CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 123 OF THE
MONETARY POLICY COMMITTEE MEETING OF MONDAY 25TH AND
TUESDAY 26TH MARCH, 2019
Background
The Monetary Policy Committee (MPC) met on the 25th and 26th
March, 2019; against the backdrop of developments in the global
and domestic economic environments in the first quarter of 2019.
Eleven (11) members of the Committee were present.

Global Economic Developments
The Committee noted with concern the weakening performance
of global output growth at the end of 2018 and observed that
developments in the first quarter of 2019 were characterised by
legacy headwinds from the second half of 2018. These include:
the continued trade war between the US and China, policy
uncertainty
amongst
advanced
economy
central
banks;
persisting
uncertainties
surrounding
BREXIT
negotiations;
vulnerabilities in major financial markets and rising public debt in
some Emerging Market and Developing Economies (EMDEs).
Consequently, global output growth for 2019 was downgraded by
the IMF from 3.7 per cent to 3.5 per cent.

Price
developments
across
major
advanced
economies,
continued to moderate in the review period alongside signals of
weakening output growth. In the light of this development, the US
Fed, the Bank of England and the European Central Bank
retreated
from
their
earlier
stance
of
monetary
policy
normalisation in favour of a monetary policy accommodation. This
led to volatilities in the financial markets of the advanced
economies as the balancing of portfolios moved capital from the
equities to the bonds market.
The MPC noted the moderate appreciation of the US dollar
against the currencies of most advanced and emerging market
economies. It further noted the trend of declining long term yields
in the US, and the likelihood that capital flows may be redirected
to EMDEs in the medium term.
Domestic Output Developments
Output data from the National Bureau of Statistics (NBS) indicate
that real Gross Domestic Product (GDP) grew by 2.38 per cent in
Q4 2018 from 1.81 and 2.11 per cent in the previous quarter and
corresponding period of 2017. The major impetus for growth came
from the non-oil sector, which grew by 2.7 per cent in Q4 2018,
while the oil sector contracted by 1.62 per cent.
The Committee welcomed the continued positive sentiments in
the
Manufacturing
and
Non-Manufacturing
Purchasing
Managers’ Indices (PMIs) for the 24th and 23rd consecutive months
in March 2019. The manufacturing PMI rose by 57.4 index points

compared with 57.1 in the previous month. Similarly, the nonmanufacturing PMI increased by 58.5 index points compared with
58.4 in February 2019. The increase in both measures of PMI was
driven by increases in production, employment, raw material
inventories and new orders. This improved outlook was attributable
to the continued stability in the foreign exchange market, various
interventions by the Bank in the real sector and the effective
implementation of the Economic Recovery and Growth Plan
(ERGP) by the Federal Government. Furthermore, on the current
measure of national output, the MPC noted the need to rebase
the GDP, an exercise which was last carried out in 2010.

Developments in Money and Prices
The Committee noted that broad money supply (M2) contracted
by 1.98 per cent in February 2019, below its level at endDecember 2018. Net Foreign Assets (NFA) contracted by 7.47 per
cent in February 2019 relative to its level at end-December 2018. In
contrast, M3 grew by 4.31 per cent in February 2019 compared
with its level at end-December 2018. Net Domestic Credit also
grew by 10.68 per cent in February 2019. The growth in NDC was
accounted for by the increase in credit to Government which
grew by 17.20 per cent in February 2019 over its level at endDecember 2018. Credit to the private sector also rose by 6.41 per
cent compared with its growth benchmark of 9.41 per cent. Given
the positive trajectory, the Committee urged the Management of
the CBN, to sustain the various initiatives of the Bank, particularly

the partnership between the Bankers Committee and the Nigeria
Incentive-Based Risk Sharing System for Agricultural Lending
(NIRSAL) aimed at establishing a national microfinance bank to
cater for the MSMEs of the economy.
The Committee noted the continued moderation in inflation as
headline inflation (year-on-year) declined further to 11.31 per cent
in February 2019 from 11.37 and 11.44 per cent in January 2019
and December 2018, respectively. The decrease in headline
inflation was driven mainly by food inflation, which declined to
13.47 per cent in February 2019 from 13.51 per cent in January
2019, while core inflation declined marginally to 9.80 per cent from
9.91 per cent in the previous month. On a month-on-month basis,
headline, food and core inflation declined to 0.73, 0.82 and 0.65
per cent in February 2019, respectively, from 0.74, 0.83 and 0.81
per cent in January 2019. The Committee noted the upside risks to
inflation to include; high cost of energy, infrastructure constraints,
insecurity in some parts of the country; and anticipated increase
in liquidity from the late implementation of the 2018 budget, and
noted that most of these factors were outside the ambit of
monetary policy. The MPC, therefore, urged the Federal
Government to sustain its current effort in stimulating output
growth by executing the policies approved in the ERGP.
The net liquidity position reflected the impact of OMO auctions,
foreign exchange interventions, statutory allocations to states and
local governments, and maturing CBN Bills. Consequently, the
average Inter-bank call rate increased to 16.45 per cent in

