CENTRAL BANK OF NIGERIA
MONETARY
MONETARY
POLICY REVIEW
POLICY REVIEW
MONETARY
POLICY REVIEW
FEBRUARYAUG
AUGUST 2021
VOLUME X, NUMBER 1
Central Bank of Nigeria
33 Tafawa Balewa Way
Central Business District
P.M.B. 0187, Garki,
Abuja
Phone: +234 (0)9 462 36011
Website: www.cbn.gov.ng
E-mail:
ISSN: 2141-6281
©2021 Central Bank of Nigeria
iii
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Mandate
§Ensure Monetary and Price Stability
§Issue Legal Tender Currency in Nigeria
§Maintain External Reserves to safeguard the international
value of the Legal Tender Currency
§Promote a Sound Financial System in Nigeria
§Act as Banker and Provide Economic and Financial
Advice to the Federal Government
Vision
“To be a people-focused Central Bank promoting
confidence in the economy and enabling an
improved standard of living”
Mission Statement
“To ENSURE Monetary, Price and Financial System
Stability as a Catalyst for Inclusive Growth and
Sustainable Economic Development.”
Core Values
Integrity
Partnership
Accountability
Courage
Tenacity
Central Bank of Nigeria
CONTENTS
Page
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Table of Contents
Statement by the Governor

vii
Chapter 1: Overview.. ..


Chapter 2: The Global Economic ..


2.1
Global Output ....


2.2
Global Inflation ..


2.3
Global Financial Market Developments ..
..
..
..

Chapter 3: The Domestic Economy


3.1
Output in the Domestic Economy .. ..
..
..
..

3.2
Domestic Price Developments..


3.3
Monetary Policy and Liquidity Management..
..
..

3.4
Domestic Financial Markets Developments.. ..
..
..

Chapter 4: Economic Outlook and Risks..


4,1
Outlook for Global Output .. ..


4.2
Outlook for Global Inflation .. ..


4.3
Outlook for Domestic Output Growth ..
..
..
..

4.4
Outlook for Domestic Inflation ..


4.5
The Outlook for Monetary Policy in the Second Half of 2021 ..

4.6 The Risks to the Outlook ..


Appendices ..


List of Tables
Table 2.1:
Policy Rates of Selected Central Banks Dec 2020 – Jun 2021.8
Table 2.2:
Selected International Stock Market Indices as at


June 30, 2021 ..


Table 2.3:
Exchange Rates of Selected Countries (value in currency


units to US$)


Table 3.1:
Inflation Rates, January – June 2021..
..

Table 3.2:
Major Components of Headline Inflation (Y-on-Y),


January - June 2021.. ..


Table 3.3:
Major Components of Headline Inflation (M-on-M),


January - June 2021 .. ..


Table 3.4:
Major Components of Food Inflation (Y-on-Y),


January - June 2021..

..
..
..

Table 3.5:
Major Components of Food Inflation (M-on-M),


January - June 2021. ..


Table 3.6:
Major Components of Core Inflation


(Y-on-Y) January - June 2021
..
..
..

Table 3.7:
Major Components of Core Inflation


(M-on-M) January - June 2021

..
..

Table 3.8:
Actual and Seasonally Adjusted Headline Inflation


January - June 2021 .. ..


Table 3.9:
OMO Bills Auction (January - June 2021) (N'billion)..

Table 3.10:
CBN Standing Lending Facility (January - June 2021)


(N'billion)


Table 3.11:
CBN Standing Deposit Facility (January - June 2021)


(N'billion)


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Table 3.12:
Foreign Exchange Supply by the CBN (US$ Million) ..

Table 3.13a:
The Performance of Monetary Aggregates and their


Implications


Table 3.13b:
The Performance of Monetary Aggregates and their


Implications


Table 3.14: Weighted Average Monthly Money Market Interest Rates


(January - June 2021)..
..
..

..

Table 3.15:
Average Monthly Spot Exchange Rates (N/US$) July 2020 -


June 2021


Table 3.16:
End-Month Exchange Rates (N/US$) July 2020 - June 2021.. 51
Table 3.17: Nominal and Real Effective Exchange Rates Indices

(January 2020 - June 2021)


Table 3.18:
Monthly Foreign Exchange Flows through the CBN


(January 2020 - June 2021)


Table 3.19:
Monthly Foreign Exchange Flows through the Economy

(January 2020 - June 2021)


Table 3.20:
NSE All-Share Index (ASI) and Market Capitalization (MC)


(June 2020 – June 2021) ..


Table 4.1
Global Output and Inflation Outlook ..
..
..

Table 4.2 Scenarios of Nigeria's GDP growth outlook..
..
..

Table 4.3
Inflation Forecast..


List of Figures
Figure 3.1:
Gross Domestic Product Growth Rate (2019Q1 – 2021 Q2).. 14
Figure 3.2:
Non-oil Sector Performance (2019Q1 – 2021 Q2)..
..

Figure 3.3: Oil Sector Performance (2019Q1 – 2021 Q2) ..
..

Figure 3.4:
Agricultural Sector Contribution by Activity, (2019Q1 – 2021 16
Figure 3.5:
Industrial Sector's Contribution by Activity, (2019Q1 – 2021.. 20
Figure 3.6:
Services Sub-Sector Contribution, 2019Q1 – 2021 Q2...

Figure 3.7:
Quarterly Domestic Oil Production and Export


(2019Q1 – 2021 Q2)


Figure 3.8: Monthly Bonny Light Price, July - December 2020
..

Figure 3.9:
Headline, Core and Food Inflation Rates (January –


June 2020)


Figure 3.10:
Major Components of Headline Inflation (Y-on-Y)


January – June 2021 ..


Figure 3.11: Major Components of Headline Inflation (M-on-M)


Jan. – Jun. 2021 2021 ..


Figure 3.12:
Major Components of Food Inflation (Y-on-Y)


January - June 2021


Figure 3.13: Major Components of Food Inflation (M-on-M)


January - June 2021 ..


Figure 3.14: Major Components of Core Inflation (Y-on-Y) January -


June 2021..


Figure 3.15:
Major Components of Core Inflation (M-on-M) January -


June 2021..


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Figure 3.16:
Actual and Seasonally Adjusted Headline Inflation January


- June 2021


Figure 3.17:
OMO bills Auction (January - June 2021) ..
..
..

Figure 3.18:
Standing Lending Facility (January - June 2021)
..

Figure 3.19:
Standing Deposit Facility (January - June 2021)
..

Figure 3.20: Total FX Supply (Including Forward Sales (January -


June 2021)


Figure 3.21: Money Supply (M1), (M2) and (M3) (December 2020 -


June 2021)


Figure 3.22:
Growth in Money Supply (M1), (M2) and (M3) (Dec. 2020 -


June 2021) ..


Figure 3.23:
Net Domestic Assets (NDA) (January - June 2021)
..

Figure 3.24: NDA, NDC and Other Assets (Net) (January - June 2021)..

Figure 3.25: Domestic Credit to Private Sector (January - June 2021)..

Figure 3.26:
Weighted Average Monthly Money Market Interest Rates

(January - June 2021) ..
..

..
..

Figure 3.27: Daily Interbank Call Rate (January - June 2021)..
..

Figure 3.28:
Daily Open Buy Back Rate (OBB) (January - June 2021)

Figure 3.29: Daily Naira/US Dollar Exchange Rate (January - June 2021) 50
Figure 3.30:
Nominal and Real Effective Exchange Rates Indices


(July 2020 - June 2021) ..


Figure 3.31:
Monthly Foreign Exchange Flows through the CBN


(Jan 2020 – June 2020) ..


Figure 3.32:
Monthly Foreign Exchange Flows through the Economy

(Jan 2020 – Jun 2021) (US$ Million)..
..
..
..

Figure 3.33: NSE All Share Index (ASI) and Market Capitalization (MC)


(June 2020 – June 2021)..

..
..
..

Figure 3.34:
NSE ASI and MC (December 2020 – June 2021)
..

Figure 3.35:
NSE Market Capitalisation by Sector as at End-


December 2020


Figure 3.36:
NSE Market Capitalisation by Sector as at End-June 2021 .. 56
Figure 3.37:
Warren Buffett Valuation of Nigerian Equities Market ..

Figure 3.38:
10-Year U.S. Dollar-denominated Bond Yield for Nigeria

(January 2020 – June 2021)


Figure 3.39:
FGN Bonds Yield Curves: Dec 31, 2020 vs. Mar 312021


vs. Jul 23, 2021


Figure 3.40: Structure of the Nigerian Capital Market (June, 2021) ..

Figure 4.1: Fan Chart of Inflation Forecast..
..
..
..

Figure 4.2: Inflation Forecast..


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STATEMENT BY THE GOVERNOR
M
onetary policy in the first half of 2021 was confronted by the continued
COVID-19 related challenges including the rapid spread and high
infection rate of the Delta variant of the Coronavirus, accompanied by
spike in fatalities and the re-introduction of containment measures across several
economies. Other challenges included weak aggregate demand associated with
less than full employment in labour markets in some economies and the partially
functioning supply chain networks. While vaccination against COVID-19 had
gained significant grounds in major advanced economies, some emerging market
and developing economies were at the commencement stage of vaccination,
which could result to an uneven recovery in global growth.
Notwithstanding the above developments, the Nigerian economy sustained its
gradual recovery in the first half of 2021. The recovery was hinged on the easing of
the COVID-19 induced restrictions, vaccine rollouts to contain the spread and
fatality rate, and further reopening of businesses and other economic activities in
the country. The sustained economic stimulus packages from both monetary and
fiscal authorities also drove recovery in output growth. Accordingly, real Gross
Domestic Product (GDP) which grew by 0.51 per cent (year-on-year) in the first
quarter of 2021 improved to 5.01 per cent in the second quarter of 2021, owing to
sustained implementation of stimulus package by the Government.
Inflationary pressure persisted with inflation rate high above the Bank's implicit target
range of 6-9 per cent, amidst ongoing debate on the possibility of a reversal of
under-recovery of cost of Premium Motor Spirit (PMS) by the Nigeria National
Petroleum Corporation (NNPC). Exchange rate pressure also persisted due to the
decline in oil earnings owing to the global supply glut, worsened by the COVID-19
shock. The Nigerian financial market witnessed considerable volatility owing to
lingering shocks from the COVID-19 pandemic and drop in oil production. This
resulted to bearish trend in the capital market as investors' confidence in the market
waned. The development in the market was also affected by security concerns and
the relatively weak macroeconomic fundamentals such as uptick in inflation and
declining reserves, as well as significant capital outflows. Consequently, the AllShare Index (ASI) decreased by 5.87 per cent from 40,270.72 at end- December 2020
to 37,907.28 at end-June 2021. Nonetheless, the money market remained broadly
active with market rates oscillated in the review period, reflecting liquidity conditions
in the banking system.
In view of the above developments, monetary policy design and implementation
vii
was geared towards moderating inflationary pressure and supporting output
growth. Accordingly, the Bank adopted a broadly accommodative monetary
policy stance as the Monetary Policy Rate (MPR) was retained at 11.5 per cent. Also,
the asymmetric corridor of +100/-700 basis points around the MPR, the CRR of 27.5
per cent and Liquidity Ratio of 30.0 per cent were maintained throughout the
period. These were complemented by the intensification of the Bank's development
finance interventions targeted at critical sectors of the real economy.
The outlook for the domestic economy over the short-to-medium term indicates that
inflationary pressure would moderate owing to a combination of conventional and
heterodox policy measures to manage liquidity conditions in the domestic
economy, while output growth is expected to sustain its recovery to pre-pandemic
levels as both monetary and fiscal authorities sustain stimulus packages. Monetary
policy formulation and implementation will, therefore, be geared towards
moderating inflation and supporting output growth, while dealing with existing and
emerging macroeconomic risks.
GODWIN I. EMEFIELE
Governor, Central Bank of Nigeria
August 2021.
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CHAPTER ONE

1.0
OVERVIEW
his chapter presents a summary of
the entire document by highlighting
key developments that shaped
monetary policy during the first half of

and
the
attendant
policy
responses
by
the
Bank.
The
developments
cover
global
and
domestic output, prices, monetary and
financial developments as well as the
outlook.

Monetary policy in the first half of 2021
was
significantly
shaped
by
the
resurgence and the second wave of the
COVID-19
pandemic
which
posed
significant threats to the efficacy of the
COVID-19 vaccines. The spill-over effect
of the pandemic also ensured that
capital flows to developing economies
remained
slow
as
the
advanced
economies gradually recovered. On the
domestic
front,
monetary
policy
continued to face challenges arising
from rising fiscal and monetary stimuli to
strengthen output growth, achieve and
sustain exchange rate stability, reduce
high cost of liquidity management,
financial
market
volatility
and
constrained credit growth. Inflation rate
remained high above the Bank’s implicit
target range of 6-9 per cent, amidst
ongoing debate on the possibility of a
reversal of under-recovery of cost of the
premium motor spirit (PMS) by the
Nigeria National Petroleum Corporation
(NNPC).
Consequently,
headline
inflation rose from 16.47 per cent in
January to 17.75 per cent in June 2021.
The Nigerian economy sustained its
gradual recovery in the first half of 2021.
The recovery was hinged on the easing
of the COVID-19 induced restrictions,
vaccine
rollouts
to
achieve
herd
immunity, and further reopening of
businesses
and
other
economic
activities in the country. The sustained
economic stimulus packages from both
monetary and fiscal authorities also
drove recovery in output growth. Data
from the National Bureau of Statistics
(NBS) showed that growth in real Gross
Domestic Product (GDP) slowed to 0.51
per cent (year-on-year) in the first
quarter of 2021 compared with 1.87 per
cent in the corresponding period of
2020, but an improvement over the 0.11
per cent growth recorded in the fourth
quarter of 2020. The main driver of the
first quarter growth was the non-oil
sector which grew by 0.79 per cent. This
was, however, a moderation compared
with growth rates of 1.55 and 1.69 per
cent in the corresponding period and
the
preceding
quarter
of
2020,
respectively. The key drivers of the nonoil growth were Agriculture (2.20%),
Services (1.57%) and Industry (0.46%).
The oil sector, however, contracted by
2.21 per cent (year-on-year) in Q1 2021
indicating
a
decrease
of
–7.27
percentage
points
relative
to
the
growth of 5.06 per cent recorded in the
corresponding quarter of 2020. It was
however,
a
lower
contraction
compared with -19.76 per cent in Q4
2020.

The
sustained
implementation
of
stimulus package by both fiscal and
monetary authorities along with the
T
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gradual return of economic activity,
vaccines roll-out against COVID-19 as
well
as
increase
in
local
and
international
travels,
led
to
the
improved growth performance relative
to the corresponding period of 2020.
Growth in real GDP strengthened further
to 5.01 per cent in the second quarter of
2021 in contrast to the contraction of
6.10 per cent in the corresponding
period of 2020 and growth of 0.51 per
cent in the preceding quarter of 2021.
As usual the growth was driven by the
non-oil sector which grew by 6.74 per
cent in the second quarter of 2021 in
contrast to the contraction by 6.05 per
cent in the corresponding period of
2020, and growth of 0.79 per cent in the
preceding quarter of 2021. The key
drivers of growth in the sector were
Services (9.27%), Industry (6.65%) and
Agriculture
(1.30%).
The
oil
sector
contracted further by 12.65 per cent in
the second quarter of 2021 compared
with contractions of 6.63 and 2.21 per
cent in the corresponding period of
2020 and the preceding quarter of 2021,
respectively.

The pressure on the exchange rate
persisted due to the decline in oil
earnings owing to the global supply glut,
worsened by the COVID-19 shock. The
pass-through of exchange rate to
domestic prices has been significant,
causing core inflation to accelerate.
The external reserves declined owing to
the significant speculative demand
pressure. Thus, the naira weakened at
the Investor and Exporter (I&E) window
of the foreign exchange market. The
development elicited decisive action
from
the
Bank,
leading
to
the
adjustment of the naira exchange rate
from N381/US$ to N397.78/US$ and
N404.19/US$ in May and June 2021,
respectively. These adjustments were
made to align the exchange rates with
market realities, curtail unnecessary
demand pressure and achieve the
unification of exchange rates in Nigeria.
The Bank introduced other reforms
which
included:
the
Naira4Dollar
scheme
to
attract
diaspora
remittances,
and
the
strategic
suspension of sales of foreign exchange
to BDCs, as well as continued restriction
of access to foreign exchange for 43
items.

Also, during the review period, the
Nigerian financial market witnessed
considerable volatility owing to lingering
shocks from the COVID-19 pandemic
and drop in oil production. In order to
achieve its objective of price and
monetary stability, the Bank continued
the
use
of
the
following
liquidity
management
instruments:
Monetary
Policy Rate (MPR); Cash Reserve Ratio
(CRR); Liquidity Ratio (LR); Open Market
Operations
(OMO);
and
Discount
Window
Operations.
These
were
periodically
complemented
with
interventions in the foreign exchange
market. The Bank’s key instrument for
signalling monetary policy stance, the
Monetary Policy Rate (MPR) remained
unchanged at 11.5 per cent in the
review period. Also, the asymmetric
corridor of +100/-700 basis points around
the MPR was maintained throughout the
period. The retention of MPR and the
asymmetric corridor, showed the Bank’s
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commitment to an accommodative
policy stance.

Liquidity Management in the first half of
2021 was conducted primarily through
Open Market Operations (OMO). OMO
sales, however, decreased by 72.38 per
cent to N1,793.25 billion in the review
period from N6,492.30 billion in the
corresponding period of 2020. The
development
also
represented
a
decrease of 70.79 per cent compared
with N6,138.58 billion, in the preceding
period. The reduced OMO sales was
attributed to the Bank’s deliberate effort
to encourage lending to the real sector
by Deposit Money Banks (DMBs).

Amidst the gradual recovery of the
economy from the devastating effects
of Covid-19 pandemic, the money
market experienced considerable level
of activities in the first half of 2021.
However, the money market rates
oscillated
in
the
review
period,
reflecting the liquidity conditions in the
banking system. The contributing
factors to the development included
statutory monthly disbursement to both
States and Local governments by the
Federation
Account
Allocation
Committee
(FAAC);
government
securities maturities, sale of OMO bills
and the various CBN interventions. The
interbank call segment of the market
experienced less trading days in the
period under review, which resulted in
lower transaction volumes compared
with the Open Buy Back (OBB) segment.
The preference for collateralized OBB
instrument
was
attributed
to
the
continuing high-risk perception and risk
aversion by money market participants
to
open
market
lending
due
to
counterparty risk.

The performance of the Nigerian capital
market in the first half of 2021 was
bearish, driven primarily by the equities
segment. This reflected waning investor
confidence
mainly
attributable
to
security
concerns
and
weak
macroeconomic fundamentals such as
uptick in inflation and declining reserves,
as well as significant capital outflows.
Attractive yield in the money market
also influenced activities in the equity
market. These factors led to significant
sell-off in the Nigerian Capital Market, as
several investors exited the market.
Consequently,
All-Share Index (ASI)
decreased by 5.87 per cent from
40,270.72 at end- December 2020 to
37,907.28
at
end-June
2021.
This,
however, represented an increase of
54.85 per cent from 24,479.22 at endJune
2020.
Similarly,
market
capitalization (MC) decreased by 6.17
per cent from N21.06 trillion at endDecember 2020 to N19.76 trillion at endJune 2021. However, compared with
the corresponding period of 2020, the
market
capitalization
increased
by
54.74 per cent from N12.77 trillion at endJune 2020 to N19.76 trillion at end-June
2021.

Activities in the bond market were
dominated by Federal Government of
Nigeria (FGN) securities in the first half of
2021. There were also some activities in
the
State/
Municipal
bonds
and
corporate
bond
segments
of
the
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market, with the former recording the
least share by market volume.

In terms of outlook, the domestic
economy is expected to consolidate on
its recovery trajectory through the
second half of 2021. This is premised on
the gradual return to normalcy as more
non-pharmaceutical approaches and
restrictions to control the spread of the
COVID-19
pandemic
are
relaxed,
coupled with sustained monetary and
fiscal stimulus. Also, the prospects of
continuing
recovery
in
global
commodity prices, particularly the oil
market
are
promising,
although
substantial
headwinds
subsist.
Headwinds to output growth in the
second half of 2021 include: COVID-19
pandemic related issues such as new
strains and variants of the Virus, as well
as associated risk of a resurgence in the
COVID-19 infections. This risk is further
heightened by the limited supply of
vaccines
as
well
as
vaccinations
hesitancy among the populace. Other
downside risks include rising levels of
insecurity;
foreign
exchange
rate
pressures and pass-through; capital flow
reversals; deficit in critical infrastructure;
rising public debt and narrow fiscal
space. Based on these developments,
the Central Bank of Nigeria (CBN)
forecasts real GDP to grow by 2.18 and
2.62 per cent for the third and fourth
quarters of 2021, respectively, while
annual real GDP growth for 2021 is
estimated at 1.70 per cent in contrast to
the contraction of 1.92 per cent in 2020.
Staff estimates suggest that the year-onyear headline inflation is expected to
moderate from 17.75 per cent in June
2021 to 16.08 and 13.98 per cent in
September
and
December
2021,
respectively.
This
is
premised
on
projected
return
to
normalcy
of
economic activities, following various
CBN
and
Federal
Government
interventions
in
the
real
sector,
especially agriculture. The downside
risks,
would
however,
include
heightened security challenges which
have
continued
to
undermine
agricultural production and investor
sentiment,
increasing
energy
and
transportation costs, and infrastructure
deficits. As the Bank intensifies its effort
to rein in inflation using its conventional
and heterodox policy measures to
manage liquidity conditions in the
domestic economy, the risks to inflation
and growth would be monitored and
minimized.

Monetary
policy
formulation
and
implementation will, therefore, continue
to be directed towards ameliorating
these challenges to achieve stable
prices
conducive
to
sustainable
economic growth.


CBN Monetary Policy Review

CHAPTER TWO
THE GLOBAL ECONOMY

2.1
Global Output
lobal growth was estimated to
expand by 6.0 per cent in 2021
from a contraction of 3.2 per
cent in 2020 (IMF WEO July 2021). The
increase in global output projection in
2021 was driven largely by stronger than
anticipated
improvements
in
the
economies of both the USA and China
which together accounted for about 40
per cent of global output. According to
the IMF, the estimate was based on a
number of factors which included: the
efficient and successful deployment of
COVID-19 vaccines, and the continuous
accommodative fiscal, financial and
monetary conditions, which combined
to
boost
policy
support
across
economies thereby strengthening the
recovery of global output. The global
economy is, thus, expected to revert to
its pre-pandemic levels of output by the
end of 2021 and early 2022.

In the advanced economies GDP is
estimated to expand by 5.6 per cent in
2021 compared with a contraction of
4.6 per cent in 2020, owing to sustained
fiscal
stimulus,
monetary
accommodation
and
increased
vaccines rollout. In the United States,
output was estimated to peak at 7.0 per
cent in 2021 from -3.5 in 2020, due
largely to supportive financing condition
and fiscal support. Output in Euro Area
was estimated to grow at 4.6 per cent in
2021 up from -6.5 per cent in 2020. The
growth was driven by sharp rebound in
activities and demand following the
reopening of economies in the group,
and which was also supported by the
rapid pace of COVID-19 vaccination
and on-going fiscal stimulus, which saw
major
economies
in
the
group:
Germany,
France,
Spain
and
the
Netherlands returning to growth. In the
United Kingdom, output growth was
estimated at 7.0 per cent in 2021 from
the contraction of 9.8 per cent in 2020,
driven
by
rebound
in
economic
activities, with household consumption
and
public
spending
rising,
as
government
eased
restrictions
associated
with
the
COVID-19
pandemic.
In
Japan,
output
was
estimated to grow by 2.8 per cent in
2021 from the contraction of 4.7 per
cent in 2020, driven by rebound in
domestic
demand
and
private
consumption, bolstered by increase in
government spending and sustained
growth in exports.

In the Emerging Market and Developing
Economies (EMDEs), output growth was
estimated at 6.3 per cent in 2021, up
from -2.1 per cent in 2020, resulting from
the moderating effect of the pandemic
and as EMDEs benefit from improved
commodity
prices
and
external
demand.
In
many
other
EMDEs,
recoveries
are
expected
to
be
dampened
by
elevated
COVID-19
caseloads and obstacles to vaccine
procurement and acceptance, as well
as
the
likely
commencement
of
monetary
policy
normalisation
by
central
banks
in
the
advanced
economies and the attendant capital
outflow from EMDEs. In China, output
G
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growth was estimated to improved
significantly by 8.1 per cent in 2021 from
2.3 per cent in 2020, driven by sustained
stimulus and external demand. Output
growth in India was estimated at 9.5 per
cent in 2021 compared with the
contraction of 7.3 per cent in 2020,
driven by fiscal and monetary stimulus.
In Brazil, output was estimated to grow
by 5.3 per cent in 2021 from the
contraction of 4.1 per cent in 2020 as the
economy continue to recover from the
COVID-19 related slowdown.

In Sub-Saharan Africa, growth was
estimated at 3.4 per cent in 2021 up
from -1.8 per cent in 2020, supported by
improved commodity prices, along with
recovery in both private consumption
and
investment.
Despite
a
more
buoyant external environment, SubSaharan Africa in 2021 will be the world’s
slowest growing region. In Nigeria, the
economy was estimated to grow at 2.5
per cent in 2021 from -1.8 per cent in
2020, driven by sustained fiscal and
monetary stimuli, as well as rising
commodity prices. Similarly, the South
African economy was estimated to
grow by 4.0 per cent in 2021 from -7.0
per cent in 2020, as the economy
continue
to
re-open
leading
to
improvement in demand.

