources of revenue in the non-oil sector and encourage the
build-up of fiscal buffers.
The Committee’s Considerations
The Committee’s considerations focused on the major headwinds exerting
downward pressure on output growth and upward pressure on domestic prices.
The key factors considered by the MPC as likely to exert upward pressure on
domestic prices in the near term include: the prevalence of security challenges
in the country; adverse weather conditions causing flooding in some farming
regions; the increase in petroleum pump price; deregulation in electricity tariff;
low crude oil price; and exchange rate adjustment.
The Committee noted that available evidence does not support the view that
the rise in inflation was due to monetary factors. Rather, there is overwhelming
evidence that the inflationary pressure reflects the prevalence of structural
rigidities and supply shocks. Hence, the traditional tools of monetary policy may
not be helpful in addressing current inflationary pressures. Instead, the useful
policies will be the supply-side measures implemented by the Bank. In the light of
this, reducing MPR will signal to the Deposit Money Banks to lend more to
stimulate growth, increase aggregate supply, which should dampen prices in
the immediate term.
Although the MPC remains committed to its primary mandate of ensuring price
stability, it however, noted the need to address the structural supply-side issues
that are putting upward pressure on production cost and depressing economic
growth. To this end, the Committee supports the various intervention
programmes of the Bank towards stimulating production in the agricultural and
manufacturing sectors to increase aggregate output and lower prices.

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On Financial Markets, the Committee considered the impact of the dwindling
capital inflows on yields in the equities, bonds and money markets. It, however,
observed the improvement in the equities market from the second quarter of
2020, indicating prospects of medium-term economic recovery. Members also
took cognizance of the prevailing low rates in the money market which are also
below the lower band of the standing facilities corridor, as being a distortion to
money market operations.
The Committee noted the increase in aggregate credit and encouraged further
expansion in credit to employment-generating sectors to expedite growth
recovery. It, however, urged the Bank to sustain its regulatory surveillance over
the banking system to ensure that Non-Performing Loans (NPLs) remain low.
The Committee also noted the rising public debt profile and urged the fiscal
authority to strengthen its debt management strategy, explore other sources of
revenue, as well as enhance efficiency in public expenditure. It commended
the combined effort of the Federal Government and the CBN in providing the
required stimulus to contain the pandemic and ease its impact on the Nigerian
economy.
The Dilemma of Monetary Policy
The MPC was at this meeting confronted by policy dilemma. Whereas MPC
believes in the primacy of its price and monetary stability mandate, it
nevertheless was confronted with what policy direction to focus on, given the
contraction in output growth during the second quarter of 2020, which may
lead to a recession, if the third quarter of 2020 output growth numbers further
show a contraction. It is, therefore, of the view that, if a recession occurs in Q3
2020 the Committee would be confronted with proposing policy options in a
period of stagflation. This is because, with the recent removal of subsidy on fuel
price, the increase in energy prices, and the adjustment of the exchange rate,

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inflationary pressure will no doubt persist unless MPC consider options that will
deal with the pressure aggressively.
The Committee was therefore of the view that, to abate the pressure, it had no
choice but to pursue an expansionary monetary policy using development
finance policy tools, targeted at raising output and aggregate supply to
moderate the rate of inflation.
At present, fiscal policy is constrained and so cannot, on its own lift the
economy out of contraction or recession given the paucity of funds arising from
weak revenue base, current low crude oil prices, lack of fiscal buffers and high
burden of debt services. Therefore, monetary policy must continue to provide
massive support through its development finance activities to achieve growth in
the Nigerian economy. This is the reason MPC will continue to play a dominant
role in the achievement of the goals of the Economic Sustainability Program
(ESP) through its interventionist role to navigate the country towards a direction
that will boost output growth and moderate the level of inflation.
Similarly, given that the currency adjustment was a causal factor in determining
the price of petroleum products and energy prices, the MPC believes that the
CBN management must take bold actions to stabilize the exchange rate.
Management was further enjoined by the MPC to continue to provide funding
to sectors that will resolve the supply constraints in petrol pricing, energy pricing
and food availability.
To support household consumption, the MPC enjoined management to
aggressively channel its funding to targeted households, SMEs and consumer
credit by further increasing its lending activities through its NIRSAL Microfinance
Bank (NMFB). The Management was also directed to ensure that DMBs respond
to the reduction in deposit rates by aggressively lowering cost of credit to
borrowers.

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As regards output growth, MPC noted that air and road transportation;
entertainment & accommodation; food services; and education subsectors
were adversely affected by the lockdown. It therefore suggested that more
efforts be put in place to continue to provide relief and funding to these
subsectors to catalyze growth and improve the output numbers.
Dealing with The Causal Factors of Inflation
In the view of the MPC, so far, evidence has not supported the rising inflation to
monetary factors but rather, evidence suggests non-monetary factors (structural
factors) as the overwhelming reasons accounting for the inflationary pressure.
Accordingly, the implication is that traditional monetary policy instruments are
not helpful in addressing the type of inflationary pressure we are currently
confronted with. What is useful is the kind of supply side measures currently
being implemented. MPC also expects that a downward adjustment in MPR
may be necessary to further put pressure on our deposit money banks to lower
cost of credit in aid of growth.
The Committee’s Decision
In the face of declining economic growth and rising inflation, the Committee
faced a difficult set of policy choices, requiring trade-offs and sequencing.
Following the above considerations, the Committee reviewed the choices
before it, bearing in mind its primary mandate of price stability and the need to
support the recovery of output growth. Consequently, the Committee noted
that the likely action aimed to addressing the rise in domestic prices would have
been to tighten the stance of policy, as this will not only moderate the upward
pressure on prices, but will also attract fresh capital into the economy and
improve the level of the external reserves. It however, noted that this decision

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may stifle the recovery of output growth and thus, drive the economy further
into contraction.
On easing the stance of policy, the MPC was of the view that this action would
provide cheaper credit to improve aggregate demand, stimulate production,
reduce unemployment and support the recovery of output growth. The
Committee, however, observed that with inflation trending upwards, easing of
the policy stance may exacerbate the current inflationary pressure through an
increase in money supply. In addition, the MPC noted the tendency of an
asymmetric response to downward price adjustments by ‘Other Depository
Corporations’, thus undermining the overall beneficial impact of a reduction to
the cost of capital.
In the Committee’s view, a hold position will allow the economy to adjust to the
ongoing stimulus measures put in place by the monetary and fiscal authorities to
curb the downturn and allow more time for the MPC to assess their impact on
the economy.
After the consideration of the three policy options, Members were of the opinion
that the option to loosen will complement the Bank’s commitment to sustain the
trajectory of the economic recovery and reduce the negative impact of
COVID-19. In addition, the liquidity injections are expected to stimulate credit
expansion to the critically impacted sectors of the economy and offer impetus
for output growth and economic recovery.
In view of the foregoing, the Committee decided to reduce the MPR by 100
basis points to 11.5 per cent and adjust the asymmetric corridor to +100/-700
around the MPR.
Six (6) members voted to reduce the MPR by 100 basis points, one (1) member
by 50.0 basis points and three (3) voted to hold. Nine (9) members voted to
change the asymmetric corridor while one member voted to hold.

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All members voted to hold the Cash Reserve Ratio (CRR) and Liquidity Ratio
(LR).
In summary, the MPC voted to:
I. Reduce the MPR by 100 basis points from 12.5 to 11.5 per cent;
II. Adjust the asymmetric corridor from +200/-500 basis points to +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
22nd September, 2020

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PERSONAL STATEMENTS BY THE MONETARY POLICY COMMITTEE MEMBERS
1. ADAMU, EDWARD LAMETEK
The global economy continues to be heavily challenged by the fallouts of the
COVID-19 pandemic and commodity price volatility. Although economic
activity has resumed in all parts of the world and fast regaining momentum, the
effects of the extreme measures deployed to counter COVID-19 would take a
bit of time to dissipate fully. In fact, second quarter 2020 output figures for most
countries showed higher magnitudes of contraction than expected. Amidst high
risks and uncertainty, the Organization for Economic Cooperation and
Development (OECD) sees global growth contracting by about 4.5 per cent
while the International Monetary Fund (IMF) now projects a 4.9 per cent
contraction in 2020 with prospects of early recovery in 2021. Both institutions (IMF
and OECD) agree that building confidence will be crucial for early and robust
recovery.

Already, global trade, one of the major casualties of COVID-19 lockdowns and
movement restrictions, has commenced recovery – it grew from -12.3 per cent
in April 2020 to 7.6 per cent in June 2020. Businesses have remained broadly
cautious of the possibility of a second-round pandemic even as production lines
and supply chains are rapidly reopening. Meanwhile, commodity exporting
countries continue to face additional uncertainty arising from commodity price
instability. For Nigeria, low and volatile oil prices continue to be a major cause
for concern, just as it is for most OPEC Member Countries. Across the globe,
public budgets have been thrown into massive deficits and pressure on
monetary authorities for accommodation has intensified, especially in emerging
markets and developing economies (EMDEs).

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Global inflation has remained muted, reflecting mainly, below-target-inflation in
advanced economies especially, which has made it more convenient for
central banks in those economies to sustain massive injections of liquidity. In the
group of emerging market and developing economies, inflation pressures have
tended to grow largely on account of depreciating exchange rates and rising
energy costs in some cases. Nonetheless, most central banks in this clime,
including the Central Bank of Nigeria (CBN), have continued to support demand
and confidence by preventing a tightening of financial conditions.

It must be emphasized that the current domestic economic slowdown is not the
regular boom-burst cycle of activity; in fact, the Nigerian economy was barely
recovering from the 2016 slowdown when COVID-19 struck. The consequential
lockdown and movement restrictions suddenly halted most economic activities.
Yet, even as activity should logically resume in the affected sectors as the
lockdowns and movement restrictions are eased, there is no gain saying that
some kind of fiscal push will be required. However, owing to the narrow fiscal
space at the present, the greater burden of providing that critically needed
support has to be borne by the CBN, very much like most monetary authorities
have done and are still doing. There are preliminary indications that the
development finance interventions by the Bank are having the desired effect
and should therefore, be sustained and possibly deepened in the short- to
medium-term.
Nevertheless, we must admit that in some ways COVID -19 has significantly
altered the way we live and conduct economic activity/ business and some of
its consequences might remain for a while. There will be lasting consequences
for employment, production cost and how economic agents engage resources,
even under the best circumstances of early vaccine plus a cure. To the extent
that inflation and exchange rate pressures are part of the domestic policy

