CENTRAL BANK OF NIGERIA
MONETARY
MONETARY
POLICY REVIEW
POLICY REVIEW
MONETARY
POLICY REVIEW
AUGUST 2019
AUGUST 2019
AUGUST 2019
Central Bank of Nigeria
33 Tafawa Balewa Way
Central Business District
P.M.B. 0187, Garki,
Abuja
Phone: +234 (0)9 462 36011
Website: www.cbn.gov.ng
E-mail:
ISSN: 2141-6281
©2017 Central Bank of Nigeria
Mandate
§Ensure monetary and price stability
§Issue legal tender currency in Nigeria
§Maintain external reserves to safeguard the international
value of the legal tender currency
§Promote a sound financial system in Nigeria
§Act as banker and provide economic and financial
advice to the Federal Government
Vision
“Be the model Central Bank delivering Price and
Financial System Stability and promoting
Sustainable Economic Development"
Mission Statement
“To be proactive in providing a stable framework for the economic
development of Nigeria through effective, efficient and
transparent implementation of monetary and exchange
rate policy and management of the financial sector"
Core Values

· Meritocracy
· Leadership
· Learning
· Customer - Focus
Central Bank of Nigeria
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CONTENTS
Page
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Table of Contents
Statement by the Governor

vii
Chapter 1
Overview..


Chapter 2
Output in the Domestic Economy
..
..
..

Chapter 3
Price Developments ..


Chapter 4
Monetary Policy and Liquidity Management..
..

Chapter 5
Developments in the Financial Markets..
..
..

Chapter 6
Economic Outlook..


Appendices


List of Tables
Table 3.1:
Inflation Rates, January – June 2019 ..
..
..

Table 3.2:
Major Components of Headline Inflation (Y-on-Y),


January - June 2019..


Table 3.3:
Major Components of Headline Inflation (M-on-M),


January - June 2018


Table 3.4:
Major Components of Food Inflation (Y-on-Y),


January - June 2019..


Table 3.5:
Major Components of Food Inflation (M-on-M),


January – June, 2019..


Table 3.6:
Major Components of Core Inflation (Y-on-Y)


January – June. 2019 ..


Table 3.7:
Major Components of Core Inflation (M-on-M)


January – June. 2019 ..


Table 3.8:
Actual and Seasonally Adjusted Headline Inflation


January – June 2019 ..


Table 4.1:
OMO Bills Auction (January – June, 2019) (N'billion) ..

Table 4.2:
CBN Standing Lending Facility (January 2018 – June 2019)
(N'billion)


Table 4.3:
CBN Standing Deposit Facility (January 2018 – June 2019)
(N'billion)


Table 4.4:
Foreign Exchange Supply by the CBN (US$ Million)
..

Table 4.5:
Monetary Aggregates Outcomes (Growth in % except


otherwise stated)


Table 4.6:
The Performance of Monetary Aggregates and their


Implications


Table 5.1:
Weighted Average Monthly Money Market Interest Rates


(January - June 2019)..


Table 5.2:
Average Monthly Spot Exchange Rates (Jul 2018 –


June 2019) (N/US$)


Table 5.3:
End-Month Exchange Rates (Jul 2018 – Jun 2019) (N/US$)

Table 5.4:
Nominal and Real Effective Exchange Rates Indices


(Jan 2018 – May 2019) ..


Table 5.5:
Monthly Foreign Exchange Flows through the CBN
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(Jan 2018 – Jun 2019) ..


Table 5.6:
Monthly Foreign Exchange Flows through the Economy


(Jan 2017 – June 2019) (US$ Million)
..
..
..

Table 5.7:
NSE All-Share Index (ASI) and Market Capitalization (MC)


(June 2018 – June 2019)


Table 5.8:
Policy Rates of Selected Central Banks December 2018 –


June 2019


Table 5.9:
Selected International Stock Market Indices as at June 28,


Table 5.10:
Exchange Rates of Selected Countries (value in currency


units to US$)


Table 6.1
Global Output and Inflation Outlook ..
..
..

Table 6.2:
Inflation Forecast


List of Figures
Figure 2.1:
Gross Domestic Product Growth Rate (2017Q1 – 2019Q2)

Figure 2.2:
Non-oil Sector Performance (2018 Q1 – 2019 Q2) ..
..

Figure 2.3:
Performance of Oil Production 2017Q1-2019Q2
..

Figure 2.4:
Agricultural Sector Contribution by Activity (2017Q1-


2019Q2)


Figure 2.5:
Industrial Sector Contribution by Activity (2017Q1-2019Q2) 12
Figure 2.6:
Services Sub-Sector Contribution, 2016Q1-2018Q2
..

Figure 2.7:
Quarterly Domestic Crude Oil Production (2017Q1-2019Q2) 16
Figure 2.8:
Monthly Bonny Light Oil Price, January – June 2019 ..

Figure 3.1:
Headline, Core and Food Inflation Rates (January –


June 2018)


Figure 3.2:
Major Components of Headline Inflation (Y-on-Y),


January – June 2019 ..


figure 3.3:
Major Components of Headline Inflation (M-on-M),


January – June 2019 ..


Figure 3.4:
Major Components of Food Inflation (Y-on-Y),


January – June 2019


Figure 3.5:
Major Components of Food Inflation (M-on-M),


January – June 2019 ..


Figure 3.6:
Major Components of Core Inflation (Y-on-Y)


January – June 2019 ..


Figure 3.7:
Major Components of Core Inflation (M-on-M) January –


June 2019


Figure 3.8:
Actual and Seasonally Adjusted Headline Inflation


January – June 2019 ..


Figure 4.1:
OMO Bills Auction (January – June, 2019)
..
..

Figure 4.2:
Standing Lending Facility (January – June 2019)..
..

Figure 4.3:
Standing Deposit Facility (January - June, 2019)
..

Figure 4.4:
Total FX Supply (including Forward Sales)


(Jan - June, 2019)..


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Figure 4.5:
Money Supply (M1), (M2) and (M3) (January – June, 2019) 41
Figure 4.6:
Growth in Money Supply (M1), (M2) and (M3)


(January - June, 2019)..


Figure 4.7:
Net Domestic Asset (NDA) (January – June, 2019)
..

Figure 4.8:
NDA, NDC and Other Assets (Net) (January – June, 2019)

Figure 4.9:
Domestic Credit to Private Sector (January – June, 2019)

Figure 5.1:
Weighted Average Monthly Money Market Interest Rates


(Jan.–Jun. 2019)


Figure 5.2:
Daily Interbank Call Rate (January – June 2019)
..

Figure 5.3:
Daily Open Buy Back Rate (January- June 2019)
..

Figure 5.4:
Daily Naira/US Dollar Exchange Rate (January – June, 2019) 54
Figure 5.5:
Nominal and Real Effective Exchange Rates Indices


(Jan 2018 – Jun 2019))..


Figure 5.6:
Monthly Foreign Exchange Flows through the CBN


(Jan 2018 – Jun 2019) ..


Figure 5.7
Monthly Foreign Exchange Flows through the Economy


(Jan 2018 – May 2019) (US$ Million) ..
..
..

Figure 5.8:
NSE All Share Index (ASI) and Market Capitalization (MC)


(June 2018– June 2019)


Figure 5.9:
NSE ASI and MC (December 2018 – June 2019)
..

Figure 5.10:
NSE Market Capitalization by Sector as at End-


December 2018


Figure 5.11:
NSE Market Capitalization by Sector as at End-June 2019

Figure 5.12:
Warren Buffett Valuation of Nigerian Equities Market

Figure 5.13:
10-Year U.S. Dollar-denominated Bond Yield for Nigeria


(June 29, 2018 – June 28, 2019)
..
..
..

Figure 5.14:
FGN Bonds Yield Curves: end-June. 2018 vs. end-Oct. 2018


vs. end-June 2019


Figure 5.15:
Structure of the Nigerian Capital Market (June, 2019)..

Figure 6.1:
Fan Chart of Inflation Forecast
..
..
..

List of Boxes
Box 2.1
The African Continental Free Trade Agreement (AfCFTA):


Implications for Trade and Growth in Nigeria ..
..

Box 4.1
Recent Developments in Central Bank Independence:


Implications for Monetary Policy
..
..
..

