CENTRAL BANK OF NIGERIA COMMUNIQUÉ No. 122 OF THE MONETARY POLICY
COMMITTEE MEETING OF MONDAY 21ST AND TUESDAY 22ND JANUARY, 2019
Background
The Monetary Policy Committee (MPC) held its first meeting for fiscal 2019 on
21st and 22nd January, 2019 amidst concerns over the slowdown in global
economic activity, arising from on-going trade tensions, tightening global
financing conditions and mounting external debt in Emerging Market and
Developing Economies (EMDEs). On the domestic front, the resurgence of
moderate inflationary pressure and possible threats to accretion to external
reserves due to softening crude oil prices were noted. The Committee
reviewed the developments in the global and domestic economic and
financial environments in 2018, as well as the risks and outlook in the short to
medium term. Eleven (11) members of the Committee were in attendance.
Global Economic Developments
The Committee noted the divergence in performance of most economies in
2018 leading to moderation in global output. In addition, a combination of
factors including: financial market volatilities, trade war between the US and
key allies, continuing monetary policy normalization by the US, BREXIT, the
termination of the European Central Bank’s (ECB) asset purchase program in
December 2018 and the slowdown in the Chinese economy, further
heightened uncertainties for the global economy in 2019. Consequently,

global growth has been downgraded by the IMF to 3.5 per cent in 2019, from
3.7 per cent in 2018.
The Committee noted the gradual increase in global inflation, with
inflationary pressures intensifying in some Emerging Markets and Developing
Economics (EMDEs) that had in the recent past faced currency depreciation
arising from capital flow reversals arising from progressive monetary
tightening by the Federal Reserve. It is, however, expected that the recent
decline in oil prices may reverse the trend, especially for oil importing
economies and thus moderate currency depreciation in these countries.

Domestic Output Developments
The Committee noted the continued recovery in output growth in the
domestic economy after the 2016 recession as real GDP grew by 1.81 per
cent in Q3 2018 from 1.50 per cent in Q2 2018. The services and agricultural
sectors continued to drive output growth, contributing 1.19 and 0.56 per cent,
respectively. However, the persistence of herdsmen attack on farmers, cattle
rustling and flooding in some parts of the country affected agricultural and
livestock output. Based on the Manufacturing and Non-Manufacturing
Purchasing Managers’ Indices (PMI), output growth for Q4 2018 is expected
to expand further. The expected performance projected in the PMI is
attributed
to
continued
stability
in
the
foreign
exchange
market,
improvements in the flow of financing resources to the real sector through the
various interventions by the Bank, effective implementation of the Economic
Recovery and Growth Plan (ERGP) and the increase in non-oil sector GDP.
The outlook for growth, however, remains fragile as the late implementation
of the 2018 budget and the residual impact of flooding and security
challenges, constitute headwinds to growth. The Committee, therefore,
believes that the effective implementation of the 2018 capital budget and
the ERGP, improvement in the security situation, and continued stability in the

foreign exchange market will enhance aggregate demand and output
growth.
Developments in Money and Prices
The Committee noted that the broader measure of money supply, M3, grew
by 16.58 per cent in 2018, above the provisional benchmark of 13.02 per
cent. Broad money (M2), also grew by 12.17 per cent in December 2018 over
its level at end-December 2017, in contrast to the provisional benchmark of
10.48 per cent for 2018. The increase in M2 reflected the growth in Net
Foreign Assets (NFA) of 18.54 per cent in December 2018, above its
provisional benchmark of 14.50 per cent. Credit to the private sector rose
marginally by 1.96 per cent below its provisional benchmark of 12.39 per
cent, while credit to government grew by 33.77 per cent in December 2018,
above its benchmark rate of 17.38 per cent.
The Committee noted the appreciable growth in credit to the private sector
which had been a constraint to growth in the real sector and expressed
optimism of further improvement in lending, through the sustained effort of
the Bank to enhance credit delivery to small and medium scale industries in
the economy. The MPC, thus, commended the Management of the Bank for
its efforts so far in sustaining credit delivery to the real sector of the economy.
The resurgence in inflationary pressure in the economy was of concern to the
MPC as headline inflation (year-on-year) inched up to 11.44 per cent in
December 2018 from 11.28 per cent in November 2018. The increase in
headline inflation was driven by food inflation, which rose to 13.36 per cent in
December 2018 from 13.30 per cent in November, while Core inflation
declined marginally to 9.77 per cent in December 2018 from 9.79 per cent in
the previous month. The Committee, however, observed that the uptick in
inflation was attributed to seasonal factors, which impacted mainly on food.
Consequently, all measures of inflation, month-on-month, showed a decline.
Thus, headline, food and core inflation declined to 0.74, 0.81and 0.50 per