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challenge today, I felt the need to exercise some caution in terms of the
deployment of core monetary instruments at the September 2020 meeting of
the Monetary Policy Committee (MPC).
There is no doubt, ensuring adequate liquidity in the system continues to be vital
for output recovery; as such, the effort of the CBN in this respect needs to be
complemented by positive actions by banks. I, therefore, saw clearly the need
to expand the interest rate corridor as part measures to reduce the incentives of
banks to dump their excess reserves at the CBN’s Standing Deposit Facility (SDF).
I was, however, less inclined to deploy the monetary policy lever, full throttle, at
the September 2020 meeting owing to some considerations.
First, headline (year-on-year) inflation has maintained an upward trend in over
10 months. It rose to 13.2 per cent in August 2020, driven mainly by food inflation,
which rose to 16.0 per cent. Juxtaposed on rising month-on-month inflation and
a worsening outlook for core inflation, a change in direction of headline inflation
doesn’t seem likely in the next 2 to 3 months. Although much of the current
inflationary pressures may be attributed to non-monetary factors, non-targeted
monetary expansion may not be very helpful either. It could, in fact, become
problematic down the road.
Second, several policy measures which the CBN had implemented prior to, and
since the outbreak of COVID-19, have continued to have tremendous effect. In
particular, the Differentiated Cash Reserves Requirement (DCRR) and the
minimum Loan-to-Deposit Ratio (LDR), have ensured a significant stream of
credit to the real economy. As at end-August 2020, aggregate bank credit had
risen by about N3.7 trillion relative to its level in May 2019, when the LDR policy
was introduced. The outlook for credit to the economy remains positive given
that these policies are still in place and, importantly, that the banking industry
continues to be resilient. In fact, the industry’s non-performing loans ratio further

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declined in August 2020 to 6.1 per cent from 6.4 per cent in July, while capital
adequacy ratio (CAR) rose to 15.3 per cent from 14.6 per cent in July.
Third, the demand pressure in the foreign exchange market has remained
elevated in the face of declining accretion to external reserves and declining
private inflow. Related to this is the pressure on the balance of payments. The
current account deficit could grow as the economy reopens and imports of raw
materials and the critically needed medical consumables and equipment
resume. Beside legitimate sources of foreign exchange demand, speculation
and other frivolous demands have contributed to sustaining pressure on the
naira exchange rate. In all instances, the demand for foreign exchange thrives
on naira liquidity. It is therefore pertinent to properly guide the flow of liquidity to
those activities/sectors that promote growth and employment using instruments
that can target productive activities, rather than those that ease credit creation
generally.
I have no doubt in my mind that the surest path to early recovery would entail,
amongst others, significant financial support to the health system to enable it
cope with the COVID pandemic. The CBN is already leading the way with
dedicated interventions in the health sector, which may be ramped up with the
collaboration of the private sector and government at all levels. I should
emphasize that there are no quick fixes for the economic challenge Nigeria and
most countries currently face. In climes where the problem is limited to slowing
output and employment, the pathways are much clearer. However, in a more
complex situation such as Nigeria faces with rising inflation and weak external
position, I would rather lean more towards instruments that target the real
economy such as the Bank’s development finance interventions, LDR and
DCRR, which have all proved to be reliable and quicker in effect.
I am fairly optimistic, given the roll back of lockdowns and movement
restrictions, the gradual reopening of the economy and the broad based

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activity support by the CBN and the government’s Economic Sustainability Plan
(ESP) that real output growth in Q3 and Q4 2020 would be better than recorded
in Q2 2020. Against the foregoing, I voted to retain all other policy parameters
apart from the interest rate corridor while urging the Federal Government to
speed-up implementation of the ESP and the Bank to sustain its intervention
actions in support of economic activity. Finally, let me emphasize that the
challenge posed by rising food prices demands action beyond monetary policy
and/or catalytic interventions in agriculture. As I have noted in some of my
previous statements, farm insecurity and food distribution bottlenecks need to
be addressed holistically to ease food prices across the country on a sustainable
basis.
In summary, I voted to:

I. Adjust the asymmetric corridor from +200/-500 basis points to +100/-700
basis points around the MPR;
II. Retain the MPR at 12.5 per cent;
III. Retain the CRR at 27.5 per cent; and
IV. Retain the Liquidity Ratio at 30 per cent.

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2. ADENIKINJU, ADEOLA FESTUS
International Economic Development
Global economic recovery remains fragile, in spite of improving prospects. Fear
of second wave of coronavirus is becoming more real with recent upsurge in
reported cases, which may reverse or slowdown pace of reopening in seriously
infected countries. Until there is a vaccine and it is widely deployed, uncertainty
will continue to affect confidence in global economic recovery. Monetary
policy remains soft in most countries, as global inflation is largely muted. The rise
in global debt due to rise in public spending as part of stimulus plans and fall in
output growth may pose major problems for sustained recovery in the medium
term.
Global trade is projected to remain below pre-pandemic level throughout 2020.
Oil price remains volatile although within a narrow band of upper US$30s to midUS$40s/barrel. This volatility will continue as the market tries to balance demand
and supply forces. Development in global oil market is very important to how
Nigeria will recover from Covid-19.
As countries continue to stimulate their economies, many of them now have
negative real policy rates. Countries with negative real policy rates include
Brazil, USA, Japan, Euro Area, India and the UK. Many countries have
experienced significant currency depreciation against the dollars.
Domestic Economic Performance
Presentations by the Staff of the Bank on the “Banking System Stability Review”
and the “Economic Report” painted mixed pictures of the domestic economy.
The Financial Soundness Indicators (FSI) show that the Nigerian financial system
remain strong and resilient. The NPLs ratio improved slightly from 6.4% in July 2020
to 6.1% in August 2020. The Return on Equity (ROE) and Return on Assets (ROA) at
21% and 1.9% continue to outpace those of comparator countries. Interest

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margin to total operating income however declined sharply from 67.6% in July
2020 to 63.2% in August 2020. Aggregate banking credit also grew since the last
meeting of the MPC in July.
The CBN recorded impressive progress in the disbursement of intervention funds
to support the economy during Covid-19. The Healthcare Credit Support of
N100billion has been drawn down by N44.47 billion to support 41 Projects in the
healthcare sector. Also, N73.685billion has been disbursed under the Targeted
Credit Facility (TGF) fund of N100billion to 120,074 beneficiaries. In addition, over
N216.878billion have been disbursed out of N1 trillion to fund 87 real sector
projects in manufacturing, agriculture and services.
However, while the Deposit Money Banks (DMBs) are doing relatively well, it is
important to continue to provide strong oversight on the Other Financial
Institutions (OFIs). They should be used as important channels to disburse some of
the Bank’s intervention funds especially to households and small businesses.
Real GDP declined by -6.1% in Q2, 2020. This is not unexpected given the
impacts of the lockdown and Covid-19 on the economy. However, there were
mixed impacts on the sectors of the economy. Some sectors like agriculture,
telecommunication, broadcasting, financial institutions, motor vehicles and
assembly, coal mining, chemicals and pharmaceuticals, wastes, supply, sewage
and waste management reported positive growth rates in Q2, 2020. However,
more sectors of the economy recorded negative growth rates. Sectors that
recorded over 10% decline in Q2, 2020 included oil refining, textiles, apparel and
footwear, pulp, paper and paper products, wood and wood products, nonmetallic
products,
construction,
accommodation
and
food
services,
transportation, publishing, insurance, real estates, and education.
All measures of inflation rose in August. Headline inflation (y-o-y) rose 13.22% in
August 2020 up from 12.82 in July 2020. Core inflation (y-o-y) rose to 10.52% in

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August 2020 from 10.10% in July 2020. Also, food inflation rose to 16.00% up from
15.48%. Drivers of inflation rate are; increase in good and non-alcoholic
beverages, transport, processed food and farm produce, clothing and
footwear, housing, education, water, gas and other fuel, restaurant, hotel and
other miscellaneous goods and services. As the economy emerges from the
effects of the lockdown, some of these elements of costs are likely to trend
downwards.
Unemployment rate rose to 27.1% in Q2, 2020 up from the from 23.1% recorded
in Q3, 2018. Similarly, underemployment rate rose to 28.6% in Q2, 2020 from
20.1% in Q3, 2018. Both unemployment and underemployment rates were
highest among the youths.
The equity market recorded positive development. The Nigerian All-Share Index
gained 5.5% between July 21, 2020 and September 18, 2020, signifying renewing
investors’ confidence in the economy. Between July 2020 and September 2020,
Naira appreciated in the I&E window but depreciated in the BDC window.
The fiscal system continues to pose significant challenges arising from current
underperformance of government revenue, unrestraint growth in government
recurrent expenditure, underperformance of capital expenditure and rising debt
service ratio. Debt service rate rose to 84.1% of government revenue between
January and August 2020 compared to 51.5% in January to August of 2019.
My Consideration
Covid-9 has brought contraction in Aggregate Demand and Aggregate Supply
due to its direct effects as well as public policy put in place to control its spread
in the economy. Unemployment as well as income cuts and impacts of
lockdown have direct effects on nominal income. The rising inflation rate and
increase in energy prices have impacted negatively on real incomes. Fall in
Aggregate Supply arising from decline in labour productivity, fall in capacity

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utilization, restriction on transportation, closure of some businesses, flooding in
agricultural producing areas compounded by security challenges in multiple
fronts have significantly impacted on aggregate supply and drove up inflation.
In addition, some of the current policy intervention measures have targeted
aggregate supply and not adequate support for aggregate demand. We know
that households’ consumption constitutes over 70% of GDP. However, with the
loss of jobs, loss of income, salary cuts, etc., as well as shocks to energy prices,
food prices etc., there is a need for more stimulus to support aggregate
demand and prevent unwanted inventory accumulation. The widened output
gap provides some legroom to expand aggregate demand without major
inflationary push. Negative output gap expands from -2.81% in Q1, 2020 to -9.1%
in Q2, 2020. I do not think excess aggregate nominal demand is the
fundamental cause of current inflationary pressure in Nigeria.
The Nigerian economy is still in a very bad shape with negative growth of -6.1%
in Q2 2020 and fear of negative growth in Q3 2020. The probability of a recession
in 2020 is quite high. While the PMI and employment PMIs are trending upwards,
the economy still needs further support. Fiscal authorities should frontload some
of the key intervention funds under the Economic Sustainability Plan to support
households and businesses at this very critical moment.
The DMBs can do a lot more to pass on the low costs of funds to retail lenders in
form of lowering of lending rates and to also boost consumer credits. The gap
between savings rate of 2.78% and maximum lending rate of 29.51% in August
2020, is very high and should be significantly narrowed.
We need to diversify foreign exchange supply to the economy. While measures
to curb speculative, and even precautionary demand for foreign exchange is
important, a more beneficial long term goal should be to expand the number of
domestic projects and economic activities that generate more foreign

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exchange or that are import substituting. There are currently very limited
investible options for domestic economic agents. Banks need to create more
products that will utilize the liquidity in the economy.
CBN is currently involved in a number of intervention programmes to address the
current fundamentals of inflation in Nigeria:
-
Agricultural intervention to boost agricultural output and reduce foodstuff
prices
-
Energy interventions to support solar companies, electricity distribution
companies and
-
Support for refineries for domestic markets
-
Improved stability in the foreign exchange markets
However, we need to complement these various initiatives to boost domestic
aggregate supply and aggregate demand.
Decision
Given all of the above, I have no doubt that we need to do a lot more to
support the flagging economy and reduce the probability for another recession
in Nigeria. Hence, I cast my vote at this meeting to:
1. Reduce the MPR by 100 basis points to 11.5%
2. Retain CRR at 27.5%
3. Maintain Liquidity ratio at 30%
4. Adjust the asymmetric corridor around the MPR at -700+100 bases points