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STATEMENT BY THE GOVERNOR
D
evelopments in the global and domestic economic and financial
environment remained the key drivers of monetary policy in the first half of
2019. From the global environment, key challenges to monetary policy
included: persisting financial market vulnerabilities in Emerging Market and
Developing Economies (EMDEs); slowdown in the Chinese economy; tightening
global financial conditions; the growing trade war between the US and China;
uncertain BREXIT negotiations, and indications of renewed tension on the Korean
Peninsula. Other indicators of growing uncertainty in the global economy were the
uncertainty associated with continuing monetary policy normalization in the US, the
European Central Bank's (ECB) decision to halt its monetary policy normalization
programme, and continued asset purchase by the Bank of Japan (BoJ).
On the domestic front, inflationary pressure moderated on the back of healthy
accretion to external reserves, due to the relatively stable oil prices in the
international market. This helped the Bank sustain its intervention in the foreign
exchange market which further stabilized the exchange rate. Consequently,
headline inflation declined by 0.15 percentage point from 11.37 per cent in January
to 11.22 per cent in June 2019.
The fragile recovery of the domestic economy from recession weakened further
during the review period. The development was attributed to the lull in fiscal
activities as a result of the 2019 electioneering activities, delay in the constitution of
the federal cabinet, the late passage of the 2019 Federal Government budget, as
well as lingering security challenges across the country. Consequently, growth in real
Gross Domestic Product (GDP) moderated to 1.94 per cent (year-on-year) in the
second quarter of 2019 from 2.10 per cent in the preceding quarter, and 1.50 per
cent in the corresponding period of 2018.
The foregoing provided the context for the conduct of monetary policy during the
review period. Consequently, the Monetary Policy Committee (MPC) sustained the
MPR at 14.0 per cent until its March 2019 meeting when it was adjusted downwards
by 50 basis points to 13.5 per cent, to signal a pro-growth stance and to encourage
the flow of credit to the productive sectors of the economy. The asymmetric corridor
of +200 and -500 basis points around the MPR as well as other policy parameters
were, however, retained.
The money market remained active in the review period, with market rates largely
reflecting liquidity conditions in the banking system. The capital market remained
vii
bearish, reflecting continuing negative investor sentiments, in response to
perceived sovereign risk and weakening macroeconomic conditions.
Consequently, the All-Share Index (ASI) decreased by 4.66 per cent to 29,966.87 at
end-June 2019 from 31,430.50 at end-December 2018.
The outlook for domestic output growth in 2019 remains sluggish but promising. This is
due to weaker-than-expected domestic demand amid high unemployment. Other
headwinds to the growth outlook include: low credit flows to the private sector, high
and sticky NPLs ratios, fall in capital and remittance inflows, persisting insecurity in
the food producing areas as well as threat to budget implementation as a result of
the underperformance of crude oil production and price below the 2019 budget
benchmarks. The price outlook indicates continuing moderation into the second
half of 2019. Upside risk to the outlook remain food shortages resulting from insecurity
in agricultural producing areas of the country, liquidity injection from the
implementation of the FGN budget and increased FAAC disbursements.
The thrust of monetary policy in the near term will be to support the fragile economic
recovery, and manage expectations to ensure that the downside risks to growth
and upside risks to inflation are well contained.
GODWIN I. EMEFIELE
Governor, Central Bank of Nigeria
August 2019
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CHAPTER ONE
1.0
OVERVIEW
uring the first half of 2019,
monetary policy was influenced
by key developments in the
global and domestic economic and
financial environments. On the global
front,
the
key
challenges
were:
vulnerabilities in major financial markets
and
mounting
external
debt
in
Emerging
Market
and
Developing
Economies (EMDEs); slowdown in the
Chinese economy resulting from trade
war with the US; tightening global
financial conditions; US imposition of a
new
round of
sanctions on Iran;
uncertain
BREXIT
negotiations,
and
indications of renewed tension on the
Korean
Peninsula.
In
addition,
uncertainty surrounding the continuing
monetary policy normalization by the
US, the European Central Bank’s (ECB)
decision to halt its monetary policy
normalization
programme,
and
continued asset purchase by the Bank
of Japan (BoJ), signalled a broad level
of uncertainty in the global economy.
Despite these challenges, oil prices
remained relatively stable resulting in
modest accretion to Nigeria’s external
reserves. This helped the Bank sustain its
intervention in the foreign exchange
market
which
resulted
in
stable
exchange rate. Consequently, headline
inflation decelerated from 11.37 per
cent in January to 11.22 per cent in June
2019.
The recovery of the domestic economy
from recession in 2017, weakened
further due to the lull in governance
activities leading to the 2019 general
elections, delay in the constitution of the
federal cabinet after the elections, as
well as the late passage of the 2019
Federal Government budget. Other
factors were: the heightened security
challenge across the country, and the
continued difficulties in securing market
outlets for Nigerian oil. Notwithstanding,
output growth remained positive due to
improved government revenue and
expenditure
on
implementing
the
Economic Recovery and Growth Plan
(ERGP). In addition, the development
finance initiatives of the Central Bank of
Nigeria (CBN) also supported growth
during the period. Accordingly, growth
in real Gross Domestic Product (GDP)
stood at 2.10 per cent (year-on-year) in
the first quarter of 2019, compared with
2.38 and 1.89 per cent in the preceding
and corresponding quarters of 2018,
respectively.
The non-oil sector continued to drive
growth, as it grew by 2.47 per cent
compared with 0.76 per cent in the
corresponding
quarter,
a
1.72
percentage point increase. Compared
with the 2.70 per cent growth in the
preceding
quarter
of
2018,
it
moderated by 0.23 percentage point.
On the other hand, the oil sector
contracted by 1.46 per cent in the first
quarter of 2019 compared with the
growth of 14.02 per cent in the
corresponding period of 2018 and a
contraction of 1.62 per cent in the
preceding quarter. In the second
quarter of 2019, growth in real GDP
further moderated to 1.94 per cent
compared with 2.10 per cent in the
preceding quarter. This was, however,
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higher than the growth of 1.50 per cent
in the corresponding period of 2018. At
5.15 per cent, the oil sector was the
major driver of growth during the
second quarter; indicating significant
recoveries from the contractions of 1.46
and 3.95 per cent in the preceding
quarter and the corresponding period
of 2018, respectively. The non-oil sector
growth moderated to 1.64 per cent
during the quarter, compared with 2.47
and 2.05 per cent in the preceding
quarter and the corresponding period
of 2018, respectively.
The Nigerian financial markets were
moderately calm during the review
period. The key global events that
shaped developments in the market
were:
the
escalating
trade
war
between the US and China; impact of
the new round of sanctions on Iran;
difficult BREXIT negotiations; a new
wave of tensions on the Korean
Peninsula; and vulnerabilities arising
from growing public and private debt in
some Emerging Market and Developing
Economies (EMDEs). As a result, financial
vulnerabilities were elevated in the
sovereign, corporate and non-bank
financial sectors in several systemically
important countries, with the risk that
strains in the financial sector could
again be transmitted to firms and
households, thereby hurting growth.
These forces were calmed by the dovish
monetary policy stance of major central
banks including the US Fed, the Bank of
England and the European Central
Bank.
Accordingly, the Central Bank of Nigeria
(CBN) continued to conduct monetary
policy using the various instruments in its
toolkit to achieve its objectives of price
and macroeconomic stability. These
instruments were: the Monetary Policy
Rate (MPR), the Cash Reserve Ratio
(CRR), Liquidity Ratio, Open Market
Operations
(OMO)
and
Discount
Window Operations, complemented
with periodic interventions in the foreign
exchange market. The MPR remained
the key instrument for monetary policy in
the review period. It was retained at 14.0
per cent until March 2019, when the
Monetary Policy Committee (MPC)
adjusted it downwards by 50 basis points
to 13.5 per cent. This was to signal a progrowth stance by way of encouraging
the flow of credit to the productive
sectors of the economy. The asymmetric
corridor of +200 and -500 basis points
around
the
MPR
was,
however,
retained.
The primary tool used for liquidity
management in the first half of 2019
remained Open Market Operations
(OMO). There was a decrease in OMO
sales by 10.48 per cent to N8,682.01
billion in the first half of 2019 from
N9,678.76 billion in the preceding half of
2018. The decrease in OMO sales was to
encourage deposit money banks to
lend to the productive sectors of the
economy
in
order
to
stimulate
economic growth.
The money market remained active in
the review period, with market rates
largely reflecting liquidity conditions in
the banking system. The rates oscillated
outside the Standing Facilities corridor
for most of the review period, and
reflected the effect of: withdrawals from
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the
banking
system
for
monthly
disbursements of statutory Federation
Account Allocation Committee (FAAC);
OMO sales and foreign exchange
interventions. The fall in rates from April
to May 2019 was a reflection of a more
accommodative
monetary
policy
stance by the Bank following the
decision of the MPC to lower the MPR in
March 2019.
The
foreign
exchange
market
experienced relative stability during the
first half of 2019 due to the relatively
stable
oil
prices
and
improved
accretion
to
external
reserves.
In
addition, the Bank sustained the policy
on repatriation of export proceeds as
well as return of unutilized foreign
exchange sourced from CBN auctions.
More fundamentally, the Bank made a
strategic shift towards long term stability
in the foreign exchange market to
deepen restriction of access to official
foreign exchange for imports that can
be produced locally. The policy entails
encouraging the local production of
such items for export by providing
financial assistance in line with the
recent Export Facilitation Initiative (EFI)
of the Bank. The development is
expected
to
complement
existing
measures such as the directive to
International Money Transfer Operators
(IMTOs) to sell foreign exchange to
BDCs; the adoption of Bank Verification
Number (BVN) in BDC transactions; as
well
as
special
foreign
exchange
auctions to the real sector and small
and medium-scale enterprises. These
measures significantly contributed in
stabilizing the foreign exchange market.
Activities at the Nigerian capital market
in the first half of 2019 remained bearish,
reflecting continuing negative investor
sentiment, attributable to rising public
debt stock, perceived increase in
sovereign
risk
and
weakening
macroeconomic conditions. In addition
to these factors, there was significant
capital outflow following continued
monetary policy normalization by the US
Fed.
Coupled
with
the
uncertain
political environment as a result of the
2019 general elections, the market
experienced significant sell-offs and
profit taking activities. Consequently,
the All-Share Index (ASI) decreased by
4.66 per cent to 29,966.87 at end-June
2019 from 31,430.50 at end-December
2018. Similarly, it decreased by 21.71 per
cent compared with 38,278.55 at endJune 2018. Market capitalization (MC),
however, increased by 12.71 per cent to
N13.21 trillion at end-June 2019 from
N11.72 trillion at end-December 2018.
Compared with N13.87 trillion at endJune 2018, it fell by 4.76 per cent. The
increase in market capitalization in the
review period was as a result of new
listings
in
the
market,
prominent
amongst which were MTN, Skyway
Aviation Handling Company and the
merger between Access Bank and
Diamond Bank.
Bond market activities in the first half of
2019 were dominated by Federal
Government of Nigeria (FGN) securities.
The
Sub-national
government
and
corporate
bonds
segments
also
witnessed some activity, with the latter
recording the least share by market
volume.
The
10-year
dollardenominated bond yield for Nigeria
CBN Monetary Policy Review

decreased by 232 basis points to 3.79
per cent at end-June 2019 from 6.11 per
cent
at
end-December
2018.
Compared with 4.47 per cent at endJune 2018, it fell by 211 basis points. This
reflects an improvement in foreign
investors’ perception of long term
sovereign risk of the country.
Headline
inflation
marginally
moderated during the review period,
but was still above the Bank’s 6-9 per
cent target. The decline was largely
attributed to: moderation in food prices,
and sustained intervention in the foreign
exchange
market.
Staff
estimates
suggest that the year-on-year headline
inflation would moderate to 11.13,
11.10, 11.18 per cent in July, August and
September 2019, respectively from 11.22
per cent in June 2019 due to a gradual
decline in food prices. Inflation would,
however, rise to 11.29, 11.31 and 11.37
per cent in October, November and
December, respectively. The upside risks
to inflation remains food shortages due
mainly to insecurity in the agricultural
producing areas of the country, liquidity
injection
from
the
continued
implementation of the 2018 FGN budget
and 2019 budget, as well as increased
FAAC disbursements.
The
anticipated
recovery
of
the
domestic economy has been weaker
than expected despite the relatively
stable
oil
prices.
Thus,
real
GDP
moderated further to 1.94 per cent in
the second quarter of 2019 from the
moderation of 2.10 per cent in the first
quarter. With the slowdown in GDP
growth in Q2 2019, the Central Bank of
Nigeria (CBN) GDP growth projection
was also revised downward from 2.72
per cent to 2.27 per cent for 2019 due to
weaker-than-expected
domestic
demand amid high unemployment,
decline in crude oil and gas production
and
escalation
of
trade
tensions,
involving major economies (Euro Area,
the United States and China) which is
likely to weigh on global aggregate
demand. Nevertheless, sustaining stable
exchange
rates,
robust
external
reserves,
financial
system
stability,
enhanced flow of credit to the real
sector, sustained calmness in the Niger
Delta, improved production/export of
oil to build fiscal buffers, expected
improvements in tax revenue, effective
implementation
of
the
Economic
Growth Recovery Plan by the Federal
Government and the CBN special
interventions in selected sectors of the
economy
is
expected
to
support
growth.
The thrust of monetary policy for the rest
of 2019 will be influenced by the need
to
support
the
fragile
economic
recovery, and manage expectations to
ensure that the downside risks to growth
and upside risks to inflation are well
contained.