cent in December 2018 from 0.84, 0.90 and 0.68 per cent, respectively, in
November 2018.
The Committee observed that the near-term risks to inflation remain: the
residual impact of flooding on agricultural output, insecurity in parts of the
food producing belts of the country, exchange rate pass-through to inflation
due to weakening oil price and campaign-related spending towards the
2019 general elections. Accordingly, the MPC urged the Federal Government
to sustain its current effort towards improving security to ease the food supply
chain bottlenecks.
Money market interest rates in the review period, generally reflected the level
of liquidity in the banking system as the average inter-bank call rate declined
significantly to 7.17 per cent in November 2018 from 14.18 per cent in
October 2018. The Open Buy Back (OBB) rate, which stood at 6.57 per cent in
October 2018, increased marginally to 6.76 per cent in November 2018. On
December 24 and 31, 2018, the interbank call and OBB rates, however,
closed at 14.00 and 18.94 per cent, respectively. The improvement in net
liquidity position and interest rate reflected the combined effects of the CBN
quasi-fiscal operations, OMO auctions, maturing CBN Bills and foreign
exchange interventions as well as statutory allocations to state and local
governments.
The Committee observed the decline in the equities market for the most part
of 2018. On a year-on-year basis, the All-Share Index (ASI) decreased by 17.81
per cent from 38,243.19 at end-December 2017 to 31,430.50 at endDecember 2018. The All-Share Index (ASI) further decreased by 1.35 per cent
to 31,005.17 as at January 18, 2019. Similarly, Market Capitalization (MC)
decreased by 13.87 per cent from N13.61 trillion at end-December 2017 to
N11.72 trillion at end-December 2018. It further declined by 1.37 per cent to
N11.56 trillion as at January 18, 2019. The Committee observed that these
developments largely reflected the impact of the progressive monetary
policy normalization in some advanced economies and the sustained profit

taking activities of foreign investors arising from perceived political risk in the
build-up to the 2019 general elections. The MPC, however, remained
optimistic of the gradual reversal of the current trend in the medium term,
given the current stability in the foreign exchange market and the external
reserves position, as well as continued improvements in key macroeconomic
indicators.

The Committee noted the relative stability at both the Bureau-de-Change
(BDC) and the Investors’ and Exporters’ (I&E) window of the foreign
exchange market, supported by the Bank’s proactive exchange rate
management policies. It also observed with satisfaction, the contribution to
stability in the market of the implementation of the Bilateral Currency Swap
Agreement (BCSA) with China and the inflow of the US$2.8 billion Euro bond.
The Committee also noted the marginal increase in the external reserves,
from US$42.54 billion at end-December 2018 to US$43.28 billion as at January
21, 2019, noting that these improvements would further strengthen investor
confidence in the Nigerian economy.

The Overall Outlook and Risks
Forecasts for key macroeconomic indicators in 2019 portend a positive
outlook for the domestic economy. Output growth is expected to be driven
by fiscal stimulus from increase in oil and non-oil receipts to support the
Federal Government’s Economic Recovery and Growth Plan. The economy is
projected to grow by 2.0 per cent by the IMF, 2.2 per cent by the World Bank
and 2.28 per cent by the CBN. Key headwinds to these forecasts, however,
are softening oil prices, persistent security challenges arising from insurgency
in the North East, herdsmen attack in some parts of the country and
perceived political risks associated with the 2019 general elections.
The outlook for inflation in the first half of 2019 is mixed, with the expectation
of an increase in the near-term before a gradual decline towards the mid-

year. Inflation is expected to rise marginally amidst palpable tailwinds, which
include increased spending preparatory to the 2019 general elections and
continued disruptions to the food supply chain in the insurgency prone areas
and herdsmen attacks in food producing regions of the country.
The MPC appraised the possibility of external shocks in 2019 as the outlook for
the global economy remains uncertain due to the effect of on-going trade
tensions between the US and its key allies, slower growth in China, unclear
direction
of
BREXIT
negotiations
and
continuing
monetary
policy
normalization in some advanced economies. The Committee was of the view
that oil prices may, however, remain relatively stable, within the US$50pb
bracket in view of recent OPEC’s production cutting actions.