2.2
GLOBAL INFLATION
The
pandemic-induced
global
recession was preceded by a decade
of extremely low global inflation (2 per
cent), driven by generally low inflation
rates in most advanced economies. This
contrasts with previous global recessions
when inflation ranged from 6 percent
(2008) to 16 percent (1975). This may be
attributed to more joint and cohesive
policy response to the 2020 COVID-19
induced global recession than in the
earlier ones.

Global inflation has rebounded quicker
than expected, after remaining low in
the first half of 2020, a trend that is most
likely to continue for the remaining part
of the year, according to IMF and World
Bank. There are also indications that
price pressures in advanced economies
and
the
likely
monetary
policy
normalisation may raise inflation above
targeted ranges in Emerging Market
and Developing Economies (EMDEs), as
capital
flows
out,
thus,
exerting
exchange rate pressure. Although, such
pressure may not warrant a monetary
policy response in the event, that they
are
temporary
and
inflation
expectations remain well-anchored.

Global inflation is expected to increase
to 3.5 per cent in 2021 from 3.2 per cent
in 2020. In the advanced economies,
inflation is expected to rise to 2.4 per
cent in 2021 from 0.7 per cent in 2020.
Inflation in the US is projected to rise to
2.3 per cent in 2021 from 1.2 per cent in
2020. Similarly, in the Euro Area, changes
in
consumer
price
or
inflation
development is expected to rise to 1.4
per cent in 2021 from 0.3 per cent in
2020. In Japan, inflation is estimated to
follow the same trend, rising to 0.1 per
cent in 2021 from 0.0 per cent in 2020.

In the Emerging Market and Developing
Economies, inflation is expected to rise
CBN Monetary Policy Review

to 5.4 per cent in 2021 from 5.1 per cent
in 2020. In China, inflation is expected to
drop to 1.2 per cent in 2021 from 2.4 per
cent in 2020 (WEO, April 2021). In Russia,
inflation is projected to increase to 4.5
per cent in 2021 from 3.4 per cent in
2020. While in India inflation is expected
to decrease to 4.9 per cent in 2021, from
6.2 per cent in 2020.

Inflation
for
Sub-Sahara
Africa
is
projected to decline to 9.8 per cent in
2021 from 10.8 per cent in 2020. While
inflation in Nigeria is estimated to
increase to 16.0 per cent in 2021, from
13.2 per cent in 2020. Ghana’s headline
inflation is estimated to drop to 9.0 per
cent in 2021, from 9.9 per cent in 2020.
Inflation in Angola is projected to remain
unchanged from the 2020 figure of 22.3
per cent. However, inflation for the LowIncome Countries (LIC) is projected to
decline to 8.6 per cent from 14.2 in the
year 2020. In Ethiopia, for instance,
inflation is projected to drop to 13.1 per
cent from 20.4 per cent in 2020.

The rise in inflation rate across the globe
is due to strong recovery in aggregate
demand following the reopening of
economies and resumption of business
activities coupled with massive fiscal
and monetary policy stimuli to drive
economic recovery. In most economies,
production has not been able to keep
pace with rising aggregate demand.
Further to this is the political unrest in
most
of
the
Sub-Saharan
African
countries as well as insecurity and
political crises bedevilling the African
region, resulting in food insecurity and
high incidence of budget deficit.
2.3
Global
Financial
Market
Developments

2.3.1 Money Market and Central Bank
Policy Rates
A total of fourteen (14) central banks
were surveyed in the review period. The
survey showed a strong trend towards
continued monetary accommodation
by central banks in both the advanced
and emerging market economies. While
all these central banks continued to
undertake monetary accommodation
without policy rate adjustment, two
major oil-exporting economies, Brazil
and Russia, hiked their policy rates again
to address inflationary pressures from
depreciating
exchange
rates.
The
Central Bank of Brazil hiked the policy
rate from 2.0 per cent to 2.75, 3.5 and
4.25 per cent in April, May and June
2021, respectively, while the Central
Bank of Russia also hiked its policy rate
thrice in the review period from 4.25 per
cent to 4.5, 5.0 and 5.5 per cent in April,
May and June 2021, respectively. The
Bank of Ghana eased its policy rate in
the review period from 14.5 per cent to
13.5 per cent in May 2021.

Several central banks in the advanced
economies continued to struggle with
the loss of policy headroom as their
economies
recovered,
though
inflationary developments may suggest
the need for policy normalisation, as
GDP growth is still fragile. Quantitative
easing remains the policy instrument of
choice amongst major central banks in
the advanced economies and in some
CBN Monetary Policy Review

cases, direct liquidity injections have
been used to jumpstart growth. With
inflation
rising
appreciably,
early
normalization of monetary policy is now
taking centre stage amongst policy
makers. Concerns, however, remain as
such a shift in policy may trigger a chain
of defaults and a new financial crisis.

With the US Federal Reserve Bank
progressing with plans to taper its bondbuying programme in the fourth quarter
of 2021 and indications from the Bank of
Canada that it will soon commence a
move
towards
normalization,
other
central banks may soon follow in
synchrony (see Table 2.1).

Table 2.1: Policy Rates of Selected Central Banks
Dec 2020 – Jun 2021
ountry
ec-20 an-21
eb-21
pr-21
pr-21 May

une

gypt

enya
Africa .5

hana

igeria

razil
.75
.5
.25
SA

apan

uro
rea
ndia
ussia

hina

K

ndonesi

Source: www.cbrates.com


2.3.2 Global Capital Market
The performance of major global stock
markets in the review period was mixed.
Improved
economic
activities
occasioned by widespread rollout and
administration of Covid-19 vaccines
positively
influenced
performance.
However, inflationary pressures and
weak
economic
fundamentals
negatively impacted performance in
some stock markets.

In Europe, the UK FTSE 100, French CAC
40 and the German DAX indices
increased by 10.1 per cent, 18.1 per
cent and 13.6 per cent, respectively. In
North America, the United States S&P
500, Canadian S&P/TSX Composite and
Mexican Bolsa indices increased by 14.8
per cent, 15.7 per cent and 14.1 per
cent, respectively. In South America, the
Brazilian Bovespa stock and Argentine
Merval indices increased by 6.5 per cent
and
21.8
per
cent,
respectively.
However,
the
Colombian
COLCAP
index declined by 12.5 per cent, during
the review period. In Asia, the Japanese
Nikkei 225, Chinese Shanghai SE and
Indian BSE Sensex indices increased by
4.6 per cent, 3.3 per cent, and 9.2 per
cent, respectively. In Africa, the South
African JSE All-Share, Kenyan Nairobi
NSE 20 and Ghanaian GSE All Share
indices increased by 12.2 per cent, 3.2
per cent and 36.8 per cent, respectively.
On the other hand, the Nigerian
Exchange NGX All-Share and Egyptian
EGX CASE 30 indices decreased by 5.9
per cent and 5.4 per cent, respectively,
during the review period

CBN Monetary Policy Review

Table 2.2: Selected International Stock Market Indices as at June 30, 2021
Country
Index
30-Jun-20
31-Dec-20
30-Jun-21
Jun 30, 2020 - Jun 30,
2021 % Change
December 31, 2020 -
June 30, 2021 %
Change
AFRICA
Nigeria
NSE All-Share Index

South Africa
JSE All-Share Index

Kenya
Nairobi NSE 20 Share index

Egypt
EGX CASE 30

Ghana
GSE All-Share Index


NORTH AMERICA
US
S&P 500

Canada
S&P/TSX Composite

Mexico
Bolsa

SOUTH AMERICA
Brazil
Bovespa Stock

Argentina
Merval

Columbia
COLCAP

EUROPE
UK
FTSE 100

France
CAC 40

Germany
DAX

ASIA
Japan
NIKKEI 225

China
Shanghai SE A

India
BSE Sensex

Selected International Stock Market Indices as at June 30, 2021
Source: Bloomberg


2.3.3 Global Commodity Prices
In the period under review, global
commodity
prices
sustained
their
uptrend due largely to rising demand
following
resumption
of
production
activities as the roll-out of COVID-19
vaccines helped to improve herd
immunity from the virus. As a result, the
IMF primary commodity price index rose
further by 29.11 per cent to 161.9 points
at end-June 2021 from 125.4 points at
end-December 2020. Consequently, all
the commodity sub-indices recorded
increases. The commodity sub-indices of
energy, metals, industrial inputs, edibles
and non-fuel all increased by 44.53,
31.96, 27.77, 20.63 and 19.31 per cent,
respectively, to 171.7, 237.4, 203.8, 129.8
and 155.1 points at end-June 2021 from
118.8, 179.9, 159.5, 107.6 and 130.0
points at end-December 2020. Under
the petroleum sector, actual prices per
barrel of the OPEC Reference Basket
rose by 46.50 per cent to US$73.6 at endJune 2021 from US$50.24 at endDecember 2020.

The Food and Agriculture Organization
(FAO) Food Price Index rose by 14.84 per
cent to 124.6 points at end-June 2021
from 108.5 points at end-December
CBN Monetary Policy Review

2020.
The
sub-indices
of
sugar,
vegetable oils, meat, cereals and dairy
all increased by 23.61, 20.05, 15.61, 14.84
and 9.80 per cent, respectively, to 107.7,
157.5, 109.6, 133.1 and 119.9 points from
87.1, 131.2, 94.8, 115.9 and 109.2 points
at end-December 2020.

2.3.4 Global Foreign Exchange Market
The first half of 2021 saw depreciations
in major global currencies against the US
dollar which could be connected to the
upturn in economic activities in the U.S,
resulting from easing of restrictions
imposed to contain the spread of the
virus. Some of the development in the
selected international currencies are
explained as follows:


Africa: The Nigerian naira (I & E),
remained stable during the
review
period.
The
Kenya
shilling, Egyptian pound and
Ghanaian cedi appreciated by
1.86, 0.58 and 0.35 per cent,
respectively
between
December 2020 and June 2021,
while the South African rand
depreciated by 1.19 per cent.


North America: The Canadian
dollar appreciated 4.10 per
cent while the Mexican peso
depreciated by 0.95 per cent in
the review period.


South America: The Brazilian
peso, Colombian peso and
Argentina peso all depreciated
by 1.52,10.28 and 10.22 per
cent, respectively.


Europe: The British pound, the
Euro and the Russian ruble all
depreciated against the dollar
by 47.48, 1.20 and 0.12 per
cent, respectively in the review
period.

Asia:
The
Chinese
yuan
appreciated by 1.18 per cent
while Japanese yen and the
Indian rupee depreciated by
5.36
and
0.71
per
cent,
respectively (see table 2.3)


CBN Monetary Policy Review

Table 2.3
Exchange Rates of Selected Countries (value in currency units to US$)


Currency
31-Dec-19
31-Dec-20
31/06/2021
Dec 20 - June 21
(% App/Dep)
AFRICA
Nigeria
Naira

South Africa
Rand

Kenya
Shilling

Egypt
Pound

Ghana
Cedi

NORTH
AMERICA
Canada
Dollar

Mexico
Peso

SOUTH
AMERICA
Brazil
Real

Argentina
Peso

Colombia
Peso

EUROPE
UK
Pound

Euro Area
Euro

Russia
Ruble

ASIA
Japan
Yen

China
Yuan

India
Rupee

Source: bloomberg
Exchange Rates of Selected Countries (Value in currency units to US$)
CBN Monetary Policy Review

CHAPTER THREE
THE DOMESTIC ECONOMY

3.1
Output in the Domestic Economy
he Nigerian economy in the first half
of

sustained
its
gradual
recovery. The recovery was driven
by the easing of the COVID-19 induced
restrictions, vaccines rollout to achieve
herd immunity, further reopening of
businesses
and
pickup
of
other
economic activities. In addition, the
sustained economic stimulus packages
from
both
monetary
and
fiscal
authorities
as
well
as
real
sector
intervention initiatives also drove the
recovery
in
output
growth.
Consequently, data from the National
Bureau of Statistics (NBS) showed that
real Gross Domestic Product (GDP) grew
slower by 0.51 per cent (year-on-year) in
the first quarter of 2021 compared with
1.87 per cent in the corresponding
period of 2020, but an improvement
when compared with 0.11 per cent
growth recorded in the fourth quarter of
2020. The main driver of growth was the
non-oil sector which grew by 0.79 per
cent. This was a moderation compared
with the growth rates of 1.55 and 1.69 in
the corresponding period and the
preceding quarter of 2020, respectively.
The key drivers of the non-oil sector
growth
were
Agriculture
(2.20%),
Services (1.57%) and Industry (0.46%).
The sector’s contribution to real GDP
improved marginally to 90.75 per cent
from 90.50 per cent in the corresponding
period but a decline compared with
94.13 per cent in the fourth quarter of
2020.

The oil sector, however, contracted by
2.21 per cent (year-on-year) in Q1 2021
indicating
a
decrease
of
7.27
percentage points relative to the 5.06
per cent growth rate recorded in the
corresponding
quarter
of
2020.
However, it was a lower contraction
when compared with 19.76 per cent in
Q4 2020. In the first quarter of 2021,
average daily crude oil production
stood at 1.72 million barrels per day
(mbpd), a 0.35 mbpd lower than the
average daily production of 2.07 mbpd
recorded in the corresponding quarter
of 2020, but higher than the production
volume of 1.56 mbpd recorded in the
fourth quarter of 2020.

The
sustained
implementation
of
stimulus packages by both fiscal and
monetary authorities along with the
gradual return of economic activity,
vaccines roll-out against COVID-19 as
well
as
increase
in
local
and
international travels, led to a significant
increase in growth performance relative
to the corresponding period of 2020.
Accordingly,
real
Gross
Domestic
Product (GDP) strengthened further to
5.01 per cent in the second quarter of
2021 in contrast to the contraction of
6.10 per cent in the corresponding
period of 2020 and a growth of 0.51 per
cent in the preceding quarter of 2021.
As usual, the growth was driven by the
non-oil sector in the review period. The
non-oil sector grew significantly by 6.74
per cent in the second quarter of 2021
in contrast to the contraction of 6.05 per
cent in the corresponding period of
2020, and a growth of 0.79 per cent in
T
CBN Monetary Policy Review

the preceding quarter of 2021. The key
drivers of growth in the non-oil sector
were Services (9.27%), Industry (6.65%)
and Agriculture (1.30%). The sector
contributed 92.58 per cent to total real
GDP in the second quarter of 2021
compared with 91.07 per cent in the
corresponding period of 2020 and 90.75
in the preceding quarter.

On the other hand, the oil sector
contracted further by 12.65 per cent in
the second quarter of 2021 compared
with the contractions of 6.63 and 2.21
per cent in the corresponding period of
2020 and the preceding quarter of 2021,
respectively.
A
combination
of
production caps by Organization of the
Petroleum Exporting Countries and its
allies
(OPEC+)
as
well
as
under
production domestically accounted for
the poor performance of the oil sector in
the review period. Accordingly, oil
production declined to 1.61 million
barrels per day (mbpd) in the second
quarter of 2021 compared with 1.81 and
1.72 mbpd in the corresponding period
of 2020 and the preceding quarter of
2021, respectively.

Figure 3.1: Gross Domestic Product Growth Rate
(2019Q1 – 2021Q2)
Source: National Bureau of Statistics (NBS)
3.1.1 DOMESTIC ECONOMIC ACTIVITIES
Real GDP was driven by activities in
both oil and non-oil sectors in the first
half of 2021. The non-oil sector grew by
0.79 per cent. This was moderations by
0.76
and
0.9
percentage
points
compared with the growth rates of 1.55
and 1.69 in the corresponding period
and the preceding quarter of 2020,
respectively. Activities in the non-oil
sector was driven mainly by Water
supply, sewage, waste management
(14.75%), Electricity, gas, steam & Air
conditioning (8.66%), Information &
Communication (6.47%), Human Health
and Social Services (4.65%), Mining and
Quarrying
(3.79%),
Manufacturing
(3.40%),
Fishing
(3.24%)
and
Crop
production (2.31%), compared with their
respective growth rates of -0.18, -2.31,
7.65, 1.06, -53.55, 0.43, 1.49 and 2.38 per
cent. Growth in the non-oil sector was
moderated by contractions in Transport
& Storage (-21.89%), Education (-6.20%),
Accommodation and Food Services (-
4.60)
and
Trade
(-2.43%).
These
compares with their respective growth
rates of 2.82, 0.69, -2.99 and -2.82 per
cent in the corresponding period of
2020.

Growth
in
the
oil
sector
output,
however, contracted by 2.21 per cent
(year-on-year) in Q1 2021 indicating a
decrease of 7.27 percentage points
relative to the 5.06 per cent growth rate
recorded in the corresponding quarter
of 2020. However, the outcome was a
lower contraction when compared with
-19.76 per cent in Q4 2020. In the first
quarter of 2021, average daily oil

Q1-2019
Q4-2019
Q3-2020
Q2-2021
Per cent
CBN Monetary Policy Review

production stood at 1.72 million barrels
per day (mbpd), a 0.35 mbpd lower
than the average daily production of
2.07mbpd
recorded
in
the
corresponding quarter of 2020, but
higher than the production volume of
1.56 mbpd recorded in the fourth
quarter of 2020.

During the second quarter of 2021, the
non-oil sector grew further by 6.74 per
cent in contrast to the contraction of
6.05 per cent in the corresponding
period of 2020, and a growth of 0.79 per
cent in the preceding quarter of 2021.
The growth in non-oil sector activities
were driven mainly by Electricity, Gas,
Steam & Air conditioning (78.16%),
Transport & Storage (76.81%), Trade
(22.49%), Water Supply, Sewage, Waste
Management (18.48%), Mining and
Quarrying
(9.79%),
Information
&
Communication (5.55%), Human Health
and
Social
Services
(4.92%),
Administrative and Support Services
(4.79%),
Real
Estate
(3.85%),
Construction
(3.70%),
Manufacturing
(3.49%) and Fishing (2.27%). These
compared with their respective growth
rates of -3.0, -49.23, -15.59, 5.79, -4.81,
15.09, 1.89, -2.39, -21.99, -31.77, -8.78 and
5.68 per cent in the corresponding
period of 2020. The growth of the non-oil
sector was moderated by contractions
in Finance & Insurance (-2.48%) and
Public
Administration
(-1.68%),
compared with their respective growth
rates of 18.49 and 2.02 per cent in the
corresponding period of 2020.

During the second quarter of 2021, the
oil sector contracted further by 12.65
per
cent,
compared
with
the
contractions of 6.63 and 2.21 per cent in
the corresponding period of 2020 and
the
preceding
quarter
of
2021,
respectively.
Daily
average
oil
production declined to 1.61 million
barrels per day (mbpd) compared with
1.81
and
1.72
mbpd
in
the
corresponding period of 2020 and the
preceding quarter of 2021, respectively.

Figure 3.2: Non-oil Sector Performance (2019Q1 –
2021Q2)

Source: NBS

Figure 3.3: Performance of oil Sector (2019Q1 –
2021Q2)
Source: NBS


2019Q1
2019Q2
2019Q3
2019Q4
2020Q1
2020Q2
2020Q3
2020Q4
2021Q1
2021Q2
Per cent
Agriculture
Industry
Services

Q1-2019 Q4-2019 Q3-2020 Q2-2021
Per cent
CBN Monetary Policy Review

3.1.2 Sectoral Analysis
The key factors that contributed to
output performance in major sectors in
the review period are analysed in this
section.

3.1.2.1 Agriculture
During the first quarter of 2021, growth
in real agricultural output improved
marginally to 2.28 per cent, compared
with 2.20 per cent in the corresponding
period,
but
a
moderation
when
compared with 3.42 per cent recorded
in the preceding quarter of 2020. This
was driven mainly by growth in the
Fishing sub-sector by 3.24 per cent
compared with 1.49 per cent in the
corresponding period of 2020 and in
contrast to the contraction of 3.60 per
cent in the preceding quarter. The crop
production sub-sector also grew by 2.31
per cent, a moderation compared with
2.38
and
3.68
per
cent
in
the
corresponding
period
and
the
preceding quarter of 2020, respectively.
Similarly, the Livestock sub-sector grew
by 1.65 per cent, an improvement
compared with 0.63 per cent in the
corresponding
period,
but
a
moderation compared with 2.38 per
cent in the preceding quarter of 2020.
The Forestry sub-sector moderated to
1.28 per cent from 1.71 per cent in the
corresponding period, but a slight
improvement compared with 1.24 per
cent in the preceding quarter of 2020.

In the second quarter of 2021, real
agricultural output growth moderated
to 1.30 per cent from 1.58 and 2.28 per
cent in the corresponding period and
the
preceding
quarter
of
2020,
respectively. Growth in the sector was
driven mainly by the Fishing sub-sector,
which grew by 2.27 per cent, a
moderation compared with 5.68 and
3.24 per cent in the corresponding
period and the preceding quarter of
2020, respectively. The Crop production
sub-sector moderated to 1.38 per cent
from 1.44 and 2.31 per cent in the
corresponding period of 2020 and the
preceding
quarter,
respectively.
Furthermore, the Forestry sub-sector also
moderated to 1.06 per cent from 1.08
and 1.28 per cent in the corresponding
period of 2020 and the preceding
quarter, respectively. The Livestock subsector moderated significantly to 0.13
per cent from 2.26 and 1.65 per cent in
the corresponding period of 2020 and
the preceding quarter, respectively. The
share of the agriculture sector in overall
GDP decreased to 23.78 per cent from
24.65 per cent in the corresponding
period of 2020, but an improvement
compared with 22.35 per cent in the
preceding quarter of 2021.

Figure 3.4: Agricultural Sector Contribution by
Activity (2019Q1-2021Q2)

Source: Statistics Department

Per cent
Crop Production
Livestock
Forestry
Fishing
CBN Monetary Policy Review

3.1.2.2 Agricultural
Policies
and
Institutional Support
The agricultural sector in the second
half of 2021 benefited from several
existing and new policies, reforms and
institutional
support,
as
highlighted
below:

3.1.2.2.1
The Agricultural Credit
Guarantee Scheme (ACGS)
In the first half of 2021, a total of 9,719
loans, valued at ₦2.17 billion were
guaranteed
under
the
scheme
compared with 20,626 loans, valued at
₦2.83 billion in the second half of 2020.
The
development
represented
a
decrease of 52.88 and 23.32 per cent,
respectively, in the number and value of
loans guaranteed. Also, 17,742 loans
valued at ₦1.75 billion were repaid,
compared with 11,319 loans valued at
₦1.69 billion in the second half of 2020.
This represented increases of 56.75 per
cent in the number and 3.55 per cent in
the value of loans repaid, respectively.

3.1.2.2.2
N200 Billion Commercial
Agriculture Credit Scheme (CACS)
Under the Scheme, ₦16.25 billion was
disbursed in the first half of 2021,
representing a decrease of 54.02 per
cent, compared with ₦35.34 billion in
the second half of 2020. On the other
hand, a total of ₦20.01 billion was repaid
in the review period, which represented
a decrease of 22.95 per cent over the
repayment of ₦25.97 billion in the
second half of 2020.

3.1.2.2.3
Micro, Small and
Medium Enterprises Development Fund
(MSMEDF)
In view of the contribution of the MSME
to job creation, financial inclusion and
poverty reduction, the threshold for the
Micro, Small and Medium Enterprises
Development
Fund
(MSMEDF)
was
increased from ₦200.00 billion to ₦1.00
trillion in 2020. The sum of ₦50.00 million
was disbursed during the first half of
2021. Repayments during the review
period stood at ₦2.91 billion, compared
with ₦1.68 billion in the second half of
2020, reflecting an increase of 73.21 per
cent.

3.1.2.2.4
Anchor
Borrowers’
Programme (ABP)
In the first half of 2021, the sum of
₦176.30
billion
was
disbursed
to
1,008,457 smallholder farmers across the
country for the production of rice,
maize, cassava, cotton, ginger, fish,
onion, cocoa, soya beans and sesame.
The
disbursement
represented
an
increase of 155.54 per cent over the
₦68.99 billion, as well as 392.42 per cent
increase in the number of beneficiaries,
compared with 204,796 farmers in the
preceding period. Furthermore, a total
of 1,061,892 hectares of land were
cultivated,
compared
with
605,279
hectares in the second half of 2020,
representing an increase of 75.31 per
cent.
Repayments
under
the
Programme increased by 29.05 per cent
to ₦47.49 billion in the review period,
compared with ₦36.80 billion in the
preceding period.
CBN Monetary Policy Review

3.1.2.2.5
Accelerated Agriculture
Development Scheme (AADS)
The sum of ₦1.50 billion was disbursed
in the first half of 2021 compared with
₦2.94 billion disbursed in the second half
of 2020. There was no repayment in the
two comparative periods as the projects
were under moratorium. The projects
financed
with
the
disbursement
included cassava and rice production.

3.1.2.2.6
Agribusiness/ Small and
Medium Enterprises Investment Scheme
(AGSMEIS)
In the review period, ₦9.79 billion was
disbursed to 1,067 projects, compared
with ₦62.70 billion released to 15,724
projects in the second half of 2020. This
represents 84.39 and 93.21 per cent
decrease in value and numbers of
projects, respectively, compared with
the second half of 2020. Repayment in
the review period was ₦135.47 million,
compared with ₦102.89 million in the
preceding
second
half
of
2020,
representing an increase of 31.67 per
cent.

3.1.2.2.7
Paddy Aggregation
Scheme (PAS)
The sum of ₦4.17 billion was released to
one (1) project in the review period,
compared with ₦0.50 billion released to
one (1) project in the second half of
2020. The financing enabled small and
medium-scale
rice
millers
procure
paddy
for
all-year
round
rice
production. There was no repayment
during the review period due to
extension granted to the beneficiaries,
compared with ₦51.81 billion repaid in
the second half of 2020.