CBN Monetary Policy Review

CHAPTER TWO
2.0
DEVELOPMENTS
IN
DOMESTIC
OUTPUT
n the first half of 2019, the recovery of
the domestic economy, which had
remained fragile since the exit from
recession in 2017, further weakened. The
development was attributed to the lull in
governance activities which attended
preparations towards the 2019 general
elections, delay in the constitution of the
federal cabinet after the elections, as
well as the late passage of the 2019
Federal budget. Other factors were: the
heightened security challenge across
the
country,
and
the
continued
weakness in the oil market arising from
slow global growth and uncertainties in
some key oil producing countries in the
Middle East. Notwithstanding, growth
remained positive due to improved
government revenue and accretion to
external reserves, as oil prices remained
relatively
stable.
In
addition,
the
development finance initiatives of the
Central Bank of Nigeria (CBN) also
supported growth during the period.
Accordingly,
growth
in
real
gross
domestic product (GDP) moderated to
2.10 per cent (year-on-year) in the first
quarter of 2019, from 2.38 and 1.89 per
cent
in
the
preceding
and
corresponding
quarters
of
2018,
respectively. The non-oil sector, which
grew by 2.47 per cent continued to be
the main driver of growth. Compared
with the 2.70 per cent growth in the
preceding quarter of 2018, growth
moderated by 0.23 percentage point.
The key drivers of the non-oil growth
were Agriculture (3.17%), construction
(3.18%), services (3.16%) and Trade
(0.85%). The sector contributed 90.86
per cent to total real GDP in Q1, 2019
compared with 90.45 and 92.94 per
cent
in
the
corresponding
and
preceding quarters, respectively.
On the other hand, the oil sector
contracted by 2.40 per cent in the first
quarter of 2019 compared with the
growth of 14.02 per cent in the
corresponding period of 2018 and a
contraction of 1.62 per cent in the
preceding
quarter.
Thus,
the
moderation in output growth during the
quarter was largely accounted for by
the contraction in oil sector output. The
development was largely attributed to
the lack of new investments and capital
inflow into the sector occasioned by the
continued absence of a clear fiscal
regime around the oil sector, as well as
the reluctance of banks to lend to the
sector as a result of high non-performing
loans from previous exposures. Crude oil
production in the first quarter was 1.99
mbpd up from 1.98 mbpd in the
corresponding quarter of 2018, and
higher than 1.91 mbpd in the fourth
quarter
of
2018.
The
Oil
sector’s
contribution to total real GDP in the first
quarter of 2019 also declined to 9.14 per
cent
from
9.55
per
cent
in
the
corresponding period of 2018. It was,
however, an improvement compared
with 7.06 per cent in the preceding
quarter.
During the second quarter of 2019,
output growth further moderated to
1.94 per cent (year-on-year) from 2.10
I
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per cent in the preceding quarter. This
was,
however,
an
improvement
compared with the growth of 1.50 per
cent in the corresponding period of
2018.
The non-oil sector also moderated to
1.64 per cent in the second quarter,
compared with the growth of 2.47 and
2.05 per cent in the preceding quarter
and the corresponding period of 2018,
respectively. The key drivers of non-oil
growth
were
Services
(2.93%),
Agriculture (1.79%) and Construction
(0.67%). Trade and Industry, however,
contracted by 0.25 and 0.17 per cent,
respectively.
The
non-oil
sector
contributed 91.18 per cent to total real
GDP in Q2 2019 compared with 91.45
and 90.78 per cent in the preceding
and
corresponding
quarters,
respectively. Thus, the moderation in
output growth during the quarter was
largely accounted for by the slowdown
in non-oil sector output.
The oil sector grew significantly by 5.15
per cent in the second quarter of 2019
compared with the contractions of 3.95
and 1.46 per cent in the preceding
quarter and in the corresponding period
of 2018, respectively. The development
was largely attributed to the sustained
peace in the Niger Delta region which
resulted in a healthy oil production.
Crude oil production in the quarter rose
to 1.98 mbpd from 1.84 mbpd in the
corresponding period of 2018, but a
marginal decline compared with 1.99
mbpd in the preceding quarter of 2019.
The Oil sector’s contribution to total real
GDP in second quarter of 2019 rose
marginally to 8.82 per cent from 8.55 per
cent in the corresponding period of
2018. It was, however, a decline
compared with 9.22 per cent in the first
quarter of 2019.
Figure 2.1:
Gross Domestic Product Growth Rate (2017Q1 –
2019Q2)

Source: National Bureau of Statistics

2.1 DOMESTIC ECONOMIC ACTIVITIES
In the first half of 2019, real GDP growth
was driven by activities in the non-oil
sector, which grew by 2.47 per cent. This
was a decrease of 0.23 percentage
point relative to the preceding quarter
of 2018, but an increase of 1.71
percentage points compared with 0.76
per cent in the corresponding quarter of
2018. Activities in the non-oil sector were
driven by transportation (19.5%), solid
minerals
(11.03%),
information
and
communications
(9.48%),
utilities
(6.22%), accommodation and food
services (4.15%), construction (3.18%),
agriculture
(3.17%),
manufacturing
(0.81%)
and
Trade
(0.85%).
These
compares with their respective growth
rates of 14.45, 26.29, 1.58, 8.01, 0.29, -
1.54, 3.00, 3.39 and -2.57 per cent in the
corresponding quarter of 2018.

Q1-2017
Q2-2017
Q3-2017
Q4-2017
Q1-2018
Q2-2018
Q3-2018
Q4-2018
Q1-2019
Q2-2019
Per cent
CBN Monetary Policy Review

The oil sector, however, contracted by
2.40 per cent, a further contraction
compared with -1.62 per cent in the
preceding quarter and a growth of
14.02 per cent in the corresponding
period of 2018. Accordingly, average
crude oil production declined to 1.96
mbpd in the first quarter of 2019
compared with 1.98 mbpd in the
corresponding period of 2018; but was
an increase, relative to the 1.91 mbpd in
the previous quarter. The contraction in
the oil sector largely accounted for the
moderation
in
aggregate
output
growth during the quarter.
Activities in both the non-oil and oil
sectors drove real output growth in the
second quarter, 2019. The non-oil sector
growth moderated to 1.64 per cent in
the second quarter of 2019 from 2.47
and 2.05 per cent in the preceding
quarter and the corresponding period
of 2018, respectively. Activities in the
non-oil
sector
were
driven
by
information
and
communication
(9.01%), transportation (8.02%), utilities
(4.73%),
forestry
(3.23%),
accommodation and food services
(2.92%), other services (2.55%), and
administrative and support services
(2.03%). These compares with their
respective growth rates of 11.81, 21.76,
8.91, 3.96, 2.43, 2.72 and -3.41 per cent
in the corresponding quarter of 2018.
The activities that moderated non-oil
performance were: real estate (-3.84%),
public administration (-3.39%), solid
minerals (-2.54%) and finance and
insurance (-2.24%). These activities grew
respectively by -3.88, -5.21, 2.86 and 1.28
in the corresponding period of 2018.
The oil sector grew significantly by 5.15
per cent in the second quarter of 2019,
compared with the contractions of 1.46
and 3.95 per cent in the preceding
quarter and the corresponding period
of 2018, respectively.
Figure 2.2:
Non-oil Sector Performance (2018 Q1 – 2019 Q2)

Source: National Bureau of Statistics

Figure 2.3:
Performance of Oil Production 2017Q1-2019Q2

Source: National Bureau of Statistics

2018Q1
2018Q2
2018Q3
2018Q4
2019Q1
2019Q2
Per cent
Agriculture
Industry
Construction
Trade
Services

Q1-2017
Q2-2017
Q3-2017
Q4-2017
Q1-2018
Q2-2018
Q3-2018
Q4-2018
Q1-2019
Q2-2019
Per cent
CBN Monetary Policy Review

2.2 Sectoral Analysis
This section presents a review of the
sectoral performance of the economy
along with key institutional and policy
actions which contributed to output
growth in the first half of 2019.
2.2.1 Agriculture
In the first quarter of 2019, real
agricultural GDP expanded by 0.72
percentage point to 3.17 per cent
above the 3.00 per cent in the
corresponding period of 2018. The
development was also an increase of
0.17 percentage point compared with
2.46 per cent in the preceding quarter.
The growth of the sector was driven
largely by fishing which rose remarkably
by 7.09 per cent in the first quarter of
2019 from 4.25 and 1.97 per cent in the
corresponding and preceding quarters
of 2018, respectively. The livestock subsector also recorded a considerable
growth of 0.88 per cent against the
contraction of 1.85 per cent in the
corresponding quarter of 2018. There
was, however, a moderation in crop
production and forestry of 3.27 and 2.19
per
cent
compared
with
their
respective growth rates of 3.45 and 2.94
per cent in the corresponding quarter of
2018. Further analysis showed that the
livestock, crop production and forestry
sub-sectors grew by 2.35, 2.48 and 1.73
per cent, respectively, in the preceding
period.
The overall contribution of the sector to
real GDP in the first quarter of 2019 stood
at 24.11 per cent, higher than 23.95 per
cent in the corresponding quarter of
2018 but lower than 28.13 per cent in the
preceding quarter.
During
the
second
quarter,
real
agricultural GDP increased by 1.79 per
cent over the 1.19 per cent in the
corresponding quarter of 2018. The
development was, however, a decline
of 1.38 percentage point compared
with 3.17 per cent in the preceding
quarter. The growth of the sector during
the quarter was driven largely by forestry
which grew by 3.23 per cent compared
with 3.96 and 2.19 per cent in the
corresponding period of 2018 and in the
preceding quarter, respectively. The
crop production and fishing sub-sectors
also recorded a considerable growths
of 1.94 and 1.09 per cent in the second
quarter above their respective growth
rates of 1.49 and -1.35 per cent in the
corresponding quarter of 2018. Their
performance
was,
however,
a
moderation when compared with 3.27
and
7.09
per
cent,
respectively,
recorded in the first quarter of 2019. On
the other hand, livestock sub-sector
contracted by 0.01 per cent in the
second quarter of 2019 compared with
1.95 per cent in the corresponding
period
of
2018.
The development
compares unfavourably with the growth
of 0.88 per cent in the preceding
quarter.
The
overall
contribution
of
the
agricultural sector to real GDP in the
second quarter was 25.03 per cent, up
from 24.11 and 24.99 per cent in the
preceding
quarter
and
the
corresponding
period
of
2018,
respectively.
CBN Monetary Policy Review

Figure 2.4:
Agricultural Sector Contribution by Activity
(2017Q1-2019Q2)

Source: National Bureau of Statistics
2.2.1.2 Agricultural
Policies
and
Institutional Support
The agricultural sector continued to
enjoy a number of policies, reforms and
institutional support in the first half of
2019, as outlined in this section.


The
Agricultural
Credit
Guarantee
Scheme (ACGS)
In the review period, 11,981 loans
valued at ₦1.68 billion were guaranteed
under the ACGS compared with 10,420
loans valued at ₦1.75 billion in the
corresponding
half
of
2018.
This
indicated an increase of 14.98 per cent
in volume but a decline of 4.14 per cent
in value, respectively. Also, 8,676 loans
valued at ₦1.32 billion were repaid,
compared with 17,977 loans valued at
₦3.05 billion in the corresponding period
of 2018. Only one (1) default claim
valued at ₦47,108.06 was settled in the
review period, compared with no claim
in the corresponding period of 2018.
N200 Billion Commercial Agriculture
Credit Scheme (CACS)
Under the scheme, ₦4.84 billion was
disbursed to 6 projects in the first half of
2019 compared with ₦39.34 billion
disbursed
to

projects
in
the
corresponding half of 2018. Repayments
during the review period amounted to
₦23.91 billion in respect of 139 projects,
compared with ₦17.01 billion repaid by
51 projects in the corresponding period
of 2018.
Agri-business/
Small
and
Medium
Enterprises
Investment
Scheme
(AGSMEIS)
In the first half of 2019, the sum of ₦1.29
billion was disbursed to 595 projects,
compared
with
₦111.81
million,
disbursed
to

projects
in
the
corresponding period of 2018. No
repayment
was
made
under
the
scheme in the review period.
Micro, Small and Medium Enterprises
Development Fund (MSMEDF)
In the first half of 2019, the sum of
₦625.55 million was disbursed to 1,103
projects, compared with ₦4.77 billion,
disbursed to 14,492 projects in the
corresponding period of 2018. The
development was an increase of 662.59
per cent by value and a decrease of
92.39 per cent by volume. Repayments
during the period amounted to ₦3.63
billion.
Anchor Borrowers’ Programme (ABP)
In the first half of 2019, ₦26.67 billion was
disbursed to 237,967 smallholder farmers

Per cent
Crop Production
Livestock
Forestry
Fishing
CBN Monetary Policy Review

compared with ₦36.37 billion disbursed
to 155,732 farmers in the corresponding
period of 2018. This represented 26.67
per cent decrease in the amount
disbursed but 52.81 per cent increase in
the number of farmers financed. The
enterprises covered were: cassava,
cotton, maize, rice, soya bean, tomato,
wheat, and poultry. The amount repaid
during the review period was ₦2.89
billion, representing
84.1
per
cent
increase over ₦1.57 billion repaid in the
corresponding period of 2018.
Paddy Aggregation Scheme (PAS)
Under the scheme, ₦35.20 billion was
released to 12 projects in the first half of
2019, compared with ₦4.25 billion
released
to

projects
in
the
corresponding half of 2018. During the
review period, ₦1.5 billion was repaid,
compared with ₦13.37 billion in the first
half of 2018.
Non-oil Export Stimulation Facility (NESF)
In the first half of 2019, ₦8.0 billion was
disbursed to 2 projects, compared with
₦19.04 billion to 6 projects in the
corresponding period of 2018. Over the
same period, ₦1.0 billion was repaid
compared with ₦5.04 billion in the first
half of 2018.
Federal Government of Nigeria (FGN)
Special Presidential Fertilizer Initiative
(PFI)
In the review period, there was no
disbursement
under
the
initiative,
compared with N20.0 billion disbursed in
the first half of 2018.
Export Development Facility (EDF)
In the first half of 2019, there were no
disbursement or repayment under the
Facility.

