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CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 144 OF THE MONETARY POLICY
COMMITTEE MEETING HELD ON MONDAY 26th AND TUESDAY 27th SEPTEMBER, 2022
The Monetary Policy Committee (MPC) met on the 26th and 27th of September
2022, amidst continued weakening of the global economy due largely to the
lingering disruptions to the global supply chain as a result of the Russia-Ukraine
war, persisting global inflationary pressure, and lockdowns in China. Other
contributing factors include tightening global financial conditions, declining
global trade, and increasing risks of a financial meltdown owing to the
burgeoning global private and public debt portfolios. The Committee reviewed
these and other developments in the global and domestic economies in the
third quarter of 2022 as well as the outlook for the rest of the year.

All (12) members of the Committee attended this meeting.
Global Economic Developments
The Committee expressed concern over the heightened risk of spillovers
associated with the broadly weakening global recovery. These have been
further exacerbated by uncertainties emanating from lingering supply chain
bottlenecks, due to the Russia-Ukraine war and continued COVID-19 lockdown
in China. Consequently, global trade maintained a steady decline while
inflation remained unabating despite aggressive rate hikes by several central
banks. The risk of yet another global recession would be extremely damaging
for fragile economies still confronted with the lag impact of the 2020 recession,
especially for emerging market and developing economies currently
confronted with huge capital flow reversals and tightening global financial
conditions.

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Consequently, the International Monetary Fund (IMF), in its July 2022 growth
forecast, further downgraded global output growth for 2022 and 2023 to 3.2
and 2.9 per cent, respectively, from 3.6 per cent apiece.
In the Advanced Economies, inflation remains high and considerably above
the long-run objectives of several central banks’ threshold despite progressive
rate hikes, due largely to persistent increase in the prices of food and energy.
In major Emerging Market and Developing Economies (EMDEs), the uptrend in
inflation is expected to continue in the medium term, driven by legacy structural
issues, elevated exchange rate pressures, rising capital flow reversals, in
addition to the outlined shocks from the global economy.
In global financial markets, investors have continued to rebalance their
portfolios as yields on fixed income securities improve with the ongoing policy
rate increases. Gold price is thus gradually declining, as investors move steadily
towards the fixed income market. In addition, risk-averse portfolio investors have
continued with reassignment of their portfolios from perceived risky emerging
market securities to less risky advanced economy securities.
Domestic Economic Developments
According to the National Bureau of Statistics (NBS), Real Gross Domestic
Product (GDP) grew by 3.54 per cent (year-on-year) in the second quarter of
2022, compared with 3.11 per cent in the first quarter of 2022 and 5.01 per cent
in the corresponding quarter of 2021. The economy has thus maintained
continuous growth for seven consecutive quarters, following its exit from
recession in 2020. This consistent positive performance was driven largely by the
sustained growth in the non-oil sector, particularly services and agricultural subsectors, supported by continued policy interventions, as well as credit
expansion to the private sector.

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While output growth remains positive, the Committee, was concerned about
the contraction in economic activities, as indicated by the Composite
Purchasing Managers’ Index (PMI), which fell to 47.2 index points in August 2022,
below the 50-index point benchmark, compared with 50.4 and 51.9 index points
in July and June 2022, respectively, an indication of weakening output growth.
The contraction was attributed to a decline in production levels, new orders,
inventory levels, employment levels and persisting shocks from the global
economy associated with both the Russia-Ukraine war and the unabating
Pandemic, as well as other domestic shocks. The Committee, however,
expressed optimism on the economy’s recovery in the short to medium term in
view of the unwavering support by both the monetary and fiscal authorities in
Nigeria.
The Committee noted the continued uptrend in inflation for the seven
consecutive months, with headline inflation (year-on-year) rising to 20.52 per
cent in August 2022, from 19.64 per cent in July. Both the food and core
components rose to 23.12 and 17.20 per cent in August 2022, from 22.02 and
16.26 per cent in July 2022, respectively. The hike in energy prices, such as rising
price of Automotive Gas Oil (AGO), hike in electricity tariff, as well as the
perennial scarcity of Premium Motor Spirit (PMS) contributed significantly to the
building of expectations, thus pushing up the cost of transportation and
production. Other contributory factors include: the broad-based insecurity
across the country, which continue to dampen production activities; legacy
structural factors such as the inadequate state of critical infrastructure; high
cost of importation of essential grains, such as wheat; and increased demand
for money associated with the forthcoming electoral campaign season. The
ongoing monetary policy tightening by the US Federal Reserve Bank is also
putting upward pressure on local currencies across the world, with pass-through
to domestic prices, as investors exit these economies to seek higher yields in US
dollar denominated fixed income securities.