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3. AHMAD, AISHAH N.
The September 2020 MPC meetings held against the backdrop of a global
economy reeling from the impact of the COVID-19 pandemic on aggregate
demand, output, crude oil prices, trade and financial markets. Output in the
advanced economies contracted sharply (q-o-q) in Q2 2020 - US -31.7 per cent,
UK - 20.4 per cent (the largest fall since 1955), Japan - 7.8 per cent; whilst
emerging markets - save for China which grew 11.5 percent - did not fare much
better. Although the health impact has been less virulent than expected in
Africa, even as some countries brace for a ‘second wave’, the continent’s
domestic economies and fiscal financial conditions have taken a huge bashing.
Domestic economy firmly in the eye of the covid-19 economic storm
I. Real GDP contracted by 6.10 per cent (y-o-y) in Q2 2020, reflecting the
impact of the lockdown on economic activity and effectively ending the
three years of positive growth since the economy exited a recession in Q2
2017. Particularly hit was the Industry (primarily manufacturing) and
Services components of non-oil GDP, which contracted by 2.44 and 4.01
percentage points respectively. Agriculture (driven by crop production)
posted a marginal growth of 0.40 percentage points reflecting the impact
of the agricultural interventions of the CBN.
II. Business sentiment remained weak as shown in the Manufacturing and
non-Manufacturing Purchasing Managers Indices, which stayed below
the 50.0 points benchmark at 48.5 points and 44.7 points respectively, in
August 2020. Besides, unemployment rate rose to 27.1 per cent in Q2 2020
from 23.1 per cent in Q3 2018, indicating dampened aggregate demand.
III. The rising trend in domestic prices also persisted as headline inflation (y-oy) rose to 13.22 per cent in August 2020 from 12.82 per cent in July 2020,
driven largely by an increase in the food component, which rose to 16.00

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per cent in August 2020 from 15.48 per cent in the previous month. Core
inflation also increased to 10.52 per cent, from 10.10 per cent over the
same period. The traditional structural drivers of inflation – weather
conditions and insecurity - were exacerbated by disruptions to supply
chains and a growing food supply gap due to the pandemic. Other
shocks such as the VAT increase to 7.5 per cent, deregulation in premium
motor spirit (PMS) prices and increase in electricity tariff, alongside passthrough from the exchange rate adjustment, are also expected to trigger
further uptick in prices over the short to medium term.
IV. Following the exchange rate adjustment in March 2020, the Bank
continued to focus on curtailing spurious demand and speculative
activities whilst improving FX supply even as foreign portfolio inflows
recovered marginally in Q2 2020. As international flights and sales to the
I&E and BDC segments resume, it continues to prioritize manufacturingrelated FX demand; for equipment, machinery and other inputs required
to bolster domestic production.
Whilst the balance of payments improved marginally from US$-4.88 billion
in Q1 2020 to US$-3.23billion Q2 2020, it remained in deficit, reflecting high
import bills which has implications for exchange rate stability and Nigeria’s
competitiveness. Nonetheless, with crude oil prices currently hovering
around US$40/b, US$12 above the budget benchmark of US$28/b, some
accretion to external reserves is expected, which provides support for the
Bank’s foreign exchange management policies.
V. Six months into the pandemic, the financial system continued to show
resilience with soundness indicators retaining their robustness, amidst
regular stress testing by the CBN. Non-performing loans ratio declined to
6.1 per cent in August 2020, from 6.4 per cent in the previous month,

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capital adequacy improved to 15.3 per cent from 14.6 per cent over the
same period even as net interest margin remained robust.
Focused implementation of the Loans to Deposit (LDR) policy over the last
year continues to promote credit growth to the real sector and lower
deposit and lending rates, - which supported banks’ net interest margins.
For instance, credit to the economy increased by N3,766.08 billion from
N15,567.66 billion at end-May 2019 to N19,333.74 billion at end-August
2020, with significant growth recorded in manufacturing, consumer credit,
general commerce and agriculture. Staff reports presented at the
meeting also show prime lending rates declined (15.40 per cent in August
2019 to 11.76 per cent in August 2020), in sync with money market rates
(1year NTB rate from double digit in 2019 to 3.30 per cent in August 2020)
and Open Buy Back rates (from 12.35 per cent in August 2019 to 8.22 per
cent in August 2020). This lower interest rate environment coupled with
improved credit conditions survey which indicated that more households
are accessing finance presents an opportunity to further increase credit to
the real economy at lower cost, critical to driving the much-needed
recovery.
The industry however remains exposed to macroeconomic fragilities,
given the uncertain business environment, exchange rate fluctuations and
other spillover effects of the pandemic. Thus, the Bank must sustain its
vigilance and deploy its prudential tool kit as required to ensure the sector
continues to support the domestic economic recovery.
Complementary fiscal and monetary measures paramount for a quick recovery
Low oil prices, muted fiscal revenues and significant debt service obligations
have dramatically restricted the already fragile fiscal space. Further fiscal
adjustments will be required to curtail rising public debt and budget deficits, in

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addition to prioritization of government spending to support the Economic
Sustainability Plan (ESP).
For optimum benefits to the economy, monetary policy instruments can only
compliment policies in other sectors of the economy to deliver broad based
economic prosperity. The structural impediments to growth and job creation,
particularly
poor
infrastructure,
can
be
improved
upon
via
speedy
implementation of the ESP.
Indeed, aspects of the plan which seek to improve non-oil government revenue
and reduce non-essential spending are vital and reinforces the importance of
prioritizing government expenditure to support social infrastructure, including but
not limited to health, education and security, to help drive economic growth
prospects.
The Bank must support these fiscal efforts by sustaining its;
• intervention policies particularly in the Agricultural sector, which will be
critical to strengthen output and curtail food inflation;
• COVID-19 monetary stimulus measures and other initiatives designed to
channel credit to critical sectors such as agriculture, manufacturing and
small businesses;
• implementation of the minimum Loan to Deposit Ratio Policy (LDR);
• vigilance over the banking sector to preserve its strength, resilience and
capacity to support the economy; and
• support for Small and Medium Enterprise (SMEs) to mitigate their exposure
to adverse impacts of the pandemic. Notably, the Agri-Business/Small and
Medium Enterprise Investment Scheme (AGSMEIS) intervention has been
extended to a total of 14,638 applicants, while 250 predominantly youth-

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owned SME businesses, have benefited from the Creative Industry
Financing Initiative as part of the COVID-19 response initiatives.

Policy Decision: Difficult tradeoffs for global monetary policy
It is important to state that the primary mandate of monetary policy to maintain
price stability remains sacrosanct. However, policy makers globally are
confronted with very hard choices in the wake of the devastating economic
effects of the coronavirus pandemic. This unprecedented shock relatively soon
after the Global Financial Crisis – which the global economy had not fully
recovered from – is creating shifts in orthodox approaches to achieving
monetary policy objectives. The US Fed for instance has embarked on massive
quantitative easing measures and recently changed to a more flexible inflation
targeting framework of an average of 2 percent over the long-term, to
accommodate short term fluctuation in domestic prices in a bid to drive
economic recovery. Monetary policy may not therefore, in good conscience
ignore the need to support growth objectives at this critical moment. Whilst it
cannot jettison its mandate, it should be seen to ‘do no harm’ and not
exacerbate the current severely muted economic environment.
In my July 2020 statement, I emphasized the need to support growth given the
weak outlook for economic activity, mainly from sluggish consumption demand
and a constricted fiscal environment. My conviction about the merit of easing
the monetary policy stance is further strengthened by the sharp contraction in
Q2 2020 output, rising unemployment, amidst low fiscal revenue and rising
public debt. More so, domestic yields have declined significantly providing an
opportunity to align the monetary policy rate to market developments.
While I acknowledge the upward trend of inflation, its key drivers remain largely
structural rigidities and supply shocks which will hopefully be contained by

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measures currently implemented by the Bank. Therefore, an expansionary
monetary policy stance at this critical moment, signals strong support for growth
to help reverse the economic downturn.
Thus, I vote to lower the monetary policy rate (MPR) by 100 basis points from 12.5
per cent to 11.5 per cent; expand the corridor around the MPR from +200 and -
500 basis points to +100 and -700 basis points; retain the CRR at 27.5 per cent
and the LR at 30 per cent.

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4. ASOGWA, ROBERT CHIKWENDU
Decision:
The Nigerian Economy appears to be regaining some vigour even though the
outlook at this September 2020 MPC meeting remains subject to considerable
uncertainty as output projections are still dependent on assumptions about the
spread of covid-19 and the recovery of oil prices. The third and fourth quarters
are likely to be better in terms of GDP growth as firms and households resume
economic activities, boosted by the various fiscal, monetary and structural
support measures from government. Whilst the rising inflationary trend is a source
of concern which in normal times may warrant a halt in the cycle of easing, the
burden of boosting economic activity and post-COVID recovery still requires
considerations of extending additional support to households and businesses. As
such, a policy of continued monetary and fiscal policy easing will be
appropriate to counter any downward pressure on the economy even from
threats of a second wave pandemic.
I will thus vote to:
• Reduce the MPR to 11.5 %
• Retain the CRR at 27.5%
• Adjust the Asymmetric Corridor to +100/-700 basis points
• Retain the Liquidity Ratio at 30.0%
Global Economic Outlook marred by Waves of Uncertainty.
Economic growth figures for the second quarter of 2020 have been published in
most economies across the globe and in virtually all of them, output collapsed in
the first half of 2020 with declines of more than one-fifth in several advanced
and emerging market economies. Recent data point to a stronger third quarter
performance as economies emerged from the lockdown, but the pace of
global recovery is already losing momentum and marred by uncertainties, from

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the waves of a second round of coronavirus infections, to rising new geopolitical
tensions- particularly relations between China and the West.
The new prediction is that the road to full recovery may be long and for many
countries, even in the developed markets, output may unlikely return to the precrisis levels until the early parts of 2022. The magnitude of output contractions
across countries in the second quarter of 2020 has been varied and in many
cases largely dependent on the stringency of the lockdown. CBN staff report
show that output growth in the US contracted by -31.7 percent in the second
quarter compared with a contraction of -5.0 percent in the first quarter while
growth in the Euro Area contracted by -12.1 percent in the second quarter of
2020 compared to a contraction of -3.6 percent in the first quarter. Similarly,
output growth in the second quarter of 2020 for the UK economy contracted by
-20.4 percent compared with a contraction of -2.2 percent in the first quarter,
while for Japan, there was a contraction of -7.8 percent in the second quarter
as compared to -0.6 percent in the first quarter.
Recent activity trend in many countries however suggest that the global
economy is starting to recover. The latest flash purchasing managers index (PMI)
for the manufacturing sector in the Eurozone shows an increase from 51.7 in
August to 53.7 in September 2020, which somewhat indicates a growing global
demand for Eurozone exports as well as internal demand for durable goods. In
the United States, the manufacturing PMI increased from 52.7 in August to 53.3 in
September 2020, a number also indicating moderate growth while the services
PMI for the USA moved up from 55.0 in August to 54.6 in September 2020. In
Japan, the manufacturing PMI fell from 45.8 in August to 45.2 in September, but
on a positive side, the services PMI increased from 45.0 in August to 45.6 in
September 2020 while all the sub-indices for employment improved.
Unfortunately, the expected global output recovery in the third and fourth
quarters of 2020 is now being marred by uncertainties from new waves of

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coronavirus infections and some geopolitical tensions. The number of new cases
has been rising quickly in Spain and France since the end of July 2020, while the
number of cases in the UK began to climb at the beginning of September.
Besides the uncertainties related to a second wave of coronavirus, global trade
and supply chains are projected to face additional challenges in the fourth
quarter of 2020 and even beyond due to rising geopolitical tensions especially
the growing number of China related conflicts as well as Brexit Uncertainty.
Several countries appear to have launched new policy measures against China.
Recently India and USA banned Chinese apps, while the US introduced
sanctions on 24 Chinese firms responsible for construction in the South China
Sea. Australia, Japan and India have all started a Supply Chain Resilience
initiative to decrease their supply chain’s reliance on China. Related to this, is
the risk of a no-trade deal Brexit which is real as the current status quo will end
by December 31, 2020.
On Inflation, the global picture looks more stable and muted today than in
previous years but rates present mixed trends for the advanced and
developing/emerging economies. In many advanced economies including
USA, UK and Japan, inflation has been depressed in recent times as a result of
the weakened aggregate demand. In the Eurozone, inflation turned to deflation
in August 2020 with consumer prices down 0.2 percent as compared to a year
earlier and when the volatile food and energy prices are excluded, core prices
were up only 0.4 percent from a year earlier which is the lowest underlying
inflation on record. Even in such emerging market economies such as India,
China, South Africa and Brazil, inflation rates have been persistently weak, also
an indication of the weakening of aggregate demand. In general, eventhough
the near-term outlook for global inflation remain uncertain, for many countries it
is likely to be determined by the forces between weak aggregate demand and
the economy’s impaired supply capacity.

