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CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 143 OF THE MONETARY POLICY
COMMITTEE MEETING HELD ON MONDAY 18th AND TUESDAY 19th July 2022
The Monetary Policy Committee (MPC) met on the 18th and 19th of July 2022,
confronted with heightened macroeconomic uncertainties, broad based
inflation across countries, and weakening global recovery associated with the
ongoing Russian-Ukraine war, as well as backlash from a wide range of
sanctions imposed on Russia. The Committee reviewed developments in the
global and domestic economies in the second quarter of 2022 and the outlook
for the rest of the year. Majorly, these developments include the unabated rise
in global inflation, driven by the disruptions to the global supply chain;
tightening global financial conditions as several advanced economies pursue
an aggressive regime of monetary policy normalization; declining global trade;
and growing risks to financial stability, associated with the burgeoning global
private and public debt profile.

Eleven (11) members of the Committee attended this meeting.
Global Economic Developments
The Committee noted with concern, the downtrend in global recovery,
aggravated by supply chain disruptions as a result of the Russia-Ukraine conflict
and the spillbacks and spillovers from sanctions imposed on Russia by the US
and its allies. This has resulted in an unprecedented rise and widespread global
inflation which is exacerbating downward pressure on the fragile recovery of
the global economy. In addition, lingering headwinds associated with the
COVID-19 pandemic are constraining the smooth functioning of the global
supply chain. The rising risk of tightening global financial conditions, implies that

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developing economies now face the risk of constrained access to global
capital which would further depress growth in this group of economies. This is
expected to result in increased financial vulnerabilities due to the huge volume
of corporate and public debt accumulated in the wake of the sharp downturn
driven by the COVID-19 lockdown. In the light of these developments, the key
risk confronting the global economy is that of a recession which may crystalize
as second quarter growth figures for major advanced and developing
economies begin to emerge. Consequently, the International Monetary Fund
(IMF) in its April 2022 World Economic Outlook (WEO), downgraded its global
output growth forecast for 2022 and 2023 to 3.6 per cent apiece from 4.4 and
3.8 per cent, respectively, with the likelihood of a further downgrade, given the
continued deterioration in output growth.
Inflation in several advanced economies pushed higher and further away from
the long-run objectives of their central banks, reflecting the sustained increase
in the price of food, energy, and other commodities due to the harsh
combination of persisting supply chain disruptions and pent-up demand. In the
Emerging Markets and Developing Economies (EMDEs), inflation is also on the
rise, compounded by legacy structural challenges as well as heightened
exchange rate pressures, driven by rising capital flow reversals in addition to the
outlined shocks from the global economy.
In the financial markets, available data suggests that investors are now
rebalancing their portfolios away from gold and equities to fixed income
securities, to take advantage of rising yields in the advanced economies as
major central banks progress with interest rate hike. Consequently, the
tightening of global financial conditions is expected to heighten investment
and debt default risks, leading to the likelihood of a broad economic slowdown.
Domestic Economic Developments
According to the National Bureau of Statistics (NBS), Real Gross Domestic
Product (GDP) grew by 3.11 per cent (year-on-year) in the first quarter of 2022,
compared with 3.98 per cent in the fourth quarter of 2021 and 0.51 per cent in

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the corresponding period of 2021. The economy has thus grown for six
consecutive quarters, following its exit from recession in 2020. This consistent
positive performance was driven largely by the continuous growth in the nonoil sector, specifically, in the services and agriculture subsectors; ongoing policy
support post-COVID lockdown; and the base effect from the corresponding
period.
Staff projection showed that the economy is expected to remain on a path of
sustained positive growth observed in the last few quarters. The Committee also
noted that both the Manufacturing and Non-Manufacturing Purchasing
Managers’ Indices (PMIs) increased above the 50-index point benchmark to
51.1 and 50.3 index points in June 2022, compared with 48.9 and 49.9 index
points, respectively, in May 2022. This reflects the continued rebound in
economic activities due to improvements in supplier delivery time; raw materials
inventory; employment levels as well as expansion in some sectors such as
agriculture, accommodation, electricity, amongst others.
The Committee noted with concern the persisting uptick in headline inflation
(year-on-year) to 18.60 per cent in June 2022 from 17.71 per cent in May 2022,
an 89-basis point increase in just one month. This continued increase in inflation
was driven by increases in both the core and food components to 15.75 and
20.60 per cent in June 2022. The considerable rise in core inflation resulted
largely from the rising cost of production due to high energy prices associated
with the persistent disruptions to power supply, hike in electricity tariff, continued
scarcity of Premium Motor Spirit (PMS), and rising price of Automotive Gas Oil
(AGO). The increase in the food component was, however, driven by shocks
to food prices associated with continued insecurity in food producing areas
and along major access routes across the country; the continued impact of the
war in Ukraine on the supply of fertilizer inputs, wheat and other grains;
exchange rate pressures; and the impact of monetary policy normalization on
capital flows away from emerging markets. The Committee, however,
expressed confidence in the Bank’s sustained intervention programmes, noting

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that inflation is expected to abate as food supply improves and the fiscal
authority sustain its efforts to tame the legacy structural challenges which put
upward pressure on domestic price levels. Members, therefore, urged the fiscal
authority to expand and sustain its support for all the recently deployed stimuli
to the real sector of the economy.
The MPC noted that broad money supply (M3) rose significantly to 11.52 per
cent in June 2022, compared with 10.86 per cent in May 2022. This was largely
driven by the growth in Net Domestic Assets (NDA) of 18.02 per cent in June
2022, compared with 17.37 per cent in the previous month. The sustained
growth in Net Domestic Assets (NDA) was attributed to the increase in claims on
the Federal Government and other sectors (public nonfinancial corporations,
private sector, and state and local governments).

Money market rates oscillated within the asymmetric corridor, reflecting
prevailing liquidity conditions in the banking system. Consequently, the monthly
weighted average Open Buy Back (OBB) and Inter-bank Call rates increased in
June 2022 to 10.89 and 11.10 per cent, from 9.39 and 8.38 per cent in May,
respectively. The increase in both the Open Buy Back (OBB) and Inter-bank Call
rates reflected the tight liquidity conditions in the banking system.
The Capital Adequacy Ratio (CAR) and the Liquidity Ratio (LR) both remained
above their prudential limits at 14.1 and 42.6 per cent, respectively in June 2022.
The Committee, noted the reduction in the Non-Performing Loans (NPLs) ratio to
4.95 per cent in June 2022, compared with 5.7 per cent in June 2021. The MPC,
thus, urged the Bank to sustain its tight prudential regime to ensure that the NPLs
ratio is brought well below its prudential benchmark.
The MPC noted the very moderate decline in the performance of the equities
market in the review period, as the All-Share Index (ASI) and Market
Capitalization (MC) moderated to 51,817.59 and N27.94 trillion on June 30, 2022,
from 52,990.78 and N28.56 trillion on May 31, 2022, respectively. The market,
however, remains resilient, reflecting continued confidence in the Nigerian

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economy, as both the monetary and fiscal authorities work assiduously to
improve macroeconomic fundamentals in Nigeria.

The Committee noted the marginal increase of 1.61 per cent in the level of
external reserves to US$39.22 billion at end-June 2022 from US$38.60 billion at
end-May 2022 due to the increase in inflows from non-oil sources.
The Committee reviewed the performance of the Bank’s intervention
programmes
targeted
at
stimulating
productivity
in
agriculture,
manufacturing/industries, energy/infrastructure, healthcare, exports and micro,
small & medium enterprises (MSMEs). Between May and June 2022, under the
Anchor Borrowers’ Programme (ABP), the Bank released the sum of N3.62 billion,
as disbursements to 12 projects for the cultivation of rice, wheat, and maize,
bringing the cumulative disbursement under the Programme to N1.01 trillion, to
over 4.21 million smallholder farmers cultivating 21 commodities across the
country. The Bank also disbursed N3.72 billion to finance three (3) large-scale
agricultural projects under the Commercial Agriculture Credit Scheme (CACS).
These disbursements brought the cumulative disbursements under this Scheme
to N744.32 billion for 678 projects in agro-production and agro-processing.
As part of its effort to support the manufacturing sector, the CBN disbursed the
sum of N113.08 billion to 19 new projects under the Real Sector Facility. The funds
were utilized for both greenfield and brownfield projects under the COVID-19
Intervention for the Manufacturing Sector (CIMS) and the Real Sector Support
Facility from Differentiated Cash Reserve Requirement (RSSF-DCRR). Cumulative
disbursements under the Real Sector Facility currently stands at N2.183 trillion for
the financing of 414 real sector projects across the country. Furthermore, under
the 100 for 100 Policy on Production and Productivity, the Bank has released
N9.98 billion for five (5) projects, bringing the cumulative disbursements under
the intervention to N68.13 billion for 48 projects, comprising twenty-six (26) in
manufacturing, seventeen (17) in agriculture, three (3) in healthcare and two (2)
in the services sector.

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In the healthcare sector, the Bank disbursed N4.44 billion to three (3) healthcare
projects under the Healthcare Sector Intervention Facility (HSIF), bringing the
cumulative disbursements to N133.42 billion for 129 projects, comprising seventysix (76) hospitals, thirty-two (32) pharmaceuticals and twenty-one (21) other
healthcare services. To further expand the nation’s non-oil export basket under
the Export Facilitation Initiative (EFI), the Bank released the sum of N36.00 billion
for five (5) projects in domestic production and value addition of cocoa and
sesame seeds towards improving non-oil foreign currency revenue.

To improve electricity supply in order to lower the overall cost of production in
the real sector, the Bank also intervened in the power sector to facilitate the
deployment of enabling infrastructure. Summarily, the sum of N2.53 billion was
disbursed to Distribution Companies (DisCos) for their Operational Expenditure
(OpEx) and Capital Expenditure (CapEx), under the Nigeria Electricity Market
Stabilization Facility – Phase 2 (NEMSF-2). Cumulative disbursement under the
NEMSF-2 currently stands at N254.46 billion. Under the National Mass Metering
Programme (NMMP), the Bank disbursed N47.82 billion for the procurement and
installation of 865,956 meters across the country.

Outlook

The broad outlook for both the global and domestic economies in the mediumterm remain clouded with uncertainties associated with headwinds, such as the
substantial disruptions to the supply chain, the Russian-Ukraine war and the
lingering impact of the COVID-19 pandemic. Others include the rising level of
corporate and public debt in the Advanced Economies and Emerging Market
and Developing Economies; as well as the broad shocks to foreign capital flows
driven by the aggressive normalization of monetary policy in some of the
Advanced Economies.
On the domestic front, available data on key macroeconomic variables
indicate the likelihood of a subdued output growth for the Nigerian economy in

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2022. This is hinged on ongoing and expected shocks from the global economy,
particularly from supply blockages of essential exports from both Russia and
Ukraine; the impact of high crude oil prices, given Nigeria’s position as an oil
exporter and importer of refined petroleum products; and the aggressive
normalization by some Advanced Economies. Accordingly, the Nigerian
economy is forecast to grow in 2022 by 3.33 per cent (CBN), 4.20 per cent (FGN)
and 3.40 per cent (IMF).

The Committee’s Considerations
The Committee assessed the impact of emerging external shocks and legacy
issues on price development and the recovery of output growth in the short to
medium term. Members further noted the continued effort by both the
monetary and fiscal authorities to dampen price pressures and sustain the
recovery of output growth.
In the opinion of Members, the major external shocks to the economy remained
those associated with the supply constraints arising from the Russia-Ukraine war
and backlash from sanctions imposed on Russia; residual impact of the COVID19 pandemic; and tightening external financial conditions, following the
aggressive normalization of monetary policy by some advanced economy
central banks. On the domestic scene, Members assessed the impact of the
continued upsurge in money supply resulting from the increased demand for
money, associated with election spending and increase in month-on-month
inflation between May and June 2022. In addition, the Committee assessed the
continued impact of rising insecurity, the rising cost of Automotive Gas Oil
(AGO), and the persisting upward pressure on other energy prices on the
general price level.
The MPC noted that the current upsurge in price levels remains a primary
concern to monetary policy as Members focused on the optimal policy
approach required to address this development while protecting the fragile
recovery. The Committee clearly identified that inflationary pressure was being

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driven by both demand and supply-side factors, which should be addressed
using different policy approaches. In the Committee’s view, the demand-side
factors were being broadly addressed by the Bank, using the relevant direct
and indirect instruments. On the supply side, the Bank has continued to provide
the necessary support, through its development finance initiatives in the real
sector, to ease supply constraints. The Committee called on the Federal
Government to prioritize efforts to curb the menace of insecurity to enable
farming and other business activities return to normalcy. The MPC thus called
on the Bank to continue its support to increase food supply in a bid to
addressing food inflation. Members also noted the upward price pressure,
particularly on transportation, resulting from the prolonged scarcity of Premium
Motor Spirit (PMS) and called on the Federal Government to seek a long-term
and viable solution to strike a balance between the pricing and supply of PMS
in Nigeria.
The Committee appraised the continued recovery of output growth, noting
that despite the obvious external and internal headwinds, the recovery has
remained resilient with hopes of a stronger medium-term recovery. This is
however, hinged on the continued support by the Bank and the Federal
government to ensure that recent economic gains are sustained.
The MPC welcomed the Bank’s concerted efforts towards ensuring exchange
rate stability, noting the current difficulties associated with managing the
stream of external shocks impacting the economy. The Committee applauded
the performance of the RT200 and similar initiatives targeted at improving
accretion to reserves and stabilizing the exchange rate. The MPC noted that
foreign exchange inflow through the RT200 FX Programme in Q1 and Q2, 2022,
had increased substantially to approximately US$600 million as at June 2022.
Members also noted the increase in Diaspora remittances as a result of the
Naira for Dollar incentive and urged the Bank not to relent in its efforts to
encourage foreign exchange inflow to the economy.