Interest Drawback Programme (IDP)
The
Interest
Drawback
scheme
complements the ACGS. The Fund
provides a rebate of 40.0 per cent on
the market interest rate of ACGS loans
repaid when due, thus, reducing the
effective borrowing cost to farmers and
encouraging loan repayment.
In the review period, 5,760 rebate claims
valued at ₦87.64 million were settled,
compared with 5,929 valued at ₦89.31
million in the corresponding period of
2018. The development reflected a 0.69
per cent decrease in volume but 60.23
per cent increase in value of claims
settled.

Accelerated Agriculture Development
Scheme (AADS)
AADS was launched as an off-shoot of
the ABP with the major objective of
encouraging youths to engage in
agricultural activities. The scheme is
jointly
implemented
with
state
governments with a target to engage at
least 10,000 youths per state.
Since inception to the first half of 2019,
the Scheme had disbursed N1.37 billion
to a state government-owned poultry
project.
National Food Security Programme
(NFSP)
Under the Programme, ₦8.90 billion was
disbursed to 2 projects in the first half of
2019, compared with ₦4.04 billion
released
to

projects
in
the
CBN Monetary Policy Review

corresponding period of 2018. In the
review period, ₦2.60 billion was repaid.

2.2.2 Industry

2.2.2.1 Industrial Production
The Industrial sector indices indicated
that the sector was on the verge of
recession. In the review period, the
sector contracted by 0.73 per cent
following a modest recovery of 0.71 per
cent
in
the
preceding
quarter,
compared with a growth of 8.41 per
cent in the corresponding quarter of
2018, having suffered two consecutive
quarters of contraction in the year. The
main driver of the contraction in the
sector was the crude petroleum and
natural
gas
sub-sector
which
contracted by 2.40 per cent in the
review period from a contraction of 1.62
per cent in the preceding quarter,
compared with a growth of 14.02 per
cent in the corresponding period of
2018. The sub-sector has been in
contraction since the second quarter of
2018. The contraction of the industrial
sector was, however, moderated by a
growth in the review period of 11.03 and
0.81 per cent in the solid minerals and
manufacturing
sub-sectors,
respectively, compared with 17.68 and
2.35 per cent in the preceding quarter
and 26.29 and 3.39 per cent in the
corresponding period of 2018. Thus, the
share of the industrial sector in overall
GDP increased to 19.01 per cent from
16.09 in the preceding quarter, but
below the 19.53 per cent recorded in
the corresponding period of 2018.
The development in the industrial sector
is instructive at the policy level. It will be
recalled that the 2016 recession was
preceded by persistent contractions of
the industrial sector. There, however,
appears to be a repeat occurrence of
this trend, thus urgent efforts are
required to reverse the trend in order to
avert another recession in the near
term.
In the second quarter of 2019, however,
the
industrial
sector
recorded
a
significant growth of 2.36 per cent
following a revised contraction of 0.26
per cent in the preceding quarter.
When compared with the contraction
of 1.56 per cent in the corresponding
period
of
2018,
the
sector
grew
significantly by 3.92 percentage points.
The driver of the growth in the sector
was the crude petroleum and natural
gas sub-sector which grew by 5.15 per
cent
in
the
review
period
from
contractions of 1.46 per cent and 3.95
per cent in the preceding quarter and
the corresponding period of 2018. The
growth of the industrial sector was,
however,
moderated
by
the
contractions of 2.54 and 0.13 per cent in
the solid minerals and manufacturing
sub-sectors,
respectively,
compared
with growth of 11.03 and 0.81 per cent
in the preceding quarter, and 2.86 and
0.68 per cent in the corresponding
period of 2018. Nevertheless, the share
of the industrial sector in overall GDP
rose to 18.07 per cent from 17.99 per
cent in the corresponding period of
2018. It was, however, 19.08 per cent in
the preceding quarter.
CBN Monetary Policy Review

Figure 2.5:
Industrial Sector Contribution by Activity (2017Q12019Q2)
Source: Statistics Department

2.2.2.2 Industrial Policy and Institutional
Support
The industrial sector continued to
benefit from a number of policies,
incentives
and
institutional
support
during the review period. These were:
Power and Airline Intervention Fund
(PAIF)
There was no disbursement in the review
period, however, ₦12.728 billion was
repaid compared with the repayment
of ₦12.35 billion in the corresponding
period of 2018.
Nigeria Electricity Market Stabilization
Facility (NEMSF)
In the review period, there was no
disbursement
under
the
Facility,
compared with a disbursement of
₦38.53 billion to one (1) distribution
company
(DisCo),

generating
companies (GenCos), 6 gas companies
(GasCos) and 5 service providers, in the
corresponding period of 2018. Also,
₦9.36 billion was repaid in the review
period, compared with ₦4.99 billion in
the corresponding period of 2018.
Real Sector Support Facility (RSSF)
During the review period, ₦40.00 billion
was released to 1 project, compared
with ₦23.91 billion to 5 projects in the
corresponding period of 2018. A total of
₦2.90 billion was repaid in the period,
compared with ₦960.16 million in the
corresponding half of 2018.
Under the Differentiated Cash Reserves
Requirement (DCRR) window, ₦75.55
billion was disbursed to 18 projects
during the period. No repayment has
been made in the Window due to a
current moratorium on all existing loans.
Textile Sector Intervention Facility (TSIF)
In the first half of 2019, no disbursements
were
made
under
the
Facility,
compared with the sum of ₦19.1 billion
to 2 projects in the first half of 2018.
During the period, ₦884.38 million was
repaid by 6 projects.

Nigeria Bulk Electricity Trading Payment
Assurance Facility (NBET-PAF)
Under the Facility, ₦98.12 billion was
disbursed in the first half of 2019,
compared with ₦248.40 billion in the
corresponding period of 2018.

Small
and
Medium
Enterprises
Restructuring and Refinancing Facility
(SMERRF)
Disbursement was discontinued under
the Facility in December 2014 following
its replacement with the Real Sector
Support Facility after it had met its
objectives.
In
the
review
period,

Q1-2017
Q2-2017
Q3-2017
Q4-2017
Q1-2018
Q2-2018
Q3-2018
Q4-2018
Q1-2019
Q2-2019
Per cent
Crude Petroleum & Natural Gas
Solid Minerals
Manufacturing
CBN Monetary Policy Review

repayments received amounted to
₦12.60 billion.
Youth Entrepreneurship Development
Programme (YEDP)
The YEDP aims to deepen credit
delivery
to
diligent
youth
entrepreneurs, including serving and
ex- National Youth Service Corps
(NYSC) members.
There were no disbursements during the
review period, however, ₦20.65 million
was repaid compared with ₦7.01
million in the corresponding period of
2018.
Creative Industry Financing Initiative
(CIFI)
CIFI was introduced during the review
period as a window under the AGSMEIS
to improve access to long-term, lowinterest financing to entrepreneurs and
investors in the Nigerian Creative
Industry and Information technology
(IT) sub-sectors. Activities eligible for
financing include fashion, information
technology, software development,
movie
and
music
production
&
distribution.

CBN-BOI Industrial Facility
This is a facility provided by the Central
Bank of Nigeria to the Bank of Industry
(BOI) to enhance the financing of the
industrial sector through investments in
value-added
projects.
The
Bank
approved and released the sum of ₦50
billion to the BOI for this purpose.
In the first half of the year, there was no
disbursement
under
the
Facility,
compared with ₦50.0 billion disbursed to
30 projects in the corresponding period
of 2018.

2.2.3 Construction and Trade
There
has
been
sustained
improvement in Construction sector
activities in recent times. In the first
quarter of 2019, the sector grew by 3.18
per cent, compared with 2.05 per cent
in the preceding quarter in contrast to
the contraction of 1.54 per cent in the
corresponding quarter of 2018. The
development
is
reflected
in
the
improvements in capital releases since
2018.
Consequently,
the
share
of
Construction in real GDP improved to
4.09 per cent from 3.48 and 4.04 per
cent
in
the
preceding
and
corresponding quarters of 2018.
During the second quarter, the growth
of the sector moderated to 0.67 per
cent compared with 3.18 and 7.66 per
cent in the preceding quarter and the
corresponding
period
of
2018,
respectively. The share of Construction
in real GDP declined to 4.45 per cent
compared with 4.51 per cent in the
corresponding period of 2018. It was,
however an improvement from 4.09 per
cent in the preceding quarter.
2.2.4 Construction and Trade
The sluggish performance of the Trade
sector continued in the review period.
Although the sector grew marginally by
0.85 per cent during the period, it had
contracted by 2.57 per cent in the
corresponding period of 2018, ending
the year with an overall contraction of
0.63 per cent. In the preceding quarter,
CBN Monetary Policy Review

however, it grew marginally by 1.02 per
cent. The share of Trade in real GDP,
however, rose marginally to 16.87 per
cent in the first quarter of 2019 from
16.50 per cent in the fourth quarter of
2018 but was a decline compared with
17.07 per cent in the corresponding
period of 2018.
In the second quarter, the contraction
of the trade sector moderated to 0.25
per cent from 2.14 per cent in the
corresponding period of 2018. When
compared with the growth of 0.85 per
cent in the preceding quarter, the
sector contracted by 1.1 percentage
points. The share of Trade in real GDP
declined to 16.10 per cent in the review
period from 16.86 and 16.45 per cent in
the
preceding
quarter
and
the
corresponding
period
of
2018,
respectively.
The continued softness in this sector
could further amplify the weakness
observed in the industrial sector to lead
the overall economy into recession in
the
absence
of
robust
policy
interventions.
2.2.5 Service Sector
The Services sector sustained its growth
for six consecutive quarters. The sector
grew by 3.16 per cent in the first quarter
of 2019, compared with 3.71 and 0.59
per cent in the preceding quarter, and
corresponding period of 2018. Growth in
the sector was driven by transport
(19.50%), Information & Communication
(9.48%),
Arts,
Entertainment
&
Recreation
(7.12%),
Utilities
(6.22%),
Accommodation
&
Food
Services
(4.15%),
Professional,
Scientific
&
Technical
Services
(1.73%)
and
Administrative
&
Support
Services
(1.43%). However, the sub-sectors that
contracted during the period were:
Public Administration (14.21%), Finance
and Insurance (7.60%), and Human
Health & Social Services (0.16%). The
share of the services sector in overall
GDP increased to 38.12 per cent in the
first quarter of 2019 from 37.79 and 37.69
per cent in the preceding quarter and
the corresponding quarter of 2018,
respectively.
The growth of the services sector
moderated to 2.93 per cent in the
second quarter of 2019 from 4.19 and
3.16 per cent in the corresponding
period of 2018 and the preceding
quarter,
respectively.
The
sector’s
growth during the quarter was driven by
information & communication (9.01%),
transport
(8.02%),
utilities
(4.73%),
accommodation
&
Food
Services
(2.92%), other services (2.55%) and
administrative
&
Support
Services
(2.03%). The sub-sectors that contracted
during the period were: real estate
(3.84%), public administration (3.39%)
and finance and insurance (2.24%). The
share of the services sector in overall
GDP increased to 38.56 per cent in the
second quarter of 2019 from 38.09 and
38.19 per cent in the preceding quarter
and the corresponding period of 2018,
respectively.
CBN Monetary Policy Review