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The Committee noted that broad money supply (M3) grew by 11.05 per cent in
August 2022, compared with 8.66 per cent in July. This was driven largely by the
growth in Net Domestic Assets (NDA) of 26.19 per cent in July 2022, compared
with 22.78 per cent in the preceding month. The sustained growth in Net
Domestic Assets (NDA) was driven largely by increased claims on the Federal
government and other financial corporations and the private sector.
Money market rates continued to fluctuate, reflecting liquidity conditions in the
banking system. Consequently, the monthly weighted average Open Buyback
(OBB) rate declined to 13.21 per cent in August 2022, from 14.15 per cent in July,
while the Inter-bank Call rate increased to 15.00 per cent in August 2022, from
13.00 per cent in July.
The Capital Adequacy Ratio (CAR) and the Liquidity Ratio (LR) remained above
their prudential limits at 13.4 and 40.1 per cent, respectively, in August 2022. The
Committee, applauded the improvement in the Non-Performing Loans (NPLs)
ratio to 4.8 per cent in August 2022, compared with 5.0 per cent in June 2022,
reiterating its call on the Bank to sustain its tight prudential regime, to ensure
that the NPL ratio is kept below its 5 0 per cent prudential benchmark.
The MPC noted the development in the equities market in the review period, as
the All-Share Index (ASI) decreased to 49,836.51 index points on August 31, 2022,
from 51,817.59 index points on June 30, 2022. Market Capitalization (MC) also
decreased to ₦26.88 trillion, from ₦27.94 trillion in the same period. The bearish
performance reflected sustained profit taking and sell-off by investors
rebalancing their portfolios in favour of higher yields in the fixed income market.
The Committee noted the marginal increase of 0.39 per cent in the level of
external reserves to US$38.46 billion at end-August 2022 from US$38.31 billion at
end-July 2022 despite continued demand pressure. With crude oil price forecast
to continue to moderate in the short to medium term, Members urged the Bank
not to relent on the various policies put in place to support non-oil exports to
shore up external reserves.

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Under the Real Sector Facility, the Bank released the sum of ₦66.99 billion to 12
additional
projects
in
manufacturing
and
agriculture.
Cumulative
disbursements under the Real Sector Support Facility (RSSF) currently stood at
₦2.10 trillion disbursed to 426 projects across the country.
Furthermore, under the 100 for 100 Policy on Production and Productivity (PPP),
the Bank disbursed the sum of ₦20.17 billion to 14 projects in healthcare,
manufacturing, and services, bringing the cumulative disbursement under the
facility to ₦93.39 billion to 62 projects. In the healthcare sector, ₦4.00 billion was
disbursed to two (2) healthcare projects under the Healthcare Sector
Intervention Facility (HSIF), bringing the cumulative disbursement to ₦130.54
billion for 131 projects, comprising of 32 pharmaceuticals, 60 hospitals and 39
other services. Under the Export Facilitation Initiative (EFI), the Bank funded
several commodity projects in the non-oil export segment for value-addition
and production to the tune of ₦3.24 billion, aside the ₦50.00 billion disbursed
through the Nigerian Export Import Bank (NEXIM).
In the Micro, Small and Medium Enterprise (MSME) sector, the Bank supported
entrepreneurship development with the sum of ₦39.26 million under the Tertiary
Institutions Entrepreneurship Scheme (TIES), bringing the total disbursement
under this intervention to ₦332.43 million. Under the Intervention Facility for the
National Gas Expansion Programme (IFNGEP), the Bank disbursed ₦1.00 billion
to support the adoption of Compressed Natural Gas (CNG) as the preferred
fuel for transportation and Liquefied Petroleum Gas (LPG) as the preferred
cooking fuel.

