CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 132 OF THE
MONETARY POLICY COMMITTEE MEETING HELD ON
21ST AND 22ND SEPTEMBER, 2020

The Monetary Policy Committee (MPC) met on Monday, 21st and Tuesday, 22nd
September, 2020, in the light of lingering uncertainties associated with the
COVID-19 pandemic and downturn in crude oil prices. These uncertainties
which centered primarily on when the pandemic will be fully subdued and the
oil market return to normalcy, have resulted in persistent weak aggregate
demand, disruptions in global supply chains, mixed price development, volatile
and downward trending oil prices, as well as rising unemployment.
The Committee reviewed these developments and assessed their impact on
the domestic economy in the first three quarters of 2020 and noted the outlook
for the rest of the year.
Ten (10) members of the Committee were in attendance.

Global Economic Developments

The Committee observed the moderate improvement in global output
performance with widespread recession in the second quarter of 2020. This
followed the sharp decline in output growth in the Advanced Economies and
some Emerging Markets and Developing Economies (EMDEs), as well as the risk
of further deterioration in global output growth, associated with the lingering
shocks from the COVID-19 pandemic. Global exports and international travels,
however, showed signs of gradual, but sluggish recovery, as countries relax
restrictions to allow for resumption of economic activities.
The International Monetary Fund (IMF), therefore, remained cautious of its
global growth forecast for 2020, which was hinged on the near-term

containment of the pandemic. The likelihood of a second-round spike in the
rate of infection is, however, undermining hopes of an early return to normalcy.
Oil exporting countries are also likely to face further revenue shortfalls as a result
of the decision by OPEC+ to reduce its production ceiling from 9.6 million barrels
per day to 7.7 million barrels per day. Due to these headwinds, we suspect that
the global economy may suffer a deeper contraction in 2020 than the 4.9 per
cent projected by the IMF. This may also dampen the projected recovery in
2021.
The MPC observed the huge injection of monetary and fiscal stimulus into the
global economy, noting its medium-term inflationary potential. In major
advanced economies, inflation mostly remained below their 2.0 per cent longrun objectives, as the recovery of both global aggregate demand and supply
remained stalled. Across the group of Emerging Market and Developing
Economies, price development remained mixed, reflecting the diverse
structure of these economies. The exchange rates of EMDEs continued to be
under pressure as global capital flows were subdued, reflecting investor’s
preference for gold as a safe haven. With the unprecedented and
coordinated injection of liquidity by central banks and fiscal authorities
globally, the risk of another financial crisis post-COVID-19 can no longer be
overlooked as this may likely crystalize into a double deep global recession
when central banks across the globe move to normalize monetary policy.
In the global financial markets, conditions remain relatively tight reflecting
continued uncertainties. Thus, while markets are showing moderate signs of
recovery, financial conditions are yet to ease fully as investors remain cautious
of the lingering risk of a second-round of lockdown.
Domestic Economic Developments
Available data from the National Bureau of Statistics (NBS) showed that real
Gross Domestic Product (GDP) contracted by 6.10 per cent in the second
quarter of 2020 compared with expansions of 1.87 and 2.12 per cent in the
preceding quarter of 2020 and the corresponding period of 2019, respectively.
The development ended, the three-year trend of low, but positive real GDP