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The dominant policy view now is that monetary and fiscal policy support needs
to be maintained to preserve confidence, limit uncertainty and support the
post-covid 19 recovery process, but evolving with the diverse national
economic conditions. In response, many central banks have announced further
policy easing in the past three months and several other policy frameworks are
being rightly introduced to convince investors that policy rates will be kept
reasonably low for a long time. As many advanced countries have limited
headroom for monetary adjustments, their recent strategies have mainly
involved direct liquidity injections and massive fiscal stimulus for households and
businesses. The European Central Bank has recently extended and expanded
its assets purchase programme and is likely to place an effective cap on core
and peripheral bond yields for the foreseeable future. In the US, the Congress
and the White House are currently in discussions to pass another stimulus
package to protect households and businesses and this will support current
Federal Reserve monetary policy efforts at boosting credit market conditions.
The Bank of Japan besides elevated bond buying, introduced a ‘Yield-Curve
Control’ so as to anchor 10-year yields close to zero for the foreseeable future. In
New Zealand, the Reserve Bank also continued to anchor yields for an extended
period via their quantitative easing/yield curve control programmes whilst
indicating plans to move to a negative interest rate policy in early 2021. CBN
staff report show that many emerging market central banks including Brazil,
Russia, Indonesia and South Africa have recently lowered their policy rates by 25
basis points and even more between July and August 2020.
The Domestic Economic Recovery with growing Risk Factors:
Domestic output contracted in the second quarter of 2020 by -6.10 percent as
the COVID-19 pandemic took hold, but not as bad as earlier expected
especially in comparison to several advanced and emerging market
economies. Not surprisingly, recent data point to better third quarter 2020 result

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with a prediction of negative growth but in the low category as output appears
rebounding since economic and social activities were lifted. CBN data show
that both the manufacturing and non-manufacturing employment indexes
recorded marginal improvements in August as compared to July 2020. The
strength of the domestic economic recovery in the fourth quarter of 2020 and
the first quarter of 2021 will be enhanced largely to absence of a renewed
covid-19 outbreak, and the vigour of fiscal and monetary policy response
especially the stimulus package in the Economic Sustainability Plan.
There are however, two key risks to the domestic economic outlook; first is that
inflation has continued to build even when aggregate demand and output are
contracting. Second , is that fiscal vulnerability may be gradually building up as
the pandemic throws public finances into partial disarray. Headline inflation
increased in August 2020 for the eight consecutive month and the near term
outlook for inflation still remains uncertain as current supply disruptions may in a
large part push inflation expectation even higher. On the fiscal risk, a funny
legacy the COVID-19 pandemic may leave in Nigeria and indeed other
developing countries will be an increase in government debt . By end June
2020, Nigeria’s public debt stock had risen by 20.65 percent year on year from
the levels in March 2020. In reality, the 2020 fiscal budget of most oil exporters
have been severally battered by the collapse of oil prices especially in the early
part of this Covid-19 and even though oil prices have recently climbed back
from lows recorded earlier, they are unlikely to return to pre-pandemic levels
even in 2021. As such, the levels of fiscal deficit will likely soar as oil revenues
remain the dominant source of national income. Whilst rolling out elaborate
fiscal austerity measures may be premature now as this may further weaken the
level of aggregate demand in the Nigerian economy, a more forward looking
expenditure rationalization and fiscal consolidation strategy will remain key to
averting any future devastating debt crisis.

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A superficial glance at the banking sector in Nigeria provides some room for
cautious optimism that the effect of the pandemic will most likely be behind us
in a short period. CBN staff data show that the return on equity for the banking
industry only decreased marginally from 21.9 percent in July 2020 to 21 percent
in August 2020, while non-performing loans (NPL) ratio decreased from 6.4
percent in July to 6.1 percent in August 2020. This encouraging performance
contrasts the recent trend of the banking sector in many economies including
China, South Africa and Morocco where profits have fallen sharply due to
increases in bad loans. Even though the real economy in Nigeria has not
performed well in the second and third quarters of 2020, the good performance
of banks within this period, is a key indicator of where the real economy is
heading as the sector represents a fundamental driver shaping the economy’s
exit from the Covid-19 crisis.

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5. ISA-DUTSE, MAHMOUD
A. INTRODUCTION
Recent projections by the International Monetary Fund (IMF) indicate that all
regions of the world are expected to go into economic recession in 2020 due to
the impact of the corona virus pandemic, precipitous decline in oil price,
weakened aggregate demand, disruptions in supply chains, amongst others.
The resulting crisis has led to a global policy convergence in the direction of
promoting growth and curtailing pervasive unemployment. Major Central Banks
in both Advanced and Emerging Market Economies have deployed the tools of
monetary policy with strong fiscal support to shore up economic activities
through massive quantitative easing, special stimulus packages and widespread
cut in policy rates. However, the outcome of this accommodative stance is at
best sluggish as firms and households continue to exercise caution to obviate
the impact of a possible second round of lockdown occasioned by the
resurgence of the pandemic in several countries. Moreover, the persisting low
price of crude oil remains a daunting challenge for oil exporting developing
countries like Nigeria.
B. EXTERNAL ECONOMIC CONDITIONS & IMPLICATIONS FOR NIGERIA
The gradual lifting of COVID-19 lockdown measures across the globe is
beginning to impact favorably on production, albeit, small. For instance, the J.
P. Morgan Global Composite PMI indicates that the manufacturing output index
for consumer goods rose to 50.8 in July 2020 compared with 47.7 and 36.3 in
June and May, respectively. Nonetheless, there is broad harmony in the key
forecasts for annual global output growth in 2020 which show contraction (IMF -
4.9%, World Bank -5.2% and OECD -7.2%). A quarter-on-quarter analysis of real
GDP outcomes for Q2 2020 in some major Advanced Economies shows that: the
United States contracted by -31.7%; Euro Area -12.1%; United Kingdom -20%; and
Japan -7.8%. Among the Emerging Market and Developing Economies (EMDEs),

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China recorded a growth of 11.5% (q-o-q), Brazil -9.7%, South Africa -51.0% and
Nigeria -5.0%.
Global trade is on a recovery trajectory from a slump of -12.3% in April 2020 to a
respectful growth of 7.6% in June 2020. The upward trend in trade will benefit the
Nigerian economy through enhanced sourcing of foreign production inputs and
exports. The international price of oil is projected to stabilize at a low level of
between US$40- US$42/barrel to the end of 2021. With little or no fiscal buffers,
this scenario portends serious consequences for macroeconomic stability and
growth in Nigeria. The hope of any significant accretions to external reserves
appears slim while government revenue in real terms is on the decline. Thus,
there is need to pursue with heightened vigour policies that address endemic
structural, social and security challenges in the country to create a safe
enabling environment for both local and foreign investors. In general, global
inflation remains muted and even falling in several countries partly due to
favourable crude oil prices for importing countries but Nigeria – an oildependent economy – is hurting from declining reserves and currency
depreciation which is contributory to the current build-up in inflationary pressure.
This situation is aggravated by the net outflow in foreign portfolio investments
during the review period.
The global financial market which was characterized by a sharp contraction
and extreme volatility on the back of the corona virus pandemic and low oil
price has begun to rally following the gradual lifting of lockdown restrictions. The
mild recovery is threatened by several downside risks. Although the risk of a
global financial market crash appears to be waning, the large debt build-up of
over 300% of global GDP is unsettling. If the economic debacle worsens, there
could be widespread default in debt obligations by economic agents leading
to a crisis which could be transmitted to developing countries like Nigeria
through the channels of trade and capital flows.

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C. DOMESTIC ECONOMIC CONDITIONS
The low crude oil price combined with COVID-19 containment measures
resulted in a sharp decline in aggregate supply and demand as household
consumption, business investment, government consumption and exports nosedived. Not surprisingly, the data on national income accounts released by the
National Bureau of Statistics (NBS) for the second quarter of 2020 show that real
GDP contracted by -6.10% in Q2 2020 compared with 1.87% growth in the
preceding quarter. The national Purchasing Manager’s index (PMI) remained
weak in August 2020. The Manufacturing and non-Manufacturing PMIs were
48.5 and 44.3 index points, respectively, in August 2020 compared with 42.4 and
43.3 index points in July 2020. Though the monthly PMIs showed improvement in
August 2020, they still remained below the 50-index point benchmark. The
growth outlook for the second half of 2020 remains quite subdued as CBN Staff
forecast predicts that real GDP could contract by -3.91% and -3.52% in Q3 2020
and Q4 2020, respectively. Therefore, it becomes expedient for fiscal and
monetary authorities to rigidly implement targeted supply- and demand-side
based policies to promote growth.
The inflationary pressure in the Nigerian economy persisted with headline
inflation (y-o-y) climbing to its highest peak in the last 29 months. On a year-onyear basis, all measures of inflation – headline, food and core inflation rose to
13.22%, 10.52% and 16.0% in August 2020 from 12.82%, 10.10% and 15.48% in the
preceding month. Likewise, on a month-on-month basis, headline, food and
core inflation increased to 1.34%, 1.05% and 1.67% in August 2020 from 1.25%,
0.75% and 1.52% in July. The principal driver of headline inflation is food and nonalcoholic beverages while the group comprising housing, water, electricity gas
and other fuel came a distant second. Inflationary pressure is expected to
worsen in the near term following the recent upward adjustments in the prices of
premium motor spirit and electricity. Exchange rate adjustments, persisting