3.1.2.2.8
Rice Distribution Fund
(RDF)
Under the scheme, the sum of ₦0.35
billion was released for two (2) projects
in first half of 2021, compared with ₦0.20
billion released to one (1) project in the
second half of 2020. There was no
repayment as all facilities were under
moratorium.

3.1.2.2.9
National Food Security
Programme (NFSP)
There was no disbursement in the
review period or in the preceding period
under the scheme. Repayment stood at
₦8.31
billion
at
end-June
2021,
compared with ₦2.36 billion at endDecember 2020, representing 252.12
per cent increase.

3.1.2.2 Industry

3.1.2.2.1
Industrial Production
The Industrial sector output growth was
sluggish during the first half of 2021. In
the first quarter of 2021, growth of the
sector moderated by 0.94 per cent from
2.26 per cent in the corresponding
period
of
2020,
but
a
significant
improvement when compared with the
contraction of 7.30 per cent in the
preceding quarter. The performance of
utilities was the main driver of growth in
the industrial sector. At 14.75 per cent,
CBN Monetary Policy Review

Water
Supply,
Sewage
&
Waste
Management sub-sector was the main
driver of growth in the review period in
contrast to the contraction of 0.18 per
cent in the corresponding period of
2020, and growth of 1.92 per cent in the
preceding quarter of 2020, respectively.
The
Electricity,
Gas,
Steam
&
Air
Conditioner sub-sector also grew by 8.66
per cent in contrast to contractions of
2.31
and
2.51
per
cent
in
the
corresponding and preceding quarters
of 2020, respectively. Other sub-sectors
that contributed to the Industrial sector
growth were the manufacturing and
construction
sub-sectors.
The
Manufacturing sub-sector grew by 3.40
per cent compared with 0.43 per cent in
the corresponding period in contrast to
the contraction of 1.51 per cent in the
preceding quarter of 2020. Similarly, the
Construction sub-sector grew by 1.42
per cent compared with 1.69 and 1.21
per cent in the corresponding and
preceding
quarters
of
2020,
respectively. The growth of the industrial
sector was moderated by the Mining
and
Quarrying
sub-sector,
which
contracted by 2.19 per cent in contrast
to the growth of 4.58 per cent in the
corresponding period of 2020. The
development
was,
however,
an
improvement
compared
with
the
contraction of 18.44 per cent in the
preceding quarter. Under the subsector, activity in the crude petroleum &
natural gas contracted by 2.21 per cent
in contrast to the growth of 5.06 per cent
in the corresponding period of 2020, but
an improvement compared with the
contraction of 19.76 per cent in the
preceding quarter. The share of the
industrial
sector
in
overall
GDP
increased to 23.75 per cent from 23.65
and 18.77 per cent in the corresponding
period and the preceding quarter of
2020, respectively.

In the second quarter of 2021, the
industrial sector however, contracted
moderately by 1.23 per cent compared
with 12.05 per cent in the corresponding
period of 2020 and growth of 0.94 per
cent in the preceding quarter. The main
driver of the contraction in the sector
was the Mining & Quarrying sub-sector
which recorded deeper contraction by
12.29 per cent compared with -6.60 and
-2.19 per cent in the corresponding
period of 2020 and the preceding
quarter. All other sub-sectors in the
industrial sector recorded growth during
the review period. Electricity, Gas,
Steam
&
Air
Conditioner
grew
significantly by 78.16 per cent in contrast
to the contraction of 3.0 per cent in the
corresponding period of 2020 and a
growth of 8.66 per cent in the preceding
quarter, respectively. Similarly, Water
Supply,
Sewage
and
Waste
Management sub-sector grew by 18.48
per cent compared with 5.71 and 14.75
per cent in the corresponding period of
2020 and the preceding quarter of 2021,
respectively.
Furthermore,
the
Construction sub-sector grew by 3.70
per cent in contrast to the contraction
of 31.77 per cent in the corresponding
period of 2020. The development was
also an improvement compared with
1.42 per cent in the preceding quarter
of 2021. The Manufacturing sub-sector
grew significantly by 3.49 per cent in
contrast to the contraction of 8.78 per
CBN Monetary Policy Review

cent in the corresponding period of
2020 and a growth of 3.40 per cent in
the preceding quarter. Consequently,
the share of the industrial sector in
overall GDP declined to 20.57 per cent
from 21.87 and 23.75 per cent in the
corresponding period of 2020 and the
preceding quarter, respectively.

Figure 3.5: Industrial Sector Contribution by Activity
(2019Q1-2021Q2)
Source: Statistics Department

3.1.2.2.2
Industrial
Policy
and
Institutional Support:
During the first half of 2021, the
industrial sector benefited from several
existing and new policy measures,
reforms and incentives as highlighted
below:

3.1.2.2.2.1
Real
Sector
Support
Facility (RSSF) Using Differentiated Cash
Reserve Ratio (RSSF-DCRR)
The
sum
of
₦199.69
billion
was
disbursed to 32 projects in the first half of
2021, compared with ₦167.03 billion
disbursed to 41 projects in the second
half of 2020, representing an increase of
19.55 per cent in disbursements and a
decrease of 21.95 per cent in volume of
projects. The sum of ₦1.97 billion was
repaid in the first half of 2021, compared
with ₦28.35 billion in the preceding
period.

3.1.2.2.2.2
Non-Oil Export
Stimulation Facility (NESF)
The sum of ₦0.58 billion was repaid,
compared with ₦0.76 billion in the
preceding period. This facility was
aimed, amongst other objectives, to
support local companies to enhance
capacity and take advantage of the
opportunities presented by the Africa
Continental Free Trade
Agreement
(AfCFTA).

3.1.2.2.2.3
Export Development
Facility (EDF)
The Facility was established to improve
access of exporters to concessionary
finance to expand and diversify the
non-oil export basket. Total investment
in the project stood at ₦100.00 billion.
However, there was no disbursement or
repayment in the first half of the 2021.

3.1.2.2.2.4
Creative Industry
Financing Initiative (CIFI)
In the first half of 2021, the sum of ₦70
million was disbursed to 21 projects,
compared with ₦1.64 billion to 151
projects in the second half of 2020. This
represents 95.73 per cent decrease
compared with the preceding period.
The sum of ₦12.91 million was repaid in
the first half of 2021 compared with

Q1-2019
Q4-2019
Q3-2020
Q2-2021
Per cent
Mining and Quarrying
Electricity,Gas,Steam & Air conditioner
Manufacturing
CBN Monetary Policy Review

₦33.14 million repaid in the previous half
year.

3.1.2.2.2.5
Targeted Credit Facility
(TCF)
During the period under review, the
sum of ₦144.93 billion was disbursed to
323,654 projects compared with ₦134.68
billion disbursed to 319,051 projects at
end-December 2020. This represented
7.61 and 1.44 per cent increase in the
value
and
number
of
projects,
respectively. There was no repayment
as
all
the
facilities
were
under
moratorium.

3.1.2.2.2.6
Health Sector
Intervention Fund (HSIF)
The sum of ₦25.16 billion was disbursed
to 23 projects in the first half of 2021,
compared with ₦50.68 billion disbursed
to 56 projects in the second half of 2020.
This represented 50.36 and 58.93 per
cent decrease in the value and number
of projects in the period under review.
The sum of ₦12.50 million was repaid for
3 projects in the first half of 2021,
compared with ₦3.39 billion in the
second
half
of
2020.
Significant
proportion of the facilities were under
moratorium.

3.1.2.2.2.7
COVID-19
Intervention
Facility for the Manufacturing Sector
(CIFMS)
In the review period, the sum of ₦35.99
billion was disbursed to 16 projects,
compared with ₦152.57 billion for 26
projects in the second half of 2020,
indicating a decrease of 76.41 per cent.
All
the
facilities
were
still
under
moratorium.

3.1.2.2.2.8
Nigeria Youth Investment
Fund (NYIF)
The Fund was introduced in the second
half of 2020, in collaboration with the
Federal Ministry of Youth and Sports
Development, as a built-in strategy to
respond
effectively
to
the
youth
unemployment challenge in Nigeria.
During the period under review, the sum
of
₦2.81
billion
was
disbursed,
compared with ₦191.70 million in the
second half of the 2020. There were no
repayments as the fund was under
moratorium.

3.1.2.2.2.9
Healthcare
Sector
Research
and
Development
Intervention Scheme (HSRDIS)
The
sum
of
₦145.40
million
was
disbursed to five (5) projects in the first
half of 2021 to support the Healthcare
Sector Research and Development
Intervention
Scheme
introduced
in
March 2020 with a view to encouraging
the development and production of
indigenous drugs and vaccines against
COVID-19 and other infectious diseases.

3.1.2.2.2.10
SME/Rediscounting
&
Refinancing Facility (SMERRF)
In the period under review, there was
no disbursement under this scheme as
well as in the second half of 2020. The
sum of ₦21.29 billion was repaid in the
CBN Monetary Policy Review

first half of 2021, compared with no
repayment in the second half of 2020.

3.1.2.2.2.11
Textile
Sector
Intervention Facility (TSIF)
In the review period, the sum of ₦0.39
billion was disbursed to one (1) project,
compared with ₦4.00 billion disbursed to
two (2) projects in the second half of
2020, representing a decrease of 90.25
per cent.

3.1.2.2.2.12
Power
and
Airline
Intervention Fund (PAIF)
In the period under review, the sum of
₦890.27
million
was
disbursed
compared with ₦3.03 billion in the
preceding period. This represented a
70.62 per cent decrease compared with
the preceding half of 2020. The sum of
₦20.20 billion was repaid in the first half
of 2021 compared with ₦22.01 billion
repaid in the second half of 2020.

3.1.2.2.2.13
Nigerian Bulk Electricity
Trading
-
Payment
Assurance
Programme (NBET-PAF)
In the period under review, the sum of
₦88.99 billion was disbursed to Nigeria
Bulk
Electricity
Trading
Plc.
(NBET)
through the Bank of Industry (BOI). This
represented 3.98 per cent increase
compared with ₦85.58 billion disbursed
in the second half of 2020. There was no
repayment in both periods.


3.1.2.2.2.14
Nigerian
Electricity
Market Stabilization Facility (NEMSF 1 &
2)
Nigerian Electricity Market Stabilization
Facility 2 was introduced in January
2021 by signing debenture agreement
with NESI Stabilization Strategy Ltd
(NESISS Limited) to provide liquidity
support to the DisCos to enable them
meets their financial obligation to the
upstream market participants (NBET and
TCN). In the first half of 2021, the sum of
₦120.29
billion
was
disbursed.
The
scheme is under 24 months moratorium.
Similarly, the sum of ₦189.19 billion was
disbursed under phase 1 to finance 11
projects compared with preceding half
with no disbursement. In the first half of
2021, the sum of ₦11.91 billion was
repaid by 11 projects compared with
₦10.78 billion in the preceding second
half of 2020.

3.1.2.2.2.15
National Mass Metering
Programme (NMMP)
The
National
Mass
Metering
Programme was introduced in the
review period to fast track the bulk
manufacturing
and
installation
of
electricity meters across the country. In
the first half of 2021, the sum of ₦21.69
billion was disbursed, compared with
₦14.35 billion disbursed in the second
half of 2020, representing an increase of
50.87 per cent. The disbursement was to
support
the
procurement
and
installation of 8,541 meters as against
263,860 in the second half of 2020. All
the facilities were under moratorium.

CBN Monetary Policy Review

3.1.2.2.2.16
Solar Connection Facility
(SCF)
The Solar Connection Facility was
introduced
to:
expand
access
to
affordable and clean off-grid energy to
a larger share of households and
businesses; enhance national energy
sufficiency; and address the energy
distribution and transmission challenges
in Nigeria. The sum of ₦7.0 billion was
disbursed in the first half of 2021, for the
procurement and installation of 100,000
solar home systems across the country.

3.1.2.2.2.17
Intervention Facility for
National Gas Expansion Programme
(IFNGP)
The scheme was introduced to improve
the supply of Compressed Natural Gas
(CNG),
the
fuel
of
choice
for
transportation, and Liquefied Petroleum
Gas (LPG), the fuel of choice for
domestic cooking, captive power and
small industrial complexes. Equally, gasbased industries, most especially the
petrochemical (fertilizer, methanol, etc.)
are to be enabled to support large
industries, such as agriculture, industrial
applications, textile and so on. The first
disbursement under the programme
stood at ₦15.20 billion in the period
under review.

3.1.2.2.2.18
Shared Agent Network
Expansion Facility
The long-term facility was designed to
enable licensed super agents and
Mobile
Money
Operators
(MMOs)
expand capacity and increase access
points across the country. The sum of
₦500 million was disbursed to one (1)
project and ₦401.28 million was repaid
in the first half of 2021. There was no
disbursement and repayment in the
preceding period.

3.1.2.3 Services Sector
In the review period, growth in the
Services sector contracted by 0.39 per
cent in contrast to the growth of 1.57
and 1.31 per cent in the corresponding
and
preceding
quarters
of
2020,
respectively. The outcome was driven
by Transportation & Storage (-21.89%),
Education (-6.20%), Accommodation &
Food Services (-4.60%), Professional,
Scientific & Technical Services (-3.84%),
Other Services (-2.95%) and Trade (-
2.43%). These compared with their
respective growth rates of 2.82, 0.69, -
2.99, -0.39, 1.06 and -2.82 per cent in the
corresponding period of 2020. The
contraction in the sector during the
review
period
was,
however,
moderated by growth in Information &
Communication (6.47%), Human Health
& Social Services (4.65%), and Real
Estate (1.77%) compared with their
respective growth rates of 7.65, 1.06 and
-4.75 per cent in the corresponding
period of 2020. The share of the Sector in
overall GDP, therefore, declined to
53.90 per cent compared with 54.39
and 54.28 per cent in the corresponding
and
preceding
quarters
of
2020,
respectively.

Growth in the Services sector during the
second quarter of 2021 recovered
significantly by 9.27 per cent, in contrast
to the contractions of 6.78 and 0.39 per
CBN Monetary Policy Review

cent in the corresponding period of
2020 and the preceding quarter of 2021,
respectively. The growth in the sector
was driven by Transportation & Storage
(76.81%), Trade (22.49%), Information &
Communication (5.55%), Human Health
& Social Services (4.92%), Administrative
and Support Services (4.79%) and Real
Estate (3.85%). These compared with
their respective growth rates of -49.23, -
16.59, 15.09, 1.89, -2.39 and -21.99 per
cent in the corresponding period of
2020.
The
growth
was,
however,
moderated by contraction in Finance &
Insurance
(-2.48%)
and
Public
Administration
(-1.68%)
sub-sectors
compared with their respective growth
rates of 18.49 and 2.02 per cent in the
corresponding period of 2020. As a
result, the share of the Sector in overall
GDP increased to 55.66 per cent
compared with 53.49 and 53.90 per
cent in the corresponding period of
2020 and preceding quarter of 2021,
respectively.

Figure 3.6: Services Sub-Sector Contribution,
2019Q1-2021Q2

Source: Statistics Department
3.1.2.4 Oil Sector
During the first half of 2021, the
performance of the oil sector was
positive. The development was due to
the re-opening of the economy and
production activities across the globe as
well as easing of lockdown measures
worldwide. The uptick in oil prices was
supported by a gradual firming up of
demand
amid
continued
cautious
production restraint among OPEC+ as
the market recovers. However, the
pickup
in
oil
prices
was
partly
dampened by uncertainty regarding
the evolution of the pandemic and its
potential impact on future oil demand.
In the first quarter of 2021, average daily
oil production stood at 1.72 million
barrels per day (mbpd), 0.35 mbpd
lower
than
the
average
daily
production of 2.07 mbpd recorded in
the corresponding quarter of 2020 but
higher than the production volume of
1.56 mbpd in the fourth quarter of 2020.
During the second quarter, average
daily oil production declined to 1.61
million barrels per day (mbpd) in the
second quarter compared with 1.81
mbpd
and
1.72
mbpd
in
the
corresponding period of 2020 and
preceding quarter of 2021, respectively.
Crude oil prices oscillated upwards
during the period under review, primarily
due to the increased demand by major
economies
around
the
world.
Consequently, the price of Nigeria’s
reference crude, the Bonny Light 370API,
which stood at US$54.90 per barrel (pb)
in January 2021 rose to US$62.50 pb and
US$65.62 pb in February and March
2021,
respectively.
The
price
then

Q1-2019 Q3-2019 Q1-2020 Q3-2020 Q1-2021
Trade
Accommodation and Food Services
Transportation and Storage
Accommodation and Food Service+A15:J23s
Arts, Entertainment & Recreation
Financial and Insurance
Real Estate
CBN Monetary Policy Review

declined slightly to US$64.30 in April,
before rising to US$67.83 in May 2021.
Increased demand for oil as a result of
further relaxation of COVID-19 related
restrictions as well as OPEC+ actions to
restrict supply of crude oil pushed oil
prices to close high at US$73.46 pb in
June 2021.
Overall, the average price of Bonny
Light of US$64.77 pb in the first half of

was
above
the
Federal
Government of Nigeria’s 2021 revised
budget benchmark of US$57.0 pb.

Figure 3.7: Quarterly Domestic Oil Production and
Export (2019Q1-2021Q2)

Source: NBS

Figure 3.8: Monthly Bonny Light Oil Price, January
2021 - June 2021

Source: Statistics Department
3.2
Domestic Price Developments
Inflationary pressure resurged in the
review period, due, largely, to the
lingering
effects
of
the
border
protection policy and the impact of
COVID-19 pandemic. All measures of
inflation, namely the headline, food,
and core inflation, generally trended
upward in the first quarter of 2021, but
slowed
down
during
the
second
quarter, with the headline inflation
exceeding the upper band of the
Bank’s indicative benchmark of 6-9 per
cent. Price developments during the
review period reflected the impact of
the increase in food prices arising from
supply chain disruptions across key food
producing belts, the effects of the
adjustments of petroleum pump price
and electricity tariff, lingering impact of
the
second
wave
of
COVID-19
pandemic,
and
the
consequent
disruption to global supply chain.

On the supply side, the pressure on the
exchange rate was precipitated by
decline in oil earnings resulting from the
global supply glut, and worsened by the
COVID-19 shock, with its effect lingering
till end of the review period. The passthrough effect of exchange rate to
domestic prices has been significant,
causing the core inflation to accelerate.
Thus, the naira weakened in the official
segment
of
the
market.
The
development elicited drastic actions
from
the
Bank,
resulting
in
the
adjustment of the naira exchange rate
from N381/US$ to N397.78/US$ and
N404.19/US$ in May and June 2021,
respectively. These adjustments have

Q1-2019
Q4-2019
Q3-2020
Q2-2021
Million Barrels Per Day

Jan-

Feb-

Mar-

Apr-

May-

Jun-

US$
CBN Monetary Policy Review

been necessitated by the desire to align
the exchange rate with market realities
and
curtail
unnecessary
demand
pressure.

In
addition,
the
external
reserves
declined
owing
to
the
significant
demand pressure. The Bank introduced
reforms which included the Naira4Dollar
scheme
to
attract
diaspora
remittances, continued restriction of
access to foreign exchange for 43 items,
and the strategic suspension of sale of
foreign exchange to BDCs by the Bank
and
International
Money
Transfer
Operators (IMTOs).

On
the
demand-side,
price
developments
continued
to
be
impacted by activities in the money
market, where the Inter-Bank Call and
Open Buy Back (OBB) rates remained
relatively low, even as the cash reserve
requirements for both private and
public funds were increased, reflecting
the liquidity conditions in the banking
system. Maturity of securities and the low
credit growth also contributed to the
ample state of banking system liquidity.
3.2.1
Trends in Inflation
Headline, food and core measures of
inflation trended upward in the first
quarter, with a moderation in the
second quarter of 2021. The three
measures of the consumer price index
(CPI) stood at 384, 333.6 and 443.4 in
June 2021 compared with 361.2, 316.5
and 413.8, respectively, in January 2021.
Food inflation (year-on-year) increased
notably by 1.26 percentage point from
20.57 per cent in January to 21.83 per
cent in June 2021. Core inflation also
rose by 1.24 percentage points from
11.85 per cent in January to 13.09 per
cent
in
June
2021.
Consequently,
headline inflation increased by 1.28
percentage point from 16.47 per cent in
January to 17.75 per cent in June 2021
(Figure 3.9 and Table 3.1). Thus, the
major driver of consumer prices during
the period was food inflation, even
though some sub-components of the
core measure also contributed (Table
3.1).


Table 3.1: Inflation Rates, January – June 2021

Headline Inflation
Core Inflation
Food Inflation
Months
CPI
YOY
MMA
CPI
YOY
MMA
CPI
YOY
MMA
Jan-21

Feb-21

Mar-21

April-21

May-21

Jun-21

Source: National Bureau of Statistics data base


CBN Monetary Policy Review

Figure 3.9: Headline, Core and Food Inflation Rates
(January – June 2021)
Source: Nigerian National Bureau of Statistics
data base

3.2.1.1 Headline Inflation
The major components of headline
inflation were on the upward trajectory
during the first quarter and remained
relatively stable in most part of the
second quarter. The main driver of
headline inflation in the review period
was
Food,
and
Non-Alcoholic
Beverages which increased from 11.65
per cent to 12.48 per cent. The prices of
Housing, Water, Electricity, Gas and
Other Fuels also increased from 1.50 per
cent to 1.59 per cent between January
and June, 2021, while the price of
restaurant
and
communications
remained constant at 0.10 and 0.04 per
cent, respectively, over the same period
(Table 3.2 and Figure 3.10). In general,
headline inflation rose from 16.47 per
cent in January to 17.75 per cent in June
2021.

The price developments reflected the
joint impact of the COVID-19 pandemic,
and hikes in pump price of Premium
Motor Spirit (PMS), and electricity tariff,
among others. Besides, following the
softening
in
oil
price,
the
naira
exchange
rate
experienced
depreciation,
resulting
in
upward
pressure on prices. The Bank’s fairly loose
monetary policy, in addition to a
number
of
supply-side
constraints,
namely partial land border protection
policy and the worsening insecurity,
adversely affected the food supply
chain, thereby stoking domestic prices.


Table 3.2 Major Components of Headline Inflation ((Y-on-Y), January - June 2021


On a month-on-month basis, headline
inflation, however, decreased from 1.49
per cent in January to 1.06 per cent in
June 2021. The major
moderating
factors on month-on-month headline
inflation were the prices of food and
non-alcoholic
beverages,
which
decreased from 1.07 per cent in
January to 0.66 per cent in June; and
Housing which declined from 0.13 per
cent in January to 0.11 per cent in June,
2021 (Table 3.3 and Figure 3.11).

Trend of Inflation
Headline
Core
Food
Months
ALL-ITEM
Food &
Housing
Clothin
Transpo
Furnish
Educati
Health
Miscella
Restau
Alcoho
Recrea
Communication
Jan-21

Feb-21

Mar-21

Apr-21

May-21

Jun-21

CBN Monetary Policy Review

Figure 3.10 Major Components of Headline
Inflation (Y-on-Y), July - December 2020


Table 3.3 Major Components of Headline Inflation
(M-on-M), January – June 2021


Figure 3.11 Major Components of Headline
Inflation (M-on-M), January – June 2021
3.2.1.2 Food Inflation
Food inflation (year-on-year) rose from
20.57 per cent in January to 21.83 per
cent in June 2021, an increase of 1.26
percentage point. The main drivers
were the price of both processed food
and
farm
produce.
The
price
of
processed
food
rose
by
0.64
percentage point from 10.22 to 10.86
per cent, while the price of farm
produce also rose by 0.63 percentage
point from 10.34 per cent in January to
10.97 per cent in June 2021. The increase
in the price of processed food was
accounted for by the increases in prices
of meat (0.13 per cent), and gari yellow,
sold loose (0.08 per cent). On the other
hand, vegetables (0.13 per cent) and
yam, potatoes, and other tubers (0.11)
were the major factors responsible for
the increase in the price of farm
produce. The major factors responsible
for the increase in price of farm produce
were:
restrictions
on
productive
activities precipitated by lockdown
measures due to Covid-19 pandemic,
worsening
insecurity
and
banditry,
especially in the food producing areas
of the North, and exchange rate
pressures,
following
the
Bank’s
adjustment of the naira exchange rate
during the period.
Months
ALL-ITEM
Food &
Housing
Clothin
Transpo
Furnish
Educati
Health
Miscella
Restau
Alcoho
Recrea
Communication
Jan-21

Feb-21

Mar-21

Apr-21

May-21

Jun-21

Jan-00
Jan-00
Jan-00
Jan-00
Jan-00
ALL-ITEM
Food & Non-Alcoholic Bev.
Housing,Water, Elect.Gas & Other Fuel
Clothing & footwear
Transport
Furnishings, Household Equip &HH Maint.
Education
CBN Monetary Policy Review

Table 3.4: Major Components of Food Inflation (Y-on-Y), January–June 2021
Year
Food
Proc
esse
d
Food
Meat
Fish
and
Sea
Food
Oil &
Fats
Garri
White
, Sold
Loos
e
Garri
Yellow
, Sold
Loose
Farm
Prod
uce
Vega
table
s
Yam,
Potato
es &
other
tubers
Maize
Grain
White,
Sold
Loose
Rice
Agric,
Sold
Loose
Rice
Local,
Sold
Loose
Jan-21

Feb-21

Mar-21

Apr-21

May-21

Jun-21

Change
btw Jan
& Jun

Figure 3.12: Major Components of Food Inflation
(Y-on-Y), January–June 2021


On the other hand, the month-onmonth
food
inflation
trended
downward by 0.72 percentage point
from 1.83 per cent in January to 1.11 per
cent in June 2021. The price of
processed
food
declined
by
0.69
percentage point from 1.09 per cent in
January 2021 to 0.40 per cent in June
2021. Similarly, the price of farm produce
declined albeit marginally by 0.03
percentage points from 0.74 per cent to
0.71 per cent in the same period. Thus,
the decrease in food inflation was due
to the decreases in the prices of both
processed food and farm produce
components. The key drivers of the
decrease
in
the
processed
food
category were gari yellow (sold loose),
meat and gari white (sold loose), which
declined by 0.10, 0.06 and 0.06 per
cents respectively, while those of farm
produce were yam, potatoes & other
tubers 0.13 per cent and maize grain
sold loose (0.09 per cent).