Figure 2.6:
Services Sub-Sector Contribution, 2016Q1-2018Q2

Source: Statistics Department

2.2.6
Oil Sector
During
the
review
period,
the
performance
of
the
oil
sector
moderated despite the relative stability
in the price of crude oil. The moderation
came from two main forces; namely
demand-supply dynamics and price
factors. Global oil prices had largely
fluctuated within the range of US$60-70
per barrel, while demand-supply factors
underpinned
market
developments.
The growing investment and production
of shale oil in the US, increased supply
from Saudi Arabia in the wake of US
sanctions against Iran coupled with the
slowing global economy occasioned by
US induced trade tensions against
China and its other trading allies had
substantially
weakened
demand,
creating a situation of moderate supply
glut. These developments are in spite of
the subsisting production ceiling by
OPEC and some non-OPEC members.
There were also pockets of tension in the
Middle East and Venezuela which are
key oil producers. On the domestic front,
production weakness has persisted on
account of the unclear fiscal regime in
the oil industry as well as the reluctance
of banks to extend new credit to
finance exploration and production in
the sector, having accumulated huge
non-performing loans
in
the past.
Consequently,
average
crude
oil
production stood at 1.99 mbpd in the
first quarter of 2019 compared with 1.98
mbpd in the corresponding period of
2018. This also represented an increase
relative to the 1.91 mbpd in the previous
quarter. In the second quarter of 2019,
average crude oil production rose to
1.98 mbpd from 1.84 mbpd in the
corresponding period of 2018, but a
marginal decline compared with the
1.99 mbpd in the preceding quarter of
2019.
In the review period, crude oil prices
fluctuated mainly due to the crisis in the
Middle East, Venezuela and the US
sanctions on Iranian oil as well as the
subsisting OPEC production ceiling. As a
result, the price of Nigeria’s reference
crude, the Bonny Light 370API which was
at US$62.91 per barrel (pb) in January
2018, increased to US$69.93pb in March
and peaked at US73.89pb in April. It,
however, fell to US$70.07pb in June,
2019. Overall, the average price of
Bonny Light of US$65.77pb in the first half
of 2019 was US$5.77pb above the
Federal Government of Nigeria’s 2019
budget benchmark of US$60.0pb.

Transport
Info. & Comm
Utilities
Accom &
Comm
Finance &
Insurance
Real Estate
Prof, Sci &
Tech Service
Admin &
Business
Support
Public Admin
Education
Health &
Social Service
Arts,
Entertainment
& Recreation
Other Services
Per cent
Q1-2017
Q2-2017
Q3-2017
Q4-2017
Q1-2018
Q2-2018
Q3-2018
Q4-2018
Q1-2019
Q2-2019
CBN Monetary Policy Review

Figure 2.7:
Quarterly Domestic Crude Oil Production
(2017Q1-2019Q2)

Source: Research Department

Figure 2.8:
Monthly Bonny Light Oil Price, January – June

Source: Research Department


Q1-2017
Q2-2017
Q3-2017
Q4-2017
Q1-2018
Q2-2018
Q3-2018
Q4-2018
Q1-2019
Q2-2019
Million Barrels Per Day

US$ Per Barrel
Bonny Light Oil Price
CBN Monetary Policy Review

The African Continental Free Trade Agreement (AfCFTA): Implications for Trade and
Growth in Nigeria

Introduction:

The imperatives to respond to the dynamic economic challenges and the increasing
economic interrelationship among economies have made regional integration and
the associated regional trade agreements inevitable for economic transformation
and sustainable development within a regional area. According to the World Trade
Organization (WTO), global trade, as we know it today, is shaped by regional trade
agreements, hence, explaining the proliferation of sub-regional agreements, with
about 420 of such free and non-free trade agreements in force globally.

Regional integration and trade agreements are particularly inevitable and relevant
for Africa, which had hitherto, remained a fragmented bundle of small resource-rich
but commodity-dependent economies, having the need to optimize its resource
endowments and translate them into welfare gains for its teeming population.
Consequently, the African Continental Free Trade Agreement (AfCFTA) was
conceived, as a strategy to aggregate Africa’s small countries into one large market
that can deliver economies of scale, improved competitiveness, foreign direct
investment (FDI) and poverty reduction.
On the socio-political front, it is intended to help in addressing problems such as
recurring conflicts and political instability as well as increasing the continent’s
bargaining power in the multilateral front.

The decision to establish the AfCFTA was taken at the 18th Ordinary Session of the
Assembly of AU Heads of State and Government, in Addis Ababa, in January 2012.
The AU Summit then endorsed the Action Plan for Boosting Intra-African Trade (BIAT).
Nigeria initiated the process for the establishment of AfCFTA in 1991 at the Economic
and Trade Policy Leadership tagged “Abuja Treaty”. Thereafter, the Agreement
came into force on 12th May, 1994. Actual negotiations were launched at the 25th
Ordinary Session in 2015 in Johannesburg, South Africa. The Agreement requires
countries to take out tariffs on 90 percent of goods, with 10 per cent of "sensitive
items" to be addressed later. The AfCFTA intends to address supposed "non-tariff
barriers" which impede trade amongst African countries, such as extended delays
along the border.

The AfCFTA was signed in Kigali, Rwanda on 21st March, 2018 by 44 African heads of
state, except for Nigeria and South Africa. However, its signing did not yet create
the African Continental Free Trade Area. Nigeria, however, abstained from signing
the AfCFTA on concerns for the need to protect domestic industries and small
businesses from external pressures and competition that could lead to closures and
CBN Monetary Policy Review

job losses, as well as to further engage with stakeholders to consider the
consequences of an open market to Nigeria’s manufacturing sector and SMEs.
However, after an extensive nationwide consultation and sensitisation programme
of domestic stakeholders on the AfCFTA, the Nigerian President appended his
signature to the agreement at the 12th Extraordinary Summit of the African Union on
the Launch of the Operational Phase of the AfCFTA in Niamey, on 7th July 2019.

Implications for Trade and Growth in Nigeria
The potential benefits for Nigeria from AfCFTA are massive; given that AfCFTA would
cover a consumer base of over 1.2 billion people with a combined GDP of US$2.2
trillion. AfCFTA’s implementation is expected to facilitate industrialization and create
a continental market, unlock manufacturing potential, and create a mammoth
international negotiation block.
AfCFTA has the prospects to give the country an expanded market access for export
of goods and services, essentially, linking Nigerian exporters to global value chains
for business and enterprise; with potential to bring down hitherto existing barriers to
trade against Nigerian exporters and remove the usually discriminatory and hostile
treatment Nigerian businesses have had to endure in other African countries;
AfCFTA is expected to boost regional cooperation and stimulate scale efficiency,
dynamism and competitiveness of Nigerian goods. It will aid easier movement of
goods, services, investment, capital and people. Ultimately, it is expected to offer
new ways of coordinating supply chains; it would increase trade volumes which
should lead to increased values and lower prices; expand consumer choices;
contribute to growth and expand job creation in Nigeria and Africa. It portends a
great opportunity for Nigeria’s businesses to become prominent players in the
African market due to the expanded market access.
AfCFTA will eliminate impediments against Nigeria’s products and services, as well as
reduce hostility against Nigerian citizens (natural and corporate persons) in other
African nations. It will boost the industry course of action of Nigeria via the bargained
and agreed “Exclusion and Sensitive category lists” to create room for Nigeria’s
infant industries. This is in addition to engendering know-how and quality products
through competition and strengthening of the country’s business environment,
thereby reaffirming the economy as truly the largest in Africa.
AfCFTA will encourage and create room for growth in Nigeria’s exports market by
aiding and nudging the economy in the direction of manufacturing and exportoriented services. This also offers a platform for the integration of Nigerian Small and
Medium Enterprises (SMEs) into the continental economy.
However, to realize the lofty prospects of AfCFTA for trade and growth in Nigeria, it is
important that the nation properly identify its weaknesses and strengths within the
CBN Monetary Policy Review

context of AfCFTA provisions and protocols, and recognizing those imbedded
attributes in the Agreement that can undermine the realization of the potential
benefits for the country.
It is incumbent on Nigeria to take the advantage provided by AfCFTA to revive the
country’s manufacturing industry through bold and deliberate policy actions to
eliminate impediments, and build infrastructure. This can be achieved by addressing
the intractable power issues, corruption and ease of doing business; ensuring security
of lives and property, and implementing policies that are geared towards
empowering manufacturers, including SMEs, through access to credit and finance,
among others.
Ensuring that the Nigerian economy remains competitive vis-à-vis other African
economies should be the guiding principle during the implementation phase. The
goal is to reassert Nigeria as an attractive investment destination with the aim of
consolidating the country’s number one economic position on the continent.
Measures should be implemented to ensure that AfCFTA is not used against Nigeria’s
interests by turning the country economic space into a dumping ground for goods
from other countries, thus undermining the capacity of Nigerian manufacturers,
particularly, in export oriented goods. It is also important to exploit AfCFTA as a
veritable political instrument to enhance Nigeria’s economic and trade policy
leadership, both on the continent and beyond.