February 2019 from 15.00 per cent in January 2019. The Open Buy
Back (OBB) rate, however, declined marginally to 18.79 per cent in
February 2019 from 19.71 per cent in January 2019. The interbank
call rates, however, closed at 8.0 per cent on March 8, 2019, while
the OBB closed at 14.39 on March 22, 2019.
The Committee noted that in spite of the recent upsurge in capital
inflow into the economy, the All-Share Index (ASI) and Market
Capitalization (MC) continued to decline, reflecting global
sentiments in portfolio rebalancing from equities to fixed income
securities. This generally reflected the perceived risk at the long
end of the yield curve.
The Committee noted with satisfaction, the continued stability in
the foreign exchange market at the Investors’ and Exporters’ (I&E)
window of the market. In particular, it also observed the moderate
improvement in oil prices and stable accretion to external
reserves, which stood at US$45.2 billion as at March 21, 2019, a
6.73 per cent increase from US$42.35 billion at end-February 2019.


The Overall Outlook and Risks
The medium term outlook for the global economy continues to be
uncertain
with
indications
of
increasing
macroeconomic
vulnerabilities and downward revision of the forecast for global
output growth.

On
the
domestic
economy,
available
data
on
key
macroeconomic indicators for output growth in the first quarter of
2019, and forecasts for the rest of the year, suggests continued
positive outcomes. Based on recent projections, the economy is
expected to grow by 2.0 per cent (IMF), 2.2 per cent (World Bank)
and 2.74 per cent (CBN). The projection is hinged on: the
enhanced flow of credit to the real sector; sustenance of a stable
exchange
rate;
moderating
inflation
rate;
CBN
special
interventions in growth-enhancing sectors, especially, agriculture
and non-agricultural SMEs; improved growth in the non-oil sector
and the effective implementation of the ERGP by the Federal
Government, amongst others. The Committee expressed optimism
that the establishment of the NIRSAL National Microfinance Bank
and the enactment of the Secured Transactions in Movable Assets
Act 2017 will stimulate lending to small and medium enterprises.

Committee’s Considerations
The Committee observed the tepid output growth in 2018, but
noted with satisfaction that it strengthened in the last quarter of
2018 as well as the positive forecast for 2019. It further noted with
great satisfaction, the continued moderation in all measures of
inflation, sustained stability in the exchange rate and the robust
level of external reserves. It commended the recent upsurge in
capital inflows into the economy, noting this to be a
demonstration of sustained confidence by the foreign investor
community in the Nigerian economy. The Committee was,

however, not unmindful of developments in the global economy,
noting the recent slowdown in growth in some advanced
economies and the dovish stance of some major central banks as
an early warning sign of broader macroeconomic vulnerabilities.
It, therefore, underscored the need to monitor the trend in capital
flows and the continued downturn in the equities market, noting
that the recent surge in portfolio inflows were concentrated in the
money market.

The Committee noted the relative volatility in oil prices and its
impact on accretion to reserves which could easily undermine the
stability observed in the foreign exchange market. It, however,
noted that current developments in the oil futures market indicate
that oil prices will remain considerably above the Federal
Government’s

budget
benchmark.
The
Committee,
therefore, urged the Federal Government to strengthen its current
revenue mobilization efforts as well as explore additional sources
of revenue in order to improve fiscal buffers. It further urged the
Federal Government to sustain its implementation of the ERGP,
while ensuring that growth is all inclusive. It reiterated the need to
concentrate effort on addressing the problem of weak power
infrastructure, as well as support domestic manufacturing. The
Committee also called on all relevant institutions of the
government to address the menace of smuggling and dumping
of goods into Nigeria; and encouraged the Bank to continue to
explore available scenarios to deal with the activities of economic
and policy saboteurs, including those involved in dumping and

smuggling, in a bid to accelerate domestic production of goods in
Nigeria.