Food
Processed
Food
Meat
Fish and Sea
Food
Oil & Fats
Garri White,
Sold Loose
Garri Yellow,
Sold Loose
Farm Produce
Vegatables
Yam, Potatoes
& other tubers
Maize Grain
White, Sold
Loose
CBN Monetary Policy Review

Table 3.5: Major Components of Food Inflation (M-on-M), January – June 2021
Year
Food
Proc
esse
d
Food
Meat
Fish
and
Sea
Food
Oil &
Fats
Garri
White
, Sold
Loos
e
Garri
Yello
w,
Sold
Loos
e
Farm
Prod
uce
Vega
table
s
Yam,
Potat
oes &
other
tuber
s
Maiz
e
Grain
White
, Sold
Loos
e
Rice
Agric
, Sold
Loos
e
Rice
Local
, Sold
Loos
e
Jan-21

Feb-21

Mar-21

Apr-21

May-21

Jun-21

Change
btw Jul &
Dec


Figure 3.13: Major Components of Food Inflation
(M-on-M), January – June 2021


3.2.1.3 Core Inflation
Core inflation (year-on-year) rose from
11.85 per cent in January 2021 to 13.09
per cent in June 2021, an increase of
1.24 percentage points. The rise in core
inflation was driven by Processed Food
(0.40
percentage
point),
Housing,
water, electricity and other fuels (0.27
percentage
point),
Transport
(0.16
percentage
points),
Clothing
and
Footwear (0.15 percentage point) and
Education (0.09 percentage points). All
components of core inflation increased
in the reviewed period. The rise in
processed
food,
housing,
water,
electricity and other fuel, transport, and
clothing and footwear which drove the
upsurge in core inflation was due to
higher domestic prices arising from the
lingering
effects
of
the
COVID-19
pandemic, legacy structural factors,
adverse developments in the external
sector
and
depreciating
domestic
currency.


Jan-21
Mar-21
May-21
Food
Processed Food
Meat
Fish and Sea
Food
Oil & Fats
Garri White,
Sold Loose
Garri Yellow,
Sold Loose
Farm Produce
Vegatables
Yam, Potatoes &
other tubers
Maize Grain
White, Sold
Loose
Rice Agric, Sold
Loose
Rice Local, Sold
Loose
CBN Monetary Policy Review

Table 3.6: Major Components of Core Inflation (Y-on-Y), January – June 2021
Year
Core
Proc
esse
d
Food
Housi
ng,
Wate
r,
Elect.
Gas
&
Othe
r Fuel
Cloth
ing &
footw
ear
Trans
port
Furnis
hings
,
Hous
ehol
d
Equip
& HH
Maint
.
Educ
ation
Healt
h
Misc.
Goo
ds
and
Servi
ces
Resta
urant
and
Hotel
s
NonAlco
holic
Beve
rage
s
Alco
holic
Bev.
Toba
cco
&
Kola
Recr
eatio
n &
Cultu
re
Com
muni
catio
n
Jan-


Feb-


Mar-


Apr-


May-


Jun-


Chan
ge
btw
Jul &
Dec

On a month-on-month basis, core
inflation, however, decreased by 0.44
percentage point from 1.26 per cent in
January to 0.81 per cent in June 2021.
Processed food was the major driver of
the decline in core inflation, decreasing
from 0.52 per cent in January to 0.27 per
cent in June 2021. This is reflective of
increased intervention in the agricultural
sector, continuous implementation of
the CRR regime, partial relaxation of the
border protection policy and base
effects (Table 3.7 and Figure 3.15).


Table 3.7: Major Components of Core Inflation (M-on-M), January – June 2021
Yea
r
Core
Proce
ssed
Food
Housing
, Water,
Elect.
Gas &
Other
Fuel
Clothi
ng &
footw
ear
Transp
ort
Furnishing
s,
Househol
d Equip &
HH Maint.
Educa
tion
Health
Misc
.
Goo
ds
and
Servi
ces
Restaur
ant and
Hotels
NonAlcoholi
c
Beverag
es
Alcoh
olic
Bev.
Tobac
co &
Kola
Recreat
ion &
Culture
Communi
cation
Jan

Feb

Mar

Apr

Ma
y-


Jun

Ch
ang
e
btw
Jul
&
Dec

CBN Monetary Policy Review

Figure 3.14: Major Components of Core Inflation
(Y-on-Y), January – June 2021

Source: National Bureau of Statistics data base

Figure 3.15: Major Components of Core Inflation
(M-on-M), January – June 2021


3.2.2
Seasonally-Adjusted Inflation
The actual and seasonally adjusted
measures of headline inflation trended
upward between January and March
before declining in April and sustained
the trend till June 2021 (Table 3.8 and
Figure 3.16). Actual headline inflation
continued to reflect the general price
level in the economy, trending above
the
seasonally
adjusted
headline
inflation for the entire period. The overall
trend in both actual and seasonallyadjusted measures of inflation were
attributed, mainly, to the COVID-19
pandemic,
capital
flow
reversals,
adjustment of the naira exchange rate
by the Bank, low food and industrial
production due to lockdown in Nigeria,
and loose monetary policy stance.

Table 3.8: Actual and Seasonally Adjusted
Headline Inflation, January – June 2021
Year
Inflation
SA Inflation
Jan-21
16.47
13.62
Feb-21
17.33
14.05
Mar-21
18.17
14.55
Apr-21
18.12
15.04
May-21
17.93
15.50
Jun-21
17.75
15.93
Change in
Inflation
1.28
2.31

Figure 3.16: Actual and Seasonally Adjusted
Headline Inflation, January – June 2021


Core
Processed Food
Housing, Water, Elect.
Gas & Other Fuel
Clothing & footwear
Transport
Furnishings,
Household Equip &
HH Maint.
Education
Health
Misc. Goods and
Services
Restaurant and Hotels
Non-Alcoholic
Beverages
Alcoholic Bev.
Tobacco & Kola
Recreation & Culture
Communication

Core
Processed
Food
Housing, Water,
Elect. Gas &
Other Fuel
Clothing &
footwear
Transport
Furnishings,
Household
Equip & HH
Maint.
Education
Health
Misc. Goods
and Services
Restaurant and
Hotels

Inflation
SA Inflation
CBN Monetary Policy Review

3.2.3
Key
Factors
that
Influenced
Domestic Prices
During the review period, inflationary
pressure was primarily influenced by
cost-push,
demand-pull
and
moderating factors. Inflation increased
marginally during the period owing to
the net effect of these forces. The key
highlights of these factors included: the
impact of measures to contain the
Covid-19
pandemic,
supply
side
bottlenecks as well as exchange rate
demand pressures. Others included the
sustained increase in food prices as a
result
of
insecutrity
in
key
food
producing belts leading to decrease in
agricultural output, liquidity effects of
the continued efforts by the Bank to
improve real sector activities through
several intervention programmes, and
relative instability in energy prices.

3.2.3.1 Demand-side Factors
The trend in headline inflation was
partly influenced by demand side
factors in the review period. Capital
releases for infrastructural projects, real
sector intervention programmes and
the Bank’s accommodative monetary
policy stance boosted naira liquidity in
the economy and aggregate demand.
Demand pressure on foreign exchange
for tradable goods, despite sustainance
of measures by the Bank in managing
foreign exchange demand, exerted
pressure on the exchange rate. The
pass-through effect of the resulting
exchange rate adjustment intensified
inflationary pressures. The recovery in
aggregate demand as Government
implemented fiscal stimulus measures,
contributed to uptick in domestic prices.

3.2.3.2. Supply-side Factors
Supply-side
factors
exacerbated
inflationary pressures during the review
period. They included, mainly, supply
chain disruptions due to the Covid-19
pandemic and key security challenges,
despite sustained agricultural sector
interventions. As a result, food prices
rose.

3.2.3.3 Moderating Factors
Inflationary pressures during the review
period were moderated by a host of
factors, including the Bank’s sustained
interventions that ensured adequate
liquidity in the economy. Other factors
included the improved performance of
the non-oil sector, especially, agriculture
and
manufacturing,
which
were
supported through various intervention
programmes of the Bank. In addition,
the
effective
implementation
of
Nigeria’s
Medium-Term
National
Development Plan (MTNDP) - 2021-2025
provided a strategic roadmap for the
economy and helped restore the
economy on a growth path following
the

economic
recession.
Government’s support of the real sector
including efforts aimed at improving
ease
of
doing
business
and
implementation of policies to boost
productivity
enhanced
aggregate
demand
and
confidence
in
the
Nigerian economy.


CBN Monetary Policy Review

3.3
Monetary
Policy
and
Liquidity
Management
The stance of monetary policy in the
first half of 2021 was significantly shaped
by the second wave of the COVID-19
pandemic
amid
reports
of
virus
mutations
which
posed
significant
threats to the efficacy of the COVID-19
vaccines. The spill over effect of the
pandemic also ensured that capital
flows
to
developing
economies
remained slow, as the pace in the
advanced
economies
picked
up
gradually.

On the global front, uncertainties faced
by the global economy forced most
central banks to review their perception
of the behaviour of inflation from being
a systemic phenomenon to one that is
transitory, and may not require policy
adjustment to address its dynamic
behaviour. As a result, the global
economy was confronted with the
possibility of an early return to monetary
policy normalization, but with adverse
consequences
for
financial
system
stability as it would trigger capital
outflows from emerging markets.

At the domestic front, the fiscalmonetary
policy
coordination
that
ensured intervention in priority sectors of
the economy was expected to reduce
inflationary pressures as output growth
improved with the aim of reducing the
output gap. The Nigerian economy was
therefore,
projected
to
witness
a
moderate, but consistent growth in the
second half of 2021.

Despite the challenges posed by the
pandemic, developments in the money
market remained positive, reflecting
efforts by the CBN at ensuring adequate
liquidity in the market through its various
windows.

3.3.1 Monetary Policy Response to
Evolving Economic Conditions
During the first half of 2021, the global
economy gradually emerged from the
six-quarter long COVID-19 pandemic on
account of widespread vaccinations
that drastically reduced fatalities across
several economies and led to the
easing of restrictions and reopening of
economies. The recovery, however,
remained uneven, tilted towards the
developed
economies
with
better
access to vaccines. Accordingly, the
International
Monetary
Fund
(IMF)
revised global output growth for 2021
from 5.5 to 6.0 per cent, with the
assumption that there will be an efficient
deployment of COVID-19 vaccines and
sustained
policy
support
across
economies. Inflation has, however,
remained high globally but higher in
Emerging
Market
and
Developing
Economies (EMDEs) and is expected to
breach the long-term objective of
several central banks in the mediumterm. On the other hand, oil prices had
an upward trend and global financial
markets remained relatively stable as
central
banks
sustained
monetary
accommodation.

The domestic economy grew by 0.51
per cent in the first quarter of 2021,
compared with 0.11 and -3.62 per cent
CBN Monetary Policy Review

in Q4 2020 and Q3 2020, respectively.
Although the economy successfully
exited recession, the recovery was weak
and far below the population growth
rate of 2.5 per cent (World Bank, 2020).
Headline
inflation
(year-on-year)
peaked at 18.17 per cent in March 2021
but moderated to 17.75 per cent in June
2021.
Nevertheless,
the
headline
inflation within the period remained well
above the Bank’s upper band of 9.00
per cent.

The current account balance though
still in deficit, improved by 66.74 per cent
in Q1 2021, resulting from a 32.30 per
cent
improvement
in
the
goods
account, 9.90 per cent improvement in
the services account, 52.26 per cent
improvement in primary income and a
7.54 per cent increase in the secondary
income. Due to increased exchange
rate pressures, the naira depreciated by
24.12 and 13.24 per cents between
January and June 2021 at the Interbank
and the I&E windows, respectively. This
resulted from capital flow reversals
associated with the COVID-19 shock, as
investors sought for safe-havens. The
external
reserve
decreased
from
US$36.48 billion in January 2021 to
US$32.78 billion in June 2021.

Broad
money
supply
(M3)
grew
consistently within the period, largely
driven by growth in Net Domestic Assets
(NDA), which reflects the growth in
aggregate credit emanating from the
ongoing broad-based monetary and
fiscal stimuli. In the equities market, both
the All-Share Index (ASI) and Market
Capitalization (MC) decreased. The
Capital Adequacy Ratio (CAR) and the
Liquidity Ratio (LR) both remained
above their prudential limits. Also, the
ratio of Non-Performing Loans (NPLs)
decreased significantly due largely to
forbearances granted obligors whose
businesses were adversely affected by
the pandemic, improvement in deposit
money bank’s risk management and
strengthened regulatory supervision by
the Central Bank of Nigeria.

The
Bank’s
desire
to
achieve
its
objective of price stability conducive to
sustainable and inclusive growth was
constrained
by
low
optimism
for
medium-term
macroeconomic
recovery in both the global and
domestic
economies
due
to
the
unabating COVID-19 pandemic in some
countries and the unequal supply of the
vaccines to the developing countries.
Thus, these were the key considerations
that shaped monetary policy decisions
and actions in the first half of 2020.

During the period, the policy decisions
were to retain the MPR at 11.5 per cent;
retain the asymmetric corridor of +100/-
700 basis points around the MPR; retain
the CRR at 27.5 per cent and retain the
Liquidity Ratio at 30 per cent. However,
the Bank continued its interventions to
boost
aggregate
demand
and
investments, as well as diversifying the
economy through FX restrictions for the
importation of goods and food products
that can be produced in Nigeria. The
intervention facilities under the Anchor
Borrowers Programme was N631.4 billion
granted to 3,107,949 smallholder farmers
cultivating 3.8 million hectares of land;
CBN Monetary Policy Review

for the AGSMEIS, N111.7 billion to 29,026
beneficiaries; and for the Targeted
Credit Facility, N253.4 billion to 548,345
beneficiaries
-
comprising
470,969
households and 77,376 SMEs. Under the
National Youth Investment Fund, N2.04
billion
was
disbursed
to
7,057
beneficiaries, of which 4,411 were
individuals and 2,646 were SMEs. Under
the
Creative
Industry
Financing
Initiative, the CBN disbursed N3.19 billion
to

beneficiaries
across
movie
production, movie distribution, music
and software development.

Under
the
N1
trillion
Real
Sector
Intervention, N856.3 billion had been
disbursed to 233 real sector projects of
which 77 are in light manufacturing, 36
in agro-based industry, 30 in services
and 11 in mining. On the Healthcare
Support Intervention fund, N97.4 billion
has been disbursed for 91 health care
projects,
of
which

are
pharmaceutical
and

hospital
services. Also, N232.5 million has been
disbursed to 5 beneficiaries under the
CBN Health Care Grant for Research on
Covid-19 and Lassa Fever. Under the
National Mass Metering program, N35.9
billion
has
been
disbursed
to

distribution companies (DisCos) for the
acquisition of 656,752 electricity meters.
Under
the
Nigerian
Electricity
Stabilization Facility 2 (NEMSF-2), N93.8
billion has also been disbursed to 11
DisCos.

The
Bank
also
maintained
its
collaboration with the fiscal authority to
improve the investment climate towards
attracting sustainable Foreign Direct
Investment (FDI). On the financial
system, the Bank increased its efforts in
ensuring a reasonably low level and
steady reduction in Non-Performing
Loans (NPLs), and to ensure a continued
expansion of aggregate credit through
the crisis period. There was also support
to
the
Federal
Government’s
commitment to tackle insecurity in a bid
to improve the business environment
and encourage economic activities.

3.3.2
Monetary
Policy
Committee
Meetings
In the first half of 2021, the Monetary
Policy Committee (MPC) met three
times: in January, March, and May. The
following issues were discussed at the
January meeting: restrictive measures
and
lockdowns
used
by
the
government to avert the health crisis
caused by the COVID-19 pandemic,
risks to sustained recovery; the need for
increased collaboration between the
Bank
and
the
fiscal
authority
to
accelerate the pace of economic
recovery; and the negative impact of
insecurity
on
food
prices.
Others
included: the need to explore other
sources of foreign exchange in order to
improve
forex
supply
and
ease
exchange rate pressure; and the trend
of broad-based stimulus package by
other central banks and the need to
sustain the Bank’s interventions.

Based on these considerations, the
Committee
unanimously
voted
to
maintain the MPR at 11.5 per cent; the
asymmetric corridor at +100/-700 basis
points around the MPR; the CRR at 27.5
CBN Monetary Policy Review

per cent; and the Liquidity Ratio at 30
per cent throughout the reviewed
period.

The Committee noted during the March
Meeting the need to consolidate both
monetary and fiscal stimuli, which were
largely responsible for the moderate
recovery recorded in the fourth quarter
of 2020, following the debilitating effect
of
the
COVID-19
pandemic;
the
persistent rising trend of domestic prices
and the need for fiscal and monetary
collaboration
to
boost
aggregate
supply and lower prices; the constrained
and fragile fiscal headroom occasioned
by twin shocks of the Pandemic and oil
price volatility; the continued build-up of
public debt; and the overarching need
to address the twin challenges of
taming inflation and sustaining growth
recovery, while being mindful of the
domestic risks associated with injections.
Confronted with the policy dilemma of
tightening
to
contain
inflation
or
loosening
to
support
the
fragile
recovery, the Committee concluded
that, because the current inflation
largely
resulted
from
supply-side
shortages and constraints, the focus
should be on consolidating the recovery
process.
As
a
result,
while
three
members voted to raise MPR, six
members voted to keep MPR constant.
However, all members voted to keep all
other parameters constant.

At
the
May

meeting,
the
Committee acknowledged the twin
problems associated with stagflation-
rising inflation with a simultaneous
contraction in output- confronting the
Nigerian economy that need to be
addressed. It however, recognized that
the
strategies
employed
to
tame
inflation by the Bank to control money
supply through liquidity mop-up in the
banking industry had begun to yield
results. It also recognized the positive
results
of
the
Bank’s
intervention
programmes in stimulating employment
and output growth. The Committee
noted that, although the economy had
exited recession, the growth of 0.51 per
cent was still weak and far below the
population growth of 2.5 per cent. The
MPC, therefore, considered the strong
need to consolidate on all measures
taken to tackle inflation and support
output
recovery.
The
Committee
applauded
Government’s
effort
at
mitigating the risks associated with the
Pandemic and advised the avoidance
of a total lockdown as was experienced
in 2020, as this had the potential of
reversing the weak gains made over the
past months. The Committee also
encouraged the intensification of efforts
at tackling insecurity in the country so as
to
ease
supply
bottlenecks
and
moderate prices.

The
recent
developments
in
the
economy presented two broad options
to the MPC: either to aggressively
address high inflationary pressure or
continue to pursue measures aimed at
supporting recovery. In view of the
foregoing, the Committee decided by a
unanimous vote to retain the: MPR at
11.5 per cent; Asymmetric Corridor at
+100/-700 basis points around the MPR;
CRR at 27.5 per cent; and liquidity ratio
at 30 per cent. The decision was to allow
CBN Monetary Policy Review

previous policy measures to continue to
work
through
the
economy
while
observing
domestic
and
global
developments.

The Communiqués of the MPC meetings
are contained in the Appendix.

3.3.3
Instruments
of
Liquidity
Management
In
the
review
period,
the
Bank
continued to deploy the following
instruments to achieve its objective of
price and monetary stability. These
instruments were: the Monetary Policy
Rate (MPR); the Cash Reserve Ratio
(CRR); Liquidity Ratio; Open Market
Operations
(OMO);
and
Discount
Window
Operations.
These
were
periodically
complemented
with
interventions in the foreign exchange
market.

3.3.3.1 Monetary Policy Rate (MPR)
The Bank’s key instrument for signalling
monetary
policy
stance
and
management in the first half of 2021 was
the Monetary Policy Rate (MPR). It
remained unchanged at 11.5 per cent
during the review period. Similarly, the
asymmetric corridor around the MPR
was maintained at +100/-700 basis
points throughout the period.
The
retention of MPR and the asymmetric
corridor,
showed
the
Bank’s
commitment to an accommodative
monetary policy stance.


3.3.3.2 Open Market Operations (OMO)
Liquidity Management in the review
period was conducted primarily through
Open Market Operations (OMO). Total
OMO sales decreased by 72.38 per cent
to N1,793.25 billion in the first half of 2021
from
N6,492.30
billion
in
the
corresponding period of 2020. The
outcome was also a decrease of 70.79
per cent from N6,138.58 billion in the
preceding half year (Table 3.9). The
reduced OMO sales was attributed to
the
Bank’s
deliberate
effort
to
encourage lending to the real sector by
Deposit Money Banks (DMBs).

Table 3.9: OMO Bills Auction (January – June, 2021)
(N’billion)

Source: CBN, Financial Market Department


Date

% Change
Jan
2,193.52 452.67
-79%
Feb
1,575.64 763.23
-52%
Mar
673.38 381.92
-43%
Apr
676.19 63.19
-91%
May
114.00 66.64
-42%
Jun
1,259.57 65.60
-95%

st Half
6,492.30
1,793.25
-72%
Jul
392.76
Aug
1,037.67
Sep
1,171.79
Oct
988.67
Nov
1,022.11
Dec
1,525.58

nd Half
6,138.58
Cumulative Figure
12,630.88
CBN Monetary Policy Review

Figure 3.17: OMO Bills Auction (January – June,
2021)

Source: CBN, Financial Market Department

3.3.3.3 Reserve Requirements
In
the
review
period,
Reserve
Requirements,
namely:
the
Cash
Reserves Ratio (CRR) and Liquidity Ratio
(LR) were deployed to complement the
MPR and OMO auctions as macroprudential and liquidity management
instruments. The CRR and LR were
maintained at 27.5 and 30.0 per cent,
respectively, due to the high liquidity
levels in the banking system.

3.3.3.4 Standing Facilities
In the first half of 2021, the Standing
Facilities window was active as Deposit
Money Banks (DMBs) continued to
access the (lending/deposit) window to
meet their daily liquidity requirements.
The
asymmetric
corridor
was
maintained at +100/-700 basis points
around the MPR.

The requests for Standing Lending
Facility (SLF) significantly increased by
433.19 per cent to N9,741.84 billion in the
first half of 2021 from N1,827.09 billion in
the preceding period of 2020. The
development also reflected an increase
of 193.66 per cent from N3,317.40 billion
in the corresponding period of 2020
(Table 3.10). In contrast, the volume of
deposits under the Standing Deposit
Facility (SDF), declined by 56.06 per cent
to N1,829.90 billion in the first half of 2021
from N4,164.78 billion in the preceding
period of 2020. This also represented a
decrease of 40.81 per cent when
compared with N3,091.78 billion in the
corresponding period of 2020 (Table
3.11). Transactions at the Window
resulted in a net lending of N7,911.94
billion in the first half of 2021 compared
with a net deposit of N2,337.69 billion in
the preceding half year and a net
lending of N225.64 billion corresponding
half year. The development signalled
that there is high risk in the interbank
market due to perceived counter party
risk, hence the recourse to the CBN
lending window.

Table 3.10: CBN Standing Lending Facility (January
2020 – June 2021) (N’billion)

Source: CBN, Financial Market Department
Date

% Change
Jan
580.77
395.77
Feb
510.27
552.66
Mar
957.34
886.51
Apr
277.93
2,498.55
May
398.84
4,818.91
Jun
592.25
589.44
1st Half
3,317.40
9,741.84
193.66%
Jul
1,570.18
Aug
112.72
Sep
14.39
Oct
37.11
Nov
22.94
Dec
69.75
2nd Half
1,827.09
Total
5,144.49
9,741.84
CBN Monetary Policy Review

Figure 3.18: Standing Lending Facility (January –
June 2021)

Source: CBN, Financial Market Department

Table 3.11: CBN Standing Deposit Facility (January
2020 – June 2021) (N’billion)
Date

%
Change
Jan
618.49
528.33

Feb
523.41
441.51

Mar
356.80
420.36

Apr
601.53
145.52

May
549.50
123.89

Jun
442.05
170.29

1st Half
3,091.78
1,829.90
-40.81%
Jul
459.49


Aug
593.42


Sep
838.22


Oct
734.51


Nov
794.31


Dec
744.83


2nd Half
4,164.78


Total
7,256.56
1,829.90

Source: CBN, Financial Market Department


Figure 3.19: Standing Deposit Facility (January -
June, 2021)

Source: CBN, Financial Market Department

3.3.3.5 Foreign Exchange Intervention
In the first half of 2021, pressure in the
foreign exchange market persisted due
to the resurgence of various variants of
COVID-19 that affected the global
commodity market and oil receipts.
However, the exchange rate unification
policy helped in easing the pressure on
the supply of foreign exchange that was
severely affected by the dwindling
crude oil earnings and reduction in
foreign portfolio inflows. Consequently,
the
CBN,
adopted
the
Nigerian
Autonomous Foreign Exchange Rate
Fixing, Investors & Exporters (NAFEX I&E)
window
rate
as
the
official
rate
leadingly to a 7.3 per cent depreciation
of the naira from N380/US$ to N410/US$.
Total
foreign
exchange
supply
decreased by 16.18
per cent to
US$5,831.59 million in the first half of 2021
from US$6,957.28 million in the second
half of 2020. Similarly, it decreased by
43.43 per cent when compared with
US$10,308.01
million
in
the

Jan
Feb
Mar
Apr
May
Jun
N'Billions
SLF

Jan Feb Mar Apr May Jun
N'Billion
SDF
CBN Monetary Policy Review

corresponding period of 2020 (Table
3.12). The decreased supply was largely
due to the combined impact of the oil
price shock and the containment
measures of the COVID-19 pandemic.