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supply shocks arising from security challenges and structural problems in the
domestic economy are likely to further aggravate inflationary pressures.
Given the devastating impact of the COVID-19 pandemic on the economy, it is
imperative to give more priority to policies that will boost growth and
employment. To moderate excessive inflationary pressures, the CBN can
continue to use CRR and other complementary tools while supporting the
banking system to deliver targeted credit to the economy.
C. VOTING DECISION
With inflation continuing in its upward trajectory during the review period, it may
look tempting for the monetary authorities to tighten policy to rein in inflation
and reduce further pressure on the exchange rate. However, this option is
unattractive given the sharp decline in output in Q2 2020 and likely further
contraction in Q3 2020. A middle of the road approach to the conundrum by
holding the policy rate constant appears more attractive in comparison to a
tightening stance. This to me however will be insufficient to deal with the very
worrisome situation we are in, of plummeting output and a worsening level of
high unemployment. I therefore voted for a reduction in MPR by 100 basis points
from 12.5% p.a. to 11.5% p.a., to reduce the cost of borrowing and encourage
investments.
I voted in respect of other policy parameters as follows:
• Adjust the asymmetric corridor to +100/-700 basis points around the MPR.
• Retain the liquidity ratio at 30%
• Retain CRR at 27.5%

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6. OBADAN, MIKE I.
As at the time of the 275th meeting of the Monetary Policy Committee, the
global economy was still battling with the environment of Covid-19. Significant
uncertainties still prevail relating to global growth, trade and getting a handle
on the coronavirus. Although notable progress appears to have been made on
the development of a vaccine by a sizable number of companies/organisations
in some countries, it is still uncertain when a safe and effective vaccine will be
certified and available to the majority of the world population. The issue of
vaccine has become more pertinent because as most countries gradually relax
restrictions on economic activities and travel, the risk of a rebound in the spread
of the disease heighten. Indeed, in some countries that appeared to have
prematurely eased economic lockdowns, there has emerged second wave of
coronavirus. Australia is reported to have re-introduced rather painful lockdown
measures. In Europe, the United Kingdom seems not to be getting a handle on
the virus and a second-wave lockdown seems likely.
KEY GLOBAL ECONOMIC DEVELOPMENTS
The available growth data show that the pandemic has had more severe
impact on global and individual countries’ growth than initially expected. The
second quarter 2020 output growth turned out to be more negative for a
number of countries, especially the advanced countries. In this direction, growth
in the Euro area contracted by -12.1 per cent in the second quarter of 2020
compared with a contraction of -3.6 per cent in the first quarter. Among the
Emerging Markets and Developing Economies (EMDEs), China seemed to have
been an exception. Output growth in that country, in the second quarter of
2020, recovered sharply to 11.5 per cent after it contracted by -10.0 per cent in
the first quarter.

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Global output growth in 2020 is estimated to contract by - 4.9 per cent,
indicating a further downgrade of 1.9 percentage points from the earlier
estimated contraction of -3.0 per cent, as the full impact of the Covid-19
pandemic and associated lockdown unfolds. This may, however, change if the
likelihood of lockdowns being lifted across several jurisdictions occurs. Similarly, if
the various global monetary and fiscal stimulus packages are sustained, the
recovery could be largely boosted.
Like growth, global trade remains depressed, thus undermining its impact as an
engine of growth. In the first quarter of 2020, global trade experienced a sharp
contraction due to the widespread lockdown across the globe. Important too
were the disruptions to cross-border migration with the closure of sea, air and
land borders. However, world trade resumed early recovery as global trade
grew from -12.3 per cent in April 2020 to 7.6 per cent in June 2020. One thing
though is that global trade is projected to remain below its pre-pandemic
trajectory as uncertainty remains due to the lingering pandemic and trade
tensions.
Petroleum oil has remained a crucial determinant of production, growth,
revenue and foreign exchange for a number of countries. The recovery of the oil
market has remained sluggish while oil prices remain low and volatile amid
demand concerns. Although in August 2020, OPEC+ members agreed to
reduce the daily production cut of 9.6 million barrels a day to 7.7 million barrels a
day on the back of an argument that demand was gradually strengthening, this
has not significantly boosted oil prices. The OPEC reference basket monthly
average crude oil price increased marginally from US$ 43.42 in July to US$43.44
on August, 2020. But by September 18, 2020, crude oil prices per barrel were as
follows: OPEC basket, US$42.07; UK Brent, US$ 42.75; Bonny Light, US$42.48; and
West Texas Intermediate, US$40.66. These are low prices compared to the over
US$65.0 per barrel in January, 2020. For the Nigerian economy that depends

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heavily on oil for fiscal and foreign exchange sustenance, the implications of
continued low oil prices are grave: low fiscal receipts and weak budget
performance, public debt build up, foreign exchange and external reserves
pressures, capital outflows and pressures in the financial markets.
In light of the continued concerns for global growth and recovery from
contraction/recession,
countries
have
continued
with
aggressive
and
unparalleled fiscal and monetary injections to reflate their economies and
sustain businesses and livelihoods. In the advanced economies, new rounds of
fiscal stimulus were injected to moderate the second quarter contraction,
mitigate the trough of recessions and return economies to a stable path of
recovery. Consequently, fiscal deficits in these economies have widened sharply
to a record 16.5 per cent of GDP, 13.0 percentage points higher than in 2019.
Central banks have complemented the fiscal authorities by injecting additional
liquidity into the economies through asset buy-back and targeted monetary
stimulus packages, as well as direct support to financial institutions and
corporate enterprises. In the emerging markets and developing economies,
fiscal stimulus has reached an estimated 5.0 per cent of GDP. And with Central
banks of most advanced economies left with no additional monetary
headroom, as policy rates now hover in the zero-lower-bound, direct liquidity
injections is now mainly the only tool available to respond to the current
macroeconomic challenge and the associated debt crisis. Thus, the priority of
most central banks has temporarily shifted somehow from price stability to
recovery, growth and employment creation.

KEY DEVELOPMENTS IN THE NIGERIAN ECONOMY
No doubt, the covid-19 pandemic has had serious adverse impacts on key
sectors of the Nigerian economy. But the financial sector has shown remarkable

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resilience with notable improvements in key financial soundness indicators. The
capital adequacy ratio (CAR) and non-performing loans (NPL) ratio have
witnessed improvements with NPL ratio declining to 6.1 percent. CAR improved
from 14.6 percent on July 20 to 15.3 percent on August 20, 2020, slightly above
the prudential benchmark of 15 percent. Although the liquidity ratio has trended
downwards (35.76% in August 2020), due to increase in new credit in light of the
loans-to-deposit ratio, it is still above the prudential limit of 30 percent. Total
assets, deposits and aggregate credits have continued to trend upwards.
Another good news is the consistently downward trend of the proportion of
bank assets held in government securities: from 23 percent in May 2019 to only
10 percent in August 2020. This is due, among others, to the success of the CBN’s
directive on loans to deposit ratio which encouraged banks to increase lending
to the economy.
However, the economy is highly challenged by three issues: economic
contraction and rising unemployment, rising inflation, and weak fiscal position of
the government. The external sector is also troubled with weak balance of
payments position, capital flows reversal and rising external debt. The stock of
external reserves is fairly stable at US$ 35.75 billion as at September 17, 2020 and
can finance about 8 – 9 months imports of goods and services.
Output contraction
After twelve consecutive quarters of positive, but relatively low, growth following
Nigeria exit from the recession of 2016/2017, the economy contracted in the
second quarter of 2020, thus reversing the 3-year fragile growth witnessed since
the end of the 2016 economic recession.
The real GDP contracted by -6.10 per cent in Q2 2020, compared with 1.87 and
2.12 per cent growth in the previous and corresponding quarters of 2019,
respectively. Against the backdrop of the disruptions in the global supply chains

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and collapse in oil prices during the second quarter, consequent upon the
covid-19-induced
economic
lockdown
measures,
the
Q2
contraction
emanated from the challenges faced by both the oil and non-oil sectors. While
the non-oil sector contracted by -6.05 percent, the oil sector real GDP
contracted by -6.63 percent. Although the Q2 aggregate growth figure is much
lower than the double digits experienced by most advanced countries, it is
nevertheless a serious setback, coming three years after an earlier recession.
Also, very worrisome is the rising unemployment and underemployment rates.
National Bureau of Statistics data revealed an increase in unemployment rate
from 23.1 per cent in Q3 2018 to 27.1 per cent in Q2 2020. Similarly,
underemployment rate increased in Q2 2020 to 28.6 per cent from 20.1 per cent
in Q3 2018. The increases arose from the challenging business environment
caused by the COVID-19 pandemic and induced lockdown mostly in Q2 2020.
Thus, there is a significant subsisting challenge of lifting the economy out of
contraction/recession and reducing unemployment in the process.
Rising Inflation
For the eighth consecutive month, inflationary pressure has continued. And now
that it has coincided with economic contraction, the result is stagflation in the
economy which is a problem that poses a significant challenge to policy makers
to deal with. In August 2020, all measures of inflation (headline, core and food)
increased. Headline inflation (year-on-year) surged up to 13.22 per cent in
August 2020, from 12.82 per cent in July 2020. Core inflation increased to 10.52
per cent in August 2020 from 10.10 per cent in July 2020. Food inflation also
increased marginally to 16.00 per cent in August 2020 from 15.48 per cent in July
2020. Although the role of monetary factors is not clear in the current surge in
the inflation rate, the recent policy adjustment measures (exchange rate, petrol
price and electricity tariffs) cannot be ruled out. And the legacy structural
factors have continued to be important, among which are: poor road and

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transport infrastructure, food supply disruptions, border closure, insecurity that is
currently plaguing the country, particularly in the northern area of the country
and increasing fiscal deficit.
Weak fiscal position
Indeed, the fiscal operations of the Federal government in the first half of 2020
was characterized by weak revenue generation, rising fiscal deficit and public
debt – internal and external. The fiscal challenges of the government are
portrayed by several fiscal indicators as serious. The aggregate revenue
accruing to the Federation has trended downwards since 2018. The FAAC
distribution, January to August declined from N5.430 trillion in 2018 to N5.106
trillion in 2020. The FGN retained revenue during the first half of 2020 at N1,862.00
billion, was a dismal 47.62 per cent less than the revised budget benchmark. Oil
revenues attained 62.72 per cent of set target, despite the amply revised
US$28.00 benchmark crude oil price per barrel; Non-oil revenue sectors
achieved 59.17 per cent of the set target, and Other Revenues achieved the
least performance accruing 26.28 per cent of anticipated income.
While revenue performance was poor, expenditure performed significantly
higher than revenue at 88.76 per cent. This was led by overhead cost with
performance rate of 134.13 per cent, and Personnel Costs at 101.04 per cent.
However, capital expenditure trailed behind at 39.23 per cent. It is hardly
surprising, therefore, that the Federal Government’s fiscal operations resulted in
a fiscal deficit of N2.594 trillion in the first half of 2020. To finance the deficit, the
Federal Government borrowed N1,419.99 billion from the domestic markets
through the issuance of FGN bonds leaving a net overall deficit of N1,174.99
billion as at June 2020. In light of the mounting fiscal deficits, public debt has
consistently maintained an upward trend, rising from N28.63 trillion in March 2020
to N31.01 trillion on June 30, 2020. Domestic and external debt stocks accounted
for 59.3 percent and 40.7 percent, respectively, of the total Federal