Outlook

The broad outlook of the global and domestic economies in the medium-term
remains clouded by uncertainties associated with lingering headwinds from the
Russia-Ukraine war and the residual impact of the COVID-19 pandemic. Others
include tightening global financial conditions with elevated shocks to foreign
capital flows, as some Advanced Economies continue to pursue aggressive

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policy rate hikes; the high level of corporate and public debt with heightened
risk of another global financial meltdown; and the high level of inflation across
several economies.
On the domestic front, available data on key macroeconomic variables
indicate that output growth will continue for the rest of 2022, however, at a
much-subdued pace. Some of these domestic shocks include: the high level of
insecurity currently disrupting the free flow of economic activities; heightened
sovereign risk as the 2023 general elections approach; continued upward
pressure on inflation, driven by exchange rate pressures amongst other domestic
factors. In addition, domestic price development is expected to maintain the
current upward trend in light of the build-up of increased spending and demand
for money, as the 2023 general elections approach. Accordingly, the Nigerian
economy is forecast to grow in 2022 by 3.52 per cent (CBN), 4.20 per cent (FGN)
and 3.40 per cent (IMF).

The Committee’s Considerations
At this meeting the focus of the MPC was on the aggressive acceleration of
inflation globally and how this had begun to retard growth in both Advanced
and Emerging Market Economies. Members noted that though the global
economy was progressively weakening due to the various headwinds
confronting the recovery. In Nigeria, output growth had been sustained as a
result of the combination of development finance interventions by the Bank
and fiscal stimulus by the Federal Government. Members noted that in the last
3 years, the CBN has injected over N9 trillion into the economy, in addition to
offering 2- year moratorium for 10-year long-term loan facilities. The Committee
believe that these interventions have significantly helped engendered growth.
However, in light of the persisting pressures on inflation, the Committee
encouraged the Bank maintain a close watch on the inflationary implications
of the interventions.

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The MPC noted the moderate downturn in the equities market, attributing it to
a continued outflow of portfolio capital as investors re-assign their portfolios to
more attractive US dollar denominated fixed income securities. The Committee,
however, also called on the Federal Government to continue to improve the
ease of doing business in Nigeria to retain the current patronage of foreign
investors through sustained investor confidence in the Nigerian economy.
The MPC applauded the Bank for its continued stringent regulatory measures
over the banking system, noting the progressive decline in the Non-Performing
Loans (NPLs) ratio of the banking system despite the heightened
macroeconomic uncertainties.
The MPC was concerned that within a four-month period, inflation had
accelerated aggressively by 280 basis point from 17.71 per cent in May 2022 to
20.52 per cent in August 2022. The Committee was thus, of the view that given
the primacy of its price and monetary stability mandate, it was expedient that
significant focus must be given to taming inflation.
The Committee was therefore of the view that a hold or loosen option was not
in consideration at this meeting. This is also because a loosening will further
widen the negative real interest rate gap and worsen the financial market
conditions, as savings mobilization and investment inflows would decline
further. It was also of the view that with the aggressive policy normalization in
Advance economies, loosening the stance of policy would result in a sharp
depreciation of exchange rate, leading to further hike in capital outflows.
As regards a hold decision, this would mean a continuous deterioration in real
earnings of fixed income earners and the livelihood of middle- and low-income
households.
The MPC noted that a tight policy stance would help consolidate the impact
of the last two policy rate hikes, which is already reflecting in the slowing growth
rate of money supply in the economy. It also felt that an aggressive rate hike

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would slow capital outflows and likely attract capital inflows and appreciate
the naira.
The Committee’s Decision
Members deliberated on the impact of the widening margin between the
current policy rate of 14 per cent and the inflation rate of 20.52 per cent. At this
Meeting, the option to loosen the policy rate was not considered as this would
be gravely detrimental to reining-in inflation. The Committee thus, agreed
unanimously to raise the policy rate to narrow the negative real interest rate
gap and rein-in inflation.
The Committee thus voted unanimously to raise the Monetary Policy Rate (MPR)
and the Cash Reserve Requirement (CRR). Ten members voted to raise the MPR
by 150 basis points, one member by 100 basis points, and another member by
50 basis points. Ten Members voted to increase the CRR by 500 basis points,
while two Members voted to increase CRR by 750 basis points.
In summary, the MPC voted to:
I.
Raise the MPR to 15.5 per cent;
II.
Retain the asymmetric corridor of +100/-700 basis points around the MPR;
III.
Increase the CRR to a minimum of 32.5 per cent; and
IV.
Retain the Liquidity Ratio at 30.0 per cent.
Thank you.
Godwin I. Emefiele
Governor, Central Bank of Nigeria
27th September, 2022