Table 3.12: Foreign Exchange Supply by the CBN
(US$ Million)

Source: CBN, Financial Market Department

Figure 3.20: Total FX Supply (including Forward
Sales) January – June, 2021

Source: CBN, Financial Market Department

3.3.4
Developments
in
Monetary
Aggregates
In the first half of 2021, the monetary
aggregates
underperformed
when
compared
with
their
benchmarks.
Broad money supply (M3) grew below its
indicative benchmark for 2021. Also, the
narrower measure of broad money (M2)
performed
below
its
benchmark
reflecting weak multiplier and sluggish
growth of credit to government. The
weak growth in money stock may not
be sufficient to propel the economy on
the desired growth trajectory, which is a
reflection of weak aggregate demand.
Nonetheless, the developments would
contribute
towards
moderating
inflationary pressures in the short run. As
economic activities continue to pick up
due to the targeted development
finance interventions, growth in M3 is
expected to improve.

Net Domestic Assets (NDA) performed
well relative to its benchmark in the
review period. Its key component, Net
Domestic
Credit
(NDC)
grew
moderately, driven by growth in both
private sector credit and government
credit. Net Foreign Asset (NFA) grew
below its benchmark in the review
period, driven primarily by the monetary
authority’s foreign liabilities, mostly the
COVID-19
loans
and
grants
from
abroad.

3.3.4.1 Broad Money (M3, M2)
The broad measures of money supply
(M3 & M2) grew in the review period. M3
grew by 2.02 per cent to N39,406.65
billion at end-June 2021from N38,627.35
billion at end-December 2020. When
compared with the end-June 2020 level
of N35,345.80 billion, it increased by
11.49 per cent. The M3 annualised
Date

%
Change
Total FX Supply
(including Forward Sales)
Total FX Supply
(including Forward Sales)
Jan
1,604.27
717.05
Feb
3,364.39
714.55
Mar
3,344.29
770.08
Apr
674.87
962.80
May
639.76
1,283.74
Jun
680.43
1,383.37

st Half
10,308.01
5,831.59
-43.43%
Jul
593.33
Aug
699.92
Sep
1,229.16
Oct
1,492.34
Nov
1,119.27
Dec
1,823.26
2nd Half
6,957.28
0.00
-100.00%
CBN Monetary Policy Review

growth rate of 4.03 at end-June 2021
was below the 2021 indicative growth
target of 9.64 per cent. Similarly, M2
grew by 2.80 per cent to N38,759.14
billion at end-June 2021 from N37,704.98
billion
at
end-December
2020.
Compared with the end-June 2020 level
of N32,171.34 billion, it increased by
20.48 per cent. The annualized M2
growth rate of 5.60 per cent was also
lower than the 2021 indicative growth
benchmark of 10.26 per cent.

The increase in M2 was primarily driven
by increase in M1 by 31.24 per cent and
quasi money by 18.56 per cent.

Figure 3.21: Money Supply (M1), (M2) and (M3)
(December 2020 – June 2021)

Source: CBN, Statistics Department


Figure 3.22: Growth in Money Supply (M1), (M2)
and (M3) (December 2020 – June 2021)

Source: CBN, Statistics Department

3.3.4.2
Narrow Money (M1)
Narrow
Money
(M1)
increased
marginally
by
0.25
per
cent
to
N16,018.75 billion at end-June 2021 from
N15,976.62 billion at end-December
2020. Compared with N12,204.25 billion,
at end-June 2020, M1 increased by
31.24 per cent. The annualised M1
growth
rate
of
0.50
per
cent
is
significantly
lower
than
the

indicative growth benchmark of 15.72
per cent (Figures 3.21 and 3.22). The
under-performance
of
M1
was
attributable to the decline in currency in
circulation and demand deposits on
account of the lull in economic activities
as a result of the impact of Covid-19.

3.3.4.3 Net Foreign Assets (NFA)
Net Foreign Assets (NFA) declined by
3.65 per cent to N7,070.09 billion at end-

N''Billions
Dec-

Jan-

Feb-

Mar-

Apr-

May-

Jun-

MONEY SUPPLY
(M1)
15,97615,94816,51616,13915,99716,26216,016
MONEY SUPPLY
(M2)
37,70437,74138,03638,21838,39338,61938,759
MONEY SUPPLY
(M3)
38,62738,78038,73338,65139,08139,78339,406
MONEY SUPPLY (M1)
MONEY SUPPLY (M2)
MONEY SUPPLY (M3)

Jan-21 Feb-21Mar-21Apr-21May-21Jun-21
N''Billions
Jan-

Feb-

Mar-

Apr-

May-

Jun-

MONEY SUPPLY (M1) (0.18) 3.38

MONEY SUPPLY (M2)

MONEY SUPPLY (M3)

MONEY SUPPLY (M1)
MONEY SUPPLY (M2)
MONEY SUPPLY (M3)
CBN Monetary Policy Review

June 2021 from N7,337.63 billion at endDecember 2020. Compared with the
end-June 2020 figure of N7,576.75 billion,
NFA decreased by 6.69 per cent. The
annualized decline in NFA was in
contrast to the 2021 indicative growth
target
of
32.79
per
cent.
The
performance
of
NFA
below
its
benchmark in the review period was
due to the contraction of foreign asset
holdings of the Central Bank.

3.3.4.4
Net
Domestic
Assets
(NDA)
Net Domestic Assets (NDA) grew by
3.35 per cent to N32,336.56 billion at
end-June 2021 from N31,289.73 billion at
end-December 2020. Compared with
the end-June 2020 figure of N27,769.05
billion, NDA grew by 16.45 per cent. The
annualised growth rate of 6.69 per cent
in NDA was higher than the 2021
indicative growth benchmark of 4.21
per cent.

Net Domestic Credit (NDC) grew by 4.30
per cent, driven largely by credit to the
private sector which increased by 8.25
per cent owing to the Bank’s sustained
development finance interventions as
well as improved lending to the real
sector. Critical sectors of the economy
such as the health and manufacturing
were targeted with the intention to
improve the flow of credit, in light of
weak performance and heightened
uncertainties
associated
with
the
COVID-19 pandemic. Also, targeted
credit facilities were similarly extended
to households and small and medium
enterprises.
However,
Credit
to
Government decreased by 5.30 per
cent, compared with the growth target
of 5.20 per cent, which showed that the
banking system is focused more on
financing the private sector.

Figure 3.23: Net Domestic Asset (NDA) (January -
June 2021)

Source: Statistics Department

Figure 3.24: NDA, NDC and Other Assets (Net)
(January - June 2021)

Source: Statistics Department

3.3.4.5 Credit to the Government (Cg)
Credit to Government (Cg) decreased
by 5.30 per cent to N11,747,37 billion at
end-June 2021 from N12,404.82 billion at

NDA
NDC
OAN
CBN Monetary Policy Review

end-December 2020. Compared with
the end-June 2020 figure of N8,863.20
billion, it grew by 32.54 per cent. The
annualised decrease in Cg of 10.60 per
cent at end-December 2021 was in
contrast to the indicative growth target
of 5.20 per cent. Developments during
the period suggest that government has
been meeting its funding need through
issuance of debt instruments. This is a
positive development as it enables the
banking system focus on financing the
private sector.

3.3.4.6 Credit to the Private Sector (Cp)
Credit to the private sector (Cp)
increased by 8.25 per cent to N32,638.18
billion
at
end-June

from
N30,149.60,183.70
billion
at
endDecember 2020. Compared with the
end-June 2020 figure of N29,183.70
billion, it grew by 11.48 per cent. The
annualised growth of 16.51 per cent in
Cp was close to the 2021 indicative
growth target of 16.79 per cent. The
increase in the credit to the private
sector will further stimulate demand and
promote growth in the economy. The full
implementation of the Bank’s Loan-toDeposit Ratio (LDR) policy has also
supported the enhanced performance
of the Cp.


Figure 3.25: Domestic Credit to Private Sector
(January - June 2021)

Source: CBN, Statistics Department

3.3.4.7 Reserve Money (RM)
Reserve Money (RM) decreased by
5.87 per cent to N12,333.75 billion at
end-June 2021 from N13,103.09 billion at
end-December 2020. Compared with its
end-June 2021 level of N13,257.04
billion, RM decreased by 6.96 per cent.
The annualised decrease in RM of 11.74
per cent is in contrast to the indicative
growth target of 3.33 per cent. The
performance of RM was largely due to
the decline in the total deposit liability
and partly to the weakening implicit
cost of cash holding which reflected in
the movement of reserve requirement.
A summary of the major monetary
aggregates
and
their
provisional
outcomes as at end-June 2021 is
presented in Table 3.13.

CBN Monetary Policy Review

Table 3.13a: The Performance of Monetary Aggregates and their Implications
Variables
Actual
Actual
Actual
Benchmark
H1:2020
Deviation
from
Benchmark
Change in H1,
2021 over H2,

H1
H2
H1

M3 (N'b)

M3 (%)

M2 (N'b)

M2 (%)

M1 (N'b)

M1 (%)

RM (N'b)

RM (%)

NDC (N'b)

NDC (%)

Cg (N'b)

Cg (%)

Cp (N'b)

Cp (%)

NFA (N'b)

NFA (%)

NDA (N'b)

NDA (%)

Source: CBN, Statistics Department


CBN Monetary Policy Review

Table 3.13b: The Performance of Monetary Aggregates and their Implications
S/N
Monetary
Aggregates
Performance
Implication

Overall
Monetary
Aggregates
Underperformed
The underperformance reflects the level of
uncertainties and weakening economic
fundamentals. The weak performance of
NFA was driven by Claims on Non-Residents
in the Monetary Authority’s Account.

Broad
Money (M3,
M2)
Below target
Both M3 and M2 performed below their
benchmarks. The weak growth of M2 is due
to weak multiplier and sluggish growth of
credit to government

Narrow
Money (M1)
Below target
The weak performance is an indication of
feeble economic activities because of a
portfolio shift arising from the inability of
DMBs to reinvest matured OMO bills on
behalf of the non-bank public. This concern
is further amplified by the weak signals from
other monetary aggregates, consistent with
weakening economic activities.

Net
Foreign
Assets (NFA)
Below target
The downward performance of NFA was
driven largely by Claims on Non-Residents in
the Monetary Authority’s Account.

Net
Domestic
Assets (NDA)
Above target
The performance in NDA reflects growth in
private sector credit.

Credit to the
Govt (Cg)
Below target
The performance of credit to government
reflects that government has been meeting
its funding need through issuance of debt
instruments. This frees up loanable resources
to the private sector.

Credit to the
Private
Sector (Cp)
Close to target
The
performance
demonstrates
the
increasing role of the private sector in
driving economic activities. Growth in
output and employment is as a result of
credit made available to the real sector.
Source: CBN, Statistics Department


3.4
Domestic
Financial
Markets
Developments
In the first half of 2021, the Nigerian
financial
markets
witnessed
considerable volatility in response to
developments from both the global and
domestic
economic
and
financial
environments. On the global front, the
outbreak of new and deadlier variant of
CBN Monetary Policy Review

COVID-19 led to imposition of further
restrictions in some parts of the world.

In the money market, the net liquidity
position and interest rates in the
economy reflected the impact of the
Bank’s
liquidity
management
operations. Accordingly, the monthly
average Inter-bank Call and Open Buy
Back (OBB) rates rose to 11.55 and 12.19
per cent in June 2021 from 3.40 and 4.35
per
cent
in
December
2020,
respectively.
The
money
market
remained active in the review period,
with market rates reflecting liquidity
conditions
in
the
banking
system.
Foreign exchange market stability was
accentuated by CBN interventions to
stabilize the naira amid increased
foreign exchange demand pressures.
The All-Share Index (ASI) and Market
Capitalization (MC) decreased during
the first half of 2021; likely reflecting the
bearish sentiments of investors and flight
to safety such as US treasury bills due to
the continued impact of the pandemic.

3.4.1
The Money Market
Amidst the gradual recovery of the
economy from the devastating effects
of Covid-19 pandemic, money market
experienced a considerable level of
activities in the first half of 2021.
However, the money market rates
oscillated in tandem with liquidity levels
in the banking system. Contributing
factors to this development included
statutory monthly disbursement to both
States and Local governments by the
Federation
Account
Allocation
Committee
(FAAC);
government
securities maturities, sale of OMO bills
and the various CBN interventions.
The interbank segment of the market
experienced less trading days in the
period under review, which resulted in
lower transaction volumes compared
with the OBB segment. For instance, zero
transaction was recorded in the month
of
April
2021.
Prominence
of
collateralized OBB instrument is due to
the continuing high-risk perception and
aversion of money market participants
to open market lending occasioned by
counterparty risk.

In a bid to support the market during the
first half of 2021, the Monetary Policy
Committee (MPC) held most of its policy
tools constant. Thus, the Monetary Policy
Rate (MPR) was maintained at 11.50
percent with its asymmetric corridor at
+100/-700 basis points around the MPR.
The Cash Reserve Ratio (CRR) and
Liquidity Ratio (LR) were also maintained
at 27.5 and 30.0 per cent, respectively,
during the period.

3.4.1.1 Short-term
Interest
Rate
Developments
The
short-term
rates
reflect
the
prevailing liquidity conditions in the
banking system. In addition to the
various Monetary Policy Committee
decisions, the CBN’s intervention aimed
at
moderating
foreign
exchange
demand pressures also played a role in
money market liquidity and the shortterm interest rates.

In
the
period
under
review,
the
interbank call segment recorded lower
average rate as compared to the Open
CBN Monetary Policy Review

Buy Back (OBB) segment. However,
rates
in
both
segments
increased
significantly. Specifically, the OBB rate
increased from 2.93 per cent in January
2021 to 16.67 per cent in June 2021,
while the interbank call rate increased
from 4.4 per cent in January 2021 to
16.57 per cent in June 2021.

The NIBOR-30 rate which reflects the
Nigerian interbank short-term lending
rates for some selected banks rose
throughout the period under review.

Table 3.14: Weighted Average Monthly Money
Market Interesr Rates (Jan-June, 2021)


Figure 3.26: Weighted Average Monthly Money
Market Interest Rates (Jan-June, 2021)

Source: Statistics Department, CBN
3.4.1.1.1
The Interbank Call Rate
Transaction
volumes
in
the
uncollateralized interbank call segment
continued
to
reflect
market
participants’ strong preference for the
collateralised OBB instrument. During
the period under review, the interbank
call segment was characterised by low
trade volumes as well as several days
without trading activities, compared
with the OBB segment.

The monthly average interbank call rate
increased from 4.40 per cent in January
2021 to 16.57 per cent by end-June 2021
indicating a strain in system liquidity
(Table 3.14). Specifically, the monthly
average interbank call rate rose from
4.40 per cent in January 2021 to 11.43
per cent in February 2021 representing a
7.03
percentage
points
increase.
However, the rate slightly dropped to
10.10 per cent in March 2021, driven by
a more buoyant system liquidity. No
transaction was recorded in April 2021.
The rate further rose from 15.23 per cent
in May to 16.57 per cent at end-June
2021; implying that the overall outflows
from activities affecting banking system
liquidity (i.e., OMO sales and maturity, FX
interventions, CRR debits, the Bank’s
intervention facilities to stimulate growth
and fiscal disbursement) outweighed
the
inflows.
Notwithstanding,
the
gradual
economic
and
financial
recovery, the upward trend of the
interbank call rate is largely associated
with
uncertainties
about
the
emergence of a third wave of COVID19 pandemic and concerns about the
efficacy of the vaccines in mitigating
Period
Call
OBB
SDF
MPR
SLF
NIBOR
Jan-21

Feb-21

Mar-21

Apr-21

May-21

Jun-21

Average


-

Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21
Per cent (%)
Call Rate
OBB Rate
SDF
MPR
SLF
NIBOR 30Days
Source: CBN, Statistics
CBN Monetary Policy Review

the spread of the variants.

The analysis of the daily interbank call
rate presented in Figure 3.27 showed
that for days when trading activities
took place, the call rate ranged from 2.0
per cent in January 2021 to 30.0 per cent
in April 2021. The peak of 30.00 per cent
in April was largely due to a drop in
activities, which is hinged on the Bank’s
mopping up activities through OMO
sales worth ₦47billion at the end of the
month. The average interbank call rate
for the period January – June 2021 was
11.55 per cent representing an increase
compared with 7.11 per cent in the
corresponding period of 2020 and 3.40
per cent in the second half of 2020.

Figure 3.27: Daily Interbank Call Rate (Jan. – Jun.
2021)


3.4.1.1.2
The Open Buy Back (OBB)
Rate
The OBB segment of the market
recorded
higher
trading
activities
compared with the interbank call
segment. However, both OBB rate and
interbank call rate followed similar trend
during the period under review. The
monthly average rate showed upward
trends indicating consistent tightening
of system liquidity. Within a spread of
2.93 per cent and 16.67 per cent, the
monthly
average
OBB
rate
rose
significantly during the period. It rose
from 2.93 per cent in January 2021 to
8.72 per cent in February 2021. The rate
further increased by 3.31 percentage
points from 12.61 per cent in March 2021
to 15.92 per cent in April 2021. Amidst
security
challenges
and
investors’
concern about the lingering COVID-19
shock,
the
OBB
rate
witnessed
additional increase from 16.31 per cent
in May 2021 to close at 16.67 per cent by
the end of first half of 2021.

In terms of the daily activities presented
in Figure 3.28, the OBB rate ranged from
0.36 per cent and 32.91 per cent
between January and June 2021. Similar
to the interbank call rate, the observed
spike of 32.91 per cent at the end of April
2021 was associated with the increase in
the net OMO sales during the period,
while the low rate in January 2021
reflected the Bank’s drive to stimulate
economic activities through monetary
stimulus.

The average OBB rate for the first half of
2021 (i.e., January – June 2021) stood at
12.19 per cent, which is higher than the
8.12
per
cent
recorded
in
the
corresponding half-year of 2020 (i.e.,
January – June 2020) and the 4.35 per
cent recorded in the second half of 2020
(i.e., July – December 2020).

Per cent (%)
CBN Monetary Policy Review

Figure 3.28: Daily Open Buy Back Rate (Jan. – Jun.
2021)

Source: CBN Satistics Database

3.4.1.1.3
The
Nigeria
Interbank
Offered Rate (NIBOR)
The Nigerian money market reference
rate (NIBOR) also followed an upward
trend in the period under review. From
low levels at the beginning of the year
(i.e., 0.71 per cent in January and 1.65
per cent in February 2021 respectively),
the average monthly rate increased to
3.40 per cent in March 2021. As shown
in Table 3.14, it consistently increased
reaching 12.60 per cent by June 2021
from 11.65 per cent in May 2021.

3.4.2
Foreign Exchange Market
The Bank sustained its interventions in
the foreign exchange market during the
review period. This was intended to
maintain
stability
and
ultimately
safeguard the value of the naira and
external reserves. Notwithstanding, the
market witnessed substantial volatility as
demand pressure continued to mount
resulting in further depreciation in the
interbank
segment
of
the
foreign
exchange market.

The inability of the OPEC and OPEC plus
group to agree on a significant oil
output cut in addition to the continuing
unfavourable global macro-economic
environment due to the COVID19
pandemic which further distressed the
world’s
economic
and
financial
activities, thus impacting negatively on
exchange rate stability.

Consequently, the Bank adjusted the
naira exchange rate to N410 in March
from N390 in January 2021.

Figure 3.29: Daily Naira/US Dollar Exchange Rate,
January – June 2021

Source: CBN, Statistics Department

The
Bank
remained
resolute
to
strengthen the Naira by increasing
liquidity supply to the FOREX market. The
Bank also relaxed further restrictions by
allowing
the
International
Money
Transfer Operators (IMTOs) customers’
access their remittances in foreign
currencies. The Bank in June 2021

Per cent (%)

I & E Segment
CBN Monetary Policy Review

adopted the Importer and Exporter
window
(I&E)
as
the
reference
exchange rate for official transactions in
the country.

The
Bank’s
I&E
window
is
also
fundamental to the accessibility of
FOREX for importation of essential items.
In addition, the Bank maintained its
existing
foreign
exchange
policies
which include:
Restriction to FOREX sales for 43 items;
and
Adoption
of
Bank
Verification
Number (BVN) in BDC transactions as
well as systematic monitoring of DMBs
to ensure that they do not engage in
speculative trading.

3.4.2.1 Average Exchange Rates
At
the
Interbank
window,
naira
depreciated against the dollar by an
average
of
1.88
per
cent
from
N380.37/US$ in the second half of 2020
to N387.66/US$ in the first half of 2021.
The exchange rate adjustment by the
CBN in May 2021 led to the further
depreciation of the naira rates.

Table 3.15: Average Monthly Spot Exchange Rate
(N/US$), Jul 2020 – Jun 2021
MONTH
Interbank / MDA
July (2020)
377.19
August
381.00
September
381.00
October
381.00
November
381.00
December
381.00
Average
380.37
January (2021)
381.00
February
381.00
March
381.00
April
381.00
May
397.75
June
404.19
Average
387.66
Source: CBN Statistics Department

3.4.2.2 End-Period (Month) Exchange
Rates
During the period under review, the
naira depreciated by 5.65 per cent to
N403.80/US$ at end-June 2021 from
N381.00/US$ at end-December 2020.
This development was attributed to the
foreign exchange adjustment in May
2021.

Though the policy direction of the Bank
was to ensure exchange rate stability,
persistent pressures have continued to
mount in the foreign exchange market.

Table 3.16: End-Month Exchange Rate (N/US$),
Jul 2020 – Jun 2021
MONTH
Interbank / MDA
July (2020)
381.00
August
381.00
September
381.00
October
381.00
November
381.00
December
381.00
Average
381.00
January (2021)
381.00
February
381.00
March
381.00
April
381.00
May
404.97
June
403.80
Average
388.80
Source: CBN Statistics Department
CBN Monetary Policy Review

3.4.2.3 Nominal
and
Real
Effective
Exchange Rates
Nominal Effective Exchange
Rate
(NEER) depreciated by 12.00 per cent to
an average of 200.92 in the first half of
2021 from an average of 176.80 in the
corresponding
period
of
2020.
It
depreciated by 6.81 percent when
compared with the average of 187.24
recorded in the preceding half year. On
the other hand, the Real Effective
Exchange Rate (REER) appreciated by
2.04 per cent to 73.86 in the first half of
2021 compared with an average of
75.37 in the corresponding period of
2020. Furthermore, when compared
with the average of 74.57 recorded in
the second half of 2020, the REER also
appreciated by 0.88 per cent (Table
3.17). The continuous depreciation of
the NEER signifies weakening of the
domestic
currency
against
the
currencies of trading partners, while the
appreciation of the REER implies a loss of
trade competitiveness with Nigeria’s
trading partners.


Table 3.17: Average Nominal and Real Effective
Exchange Rates Indices (Jan 2020 – Jun 2021)
PERIOD
NEER
REER
20-Jan
176.39
76.97
20-Feb
174.69
75.79
20-Mar
175.12
75.16
20-Apr
176.50
74.89
20-May
176.99
74.17
20-Jun
181.08
75.22
2020: H1
Average
176.80
75.37
20-Jul
183.31
75.43
20-Aug
184.74
75.2
20-Sep
185.61
74.53
20-Oct
185.68
73.49
20-Nov
188.21
73.2
20-Dec
195.86
75.23
2020: H2
Average
187.24
74.51
21-Jan
195.41
74.13
21-Feb
200.06
75.05
21-Mar
200.49
74.29
21-Apr
201.12
74.05
21-May
204.31
73.12
21-Jun
204.13
72.52
2021: H1
Average
200.92
73.86
Source: CBN Statistics Department

Figure: 3.30: Nominal and Real Effective Exchange
Rates Indices (July 2020 – June 2021)

Source: CBN Statistics Department

Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
Jan-21
Feb-21
Mar-21
Apr-21
May-21
Jun-21
NEER
REER
CBN Monetary Policy Review

3.4.2.4 Foreign Exchange Flows through
the CBN
Foreign exchange inflow through the
CBN window stood at a total of
US$14,060.38 million as at end of first half
of 2021. The inflow diminished by 43.85
per cent from the US$25,039.55 million
recorded in the first half of 2020. This was
also a decline of $ 1,089.39 million when
compared with the US$15,149.77 million
recorded in the second half of 2020.
Similarly,
outflows
declined
from
$27,324.79 million in the first half of 2020
to $17,646.13 million in first half of 2021,
indicating a fall in the foreign exchange
outflows by $9,678.66 million or 35.42 per
cent.
The
development,
however,
represented increase of 18.29 percent
when compared with the $14,917.55
recorded during the second half of
2020. The result indicated a net outflow
of US$-3,585.75 million in the review
period compared with the net outflow
of
US$-2,296.80
million
in
the
corresponding period of 2020 and of
$232.22 million in the second half of
2020. The significant and continuous
contraction in inflows is influenced by
the negative impact of the Covid-19
virus around the world which led to
shocks in global markets and fall in forex
earnings. On the other hand, outflows of
forex during the review period is majorly
linked to the continuous pressure on
foreign
exchange,
external
debt
servicing taking huge portion of the
outflow, despite the recovery in crude
oil earnings.