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Government’s outstanding debt stock, indicating the external debt stock as
having exceeded the 40.0 percent target in the Government’s borrowing
strategy. The debt service to revenue ratio (January to August) rose from 51.5
percent in 2019 to 84.1 percent in 2020 vividly portraying a highly burdensome
and unsustainable debt profile.
OPINION
What is clear from the above brief review of key problem areas of Nigeria’s
economic performance is that the economy is grappling with the phenomenon
of stagflation with massive unemployment so soon after exiting a similar type of
challenge in 2017. Inclusive economic growth is very vital to addressing some of
the other challenges like inflation, unemployment and even the issue of fiscal
space. But the GDP growth outlook remains challenging for the rest of 2020. This
is because of limited fiscal space due to relatively low oil prices and stuttering
production; lingering Covid-19 concerns preventing complete easing of
economic activities; and weak household consumption due to negative terms
of trade and remittances challenges; increased unemployment; and rising
inflation, especially food inflation. Therefore, it will not be out of place for
monetary policy to strongly complement fiscal policy to tackle the challenge of
taking the economy out of contraction/recession trajectory. This will not mean
abandoning the price and monetary stability objective by the Central Bank,
especially when viewed against heightened significance of legacy structural
and recent policy adjustment factors in raising the tempo of inflation in the
country.
Now, what is the role of the Central Bank in tackling the phenomenon of
stagflation which poses policy choice difficulties for policy makers because its
components of contraction/recession and inflation are diametrically opposed?
If the economy was experiencing only recession and no inflation, then the
matter is simple. The fiscal and monetary authorities would be able to expand

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fiscal and monetary policies, respectively, to lift the economy out of recession.
But if there is inflation and the Central Bank tightens monetary policy to combat
it, this would be antithetical to growth. Nevertheless, if the situation were that
normal in which the government had the fiscal muscle to implement strong
expansionary fiscal policy (corporate tax cuts, increased government
expenditure to enhance productivity) to promote growth and lift the economy
out of contraction/recession, the Central Bank would implement fairly tight
monetary policy to achieve gradual reduction in inflation. Under this scenario,
the impact of the recent policy shocks on inflation would be expected to wear
out with time while the government frontally addresses the structural factors of
headline inflation.
But as at now, the fiscal capacity of the government to stimulate the economy
out of contraction is very weak because of lack of fiscal buffers and the heavy
negative impact of covid-19 on oil export earnings upon which the country
depends rather precariously for naira revenue and foreign exchange earnings.
Therefore, further tightening of monetary policy will not be advisable at this point
in time. Rather, what is suggestive is a slight loosening of the monetary policy
stance, through a downward adjustment of the Monetary Policy Rate (MPR), to
complement the expansionary fiscal policy stance of the Federal Government
and, of course in the hope that Deposit Money Banks would respond positively
to MPR reduction by increasing credit at reduced lending rates.
The government has appropriately responded to the adverse growth, income
and employment implications of the coronavirus-induced economic lockdown
or downturn of the economy by formulating a N2.3 trillion Economic
Sustainability Plan (ESP), a stimulus package whose size could have been higher
but for the limitations posed by the quantity and price of oil. A higher stimulus
package and higher oil prices would result in lower negative growth or positive
growth. Nevertheless, ESP is well-articulated with costed projects, policies and

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measures aimed at stimulating virtually every sector – ranging from agriculture
and food security, massive housing, job retention/creation to internal security.
And the Central Bank is playing a critical role in the implementation of this Plan
even while continuing with its various development finance interventions. This is
commendable. However, although ESP is a one-year plan, some of its elements
could spill-over into the medium term. And this will not be helpful to the present
exigency of halting contraction of the economy/moving the economy into the
positive growth trajectory. Therefore, the government should consider frontloading the implementation of the elements in the Plan that are critical to the
realization of the present growth objective, and positively impacting livelihoods
and businesses. Efforts should be made to mobilize resources to actualize this so
that the ESP will not turn out to be the case of “closing the stable after the horse
has escaped”.
In consideration of the foregoing, I vote to ease monetary policy slightly by
reducing the MPR by 50 basis points and adjust the asymmetric corridor to
+100/-700 basis points. Other parameters should be retained at: CRR: 27.5%
and Liquidity Ratio: 30%.

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7. OBIORA, KINGSLEY ISITUA
In light of the ongoing severe economic reverberation of the
pandemic, and its associated effects on economic agents, I
voted to reduce the MPR by 100 basis points to 11.5 percent,
while retaining the CRR at 27.5 percent, the LR at 30.0
percent and the asymmetric corridor of +200/-500 basis
points around the MPR. Despite its potential inflationary
effects, I believe this stance is critical to ensure that a robust
and inclusive economy emerges from this crisis.
The Novel Coronavirus Disease (COVID-19) continues to spread rapidly across
the world. Since the last MPC meeting in July, global cases have risen from 14
million confirmed cases and 600,000 deaths to over 30 million confirmed cases
and over 950,000 deaths, according to the World Health Organization. Whilst
lockdown restrictions have eased from their heights, many countries are faced
with the possibility of a second wave.
Official statistics from the second quarter of 2020 have confirmed the severity of
the global economic downturn caused by these restrictions. These include
contractions of 32.9, 20.4, 13.8 and 10.1 percent in the United States, the United
Kingdom, France and Germany, respectively. Many emerging markets fared
even worse, with contractions of 23.9 and 51.0 percent in India and South Africa,
respectively. However, there are signs of optimism for the third quarter. For
example, J.P. Morgan’s Global Manufacturing Purchasing Manager’s Index
(PMI) has recorded an increase in manufacturing output for two consecutive
months, following five months of decline, with the indicator reaching 51.8 in
August 2020.
Whilst less severe than in other countries, Nigeria has also experienced a
significant retrenchment in economic activity. Official statistics from the National

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Bureau of Statistics (NBS) estimate a contraction of 6.1 percent during the
second quarter of 2020. The sectors recording the largest declines in activity
include Transportation & Storage, Accommodation & Food Services and
Construction with declines of 49.2, 40.2 and 31.8 percent, respectively. The
Mining & Quarrying, Manufacturing and Trade sectors also fell by 6.6, 8.8 and
16.6 percent, respectively. There were, however, key sectors where strong
performance was recorded, including Financial & Insurance, Information &
Communication and even Agriculture, with growth of 18.5, 15.1 and 1.6 percent,
respectively. Decisive actions taken by the Federal and State Governments, as
well as by the Central Bank of Nigeria (CBN), have helped to partially soften the
impact from the pandemic on the economy.
Despite the persistence of the pandemic, the financial system has remained
relatively stable and robust to withstand shocks. Credit to various sectors
witnessed a significant boost from N15.57 trillion to N19.33 trillion between May
2019 and August 2020. This outcome reflects the continued implementation of
the Loan-Deposit Ratio (LDR) Policy. In particular, the growth in credit was mainly
directed to manufacturing (N866.27 billion), consumer credit (N527.65 billion), oil
& gas (N477.65 billion), agriculture (N287.11 billion) and construction (N270.97
billion). Short-term interest rates continue to suggest declining surfeit in the
system with average Open Buy Back (OBB) rate decreasing to 8.39 per cent in
August 2020 from 10.12 per cent in July 2020.
In the Foreign Exchange (FX) market, the CBN has implemented various
measures to ensure stability and alleviate the imbalance between FX supply
and demand. On the supply side, FX inflows have been boosted by the
stabilisation of oil prices above US$40 per barrel, from lows of US$20 per barrel in
April. The CBN is also proactively working with the Nigerian Export-Import Bank
(NEXIM) to promote non-oil export champions and support the expansion of
their export earnings. On the demand side, the CBN is working aggressively to

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eliminate incidences of over-invoicing and mispricing of goods and services
imported into the country. All payments that are routed through buying
companies/agents or any other third parties, rather than the ultimate supplier,
have now been prevented from processing by Nigerian banks. The CBN is also
developing an independent Product Price Verification Mechanism to ensure
that quoted prices are validated before Forms M are approved. Furthermore,
the CBN is investigating and clamping down on several unauthorised foreign
exchange transfer activities under the guise of payments for various services or
software. These complement the ongoing efforts by the CBN to reduce demand
for FX by fostering domestic food production.
In order to support the Naira, we must also continue to build a Nigeria that meets
the needs of all citizens. Foreign school fees and medical expenditures account
for a non-negligible share of FX purchases from the CBN’s foreign reserves.
Rather than exerting pressure on the Naira to provide for the needs of the
privileged few, imagine a Nigeria where all citizens have access to high-quality
schools and hospitals within the country. Ultimately, it is catering for these
fundamental needs and developing local production capacity that will drive
inclusive growth and a sustainably strong Naira.
In pursuit of this ultimate vision, today’s policy decisions are characterised by
difficult trade-offs, given the unprecedented challenges that we face. On the
one hand, the headline inflation rate has increased to 13.22 percent in August
from 12.82 percent in July, with food inflation now at 16.00 percent. This would
suggest that a monetary tightening is needed to preserve the value of
Nigerians’ hard-earned income and savings. On the other hand, Nigeria also
needs growth. The NBS Labour Force Survey for the second quarter of 2020 notes
that 47.2 percent of the Nigerian labour force is unemployed or underemployed
(27.1 and 20.1 percent, respectively). Another NBS report on the impact of
COVID-19 in FCT Abuja, Kano, Lagos and Rivers notes that, in all four states, food

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insecurity is prevalent and at least two-thirds of households have spent their
savings to cover living expenses; a significant proportion of households have
even had to borrow, including over 60 percent in Kano. The CBN has continued
to intervene forcefully to stimulate growth across multiple sectors of the
economy, including MSMEs, manufacturing and healthcare. Another recent
example is the approval of a N200bn mortgage finance facility for low income
earners, through the Family Homes Fund Limited, providing 300,000 affordable
homes and creating jobs for the construction sector and for its local suppliers.
However, the economic headwinds we face are so strong that even more
action is needed to deliver robust growth.
Having carefully considered this trade-off between inflation and growth, I voted
to reduce the MPR to help to alleviate the severe economic hardship faced by
many Nigerians today. I believe that the debilitating effects of a declining
economy and high unemployment/underemployment outweigh the costs of
rising inflation. The COVID-19 crisis is far from over, and we must act decisively to
protect people’s livelihoods. If we fail to do so, we risk emerging from this crisis
with an economy that is neither robust nor inclusive.
On this basis, I voted to:
• Reduce the Monetary Policy Rate (MPR) to 11.5 percent from 12.5
percent;
• Retain the Cash Reserve Requirement (CRR) at 27.5 percent;
• Retain the Liquidity Ratio (LR) at 30.0 percent; and
•
Retain the asymmetric corridor of +200/-500 basis points around the MPR.