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The Committee noted the Federal Government’s increasing debt profile and
expressed concerns over debt sustainability given that global uncertainties
remain elevated. The MPC thus reiterated its call to the Federal Government
to urgently diversify its revenue sources through various initiatives, such as, the
development of a viable tax framework for the extractive and mineral export
industries, to strengthen its fiscal buffers.
Despite the apparent headwinds confronting the economy, the MPC noted
that the banking system remained robust given the continued decline in NPLs
below the prudential threshold and enjoined the Bank to sustain the trend by
maintaining its vigorous surveillance to ensure continued resilience of the
banking industry.
The Committee’s Decision
The MPC noted with concern the continued aggressive movement in inflation,
even after the rate hike at its last meeting, and expressed its unrelenting resolve
to restore price stability while providing the necessary support to strengthen the
fragile recovery.
As regards the decision as to whether to tighten, loose or hold, Members were
unanimous and so did not consider both loosening and retaining rates at
existing levels at this meeting. This is because on loosening, the MPC felt it could
worsen the existing liquidity condition in the economy and further dampen
money market rate, necessary to stimulate savings and investment. Members
also felt that loosening would trigger the weakening of the exchange rate
which could pass through to domestic prices.
The MPC did not also consider retaining the policy rate because a hold stance
may suggest that the Bank is not responding sufficiently, to both the global and
domestic price development, as inflation numbers continue to trend
aggressively upwards.
As regards tightening policy stance, Members were unanimous that given the
aggressive increase in inflation, coupled with the resultant negative

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consequences, particularly on the purchasing power of the poor, as well as
retarding growth, there is the need to continue to tighten. However, the policy
dilemma was hinged around the level of tightening needed to rein-in inflation,
without dampening manufacturing output, which could result from the higher
cost of borrowing.
Aside from narrowing the negative real interest rate gap, Members were also of
the view that tightening would signal a strong determination of the Bank to
aggressively address its price stability mandate and portray the MPC’s sensitivity
to the impact of inflation on vulnerable households and the need to improve
their disposable income.
Members also noted that the 150 basis points hike by the Committee in May
2022, had not permeated enough in the economy to halt the rising trend in
inflation and noted that the month-on-month percentage point increase in
headline inflation rose sharply in June 2022 compared with May 2022. The MPC
also noted that other complementary administrative measures deployed by the
Bank to address the growth in money supply did not moderate the inflationary
trend.
Addressing the balance of policy objectives and developments in the global
and domestic environment, the Committee resolved that the most rational
policy option would be to further strengthen its tightening stance in order to
effectively curtail the unabated rising trend of inflation. Members were
conscious of the fact that output growth remained fragile, however, not
curtailing inflation now could erode the moderate gains achieved in improving
consumer purchasing power and thus worsen poverty level for the vulnerable
populace. To ensure that output still remains in focus, the MPC advised the
Bank’s Management to continue to use its development finance tools to
support the agricultural and manufacturing sectors.
The Committee thus voted unanimously to raise the Monetary Policy Rate
(MPR). One member voted to increase the MPR by 150 basis points, six members
by 100 basis points, one member by 75 basis points and three members by 50

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basis points. Consequently, the Committee resolved to increase the MPR by 100
basis points from 13.0 per cent to 14.0 per cent.
In summary, the MPC voted to:
I.
Increase the MPR from 13.0 to 14.0 per cent;
II.
Retain the asymmetric corridor at +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.
I thank you for your attention.
Godwin I. Emefiele
Governor, Central Bank of Nigeria
19th July, 2022

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PERSONAL STATEMENTS BY THE MONETARY POLICY COMMITTEE MEMBERS
1. ADAMU, EDWARD LAMETEK
The Russia-Ukraine war remains the biggest setback to global output recovery
after the coronavirus - induced meltdown in 2020. The war continues to spill
vulnerabilities on several fronts. Rising prices, amidst scarcity of certain
commodities; high energy and food prices; financial market unease as well
exchange rate pressures are some of the immediate fallouts of the war. Huge
volumes of crude, gas and grain are locked up within both countries, while
shortages and price escalations are pushing populations and government to
the edge and towards unavoidable collision. The advanced economies are
experiencing levels of inflation not seen in decades.
In response to these vulnerabilities, especially consumer price pressures, most
central banks have continued to tighten the stance of monetary policy,
notwithstanding its potential adverse effect on output recovery. In April 2022,
the International Monetary Fund (IMF) downgraded growth projections for
nearly all country clusters. The Fund currently projects global output growth for
2022 at 3.6 per cent, a downward revision of the October 2021 projection of 4.4
per cent. Except for low-income developing countries, economic growth is
projected to slow in all the country clusters relative to 2021. Global
manufacturing PMI slowed in June 2022, to 52.2 index points from 52.3 index
points in May 2022, its lowest since August 2020.
While growth softening following a major shock (disease outbreak, war and
geopolitical tensions) is not new to policy makers globally, concurrence of
same with severe inflationary pressures as is currently the case certainly
complicates policy response. Not too many countries can boast of a recent
experience of this kind of complexity. In the circumstance, the outlook for
monetary policy could remain hazy in the short- to medium-term in especially
characteristically
low-inflation
economies.
Given
the
strong
interconnectedness of economies, this uncertainty could affect policy choice
even in countries with recent experience of stagflation. Reality is that monetary

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policy faces difficult choices almost everywhere currently. The Nigerian
economy is not immune to the vulnerabilities engendered first by COVID:19,
followed by the war in Ukraine and, of course, the policy complications from
those vulnerabilities. The bright side, however, is that the outlook for domestic
economic growth continues to be favourable, offering some room for a much
neater policy maneuver.
Against the foregoing background, the Monetary Policy Committee (MPC) of
the Central Bank of Nigeria raised its benchmark rate, the MPR, by 150 basis
points in May 2022. The Committee was clear on intent – to anchor inflation
expectation, principally. By that decision, the Committee signalled its
discomfort with the forecast path of inflation. Two months after, at the July 2022
meeting, there had emerged credible indications that interest rates had started
to rise albeit slowly. I saw the need to do more along the same line to douse
any uncertainty about the direction of policy going forward. I therefore voted
for a further hike in the policy rate at the meeting to communicate
unambiguously a commitment to disinflation. Details of my considerations are
presented subsequently.

First, available statistics (and projections) show clearly that the balance of risks
remains biased against price stability. Although economic growth faces
undeniable challenges globally, early (and impactful) interventions by the CBN,
the private sector as well as the Federal Government of Nigeria (FGN) appear
to have dampened the deleterious spillover effects on domestic output of the
Russia-Ukriane war and the coronavirus pandemic. And so, the outlook for
domestic economic growth in 2022 continues to be robust. Real GDP grew by
3.11 per cent (year-on-year) in Q1-2022, implying sustained recovery of the
domestic economy. Growth was driven mainly by the non-oil sector –
agriculture and services. Sustained policy support (monetary and fiscal) played
a major role with Services and Agriculture growing by 7.45 and 3.16 per cent,
respectively. The overall growth of 3.11 per cent exceeded expectations,
prompting the IMF to revise Nigeria’s growth projection upwards to 3.4 per cent

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from 2.7 per cent. Discounted by expected contraction in Oil & Gas, Staff
forecasts suggest 3.33 per cent growth, only a little shy of the IMF’s. The
economy would be looking at growth of around 5.0 per cent or more if not for
the Oil & Gas sector.
Second, the short- to medium-term outlook for inflation in the domestic
economy continues to be uncertain. Both food and core inflation rose in June,
underpinning acceleration in headline inflation to 18.6 per cent. Staff forecasts
suggest it could rise to 19.2 per cent in July 2022. Current inflation is driven mainly
by increased cost of diesel which led to higher transportation costs; spill-over
effects of the Russia-Ukraine war affecting price and supply of some items;
distribution bottlenecks associated with insecurity; generally rising cost of
imports (linked to exchange rate and rising prices abroad) and monetary
expansion especially of domestic asset. The acceleration in actual inflation and
inflation expectation must be halted.
My third consideration derives from the dominant response to the current
episode of global inflation by central banks. I see two sides to this.
Understandably, most central banks are racing to reduce negative real rates
to improve competitiveness. This is more compelling for the emerging market
and developing economies (EMDEs) where increasing outflow of international
capital is adding to the complications monetary policy faces. The second side
I see is that rising food and commodity prices could mean global inflation
remaining elevated for much longer than previously envisaged. The inflation
narrative has changed. Earlier, price increases were thought to be mainly
transitory; now central banks are walking back that narrative to regain
credibility and hopefully anchor inflation expectation better. This will not be a
simple task by any means - it looks like most of them will be aggressive in
tightening to regain control of expectation and confidence in policy
pronouncements going forward. As I imagine this to be the trend, doing
otherwise locally could leave the Nigerian economy more vulnerable overall.

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Finally, like I stated in May, the evolution of consumer prices in recent months
and its unstable outlook are important grounds for a decisive monetary policy
action. There continue to exist some room for doing so given the positive
outlook for growth. I should emphasise that effective liquidity management
continues to be relevant in the disinflation process. Equally important is
sustained resilience of the banking system. It is comforting to note that at endJune 2022, all major financial soundness indicators (FSIs) were strong. Capital
adequacy ratio (CAR) remained robust at 14.1 per cent; liquidity ratio stood at
42.6 per cent and the ratio of non-performing loans (NPLs) slowed to the
prudential limit of 5.0 per cent. On the strength of the resilience of the banking
system, I expect adequate funding for the critical sectors of the economy.
In conclusion, the adjustment needed to restore macroeconomic stability
carries a huge burden that cannot be borne by the Central Bank or monetary
policy alone. The structural issues at play are enormous. Those cannot be
addressed by monetary policy instruments. I see the need for reform beyond
the borders of monetary policy to deliver a holistic recovery in Nigeria and
almost everywhere else. On the side of monetary policy, I am persuaded that
further tightening of monetary conditions would help to address the demand
factors underlying the inflationary pressures. And so, I voted to:
1. Raise the MPR by 100 basis points to 14.0 per cent.
2. Retain the asymmetric corridor at +100/-700 basis points.
3. Retain the CRR at 27.5 per cent.
4. Retain the Liquidity Ratio at 30 per cent.

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2. ADENIKINJU, ADEOLA FESTUS
International Economic Developments
The outlook for the global economy remains somber in July. The Russian Ukraine
war is not abating. Food inflation and energy prices remain elevated across
countries. China economy is challenged by the implementation of the zero
covid-19 policy, electricity cuts and property related issues. The significant role
of China in the global supply chain means shocks from China are easily
transmitted around the globe. According to the IMF, global output is expected

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to decelerate to 3.6% in 2022. Oil prices moderated briefly in response to the US
interventions in July 2022.
Global trade, commodity prices, as well as capital flows, are faced with major
headwinds, and is expected to decelerate from 10.3% in 2021 to 4.0% in 2022
before rising to 4.3% in 2023. The efforts adopted by central banks around the
world to rein in the surging inflation, has tightened global financial market
conditions, push up global debt stocks, and may likely lead to another global
recession. Most national currencies around the world have depreciated
against the US dollar. There is a real fear that current economic crisis may lead
to political unrest as was the case in Sri Lanka and cause a rise in the number
of migrants from developing countries seeking refuge in developed countries.

Domestic Economic Developments
The Bank Staff presented a report on Global and Domestic Economic
Developments and Outlook. Real GDP in 2022 Q1 dropped to 3.11% from 3.98%
in 2021Q4. While awaiting the real GDP figure for 2022 Q2, leading indicators
have provided mixed results. There was a rise in both manufacturing and nonmanufacturing PMIs in June 2022, as both indices rose above 50.0 index points.
Manufacturing PMI rose to 51.1 index points, while non-manufacturing PMI
stood at 50.3 points. Electricity production, electricity generation and electricity
consumption indices rose marginally in June compared with May 2022.
However, index of industrial production, and index of manufacturing
production declined over the same period.
However, all the inflation indices rose in June. Headline inflation rose from
17.71% in May 2022 to 18.60% in June 2022. This is the highest figure in the past 5
years and is one of the highest levels in the world. Food prices rose to 20.6%,
while core inflation surged to 15.75%. The inflation figures were driven by energy
prices, transportation, prices of bread and cereals, as well as food products,
such as potatoes, yam, and other tubers, wine, oil and fats, meat, and fish.

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Expectedly, Monetary aggregate, M3, increased at an annualized rate of
23.04% in June 2022 compared with the provisional figure of 15.21%. When the
growth in money supply is decomposed, data showed that Net Foreign Asset
(NFA) declined, while Net Domestic Assets (NDA) increased. The rise in the NDA
was accounted for majorly by growth in claims on state, local governments and
on the private sector. Interestingly claims on the Federal Government, though
was above the benchmark, nevertheless, declined in June 2022.
All money market rates rose in June relative to May 2022. Prime lending rate
rose from 11.96% to 12.29%. Maximum lending rate rose to 27.61% from 27.37%.
Average savings rate rose to 1.38% from 1.37%. OBB rate rose to 10.89% in June
2022 from 9.39% in May 2022, reflecting tightness in the interbank market. Real
interest rate on June 2022, 91 days NTB declined from its nominal rate of 2.4% to
0.58% because of rising inflation rate.
The fiscal sector is seriously challenged. Federal Government revenue
underperformed relative to the budget. Between January and March 2022, the
revenue shortfall on pro-rata basis was 49.5%. Both FAAC disbursements and
independent revenue underperformed during the period. Federal Government
expenditure over same period declined only marginally by -2.3%. However, the
decline was more severe for capital expenditure which fell by 30.9%.
Foreign reserves rose marginally to $39.22 billion by end-June 2022, from
US$38.60 billion at end May 2022. The increase was due to rise in foreign
exchange swap transactions, increase in third party receipts and increase in
crude oil related taxes and penalties. Balance of Trade and current account
balances also rose due to the favourable price of crude oil, net inflow of
remittances and decline in imports. Unexpectedly the naira appreciated in the
I&E windows at a time when currencies across the globe are depreciating
against a strong dollar. It is also unexpected at a time the huge demand for
dollars in the commercial banks outstripped supply.

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The Banking System Stability Review Report was also presented at the meeting.
The data shows that the banking system remain safe, sound, and resilient.
Capital Adequacy Ratio declined marginally from 14.6% in April 2022 to 14.4%
in June 2022, but still lies within the prudential requirements. Non-Performing
Loans Ratios declined from 5.3% in April 2022 to 5.0% in June 2022. Liquidity Ratio
at 42.9% in June 2022 was still above the 30% prudential requirements. Interest
margins to total operating income rose marginally between April 2022 and June
2022, however, total operating costs to total operating income declined
marginally, though at 76.5% is much higher than those for comparator countries,
Turkey, 34.1%, South Africa, 61.5% and Malaysia, 37.9%.