Table 3.18: Monthly Foreign Exchange Flows
through the CBN (Jan 2020 – Jun 2021)
Period
Inflow CBN
Outflow CBN
Netflow
Jan-20
5,271.65
6,652.58
(1,380.93)
Feb-20
5,594.29
5,722.81
(128.52)
Mar-20
4,121.73
6,997.01
(2,875.28)
Apr-20
5,940.18
3,164.66
2,775.52
May-20
2,006.29
2,187.25
(180.96)
Jun-20
2,105.41
2,600.48
(495.06)
2020H1 Total
25,039.55
27,324.79
(2,285.24)
Jul-20
1,977.68
2,371.01
(393.33)
Aug-20
2,576.38
2,671.52
(95.14)
Sep-20
2,423.87
1,956.65
467.22
Oct-20
1,885.82
2,346.49
(460.67)
Nov-20
1,148.11
1,874.29
(726.17)
Dec-20
5,137.91
3,697.60
1,440.31
2020H2 Total
15,149.77
14,917.55
232.22
Jan-21
1,739.28
2,832.54
(1,093.26)
Feb-21
2,049.31
3,006.56
(957.25)
Mar-21
3,758.90
2,882.18
876.72
Apr-21
1,686.73
2,586.14
(899.41)
May-21
2,418.38
2,614.58
(196.19)
Jun-21
2,407.78
3,724.15
(1,316.37)
2021H1 Total
14,060.38
17,646.14
(3,585.75)
Source: CBN Statistics Department

Figure 3.31: Monthly Foreign Exchange Flows
through the CBN (Jan 2020 – Jun 2021)


3.4.2.5 Foreign Exchange Flow through
the Economy
Gross foreign exchange inflow through
the economy dropped sharply by 32.46
per cent to US$43,460.60 million in the

Inflow (CBN)
Outflow (CBN)
Net Flow (CBN)
CBN Monetary Policy Review

first half of 2021 from US$64,349.51 million
in the corresponding first half of 2020. It
also decreased by 19.51 per cent when
compared with US$51,243.94 million in
the second half of 2020. Gross foreign
exchange outflows also declined by
34.54 per cent to US$19,051.87 million
from
US$29,105.12
million
in
the
corresponding
period
of
2020.
Compared with US$15,828.80 million in
the second half of 2020, it decreased by
20.36
per
cent.
This
development
resulted in a net inflow of US$24,408.73
million in the first half of 2021 compared
with US$35,244.39 million in the first half
of 2020, and US$35,415.14 million in the
second half of 2020.

The fall in the gross foreign exchange
flows in the economy is attributable to
the recent global economic headwinds
caused by the Covid-19 pandemic.

Table 3.19: Monthly Foreign Exchange Flows through the Economy (Jan 2020 – Jun 2021) (US$ Million)
Period
Inflow CBN
Outflow CBN Netflow CBN
Total Inflow
Total Outflow Total netflow Inflow Autonomous Outflow Autonomous netflow Autonomous
Jan-20

Feb-20

Mar-20

Apr-20

May-20

Jun-20

2020H1 Total

Jul-20

Aug-20

Sep-20

Oct-20

Nov-20

Dec-20

2020H2 Total

Jan-21

Feb-21

Mar-21

Apr-21

May-21

Jun-21

2021H1 Total

Source: CBN Statistics Department

Figure 3.32: Monthly Foreign Exchange Flows through the Economy (Jul 2020 – Jun 2021) (US$ Million)

Source: CBN Statistics Department
-15000
-10000
-5000

10000
15000
20000
Total inflows
Total Outflows
Netflow
CBN Monetary Policy Review

3.4.3
Capital Market
In the first half of 2021, the Nigerian
capital market was bearish, primarily
driven by the equities segment of the
market, which was a reflection of
waning investors’ confidence. This was
mainly attributable to security concerns
and
weak
macroeconomic
fundamentals such as, uptick in inflation
and declining reserves, which caused
significant capital outflow. Attractive
yield in the money market also caused
investors
to
take
precautionary
measures.
These
factors
led
to
significant selloffs in the Nigerian Capital
Market, as several investors exited the
market. In the bonds market, real yields
declined
progressively,
as
inflation
inched up.

3.4.3.1 Equities Market
The All-Share Index (ASI) decreased by
5.87 per cent from 40,270.72 at end-
December 2020 to 37,907.28 at endJune 2021. However, this represented an
increase
of
54.85
per
cent
from
24,479.22 at end-June 2020. Market
capitalization (MC) also decreased by
6.17 per cent from N21.06 trillion at endDecember 2020 to N19.76 trillion at endJune 2021. When compared with the
corresponding period of 2020, MC
increased by 54.74 per cent from N12.77
trillion.


Table 3.20: NSE All-Share Index (ASI) and Market
Capitalization (MC) (June 2020 – June 2021)
Date
ASI
MC(Equities)
N’Trillion)
Jun-20
24,479.22
12.77
Jul-20
24,693.73
12.88
Aug-20
25,372.13
13.21
Sep-20
26,831.76
14.02
Oct-20
30,530.69
15.96
Nov-20
35,042.14
18.31
Dec-20
40,270.72
21.06
Jan-21
42412.66
22.19
Feb-21
39799.89
20.82
Mar-21
39045.13
20.43
Apr-21
39834.42
20.85
May-21
38437.88
20.03
Jun-21
37907.28
19.76
Source: Nigerian Exchange Group

Figure 3.33: NSE All Share Index (ASI) and Market
Capitalization (MC) (June 2020 - June 2021)

Source: Nigerian Exchange Group


Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21
(N' Trillion)
All Share Index
Equities Market Capitalisation (N' Trillion)
CBN Monetary Policy Review

Figure 3.34: NSE ASI and MC (December 2020 –
June 2021)

Source: Nigerian Exchange Group

3.4.3.1.2 Market Turnover
Aggregate stock market turnover in the first
half of 2021 stood at 48.37 billion shares,
valued at N483.57 billion in 553,828 deals. This
represents a decrease of 12.05 per cent
when compared to 55.00 billion shares,
valued at N534.07 billion in 586,534 deals in
the second half of 2020. However, aggregate
stock market turnover increased by 15.41 per
cent on a year-on-year basis from 41.91 billion
shares, valued at N495.65 billion in 567,184
deals as at end June 2020.

3.4.3.1.3 Sectoral Contribution to Equity
Market Capitalization
In
the
review
period,
market
capitalization was dominated by ‘Other
Sectors’, which comprise a few major
participants trading on the Nigerian
Stock Exchange. However, the sector’s
contribution decreased from 27.27 per
cent of market capitalization as at endDecember 2020 to 26.47 per cent at
end-June 2021. The dominance of
‘Other Sectors’ could be attributable to
the introduction of telecommunications
companies on the exchange, as they
are categorized in this sector. In
addition,
sectors
that
contributed
significantly
to
overall
market
capitalization were Banking and Food &
Beverages, with market shares of 6.55
per cent and 6.97 per cent respectively,
at end-June 2021.

Figure 3.35: NSE Market Capitalization by Sector as
at End-December 2020

Source: Nigerian Exchange Group

Figure 3.36: NSE Market Capitalization by Sector as
at End-June 2021

Source: Nigerian Exchange Group

Dec-20
Jan-21
Feb-21
Mar-21
Apr-21
May-21
Jun-21
(N' Trillion)
All Share Index
Equities Market Capitalisation (N' Trillion)


NSE Market Capitalization by Sector as at December 31, 2020
Rest of Food and Beverages
Construction
Banking
Insurance
Breweries
Conglomerates
Oil and Gas
industrial goods
Dangote Cement
Dangote Sugar
NASCON (Dangote Salt)
Rest of Building Materials
Agriculture
Personal Household products
Services
MTN Nigeria
Other Sectors

NSE Market Capitalization by Sector as at June 30, 2021
Rest of Food and Beverages
Construction
Banking
Insurance
Breweries
Conglomerates
Oil and Gas
industrial goods
Dangote Cement
Dangote Sugar
NASCON (Dangote Salt)
Rest of Building Materials
Agriculture
Personal Household products
Services
MTN Nigeria
Other Sectors
CBN Monetary Policy Review

3.4.3.1.4
The
Warren
Buffett
Valuation Metric and Nigeria’s Equities
Market
The Nigerian equities market was
moderately undervalued during the
review period, based on the Warren
Buffett valuation metric.

The average valuation metric from
2016Q1 to 2021Q1 is 0.73, indicating that
the stock market in Nigeria is modestly
undervalued. The average forecast
valuation metric from 2016Q1 to 2022Q1
is 0.78, which suggests that the stock
market is fairly undervalued for the
forecast period. The variation of the
actual from forecast for Q12021 was
0.29, which is within the tolerance level.

Figure 3.37: Warren Buffett Valuation of Nigerian
Equities Market

Source: NGX, NBS

3.4.3.2 Bond Market
Activities in the bond market were
dominated by Federal Government of
Nigeria (FGN) securities in the first half of
2021. There were also some activities in
the
State/Municipal
bonds
and
corporate
bond
segments
of
the
market, with the former recording the
least share by market volume.

3.4.3.2.1 FGN Bonds
The 10-year dollar-denominated bond
yields for Nigeria increased by 511 basis
points to 5.31 per cent at end-June
2021, from 0.20 per cent at endDecember 2020. It increased by 157
basis points when compared with 3.74
per cent at end-June 2020 (Figure 3.38).

Figure 3.38: 10-Year U.S. Dollar-denominated Bond
Yield for Nigeria (January 2020 – June 2021)


The yield curve for June 2021 increased
at both the short and long ends of the
curve. However, in comparison with the
preceding period, the long end of the
curve increased at a slower pace, as
shown by the somewhat flattened long
end. The positive development at the
short end reflects high liquidity level
within the banking system. On the other
hand, the flat long end suggests that
investors find the long-term bonds less
attractive.


PER CENT
CBN Monetary Policy Review

Figure 3.39: FGN Bond Yield Curves: December
31st, 2020 Vs. March 31st, 2021 and July 23rd, 2021
Data Source: FMDQ

3.4.3.2.2 State/Local Government Bonds
The
sub-national
bonds
market
continued to record low activities during
the review period. The total value of
outstanding state/local governments
bonds decreased by 23.36 per cent
from
N270.80
billion
as
at
endDecember 2020 to N207.55 billion at end
June 2021. Similarly, it was lower, when
compared with N369.69 billion recorded
at end-June, 2020.

3.4.3.2.3 Corporate Bonds
Activities in the corporate bonds
segment increased during the review
period.
The
value
of
outstanding
corporate bonds increased by 41.23 per
cent from N507.75billion to N717.08
billion in the first half of 2021. This
development could be associated with
increased activities in the sovereign
bond market.

3.4.3.3 Overall Analysis of the Nigerian
Capital Market
The value of FGN bonds decreased by
1.57 per cent to N16.46 N trillion at endJune 2021 from N16.72 trillion at endDecember 2020 and higher than the
N13.78 trillion recorded as at end-Dec
2020. FGN bonds accounted for 44.30
per
cent
of
aggregate
market
capitalization as at end-June 2021. The
value of state/municipal bonds and
corporate bonds were N207.55 billion
and N717.08 billion accounting for 0.56
and 1.93 per cent of aggregate market
capitalization,
respectively.
Supranational bond was however, not
reported during the review period. The
equities market contributed 53.20 per
cent
of
aggregate
market
capitalization as at end-June 2021, while
FGN bonds, state/municipal bonds,
corporate bonds and supranational
bonds accounted for the balance of
46.80 per cent (Figure 3.40).

Figure 3.40: Structure of the Nigerian Capital
Market (June 2021)


CBN Monetary Policy Review

CHAPTER FOUR
ECONOMIC OUTLOOK AND RISKS

4.1
Outlook for Global Output
ecovery levels across regions and
nations remained uneven mainly
because of differences in policy
measures across countries and regions,
the disparity in levels of income damage
incurred as well as the severity of the
public health pandemic. Global growth
forecast
for

is
expected
to
moderate to 4.9 per cent from 6.0 per
cent in 2021. In the medium term, supply
chain challenges as well as labor market
constraints resulting from an ageing
population in the advanced economies
will shape the growth outlook for the
global
economy.
GDP
levels
are
projected to remain well below the prepandemic trajectory through 2024 for
most countries.

In the advanced economies, output is
forecast to moderate to 4.9 per cent in
2022 from 6.0 per cent in 2021. Within the
group,
different
economies
are
confronted with various headwinds
which affect the path to recovery. In the
United
States,
output
growth
is
projected to moderate to 4.4 per cent
in 2022 from 5.6 per cent, as activities
begins to return to pre-pandemic level.
In the euro area, growth is forecast to
moderate 4.3 per cent in 2022 from the
estimated 4.6 per cent in 2021. Similarly,
output growth in the United Kingdom is
projected to moderate to 4.8 per cent
in 2022 from 7.0 per cent in 2021, while
the Japanese economy is forecast to
improve to 3.0 per cent in 2022 from
estimated growth of 2.8 per cent in 2021.
In
the
Emerging
Markets
and
Developing Economies (EMDEs), output
is forecast to moderate at 5.2 per cent
in 2022 from 6.3 per cent in 2021. The
projection is premised on slow level of
vaccination
against
COVID-19,
expectation for tighter global financial
conditions
as
central
banks
of
advanced economies forge ahead
with monetary policy normalization,
amongst others. Consequently, the
Chinese economy is projected to grow
at 5.7 per cent in 2022, a moderation
compared with the estimated growth of
8.1 per cent in 2021. Similarly, output
growth in India for 2022 is forecast at 8.5
per cent from 9.5 per cent in 2021. The
Brazilian economy is also projected to
moderate to 1.9 per cent in 2022 from
5.3 per cent in 2021.

In Sub-Sahara Africa, growth is forecast
to improve 4.1 per cent in 2022 from 3.4
per cent in 2021, owing to strong
commodity prices, improvement in nonoil sector, rising public and private
demand
as
well
as
increased
vaccination against COVID-19 and
other variants. Strong demand and
prices of commodity is expected to
boost output growth in Nigeria at 2.6 per
cent in 2022 from 2.5 per cent in 2021.
The South African economy is, however,
forecast to moderate to 2.2 per cent
from 4.0 per cent in 2021.


R
CBN Monetary Policy Review

Table 4.1 Global Output and Inflation Outlook

*

*
A. World
Output


World
Output

Advanced
Economies

USA

Euro Area

Japan

UK

Canada


Other
Advanced
Economies

Emerging &
Developing
Economies

Latin
America
and the
Caribbean

Middle East
and
Central
Asia Africa

SubSaharan
Africa

B.
Commodity
Prices (US'
Dollars)


Oil
23.

29.

-
10.

-
32.

56.6
-
2.6.3
Non-fuel

C.
Consumer
Prices


Advanced
Economies
1.4


Emerging &
Developing
Economies

Source: IMF WEO, July 2021
*Forecast

4.2
Outlook for Global Inflation
According
to
the
IMF’s
World
Economic Outlook (July 2021 update),
global price pressures reflect unusual
pandemic-related developments and
transitory
supply-side
constraints.
Inflation is expected to return to its prepandemic ranges in most countries in
2022 once these supply side distortions
ease and pent-up demand is resolved.

In the advanced economies, inflation is
expected to rise to 2.4 per cent in 2021
from 0.7 per cent in 2020 and then
moderate to 2.1 per cent in 2022. In the
US, inflation is projected to rise from 2.3
per cent in 2021 to 2.4 per cent in 2022.
In the Euro area, inflation was expected
to rise to 1.4 per cent in 2021 from 0.3 per
cent in 2020 and moderate to 1.2 per
cent in 2022. In Japan, inflation was
estimated rise to 0.1 per cent in 2021
from 0.0 per cent in 2020 then to 1.0 per
cent in 2022.

In the emerging market and developing
economies, inflation is expected to rise
to 5.4 per cent in 2021 from 5.1 per cent
in 2020 before moderating to 4.7 per
cent in 2022 (WEO, July 2021). In China,
inflation is projected to moderate to 1.2
per cent in 2021 from 2.4 per cent in 2020
then rise to 1.9 per cent in 2022 (WEO,
April 2021). In Russia, inflation was
projected to rise to 4.5 per cent in 2021
from 3.4 per cent in 2020 and decline to
3.4 per cent in 2022. Inflation in India
was expected to moderate to 4.9 per
cent in 2021 from 6.2 per cent in 2020
and further to 4.1 per cent in 2022.

The projections for Inflation in SubSaharan Africa shows that inflationary
pressure would moderate due largely to
rising commodity prices, with attendant
positive impact on exchange rate
stability. Consequently, inflation was
CBN Monetary Policy Review

projected to decline to 9.8 per cent in
2021 from 10.8 per cent in 2020 and
further to 7.8 per cent in 2022. Inflation in
Nigeria was, however, projected to rise
to 16.0 per cent in 2021 from 13.2 per
cent in 2020 before moderating to 13.5
per cent in 2022. Similarly, inflation in
South Africa was estimated to rise to 4.3
per cent in 2021 from 3.3 per cent in 2020
and further to 4.5 per cent in 2022.

4.3
Outlook for Domestic Output
Growth
The domestic economy is expected to
consolidate on its recovery through the
second half of 2021. This is premised on
the gradual return to normalcy as
restrictions to control the spread of the
COVID-19
pandemic
are
relaxed,
following the commencement of the
vaccination programme. In addition to
this, monetary and fiscal stimuli have
continued unabated with improved
global oil and other commodities prices
helping to boost government revenue
and spending capacity. The major
headwind to output growth in the
second half of 2021 is the persistence of
the
COVID-19
pandemic
as
new
variants of the virus continue to emerge.
This risk is further heightened by the
limited supply of vaccines as well as
hesitancy to get vaccinated by a large
number of people. Other downside risks
to growth include: the rising level of
insecurity; unabating foreign exchange
pressure and inflation pass-through to
domestic prices; capital flow reversals;
infrastructure deficit; rising public debt;
and narrowing fiscal space.
Based on these developments, the
Central Bank of Nigeria (CBN) forecasts
real GDP to grow by 2.18 and 2.62 per
cent in the third and fourth quarters of
2021, respectively, while annual real
GDP growth for 2021 is estimated at 1.70
per cent from a contraction of 1.92 per
cent in 2020. The projection for real GDP
growth was based on an assumption of
US$65 per barrel crude oil prices.

Table 4.2: Scenarios of Nigeria’s GDP growth
outlook

Scenario

Scenari
o 2
Scenari
o 3
Scenari
o 4
Scenari
o 5
Scenari
o 6
Scenari
o 7

Q2


Q3


Q4


Q1


Q2f


Q3f


Q4f

Source: CBN Staff Estimates

4.4 Outlook for Domestic Inflation
CBN Staff estimates suggest that yearon-year headline inflation is expected to
moderate in the short-term, falling from
17.75 per cent in June 2021 to 16.08 and
13.98 per cent in September and
December 2021, respectively.

The forecast suggests that near-term
upside risks to inflation remains a
combination of monetary and structural
factors, including the continuing impact
of the COVID-19 pandemic on the
economy, exchange rate pressures,
capital flow reversals, food shortages
CBN Monetary Policy Review

due mainly to insecurity/banditry in
agricultural producing areas of the
country and increasing fiscal deficits.
Other factors which could potentially
impart upward pressure on inflation
include: increased fiscal/quasi fiscal
interventions, loose stance of monetary
policy, lingering effects of upward
adjustment of fuel pump price and
electricity tariffs, implementation of the
new minimum wage and VAT increase.
As the Bank continues to manage
liquidity conditions in the domestic
economy, inflationary developments
will be monitored to ensure that the risks
to inflation and growth are minimized.
Table 4.3: Inflation Forecast

CBN Monetary Policy Review

Figure 4.1: Fan Chart of Inflation Forecast

Source: CBN Staff Estimates

Figure 4.2: Inflation Forecast

Source: CBN Staff Estimates

aug
sep
oct
nov
dec
jan
feb
mar
apr
may
jun
jul
sep
Dec

Actual
13.22 13.71 14.23 14.89 15.75 16.47 17.33 18.17 18.12 17.79
Inflation forecast 13.04 13.55 14.10 14.63 15.52 16.44 16.86 17.85 18.05 17.93 17.76 17.4 16.08 13.98

Per cent (%)
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4.5
The Outlook for Monetary Policy
in the Second Half of 2021
Monetary
Policy
formulation
and
implementation by the Bank in the
second half of 2021 will continue to be
shaped by the short to medium-term
outlook for price development. This is to
help
the
Bank
manage
market
expectations. The short to medium-term
outlook will also serve as a guide to
ensure that the Bank strikes a balance
between the price stability objective
and its developmental functions.

The Bank will continue to monitor
developments in the global economy so
as to fine-tune the direction of monetary
policy in the short to medium term. The
continued slower-than-anticipated rollout of COVID-19 vaccines, is a huge
downside risk to global output recovery
as it could provide the environment for
further mutation of the virus. Global
financial conditions may also tighten
with the persistent rise in consumer price
levels,
particularly
among
the
advanced economies. The outcome of
this would be an increase in borrowing
costs for a significant number of
emerging
markets
and
developing
economies. The IMF, projects global
growth at 6.0 per cent in 2021 and 4.9
per cent in 2022 (WEO, July 2021). In the
advanced economies, the recovery is
projected to remain significantly upbeat
due to the high rate of vaccination
which has aided the full reopening of
economic activities. In the EMDEs, there
is a projected decline in output growth
as the rollout of vaccines remains
modest.
Equitable
distribution
of
vaccines and their administration is
therefore required to achieve a more
balanced global recovery.

In the domestic economy, both food
and core inflation remain high, owing to
the high cost of food associated with
supply chain disruptions, insecurity and
legacy structural issues including the
high cost of energy, transport, and
production inputs. In addition to this,
monetary
policy
is
expected
to
continue to face challenges due to the
high level of fiscal and monetary stimuli
deployed to ease the impact of the
pandemic. The persisting exchange rate
pressure,
high
cost
of
liquidity
management, financial market volatility
and constrained credit growth are also
significant constraints to the smooth
transmission of monetary policy. The
rising
cost
of
energy
and
the
expectation of continued rise in the
medium to long term, also have adverse
consequences
for
price
stability.
Monetary
policy
however,
remains
focused on achieving stable prices
conducive for economic growth.

4.6
The Risks to the Outlook

4.6.1
Risks
to
The
Global
Output
Projection
Global economic output growth is
confronted with numerous risks and
uncertainties in the first half of 2021. The
major risk is associated with the extent to
which countries can manage the reoccurrence of new waves of the
COVID-19
pandemic.
Most
of
economies recorded a rebound in
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output growth, after several quarters of
recession.

Over 3 billion doses of COVID-19
vaccines are already administered
globally as at the end of June 2021, thus
improving the prospect of sustained
output recovery towards the end of the
year. As such, global output is projected
to grow at 6.0 per cent in 2021 and
moderate to 4.9 per cent in 2022. The
improved
recovery
across
various
economies has, however, been uneven,
depending on policy responses of
individual countries and the progress of
COVID-19 vaccination.

In
the
emerging
markets
and
developing economies, the pickup in
economic growth was constrained,
essentially by the high incidence of
COVID-19
and
reduced
macroeconomic support to ease the
impact of the pandemic. The risk of the
emergence of new variants of the virus
is likely to extend the duration of the
pandemic in this group of economies. In
addition, the growing likelihood of an
early
return
to
monetary
policy
normalization
by
the
advanced
economies poses a significant threat to
financial stability.

In
Sub-Sahara
Africa,
output
is
confronted with significant downside
risks due to the weak policy response in
combating the pandemic. While the
facilities required for the distribution of
COVID-19
vaccines
have
been
upgraded in Nigeria, South Africa and
Ghana, most countries in the region are
still experiencing delays in procurement
and logistics. Another prevalent risk in
the region is the scepticism to the
vaccine expressed by a large number of
people.

4.6.2
Risks to Domestic Output
According to the IMF (July 2021 WEO
update), the Nigerian economy is
forecast to grow by 3.4 per cent in 2021
and improve to 4.1 per cent in 2022,
following a contraction of 1.8 per cent in
2020. The projection is anchored on
improved performance of both the oil
and non-oil sectors of the economy. The
oil sector is expected to improve based
on an expectation of rising global
demand as the economies continue to
re-open and production picks up. The
non-oil sector is expected to sustain its
recovery due to sustained intervention
by both the fiscal and monetary
authorities to support the recovery.
However, the risk to the outlook remains
the re-emergence of new and more
deadly strains of the COVID-19 virus,
legacy structural factors and security
challenges which continued to hamper
the full recovery of output growth.

4.6.3
Risks
to
Domestic
Inflation
Outlook
Headline
inflation
has
remained
consistently above the upper band of
the Central Bank of Nigeria's inflation
target range of 6.0-9.0 per cent, despite
the Bank’s monetary policy measures
and interventions.

Supply
shortages
in
farming
communities, resulting from banditry
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and kidnapping; lingering supply chain
disruptions as a result of insecurity along
major logistic channels and poor road
networks
connecting
farming
communities to markets in major towns
and cities; the general increase in
insecurity in both urban and rural areas;
and seasonal shocks are some of the
factors putting upward pressure on
domestic prices. The expectation of
further increases in petrol pump prices,
as well as the exchange rate passthrough, are also exerting upward
pressure on the general price level.

Rising
unemployment
and
future
uncertainty
associated
with
the
pandemic,
Nigeria's
deteriorating
security situation, poor state of public
infrastructure, and other structural issues,
are
further
depressing
consumer
confidence and business expectations.
The risks to domestic prices would be
regularly assessed and managed to
ensure that the Bank’s objective of price
stability
conducive
to
sustainable
economic growth is achieved.


CBN Monetary Policy Review

APPENDICES

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO.

