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CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 149 OF THE MONETARY
POLICY COMMITTEE MEETING
HELD ON MONDAY 24th AND TUESDAY 25th JULY 2023
The Monetary Policy Committee (MPC) met on the 24th and 25th of July
2023, against the backdrop of continued uncertainties in the global and
domestic economies. This included geo-political tensions, threats to
globalization and the multilateral economic system. On the domestic
front, output growth continued at a moderate pace, while the general
price level remained elevated as markets adjust to the new policies
introduced by the
Federal
Government. Consequently, these
developments at both the global and domestic levels continue to pose
significant challenges to the policy environment.
The Committee assessed these developments and the outlook for the
rest of the year.
Eleven (11) members of the Committee attended this meeting.
Global Economic Developments
The Committee reviewed developments impeding the smooth recovery
of the global economy. Notable amongst these, is the continued
hostility between Russia and Ukraine, as Russia reneged from further
renewal of the Black Sea Agreement. This development would likely
push commodity prices much higher than current levels. In addition,
China’s slow recovery is dampening global trade, while the increasing
polarization of the global economy with several economies seeking

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macroeconomic alliances with the group of BRICS countries, is
increasing uncertainty in the direction of trade flows.
Inflation across several Advanced Economies has continued to
moderate but remains considerably above their respective long-run
objectives even as monetary policy tightening progresses. In the
Emerging Markets and Developing Economies, inflationary pressure
remains broadly elevated, though there are signs of moderation in some
countries. Global Inflation is, thus, expected to remain elevated through
2023, despite broad measures by several central banks to ease the
pressure.
In the global financial markets, financial conditions remain tight and
may exacerbate further as monetary policy normalization progresses.
Investors’ preference is thus, shifting to advanced economy fixedincome securities with improved yields as well as safe haven assets.
The International Monetary Fund (IMF), in its July 2023 World Economic
Outlook, revised the 2023 output growth forecast for the global
economy upwards to 3.2 per cent, from 2.8 per cent in its April forecast.
The improved outlook was due to the sustained resilience of the global
economy to the prevailing headwinds in the first half of 2023. Global
growth is however, projected to moderate downward to 3.0 per cent in
2024.
Domestic Economic Developments
Available output data from the National Bureau of Statistics (NBS)
showed that, Real Gross Domestic Product (GDP) grew by 2.31 per cent
(year-on-year) in the first quarter of 2023, compared with 3.52 per cent

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in the preceding quarter. While growth moderated, it has remained
positive since Q4 2020. This steady and positive performance was driven
largely by sustained growth in the services and industry sectors,
supported by broad-based measures by both the monetary and fiscal
authorities.
Staff projections showed that output growth recovery in 2023 would
remain positive as economic agents adjust to the recent policies on zero
subsidy on the price of Premium Motor Spirit (PMS) and convergence of
exchange rates.
On price development, the Committee noted the continued uptick in
inflationary pressure, as headline inflation (year-on-year) rose by 38 basis
points to 22.79 per cent in June 2023 from 22.41 per cent in the previous
month. This was driven by the moderate increases to both food and
core components. Legacy headwinds, including security challenges in
major food-producing areas; high cost of transportation driven by the
rising cost of energy; and inadequacies in public infrastructure, continue
to drive the rise in food and core inflation. Key developments that would
likely sustain upward pressure on domestic prices, in the short to medium
term, are the recent deregulation of petrol price and the transition to a
unified and market-determined exchange rate. The unfolding dynamics
in the policy environment and the resultant pass-through to domestic
prices would thus require greater collaboration between the Bank and
the fiscal authority.
Broad money supply (M3) in June 2023 grew by 24.35 per cent (year-todate), compared with 6.70 per cent in May, driven largely by the

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increase in both Net Foreign Assets (NFA) and Net Domestic Assets
(NDA). Money market rates reflected the level of liquidity in the banking
system. Consequently, the monthly weighted average Open Buyback
(OBB) and Interbank Call rates decreased to 9.12 and 11.61 per cent in
June 2023, from 12.60 and 12.31 per cent in May, respectively.
In the Banking System, Financial Soundness Indicators (FSIs) remained
stable and strong. The Capital Adequacy Ratio (CAR) stood at 11.2 per
cent, Non-Performing Loans (NPLs) ratio of 4.1 per cent and Liquidity
Ratio (LR) of 48.4 per cent, as at end June 2023.
In the financial market, equities remained bullish through the review
period, with the All-Share Index (ASI) and Market Capitalization (MC)
increased to 60,968.27 index points and N33.20 trillion, respectively, on
June 30, 2023, compared with 51,251.06 index points and N27.92 trillion
as at December 30, 2022. This indicates continued investor confidence
in the Nigerian market as investors foresee a more stable
macroeconomic environment once the current policies of the Bank and
Federal Government fully permeate the economy.
Gross external reserves improved marginally to US$33.97 billion as at July
20, 2023, from US$33.75 billion in June 2023, as accretion to external
reserves remains weak while foreign exchange demand pressures
persist.