growth recorded in Nigeria since the end of the 2016/17 recession. The
contraction in Q2 2020 was largely driven by the poor performance of both the
oil and non-oil sectors due to the lockdown to contain the spread of the
pandemic in Q1 2020. The oil sector contracted by 6.63 per cent in Q2 2020
from -5.03 per cent in the previous quarter, while the non-oil sector contracted
by 6.05 per cent in Q2 2020, compared with an expansion of 1.55 per cent in
Q1 2020.
The MPC noted the continued weakness in economic activities as indicated by
the Manufacturing and non-Manufacturing Purchasing Manager’s Indices
(PMIs), which remained below the 50-index point benchmark. In August 2020,
the Manufacturing and non-Manufacturing PMIs were 48.5 and 44.3 index
points, respectively, compared with 42.4 and 43.3 index points in July 2020. This
was attributed to slower growth in production, business activities, new orders,
supply delivery time, employment level, new export orders and raw materials
and input prices. Similarly, the employment level index component of the
Manufacturing and non-Manufacturing PMIs in August 2020 was 44.6 and 44.3
index points, respectively, compared with 40.0 and 41.1 index points in July
2020. The Committee was, however, optimistic that with the easing of the
lockdown and gradual resumption of economic activities, the PMIs will improve
in the short-to medium term.
The Committee expressed deep concern on the continued uptick in inflation
for the twelfth consecutive month as headline inflation (year-on-year) rose to
13.22 per cent in August 2020 from 12.82 per cent in July 2020. The increase in
headline inflation was largely driven by the persistent increase in the food
component, which rose to 16.00 per cent in August 2020 from 15.48 per cent in
July 2020. The core component also rose to 10.52 per cent in August from 10.10
per cent in July 2020. These upticks were driven primarily by legacy structural
factors such as the inadequate state of critical infrastructure and broad-based
security challenges across the country, which dampened production activities.
Other factors include the disruptions to supply chains following restriction to
movements to curb the spread of the pandemic; adverse weather conditions,

which resulted in flooding of farmlands; as well as the inflation pass-through to
domestic prices following the depreciation in the exchange rate. The recent
increase in energy cost is also expected to further impact the domestic price
level in the short-term.
The Committee, therefore, stressed the urgent need for a combination of
broad-based monetary and fiscal policy measures to curb the rise in inflation
and contraction in output growth. This will involve targeted investment by the
fiscal authorities to resuscitate critical infrastructure to improve the ease of
doing business across the country. In addition, the MPC believes the fiscal
authorities can build on earlier efforts and articulate a clear strategy to attract
private sector investment. The Bank will, however, continue to take relevant
steps to ensure that the detrimental risk of inflation to the economy is
contained.
The Committee noted the various interventions by the CBN to reflate the
economy, improve aggregate supply and drive down inflation. Recent
interventions were largely in the areas of Manufacturing, Agriculture, Electricity
& Gas, Solar Power and housing constructions among others. It expressed
optimism that these initiatives will significantly ease the adverse impact of the
COVID-19 pandemic and set the economy on a path of recovery. So far, total
disbursements from the Bank’s interventions in the wake of the COVID-19
pandemic amounted to N3.5 trillion including: Real Sector Funds, (N216.87
billion); COVID-19 Targeted Credit Facility (TCF), (N73.69 billion); AGSMEIS,
(N54.66 billion); Pharmaceutical and Health Care Support Fund, (N44.47 billion);
and Creative Industry Financing Initiative (N2.93 billion). Under the Real Sector
Funds, a total of 87 projects that included 53 Manufacturing, 21 Agriculture and
13 Services projects were funded. In the Health Care sector, 41 projects which
included 16 pharmaceuticals and 25 hospital and health care services were
funded. Under the Targeted Credit Facility, 120,074 applicants have received
financial support for investment capital. The Agri-Business/Small and Medium
Enterprise Investment Scheme (AGSMEIS) intervention has been extended to a
total of 14,638 applicants, while 250 SME businesses, predominantly the youths,