OF
THE
MONETARY
POLICY
COMMITTEE
MEETING HELD ON MONDAY 25th AND
TUESDAY 26th JANUARY 2021

1.0
Background
The Monetary Policy Committee (MPC)
held its first statutory meeting for the
year 2021 on the 25th and 26th January
on
the
backdrop
of
dampened
optimism for improvement in global
output recovery, associated with the
resurgence of the COVID-19 pandemic
and mild success with vaccinations
across
several
countries.
On
the
domestic front, recovery is expected to
progress reasonably, following the mild
contraction recorded during the third
quarter of 2020 and with fourth quarter
output growth figures expected to show
further improvement. The Committee
reviewed the developments in the
global and domestic economic and
financial environments in 2020 and the
outlook for 2021 as well as the risks to this
outlook.
Ten (10) members of the Committee
were in attendance.

Global Economic Developments
The Committee noted a better-thanexpected recovery in most economies
towards the end of 2020, leading to
moderation in the contraction of global
output. It, however, observed that the
rapid spread of the new variant of the
Coronavirus, seemingly associated spike
in
fatalities
and
the
recent
reintroduction of containment measures
across
several
economies,
may
dampen the recovery in 2021. In the
Advanced
Economies,
headwinds
largely associated with the COVID-19
pandemic such as vaccination-related
challenges, weak aggregate demand
associated
with
less
than
full
employment in labour markets, partially
functioning supply chain networks, the
rapid spread of the new variant of the
Coronavirus and a high infection rate
dampened
the
initial
rebound
in
economic recovery towards the end of
2020.

Output growth in the Emerging Market
and Developing Economies (EMDEs)
remained uneven across countries. In
China, output slowed marginally in the
third and fourth quarters of 2020,
following
a
faster-than-expected
rebound in the second quarter of 2020.
Following the lull in the second quarter,
India’s economy grew sharply in the
third
quarter,
reflecting
welcome
adjustment to the stimulus measures.
Accordingly, the International Monetary
Fund (IMF) estimated global growth in
2020 as a contraction of 4.4 per cent
and forecast growth in 2021 to improve
to 5.2 per cent. This forecast is however,
hinged on the successful vaccination of
a significant number of people to
create the much-desired herd immunity.
On price developments, the MPC noted
that
inflation,
in
most
Advanced
Economies, is likely to remain subdued in
the short to medium term as the recent
rise in COVID-19 infection and mortality
rates have resulted in sub-optimal
employment and weakened labour
CBN Monetary Policy Review

markets, which dampened aggregate
demand across these economies. In the
EMDEs,
however,
inflation
remains
relatively high compared with the
Advanced
Economies,
with
some
economies confronted with stronger
upside risks than others, as a result of
weak accretion to reserves, persisting
exchange rate pressures, poor inflow of
capital as well as longstanding structural
issues.

The MPC noted the steady build-up of
systemic liquidity across the global
economy, arising from the support by
fiscal authorities and central banks to
bolster
the
recovery
and
return
confidence to the financial markets. It
noted
that
the
response
to
the
pandemic has heightened the risk of
debt accumulation, raising concerns of
debt sustainability and vulnerability of
the global economy to financial crisis
once
central
banks
commence
normalization of monetary policy.

Domestic Economic Developments
Real Gross Domestic Product (GDP),
according to the National Bureau of
Statistics (NBS), contracted by 3.62 per
cent in Q3 2020, compared with 6.10 per
cent in Q2 2020 and a growth of 2.28 per
cent in the corresponding period of
2019. The real GDP contraction in Q3
2020 was largely driven by the decline of
13.89 per cent in the oil sector from 6.63
per cent in Q2 2020. The non-oil sector
also contracted by 2.51 per cent in Q3
2020, compared with 6.05 per cent in Q2
2020. The weak performance observed
in both the oil and non-oil sectors was
largely attributed to the lag effects of
the lockdown, persisting weak global
demand for crude oil and security
challenges across the country.

The MPC noted with concern the
continuing sluggish recovery in the
Manufacturing and Non-Manufacturing
Purchasing Managers’ Indices (PMIs),
which remained below the 50-index
point benchmark in December 2020, at
49.6 and 45.7 index points, respectively,
compared with 50.2 and 47.6 index
points during the previous month. This
weak performance was attributed to
the
resurgence
of
the
pandemic,
foreign exchange pressures, increased
costs of production, general increase in
prices
and
decline
in
economic
activities.

Similar
trend
was
also
observed in the employment level index
component of the manufacturing and
non-manufacturing
PMIs,
which
contracted for the ninth consecutive
month in December 2020 to 46.3 and
45.1
index
points,
respectively,
compared with 50.2 and 46.7 index
points in the previous month. The
Committee,
however,
noted
that
current growth headwinds would likely
moderate in the short to medium term,
as the containment measures and the
sustained implementation of economic
stimulus
permeate
the
domestic
economy.

The Committee expressed concerns on
the persisting uptick in inflationary
pressure for the sixteenth consecutive
month,
with
headline
year-on-year
inflation moving further to 15.75 per cent
in December 2020 from 14.89 per cent in
November
2020.
This
uptick
was
CBN Monetary Policy Review

attributed to the increase in both the
food and core components of inflation,
which rose to 19.56 and 11.37 per cent
in December 2020, respectively, from
18.30 and 11.01 per cent in November
2020. This continued upsurge in food
inflation was attributed to the logistical
bottlenecks, spurred by the increasing
security challenges in many parts of the
country,
which
disrupted
food
production and supply to the market.
Other factors driving the core inflation,
include the recent deregulation of the
downstream sector of the oil industry,
which led to hikes in the price of
Premium Motor Spirit (PMS) and the
upward adjustment in electricity tariff.
The Committee, however, noted that as
output rebounds, supported by the
suites of stimulus packages by both the
Federal Government and the Central
Bank, inflationary pressure would likely
begin to moderate in the near term.

On the performance of monetary
aggregates, the Committee noted the
further growth in broad money supply
(M3) to 10.97 per cent in December 2020
from 5.02 per cent in November 2020,
driven largely by the growth in Net
Foreign
Assets.
It
also
noted
the
expansion in Net Domestic Assets (NDA)
to 4.96 per cent from -0.45 per cent in
the
previous
period.
Aggregate
domestic credit, also moved further up
by 13.40 per cent in December 2020,
compared with 9.48 per cent in the
previous
month.
This
was
largely
attributed to the Bank’s policy on Loanto-Deposit Ratio (LDR), complemented
by its interventions in various sectors of
the economy. Consequently, banking
sector gross credit as at end-December
2020 stood at N25.02 trillion compared
with N24.25 trillion at the end of
November
2020,
representing
an
increase of N774.28 billion.

Under
the
Bank’s
real
sector
interventions,
under
the
Anchor
Borrowers Programme (ABP), N554.63
billion had been disbursed to 2,849,490
beneficiaries since the inception of the
programme, of which N61.02 billion was
allocated to 359,370 dry season farmers.

In light of the on-going synchronized
efforts by the monetary and fiscal
authorities to mitigate the impact of the
COVID-19 pandemic, the Bank has
committed
substantial
amount
of
money towards this objective. Indeed,
total disbursements as at January 2021
amounted to N2.0 trillion. COVID-19
Targeted Credit Facility (TCF) meant for
household
and
small
businesses,
wherein we have disbursed N192.64
billion to 426,016 beneficiaries. We have
also disbursed N106.96 billion to 27,956
beneficiaries under the Agri-Business
Small
and
Medium
Enterprises
Investment Scheme (AGSMEIS), while in
the Health Care Support Intervention
Facility, we have disbursed N72.96 billion
to

project
that
comprise

pharmaceutical
projects
and

Hospitals and Health Care Services
Project in the country. To support the
provision of employment opportunities
for the Nigerian youth, the Central Bank
of
Nigeria
also
provided
financial
support through the Creative Industry
Financing Initiative and Nigerian Youth
Investment Fund amounting to N3.12
CBN Monetary Policy Review

billion with 320 beneficiaries and N268
million
with

beneficiaries,
respectively.
On
enhancing
power
supply, the Bank has so far, provided
N18.58 billion for the procurement of
347,853 electricity reading meters to
Discos in support of the National Mass
Metering Programme.

The Committee urged the Bank to
sustain its current drive to improve
access to credit to the private sector
while exploring other complementary
initiatives, in collaboration with the
Federal
Government,
to
improve
funding
to
critical
sectors
of
the
economy.

During the period under review, money
market rates remained low, reflecting
the prevailing liquidity conditions in the
banking system. Overall, the monthly
weighted average Open Buy Back
(OBB) rates declined further from the
1.13 per cent in November 2020 to 1.09
per cent in December 2020.

On the equities market, the Committee
noted
the
positive
performance,
particularly the sustained patronage by
domestic investors largely driven by the
prevailing low yields in the money
market.
The
All-Share
Index
(ASI)
increased by 1.82 per cent to 41,001.99
points as at 22nd January, 2021 from
40,270.72 points on 31st December, 2020.
Similarly, Market Capitalization (MC)
grew by 1.80 per cent to N21.44 trillion
from N21.06 trillion over the same period.
This improved performance was largely
attributed to gains recorded in medium
and
large
capitalized
companies,
notably in consumer goods, banking,
insurance and oil and gas sectors.

The Monetary Policy Committee (MPC),
however, noted the marginal increase
in the Non-Performing Loans (NPLs) ratio
which rose to 6.01 per cent at endDecember 2020 from 5.88 per cent at
end-November 2020 and above the
prudential maximum threshold of 5.0 per
cent.
While
noting
that
this
development is not unexpected under
the prevailing circumstances, it urged
the
Bank
to
strengthen
its
macroprudential framework to bring
NPLs below the prescribed benchmark.
On the external reserves position, the
Committee noted the increase in the
level of external reserves, which stood at
US$36.23 billion as at 21st January, 2021
compared with US$34.94 billion at the
end of November 2020. This reflected
improvements in crude oil prices, partial
global
economic
recovery
amid
optimism
over
the
discovery
and
distributions of COVID-19 vaccines by
most developed economies.

Outlook
Overall, the medium-term outlook for
both
the
domestic
and
global
economies
continued
to
show
improved
prospects
of
recovery,
supported by the recent moderate
uptick in crude prices and increased
optimism over the procurement and
distribution of COVID-19 vaccines.

Available data and forecasts for key
macroeconomic
variables
for
the
Nigerian
economy
suggest
further
improvement in output growth in the first
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quarter of 2021. This would be supported
by the coordinated and sustained
interventions of the monetary and fiscal
authorities, including the broad-based
stimulus
and
liquidity
injections.
Inflationary pressure is also expected to
commence
moderation
as
the
economy’s negative output gap closes.
However, underlying uncertainties in the
oil market and current uptick in the
second wave COVID-19 infection rate
may pose some downside risks to this
forecast.

The Committee’s Considerations
The Committee noted the moderation in
output contraction in the third quarter of
2020, associated with news of the
discovery of COVID-19 vaccines and
rising oil prices. The outlook for the
recovery, however, appears to be
dampened by the second wave of the
pandemic considering its intensity.

In the Committee’s consideration, it
noted that the COVID-19 pandemic
and the necessary measures put in
place by the Government to forestall its
public health impact, such as the
lockdown
and
other
associated
restrictions, contributed to the Nigerian
economy going into recession, much
like almost every other country in the
world. Members thus agreed that the
Committee’s current priority remains to
quicken the pace of the recovery
through
sustained
and
targeted
spending
by
the
fiscal
authority
supported by the Bank’s interventions. In
this light, it was thought necessary to
increase collaboration with the fiscal
authority by providing complementary
spending
to
finance
productive
ventures in a bid to improve aggregate
supply and reduce prices. This is in
addition to effectively collaborating
with the Presidential Task Force on
COVID-19 through the existing private
sector
Coalition
against
COVID-19
(CACOVID) to procure and distribute
vaccines to fast-track the pick-up of
business
activities
and
economic
recovery.

Members reiterated the adverse impact
of
insecurity
on
food
production,
stressing that the current uptick in
inflationary pressure could not be solely
associated to monetary factors, but due
mainly to legacy structural factors
across the economy, including major
supply bottlenecks across the country.
The Committee, thus called on the
Government to redouble efforts at
strengthening infrastructural efficiency
and address the emerging security
challenges in the country. In addition to
this, the Committee called on the
Government to explore the option of
effective partnership with the private
sector to improve funding sources
necessary
to
address
the
huge
infrastructural
financing
deficit.
The
Committee expressed concern over the
rising public debt stock, as recurrent
expenditure remained relatively high,
compared with capital expenditure,
thus, signalling future debt servicing
challenges.

To
improve
Government
revenue
sources and investment in capital, the
Committee called on the Government
to take advantage of the take-off of the
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African Continental Free Trade Area
(AfCFTA), which could boost domestic
production
and
generate
sizeable
revenues for Government, as well as
improve domestic productivity and
competitiveness.

The Committee commended the Bank’s
effort of improving liquidity in the foreign
exchange market, but noted the need
to continue to explore avenues to
improve inflow from sources such as the
International Money Transfer Operators
(IMTO), diaspora remittances and nonoil export promotion, given the current
trajectory of crude oil prices. These
sources, in the view of the Committee,
would boost foreign exchange supply
and ease the current exchange rate
pressure.

The Committee noted the continued
improvement in the equities market as a
lead
indicator
of
medium-term
macroeconomic recovery, thus, urging
the Bank to maintain its collaboration
with the fiscal authority to improve the
investment climate towards attracting
sustainable Foreign Direct Investment
(FDI).

The Committee commended the Bank
for maintaining a sound regulatory
surveillance over the banking system by
ensuring a reasonably low level of nonperforming loans (NPLs), even with the
aggressive
credit
expansion
programme during this crisis period.
Though, NPLs remained slightly above
the prudential benchmark, members
noted
that
the
banking
system
remained stable, strong and resilient.
Given the success recorded under the
LDR policy, it thus urged the Bank to
sustain its risk surveillance approach and
ensure the continued soundness of the
banking system.

In the Committee’s consideration, it
noted the broad-based global stimulus
packages, including expanded credit
lines,
asset
purchase
programme,
corporate bond purchase, additional
funding facilities for financial system,
commercial paper purchases, special
central bank lending, increase in the
Ways and Means limits introduced by
the central banks of different countries
to support economic recovery in their
various economies and to prevent
further distortions to the economy
caused by the devastating impact of
the pandemic. The Committee noted
the large stimulus packages deployed
by many countries to fast-track growth
recovery and restore livelihoods across
the world. For instance, Japan provided
stimulus package valued at 66.9 per
cent of its 2019 GDP; UK, 45.04 per cent;
USA, 28.4 per cent; Brazil, 27.6 per cent;
South Africa, 12.6 per cent; China, 11.5
per cent; India, 10.0 per cent; and Russia
7.1 per cent compared with Nigeria’s
paltry 4.0%. The MPC, therefore, urged
the Bank to further expand its current
stimulus packages to support the fiscal
interventions
to
reflate
and
boost
recovery in the economy.

The Committee’s Decision
At this meeting, MPC was, as in the last
meeting, confronted with a policy
dilemma as to whether to aggressively
combat the inflationary pressure or
CBN Monetary Policy Review

support measures currently aimed at
stimulating growth and reversing the
recession.
Although the economy is currently in a
stagflation
environment
with
simultaneous occurrence of inflationary
pressures and contracting output, the
MPC
resolved
to
reverse
both
developments and continue pursuing
price stability in growing the economy.
MPC was of the view, that whereas
there may be wisdom in loosening,
given that the impact of the global
Covid-19 pandemic has resulted in
constrained
activities,
disruption
to
supply chain and suppress aggregate
demand, an accommodative stance
may be required to stimulate credit
expansion and boost recovery in the
short term.
The Committee was also of the view that
an expansionary policy would enable
the monetary authorities convince the
financial institutions to reduce loan
pricing and defer interest and principal
repayments
to
critically
affected
obligors in a sustainable manner.
On the flip side, MPC also opined that
an aggressive expansionary stance may
worsen both inflation and the negative
real interest rate, thereby resulting in
negative consequences on exchange
rate.
With
regard
to
tightening,
MPC
concluded that this may run contrary to
its objectives of providing affordable
credit
to
households,
MSMEs,
Agriculture, and other output growth
and employment stimulating sectors of
the economy.
MPC was therefore of the view that it
should pursue its current stance of
systematic synchronization of monetary
and
fiscal
policy
accommodation
through
its
developmental
finance
initiatives, aimed at mitigating the
impact of the COVID-19 pandemic on
Nigerians.
While expressing understanding of the
public health dilemma of the recent
spike in infections, MPC encouraged
Government
not
to
consider
a
wholesome lockdown of the economy
so as not to reverse the current gains of
the stimulus earlier provided in 2020. It
also encouraged the Central Bank of
Nigeria Management to intensify its
efforts in the targeted credit facility to
household, SMEs, the Health Sector, as
well as Agric and manufacturing sectors
which would not only boost consumer
spending but result in manufacturing
output thereby positively impacting the
GDP. On this basis, the MPC agreed to
hold all policy parameters constant.
The Committee thus decided by a
unanimous vote to retain the Monetary
Policy Rate (MPR) at 11.5 per cent.

In summary, the MPC voted to:
I.
Retain the MPR at 11.5 per cent;
II.
Retain the asymmetric corridor of
+100/-700 basis points around the
MPR;
III.
Retain the CRR at 27.5 per cent;
and
IV. Retain the Liquidity Ratio at 30 per
cent.

Thank you.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
26th January 2021
CBN Monetary Policy Review

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO.

OF
THE
MONETARY
POLICY
COMMITTEE
MEETING HELD ON MONDAY 22ND AND
TUESDAY 23RD MARCH 2021

1.0
Background
The Monetary Policy Committee (MPC)
met on the 22nd and 23rd of March 2021
confronted with downside risks to the
optimism for significant improvement in
global output recovery in 2021. The risks
stem
largely
from
the
uncertainty
surrounding the efficacy of the COVID19 vaccines in surmounting the new
variants of the novel coronavirus, as well
as speedy deployment of the vaccines
across the globe. In the domestic
economy, the exit from recession in the
fourth quarter of 2020 brought about a
renewed hope for full recovery in 2021,
notwithstanding the obvious downside
risks to the entire global economy. The
Committee
appraised
the
developments in both the global and
domestic
economic
and
financial
environments in the first quarter of 2021
and the outlook for the rest of the year.
Nine (9) members of the Committee
were in attendance.

Global Economic Developments
The
Committee
noted
that
while
vaccination against COVID-19 had
gained significant grounds in major
advanced economies, some emerging
market and developing economies
were yet to commence any form of
vaccination. This development portends
an uneven recovery to global growth,
as barriers to trade and the global
supply chain are likely to remain in place
much
longer
than
anticipated
to
prevent re-infection in countries that
have achieved significant vaccination
and some form of herd immunity. The
growing concerns associated with the
efficacy of these vaccines, especially in
the face of new variants of the virus,
however, poses a significant threat to
the overall recovery of the global
economy. The broad direction of the
expected rebound in global output
recovery,
therefore,
varies
across
countries depending on the headwinds
confronting individual economies.

Consequently,
the
International
Monetary Fund (IMF) projects a growth
rate of 4.3 per cent for the advanced
economies and 6.3 per cent for the
emerging and developing economies,
with a global growth rate of 5.5 per cent
in 2021. The downside risks to this
projection are associated with concerns
that
the
existing
vaccines
being
deployed may not effectively subdue
the new and existing variants of the virus
and thus, restrictions may remain in
place which may hamper the speed of
the expected recovery globally.

Price
developments
across
major
advanced economies remain subdued
alongside the expectation that output
gaps will remain negative into the
medium term. In the Emerging Market
and Developing Economies (EMDEs),
price development was, on average,
mixed, with some economies recording
inflation rates that were significantly
higher than those seen in the Advanced
Economies. This was mostly due to
CBN Monetary Policy Review

continued
capital
outflows,
poor
accretion to reserves and exchange
rate depreciation, which has a passthrough effect to domestic prices.

In
the
global
financial
markets,
conditions remain relatively stable, as
central banks continue to maintain
expansionary
monetary
policy
and
sizeable stimulus packages. The huge
level of monetary and fiscal injections
may heighten the risk of financial
instability, especially when central banks
commence adjustment of policy rates.

Domestic Economic Developments
Real Gross Domestic Product (GDP),
according to the National Bureau of
Statistics (NBS), recorded a growth rate
of 0.11 per cent (year-on-year) in the
fourth quarter of 2020, in contrast to -
3.62 per cent in Q3 2020 and 2.55 per
cent in the corresponding period of
2019. The Q4 2020 performance, was a
sharp rebound in contrast to the two
previous quarters of negative growth (-
3.62 per cent in the third quarter and -
6.10 per cent in the second quarter). The
improved performance was driven by
the non-oil sector, which grew by 1.69
per cent in Q4 2020 from -2.51 and -6.05
per
cent
in
Q3
and
Q2
2020,
respectively. The major drivers were
Quarrying and Other Minerals, which
grew by 48.42 per cent and the ICT
subsector, which grew by 17.64 per
cent.
The
oil
sector,
however,
contracted further by -19.76 per cent in
Q4 2020, from -13.89 and -6.63 per cent
in Q3 and Q2 2020, respectively. This was
attributed largely to the decrease in oil
production in compliance with the
OPEC+ production cut agreement.

The Committee noted the moderation
in
the
Manufacturing,
and
Nonmanufacturing
Purchasing
Managers’
Indices
(PMI),
which,
however, remained below the 50 index
points in February 2021, but improved to
48.70 index points apiece, compared
with
44.9
and
43.3
index
points,
respectively, in January 2021. The GDP
growth in the fourth quarter of 2020 and
expected recovery in Q1 2021, were
signposted
by
this
observed
improvement in the PMIs.

The
employment
level
index
component of the manufacturing and
nonmanufacturing PMIs also improved
moderately in February 2021 to 45.6 and
48.0 index points, compared with 44.2
and 45.0 index points, respectively, in
the previous month. The Committee,
however, expressed some optimism that
the
legacy
growth
headwinds,
attributed largely to the resurgence in
infection rate of COVID-19 pandemic,
may likely recede in the short-tomedium
term,
as
the
successful
deployment of the COVID-19 vaccines
and the various stimulus packages to
revamp the domestic economy are
sustained.

The Committee noted with concerns the
continued uptick in inflationary pressure
for the eighteenth-consecutive month,
as headline inflation (year-on-year)
continued on an upward trend, to 17.33
per cent at end-February 2021 from
16.47 per cent in January 2021. This
CBN Monetary Policy Review

increase continued to be attributed to
the increase in both the food and core
components of inflation which rose to
21.79 and 12.38 per cent in February
2021, respectively, from 20.57 and 11.85
per cent in January 2021. This persisting
uptick in food inflation, however, was
the major driving factor to the uptick in
headline inflation. This was due to the
worsening security situation in many
parts of the country, particularly, the
food producing areas, where farmers
face frequent attacks by herdsmen and
bandits in their farms. While the Bank is
intervening
significantly
in
the
agricultural sector, the rising insecurity in
some food producing areas, is limiting
the expected outcomes in terms of
supply to the market, thus contributing
to the rise in food prices. The Committee
further noted that the key drivers of the
increase in core inflation included, the
hike in the price of Premium Motor Spirit
(PMS), upward adjustment in electricity
tariffs and the depreciation of the
domestic currency (naira).

The Committee observed that broad
money supply (M3) grew marginally by
0.30 per cent in February 2021, following
a substantial growth of 13.54 per cent in
December 2020. This was driven largely
by the contraction in Net Foreign Assets
(NFA). The Committee also noted that
Net Domestic Assets (NDA) grew by 3.02
per cent in February 2021, from 2.22 per
cent in December 2020.

Provisional data showed that banking
system credit to the economy increased
by 1.75 per cent to N43.67 trillion in
February 2021 from N42.92 trillion in
January 2021, reflecting the ongoing
broad-based
monetary
and
fiscal
stimulus to various sectors of the
economy.
The
Committee
thus,
enjoined the Bank to maintain its current
drive to improve access to credit to the
private sector, while exploring other
initiatives with the fiscal authorities to
improve funding to critical sectors of the
economy.

Conscious of the persisting inflationary
pressure fuelled largely by continued
uptick in food prices, the Committee
noted the Bank’s interventions to boost
food production particularly through its
various Agricultural programmes. Other
complementary
measures
included,
increase in disbursement for the dry
season
agricultural
programme
to
increase output, the adoption of high
yield seeds to improve productivity and
the adoption of harvested produce as a
means of loan repayment, which has
stemmed hoarding and the activities of
middlemen
and
rent
seekers.
The
establishment of the strategic grain
reserves for staple crops has also helped
in addressing seasonality of agricultural
commodities.

In terms of funding, the Committee
noted that the Bank has disbursed funds
under
its
various
agricultural
interventions towards improving food
supply in Nigeria. The Committee noted
the disbursement of ₦107.60 billion to
548,109
farmers
cultivating
703,619
hectares of land between Q4 2020 and
Q1 2021 to boost dry season output in
support of agricultural value chain
development. Total disbursements as at
CBN Monetary Policy Review

end-February 2021 amounted to ₦1.487
trillion under the various agricultural
programmes, of which N686.59 billion
was disbursed under the Commercial
Agricultural Credit Scheme (CACS) and
₦601.75
billion
under
the
Anchor
Borrowers
Programmes
(ABP)
to
3,038,649 farmers to support food supply
and dampen inflationary pressures.

Under the Targeted Credit Facility, the
Bank has disbursed N218.16 billion to
475,376 beneficiaries, of which 34 per
cent of beneficiaries are SMEs. Under
AGSMEIS, N111.62 billion has been
disbursed to 28,961 beneficiaries, 70
percent of which are in the agricultural
sector. Under the Creative Industry
Financing Initiatives mainly targeted at
youths, N3.19 billion has been disbursed
to 341 beneficiaries, of which 53 percent
is to the movie industry.