Committee’s Considerations
The Committee noted with satisfaction, the performance of the economy in
2018, highlighting the achievements in key macroeconomic indicators in the
face of global uncertainties and domestic challenges. In particular, it noted
the stability in the exchange rate, stable accretion to external reserves,
moderation in inflation and the low but gradual improvement in real GDP
growth in the last six consecutive quarters commencing from Q2 2017. The
MPC noted that given global economic conditions and the risk confronting
emerging markets and developing economies in recent times, as well as the
limited productive capacity of the economy, the managed float foreign
exchange management regime of the CBN has delivered the most optimal
results when compared with other emerging markets in recent times.
Consequently, capital flows into the domestic economy has continued
unabated after an initial lull. The Committee considered the risks to the global
economy, noting the downward revision in projected global output in 2019,
the adverse impact of the trade war between the U.S and its major trading
partners, likelihood of lower crude oil prices, impact on capital flows of
continued monetary policy normalization by major advanced economies,

distorted signals on BREXIT negotiations, as well as pockets of other sociopolitical tensions and perceived election risks on the domestic front.

The Committee commended the government’s focused expenditure on
investment in infrastructure and urged the Federal Government to sustain the
pace towards addressing the infrastructural deficit in Nigeria. It noted that
the immediate impact of this approach on GDP may be slow in coming, but
will
eventually
expand
the
economy’s
productive
base,
reduce
unemployment and increase aggregate demand in a more sustainable
manner and over a long period of time.

The Committee acknowledged the strategic role of the private sector in
economic growth and remained concerned over the slow growth in credit to
the private sector through 2018, while noting the sudden increase at endDecember 2018. The MPC commended the initiative of the Bankers
Committee in addressing the phenomenon of low credit to the small and
medium scale enterprises through partnering with the Nigeria IncentiveBased Risk Sharing System for Agricultural Lending (NIRSAL) to establish a
national Microfinance bank with branches in all States and Local
Government areas of the Federation to provide low interest rate lending to
small scale businesses. A further initiative by NIRSAL with the CBN to de-risk
lending to small scale enterprises is also being fine-tuned. On external
borrowing, the Committee noted the increase in the debt level, it advised for
caution, noting that debt levels could fast be approaching the pre-2005 Paris
Club exit level.

The MPC also noted that although there was an increase in the inflation rate
for the second consecutive month, month-on-month inflation continued to
moderate, indicating that the year-on-year measures will also moderate in
the near term. This is supported by the stability in the naira exchange rate
and thus, urged the Bank to sustain this stability. To this end, it welcomed the

narrowing of the exchange rate premium between the BDC segment and
the Investors’ and Exporters’ (I&E) window of the foreign exchange market.

The Committee also noted with satisfaction the gradual reduction in Non-
Performing Loans of the deposit money banks (DMBs) which has further
strengthened their balance sheets. The Committee believes that as
Government pays off contractor debt and other obligations, there will be a
sizable reduction in the NPLs of the banking system.

The Committee also noted the attempt by Government to broaden the base
of the Value Added Tax (VAT) and urged the authorities to expedite action in
that respect, arguing that increased tax collection will reduce the pressure on
government
expenditure
and
create
fiscal
buffers
to
improve
macroeconomic management.

The observed and recent high foreign capital inflow into the Nigerian
economy despite the perception of election risk, is evidence of the
confidence of the international community in the country’s macroeconomic
management and provides a compelling reason for the Committee to await
clarity on macroeconomic performance after the general elections in
February and March 2019.

In the light of the observed risk confronting the economy, including the
global and domestic inflationary pressures, which have intensified the risk of
currency depreciation, the MPC was of the view that a loosening option was
very remote. Weighing the balance of its judgement on price stability
conducive to growth, the MPC felt that tightening would result in the loss of
the gains so far achieved, noting that this may drive the banks to reprice their
assets; thus increasing the cost of credit as well as elevating credit risk in the
economy. It will also worsen the position of non-performing loans of the
banks. The Committee also felt that tightening would dampen investments

and hamper improvements in output growth, given the already fragile
growth performance so far achieved.

The Committee’s Decision
In the light of the above, the MPC decided by a vote of all eleven (11)
members to keep the policy parameters unchanged from their current levels.
In summary, the MPC voted to:
I. Retain the MPR at 14 per cent;
II. Retain the asymmetric corridor of +200/-500 basis points around the MPR;
III. Retain the CRR at 22.5 per cent; and
IV. Retain the Liquidity Ratio at 30 per cent.

Thank you.
Godwin I. Emefiele
Governor, Central Bank of Nigeria
22nd January, 2019