My Concern
Inflation remains my major focus at this meeting. Inflation is rising at an
unacceptable rate. Rising inflation is a threat to investment and output growth.
Inflation is lowering real incomes of Nigerians and driving more people to
poverty. Inflation is hurting many Nigerians, whose nominal wages have
remained stagnant for many years. It is dragging down the values of savings,
wages, and pensions for retirees. Price stability is a core function of the MPC,
and hence, the high level of domestic inflation is unacceptable.
There is no doubt that there is monetary component to the rising inflation in
Nigeria. Broad money grew in June by 11.52%, and the Monetary Base is
forecasted to increase even more in July and August, due to increase in CIC
due to election cycle and spendings in Eid Kabir season. The current inflation is
fueling inflation expectations.
The MPC increased the MPR in May. However, it is too optimistic to expect that
the May decision would reverse the inflationary trend at once. Several central
banks have increased their monetary rates more than once in the last few
months. In the first half of this year alone, Brazil has adjusted its monetary rates
5 times, Russia 4 times, Ghana 3 times, USA 3 times, Egypt 3 times and UK 4 times.
Apart from the lag effects expected from the transmission mechanisms from

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policy rates to causal factors of inflation, the underlying causes of the inflation
have not abated.
Nigeria is not unique in inflation being experienced. All countries of the world
are basically addressing same supply factors: energy prices, food prices and
strong dollar. The measures being taken are same: to tighten monetary
expansion. In Africa, Ghana, Egypt, South Africa, along with their counterparts
in Emerging and Developing countries have revised upwards monetary policy
rates a couple of times since the beginning of the year.
On the fiscal challenges confronting the country, there is an urgent need to
jettison the current fuel subsidy policy. While in an election year, the
government may be very reluctant to embark on this policy, it is not impossible
for the government to force the NNPC Ltd to be more efficient and transparent.
There is also a need for increased education and enlightenment of the costs of
the subsidy on the economy, and on most Nigerians. Government should also
ensure that the Compressed Natural Gas (CNG) programme designed to
provide gas as alternative motive fuel for transportation is aggressively
implemented. Improvement in electricity supply will also reduce the amount of
fuel being consumed in the economy, and thereby lower the overall subsidy
payment.
My Vote
In consideration of the worsening inflation, I cast my vote to increase the MPR
by 100 basis points, while retaining all other monetary parameters at their extant
values. Hence, I vote to:
1. Raise MPR by 100 basis points, from 13.0% to 14%
2. Retain CRR at 27.5%
3. Retain LR at 30%
4. Maintain asymmetry corridor around the MPR at +100/-700 basis points.

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3. AHMAD, AISHAH N.
The monetary policy committee (MPC) held its July 2022 meetings against the
backdrop of heightened global risks due to spillover effects of the RussiaUkraine war, and lingering headwinds from the COVID-19 pandemic. The war
continues to weigh heavily on global commodity and energy prices fueling
global inflation, threatening to derail the global growth outlook, and
heightening the possibility of a recession.
Prior to the Russia-Ukraine war, inflationary pressures were building up across
many countries, resulting in rate hikes across advanced and emerging and
developing economies (EMDEs) to curb the rising prices. Even as policy
normalization continues to advance, inflation conditions are worsening at
record levels. For instance, inflation in the United States rose to 9.1 per cent in
June (from 7.0 per cent in May 2022), the worst in 4 decades; similar trends are
reported across the Eurozone and most EMDEs. In response, more central banks
have joined the early responders; thus, interest rates are rising globally at a fast
pace, casting shadows on growth prospects.
The resultant rising yields in advanced economies worsens the outlook for
capital inflows to EMDEs like Nigeria, which is faced with exchange rate
pressures in addition to high and rising inflation and a deteriorating
macroeconomic outlook. This presents a difficult policy terrain for the monetary
authority, especially exacerbated by constricted domestic fiscal space.

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Like the global trend, domestic inflationary pressures continue to intensify.
Headline inflation (year-on-year) rose for the fifth consecutive month to 18.60
per cent in June from 17.71 per cent in May 2022, an 89-basis point increase in
just one month. This was driven by increases in both core and food components
to 15.75 and 20.60 per cent, respectively over the period. The considerable rise
in core inflation resulted largely from rising costs due to high energy prices
associated with the rising price of Automotive Gas Oil (AGO), hike in electricity
tariff, persistent disruptions to power supply and continued scarcity of Premium
Motor Spirit (PMS). Underlying factors for the increase in the food component
include continued insecurity in food producing areas and along major access
routes across the country; the impact of the war on the supply of fertilizer inputs,
wheat and other grains and exchange rate pressures.
The progressing and significant rise in broad money supply (M3) to 11.52 per
cent in June from 10.86 per cent in May 2022 is another negative headwind for
domestic inflation. This rise was driven by sustained growth in Net Domestic
Assets due to growing claims on the Federal, state & local governments and
the private sector).
As the primary mandate of the CBN, it is paramount that the rising price trend is
contained and summarily addressed. Starting with the policy rate, and
complimented by other tools at its disposal, the monetary authority must be
decisive in signaling and actively curtailing the growing domestic price level,
given its potential to erode citizens’ purchasing power and its negative impact
on the most economically and socially vulnerable.
Thankfully, the policy rate is at a level that can accommodate further rate hikes,
whilst limiting the negative impact of rising borrowing costs on businesses. Other
tail winds for inflation include the expected harvest in the next few months and
sustained interventions to ramp up food supply, which should mitigate food
price increases, while coordinated efforts to curb long standing structural and
logistical challenges that adversely impact domestic prices are also being
pursued. The Bank’s exchange rate management strategies, particularly its

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concerted efforts to improve foreign exchange supply from more sustainable
sources such as exports and remittances would be critical to mitigate
exchange rate pass through to domestic prices.
Domestic output growth has remained on a positive trajectory; with six
consecutive quarters of real GDP growth post the pandemic-induced recession
in 2020. Real GDP grew by 3.11 per cent (year-on-year) in the first quarter of
2022, compared with 3.98 per cent in the fourth quarter of 2021 and 0.51 per
cent in the corresponding period of 2021. The expansion was driven largely by
the continuous growth in the non-oil sector, specifically, in the services and
agriculture subsectors; ongoing policy support post-COVID lockdown; and the
base effect from the corresponding period.
This positive growth momentum is expected to persist as reflected in leading
indicators and staff forecasts. Output is projected to grow by 3.3 per cent by
end-2022, while both the Manufacturing and Non-Manufacturing Purchasing
Managers’ Indices (PMIs) increased above the 50-index point benchmark to
51.1 and 50.3 index points in June 2022, compared with 48.9 and 49.9 index
points, respectively, in May 2022. The positive outlook for economic activities is
attributed to the CBN’s interventions in critical sectors and improvements in
supplier delivery time, raw materials inventory, employment levels as well as
expansion in some sectors such as agriculture, accommodation, and
electricity.
Undoubtedly, CBN’s sustained development finance initiatives in the real sector
and complimentary fiscal initiatives, have helped buoy the economy through
these trying times.
The continued resilience of the financial system and flow of credit to the real
economy further strengthens the positive outlook for output expansion. Capital
adequacy as of June 2022 was robust at 14.1 per cent, 410 basis points above
the regulatory minimum of 10 per cent. Industry liquidity was also strong at 42.6
per cent over the same period and supported by significant cash reserve

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requirement buffers available to provide liquidity backstops should banks
require it.
Key industry aggregates also continued their year-on-year upward trajectory
with total assets rising to N65.48 trillion in June 2022 from N53.64 trillion in June
2021, while total deposits rose to N42.03 trillion from N33.85 trillion over the same
period. Gross credit has maintained an upward trajectory since 2019, rising by
N5.02 trillion between June 2021 and June 2022 with significant growth in credit
to Manufacturing, General commerce and Oil & Gas sectors. This notable
increase was achieved amidst continued decline in non-performing loans ratio
from 5.3 per cent in April 2022 to 5.0 per cent in June 2022.
Furthermore, results of stress tests showed resilience of banks’ solvency and
liquidity ratios in response to potential severe macroeconomic shocks.
However, the Bank must remain vigilant to proactively manage probable
macro risks to the financial system such as lingering spillover effects of the
pandemic, winding down industry forbearance portfolio, and other risks to
financial stability such as exchange rate, operational and cyber security risks.
Policy Decision
High and rising inflation presents a serious policy dilemma for the MPC given the
imperative to sustain the growth trajectory, limited tools at its disposal and the
constricted fiscal environment.
The monetary authority must act to better anchor elevated inflation
expectations of economic agents following months of rising inflation and recent
multiple shocks. Interventions and continued funding of the real sector give
room for tightening the monetary policy stance to better anchor inflation
expectations, mitigate demand driven inflation and ultimately preserve output
gains. More importantly, the evolution of consumer prices in recent months and
the uncertain short-term outlook present credible grounds to raise the policy
rate. Finally, the persistent rise in money supply over the last couple of months
signals the growing importance of demand side factors in explaining recent

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inflation trends which requires prompt response by the monetary authority. The
response should, however, take cognizance of the fragile output performance.
Over the last two MPC cycles, I have voted to raise the policy rate gradually.
There are compelling reasons from data provided at this meeting to further
tighten the monetary policy stance. Therefore, I vote to;
1. Raise the MPR by 100 bps to 14.0%
2. Retain the CRR at 27.5%,
3. Retain the liquidity ratio at 30%
4. Retain the asymmetric corridor of +100 and -700 basis points around the
MPR.


4. ASOGWA, ROBERT CHIKWENDU
Policy Decision:

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With the transition from ‘COVID-19 crisis’ to a ‘cost of living’ crisis, several
economies currently face a new dilemma which is already altering the
dynamics of monetary policy making across the globe. Available policy
evidence suggests that only two choices are being considered by Central
Banks, either to leave the benchmark interest rate unchanged so as to facilitate
post-covid-19 economic recovery at home while tolerating the spiralling
inflation rate or to join the bandwagon of global monetary tightening in order
to combat the high inflation rates, but at the same time limiting growth
recovery. While none of the two options may guarantee quick positive results,
balanced and brave decisions are however required early enough so as to
avoid negative impacts and repercussions that may arise due to policy delays.
For countries that have recently increased benchmark rates like Nigeria, the
unfolding scenario may not really warrant a ‘a wait and see approach’ which
understandably some market watchers may prefer. Rather, a further monetary
tightening perspective, at least moderately is required to address the rising
consumer and business inflationary expectations. In this circumstance, I will
therefore vote to:
• Raise the MPR from 13.0 percent to 13.5 percent
• Retain the CRR at 27.5 percent
• Retain the Asymmetric Corridor at +100/-700 basis points
• Retain the Liquidity Ratio at 30.0 percent.
In arriving at this decision, I have assessed the current economic outlook at both
the global and domestic contexts including the potential downside risks. The
highlights of the assessments are presented below.
Global Economic Context:
Since the last MPC meeting in May, risks to global growth have become heavily
skewed to the downside as the ongoing Russia’s invasion of Ukraine may have
fully diminished earlier hopes of full growth recovery from the COVID-19 crisis in
2022. The outlook for global growth has become even more uncertain with

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supply strains worsening, while global inflation is jumping to multi-decade highs
in a number of advanced and emerging markets. CBN staff report show that
the 2022 first quarter real GDP of several advanced and emerging economies
including, USA, United Kingdom, Japan, China, India and Brazil declined
compared with the previous quarter. Although official GDP figures for the
second quarter of 2022 are yet to be released in many countries, available high
frequency indicators seem to suggest that the poor growth trend witnessed in
the first quarter may have extended to the second quarter of 2022 as growth
indicators are rapidly weakening. In the USA, the flash Composite Purchasing
Manager’s Index (PMI) for output fell to 51.2 in June from 53.6 in May 2022,
indicating weak expansion of current economic activities. In China,
eventhough economic activity rebounded in May following the relaxation of
COVID-19 related restrictions and the ongoing policy stimulus, recent timely
surveys of business activity have also indicated a slowdown of economic
conditions in June. Second quarter slack in growth is also expected in the UK
and the European Union with recent forecast dropping sharply as compared
with the first quarter of 2022. In Chile, consumer and business confidence
indicators are already in the negative territory since May, in South Africa, a
contraction of 1.1 percent is expected in the second quarter of 2022, while
growth in the third and fourth quarters is now forecast at 0.7 and 0.4 percentc,
respectively. Overall, the IMF in its April revised forecast, estimates a 3.6 percent
global growth in 2022 before slowing to 2.9 percent in 2023. For the emerging
markets and developing economies (EMDEs), growth is expected to slow from
6.6 percent in 2021 to 3.4 percent in 2022 as the negative spill-overs from the
invasion of Ukraine will likely offset any temporary gains from any expected
increases in commodity exports.
Global inflation has reached multi-decade highs in recent times and remains
unabated even in May and June 2022. The escalating increases in the prices of
fuel, electricity and food partly arising because of Russia’s war with Ukraine is
driving general consumer prices. CBN staff report show that year-on-year
inflation in the US rose by 8.6 percent in May compared with 8.3 percent in April,

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while in the UK, the year-on-year inflation also rose marginally to 9.1 percent in
May from 9.0 percent in the previous month. In the Euro Area, year-on-year
inflation measure rose to 8.6 percent in June 2022 from 8.1 percent in May. For
emerging market and developing economies, the consumer prices presented
mixed fortunes in May and June. While countries such as India, China, Brazil and
Australia experienced a moderating or sometimes unchanged inflation rates in
May as compared with April, such other countries as Chile, South Africa, Nigeria,
Egypt and Ghana witnessed accelerating year-on-year inflation rates in May
which even deteriorated by June 2022. Overall, the inflation expectations of
consumers and businesses have continued to rise, but the market expects a
marginal decline towards 2022 year-end especially if the underlying global
shocks begin to partially subside.
Global financial markets continue to be volatile, similar to the position at the
MPC meeting in May with increasing risk aversion levels due to higher interest
rates and weaker earnings outlook. Major stock market indices declined further
in June, which has been the trend since February 2022. Government bond
yields in major countries have witnessed increased fluctuations between June
and July 2022 attributable to recent monetary policy announcements. The US
dollar has remained strong as more countries face huge capital outflows even
amidst growing uncertainty. CBN staff report show that asides the Russian
rubble and Mexican peso, all other major currencies in both developed,
emerging and developing countries depreciated against the US dollar.
In terms of policy reaction, between the periods June to July, almost all Global
Central Banks have continued the ‘policy rates normalization path’ in addition
to massive withdrawal of monetary accommodation in response to the rising
inflationary pressures. This approach is considered useful at least to realign the
respective country’s domestic economic demand with the supply. CBN staff
report show that the US Federal Reserve pushed up its policy rate by 75 basis
points, while the Bank of England moved a further 25 basis points in June 2022.
Also in June, the Central Bank of Brazil and the Reserve Bank of India adjusted
their policy rates upwards by 75 basis points and 50 basis points, respectively.