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8. SANUSI, ALIYU RAFINDADI
1.0
Decision:
In today’s meeting, I voted to retain the MPR, CRR and LR at their current levels,
but to adjust the asymmetric corridor of the Standing Deposit and Lending
Facilities (SDLF) around the MPR. The decision to retain the MPR for now, despite
my conviction that monetary easing is the necessary response to an impending
recession, was informed by my concern about the threat of accelerating
inflation, which, in my opinion, requires a more cautious approach to the
process of monetary easing.
2.0
Background and Justification
2.1
Global Economic Developments
As the global economy continues to witness the full impact of the lockdown and
other restrictions associated with the COVID-19 pandemic, global economic
recovery remains uncertain. Although the deeper-than-expected downturns
across the major economies have led to a downgrade of the global economic
outlook, recent data show improved global economic expansion with recovery
expected in 2021.
Recent developments in the global economy reveal that the economic
consequences of the COVID-19 pandemic are likely to be worse than earlier
anticipated, with the recovery path slower than earlier expected. In 2020Q2,
output contracted (q-o-q) in most of the advanced and emerging market
economies. In the US, output (q-o-q) contracted further from -5% in Q1 2020 to -
31.7% in Q2 2020. In the Euro area and the UK, output also contracted further
from -3.6% and -2.2% in Q1 2020 to -12.1% and -20.4% in Q2 2020, respectively. In
the Emerging Markets and Developing Economies (EMDEs), India and Russia
recorded low positive growth (q-o-q), while Brazil, South Africa and Nigeria
recorded negative growth (q-o-q) in Q2 2020. China, however, recorded 11.5%

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growth (q-o-q) while South Africa contracted (q-o-q) by 51.0% in Q2 2020.
Although new data on global output and forecasts are not yet available,
Bloomberg’s World Trade (volume) and Industrial Production indices show
significant upturns in June 2020. The growth rate of world trade volume has
increased from a contraction of -14% in April 2020 to and expansion of 8.2% in
May 2020 as a result of the significant increase in both imports and exports
following the easing of the lockdown. Global Composite Purchasing Managers’
Index (PMI) also shows signs of slow but sustained recovery between April and
August 2020, especially in the US and UK that were worse hit by the pandemic.
However, the JP Morgan’s Global Composite Output Index shows a much
quicker output recovery rising from 47.7 index points in June 2020 to 51.0 and
52.4 index points in July and August 2020, respectively. The signs of a sustained
recovery in global trade and manufacturing activities increase the likelihood of
recovery of the global economy in 2021. As the global output recovery for the
year 2020 remains weak in both the Advanced Economies and EMDEs, and as
oil output declined in Q2 2020 to 85 mbpd from 94.96 mbpd in Q1 2020, the IEA’s
forecast for 2020 was revised downwards by 0.1 mbpd due to the lower-thanexpected economic activities following the ease of restrictions and the risk of
second-wave of the pandemic. Despite the production cut agreement by the
OPEC+, oil price, which stood at US$41pb (Bonny light) as at 4th September 2020,
is expected to remain low in the range of US$40 - US$46 to the end of 2021 going
by development in the futures market. A key implication of the weak global
output and low oil prices in the medium term, for the domestic economy,
includes narrower fiscal space for the implementation of the Economic
Sustainability Programme (ESP), potentially current account imbalance, lower
foreign exchange receipts, which could adversely affect public debt, foreign
reserves accretion as well as exchange rate stability.
Global price developments continued to be shaped broadly by the weakening
aggregate demand and supply. In most advanced economies, inflation has

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declined and remains near zero, suggesting a relatively stronger depressing
influence of the weakening aggregate demand than supply. In these countries,
therefore, the associated COVID-19 liquidity injection programmes have helped
boost aggregate demand for price and output recovery. Consequently,
inflation in the US has increased (year-on-year) from 0.6% in June 2020 to 1% in
July 2020. In the UK, inflation, which was low at 0.1% in June 2020 rose to 0.4% in
July 2020 due to improved aggregate demand following the ease of COVID-19
associated restrictions and liquidity injections. In the Euro area, inflation
contracted by -0.2% in August 2020 indicating deflation. In the EMDEs, however,
price developments were shaped by depreciating exchange rates given high
exchange rate pass-through. In India, China, Ghana, South Africa, Brazil and
Nigeria, inflation has increased in July 2020. In response to the price and output
development, Central Banks across the globe broadly continue to be
accommodative in both advanced economies and EMDEs. A survey of 14
central banks, however, shows that although all have some form of monetary
accommodation, only four of them lowered their policy rate between July and
September 2020.
2.2
Domestic Economic Developments and their Implications
Available data shows that, during the second quarter of 2020, output had
contracted by 6.1% compared with the positive growth of 1.87% recorded
during the previous quarter. The contraction reflects the well-anticipated
adverse effects of the COVID-19 containment measures including the
lockdown, decline in crude oil prices, supply chain disruptions and weak exports.
Thus, both the oil and non-oil output had contracted during the period. For
instance, the oil sector shrank by 6.63% while the non-oil sector contracted by
6.05% during the quarter. While the output of the Industry and Services sectors
contracted by 12.05% and 6.78%, respectively, that of Agriculture expanded by
1.58%. Data from the NBS indicates that, as expected, sub-sectors with the most

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affected activities such as oil refining, rail transport and pipelines, air transport,
road transport, accommodation and food services, construction, education,
etc., contracted the most. The least affected sub-sectors, which were fairly
insulated from the COVID-19 containment measures such as financial services,
telecommunication, broadcasting, coal mining, water supply, etc., recorded
expansion during the quarter. Following the gradual opening up of the
economy, however, there are signs of output recovery during the third quarter.
For instance, although still below the breakeven point of 50, the Purchasing
Managers indices have trended upwards since June 2020. Specifically, the
Manufacturing PMI, which stood at 42.4 in May 2020, has improved to 48.5 in
August 2020. The non-manufacturing PMI has also improved from 25.3 in May
2020 to 44.3 in August 2020.
Although the international crude oil price, which started recovering in April 2020,
has stabilized just above US$40 pb, both production and export have
significantly fallen in June, July and August in compliance with the OPEC+
production cut. Production, as at end-August 2020 fell to 1.52 mbpd, or 20%
below the revised budgeted benchmark. Notwithstanding the oil price being
above the revised fiscal benchmark of US$ 28pb, the lower production and
exports are likely to adversely affect fiscal performance and external reserves
accretion.
Inflation figures released by the NBS show the well-anticipated upward trend in
the headline inflation (y-o-y) that started in September 2019 following the
closure of land borders. In August 2020, headline inflation rose to 13.22% (y-o-y)
from 12.82% in July 2020 as a result of an increase in both the food and core
components. Food price inflation (y-o-y) rose from 15.48% in July 2020, to
16.00%% in August 2020, driven by an increase in the prices of processed food
and farm produce. Core inflation (y-o-y) rose from 10.10% in July 2020, to 10.52%
in August 2020, due to increase in the prices of clothing & footwear, education,

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housing, water, gas & other fuels, hotels, etc. Many recent domestic economic
developments have contributed to the rising inflationary pressure during the
period. These developments include the removal of fuel on PMS, increase in
electricity tariff, exchange rate adjustment, flood in food-producing agricultural
areas. These developments, in addition to the subsisting land border closure and
other structural factors, are likely to continue to influence price developments in
the medium term.
A review of monetary developments suggests that the money supply has
significantly expanded in July and August 2020. M3, the broadest money
supply, grew by 5.23% and 6.93 % in July and August 2020, respectively, over the
preceding December 2019. The annualized rate in August 2020 is 10.93%, which
is well above its provisional benchmark of 4.66% for 2020. Reserve Money has
also increased (by 57.93%) in August 2020 and was 8.56% above its provisional
benchmark for Q3 2020.
A review of the Banking System reveals that the industry continues to be stable
and the NPL continues to decline. Between end-May 2019 and end-August
2020, the total credit to the economy has increased by N3.766 trillion, or 20.43%,
due to the CBN’s LDR policy which encouraged banks to lend. Since the last
MPC (end-June 2020 to end-August 2020), total credit to the economy has
increased by N432.92 billion. Most of this increase in credit was extended to
manufacturing, consumer credit, general commerce, ICT and Agriculture. The
report shows that the various interventions to promote financial stability and
improve economic recovery after the lockdown continue to work in the desired
direction. For instance, over N7.7 trillion or 43.02% of the industry has been
restructured as a result of the forbearance granted to banks. The disbursements
of the CBN's COVID-19 credit intervention also continues to show significant
progress. Out of the N100 billion Healthcare funds, 44.47 billion, representing 35%
of the total applications received has been approved for a total of 41 projects

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in the healthcare sector. Out of the N100 billion Targeted Credit Facility for
Households and MSMEs, N73.685 billion has been disbursed to 120.074
beneficiaries, and N2.93 billion was disbursed to 250 beneficiaries under the
Creative Industry Financing Initiative (CIFI). Under AGSMEIS, N54.66 billion has
been disbursed to 4,638 beneficiaries.
Review of domestic economic developments, therefore, suggest that the
various monetary and credit policies being implemented are continuing to
provide the required liquidity to household and businesses as the economy
gradually re-opens. Revised Staff forecasts show that, with a successful
implementation of the Federal Government's Economic Sustainability Plan, real
output growth is expected to range between -3.08% and -2.64% in 2020, and
between 0.04% and 0.73% in Q1 2021 depending on the level of oil price.
Inflation is forecasted to continue on its upward trend throughout 2020 due to
the rising exchange market pressure, higher food costs due to the supply chain
disruptions, the continued closure of land borders, insecurity and flooding in the
food-producing areas, and higher transport costs following the hike in the price
of PMS and electricity tariff, and quantitative easing. Indeed, both month-onmonth and annualized month-on-month headline inflation are showing
significant
signs
of
acceleration.
Review
of
the
domestic
economic
developments suggests that the heterodox policies and the COVID-19
interventions are showing good signs of effectiveness as credit flows to the
private sector continue to increase despite the lockdown.
3.0
The Basis for My Policy Choice
The evidence reviewed shows that, as a result of the monetary and credit
policies being implemented, monetary aggregates are expanding (as required
in the face of an impending recession), and credit flows to firms and businesses
are improving as the economy re-opens. Although output growth is likely to
remain negative, there is also some evidence of output recovery. While the

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negative output raises my temptations to vote for a further cut in the MPR, the
evidence that inflation not only threatening to continue on its upward trend but
also threatening to accelerate is concerning. Furthermore, reducing the MPR in
the face of rising inflation raises concerns about capital flows as real yields
continue to decline relative to other destinations. These concerns, therefore,
inform my cautious approach to monetary easing as the economy re-opens. I,
therefore, voted to retain the MPR, CRR and Liquidity Ratio at their current levels.
I voted to adjust the asymmetric corridor around the MPR as a means of
improving liquidity management.

Consequently, I voted to:
Retain the MPR at 12.50 per cent;
Retain the CRR at 27.5 per cent;
Retain the asymmetric corridor at +100/–700 basis points; and
Retain liquidity ratio at 30.0 per cent.

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9. SHONUBI, FOLASHODUN A.
Despite many governments around the world avoiding full-scale lockdown to
avert deeper recession, the lingering impact of disruption from initial widespread
restrictions and rising uncertainties on account of scattered episodes of a
second wave of the pandemic, continues to reinforce sluggish and uneven
recovery. The Nigerian economy, therefore, remains challenged by deepening
vulnerabilities, especially in the external and fiscal sectors, as a result of
contagion from a depressed global economy, as well as, low crude oil price
and output restrictions. As I mentioned in my previous statements, the new
uneasy normal provides opportunity to sustain deployment of unusual measures
that focuses on drawing from our internal strength and fully leveraging local
endowments and resources.

Global Economic Developments
True to predictions, impact of the pandemic was deeper in the second quarter
of 2020. The global economy is bedeviled by sluggishly recovering global trade
that is worsened by stagnated cross-border migration, weakened economic
activities and shaky oil market. Apart from China, which grew by 11.5 per cent
quarter-on-quarter, most of the other major economies experienced significant
contraction. The US, euro-area and UK recorded double digit quarter-on-quarter
contraction. In the Emerging Markets and Developing Economies, growth in
India slowed to 0.7 per cent, Russia grew marginally by 0.3 per cent, while South
African and Brazilian economies contracted. Overall, global growth prospects
remain subdued by heightened uncertainties, due to weak trade, volatile
commodity market, mixed inflation development and cautious financial market
sentiments.