The MPC noted the positive moderate outlook for growth and the
risks in the horizon. The Committee also noted that having
achieved a relatively stable exchange rate with price stability, it is
imperative that monetary policy should explore the next steps
necessary for enhancing growth, reducing unemployment and
diversifying the base of the economy. It further observed that per
capita income growth is very negligible, while aggregate
demand remains weak. Aggregate output also remains below the
potential output level, implying sufficient headroom for noninflationary growth. This new direction has, therefore, become
imperative against the backdrop of the aftermath of the general
national elections and strong inflow of foreign direct and portfolio
investments into the economy.

The Committee urged for the speedy passage of the other
aspects of the Petroleum Industry Bill (PIB) to fast track the
development of the value chain in the sector and create
employment. It also welcomes the passage of the National
Minimum Wage Bill by the National Assembly and call for its
speedy implementation in order to boost domestic aggregate
demand.

The Committee further observed that the performance of the
monetary aggregates were below their benchmarks, indicating

headroom
for
monetary
growth.
The
MPC
noted
the
encumbrances and constraints imposed on fiscal policy and the
associated vulnerabilities as it has consistently failed to mobilise
sufficient revenues to support development as enunciated in the
ERGP, leaving room for continued debt financing, not previously
envisaged. Against this backdrop, it is imperative for monetary
policy to provide the much needed leverage to support output
growth and employment generation in the country.

On a more cautious note, the Committee expressed concern and
sympathises with the fiscal authorities, over the growing fiscal
deficit, external debt and debt service, and urged the need to
closely monitor the public procurement process in order to
improve efficiency in public resource management.

On financial system stability, the MPC noted the improvements in
key financial soundness indicators and commended the Federal
Government for the settlement of debt owed to oil marketers,
which has considerably, helped in reducing the non-performing
loans (NPLs) portfolio of the banking industry. The Committee,
therefore, urged the Government to expedite action in settling all
outstanding contractor-related arrears so as to improve the NPLs
position and stabilise the banking system. In addition, the MPC
reiterated the Bank’s commitment to improve credit delivery,
especially to small and medium scale enterprises, while
acknowledging efforts by the Central Bank of Nigeria in
coordinating the de-risking of lending to the private sector

through the collaboration between the Bankers’ Committee and
NIRSAL.

In its consideration of the best monetary policy option, the
Committee noted the need for all agencies of Government to
work hard, not only in consolidating the growth so far achieved,
but also in ensuring that appropriate policies are put in place and
implemented to create jobs on a mass scale and diversify the
economy in a proper direction. In doing this, the policy options
facing the MPC at this meeting is a decision between retention of
the current stance of monetary policy or a slight loosening of the
policy rate, backed by the substantial stability of the major
macroeconomic indicators. The Committee felt that given the
relative stability in the key macroeconomic variables, there is the
need to signal a new direction that is pro-growth.

In its arguments, the Committee was convinced that doing this
would further uphold the Bank’s commitment to promoting strong
growth by way of encouraging credit flow to the productive
sectors of the economy. The MPC felt that signalling through
loosening by a marginal reduction would serve to manage the
sentiments in the capital markets owing to the wider spread in
yields in the EMDEs, relative to the advanced economies.
Moreover, the real interest rate in the country would still remain
positive.

The Committee’s Decision
In light of the above, the MPC decided by a vote of six out of
eleven members to reduce the Monetary Policy Rate (MPR) by 50
basis points. Two members voted to reduce the MPR by 25 basis
points, while one member voted to reduce it by 100 basis points.
Two members, however, voted to hold the MPR at its current level.
Ten members voted to hold all other parameters constant, while a
member voted to reduce the Cash Reserve Ratio (CRR) by 100
basis points from 22.5 to 21.5 per cent.
In summary, the MPC voted to:
I. Adjust the MPR by 50 basis points from 14.00 to 13.50 per cent;
II. Retain the asymmetric corridor of +200/-500 basis points around
the MPR;
III. Retain the CRR at 22.5 per cent; and
IV. Retain the Liquidity Ratio at 30 per cent.

Thank you.
Godwin I. Emefiele
Governor, Central Bank of Nigeria
25th March 2019