CBN Monetary Policy Review

CHAPTER THREE

3.0
DOMESTIC PRICE DEVELOPMENTS
n the first half of 2019, the inflation
environment became benign with a
trend towards moderation in prices,
due largely to the relatively tight
monetary policy stance of the Bank.
Headline and core inflation generally
maintained a downward trend, while
the
food
component
fluctuated
upwards during the review period.
Headline inflation, however, remained
above the upper band of the Bank’s
target benchmark of 6-9 per cent,
indicating that latent price pressures
were
yet
to
be
subdued.
Price
developments generally reflected the
interplay of both supply- and demandrelated factors.
On the supply side, the relative stability
in the naira exchange rate, due to
sustained supply of foreign exchange in
the market from the CBN and other
autonomous
sources,
had
a
moderating effect on domestic price
developments in the review period.
Thus, the naira strengthened in all
segments of the market, reflecting the
impact
of
recent
reforms
and
interventions by the Bank, including the
introduction of measures to encourage
capital inflow and improve liquidity in
the
foreign
exchange
market.
In
addition, accretion to external reserves
improved on account of sustained
stability in crude oil prices and inflow of
proceeds
from
foreign
borrowing,
thereby strengthening the naira. The
Bank also sustained the implementation
of a number of reforms, including the
Investors’ & Exporters’ (I&E) window, the
use of Bank Verification Number (BVN) in
BDC transactions, and resumption of
sale of foreign exchange to BDCs by the
Bank and International Money Transfer
Operators (IMTOs). The Bank further
intensified
its
existing
policy
on
repatriation of export proceeds as well
as return of unutilized foreign exchange
sourced from official foreign exchange
auctions to the CBN.
On
the
demand-side,
price
developments were also impacted by
continued restriction of access to
foreign exchange for 42 items and the
use of bank verification number (BVN) in
BDC transactions. In addition, the Bank’s
use
of
liquidity
management
instruments, especially Open Market
Operations (OMO) bills also helped to
moderate price pressures. With the
prevailing uncertainties in the market,
the Inter-Bank Call and Open Buy Back
(OBB) rates fluctuated widely for most of
the period. The major sources of liquidity
in
the
review
period
were:
CBN
interventions, the implementation of the
2018 and 2019 budgets, maturing OMO
bills, Joint Ventures Cash (JVC) calls and
distributions of proceeds of revenue in
the Federation Account to the 3 tiers of
government.
The
sustained
tight
monetary policy stance which earlier
constrained
money
supply
was,
however, slightly relaxed in the review
period.
3.1 Trends in Inflation
Headline, core and food measures of
inflation fluctuated during the period
I
CBN Monetary Policy Review

under review. The three measures of
consumer price index (CPI) stood at
289.7, 267.9 and 316.0, in June 2019,
compared with276.6, 258.8 and 298.9 in
January
2019,
respectively.
Food
inflation
(year-on-year)
increased
marginally by 0.05 percentage point
from 13.51 per cent in January to 13.56
per cent in June 2019. Core inflation,
however,
fell
significantly
by
1.07
percentage points from 9.91 per cent in
January to 8.84 per cent in June 2019.
The net effect of the development was
that headline inflation declined by 0.15
percentage point from 11.37 per cent in
January to 11.22 per cent in June 2019
(Figure 3.1 and Table 3.1). Thus, the
major driver of the overall moderation in
consumer prices during the period was
core
inflation,
with
some
subcomponents of the food measure also
contributing to the moderation (Table
3.4).
Table 3.1:
Inflation Rates, January – June 2019
Source: Nigerian National Bureau of Statistics data
base


Figure 3.1:
Headline, Core and Food Inflation Rates (January
– June 2018)

Source: Nigerian National Bureau of Statistics data
base

3.1.1 Headline Inflation
Major
components
of
headline
inflation continued to decrease during
the first half of the year, thus moderating
domestic prices. The main driver of the
moderation in headline inflation was
Transport, which decreased to 0.54 per
cent in June, 2019 from 0.60 per cent in
January. This was followed by housing,
water, electricity, gas and other fuels,
which fell to 1.21 per cent from 1.27 per
cent over the same period. Food and
Non-Alcoholic
Beverages,
however,
rose to 7.43 per cent from 7.36 per cent,
thus dampening the moderation in
headline inflation (Table 3.2 and Figure
3.4).
The stability in the foreign exchange
market, due to demand management
measures, further contributed to the
decline in inflation during the period.
Foreign exchange supply measures
such as the restriction of 42 items, I&E
window and intervention sales in the
market
also
helped
to
moderate
pressures. Other contributory factors
were the tight monetary policy stance
CPI
Y-on-Y
12MMA
CPI
Y-on-Y
12MMA
CPI
Y-on-Y
12MMA
Jan 2019 276.60

Feb 2019 278.62

Mar 2019 280.81

Apr 2019 283.46

May 2019 286.61

Jun 2019 289.69

Headline Inflation
Core Inflation
Food Inflation

Jan

Feb

Mar

Apr

May

Jun

Headline Inflation
Core Inflation
Food Inflation
CBN Monetary Policy Review

of the Bank and the continued supply of
foreign exchange to the market.
Table 3.2
Major Components of Headline Inflation (Y-on-Y),
January - June 2019


Figure 3.2
Major Components of Headline Inflation (Y-on-Y),
January – June 2019

On a month-on-month basis, headline
inflation increased to 1.07 per cent in
June 2019 from 0.74 per cent in January.
The major drivers of the month-onmonth increase were the prices of: food
and non-alcoholic beverages, which
rose to 0.76 per cent in June from 0.46
per cent in January; and Housing,
Water, Elect. Gas & Other fuels to 0.11
per cent in June, 2019 from 0.08 per cent
in January (Table 3.3 and Figure 3.5). The
rising trend of month-on-month inflation
in contrast to the moderating year-onyear inflation implies a buildup of
inflationary pressure in the economy,
thus requiring the proactive tightening
of monetary policy.


Table 3.3
Major Components of Headline Inflation (M-onM), January - June 2018

Figure 3.3
Major Components of Headline Inflation (M-onM), January – June 2019


3.1.2 Food Inflation
Food inflation (year-on-year) rose by
0.05 percentage point to 13.56 per cent
in June 2019 from 13.51 per cent in
January. The main driver was farm
produce which rose by 0.79 percentage
point to 7.79 per cent from 7.00 per
cent. Processed food, however, fell by
0.74 percentage point to 5.77 per cent
in June 2019 from 6.51 per cent in
January. The increase in farm produce
was accounted for by the increase in
the prices of rice agric sold loose and
rice local sold loose by 0.45 and 0.38
percentage point to 1.55 and 1.25 per
cent in June 2019 from 1.10 and 0.88 per
cent in January, respectively. This was
due to the shortage of food supply
occasioned
by
persisting insecurity
Headline
Food &
NonAlcoholic
Bev.
Alcoholic
Bev.
Tobacco
& Kola
Clothing
&
footwear
Housing,
Water,
Elect.Gas
& Other
Fuel
Furnishings,
Household
Equip &HH
Maint.
Health
Transport Education
Jan'19

Feb'19

Mar '19

Apr '19

May '19

June '19

Jan

Feb

Mar

Apr

May

Jun

Headline
Food & Non-Alcoholic
Bev.
Alcoholic Bev. Tobacco
& Kola
Housing,Water,
Elect.Gas & Other Fuel
Furnishings, Household
Equip &HH Maint.
Health
Transport
Education
Headline
Food &
NonAlcoholic
Bev.
Alcoholic
Bev.
Tobacco
& Kola
Clothing
&
footwear
Housing,
Water,
Elect.Gas
& Other
Fuel
Furnishings,
Household
Equip &HH
Maint.
Health
Transport Education
Jan'19

Feb'19

Mar '19

Apr '19

May '19

June '19

Education
Transport
Health
Furnishings,
Household Equip
&HH Maint.
Housing,Water,
Elect.Gas & Other
Fuel
Clothing &
footwear
Alcoholic Bev.
Tobacco & Kola
Food & NonAlcoholic Bev.
Headline
CBN Monetary Policy Review

across the country which restrained
farming
activities
and
impeded
distribution channels in the economy.
The development was compounded by
policy stagnancy in the agricultural
sector except the CBN interventions in
the sector, at all levels of government.

The decrease in the price of processed
food was accounted for by the fall in
the prices of fish and sea food; sugar,
jam, honey etc; and garri by 0.06, 0.01
and
0.46
percentage
point,
respectively.

Table 3.4
Major Components of Food Inflation (Y-on-Y),
January - June 2019


Figure 3.4
Major Components of Food Inflation
(Y-on-Y), January – June 2019

Consistent with the year-on-year trend,
food inflation on a month-on-month
basis rose by 0.53 percentage point to
1.36 per cent in June 2019 from 0.83 per
cent in January. This was largely
accounted for by the increase in the
price of farm produce, which rose by
0.51 percentage point to 0.82 per cent
in June 2019 from 0.31 per cent in
January.
Similarly,
the
price
of
processed
food
rose
by
0.03
percentage point to 0.54 per cent from
0.51 per cent over the same period. The
key drivers of the increase in farm
produce were: Yam, Potatoes & Other
tubers (0.06 percentage point); and rice
(0.13 percentage point); while the rise in
processed food was driven by meat
(0.07 percentage point).

Table 3.5
Major Components of Food Inflation (M-on-M),
January – June, 2019


Figure 3.5
Major Components of Food Inflation (M-on-M),
January – June 2019

3.1.3 Core Inflation
Core inflation (year-on-year) fell to 8.84
per cent in June 2019 from 9.91 per cent
in January 2019, a decrease of 1.07
percentage points. The performance
FOOD
Proces
sed
Food
Meat
Fish &
Sea Food
Milk,
Cheese &
Eggs
Oil &
Fats
Sugar,
Jam,
Honey,
etc.
Farm
Produce
Rice
Agric
Sold
Loose
Rice
Local
Sold
Loose
Fruits
Vegat
ables
Yam,
Potatoes
& other
tubers
Jan'19

Feb'19

Mar '19

Apr '19

May '19

June '19

Change
btw Jan
& Jun.


Food
Proces
sed
Food
Meat
Fish &
Sea
Food
Milk,
Cheese
& Eggs
Oil &
Fats
Sugar,
Jam,
Honey,
etc.
Farm
Produce
Fruits
Vegatabl
es
Yam,
Potatoes
& other
tubers
Jan'19

Feb'19

Mar '19

Apr '19

May '19

June '19

Change
btw Jan
& Jun.

CBN Monetary Policy Review

was driven by processed food (0.35
percentage point), Transportation (0.11
percentage point), Housing, water,
electricity
&
other
fuels
(0.09
percentage point) and Health (0.09
percentage point). The fall in these
major components was due to the
relatively tight monetary policy stance,
stability in the exchange rate, and
continued implementation of foreign
exchange management measures by
the Bank. In addition, the reactivation of
rail transport services and the relatively
stable energy and utility prices also
supported the moderation.

Table 3.6
Major Components of Core Inflation
(Y-on-Y) January – June. 2019


Figure 3.6
Major Components of Core Inflation
(Y-on-Y) January – June 2019

The month-on-month core inflation rose
by 0.04 percentage point to 0.85 per
cent in June 2019 from 0.81 per cent in
January. Processed food was the major
driver of the increase, as it rose to 0.38
per cent in June 2019 from 0.30 per cent
in January (Table 3.7 and Figure 3.9). The
rising trend in month-on-month core
inflation in the face of the declining
year-on-year measure, indicated a
build-up of inflationary pressure in the
near term from the core components.

Table 3.7
Major Components of Core Inflation
(M-on-M) January – June. 2019


Figure 3.7
Major Components of Core Inflation (M-on-M)
January – June 2019


3.1.4 Seasonally-Adjusted Inflation
The actual and seasonally-adjusted
measures of headline inflation trended
downwards
in
the
review
period,
reversing
the
rising
inflation
trend
witnessed during the second half of
2018 (Table 3.8 and Figure 3.10). Actual
headline inflation continued to reflect
the general price level in the economy,
trending below the seasonally-adjusted
headline inflation during the early part
of the review period, which reversed
later
in
the
period.
The
overall
downward trend in both actual and
Core
Proces
sed
Food
NonAlcoho
lic
Bevera
ges
Alcoholi
c Bev.
Tobacco
& Kola
Clothing
&
footwear
Housin
g,Wate
r,
Elect.G
as &
Other
Fuel
Furnishin
gs,
Househol
d Equip
&HH
Maint.
Health
Transpo
rt
Commu
nication
Recreatio
n &
culture
Educ
ation
Rest
aura
nt &
Hotel
s
Misc
Good
s &
Servi
ces
Jan'19

Feb'19

Mar '19

Apr '19

May '19

June '19

Change
btw Jan
& Jun.