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The wave of monetary tightening continued in July 2022 as inflationary pressures
remains unabated. The Central Bank of Chile raised policy rates by 75 basis
points, while the European Central Bank raised the three key ECB interest rates
by 50 basis points. Other Central Banks that have raised policy rates recently
include, the State Bank of Pakistan by 125 basis points, the Reserve Bank of
Australia by 50 basis points, the US Federal Reserve by ‘a second consecutive’
75 basis points and the Bank of Korea by 50 basis points. In Sub-Sahara Africa,
policy rates-increases also flourished between June and July 2022 as a way to
address the pervasive inflationary pressures. The Bank of Botswana increased
policy rate by 50 basis points in June, while the South African Reserve Bank and
the Bank of Uganda increased policy rates in July by 75 basis points and 100
basis points, respectively. It is expected that the future policy rate path will be
partly dependent on how quickly the supply constraints emanating from the
Russia-Ukraine conflicts dissipates and lowers the inflation expectations.
Domestic Economic Context:
There are some encouraging progress in the domestic economic context since
the last MPC meeting in May 2022, eventhough several adverse indicators seem
to have overshadowed the positive news. A strong optimism however exists for
the second half of 2022 which is expected to witness more expansion of the
domestic economy despite the current risks.
On growth for instance, Nigeria’s impressive rebound from the effect of Covid19 has continued in June, similar to the position at the last MPC meeting in May
2022 but the second quarter real GDP figures have not been released. In the
first quarter, economic activity grew by 3.11 percent (y-on-y), compared with
3.98 percent in the fourth quarter of 2021 and 4.03 percent in the third quarter
of 2021. On a quarter-on-quarter basis, there was actually a significant
contraction in real output growth in the first quarter by -14.66 percent
compared with the 9.63 percent quarter-on-quarter growth in 2021 fourth
quarter. Markets are however bracing for a reading of the second quarter 2022
GDP results soon that could show further domestic growth strengthening.

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Available high frequency indicators suggest strong improvements since the last
MPC meeting. Manufacturing PMI stood at 51.1 index points in the month of
June 2022 compared with 50.1 and 48.9 index points in May and April 2022
respectively, while Non-manufacturing PMI rose to 50.3 index points in June from
49.8 index points in May 2022. Other demand indicators including household
consumption increased month-on-month between May and June 2022.
Looking ahead, growth projection is now revised upwards in the remaining
quarters of 2022 supported by sustained growth in the non-oil sector such as
agriculture and services.
In terms of domestic inflation, the pressure keeps mounting with latest numbers
showing a broad based increase and practically matching earlier forecasts in
April and May. Headline inflation (year-on-year) hit 18.60 percent in June 2022
from 17.71 percent in May 2022, while its core component moved to 15.57
percent in June 2022 from 14.90 percent in May. The food component also
increased from 19.50 percent in May to 20.60 percent in June 2022. The main
surprise is that about 90 percent of the items in the CPI basket experienced
increases in June as compared with less than 80 percent in April and May. This
may be an indication that in addition to production and distribution
bottlenecks, the growing domestic demand may also partly be contributing to
the general price increases.
The external sector recorded strong improvements in quarter 1 of 2022
eventhough a Balance of Payments deficit still exist. The current account
balance had four consecutive quarters of surpluses with a very significant
improvement in the first quarter of 2022. The obvious drag is the capital account
balance which remained at zero in the first quarter thus resulting in the
continued deficit position of the overall Balance of Payments. Interestingly, the
external reserves have resumed an upward trajectory since April and recently
moved from US$38.60 billion at end-May to US$39.22 billion at end-June 2022.
This will hopefully attenuate pressures at the NAFEX and I&E foreign exchange
market windows and also ameliorate the uncertainty that is triggering the sharp
naira depreciation at the ‘unrecognised’ parallel exchange market.

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The fiscal sector risk appears to be worsening since the last MPC meeting on the
back of deteriorating government revenues amidst increasing expenditure
needs. CBN staff report show that fiscal deficit as at March 2022 was 70 percent
above the deficit recorded in 2021 quarter 1. The government revenues are yet
to increase significantly despite the high oil prices which has hovered at over
US$100 per barrel, way above the 2022 Budget Benchmark of US$62 per barrel,
mainly because of the recent surge in oil theft across the country. With debt
service obligations now threatening to catch up with revenue receipts, it is
critical to commence a process of fiscal consolidation which will help to ensure
that debt sustainability is guaranteed even with the high government financing
needs.
The domestic financial sector recorded a mixed performance when compared
with the position at the last MPC meeting in May. While the banking industry
remains robust with a positive outlook, the stock market appears to be rapidly
weakening. For the banks, the declines in non-performing loans ratio (NPLs) from
5.3 1 percent in April to 5.20 percent in May and further to 4.95 percent June
2022 as well as increases in total assets between May and June 2022 are
encouraging indicators of increased system soundness and resilience. In
addition, growth in total industry credit had remained strong in June despite the
policy rate increases at end-May 2022. On the other hand, the stock market
performed poorly as both the All Share Index and the Aggregate Market
Capitalization dropped significantly between May and June 2022. While CBN
staff report attribute this downward stock market trend to dovish sentiments
arising from policy rate hikes, the perceived volatility within that period smacks
of uncertainties and disorderly market dynamics.

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5. OBADAN, MIKE IDIAHI
INTRODUCTION
Since the last Monetary Policy Committee Meeting in May 2022, there have
been no encouraging developments in the global and domestic economies.

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Rather, macroeconomic uncertainties and vulnerabilities have continued to
characterise the global economies with serious implications for global and
domestic economic recovery. The global economy has continued to be
threatened by the unabated war between Russia and Ukraine; and the
lingering impact of the covid-19 pandemic. Although most economies are
moving on as if the pandemic has been tamed, its impact in some economies
such as China, combined with other shocks has sustained global supply chain
disruptions. The pandemic appears to have been dwarfed by the impact of the
raging war between Russia and Ukraine. Access to supplies of crucial
commodities, such as crude oil, gas, grains, among others, from the two
countries has been highly constrained, thus exacerbating global inflation and
raising it to historical levels in some countries.
GLOBAL DEVELOPMENTS AND IMPLICATIONS FOR THE NIGERIAN ECONOMY
The Nigerian economy is highly globalised in that the country engages in
importation and exportation of large volumes of goods and services as well as
capital. Trade accounts for a significant proportion of the gross domestic
product. Consequently, shocks in the global economy are easily transmitted to
the domestic economy through import and export prices, exchange rate
changes, and international interest rates/capital flows, sometimes with
debilitating impact on macroeconomic variables such as the GDP, domestic
inflation, foreign exchange earnings, external reserves, exchange rate and
even domestic public finances, among others. Most of the current
macroeconomic challenges facing the Nigerian economy are externallydriven, while domestic shocks are also visible.
Global economic growth.
Global economic recovery has been highly impacted by the unrelenting
Russian-Ukrainian war and the associated sanctions imposed on Russia, mostly
by the western countries. Indeed, there is the fear that the global economy
may plunge into recession. The global socio-economic situation is confronted
with notable downside risks to growth and upside risks to price development.

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The headwinds have, on average, pushed commodity prices to historic highs,
worsened supply chain disruptions, and lowered household and business
confidence, thus dampening the rebound in global economic activities.
Already, global output forecasts for 2022 and 2023 have been downgraded by
the International Monetary Fund (IMF) in its April 2022 World Economic Outlook
(WEO). Global output growth has been downgraded to 3.6 per cent for each
of the two years. The indications are that further downgrade may occur in its
July 2022 review. Already the US economy is reported to have contracted by
1.6% in Q1, 2022. Other economies that experienced contraction in Q1 are the
Euro area, Japan and Nigeria (quarter-on-quarter) although the year-on-year
growth was 3.11%. for Nigeria. Global trade also slowed in the first half of 2022
due to supply chain disruptions. If the trend continues, some economies will be
pushed into recession in 2022. And the impact on the Nigerian economy will be
very serious.
Crude oil Prices
As a major commodity upon which the Nigerian economy depends rather
precariously, developments in the crude oil market are something that the
country watches with keen interest, especially crude oil price as rising prices are
expected to impact positively on the country’s external reserves, exchange
rate, foreign exchange earnings and government finances. The oil market
witnessed a sharp rally of global oil prices in the wake of the Russian-Ukraine
war. However, following some developments, oil prices have moderated but
still above the US$ 100.00 per barrel mark. But rather sadly, Nigeria has not been
able to benefit from the high oil prices because of low volume of production
that is very much below its OPEC quota and the phenomenon of importation
of all of the country’s refined petroleum product needs estimated at
unbelievable volumes.
Global inflation
Inflation has continued to rage upwards in many world economies, for
example, in the advanced economies that have for a long time recoded low

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inflation rates, far below the long-run target of 2.0% of most of the central banks.
Now, inflation is at historic levels, for example, United Kingdom had an inflation
rate of 9.10% in May 2022; United States, 9.10% in June 2022; and Euro Area,
8.60% in June 2022. These and some other countries are now witnessing or
threatened by stagflation, a phenomenon that has challenged the Nigerian
economy for about six years since the first recession in 2016. Global inflation is
easily transmitted to the Nigerian economy through its high dependence on
energy and food imports, in particular wheat. With the escalation of global
supply chain disruptions by the war in Ukraine and the associated sanctions on
Russia, Nigeria is witnessing high imported inflation as a significant contributor
to the headline inflation in the country.
Monetary policy normalisation and tightening financial conditions
Against the backdrop of escalating inflation in most countries, and the need to
prioritise inflation control, many advanced and emerging-market economies
have continued to pursue aggressive monetary policy normalisation in the form
of policy interest rate hikes aimed at controlling aggregate demand. For
example, the US Federal Reserve Bank has increased its policy rate by a
cumulative 150 basis points so far in 2022. It has also provided guidance on
further rate hikes in 2022. The Bank of England, between March and June, 2022
increased its policy rate three times by increments of 25 basis points. Most
Emerging Market Economies, Nigeria included, have also shifted toward
tightening of monetary policy by raising policy rates. Hiking of policy rates in the
advanced economies create problems for the poor countries through capital
flows reversals. With tightening global financial conditions, new foreign
borrowing has become more expensive thus creating potential debt servicing
problems. Some analysts have already expressed concerns about Nigeria’s
public debt size and debt servicing challenges.
OPINION AGAINST THE BACKDROP OF THE GLOBAL AND DOMESTIC TRENDS
The opinion is formed against the backdrop of the above global developments
as well as domestic trends. Many economies have yet to recover from the

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covid-19-induced recession. The Russia-Ukraine war erupted, and has raged on,
and its impact on global inflation has been unprecedented to the point of
making the fears about global recession to becoming a reality. The war has
had a strong negative impact on supply and price of commodities – wheat,
fertilizer, oil and gas, etc. Through these the escalating global inflation has been
strongly transmitted to Nigeria’s inflation through import prices. The monetary
policy normalisation response to the raging inflation in the advanced
economies is not favourable to capital flows to Nigeria; it has reduced inflows
and heightened outflows.
In Nigeria, the most pressing current challenges are sustenance of the fragile
growth, escalating inflation and foreign exchange/exchange rate pressures.
Economic activities recorded notable gains continuously with output expansion
for the 6th consecutive quarter in Q1 2022 with a growth rate of 3.11% year-onyear. A number of features of the growth are, however, worrisome. The growth
is not only relatively low, it has continuously declined year-on-year since the
economy recovered from recession in Q1 2021 – from 5.01% in Q2 2021 to 3.11%
in Q1 2022. Thirdly, the year-on-year annual growth has not recovered to pre2014 levels largely because of exogenous shocks. As it is, untamed inflation
escalation may further threaten the growth prospects in 2022.
Developments in the oil sector have not been helpful to growth nor to foreign
exchange/external reserves and government revenue. The oil sector
contracted for the 8th consecutive quarter by 26.04% in Q1. The resilient non-oil
sector has thus sustained the positive growth. Importantly too, the country has
not been able to take advantage of the high oil prices in the global market
and enhanced OPEC quota to earn more foreign exchange and support
external reserves and government revenue. The Bonny Light oil average price
for June, 2022 stood at US$130.3 per barrel compared with US$74.95 per barrel
in December, 2021. Yet, oil production and export averaged only 1.2 million
barrels per day and 0.75 million per day, respectively, compared with the OPEC
quota of 1.7 million barrels per day. Thus, a major challenge remains how to
boost oil production and export in support of macroeconomic stability by

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having a handle on oil pipeline vandalisation and oil theft in the Niger Delta
region. If oil theft is effectively checked, the current serious pressures on foreign
exchange/ exchange rate and government finances will significantly abate.
The other major challenge which must now gain priority attention is the
escalating inflation in view of its obvious consequences for investment, growth
and standard of living. After the significant gains recorded in inflation control in
2021, all the three measures of inflation, year-on-year – headline, food and core
– have trended upwards since February 2022, standing at 18.6, 20.6 and 15.75
percent, respectively in June, 2022. This has been triggered largely by imported
inflation occasioned by the Russia-Ukraine war through supply shortages and
high prices of imported wheat, fertilizer, refined petroleum products, etc, the
importation of which the country depends upon significantly. However, the
legacy factors of inflation have continued to be operational – insecurity which
adversely affect agricultural food supply and productivity, rising transport costs
which escalate food prices, exchange rate depreciation, etc. Also of note is
the upward trend of money supply growth in recent months. Although the role
of money supply growth in spurring aggregate demand in the face of high
unemployment, poverty level and hence fuelling Nigeria’s inflation has not
been clear-cut, it cannot be completely ruled out. Indeed, there is the
possibility that some of the money supply growth may have found its way into
non-output enhancing expenditures and hence contributing to increases in the
prices of goods and services through the demand side.
The primary mandate of the Central Bank of Nigeria is price stability. It is in light
of this that the Bank has intervened in the real sectors of the economy –
agriculture, manufacturing, power, MSMEs – with provision of loans at below 10
percent interest rates. The aim is to tackle inflation from the aggregate supply
side. Now that the achievement of the primary mandate is being threatened
by both exogenous and domestic factors, there is the need for the Bank to
further tighten the monetary policy stance to complement the development
finance interventions in support of the price stability mandate while the fiscal
authority does the needful to support growth. The expectation is that monetary

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policy tightening will protect real incomes of consumers, and impact exchange
rate and capital flows positively. No doubt, there are concerns that monetary
policy tightening may not be helpful to growth in the short-term but certainly
price stability will be supportive of investment and growth in the medium-long
term. Importantly, it must be borne in mind that policies have trade-offs in terms
of effects. At this point in time, the Bank must be seen to be doing the needful
to tame inflation while the development finance interventions continue.
In light of the foregoing, I support further tightening of the monetary policy
stance. The Cash Reserve Requirement (CRR) is already high at 27.5% without
considering the administrative measures of tightening through this instrument.
Therefore, I support raising the Monetary Policy Rate (MPR) by 100 basis points
to 14.0 percent while the other policy parameters are held constant at their
extant levels thus:
MPR


-
14.0%
Cash Reserve Requirement (CRR)
-
27.5%
Liquidity Ratio


-
30%
Asymmetric Corridor


-
+100/-700 basis points
However, the raised MPR needs to be supported with complementary actions,
especially by the government, for example:
• Tame the insecurity phenomenon that has tended to discourage
investment and production, especially of agricultural products; insecurity
has made farming a risky venture and poses a threat to food security;
• Decisively deal with the oil theft in the oil producing areas that has robbed
the country of naira revenue and foreign exchange;
• Have a handle on rising transport and business costs arising from shortages
and escalating prices of power and petroleum products – diesel, PMS and
aviation fuel.