have benefited from the Creative Industry Financing Initiative. In addition to
these initiatives, the CBN is set to contribute over N1.8 trillion of the total sum of
N2.30 trillion needed for the Federal Government’s 1-year Economic
Sustainability Plan (ESP), through its various financing interventions using the
channels of Participating Financial Institutions (PFIs). The MPC is, thus, using this
medium to appeal to our important economic stakeholders to take advantage
of these intervention initiatives to help support a quick rebound in growth.
The Bank’s policy on Loan to Deposit ratio also resulted in a significant growth
in credit to various sectors from N15.57 trillion to N19.33 trillion between endMay 2019 and end-August 2020, an increase of N3.77 trillion. This growth in credit
was mainly to manufacturing (N866.27 billion), consumer credit (N527.65 billion),
oil & gas (N477.65 billion), agriculture (N287.11 billion) and construction (N270.97
billion).
On Monetary Aggregates, broad money supply (M3) rose to 6.93 per cent
(year-to-date) in August 2020 from 5.23 per cent in July 2020, reflecting the
increase in both Net Foreign Assets and Net Domestic Assets. Similarly,
aggregate domestic credit (net) grew by 6.94 per cent in August 2020
compared with 9.43 per cent in July 2020.
Money market rates remained relatively stable in the review period with some
mild volatility, reflecting the prevailing liquidity conditions in the banking system.
The monthly weighted average Inter-bank call rate increased to 7.38 per cent
in August 2020 from 6.25 per cent July 2020, while the Open Buy Back (OBB) rate
decreased to 8.39 per cent in August 2020 from 10.12 per cent in July 2020.
The MPC noted the moderate improvement in the equities market in the review
period, as the All-Share Index (ASI) increased by 5.78 per cent from 24,174.75
on July 21, 2020 to 25,572.57 on September 18, 2020. On a year-to-date basis,
however, the ASI decreased by 4.73 per cent compared with 26,842.07 as at
December 31, 2019. Market Capitalisation (MC) also increased by 5.98 per cent
from N12.61 trillion to N13.36 trillion over the same period. As a lead indicator,

therefore, this improvement in market indices signposts the commencement of
a broad-based economic recovery.
The Committee also noted the decrease in the NPLs ratio to 6.1 per cent at
end-August 2020 compared with 9.4 per cent in the corresponding period of
2019 due largely to recoveries, write offs and disposals.
The Committee expressed confidence in the overall stability of the banking
system as reflected in the positive performance of the financial soundness
indicators (FSIs), despite the persistence of the COVID-19 pandemic. It
however, called on the Bank to sustain its regulatory oversight on the industry in
the light of the continued fragility of macroeconomic indicators and the
impact of the COVID-19 pandemic and the growing risk of cyber-attacks on
business and economic activities.
On the external sector, the Committee noted the resumption of sales to
Bureaux de Change (BDCs) in a bid to improve liquidity and ease demand
pressure in the foreign exchange market. Consequently, the exchange rate
appreciated at all windows. The MPC observed the recent improvement in
external reserves and urged the Bank to maintain its prudent allocation of
foreign exchange towards balancing supply and demand.
Outlook
The broad outlook for the global recovery remains uncertain, as the headwinds
associated with the COVID-19 pandemic persist, especially due to new
indications of a second spike in the rate of infections, continues to dampen
prospects of a near term recovery.
With several economies contracting deeper than expected, the global
economy may eventually contract beyond the -4.9 per cent earlier projected
by the IMF, as the second-round spike in the infection rate has resulted in
widespread localized lockdowns in some advanced and emerging market
economies. In addition, the persisting volatility in global oil prices, which is likely

to continue beyond the end of 2020 as indicated by the deliveries in the oil
futures market, signposts the likelihood of a disorderly global recovery.
The synchronized monetary policy accommodation by major central banks in
both the Advanced and Emerging Market Economies, portends the likelihood
of a medium-term debt crisis which may set the global economy into another
downturn, if not properly managed.
On the domestic economy, staff forecast suggests that the economy may
continue to grapple with the effects of the pandemic throughout the rest of
the year. With persistent focus on activities meant to reverse the contraction,
the MPC projects growth at positive levels in Q4 2020, or at the latest by Q1
2021, based on the anticipated positive results from the coordinated and
sustained interventions by both the monetary and fiscal authorities. These
interventions include, the coordinated response of the monetary and fiscal
authorities to curtail the spread of the COVID-19 pandemic, reverse the
downturn in the economy, improve sources of revenue in the non-oil sector and
encourage the build-up of fiscal buffers.
The Committee’s Considerations
The Committee’s considerations focused on the major headwinds exerting
downward pressure on output growth and upward pressure on domestic
prices.
The key factors considered by the MPC as likely to exert upward pressure on
domestic prices in the near term include: the prevalence of security challenges
in the country; adverse weather conditions causing flooding in some farming
regions; the increase in petroleum pump price; deregulation in electricity tariff;
low crude oil price; and exchange rate adjustment.
The Committee noted that available evidence does not support the view that
the rise in inflation was due to monetary factors. Rather, there is overwhelming
evidence that the inflationary pressure reflects the prevalence of structural
rigidities and supply shocks. Hence, the traditional tools of monetary policy may
not be helpful in addressing current inflationary pressures. Instead, the useful