Core
Proces
sed
Food
NonAlcoho
lic
Bevera
ges
Alcoholi
c Bev.
Tobacco
& Kola
Clothing
&
footwear
Housin
g,Wate
r,
Elect.G
as &
Other
Fuel
Furnishin
gs,
Househol
d Equip
&HH
Maint.
Health
Transpo
rt
Commu
nication
Recreatio
n &
culture
Educ
ation
Rest
aura
nt &
Hotel
s
Misc
Good
s &
Servi
ces
Jan'19

Feb'19

Mar '19

Apr '19

May '19

June '19

Change
btw Jan
& Jun.


CBN Monetary Policy Review

seasonally-adjusted
measures
of
inflation were attributed to the stability
in
the
foreign
exchange
market,
improved accretion to external reserves
and the sustained tight monetary policy
stance of the Bank.
Table 3.8:
Actual and Seasonally Adjusted Headline
Inflation January – June 2019
Date
Inflation
S.A Inflation
Jan-19
11.37
11.36
Feb-19
11.31
11.37
Mar-19
11.25
11.31
Apr-19
11.37
11.31
May-19
11.40
11.34
Jun-19
11.22
11.33

Figure 3.8
Actual and Seasonally Adjusted Headline
Inflation January – June 2019

3.2
Key
Factors
that Influenced
Domestic Prices
During the review period, inflationary
pressure
was
influenced
by
a
combination of cost-push, demand-pull
and moderating factors. The net effect
of these factors was a moderation in
domestic prices. A summary of these
factors
include:
a
relatively
tight
monetary policy stance, continued
intervention by the Bank in the real
sector to improve the supply side,
measures by the Bank to manage the
demand
and
supply
of
foreign
exchange to ensure exchange rate
stability and relatively stable energy and
utility prices. Others include: the impact
of festivities and seasonal activities;
persistent security challenges arising
from
farmers-herders
conflict,
kidnapping and banditry in some parts
of the country as well as production and
distribution
challenges

due
to
insurgency in the north east region.
3.2.1 Demand-side Factors
On the demand side, the moderation in
headline inflation was influenced by
several factors such as; the relatively
tight monetary policy stance of the
Bank,
demand
side
management
measures, which supported the stability
of the exchange rate, as well as
relatively stable energy and utility prices
during
the
period.
These
factors
overwhelmed
the
effect
of
fiscal
injections from FAAC disbursements,
sustained liquidity surfeit in the banking
system
and
expectation
of
price
pressures
from
the
anticipated
implementation of the new minimum
wage law.

3.2.2. Supply-side Factors
The
supply-side
factors
that
moderated inflationary pressure during
the review period included: relative
stability in the exchange rate due to the
continued implementation of foreign
exchange management measures by
the
Bank,
improved
transportation
activity resulting from the reactivation of

Inflation
S.A Inflation
CBN Monetary Policy Review

rail services and the relative stability of
energy and utility prices.

3.2.3 Moderating Factors
Although headline inflation moderated
during the review period, the decline
was wedged by a number of factors,
the absence of which would have
resulted in a deeper moderation. These
were: the shortage of food supply
occasioned by persistent insecurity
across the country which affected
farming
activities
and
impeded
distribution channels in the economy,
policy stagnancy in the agricultural
sector at all levels of government, and
the impact of festivities and seasonal
activities.


CBN Monetary Policy Review

CHAPTER FOUR
4.0
MONETARY
POLICY
AND
LIQUIDITY MANAGEMENT
he design and implementation of
monetary policy during the first half
of 2019 continued to be shaped by
developments
in
the
global
and
domestic
economies.
The
key
developments were: vulnerabilities in
the
major
financial
markets
and
mounting external debt in Emerging
Market and Developing Economies
(EMDEs), and slowdown in the Chinese
economy; as well as tightening global
financial conditions. Others were: the
escalating trade tensions between the
US, China and other major trading
partners; imposition of a new round of
sanctions
on
Iran;
increasing
complications
in
the
BREXIT
negotiations,
and
indications
of
renewed
tension
on
the
Korean
Peninsula. Furthermore, the continuing
monetary policy normalization by the
US, the European Central Bank’s (ECB)
abandonment of its monetary policy
normalization programme, continued
asset purchase by the Bank of Japan
(BoJ), and the lull in policy by the Bank
of England signified a broad level of
uncertainty in the global economy.
On the domestic front, the challenges
were: the liquidity effect of continued
implementation of the 2018 budget,
resurgence
in
inflationary
pressure,
heightened sovereign risk in the build-up
to the 2019 general elections, and rising
public debt and deficits. In the face of
these developments, the desire to
achieve price and financial system
stability conducive to output growth
was
the
major
consideration
that
influenced monetary policy in the
period under review.

4.1
DECISIONS
OF THE
MONETARY
POLICY COMMITTEE (MPC)
Monetary policy decisions in the first
half of 2019 was shaped by major
developments
in
the
global
and
domestic
economic
and
financial
environments.
These
included:
the
escalation of trade tensions between
the US, China and other major trading
partners;
vulnerabilities
in
major
financial
markets
and
mounting
external debt in Emerging Market and
Developing Economies (EMDEs); and
slowdown in the Chinese economy.
Others were: imposition of a new round
of sanctions on Iran; and increasing
complications
in
the
BREXIT
negotiations. In addition, the continuing
monetary policy normalization by the
US, the European Central Bank’s (ECB)
abandonment of its monetary policy
normalization programme, continued
asset purchase by the Bank of Japan
(BoJ), and the lull in policy by the Bank
of England increased the level of of
uncertainty in the global economy.
On the domestic front, the challenges
were: the liquidity effect of continued
implementation of the 2018 budget,
resurgence
in
inflationary
pressure,
heightened sovereign risk in the build-up
to the 2019 general elections, and rising
public debt and deficits.
These challenges and the need to
achieve the objective of price and
T
CBN Monetary Policy Review

financial system stability conducive to
sustainable and inclusive economic
growth, were the key considerations
that underpinned the thrust of monetary
policy in the first half of 2019.
4.1.1 January 2019 MPC Meeting
The 21st and 22nd January, 2019 MPC
meeting reviewed 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.
The
key
global
developments were: financial market
volatilities; trade tensions between the
US
and
its
key
trading
partners;
continuing
monetary
policy
normalization by the US; difficult BREXIT
negotiations,
termination
of
the
European Central Bank’s (ECB) asset
purchase program in December 2018
and the slowdown of the Chinese
economy. As a result, global growth was
downgraded by the IMF to 3.5 per cent
in 2019, from 3.7 per cent in 2018.
The key developments on the domestic
front were the continued recovery in
output growth after the 2016 recession
and the resurgence in inflationary
pressure. Real GDP grew by 1.81 per
cent in Q3, 2018 from 1.50 per cent in
Q2, 2018, driven by the services and
agricultural sectors which grew by 1.19
and 0.56 per cent, respectively. Growth
was, however, dampened by the
persistence of herdsmen attack on
farmers, cattle rustling and flooding in
some parts of the country, which
affected
agricultural
and
livestock
output. The MPC was optimistic about
Q4 2018 output growth given the
continued
positive
trend
in
the
Manufacturing and Non-Manufacturing
Purchasing Managers’ Indices (PMIs).
In terms of prices, headline inflation
(year-on-year) inched up to 11.44 per
cent in December 2018 from 11.28 per
cent in November 2018. This 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 uptick in
inflation
was
attributed
mainly
to
seasonal
factors,
which
impacted
primarily on food. All measures of
month-on-month
inflation,
however,
showed a decline. The headline, food
and core measures (month-on-month)
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.
Developments in the financial markets
indicated that the All-Share Index (ASI)
decreased (year-on-year) by 17.81 per
cent to 31,430.50 at end-December
2018 from 38,243.19 at end-December
2017. The ASI further declined by 1.35
per cent to 31,005.17 as at January 18,
2019. Similarly, Market Capitalization
(MC) decreased by 13.87 per cent
(year-on-year) to N11.72 trillion at endDecember 2018 from N13.61 trillion at
end-December 2017, declining further
by 1.37 per cent to N11.56 trillion as at
January 18, 2019. The development was
attributed
to
the
progressive
normalization of monetary policy in
some
advanced
economies
and
perceived increase in sovereign risk in
CBN Monetary Policy Review

the build-up to the 2019 general
elections, resulting in sustained profit
taking by some foreign investors.
In the foreign exchange market, there
was relative stability at both the Bureaude-Change (BDC) segment and the
Investors’ and Exporters’ (I&E) window.
This stability was further enhanced by
the
Bank’s
exchange
rate
management
policies,
the
implementation
of
the
Bilateral
Currency Swap Agreement (BCSA) with
China and the inflow of proceeds from
the US$2.8 billion Euro bond offer.
Notwithstanding the above challenges
in the global and domestic economy,
the MPC in its considerations noted
remarkable
progress
towards
macroeconomic
stability.
These
included stability in the exchange rate,
stable accretion to external reserves,
moderation in price development and
the low but gradual improvement in
output growth in the last six consecutive
quarters. The MPC 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. The
Committee commended the initiative
of the Bankers Committee in addressing
the phenomenon of low credit to the
small and medium scale enterprises
through a partnership with the Nigeria
Incentive-Based Risk Sharing System for
Agricultural
Lending
(NIRSAL)
to
establish a national Microfinance bank
to provide low interest rate loans to small
scale businesses. The MPC also noted
that although there was an increase in
the year-on-year headline inflation for
the second consecutive month, the
month-on-month inflation continued to
moderate, indicating that the year-onyear measures will also moderate in the
near term. The Committee also noted
with satisfaction the gradual reduction
in Non- Performing Loans of the deposit
money banks (DMBs). The Committee
believes that as Government pays off
contractor debts and other obligations,
there will be a sizable reduction in the
NPLs of the banking system.
In reaching its decision, the MPC
observed the risks confronting the
economy such as the global and
domestic inflationary pressures, and the
associated
risk
of
currency
depreciation. As a result, it was of the
view that a loosening option remained
remote. On the other hand, weighing its
judgement on price stability concerns,
the MPC was of the view that a
tightening policy would result in the loss
of the gains so far achieved, noting that
this may also drive DMBs to re-price their
assets, thus increasing the cost of credit
and
elevating
credit
risk
in
the
economy.
This,
it believed,
would
worsen the position of non-performing
loans of the banks. The Committee
equally
felt
that
tightening
would
dampen
investments
and
hamper
improvements in output growth, given
that the growth performance so far
remained fragile.
Based on the foregoing, the MPC
decided by a vote of all eleven (11)
members to keep the policy parameters
unchanged from their current levels.
Thus, the MPC retained the MPR at 14
CBN Monetary Policy Review

per cent; the asymmetric corridor of
+200/-500 basis points around the MPR;
the CRR at 22.5 per cent; and the
Liquidity Ratio at 30 per cent.
4.1.2 March 2019 MPC Meeting
At the 25th and 26th March 2019 MPC
meeting, developments in the global
and domestic economic and financial
environments in the first quarter of 2019
were reviewed. Global output growth
was observed to be softening due to a
set of legacy headwinds from the
second half of 2018. These included: the
continued trade war between the US
and China; policy uncertainty amongst
advanced economy central banks;
persisting
uncertainties
surrounding
BREXIT negotiations; vulnerabilities in
major financial markets and rising public
debt in some Emerging Market and
Developing Economies (EMDEs).
In the domestic economy, real Gross
Domestic Product (GDP) grew by 2.38
per cent in Q4 2018 from 1.81 and 2.11
per cent in the previous quarter and
corresponding period of 2017. The major
driver of growth was the non-oil sector,
which grew by 2.7 per cent in Q4 2018,
while the oil sector contracted by 1.62
per cent. The MPC noted the positive
direction of output growth based on the
Manufacturing and Non-Manufacturing
Purchasing Managers’ Indices (PMIs)
which grew for the 24th and 23rd
consecutive months in March 2019. The
manufacturing PMI rose by 57.4 index
points compared with 57.1 in the
previous month. Similarly, the nonmanufacturing PMI increased by 58.5
index points compared with 58.4 in
February 2019. The improvement in the
outlook was attributed to the continued
stability in the foreign exchange market,
interventions by the Bank in the real
sector
and
the
effective
implementation
of
the
Economic
Recovery and Growth Plan (ERGP) by
the Federal Government.
On
price
developments,
headline
inflation (year-on-year) declined further
to 11.31 per cent in February 2019 from
11.37 and 11.44 per cent in January 2019
and December 2018, respectively. The
decrease was driven by food inflation,
which declined to 13.47 per cent in
February 2019 from 13.51 per cent in
January 2019, while core inflation also
declined to 9.80 per cent from 9.91 per
cent in the previous month. On a monthon-month basis, headline, food and
core inflation declined to 0.73, 0.82 and
0.65
per
cent
in
February
2019,
respectively, from 0.74, 0.83 and 0.81 per
cent in January 2019. In spite of this
decline, the upside risks to inflation
remained the following: the high cost of
energy;
infrastructure
constraints;
growing insecurity in the country; and
anticipated increase in liquidity from the
late
implementation
of
the

budget. These factors were notably
outside the ambit of monetary policy.
In the financial markets, the All-Share
Index (ASI) and Market Capitalization
(MC)
continued
to
decline.
The
development
reflected
sentiments
towards portfolio rebalancing from
equities to fixed income securities,
indicating the perceived risk at the long
end of the yield curve.
CBN Monetary Policy Review