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• Expedite action on making the refineries to work. Working refineries will
compete with the few private refineries expected to go into operation
soon and to the advantage of petroleum product consumers;
• Rationalise the structure of spending, especially of non-capital
expenditure items to eliminate wastes and minimise the need for ways and
means advances and debt accumulation. The quality of public
expenditure needs to improve significantly to enhance the output-capital
ratio.
On the part of the Monetary Authority, there is no doubt that it is in a difficult
situation because of excess demand for foreign exchange in the face of rather
uncomfortable foreign exchange supply situation. In the context of foreign
exchange management, there is need for a critical review of the structure of
forex demand for invisibles payments abroad with a view to identifying the
unessential elements for rationalisation. Some analysts have rightly wondered
why the Bank should, for example, continue to provide foreign exchange to
fund primary, secondary and undergraduate education abroad in an era of
serious forex shortage. It is true that many public schools are in bad shape. But
there are many good private schools at the primary, secondary and university
education levels. If parents are willing to fund the very expensive foreign
education, it will be far cheaper for them to educate the children in the most
expensive and good private schools in Nigeria.


6. OBIORA, KINGSLEY ISITUA
As inflation continues to rise rapidly and fast eroding the real income of
households and businesses, the need to bring it under control has become
more urgent. It is in the face of these increased headwinds that I voted to: raise
the Monetary Policy Rate (MPR) to 14.0 per cent from 13.0 per cent, retain the

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Cash Reserve Ratio (CRR) at 27.5 per cent, the Liquidity Ratio (LR) at 30.0 per
cent and the asymmetric corridor of +100/-700 basis points around the MPR,
respectively. I believe this stance is appropriate in containing inflationary
pressures, minimizing its effect on growth and safeguarding financial system
stability.
The global economy continues to face surging inflationary pressures and
slowing economic growth. These are driven by lingering supply-chain
disruption, post-pandemic increasing demand, tight financial conditions,
China’s economic slowdown, the Russia-Ukraine war and its effect on energy
and food prices. The combined effect of these factors continues to weigh on
global economic activity. In particular, the Russia-Ukraine war has further
disrupted the world commodity markets and exacerbated the soaring food
and energy prices. This is because Russia and Ukraine are important commodity
exporters. They account for about 30.0 per cent of global wheat and 20.0 per
cent of aggregate corn, minerals, fertilizers and natural gas.
Disruptions to these commodities, therefore, have, in part, increased inflationary
pressures globally. The inflation rate is already heading towards 10.0 per cent in
some advanced economies, most especially in the United States, United
Kingdom and Euro Area, reaching 9.1, 9.4 and 8.6 per cent in June from 8.6, 9.1
and 8.1 per cent in May 2022. This is far above the target of 2.0 per cent set by
the Central Banks of these economies. In Turkey and Czech Republic, inflation
increased from 73.5 and 16.0 per cent in May to 78.6 and 17.2 per cent in June
2022, respectively. In Sub-Sharan African countries such as Ghana, Ethiopia and
Angola, inflation increased to 29.8, 34.0 and 22.9 in June 2022, respectively.
Consequently, inflation in Advanced Economies (AEs) and Emerging Market
and Developing Economies (EMDEs) is expected to increase by 5.7 and 8.7 per
cent in 2022, up from 3.1 and 5.9 per cent in 2021, respectively. (IMF, April 2022,
World Economic Outlook). Overall, although drivers of inflation vary across
regions and countries, key developments driving the current inflationary
pressures across the world are the rising food and energy prices occasioned by

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the ongoing Russia-Ukraine war, post-pandemic increasing demand and
supply-chain disruptions.
As a result, many Central Banks in Advanced and Developing economies are
aggressively lifting interest rates to contain inflationary pressures, making it the
most widespread interest rates hike in the last two decades. The Federal
Reserve, the Bank of England, Bank of Canada, and Reserve Banks of Australia
and New Zealand have continued to raise interest rates and have further
signalled for more interest rate hikes in 2022. In Africa, Egypt, Ghana, South
Africa, Tunisia, Kenya and Nigeria have raised interest rates to rein in inflationary
pressures that have broadened and become more persistent in some of these
economies. Inflation is rising rapidly worldwide, and Central Banks must act
quickly to contain it, especially in low-income countries where soaring food
prices and other necessities are worsening food insecurity and poverty.
Following these developments, global growth is expected to slow down
significantly in 2022 compared with 2021. The J.P. Morgan Global Composite
Purchasing Managers Index (GCPMI) improved in June 2022 amid weak growth
prospects. The PMI increased to 53.5 index points in June 2022 from 51.3 points
in May 2022, driven by the growth rebound in China following the easing of
COVID-19 lockdown measures. However, the IMF and the World Bank have
projected the global growth to slow down to 3.6 and 2.9 per cent in 2022, from
an estimated 6.1 and 5.7 per cent in 2021, respectively. The downward revision
was due to the supply-chain disruptions, rising commodity prices, tight financial
conditions, the Russia-Ukraine war, extensive sanctions on Russia and weak
growth in China. Consequently, growth in the Advanced Economies is forecast
to moderate from 5.2 per cent in 2021 to 3.3 per cent in 2022.
In the EMDEs, growth is projected to slow down from an estimated 6.8 per cent
in 2021 to 3.8 per cent in 2022 (IMF, WEO April 2022). The economies of the
United States, the Euro Area and the United Kingdom are forecast to slow down
to 2.3, 5.3 and 3.7 per cent in 2022 from an estimated 5.7, 2.8 and 7.4 per cent
in 2021, respectively. Also, in China, growth is expected to decline by 4.4 per

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cent in 2022, from an estimated growth of 8.1 per cent in 2021, due to China’s
zero-COVID policy and the contraction in the property market.
Domestically, growth in the Nigerian economy is also expected to moderate in
2022. Official data from the National Bureau of Statistics (NBS) showed that real
GDP grew by 3.11 per cent in Q1 2022, down from 3.98 per cent in Q4 2021,
representing a decline of 0.87 percentage points. The growth was largely driven
by the non-oil sector, with Rail Transport and Pipelines, Air Transport, Metal Ores,
Financial Institutions and Telecommunication and Information Services
recording growth of 124.5, 50.68, 30.76, 25.43 and 14.50 per cent, respectively.
Overall, the non-oil sector grew by 6.08 per cent in Q1 2022 compared with 4.73
per cent in Q4 2021. However, the Oil sector contracted further by 26.04 per
cent in Q1 2022 from a contraction of 8.06 per cent in Q4 2021, making it the
eighth (8) consecutive quarter of contraction. The contraction in the Oil sector
was mainly due to pipeline vandalism and oil theft, with adverse implications
for Federal Government revenues and accretion to external reserves.
Consequently, IMF projected the economy to moderate to 3.4 per cent in 2022
from 3.6 per cent in 2021.
However, the Manufacturing Purchasing Managers’ Index (PMI) improved for
the second consecutive month to 51.1 points in June from 50.1 in May 2022. The
increase in the PMI was driven by improvement in production, employment
levels in manufacturing and supplier delivery. Also, the Non-Manufacturing PMI
increased to 50.3 points, from 48.9 points in May 2022, expanding above the
threshold for the first time since February 2020. Furthermore, the overall Balance
of Payments (BOP) position narrowed from a deficit of 1.30 per cent of GDP in
Q1 2021 to a deficit of 0.81 per cent in Q1 2022, driven by the current account
surplus, which increased significantly to US$2.58 billion in Q1 2022 from a surplus
of US$0.05 billion in Q4 2021. The gross external reserves also increased (monthon-month) by 1.61 per cent to US$39.22 billion at the end of June 2022, from
US$38.60 billion at the end of May 2022, due to an increase in FX swap
transactions and crude oil-related taxes and penalties.

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The financial soundness indicators showed that the banking system remained
sound, stable and resilient. Total assets of the banking industry grew (month-onmonth) by 22.07 per cent from N53.64 trillion in May 2021 to N65.48 trillion in June
2022, driven by balances with CBN/banks, OMO bills and credit to the real
sector of the economy. Consequently, the total flow of credit to the economy
increased by 22.78 per cent or N5.02 trillion from N22.04 trillion in June 2021 to
N27.06 trillion in June 2022 to various sectors of the economy, including Oil and
Gas, Manufacturing, General, Governments and General commerce. The
industry Non-Performing Loans (NPLs) ratio was 4.95 per cent at the end of June
2022 compared with 5.70 per cent at the end of June 2021, which was below
the prudential maximum of 5.0 per cent.
The year-on-year downward trend was attributable mainly to write-offs,
restructuring of facilities, Global Standing Instruction (GSI) and sound credit risk
management by banks. Furthermore, the monthly average Open Buy Back
(OBB) and Inter-Bank rates, fluctuated within the asymmetric corridor and
increased from 9.39 and 8.38 per cent in May to 10.89 and 11.10 per cent in
June 2022. The increase reflects a tight banking liquidity condition, which could
help rein in inflation and safeguard financial system stability.
Amid stable and resilient banking system stability, significant headwinds remain
in the economy. Inflationary pressures continued to surge as headline inflation
increased to 18.60 per cent in June 2022 from 17.71 per cent in May 2022, driven
by rising food and core components.
Food inflation rose to 20.60 per cent in June from 19.50 per cent in May 2022,
driven partly by the soaring price of diesel and scarcity of Premium Motor Spirit
(PMS), leading to increases in transport and logistics costs. Core inflation further
increased to 15.75 per cent in June 2022 from 14.90 per cent in May 2022, due
to increases in processed foods, housing, water, electricity, gas & other fuel as
well as transportation. Although the economy grew by 3.6 per cent in 2021, it is
still fragile. This is partly because the domestic crude oil production continued
to trend below the OPEC quota o 1.74 mbpd and the budget benchmark of

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1.88 mbpd. The continuous shortfall was attributed to the renewed cases of oil
theft and pipeline vandalism, leading to increased fiscal deficit and debt
concerns. Furthermore, high unemployment, lingering insecurity and widening
infrastructural deficits continue to weigh on the growth recovery.
Overall, the global and domestic outlook remains bleak with increasing
uncertainty. IMF and World Bank forecast global growth to weaken significantly
in 2022 and 2023 due to the increased headwinds: the Russia-Ukraine war and
associated rising food, energy and commodity prices, slowdown in China and
tightening monetary policy stances by major Central Banks. Inflation is also
expected to remain elevated in 2022. Furthermore, the monetary policy
tightening stance by major advanced-economy Central Banks will increase
capital reversals, diminish accretion to external reserves and heighten currency
depreciation in most EMDEs. It will also increase borrowing costs and undermine
debt sustainability.
Domestically, output is expected to remain relatively weak in 2022. Also,
headline, core and food inflation are all forecast to accelerate in 2022 at a
double-digit territory, far above the implicit inflation target of 6 to 9 per cent set
by the Bank, with attendant implications for widening negative real interest rate
and increasing inflation expectations. The current economic environment
presents the policymakers with tough policy choices between supporting
fragile economic growth and containing inflationary pressures. However, since
the economy exited recession in Q4 2020, a modest recovery has been
achieved, evidenced by the annual growth rate of 3.4 per cent in 2021. This
modest recovery was driven by the support of the Federal Government stimulus
and proactive intervention programmes of the CBN in various sectors of the
economy. Therefore, as we navigate these complex policy trade-offs, we must
ensure that the modest recovery achieved is not revised by the current soaring
inflationary pressures.
That is why the top priority of the Bank is to act quickly and aggressively to bring
this rising inflation under control. Inflation is weighing heavily on individual

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households across the country, especially the most vulnerable low-income
families. The high costs of food and other necessities continue to erode the
purchasing power of ordinary Nigerians, thereby entrenching food insecurity,
poverty and inequality.
On account of these and rising inflation expectations, I concluded that the best
policy action is to increase the MPR. I believe this will contain inflationary
pressures, re-anchor inflation expectations, minimize its effect on growth and
safeguard financial system stability. On this basis, I voted to:
• Increase the Monetary Policy Rate (MPR) to 14.0 per cent from 13.0 per
cent.
• Retain the Cash Reserve Ratio (CRR) at 27.5 per cent.
• Retain the Liquidity Ratio (LR) at 30.0 per cent; and
• Retain the asymmetric corridor to +100/–700 basis points around the MPR.


7. OMAMEGBE, MO’
Global Economic Developments
Since the MPC meeting of May 2022, the global economic outlook has
continued to deteriorate. There are synchronous downturns in developed and
emerging economies and a darkening outlook for growth. The World Bank
lowered its global growth forecasts to 2.9% for 2022 and raised stagflation fears.