Under the National Mass Metering
Programme, N33.45 billion has been
disbursed to 9 distribution companies for
the procurement of 605,852 meters,
while N89.89 billion has been disbursed
under the Nigeria Electricity Market
Stabilisation Facility (NEMSF 2) to 11
distribution companies to improve the
electricity supply industry in Nigeria.

Under the N100 billion Health Care
intervention
Fund,
the
Bank
has
disbursed N94.34 billion, and is willing to
expand the facility, to 85 projects in the
pharmaceutical industry, hospitals and
State governments for both brown field
and green field projects, mostly to
expand pharmaceutical drug lines,
acquire MRI and other equipment and
upgrade laboratories and other hospital
services.

Under the N1.0 trillion Manufacturing
Intervention
Stimulus,
the
total
of
N803.36 billion has been disbursed to 228
projects across various sectors in agroallied, mining, steel production and
packaging industries, amongst others.

The monthly weighted average Interbank call and Open Buy Back (OBB)
rates fell to 1.80 and 1.50 per cent in
February 2021 from 3.50 and 2.30 per
cent in January 2020, respectively,
reflecting the continued liquidity surfeit
in the banking system.

The
Committee
noted
the
weak
performance in the equities market
despite the recent increased patronage
by domestic investors. The All-Share
Index (ASI) and Market Capitalization
(MC) continued to decline due to
portfolio switching from equities to fixed
income
securities,
reflecting
the
perception of improved yields at the
long end of the yield curve.

All-Share Index (ASI) decreased by 1.17
per cent to 39,799.89 points on February
26, 2021 from 40,270.72 on December
31, 2020. Similarly, Market Capitalization
(MC) fell by 1.11 per cent to N20.82
trillion on February 26, 2021 from N21.06
trillion on December 31, 2020. This was
attributed largely to investor sell-off,
which
continued
to
cause
price
depreciation of large and medium
capitalized stocks.

CBN Monetary Policy Review

The MPC noted the performance of the
Financial Soundness Indicators (FSIs) of
the DMBs which showed a Capital
Adequacy Ratio (CAR) of 15.2 per cent,
Non-Performing Loans (NPL) ratio of 6.3
per cent and Liquidity Ratio (LR) of 40.5
per cent, as at February 2020. On nonperforming loans (NPLs), the MPC noted
that the ratio remained above the
prudential benchmark of 5.0 per cent
and urged the Bank to sustain its
regulatory measures to bring it below
the prudential benchmark.

The Committee noted with satisfaction
the improvement in the level of external
reserves, which stood at US$36.46 billion
at end-February 2021, compared with
US$34.94 billion at end-January 2021. This
reflects the recent upsurge in crude oil
prices on the backdrop of the renewed
optimism on the successful deployment
of COVID-19 vaccines across the globe.

Outlook
The medium-term outlook for both the
domestic
and
global
economies
indicates cautious optimism. This is
premised
on
the
expectation
of
sustained policy support and successful
deployment of the COVID-19 vaccines
around the globe and its effectiveness
in ensuring herd immunity.

Available data and forecasts for key
macroeconomic
variables
for
the
Nigerian
economy
suggest
further
rebound in output growth for the rest of
2021. This is predicated on the sustained,
as well as additional interventions by the
monetary and fiscal authorities to keep
up the recovery momentum in the
economy, favourable upsurge in crude
oil prices, foreign exchange market
stability and successful deployment of
the new COVID-19 vaccines that could
further stimulate economic activities
and ultimately boost output growth.
Given the potential rebound in output
growth, bolstered by the resumption of
economic activities post COVID-19,
inflationary pressure in the economy is
projected to moderate in short-tomedium term. The underlying risks of the
efficacy of the COVID-19 vaccines
against known and newly emerging
strains of the virus, the uncertainty that
the existing vaccines could lead to herd
immunity
and
unequal
access
to
COVID-19 vaccine, however, are some
of the headwinds that could undermine
this forecast.

The Committee’s Considerations
The Committee noted the moderate
recovery in output growth in the fourth
quarter of 2020, associated mainly to
the positive impacts of the several
monetary
and
fiscal
measures
implemented to reflate the economy,
following the negative consequences of
the Covid-19 pandemic. This, in the
Committee’s consideration, provides an
opportunity for further consolidation as
most projections suggest substantial
recovery in several economies across
the globe. However, the Committee
was not oblivious of the downside risks to
the broad outlook for recovery in 2021,
as efforts to achieve herd immunity
continued
to
face
significant
headwinds.

CBN Monetary Policy Review

The Committee welcomed the current
efforts by the government and other
support agencies in procuring vaccines
and thus, urged the quick and efficient
deployment of the vaccines to support
ongoing monetary and fiscal stimulus
towards full recovery of the economy in
2021 and into 2022.

Members expressed concerns about the
unabated rising trend of domestic prices
and re-emphasized the exigency for
monetary
and
fiscal
policy
collaboration to finance productive
ventures, improve aggregate supply
and push down prices.

The MPC reiterated its concerns on the
activities of persons and groups causing
security
challenges
in
the
food
producing areas of the country, as this
has contributed to the major uptick in
food prices across the country. The
Committee,
thus
called
for
a
collaborative and coordinated efforts
by all the relevant agencies and
stakeholders towards addressing the
prevailing insecurity issues and social
challenges. The Committee also called
on the government to explore the
option of effective partnership with the
private sector to improve funding
sources necessary to address the huge
infrastructural financing deficit.

Considering the foregoing, the MPC
noted that fiscal headroom remained
constrained and fragile, following the
twin shocks of the pandemic and oil
price volatility and the continued buildup of public debt.
The MPC noted the Bank’s innovative
efforts towards maintaining exchange
rate stability. It also impressed on the
Management to remain focused on its
drive to increase accretion to reserves,
especially in its recent incentives to
attract diaspora remittances into the
country.

The Committee welcomed the relative
strengthening of the money market
compared from its position at the end of
the lockdown. Mindful of the risks
confronting
the
economy,
it
emphasised the need for the fiscal
authority to improve the investment
climate towards attracting sustainable
Foreign Direct Investment (FDI).

The Committee commended the Bank
for maintaining a robust regulatory
environment despite these challenging
times by ensuring that non-performing
loans (NPL) ratio is driven down to
prudential level, even as aggregate
credit continue to grow in a market
confronted with relative uncertainties.
In summary, the MPC noted the
overarching need to address the twin
major challenges of taming the rising
inflation and sustaining growth recovery
in the economy, while focusing on the
downside risks associated with the
injections.

The Committee’s Decision
At this meeting, the dilemma that
confronted the MPC relates to whether
to continue to focus on efforts to
stimulate outputs or whether to focus on
reining in inflation, which(at 17.33 per
cent) is almost attaining the January
CBN Monetary Policy Review

2017 inflation level of 18.72 per cent.
MPC was also worried that the level of
unemployment must be addressed
swiftly to moderate the restiveness
among the populace. Again, members
were generally of the view that given
that the exit from recession is fragile, any
decision to tighten or rein-in inflation,
may reverse the fragile recovery and
return the economy into recession.

In the light of the foregoing, the
consensus among MPC members was
that, given that inflation is substantially a
supply side phenomenon, there is need
to continue to focus on consolidation of
the recovery process, by taking those
actions that would continue to stimulate
output growth, create employment, but
at the same time have an eye on effort
to moderate the inflationary pressure;
using
the
current
administrative
measures being adopted by the Bank in
controlling monetary aggregates in the
banking system.

In its consideration of whether to tighten,
hold
or
loosen,
therefore,
the
Committee felt that with inflation at a 3year high and price stability being the
Bank’s core mandate, a contractionary
policy stance may be required to tame
the rising trend. It nevertheless feels that
tightening will hike the cost of capital
and hamper investments required to
create employment and continue to
boost recovery.

On the other hand, MPC thinks that
whereas loosening would lower rate
and improve access to credit which will
drive
investment,
reduce
unemployment
and
stimulate
aggregate
demand,
it
feels
that
loosening will create excess liquidity,
which will intensify demand pressure on
the foreign exchange market, thereby
leading to further depreciation in the
currency.

It, therefore, feels that a hold position
which encourages Management to
continue to use its various intervention
mechanisms to deploy liquidity into
employment generation and output
stimulating sectors of the economy
would be desirable as this would help
consolidate
the
country’s
recovery
process.

The Committee, therefore, decided by
a vote of 3 members to increase MPR by
50, 75 and 50 basis points respectively,
and 6 members voted to hold all
parameters constant.

In summary, the MPC voted to:
I. Retain the MPR at 11.5 per cent;
II. Retain the asymmetric corridor of
+100/-700 basis points around the
MPR;
III. Retain the CRR at 27.5 per cent; and
IV. Retain the Liquidity Ratio at 30 per
cent.

Thank you.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
23rd March 2021


CBN Monetary Policy Review

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO.

OF
THE
MONETARY POLICY COMMITTEE MEETING
HELD ON MONDAY 24th AND TUESDAY
25th MAY 2021

1.0
Background
The Monetary Policy Committee (MPC)
met on the 24th and 25th of May 2021 as
the global economy gradually emerges
from the six-quarter long COVID-19
pandemic with lingering uncertainties.
The
recovery
is
on
account
of
widespread vaccinations, easing of
restrictions, reopening of economies
and gradual return to international
travels.
India
and
Brazil
however
continue
to
battle
high
levels
of
infections and fatalities resulting from
mutating strains of the virus. In the
domestic environment, the economy is
expected to remain on the current
trajectory of recovery in 2021, mirroring
the cautious optimistic trend in global
output
recovery.
The
Committee
reviewed the developments in the
global and domestic economic and
financial environments in the second
quarter of 2021 and the outlook for the
rest of the year.

Ten (10) members of the Committee
were present at this meeting.

Global Economic Developments
The Committee noted that while the
vaccination
against
COVID-19
is
drastically reducing fatalities across
several
economies,
the
recovery
remains uneven and is tilted against
developing economies compared with
the developed economies with better
access to vaccines. Other emerging
markets
economies
with
strong
manufacturing capabilities like China
are also on the verge of full recovery.

Accordingly, the International Monetary
Fund (IMF) revised global output growth
for 2021 to 6.0 per cent. This represents
an upward revision of 0.5 percentage
point,
compared
with
the
earlier
projection
of
5.5
per
cent.
The
projection is, however, dependent on
the efficient deployment of COVID-19
vaccines and sustained policy support
across economies to strengthen the
recovery of global output growth.

Prices, however, are expected to rise
globally due to the massive monetary
and fiscal injections in several countries
to mitigate the impact of the Pandemic.
The MPC noted the gradual recovery of
prices,
especially
amongst
some
developed
economies
as
inflation
continued a steady movement towards
the long-term objective of their central
banks. It is expected that inflation may
breach the long-term objective of
several central banks in the mediumterm, as economic activities continue to
recover
with
more
people
being
vaccinated. In several Emerging Market
and Developing Economies (EMDEs),
inflation has remained relatively high,
with some economies confronted with
significantly higher inflationary pressures
than
others,
because
of
legacy
structural issues, capital flow reversals
and
unabating
exchange
rate
pressures.

CBN Monetary Policy Review

The prevailing conditions in the global
financial markets remained relatively
stable,
as
central
banks
sustain
monetary accommodation. There are,
however,
growing
indications
that
monetary policy normalization may
commence amongst some key central
banks by the fourth quarter of 2021. The
timing and pace of this normalization
must, however, be carefully managed
to mitigate the risk of a financial crisis
post-Pandemic.

Domestic Economic Developments
Available output data from the National
Bureau of Statistics (NBS) showed that
real Gross Domestic Product (GDP) grew
by 0.51 per cent in the first quarter of
2021, compared with 0.11 and -3.62 per
cent
in
Q4

and
Q3
2020,
respectively. Real GDP was driven
largely by the non-oil sector, which grew
by 0.79 per cent in Q1 2021 compared
with 1.69 and -2.51 per cent in Q4 2020
and Q3 2020, respectively. The major
drivers
of
the
non-oil
GDP
were
Agriculture and Industry with sectoral
growth rates of 2.28 and 3.05 per cent,
respectively
in
Q1
2021.
Whereas
Agriculture
declined
by
1.14
percentage points from 3.42 per cent in
Q4 2020, Industry, supported by growth
in Manufacturing and Construction,
grew by 3.30 percentage points from -
0.25 per cent in Q4 2020. The sectoral
contribution
of
Services
to
GDP,
however, contracted from 1.31 per cent
in Q4 2020 to -0.39 per cent in Q1 2021.
The oil sector, contracted by -2.21 per
cent in Q1 2021, from -19.76 and -13.89
per cent recorded in Q4 2020 and Q3
2020,
respectively.
The
weak
performance in the oil sector is largely
attributable
to
the
decline
in
production, in compliance with the
OPEC+ production cut agreement.

The Committee noted the marginal
growth in the Manufacturing Purchasing
Managers’ Index (PMI) to 49.0 index
points in April 2021 from 48.8 index points
in March 2021. This increase is a lead
indicator of recovery of output growth
following the easing of restrictions to
curtail the spread of the Pandemic. The
Non-manufacturing
PMI,
however,
declined marginally to 47.3 index points
in April 2021, compared with 47.9 index
points in March 2021.

The employment level component of
the
manufacturing
and
nonmanufacturing PMIs rose moderately in
April 2021 to 46.5 and 48.2 index points
from 45.9 and 47.7 index points in March
2021, respectively.

The Committee noted the moderate
decline in headline inflation (year-onyear) to 18.12 per cent in April 2021 from
18.17 per cent in March 2021, following
nineteen
consecutive
months
of
continuous rise. The decrease was
driven by a marginal slowdown in food
inflation to 22.72 per cent in April 2021
from 22.95 per cent in the previous
month. This was partly attributed to the
Bank’s massive interventions in various
sectors of the economy to stimulate
aggregate
demand
and
boost
production, particularly for Small and
Medium Scale Enterprises. The MPC,
however, noted that headline inflation
remained well above the ceiling of the
CBN Monetary Policy Review

Bank’s 6-9 per cent inflation corridor as
a result of a combination of factors,
including:
the
heightened
security
tensions in the country and deteriorating
public infrastructure. As a result, the
Bank expressed its support to the
Federal Government’s commitment to
tackle insecurity as this will improve the
business environment and encourage
economic activities to reduce inflation.
The MPC was also mindful of the impact
of exchange rate pressures resulting
from capital flow reversals associated
with the COVID-19 shock, as investors
sought for safe havens. It, however,
applauded extant measures by the
Bank in ensuring both liquidity and
stability in the Foreign Exchange market
as well as moderating the exchange
rate pass-through to inflation.

On the performance of monetary
aggregates, the Committee noted that
broad money supply (M3) grew by 1.15
per cent in April 2021, compared with
0.04 per cent in March 2021. This
development was largely driven by
growth in Net Domestic Assets (NDA),
while
Net
Foreign
Assets
(NFA)
contracted. The growth in Net Domestic
Assets reflects the growth in aggregate
credit supported by the ongoing broad
based monetary and fiscal stimulus.
Accordingly, gross banking sector credit
at end-March 2021 stood at N23.53
trillion compared with N22.68 trillion at
end-December 2020. This represents an
increase of N0.85 trillion (year-to-date),
of which commercial & merchant banks
disbursed (N0.66 trillion), microfinance
banks
(N0.13
trillion),
development
finance institutions (N0.05 trillion), and
primary mortgage banks and finance
companies (N0.01 trillion).

The liquidity condition in the banking
system
in
the
review
period
was
determined by several factors including;
fiscal disbursements and withdrawals by
states and local governments, periodic
CRR
debits,
foreign
exchange
interventions, Open Market Operations,
and maturing CBN bills, the net effect of
which imposed liquidity constraints on
the banking system.

The Committee noted the moderate
decline in the equities market (year to
date) as the All-Share Index (ASI)
decreased by 1.97 per cent to 38,287.58
on May 24, 2021 from 39,045.13 on
March
30,
2021.
Similarly,
Market
Capitalization (MC) decreased by 4.30
per cent to N19.96 trillion on May 24,
2021 from N20.82 trillion on February 26,
2021.

The MPC noted that the Capital
Adequacy Ratio (CAR) and the Liquidity
Ratio (LR) both remained above their
prudential limits at 15.8 and 38.9 per
cent, respectively. The Non-Performing
Loans (NPLs) at 5.89 per cent in April
2021, showed progressive improvement
compared with 6.6 per cent in April
2020. The MPC, however, urged the
Bank to sustain its tight prudential regime
to further reduce the level of NonPerforming Loans in the industry.

The Committee noted the external
reserves declined marginally to US$34.17
billion as at May 21, 2021, from US$34.29
billion as at end-April 2021. This reflects
CBN Monetary Policy Review

sales to the foreign exchange market
and third-party payments.

Outlook
The
optimism
for
medium-term
macroeconomic recovery in both the
global and domestic economies is slow,
but steadily growing, even as some level
of uncertainty are still present. This is due
to the unabating COVID-19 pandemic
in some countries such as India and
Brazil caused by mutation of the virus
into more fatal strains. In addition, the
recovery is uneven and seem to be
more tilted towards countries that have
high vaccination rate than those less
vaccinated or that are still suffering from
the effects of more fatal strain of COVID19 disease. As conditions improve
however, central banks of Advanced
Economies are beginning to signal the
possible
shift
to
monetary
policy
normalization by the fourth quarter of
2021.

Available data and forecasts for key
macroeconomic
variables
for
the
Nigerian economy, suggest that output
growth will continue to recover for the
rest of 2021. This is premised on the
continued support for agriculture to
improve food supply, reduce inflation
and
improve
employment.
Others
include efforts of both the monetary
and
fiscal
authorities
to
improve
infrastructure challenges in the country.
The forecast for the Nigerian economy
for 2021 is, thus, strong domestic push to
support recovery particularly to ensure
an end to insecurity in the country.
Consequently,
as
the
productive
capacity of the economy improves and
the supply chain fully restored, we
expect inflationary pressure to ease
further, as the supply of goods and
services offset demand.

The Committee’s Considerations
At this meeting, the MPC recognized
that the twin problems confronting the
Nigerian
Economy
that
must
be
addressed
relates
to
stagflation,
reflected
in
rising
inflation
with
simultaneous contraction in output.

Committee further recognized that the
strategies put in place to rein in inflation
through
the
use
of
series
of
administrative measures by the Bank to
control money supply through liquidity
mop up in the banking industry had
started to yield results. It also recognized
that measures put in place to stimulate
output growth through the use of its
intervention facilities to inject liquidity
into
employment
generating
and
output stimulating initiatives like the
Anchor Borrower Program, Targeted
Credit Facility and Agri-Business Small
and
Medium
Enterprise
Investment
Scheme (AGSMEIS) had started to yield
results.

In the view of the MPC, although the
economy had successfully exited the
recession, the recovery was very fragile
given that the GDP of 0.51 per cent was
still far below population growth rate.
Committee therefore was of the view
that, there is a strong need for the
Monetary Authorities to consolidate on
all administrative measures taken not
only to rein in inflation, but also on the
actions so far taken to grow output.
CBN Monetary Policy Review

In the Committee’s view, such measures
should include boosting consumption
and investments, as well as diversifying
the base of the economy through FX
restrictions for the importation of goods
and
food
products
that
can
be
produced in Nigeria. It also urged the
Bank to continue to put in place
measures that will boost export earnings.
On consumption and investment, MPC
noted that the intervention facilities
under the Anchor Borrowers was N631.4
billion granted to 3,107,949 small holder
farmers cultivating 3.8 million of land
hectares; for the AGSMEIS, N111.7 billion
to 29,026 beneficiaries; and for the
Targeted Credit Facility, N253.4 billion to
548,345
beneficiaries
-
comprising
470,969 households and 77,376 SMEs.
Notwithstanding that all these have
helped in boosting output, the Bank
should continue to aggressively increase
its interventions in these subsectors,
including agricultural processing and
manufacturing. Under the National
Youth Investment Fund, N2.04 billion was
disbursed to 7,057 beneficiaries, of
which 4,411 were individuals and 2,646
were SMEs. Under the Creative Industry
Financing
Initiative,
the
CBN
has
disbursed
N3.19
billion
to

beneficiaries across movie production,
movie distribution, music and software
development.

Under
the
N1
trillion
Real
Sector
Intervention, N856.3 billion had been
disbursed for 233 real sector projects, of
which 77 are in light manufacturing, 36
in agro-based industry, 30 in services
and 11 in mining. Under the N100 billion
Healthcare Support Intervention fund,
N97.4 billion has been disbursed for 91
health care projects, of which 26 are
pharmaceutical
and

hospital
services. Also, N232.5 million has been
disbursed to 5 beneficiaries under the
CBN Health Care Grant for Research on
Covid-19 and Lassa Fever. Under the
National Mass Metering program, N35.9
billion has been disbursed to 9 DisCos for
the acquisition of 656,752 electricity
meters. Under the Nigerian Electricity
Stabilization Facility 2 (NEMSF-2), N93.8
billion has also been disbursed to 11
DisCos.

The Committee members applauded
Government’s efforts in combating the
headwinds imposed by the Pandemic
and
urged
that
going
forward,
Government should avoid an entire
nationwide
lockdown
like
was
experienced in 2020, as this will reverse
the wholesome gains jointly achieved
between the Government and the
Central
Bank
in
response
to
the
outbreak of the Pandemic.

The MPC carefully assessed the options
on direction of policy in the short to
medium term. It re-appraised current
measures
by
the
Government
to
purchase COVID-19 vaccines and the
general preparedness of relevant public
health agencies to guard against the
spread of the mutating strains of the
virus. To this end, the Committee noted
the appropriate steps taken by the
Government to ensure that up to 70 per
cent of the populace get vaccinated to
drastically drive down the infection rate
in the country and hence, sustain
economic activities.
CBN Monetary Policy Review

The Committee noted the persisting
security crisis, especially in major food
producing regions of the country and
the severe toll on food supply and
prices. It noted that inflation had
moderated marginally due to the
unrelenting
effort
of
the
Bank
in
supporting agriculture to boost food
supply and prices. The Committee, thus,
re-iterated its call to the Government to
intensify effort towards addressing the
security situation in the country to ease
supply bottlenecks and bring down
food prices. The MPC further noted
Government’s
commitment
towards
investing in public infrastructure despite
constrained fiscal position and urged a
continued focus on this objective, while
exploring
the
option
of
effective
partnership with the private sector, as
improved
road
networks,
telecommunications and power supply
will greatly and proactively impact the
supply chain and moderate price
increments. It further noted the need for
collaboration
with
Nigeria’s
huge
diaspora, through the issuance of
diaspora bonds targeted at specific
infrastructure projects. Even as the
Committee noted that the public debt
stock was currently high, it was of the
view that project specific diaspora
bond issues could conveniently pay
itself back without imposing a burden on
Government finances. It noted the
complementary role this would play in
boosting
foreign
exchange
supply,
accretion to reserves and easing of the
current exchange rate pressure.

The Committee noted that the equities
market remained stable, an indication
of investor confidence in the Nigerian
economy in the medium-term. The MPC
thus urged the Bank to maintain its
collaboration with the fiscal authority to
improve the investment climate towards
attracting sustainable Foreign Direct
Investment (FDI).

With the developments in the Banking
system, the Committee applauded the
efforts of the CBN in ensuring a
reasonably
low
level
and
steady
reduction
in
Non-Performing
Loans
(NPLs),
even
as
aggregate
credit
continued to expand through the crisis
period. While NPLs remained marginally
above the Bank’s regulatory threshold,
members noted that it was in line with
the current state of macroeconomic
imbalances
occasioned
by
the
Pandemic.

The Committee’s Decision
The
recent
developments
in
the
domestic
economy
presented
two
broad options to the MPC, which were
to either aggressively address the high
inflationary pressure or continue to
pursue measures aimed at supporting
the recovery.

Whereas
the
Committee
remained
overwhelmingly
committed
to
supporting the efforts of the Federal
Government in ensuring full restoration
of the productive capacity of the
economy, members remained much
more focused towards achieving price
stability in the short to medium-term. The
MPC noted that economic growth
could be hampered in an environment
of unstable prices. To this end, the
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choice
therefore
was
between
loosening the stance of policy to ease
credit further or tighten to moderate
price development or maintain a hold
stance in order to allow previous policy
measures continue to permeate the
economy while observing global and
domestic developments.

The
Committee
noted
that
an
expansionary stance of policy could
transmit to reduced pricing of the loan
portfolios of Deposit Money Banks and
result, therefore, in cheaper credit to the
real sector of the economy. On the
converse, this expected transmission
may
be
constrained
by
persisting
security challenges and infrastructural
deficits.

On
the
other
hand,
while
a
contractionary stance will only address
the monetary component of price
development, supply side constraints
such
as
the
security
crisis
and
infrastructural deficits can only be
addressed by policies outside the
purview of the Central Bank. A tight
stance in the view of members, will also
hamper
the
Bank’s
objectives
of
providing low cost credit to households,
Micro Small and Medium Enterprises
(MSMEs), Agriculture, and other output
growth and employment stimulating
sectors of the economy.

Based on the above considerations, the
MPC made the decision to hold all
policy parameters constant.

The Committee thus decided by a
unanimous vote to retain the Monetary
Policy Rate (MPR).
In summary, the MPC voted to:
I.
Retain the MPR at 11.5 per cent;
II.
Retain the asymmetric corridor of
+100/-700 basis points around the
MPR;
III.
Retain the CRR at 27.5 per cent;
and
IV. Retain the Liquidity Ratio at 30 per
cent.

Thank you.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
25th May 2021