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Domestic Economic Environment

Contraction in real GDP at end-June 2020 was in line with global expectations
that biggest impact of lockdown measures to curb the spread of the pandemic
would be experienced in the Q2 of 2020. Driven by negative growth in oil and
non-oil sectors, the gross domestic product (GDP) contracted by 6.10 per cent,
year-on-year, in the second quarter, compared with 1.87 per cent growth in the
first quarter of 2020. Apart from major expansion in the financial institutions,
telecommunications and coal mining sub-sectors, some of the other sub-sectors
grew marginally. Overall negative growth, however, reflected substantial
contractions in oil refining, transportation and construction sectors, among
others.
Headline inflation maintained an upward trend for the twelfth consecutive
month, reflecting impact of pandemic-related restrictions, border closure and
exchange rate pass through. Food and core inflation rose to 16.0 per cent and
10.52 per cent, respectively, in August 2020, pushing headline inflation further to
13.22 per cent, its highest level since April 2018. On month-on-month basis,
headline inflation accelerated for the sixth consecutive month.
Banking sector resilience remains preserved, as evidenced by sustained growth
in industry credit and asset. Financial soundness indicators have also remained
in comfortable territories. Industry credit to productive sectors continued to grow
and profitability remained positive. Industry capital adequacy and liquidity ratios
were above the minimum threshold. Non-performing loans ratio fell to 6.1 per
cent in August 2020, from 6.4 per cent in July 2020, though it remained
marginally above the regulatory minimum of 5.0 per cent.

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Developments in the monetary sector and financial markets show relative
stability, as liquidity and market conditions are continually moderated by the
intervention measures of the CBN. Growth in credit to the private sector and net
domestic credit exceeded indicative benchmarks, buoyed by CBN’s measures
to reflate the economy through increased credit. Growth in the major monetary
aggregate and credit to government, however, fell short of the benchmark.
Money market rates trended downward, as a result of ample liquidity in the
banking sector. Moderate rebound in the capital market reflected gains by
large corporation stocks and gradually improving investors’ confidence.

The fiscal and external sectors are the most challenged by the direct and
indirect impact of the pandemic. The fiscal space is characterised by low
revenue, expanding expenditure, rising deficit and growing debt. Reduced
foreign exchange revenue from falling export and declining capital inflow has
also put a strain on the external sector position, though resumption of foreign
exchange sales by the CBN has engendered relative exchange rate stability.
Overall Considerations and Decision
Notwithstanding the dispersed signs of slow recovery, prospects of steady global
growth rebound remain cloudy. Even as governments deepen implementation
of stimulus programmes and most central banks maintain accommodative
policy stance, re-introduction of localized lockdowns to curb a second wave of
the pandemic has further heightened uncertainties. Stunted global growth,
drying capital flows and regime of low oil price is critically affecting Nigeria. It
reinforces the need to deepen implementation of the strategy to build an
economy that is driven, mainly, by its internal endowment and domestic
economic forces.
On the domestic front, that we must take decisive actions to halt acceleration in
inflation is important, especially on account of the primacy of our price stability

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mandate. However, considering that the ultimate is to achieve price stability
that is conducive for growth, we must address the danger of imminent
recession. The question is what we must do to avoid or ameliorate the
consequences of a recession, while pursuing goals that eventually result in
deceleration in prices.
Latest output data show that many of the sectors with significant contraction
were affected by lockdown restrictions and likely to rebound quickly as
restrictions are gradually eased. Moreover, an economy characterised by weak
demand, widening negative output gap, shrinking investment and rising
unemployment, needs to be reflated. Unfortunately, the fiscal space, the first
point of call in situations like this, is constrained by low revenue, rising deficit and
high debt service burden, which limits its ability to further stimulate economic
activities. To significantly improve capacity of the fiscal space, I encourage the
fiscal authority to adopt more pragmatic strategies of aggressive expenditure
rationalisation, widening the tax net and promoting service for payment
strategies.
I commend the CBN for the progress made so far with the development finance
initiatives and LDR policy to increase credit flow to households and businesses.
Clearly, the significant growth in credit from banks and various interventions
have in no small way moderated the initial impact of the pandemic. As the CBN
sustains these measures, we must continue to ensure that funds get to targeted
economic agents and are applied to the intended purposes for expansion in
the real sector.
Overall, the state of the economy requires that we must keep as many as
possible economic agents active and promote expansion of economic
activities to create more employment and guarantee income. On the back of
an inflationary pressure that is induced, largely, by temporary disruption to
supply chain, one-off shocks and structural rigidity, I am certain that as we keep

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the engine of economic activities grinding, the cost reducing effect of
increased productivity and economies of scale will eventually drive prices
down.
I vote to:
• Reduce MPR by 100 basis points from 12.50 to 11.50 per cent;
• Adjust the asymmetric corridor of +200/-500 basis points to +100/-700 basis
points around the MPR
• Retain Cash Reserve Ratio (CRR) at 27.5 per cent; and
• Retain Liquidity Ratio at 30.0 per cent.

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10. EMEFIELE, GODWIN I.
GOVERNOR OF THE CENTRAL BANK OF NIGERIA AND CHAIRMAN, MONETARY
POLICY COMMITTEE
Global macroeconomic performance in 2020H1 and short-term outlook were
extensively hampered by the covid-19 containment measures adopted by
many countries. Social and economic challenges, due to the pandemic, are
expected to linger throughout 2020 although their intensity will gradually abate
as lockdown restrictions are relaxed. Yet, the unprecedented global
contraction recorded in 2020q2, especially among OECD countries, requires
huge and sustained stimulus to be overturned. With inflation trending
downwards
in
major
economies,
monetary
policy
is
protractedly
accommodative with ramifications for capital flows to EMDEs. Financial markets
remained vulnerable in many countries as uncertainties diminished investor
sentiment. The depth of contraction recorded ubiquitously in 2020q2 suggests
that the IMF global growth forecast of –4.9 per cent for 2020 may be lowered
again, regardless of ample stimulus and lockdown eases.
In the domestic economy, macroeconomic conditions and near-term
prospects remained frail following the slowdown in many economic sectors.
Real GDP contracted by 6.1 per cent in 2020q2, due to the considerable
decline in the oil sector and the adverse effects of the lockdown on the
transportation sector and the hospitality industry. The scale of domestic
contraction was cushioned by expansions in the financial industry, the ICT
sector and the agricultural sector. Of the overall GDP outcome, the non-oil
sector contributed –5.5 per cent while oil accounted for –0.6 per cent. This
highlights the critical importance of the non-oil sector in driving the domestic
economy. With prevailing disruptions in the international oil market, recovery
prospect in the near-term is solely hinged on non-oil activities if vital lifelines are
availed to the sector.

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Due largely to supply shocks and structural factors, inflationary pressure which
emerged in September 2019 persisted. Year-on-year headline inflation rose to
13.2 percent in August 2020 from 12.8 percent in July. This reflected the 52 basis
points increase in food inflation to 16.0 per cent and 42 basis points rise in core
inflation to 10.5 per cent. The uptick during the month was fundamentally due
to energy price shocks, flood-induced food shortages, and exchange rate
vagaries. While the energy and exchange rate shocks are transient, the impact
of the food shortages (which accounted for most of headline inflation) may
persist if not tackled. With these adverse impulses, inflation inertia is expected to
continue in the near-term and begin an asymptotic decline by mid-2021.
Importantly, the concurrence of rising inflation and economic contraction does
not only pose a dilemma for policymaking, it forebodes the need to strengthen
the productive base of the economy. Again, current realities underscore the
need for sustained support of the real sector through growth enhancing
policies. I note the CBN’s development finance initiatives to minimise the
adverse impact of the covid-19 pandemic, resolve underlying structural
deficiencies, and speed-up recovery. The liquidity support covers various
economic activities and aims to narrow supply shortages within the economy
and boost consumer spending. I am of the view that an effective correction of
the supply shortages (especially in farm produce) will have the dual effects of
boosting output and moderating inflation.
Analysis of liquidity conditions indicates expansion in monetary aggregates and
single-digit money market rates. Weighted average inter-bank call and openbuy-back rates were 7.4 and 8.4 percent, respectively, in August 2020. Broad
money stock (M3) recorded an annualised growth of 10.4 percent reflecting the
19.4 percent annualised growth in private sector credits during the month.
Growth in domestic credit illustrates the continued potency of the Bank’s LDR
policy as gross credit grew by N3.8 trillion since May 2019 to N19.3 trillion in

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August 2020. This followed increased lending to manufacturing, consumer
credit, and agriculture among others. Even with fragile financial markets
condition (as capital market indices improve and FX market pressure persists),
the Nigerian banking sector remained largely stable. NPL ratio fell further to 6.1
per cent in August 2020 from 11.2 percent in May 2019 as CAR rose to 15.3
percent from 14.5 per cent.
In my consideration, I stress again the need for sustained support of the real
sector at this critical time to stimulate aggregate supply and enhance job
creation. Given the ramifications of supply shock and food shortages for GDP
and inflation outcomes, policy should optimally aim to resolve structural
constraints. In this regard, the CBN will continue to liaise with banks to
restructure lending and grant forbearance to constrained economic units.
I note the dilemma created by the rising inflationary pressure and falling output
and the trade-off inherent in policy options. I acknowledge the primacy of
price and exchange rate stability and underscore the need to not lose sight of
output stabilisation. I note that both inflation and exchange rate expectations
are elevated in the short-term while growth outlook is weakened by supply
shocks and the lingering effects of the Covid-19 economic lockdown. Given
the GDP contraction in the 2020q2, growth prospects remain frail for the
remaining quarters of 2020. I expect that with continued easing of restrictions,
the economy will begin to recover in 2020q3, though this may be incomplete
even by year end. Again, I favour measures to avert a recession or at least
curtail its intensity.
Yet, it is important to ensure that measures to support growth do not undermine
price stability and do not introduce new shocks to the system. I note that
tightening, at this time, to curb inflation will worsen output contraction and
cause avoidable recession. But, policy loosening at this time to support growth

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will exacerbate inflationary pressure, exaggerate negative real MPR (which
could destabilize domestic investment decisions) and impair portfolio
investments. The CBN has through its development financing, LDR and DCRR
policies provided liquidity impetus for the real sector. I am of the view that since
the impact of this actions and the impulses from the recent policy adjustment
are still unfolding, it is imperative to be cautious with our decisions.
Overall, on a balance of probability and evidence, I note that the outside lag
of monetary policy is relatively long. Thus, I underline the need to defer
adjustments, allow these lag effects to wear out, and avoid undue policy
shocks to the system. With the continued impact of the various real sector
liquidity support, I am of the view that the right impetus to rectify the supply
shortage is sufficiently in place. Today, policy impulse is undue and, in my view,
could complicate recovery. My inclination is, thus, to hold all parameters. I
believe the current stance could amply balance the long-run objectives of
price stability and output stabilisation without complicating recovery. Therefore,
I vote to:
1. Retain the MPR at 12.5 percent;
2. Retain the asymmetric corridor at +200/–500 basis points;
3. Retain the CRR at 27.5 percent; and
4. Retain liquidity ratio at 30.0 percent.

GODWIN I. EMEFIELE, CON
Governor

September 2020