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The European Commission slashed its economic forecast for Europe to 2.7% for
2022.
Harsh Covid restrictions have been reintroduced in China. The Russian President
has threatened “catastrophic consequences” for world energy markets by
slashing oil exports if further sanctions are imposed. Germany is already facing
its worst energy crisis since 1973 following Russia’s reduction of gas supply and
a 10-day maintenance of its main pipeline to Germany.
Inflation is resetting the path of global and national economies, accentuating
monetary policy tightening and raising recession risks. Fitch Solutions forecast
that global inflation will peak over the coming months as supply side issues keep
prices elevated.
In the United States, consumer prices - driven by demand and high energy and
food prices - rose by 9.1% in June 2022, this is the highest increase since 1981.
Inflation was a record 8.6% in the eurozone for June from 8.1% the previous
month. Consumer prices for June were up 78.62% in Turkey; 20.5% in Lithuania;
15.6% in Poland; 9% United Kingdom; 7.7% in Canada and 3.4% Switzerland. In
China consumer prices rose to 2.5% in June from 2.1% in May, however, inflation
remains muted in Japan.
South Africa’s inflation numbers reached a five-year high at 7.4% in June 2022,
up from 6.5% in May 2022. Ghana’s inflation was over 29.8 % in June
representing an 18-year peak since January 2004. Amid protests over spiraling
prices and the rising cost of living as well as an unsuccessful domestic economic
recovery plan the government of Ghana in July sought for an IMF bailout. The
Reserve Bank of Zimbabwe says from July 25, 2022 it will start issuing gold coins
as legal tender as the country battles to control soaring inflation that has
considerably weakened the local currency.
Central banks are walking the thin line of attempting to control inflation without
impacting economic growth. Global central banks could raise interest rates
more sharply than previously in response to persistent inflation and this will

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further slow the world economy. The Bank of England has raised interest rates
by 25 basis points five consecutive times to 1.25%. The US Federal Reserve
tightened monetary policy more aggressively, with a 75 basis points increase in
June 2022, the biggest jump since 1994. The US Central Bank has so far
increased policy rates by 1.5% this year. To control inflation, the Canadian
Central Bank became the first G7 nation to raise policy rate by 100 basis points
to 2.5%, this was the biggest policy rate increase in 24 years. Central Banks in
India and Brazil have also raised rates, and the European Central Bank
announced a forthcoming end to negative rates, the first increase in interest
rates since 2011.
Normalisation and tightening of monetary policy stances in the advanced
countries is expected to continue in order to tame inflation.
Domestic Economic Developments
According to the World Bank’s Nigeria Development update in June 2022,
Nigeria is in a paradoxical situation, though growth prospects have improved,
however inflationary and fiscal pressures have increased considerably, leaving
the economy much more vulnerable. The Country’s Gross Domestic Product
(GDP) grew by 3.11% (year-on-year) in real terms in the first quarter of 2022,
showing a sustained positive growth for six consecutive quarters since 2020.
Fitch Solutions Medium-Term Forecast for Nigeria projects that growth will
underperform in 2022 but with significant potential for acceleration in 2023 and
2024. Fitch also forecasted that Nigeria’s GDP is projected to grow by 3.4% in
2022 up from the previous forecasts of 2.8% for 2022.
Nigeria’s inflation rate rose for the seventh consecutive month to 18.6% (yearon -year) in June 2022 from to 17.7% recorded in May 2022. The Nigerian
National Bureau of Statistics (NBS) reports that headline inflation rate increased
to 1.82% in June 2022 on a month-on-month basis from 1.78% recorded in May
2022. Urban inflation rate increased to 19.09% (year-on-year). Core inflation -
which excludes the prices of volatile agricultural produce - rose to 15.75% in
June 2022 on a year-on-year basis. Diesel prices are making inflation worse as

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Nigerian businesses are passing input cost increases to the ultimate consumers.
According to the NBS, the average retail price of Automotive Gas Oil (Diesel)
paid by consumers increased by 181.00% from N238.82/litre in May 2021 to
N671.08/litre recorded in May 2022.
The World Bank reports that Foreign Direct Investments (FDI) have been
persistently low in 2022, as exchange rate management issues deter investors.
With rising global interest rates, Nigeria will likely experience net portfolio
outflows in 2022.
The NBS also reported the total value of capital importation into Nigeria in the
first quarter of 2022 stood at US$1,573.14 million from US$2,187.63 million in the
preceding quarter showing a decrease of 28.09%. When compared with the
corresponding quarter of 2021, capital importation decreased by 17.46% from
US$1,905.89 million. The largest amount of capital importation by type was
received through portfolio investment, which accounted for 60.87% (US$957.58
million). This was followed by Other Investment with 29.28% (US$460.59 million)
and Foreign Direct Investment (FDI) accounted for 9.85% (US$154.97 million) of
total capital imported in Q1 2022.
Nigerian Capital Market
The Nigerian Stock Exchange (NGX) All Share Index (ASI) crossed the 50,000basis point (over a 13 year high) at the end of Q2 2022 with a gain of about
21.17%. However, the market gain was driven by a handful of stocks and in
sectors that are negatively correlated to exchange and interest rate
movements. There has been more reallocation of assets to dollar denominated
investments as investors hedge against a weak Naira.
The NGX witnessed a reduction in foreign investor participation. This is a
concern, as an increase in foreign portfolio investments will help reduce foreign
exchange pressure and improve market liquidity.

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FMDQ recorded an increase in secondary market turnover by 22% to about
N43.53 trillion in Q2 2022. However, there was a reduction in securities admissions
for both Treasury Bills and Corporate Bonds for the same period.
Monetary policy tightening typically has an adverse effect on the stock market
and we may begin to see that impact on the Nigerian stock market if there is
prolonged tightening. The growth of any economy is anchored on production
and the ability of the capital market to provide avenues for businesses to
access long term capital to finance productive activities. As the rate of inflation
trends upwards, another challenge apparent, is how to deploy a monetary
policy approach with outcomes that effectively balance the ravaging effects
of inflation on the most vulnerable demographic of our population, while
maintaining the ability of businesses to raise long term capital from our markets
for much needed productive activities.
Overall Consideration
Consumers are being squeezed by inflation and its negative effects.
Globally there is the risk that inflation may become entrenched in consumer
and business psyches, thus making it more difficult to lower it over the medium
term. Most Central banks already have little room for manoeuvre in order to
control inflation without triggering a recession.
The rise in global inflation is driven by substantial supply shocks emanating from
the pandemic and the Russian invasion of Ukraine. This inflation rise is not
abating and there seem to be uncertainty around the potential magnitude of
inflation in the coming months. There has been considerable tightening by most
central banks around the World as inflation risks lean potentially higher.
In Nigeria, the high inflation rate of 18.6% calls for tightening of monetary policy,
while maintaining existing interventions in key sectors to stimulate growth. The
rising inflation in the country constitutes a major macroeconomic challenge
which is exacerbated by foreign exchange pressures. We are an import
dependent economy. A higher inflation rate will further depreciate the value

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of the Naira as import prices become more expensive. The foreign exchange
challenge remains daunting and addressing this challenge should be of utmost
importance.
Monetary policy will thus seek to counteract the trend, support growth and
guard against inflationary expectations becoming entrenched.
A tightening of monetary policy is appropriate in the current dispensation to
reduce the structurally high inflation base. As with the last couple of months, the
Committee is faced with a difficult set of policy choices, requiring trade-offs.
The capital market operators lamented the May 2022 MPC decision to raise
rates with the likelihood of the hike depressing investors’ appetite for equities
and reverse the bullish outlook of the market. There is also the impact of
tightening on existing and new consumer loans and credit. However, the main
focus in the short term is on the primacy of price stability as a failure to restore
price stability will erode purchasing power and push millions of Nigerians further
into poverty.

My Policy Decision:
I therefore vote to:

• Raise MPR by 50 basis points to 13.50%;
• Retain the Asymmetric Corridor of +100/-700 basis points around the MPR;
• Retain the CRR at 27.5 per cent;
• Retain the Liquidity Ratio at 30 per cent.

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8. SALISU, MOHAMMED ADAYA
Global Developments and Economic Outlook
Global Growth
Since the last meeting of the Monetary Policy Committee on 23rd and 24th of
May 2022, the global economy has continued to slowdown as key risks to
economic growth, such as the Russia-Ukraine war, remain elevated. For
instance, in the July 2022 edition of the World Economic Outlook, the
International Monetary Fund (IMF) painted a gloomy picture of the world
economy, saying that global output contracted in the second quarter of 2022,
owing to a sharper-than-anticipated slowdown in China, majorly due to COVID-

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19 outbreaks and lockdowns, as well as further negative spillover effects from
the war in Ukraine. Accordingly, the baseline forecast by the IMF is for global
growth to slow from 6.1 percent in 2021 to 3.2 percent in 2022 – a 0.4
percentage point lower than in its April 2022 World Economic Outlook.
This global growth forecast, however, masks considerable variation in growth
across the regions of the World, with the growth performance in emerging
markets and developing economies (EMDEs) outperforming that in advanced
economies, especially the Euro Area, whose economies are largely dependent
on Russia and Ukraine’s energy and agriculture. For instance, the IMF has
revised downward its 2022 output growth in the United States to 2.3 per cent –
a 1.4 percentage point reduction compared to its April 2022 WEO – due to
reduced household purchasing power and tighter monetary policy. In China,
further lockdowns and deepening real estate crisis have led growth to be
revised down by 1.1 percentage points, while significant downgrades in output
growth were seen in Europe reflecting spillovers from the war in Ukraine and
tighter monetary policy.
Downside Risks to growth:
Indeed, the global supply disruptions created largely by the war in Ukraine and
the continued isolation of Russia from the global economy has persisted.
Consequently, this is reflected in high energy and food prices. Thus, the global
economy is faced with material downside risks to growth and upside risks to
inflation, which could undermine the IMF’s growth forecasts for 2022 and 2023.
Indeed, the war in Ukraine continues to pose serious downside risks to growth as
it fuels to raise of energy prices. For instance, over the past three months, the
amount of Russian pipeline gas supplied to Europe has fallen sharply, to about
40 percent compared to the 2021 level, and is expected to decline further by
mid-2024 (WEO, July 2022). Thus, a complete cessation of exports of Russian gas
to European economies would significantly increase inflation worldwide via
higher energy prices. It could also force energy rationing in the euro area,

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affect major industrial sectors, and sharply reduce economic growth, with
negative cross-border spillover effects, according to the IMF.
The China effect also poses another downside risk to global growth. As is well
known, China is the world’s manufacturing powerhouse. Thus, a sustained
slowdown in China would have strong global spillovers, depending on the
balance of both supply and demand factors. For example, further tightening of
supply bottlenecks could cause higher consumer goods prices worldwide.
Rising inflation also constitutes another downside risks to growth. Although some
analysts expect inflation to reach pre-pandemic levels by the end of 2024,
several factors such as supply related disruptions to food and energy could
push inflation to maintain the upward momentum leading recession and
stagflation. Yet another downside risk to growth can be seen in tighter global
financial conditions which could trigger debt distress in emerging market and
developing economies. Once again, according to the IMF (WEO, July 2022):
“as advanced economy central banks raise interest rates to fight inflation,
financial conditions worldwide will continue to tighten. The resulting increase in
borrowing costs will, without correspondingly tighter domestic monetary
policies, put pressure on international reserves and cause depreciation versus
the dollar, inducing balance sheet valuation losses among economies with
dollar-denominated net liabilities. Such challenges will come at a time when
government financial positions in many countries are already stretched,
implying less room for fiscal policy support, with 60 percent of low-income
countries in or at high risk of government debt distress (debt restructuring or
accumulation of arrears) –– up from about one-fifth a decade ago.
Widespread capital flight from emerging market and developing economies
could amplify this risk”. This scenario is reminiscent of the situation half a century
ago when rising borrowing costs combined with high inflation and slowing
growth prompted central banks across the world to tighten policies to fight high
inflation, which consequently led to disorderly external adjustment and debt
defaults in some countries.

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It is noteworthy, however, that there are several differences between the
current and previous episodes, with the IMF citing the following three important
factors: (i) the current real oil price rise is smaller, and global production is now
less dependent on oil than previously; (ii) policy tightening in the current
episode had begun much earlier in some countries and policy frameworks are
also generally more robust than before; and (iii) in the current episode, there
has been less time for recycled petrodollars to drive imbalances in emerging
market and developing economies.
Global Inflation
In terms of global inflation, it has sustained its upwards trend, remaining well
above the long-run objectives of almost all central banks across the globe. In
both the United States and the United Kingdom, inflation surged to 9.1 per cent
each in June 2022 and May 2022, respectively – the highest level in 40 years in
both countries. In the euro area, the consumer price index (CPI) rose to 8.6
percent compared to the corresponding period last year – its highest level since
the inception of the monetary union. The story is the same in emerging market
and developing economies (EMDEs) where Q2, 2022 inflation reached 9.8
percent (WEO, July 2022). The main drivers for headline inflation globally are
higher food and energy prices, supply constraints in many sectors, and a
rebalancing of demand back toward services. In addition to headline inflation,
there was a persistent rise in core inflation, reflecting the pass-through of cost
pressures in the supply chains. All of this could be traced back to the Russian
war in Ukraine, which had continued to be the major driver of global inflation
due to its influence on commodity prices occasioned by supply chain
disruptions. The recent agreement between Russia and Ukraine to allow
shipment of agricultural commodities may have helped to slow down the
growth in consumer prices, but it may be inadequate to close the backlog of
the pent-up demand for these commodities. In this regard, the current trend of
aggressive monetary policy normalization embarked upon by major central
banks to curb inflation is expected to continue into the foreseeable future,

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heightening the likelihood of tighter global financial conditions and global
recession in the immediate to medium term.
Global trade
Global demand for tradeable goods continues to be weak. This, together with
the continued disruptions in the global supply chain, is likely to slow down the
growth in global trade. Accordingly, the report by staff of the Central Bank of
Nigeria projected global trade growth to decelerate to 4.0 per cent in 2022
before inching up to an average of 4.1 per cent between 2023 and 2024. In
addition, the appreciation of the US dollar in 2022 by about 5 percent in
nominal effective terms, as at June 2022 (IMF, WEO July 2022), may also have
contributed to a slowdown in world trade growth, given the dollar’s dominant
role in global trade invoicing.
Domestic Developments
The global developments highlighted above have undoubtedly impacted the
Nigerian economy through the effects of the Russian war in Ukraine on energy
and food prices as Nigeria is a major player in the energy market (exporter and
importer) and an importer of agricultural commodities and inputs. As a major
exporter of crude oil, Nigeria could have benefited from the high crude oil
price, but unfortunately such benefits have been eroded by the high costs of
refined products of which Nigeria is a major importer. The high price of
imported petroleum products translates to high subsidy on petrol motor spirit
(PMS) with attendant consequences on government revenues. Furthermore,
Nigeria does not benefit from the high crude oil price due to substantially
reduced oil production, caused by oil theft and insecurity in the Niger Delta
area. Currently, less than 1.4 million barrels per day of crude oil is produced, well
below the Organisation for Petroleum Exporting Countries’ (OPEC’s) quota of
1.8 million barrels per day. Consequently, this has serious implications for foreign
reserves, which in turn limits the effectiveness of foreign exchange
management in Nigeria. Thus, the high energy and food prices triggered by the
war in Ukraine contribute significantly to upward domestic price pressures.