Outlook
The overall outlook for the recovery of both the global and domestic
economies moderated, however uncertainties remain. At the global

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level, legacy headwinds such as the war in Ukraine and slow recovery of
the Chinese economy as well as ongoing bricsification are key downside
risks to output growth. In the domestic economy, factors precipitating
the uncertainties remain the continued insecurity, particularly in farming
communities; high prices of PMS and other energy products; as well as
pressure in the foreign exchange market.
Forecasts for key macroeconomic indicators for the Nigerian economy
indicate that the economy will continue to recover moderately through
2023 to grow by 2.66 per cent (CBN), 4.20 per cent (FGN) and 3.20 per
cent (IMF).

The Committee’s Considerations
The Committee’s considerations focused on the persistent rise in inflation
and its potential adverse effect on output growth and household
income. The continued uptick in inflation (month on month), driven by
increase in both the food and core components of the CPI, in the view
of members, remained a key challenge. The members also expressed
concerns that the recent policy decisions around subsidy removal,
exchange rate liberalization and disbursement of palliatives, would
have pass-through effects to inflation. Members therefore called for
decisive measures, by the Bank, to address the likely liquidity surfeit from
these developments, including using appropriate monetary policy
instruments.
The Committee urged the monetary and fiscal authorities to sustain its
collaboration towards addressing the inflationary pressure and
incentivise domestic investment to reduce unemployment and boost

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output growth. It enjoined the Federal Government to continue to
explore policies to improve investor confidence in the Nigerian
economy and pave way for foreign and domestic investments.
Members emphasized the need to attract investments, particularly, to
auto manufacturing, aviation, and rail industries to boost non-oil
revenues. The Committee, thus, expressed the view that, key policy
mechanisms to shield the Nigerian economy from persisting global
shocks and other emerging domestic shocks, are urgently required for
the economy to continue to post positive growth.
The Committee also recognized the several measures put in place by
the Bank to boost foreign exchange liquidity. Particularly, Members were
of the view that the recent policy on foreign exchange market reform
would increase market transparency and encourage more foreign
capital inflows. It, therefore, urged the Bank to leverage on effective
policies to attract remittances from diaspora to help moderate
exchange rate pressures.
The Committee commended the Bank’s role in the effective oversight
of the banking system, evidenced by the relative stability in key financial
soundness indicators and resilience of the sector, despite tight global
and domestic financial conditions. Members, however, noted the
potential impact of the recent policy reforms on financial system stability
and called on the Management to act proactively to ringfence the
banking system from any possible second-round effects. The MPC, thus,
urged the Bank to sustain its macro-prudential surveillance over the
banking system.

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The Committee’s Decision
Following the outlook for the domestic economy, Members were of the
view that the Committee was confronted with only two policy options,
to hold or hike the policy rate to offset the moderate increase in
headline inflation.
Considering the option to hold, the Committee reviewed the impact of
the continued rise in inflation on various macroeconomic variables,
noting the potential dampening effect on output growth. Members
agreed unanimously that the previous series of rate hikes had indeed
greatly moderated the pace of price increases.
The option to continue to hike the policy rate, albeit moderately, also
presented a strong alternative. This is premised on the expected liquidity
injections into the economy from the recent policy developments and
the likely impact on inflation.
The Committee remained cautious in arriving at a policy decision as
Members noted the need to continue to support investment which will
ultimately lead to the recovery of output growth. The balance of these
arguments thus, leaned in favour of a moderate rate hike, to sustain
efforts at anchoring inflation expectation, narrow the negative real
interest rate gap, and improve investor confidence.
The MPC, thus, resolved by a majority vote to raise the Monetary Policy
Rate (MPR). Six (6) Members voted to raise the MPR: Four (4) Members
by 25 basis points and two (2) Members by 50 basis points. Five (5)
Members voted to hold the MPR constant. All Members voted to narrow

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the asymmetric corridor from +100/-700 to +100/-300 basis points around
the MPR.
In summary, the MPC voted to:
I.
Raise the MPR by 25 basis points, from 18.50 to 18.75 per cent;
II.
Adjust the asymmetric corridor to +100/-300 basis points around the
MPR;
III.
Retain the CRR at 32.5 per cent; and
IV.
Retain the Liquidity Ratio at 30 per cent.
Thank you.

Folashodun A. Shonubi, OFR
Ag. Governor,
Central Bank of Nigeria
25th July 2023