policies will be the supply-side measures implemented by the Bank. In the light
of this, reducing MPR will signal to the Deposit Money Banks to lend more to
stimulate growth, increase aggregate supply, which should dampen prices in
the immediate term.
Although the MPC remains committed to its primary mandate of ensuring price
stability, it however, noted the need to address the structural supply-side issues
that are putting upward pressure on production cost and depressing economic
growth. To this end, the Committee supports the various intervention
programmes of the Bank towards stimulating production in the agricultural and
manufacturing sectors to increase aggregate output and lower prices.
On Financial Markets, the Committee considered the impact of the dwindling
capital inflows on yields in the equities, bonds and money markets. It, however,
observed the improvement in the equities market from the second quarter of
2020, indicating prospects of medium-term economic recovery. Members also
took cognizance of the prevailing low rates in the money market which are also
below the lower band of the standing facilities corridor, as being a distortion to
money market operations.
The Committee noted the increase in aggregate credit and encouraged
further expansion in credit to employment-generating sectors to expedite
growth recovery. It, however, urged the Bank to sustain its regulatory
surveillance over the banking system to ensure that Non-Performing Loans
(NPLs) remain low.
The Committee also noted the rising public debt profile and urged the fiscal
authority to strengthen its debt management strategy, explore other sources of
revenue, as well as enhance efficiency in public expenditure. It commended
the combined effort of the Federal Government and the CBN in providing the
required stimulus to contain the pandemic and ease its impact on the Nigerian
economy.
The Dilemma of Monetary Policy

The MPC was at this meeting confronted by policy dilemma. Whereas MPC
believes in the primacy of its price and monetary stability mandate, it
nevertheless was confronted with what policy direction to focus on, given the
contraction in output growth during the second quarter of 2020, which may
lead to a recession, if the third quarter of 2020 output growth numbers further
show a contraction. It is, therefore, of the view that, if a recession occurs in Q3
2020 the Committee would be confronted with proposing policy options in a
period of stagflation. This is because, with the recent removal of subsidy on fuel
price, the increase in energy prices, and the adjustment of the exchange rate,
inflationary pressure will no doubt persist unless MPC consider options that will
deal with the pressure aggressively.
The Committee was therefore of the view that, to abate the pressure, it had no
choice but to pursue an expansionary monetary policy using development
finance policy tools, targeted at raising output and aggregate supply to
moderate the rate of inflation.
At present, fiscal policy is constrained and so cannot, on its own lift the
economy out of contraction or recession given the paucity of funds arising from
weak revenue base, current low crude oil prices, lack of fiscal buffers and high
burden of debt services. Therefore, monetary policy must continue to provide
massive support through its development finance activities to achieve growth
in the Nigerian economy. This is the reason MPC will continue to play a
dominant role in the achievement of the goals of the Economic Sustainability
Program (ESP) through its interventionist role to navigate the country towards a
direction that will boost output growth and moderate the level of inflation.
Similarly, given that the currency adjustment was a causal factor in determining
the price of petroleum products and energy prices, the MPC believes that the
CBN management must take bold actions to stabilize the exchange rate.
Management was further enjoined by the MPC to continue to provide funding
to sectors that will resolve the supply constraints in petrol pricing, energy pricing
and food availability.