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Nigeria’s twin problem of inflation and inability to benefit from high energy
prices contrasts sharply with experiences by other oil exporting countries. For
instance, Saudi Arabia has benefitted tremendously from the high crude oil
prices that it is likely to be one of the world’s fastest-growing economies in 2022,
as gross domestic product (GDP) is expected to expand by 7.6 per cent, the
fastest growth the country recorded in almost a decade (IMF Article IV
Consultation report, 2022). Furthermore, despite higher prices for imported
commodities, inflation in Saudi Arabia is expected remain contained at 2.8 per
cent in 2022 as the Saudi Arabia Monetary Agency (SAMA), its central bank,
tightens policy in line with the US Federal Reserve. Thus, Saudi Arabia’s public
finances and the external position will continue to strengthen due to higher
global energy prices, in stark contrast with Nigeria’s fiscal and external
balances.
Despite rising prices and structural challenges facing Nigeria, the country has
experienced improved growth performance in six successive quarters.
According to data released by the National Bureau of Statistics (NBS), Nigeria’s
real GDP grew by 3.11 per cent (year-on-year) compared with the 0.1 per cent
in Q4 2020. The projection is that the growth performance in Q2 of 2022 will
match or even surpass the performance recorded in the preceding quarter.
Thus, the observed trend since the fourth quarter of 2020 is an indication of a
gradual economic stability. Growth during the past quarter was driven largely
by ICT, Agriculture, Trade, Financial and Insurance services. In contrast, the
Industrial sector shrank by 6.81 per cent, largely driven by the decline in the
Crude Petroleum and Natural Gas sector (-26.04%), Coal Mining (-12.97%),
Quarrying and Other Minerals (-13.72%), and Oil Refining (-44.26%). The poor
performance of the oil sector, which accounted for only 6.08 per cent of GDP
in Q4, 2022, was occasioned by a lower volume of oil production caused by
crude oil theft and vandalism.
Although the positive growth performance is expected to continue over the
short- to medium-term period, it is needless to say that the full growth potential
would be undermined by the spillovers from the Ukraine war via rising inflation

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(especially food inflation) and crude oil prices. In the case of energy prices, in
the past, higher oil prices had improved Nigeria’s fiscal and external positions,
boosting exports and government spending. It also had spillover effects on the
non-oil economy, particularly services and manufacturing sectors. However, in
contrast to the past episodes of high oil prices, Nigeria is unlikely to reap full
benefits from higher oil prices now for two reasons. First, as stated above, oil
production is far below Nigeria’s full capacity and the OPEC’s quota; and
secondly, the higher crude oil price leaks into higher cost of imported PMS
leading to higher PMS subsidy. So long as fuel subsidy is in place, it will continue
to erode the revenue gains associated with higher oil price.
In the case of inflation, which stood at 18.6 per cent in June 2022, it is largely
driven by food inflation, which stood at around 20.0 per cent. The war in Ukraine
will exacerbate food inflation through scarcity in agricultural commodities such
as wheat as well as farm inputs such as fertilizer. Thus, higher prices of fertilizer
induced by the ongoing crisis between Ukraine and Russia is not without effect
on Nigeria’s production outlook in the coming season(s). It is noteworthy that
fertilizer prices in Nigeria have more than doubled and farmers are likely to cut
down on fertilizer applications on farmlands which could seriously limit food
production unless concerted intervention efforts are put in place.
Other drivers of inflation, especially food inflation, in Nigeria include disruption
to farming activities and inter-state trade because of worsening security
conditions, rural road infrastructural deficits, persistent supply chain disruptions,
post-harvest losses, and sustained exchange rate pressures with pass-through
to domestic prices.
The consequences of sharply rising prices are that inflation adversely affects all
Nigerians, especially the poor, by reducing the value of savings and purchasing
power. It also reinforces expectations and reduces Nigeria’s price
competitiveness with regard to the country’s international trading partners.
Thus, the factors I emphasised in my personal statement in the May 2022
meeting are still worth mentioning if inflation pressures were to be curbed in

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Nigeria. These include reducing post-harvest food losses, reducing cost of
governance and redirecting resources saved to development of rural
infrastructure, timely provision of emergency agricultural interventions in the
current wet and dry seasons to boost agricultural production, and addressing
the insecurity challenges by (i) improving the capacity of security forces to
gather advanced intelligence to enable them act proactively; (ii) increasing
co-ordination between stakeholders and regional organisations to improve
safety for farmers; (iii) hastening the implementation of agricultural reform
policies especially transformation of livestock farming to reduce potential for
conflict; (iv) undertaking a comprehensive exercise to reduce access to arms
and ammunitions including through cooperation and coordination with trading
partners; and (v) detailed scrutiny of security funding to ensure that security
votes are used efficiently and judiciously.
Policy Decision
Despite raising the Monetary Policy Rate (MPR) by 150 basis points, from 11.5
per cent to 13.0 per cent in May 2022, global as well domestic inflation has
continued to inch up. The uncertainty around the Ukraine war as well as
geopolitical tensions around world suggest that inflation will remain elevated
for much longer and at higher levels than previously assumed. This has
prompted central banks in the Advanced Economies and other EMDEs not only
to raise the monetary policy rates to contain curb inflation but also to send
signal that they will continue to raise policy rates in the immediate future until
price stability is restored. Nigeria is not isolated from the global economy, so
imported inflation is likely to continue to surge. However, on the domestic front,
inflation will surge further over the coming months due to increased spending
by politicians in the run up to the 2023 General Elections. Thus, the Central Bank
of Nigeria must not relent in using the MPR and other monetary policy tools to
curb the inflationary pressures in the country, especially now that the fiscal
authorities have limited tools in view of the constrained fiscal space where
government spending outstrips revenue and debt service-to-revenue ratio
exceeds 96 per cent and is expected to reach 119.0 per cent in 2023 (Federal

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Government of Nigeria, Medium Term Expenditure Framework 2023-2025). This
calls for a drastic action on the part of the fiscal authorities, to do more to
complement the efforts of the monetary authorities, including reducing the size
of fuel subsidy, reducing the cost of governance, exploring ways of generating
more non-oil revenue, increasing the volume of crude oil production by tackling
the crude oil theft, and tackling insecurity generally.
Accordingly, I am of the view that, since inflation in Nigeria is stubbornly high
and it continues to rise unabatedly, the CBN should not relent in its effort to
aggressively tackle it with all the arsenals at its disposal, including raising the
Monetary Policy Rate (MPR). I am also of the view that effective collaboration
and coordination between the fiscal and monetary authorities is needed for
maximum impact of their interventions on the economy.

Consequently, I voted to:
• Raise the MPR by 75 basis points to 13.75%
• Retain the CRR at 27.5%
• Retain the Asymmetric Corridor at +100/-700 basis points around the MPR
• Retain the Liquidity Ratio at 30.0%


9. SANUSI, ALIYU RAFINDADI
Decision

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I voted to raise the MPR in order to rein in the rising inflationary pressure. There
are several sources of this pressure including the supply disruptions associated
with the Russian-Ukrainian war, domestic monetary and fiscal stimuli in response
to the COVID-19 pandemic. Given the forecasts that inflation would continue
on the upward trend on the account of broad-base increases in the both core
and food components, I believe the monetary policy must be committed to
reining in inflation. Further tightening would also help reduce the rising pressure
in the foreign exchange market. I, therefore, voted to further tighten the policy
stance at this meeting.

Background and Justification
Global Economic Developments
The global economy continued to be hit by the adverse consequences of the
Russian -Ukrainian war, which disrupted the global supply chain, halted the wellanticipated global output recovery from the pandemic and raised global
inflation. As major central banks worldwide accelerated the pace of policy
normalisation, the tightening global financial conditions would continue to put
pressure on riskier assets and currencies in EMDEs, amidst imported inflation.
The Russia-Ukraine war erupted when the global economy had not fully
recovered from the supply disruptions associated with the COVID-19
pandemic. The US and EU sanctions on Russia and the associated blockages
disrupted the global supply chain, leading to a rise in global commodity prices,
especially food, fertiliser, crude oil and gas prices. Consequently, the war has
impaired the production and trade of a wide range of energy, food, and
agricultural goods across the globe. Despite the US release of strategic oil
reserves and diplomatic efforts with Saudi Arabia, the global energy demand
would rise, especially as winter approaches. As oil prices are expected to
remain high for the duration of the war. The global economy is facing the risk of
another recession associated with these heightened uncertainties. The April

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2022 IMF’s forecasts for global output are further downgraded to 3.6% in 2022
and 2023, compared with the 6.1% realised in 2021 (IMF, WEO, April 2022). In
Advanced Economies (AEs), output growth is similarly forecasted to decline
progressively from the 5.2% achieved in 2021 to 3.3% in 2022 and 2.4% in 2023.
Q-o-Q output in the US, Japan and China have all contracted in 2022Q1. GDP
tracker suggests that Q-o-Q output growth for the US is likely to be negative in
2022Q2. In EMDEs, output growth is forecasted to slow down from the 6.8%
achieved in 2021 to 3.8% in 2022 before rising to 4.4% in 2023. JP Morgan's PMI,
however, increased from 51.3 in May 2022 to 53.1 in June 2022. Manufacturing
PMI declined, but global services PMI rose in June 2022.
Crude oil prices have remained high, albeit moderated, owing to the increased
supply from US strategic reserves and increased production from Saudi Arabia.
As of 14th July, 2022, the price of OPEC Basket stood at $102.66/b. Global
demand is forecasted to grow and remain higher than global supply
throughout the year. Global commodity prices have remained high due to the
supply chain disruptions, but have moderated in June 2022 because of the
easing of the pent-up demand. International prices of agricultural products,
especially cereals, vegetable oils, sugar, wheat and corn, have also declined.
The global food price index declined from 157.4 in May 2022 to 154.2 in June
2022.
Global inflationary pressures have continued and are projected to remain
elevated in the near to medium term due to rising freight costs and slow
production. Inflation in the Advanced Economies is forecasted to rise to 5.7% in
2022 from 3.1% in 2021, but will decline to 2.5% in 2023. In June 2022, US inflation
rose to 9.1% from 8.6% in May 2022. In the Euro Zone, inflation has further
increased to yet another all-time-high rate of 8.6% in June 2022, driven by prices
of energy (41.9%), food, alcohol & tobacco (8.9%), and non-energy industrial
goods and services (4.3%). In the UK, inflation has risen to 9.1% in May 2022. In
the EMDEs, inflation is expected to rise to 8.7% in 2022 from 5.9% in 2021, but will
decline to 6.5% in 2023. As of June 2022, inflation (year-on-year) has risen in all
the major EMDEs economies, including China (2.5%), Kenya (7.9%), South Africa

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(6.5%), Ghana (29.8%) and Nigeria (18.6%). Inflation declined in India (7.01%)
and Egypt (13.2%) due to slight moderation in food prices.
Central Banks in many Advanced Economies and EMDEs are aggressively
tightening in response to the unabating inflationary pressure. The Bank of
England raised its repo rate by 25 basis points thrice in March, May and June
2022. The US Fed also raised its rate by cumulative 150 basis points so far in 2022
to 1.50-1.75%, indicating that further raise of 50 basis points is likely in its next
meeting. Most central banks in EMDEs have also continued to tighten. South
Africa increased its repo rate for the third time this year by 25 basis points in May
2022 to 4.75%. Similarly, Egypt, Brazil, Kenya and Ghana have all raised their key
policy rates in May and June 2022 in response to the rising inflation, capital
outflow and currency depreciation. The EMDEs have continued to face
portfolio capital outflow. In May 2022, net portfolio outflows from EMDEs stood
at US$4.9billion due to tightening monetary conditions in the AEs and the risk of
a global recession.
These global developments have major implications on the domestic
economy. The commodity price shock, for instance, would have a high passthrough to domestic prices, given the import intensity of the economy. The
global oil price rise in the presence of low oil export due to oil theft means low
accretion to foreign reserves. Given the risk of capital outflows, low reserves
accretion and the need to import refined products, the foreign exchange
market pressure will continue to intensify.
Domestic Economic Developments and their Implications
The NBS shows that output grew by 3.11% in Q1 2022 compared with 3.89% in
Q4 2021, driven by the non-oil sector, particularly Services, Agriculture and
Manufacturing. This is the 6th consecutive positive growth since the last
recession in 2020. The oil sector GDP contracted for the 8th successive quarter
because of production problems related to increased oil theft and pipeline
vandalism. Despite the high global oil price, the monumental level of oil theft
and dependence of domestic consumption on imports have continued to

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deprive Nigeria of the benefits of the increased global oil prices. Staff forecasts
that output will grow at 3.34% in Q2 2022 and 3.33% in 2022. The outlook is
predicated on effective implementation of the Medium-Term National
Development Plan (MTNDP), improvement in manufacturing and positive
impact of CBN interventions.
In June 2022, inflation increased to 18.6% (year-on-year) from 17.71% in May
2022, driven by both the food and core components. The food component
increased (y-o-y) to 20.60% in June 2022 from 19.5% in May 2022. The increase
in food prices was due to continued insecurity across the major food-producing
areas, increased cost of production, processing and transportation of the food
items due to high energy costs and global trade shock due to the Russia-Ukraine
war. Core inflation increased to 15.75% in June 2022, mainly driven by several
factors, including lingering structural issues, external shocks; continuous foreign
exchange market pressure; imported inflation; rising prices and inadequate fuel
supply (especially PMS and diesel), transportation and electricity. According to
Staff projections, inflation will rise to 19.2% in June 2022 as a result of an increase
in production costs associated with the scarcity of refined petroleum products,
disruptions in electricity supply and spillover effects of the Russian-Ukrainian war.
Data from the banking system stability report shows that the banking industry
has remained resilient and sound and contributes to the real sector. Capital
adequacy has remained above the regulatory minimum at 14.1% as of April
2022. The Non-Performing Loans (NPLs) ratio was 5.0%, at the regulatory
maximum of 5%. The industry’s total credit to the economy increased by N5.02
trillion or 22.78% between June 2021 and June 2022. Gross industry credit, which
stood at N27.06 trillion in June 2022, has risen steadily since 2019, largely due to
the Bank’s LDR policy. Analysis of the interest rate band reveals that 65.9% of
customers borrowed a total of N4,768.0 billion at interest rates of less than 15%
as of June 2022, suggesting that interest rates are declining as credit to the real
sector of the economy continues to increase. As of June 2022, a total of
N3,378.0 billion was lent to beneficiaries at less than a 10% interest rate through
the CBN intervention funds.