To support household consumption, the MPC enjoined management to
aggressively channel its funding to targeted households, SMEs and consumer
credit by further increasing its lending activities through its NIRSAL Microfinance
Bank (NMFB). The Management was also directed to ensure that DMBs respond
to the reduction in deposit rates by aggressively lowering cost of credit to
borrowers.
As regards output growth, MPC noted that air and road transportation;
entertainment & accommodation; food services; and education subsectors
were adversely affected by the lockdown. It therefore suggested that more
efforts be put in place to continue to provide relief and funding to these
subsectors to catalyse growth and improve the output numbers.
Dealing with The Causal Factors of Inflation

In the view of the MPC, so far, evidence has not supported the rising inflation to
monetary factors but rather, evidence suggests non-monetary factors
(structural factors) as the overwhelming reasons accounting for the inflationary
pressure.
Accordingly, the implication is that traditional monetary policy instruments are
not helpful in addressing the type of inflationary pressure we are currently
confronted with. What is useful is the kind of supply side measures currently
being implemented. MPC also expects that a downward adjustment in MPR
may be necessary to further put pressure on our deposit money banks to lower
cost of credit in aid of growth.
The Committee’s Decision
In the face of declining economic growth and rising inflation, the Committee
faced a difficult set of policy choices, requiring trade-offs and sequencing.
Following the above considerations, the Committee reviewed the choices
before it, bearing in mind its primary mandate of price stability and the need
to support the recovery of output growth. Consequently, the Committee noted
that the likely action aimed to addressing the rise in domestic prices would

have been to tighten the stance of policy, as this will not only moderate the
upward pressure on prices, but will also attract fresh capital into the economy
and improve the level of the external reserves. It however, noted that this
decision may stifle the recovery of output growth and thus, drive the economy
further into contraction.
On easing the stance of policy, the MPC was of the view that this action would
provide cheaper credit to improve aggregate demand, stimulate production,
reduce unemployment and support the recovery of output growth. The
Committee, however, observed that with inflation trending upwards, easing of
the policy stance may exacerbate the current inflationary pressure through an
increase in money supply. In addition, the MPC noted the tendency of an
asymmetric response to downward price adjustments by ‘Other Depository
Corporations’, thus undermining the overall beneficial impact of a reduction to
the cost of capital.
In the Committee’s view, a hold position will allow the economy to adjust to the
ongoing stimulus measures put in place by the monetary and fiscal authorities
to curb the downturn and allow more time for the MPC to assess their impact
on the economy.
After the consideration of the three policy options, Members were of the
opinion that the option to loosen will complement the Bank’s commitment to
sustain the trajectory of the economic recovery and reduce the negative
impact of COVID-19. In addition, the liquidity injections are expected to
stimulate credit expansion to the critically impacted sectors of the economy
and offer impetus for output growth and economic recovery.
In view of the foregoing, the Committee decided to reduce the MPR by 100
basis points to 11.5 per cent and adjust the asymmetric corridor to +100/-700
around the MPR.
Six (6) members voted to reduce the MPR by 100 basis points, one (1) member
by 50.0 basis points and three (3) voted to hold. Nine (9) members voted to
change the asymmetric corridor while one member voted to hold.

All members voted to hold the Cash Reserve Ratio (CRR) and Liquidity Ratio
(LR).
In summary, the MPC voted to:
I. Reduce the MPR by 100 basis points from 12.5 to 11.5 per cent;
II. Adjust the asymmetric corridor from +200/-500 basis points to +100/-700 basis
points around the MPR;
III. Retain the CRR at 27.5 per cent; and,
IV. Retain the Liquidity Ratio at 30 per cent.

Thank you.
Godwin I. Emefiele
Governor, Central Bank of Nigeria

22nd September, 2020