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Data on monetary aggregates shows that in May 2022, the broad money supply
(M3) has expanded by an annualised rate of 23.04%, which was greater than
the benchmark for 2022 of 15.21%. The monetary expansion was driven by Net
Domestic Assets, reflecting the continuous borrowing by the Federal
government from the domestic market.
The Basis for My Policy Choice
The continued increase in inflation, which is forecasted to rise further on
account of broad-based increases in core and food components, is caused by
diverse factors. Although the initial source of maybe supply-side or cost-push,
the dynamics have since changed. As I argued in my statement, the enduring
inflation persistence had produced second-round effects on non-energy, nonfood components of inflation by raising inflation expectations. In addition to the
fiscal and monetary stimulus that had significant liquidity injection, continuous
borrowing by the Federal government had contributed to the expanding
money supply. Being a pre-election year, election-related spending can be
expected to inject significant liquidity and contribute to the inflationary
pressure. Therefore, although the current inflationary process may have multiple
supply-side sources, it also has a substantial demand-side influence. Thus, in
choosing between the options to tighten, hold or loosen the current policy
stance, I voted to raise the MPR by 50 basis points to rein in inflation.
Consequently, I voted to:
• Raise the MPR by 50 basis points to 13.50 per cent;
• Retain the CRR at 27.5 per cent;
• Retain the asymmetric corridor at +100/–700 basis points; and
• Retain the liquidity ratio at 30.0 per cent.

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10. SHONUBI, FOLASHODUN A.
This meeting held at a time when the global economy faced multiple
challenges of rising food and energy prices, declining production, and suboptimal productivity compounded by tougher global financial conditions. Even
as many economies adopt hawkish measures to curb aggressively rising
inflation, unintended consequences that is somewhat chocking an already
slow recovery has created a policy conundrum for global policy makers. As the
domestic economy faces spillover from this precarious global macroeconomic

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condition, amidst high unemployment and widespread insecurity, it has
become imperative for the Bank to demonstrate commitment to ensuring
monetary and price stability. Despite the pressure to keep operating in a way
to prevent degeneration in output, the Bank must take decisive and clear
action to emphasize the primacy of its monetary and price stability mandate.

Brief Review of Global and Domestic Economic Developments
The global economy faced twin problem of declining growth and aggressively
rising widespread inflation. Lingering effects of pandemic-induced disruption to
supply chain and production has worsened by the devastating impact of the
Russia-Ukraine conflict on food and energy prices, causing historical rise in
global inflation. Overall impact is reflected in significant economic slowdown
and in some cases growth reversal, across developed, emerging and
developing economies. Accordingly, the latest IMF World Economic Outlook
projected global growth at 3.6 per cent in 2022 from an earlier 4.4 per cent,
amidst emerging uncertainties.

Domestic economic growth, at 3.11 per cent in the first quarter of 2022, showed
sixth consecutive quarters of growth, continued to be driven by the expansion
of the non-oil sector. The dismal performance of the oil sector, due to low
investment and theft, however, remains a major drag on overall growth.
Composite manufacturing and non-manufacturing Purchasing Managers’
Indices surpassed the 50.0 index point at 51.1 and 50.3 per cent, respectively,
in June 2022, reflecting some improvements in the expectations of this sector.

Domestic headline inflation accelerated further to a worrisome level of 18.60
per cent (year-on-year) in June 2022, its highest-level since January 2017, from
17.71 per cent in May 2022. The aggressive rise in general price level reflected
increase in both food inflation and core inflation to 20.60 and 15.75 per cent,
respectively, in June 2022, mainly on account of insecurity induced disruption
to food production and distribution, as well as, rising production cost due to

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high energy prices and imported inflation. Widening gap between farmgate
and market prices of food reflects impact of rising logistic and distribution cost.

Growth in major monetary aggregates over preceding December have been
significant vis-à-vis the targets for 2022. Broad money supply (M3) grew by 11.52
per cent at end-June 2022 (annualized to 23.04 per cent) against 14.92 per cent
benchmark for fiscal 2022. Similarly, growth in claims on the central government
and private sector were 35.04 and 11.84 per cent at end-June 2022, annualized
to 70.08 and 23.68 per cent, vis-à-vis their respective benchmarks of 12.26 and
17.73 per cent for fiscal 2022.

Prudential indicators in the banking sector remained within acceptable levels,
highlighting resilience of the sector. Even as total asset, deposit and credit
maintained their upward trend, the non-performing loans ratio improved further
to 4.95 per cent, below the prudential maximum of 5.0 per cent. Industry capital
adequacy and liquidity ratio were maintained within regulatory thresholds,
though returns on equity and investment recorded muted improvement,
reflecting the high operational cost and tight operating environment.

The fiscal space is characterised by significant shortfall in revenue, even as the
need for increased expenditure stares us in the face. This has resulted in rising
deficit, huge debt stock and overwhelming debt service obligations leaving
little or no resources for other government obligations. In the external sector,
low inflow from crude oil sales due to declining production investment and oil
theft has caused significant decline in accretion to the external reserves and
foreign exchange supply, leading to exchange rate pressure from pent-up
demand.

Considerations and Decision
Prospects of global growth is significantly muted as economies deal with the
effects of rising inflation, declining trade, and shortage of critical inputs caused

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by lingering disruptions to supply chain. The pace of economic recovery has
therefore further slowed down. Elevated general prices combined with tighter
financial conditions constitute major headwinds to global recovery. This
condition of global stagflation has created uncertainties around the global
policy environment and underscores the need to adopt more radical and
pragmatic measures to ward-off spillover from the precarious global macroeconomic situation and save the domestic economy from further deterioration.

The pressure points on the domestic economy remain fragile growth,
aggressively rising inflation, weakened fiscal space and vulnerable external
sector. Driven by the conviction that promoting output will address
unemployment and ultimately moderate inflation, the Bank has continued to
support growth. To address the fact that certain outcomes of ongoing support
may have been suboptimal due to factors out of control of the Bank, the next
stage is to make interventions more targeted and measured towards areas that
have yielded most impact. Strong perception of the counterfactual that if not
for the interventions in the real sector the situation may have been worse for
both output and food prices is a major basis to continue the support for growth.
In this regard, to moderate food inflation, I encourage a consideration of
targeted intervention/measures to address factors exacerbating the gap
between farmgate and market prices of food.

Impact of oil theft and insufficient new/replacement investment has led to
inability to meet up with OPEC production quota, making the oil sector a major
drag on overall growth. Huge revenue loss and near-zero flow from the major
source of foreign exchange has widened the foreign exchange demandsupply gap, thereby causing a worsening of exchange rate pressure. It is
therefore imperative for the fiscal authority to take decisive steps to stop oil
theft, which will in turn encourage investment, especially with the gradual
operationalization of the Petroleum Industry Act.

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Current trajectory of inflation calls for drastic actions as inflation accelerated at
a rate not seen in a long time. Apart from pressure from food prices and
imported inflation, the monetary phenomenon in domestic inflation has
become obvious, just as expectation seem to have also taken root. With growth
in the major monetary aggregates at end-June 2022 already surpassing the
benchmark for 2022, we must take immediate action to douse the influence of
monetary aspect of inflationary pressure. I therefore encourage Bank, guided
by trends in monetary aggregates, to keep a close eye on money supply and
continue to deploy its administrative measures to manage liquidity, especially
as it has shown to be a ready and effective tool in our peculiar case.

Despite the need to refocus on inflation, the Bank faces unrelenting pressure to
continue to promote growth and facilitate employment generation. However,
the public must be aware that we are concerned about the precarious
inflationary pressure and ready to act to tame inflation expectation. We must
at this point not only be seen as concerned, but also to have done something
to anchor inflation expectation and prevent a further compounding of
unemployment and poverty problems.
I therefore vote to:
• Raise MPR to 14.00 per cent;
• Retain Asymmetric corridor of +100/-700 basis points around the MPR
• Retain Cash Reserve Ratio (CRR) at 27.5 per cent; and
• Retain Liquidity Ratio (LR) at 30.0 per cent.

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11. EMEFIELE, GODWIN I.
GOVERNOR OF THE CENTRAL BANK OF NIGERIA AND CHAIRMAN, MONETARY
POLICY COMMITTEE

The Russia-Ukraine conflict continued to undermine the global economy,
particularly for small open developing economies like Nigeria. Besides, global
rebalancing in the aftermath of the Covid-19 remained sluggish as pent-up
demand persisted. These were complicated by the economic sanctions
against Russia that further worsened subsisting supply-chain disruptions across
the globe, especially in Europe and Africa. Over the past few months, the
ensuing trade dislocations have aggravated supply shocks across regions,
triggered unprecedented price hikes, and powered commodities, energy and
food inflations to record heights. Continued blockage of shipments
(predominantly of grains and other food items) along the Black Sea
exacerbated
the
threats
to
global
food security
and
undermined
macroeconomic stability.
Consequently, the global economy is saddled with high inflation and rising
inflation expectations that have hampered growth prospects. Across different
regions, inflation rates have skyrocketed above the long-run thresholds of many
central banks. May 2022 rate of inflation rose to 9.1 percent in the United
Kingdom (UK), while the United States (US) and the Euro area recorded all-time
highs of 9.2 and 8.6 percent in June, respectively. For Emerging Markets and

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Developing Economies (EMDEs), inflation rose in June to 2.5 percent in China,
5.6 percent in Brazil, 7.9 percent in Kenya, 18.6 percent in Nigeria, and 29.0
percent in Ghana. These are already complicating existing global vulnerabilities
and risks to output growth. Current realities indicate that the nascent global
recovery from the impact of Covid-19 pandemic could reverse in 2022q2
except urgent countervailing measures are implemented. Accordingly, the IMF
is likely, in its July WEO, to further downgrade the 2022 global growth from the
3.6 percent projected in April, ditto for the 3.3 and 3.8 percent growths,
respectively, estimated for advanced economies and EMDEs.
Central banks in many advanced economies and EMDEs have intensified
policy tightening to contain inflationary pressures and anchor expectations.
These have significant ramifications for capital reversal from EMDEs and could
worsen vulnerabilities associated with sovereign debts, external reserves, and
exchange market pressures. The emergent uncertainties from these could
combine with a narrowed policy space to escalate the lingering fragility in
several EMDEs; thus, requiring urgent and critical policy actions.
Despite these growing concerns, which were amplified by domestic security
threats and rising inflation, growth prospect for the domestic economy
remained cautiously positive. Staff forecast suggests a domestic growth of 3.33
percent for 2022 even as the elevated risk of recession accompanies rising
inflationary pressure. Headline inflation rate for June 2022 rose to 18.6 percent
from 17.7 percent in May, with food and core inflations, respectively, rising to
20.6 and 15.7 percent. On a month-on-month basis, the food sub-index
increased by 2.05 percent from 2.01 percent recorded in May, while the core
slowed to 1.56 percent from 1.87 percent; reflecting the importance of food
inflation. I am notably concerned about the debilitating effect of high inflation
on the purchasing power of economic agents, its disruptive effect on
productivity and distribution, and its exacerbation of unemployment, poverty
and inequality. More so, continued negative real interest rate could destabilise
domestic investments, deepen capital flow reversal, and undermine the
stability of the naira.

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Broad money supply (M3) grew by 11.52 percent in June from 10.86 percent in
May due to the increase in net domestic asset. Against the backdrop of
sustaining the critical support to the real sector of the economy, credit to the
private sector grew by 27 percent in June 2022 (year-on-year). Amidst these
growing global uncertainty and price developments, the banking sector
remained robust and safe as banks’ leverage ratio indicated ample resilience
to shocks. At 14.1 percent, CAR stood above the 10 percent threshold in June,
while liquidity ratio was 42.6 percent and NPL ratio moderated further to 5.0
percent. External reserves, at US$39.6 billion in June, remained at a comfortable
level and could finance over 9 months of imports. Nonetheless, external sector
vulnerabilities (due to ongoing geopolitical tensions) could persist in the nearterm as pressures on aviation fuel, grains and other commodities intensifies.
In my consideration, I reiterate the need to staunchly support the agriculture
and manufacturing sectors to help moderate food prices and other imported
finished goods through both fiscal stimulus and unconventional monetary
policy (interventions) in the real sector. Furthermore, improving the security of
lives and properties would help agriculture and food production (especially as
we approach the harvest season) and keep inflation under check. I am certain
that sustaining our non-oil sector development programmes through the RT200
initiative would help reserves accretion and support exchange rate stability.
Above all, curbing oil theft and shoring up oil production will boost government
finances, support external reserves and moderate the pressure on the
exchange rate.
Based on the objective of price stability, my inclination is to decisively contain
inflationary pressure and expectations without impairing the long-run growth
path. Primarily, it is imperative to disentangle the evolution of the current
inflationary dynamics, unravel the underlying drivers, and respond accordingly.
I recognise that the current inflationary pressure is due to both structural and
monetary factors, and underscore the urgent need to rein in inflation. In my
consideration, loosening at this time will be antithetical as it could trigger
massive capital outflow, intensify exchange rate depreciation and worsen

Classified as
Classified as
inflation. Furthermore, holding policy rate could be sub-optimal given the
already negative real interest rate that could undermine investments and
exacerbate the pressure on the external balance. I am convinced that policy
tightening, to a significant degree is crucial at this time. I believe that given the
over 84 and 200 basis points increases in headline and food inflation,
respectively, aggressive tightening is necessary to dampen pervasive inflation,
contain expectations, and provide a forward guidance. Overall, I vote to:
I.
Raise the MPR by 150 basis points to 14.5 percent;
II.
Retain the asymmetric corridor at +100/–700 basis points;
III.
Retain the CRR at 27.5 percent; and
IV.
Retain liquidity ratio at 30.0 percent

GODWIN I. EMEFIELE, CON
Governor

July 2022