In its considerations, the Committee
noted that output growth was mostly
weak in 2018, but, strengthened in the
last quarter, with a positive forecast for
2019. The MPC further noted the
continued moderation in all measures of
inflation,
sustained
stability
in
the
exchange rate and the robust level of
external reserves. The MPC noted the
relative volatility in oil prices and its
impact on accretion to reserves which
could easily undermine the relative
stability
observed
in
the
foreign
exchange market. It observed the
improved
confidence
by
foreign
investors in the Nigerian economy
reflected in the recent upsurge in
capital inflows into the economy.
Despite these developments, the MPC
was conscious of unfavourable trends in
the global economy, such as the recent
slowdown in output growth in some
advanced economies and the dovish
stance of some major central banks, as
an early warning sign of broader
macroeconomic
vulnerabilities.
The
MPC equally expressed concerns over
the growing fiscal deficit, external debt
and cost of debt servicing. It, however,
noted that current developments in the
oil futures market indicate that oil prices
will remain considerably above the
Federal Government’s 2019 budget
benchmark with prospects of improved
fiscal receipts to manage the debt. On
financial system stability, the MPC noted
the improvements in key financial
soundness indicators and commended
the
Federal
Government
for
the
settlement
of
debts
owed
to
oil
marketers, which has considerably,
helped in reducing the NPL portfolio of
the banking industry. In anchoring its
considerations,
the
Committee
believed
that
having achieved a
relatively stable exchange rate with
price stability, it is imperative that
monetary policy should explore the next
steps necessary for enhancing growth,
reducing
unemployment
and
diversifying the productive base of the
economy.
In reaching its decision, the Committee
deliberated between the options of
maintaining the prevailing policy stance
or easing slightly. The MPC was of the
view that given the relative stability in
the key macroeconomic variables,
there was a need to signal a pro-growth
stance. It was further convinced that this
new stance would encourage the flow
of credit to the real economy, thus
upholding the Bank’s commitment to
support output growth. The Committee
was of the view that easing by a small
margin will not hurt capital flow to the
economy due to the wide spread
between market rates in the EMDEs and
the advanced economies.
Consequently, the MPC decided by a
vote of six out of eleven members to
reduce the Monetary Policy Rate (MPR)
by 50 basis points. Two members voted
to reduce the MPR by 25 basis points,
while one member voted to reduce it by

basis
points.
Two
members,
however, voted to hold the MPR at its
current level. Ten members voted to
hold all other parameters constant,
while a member voted to reduce the
Cash Reserve Ratio (CRR) by 100 basis
points from 22.5 to 21.5 per cent. Thus,
the Committee voted to adjust the MPR
CBN Monetary Policy Review

by 50 basis points from 14.00 to 13.50 per
cent;
and
retain
the
asymmetric
corridor of +200/-500 basis points around
the MPR; the CRR at 22.5 per cent; and
the Liquidity Ratio at 30 per cent.
4.1.3 May 2019 MPC Meeting
The Monetary Policy Committee (MPC)
met on 20th and 21st May, 2019 amidst
uncertainties in the global and domestic
economic,
financial
and
political
environments. On global developments,
the weakening global output growth
continued in the face of familiar
headwinds,
including:
the
further
escalation of the trade war between
the US and China; imposition of new
rounds of sanctions on Iran; difficult
BREXIT negotiations; a new wave of
tensions on the Korean Peninsula;
vulnerabilities in major financial markets
and rising public and private debt in
some Emerging Market and Developing
Economies (EMDEs). Accordingly, the
International Monetary Fund further
downgraded its global output growth
projections for 2019 from 3.5 to 3.3 per
cent.
On the domestic front, the recovery of
output moderated as real GDP grew by
2.01 per cent in the first quarter of 2019
compared with 2.38 per cent in the
previous quarter. It was, however, a
marginal improvement compared with
1.89 per cent in the corresponding
quarter of 2018. The performance was
largely driven by the non-oil sector,
which grew by 2.47 per cent in the first
quarter of 2019, while the oil sector
contracted by 2.40 per cent. Staff
projections indicated that real GDP will
strengthen to 2.34 and 2.36 per cent in
Q2 and Q3 2019, respectively. The
Committee
observed
that
actual
output
remains
below
potential,
implying that the economy still had
sufficient headroom for non-inflationary
growth.
It
noted
the
continued
expansion of the Manufacturing and
Non-Manufacturing
Purchasing
Managers’ Indices (PMI) for the 25th and
24th consecutive months in April 2019.
The manufacturing PMI grew by 57.7
index points compared with 57.4 index
points in the previous month, while the
non-manufacturing PMI grew by 58.7
index points compared with 58.5 index
points in March 2019.
On
price
developments,
headline
inflation (year-on-year) rose slightly to
11.37 per cent in April 2019 from 11.25
per cent in March 2019. The increase in
headline inflation was driven mainly by
food inflation which rose by 13.70 per
cent in April 2019 from 13.45 per cent in
March.
Core
inflation,
however,
declined marginally to 9.28 per cent in
April 2019 from 9.46 per cent in March.
Month-on-month, headline, food and
core inflation increased to 0.94, 1.14 and
0.70 per cent in April 2019 from 0.79, 0.88
and
0.53
per
cent
in
March,
respectively. This uptick in inflationary
pressures was attributed to seasonal
factors.
In the financial markets, activities in the
equities segment remained bearish in
spite of the sustained capital inflow into
the economy, reflecting the continued
portfolio rebalancing from the long to
the short end of the yield curve in the
review period. The All-Share Index
CBN Monetary Policy Review

declined by 8.14 per cent to 28,871.83
index points on May 17, 2019 from
31,430.50
index
points
at
endDecember 2018. Market capitalization,
however, grew by 8.53 per cent to
N12.72 trillion on May 17, 2019 from
N11.72 trillion at end-December 2018.
The growth in market capitalization
reflected new listings in the market,
prominent amongst which were MTN,
Skyway Aviation Handling Company
and the merger between Access Bank
and Diamond Bank.
The Committee took note of the
continued slowdown in the global
economy
and
the
persisting
uncertainties such as the on-going trade
wars between the US and its major
trading partners, financial fragilities in a
number of countries, debt-constrained
fiscal
operations
in
some
EMDEs,
including Nigeria, and the volatility in
the
oil
market.
The
Committee,
therefore,
enjoined
the
Federal
government to improve its savings
culture including a more realistic oil
price budget benchmark in order to
build fiscal buffers.
The MPC noted the moderation in
output growth during the first quarter of
2019, emphasizing that actual output
remains well below the economy’s longrun
potential.
This
indicated
the
existence of spare capacity for noninflationary growth in the economy, an
opportunity which should be explored
for improved credit delivery to the
private sector. The Committee also
noted that the uptick in inflationary
pressures in April 2019 was driven largely
by food shortages during the Easter
season
as
a
result
of
the
commencement of the planting season
and the persisting security challenges in
some of the food producing regions of
the country. These factors, it noted
remain outside the remit of monetary
policy.
The MPC, however, welcomed the
improvements
in
the
financial
soundness indicators (FSIs), noting the
moderation in the NPL ratio, although it
remained
above
the
prudential
benchmark.
Consequently,
the
Committee recommended a proposal
to
develop
a
comprehensive
administrative, legal and regulatory
framework to speed up the recovery of
delinquent loans. The proposal will
involve structured engagement with
relevant stakeholders and authorities, to
mitigate
credit risk
and ultimately
improve credit delivery in the economy.
The Committee called on the Bank to
provide a mechanism for limiting DMBs
access to government securities in order
to refocus their lending to the private
sector.
Following the limited progress towards
macroeconomic and financial sector
stability, the Committee was confronted
with the options to tighten, ease or hold
policy. It noted that the slight uptick in
inflation should ideally elicit a tightening
stance, but this will likely impede the
ability of DMBs to increase credit as
required to support consumer spending,
mortgages and other priority sectors of
the economy. The MPC considered
easing as this will stimulate output
growth, restart capital market activities
and
improve
credit
to
the
real
CBN Monetary Policy Review

economy. It, however, felt that given
the marginal increase in headline
inflation in April 2019, there was the
need to refrain from easing in order not
to exacerbate inflationary pressures. On
the argument for a hold position, the
Committee was of the view that
maintaining the monetary policy rate at
its present level was essential for better
understanding
the
momentum
of
output
growth
before
any
further
adjustments.
On
the
backdrop
of
these
considerations, the MPC decided by a
vote of 9 out of 11 members to hold all
policy parameters constant, while two
members
voted
to
reduce
the
monetary policy rate by 25 basis points.
In summary, the Committee retained
the MPR at 13.50 per cent, asymmetric
corridor of +200/-500 basis points around
the MPR, CRR at 22.5 per cent and
Liquidity Ratio at 30 per cent.
4.2.0
Instruments
of
Liquidity
Management
During the first half of 2019, the Bank
continued to conduct monetary policy
using the various instruments in its toolkit
to achieve the objectives of price and
macroeconomic
stability.
These
instruments were: the Monetary Policy
Rate (MPR), the Cash Reserve Ratio
(CRR), Liquidity Ratio, Open Market
Operations
(OMO)
and
Discount
Window Operations, complemented
with periodic interventions in the foreign
exchange market.

4.2.1 Monetary Policy Rate (MPR)
The MPR remained the key instrument
for monetary policy management in the
review period. It remained at 14.0 per
cent until the March 2019 MPC meeting
when it was adjusted downwards by 50
basis points to 13.5 per cent. This was to
signal a pro-growth stance by way of
encouraging the flow of credit to the
productive sectors of the economy. The
asymmetric corridor of +200 and -500
basis points around the MPR was
maintained.
4.2.2 Open Market Operations (OMO)
The
primary
tool
for
liquidity
management
remained
the
Open
Market Operations (OMO) bills in the
review period. There was a decrease in
OMO sales by 10.48 per cent to
N8,682.01 billion in the first half of 2019
from N9,678.76 billion in the preceding
half of 2018 (Table 4.1).
Table 4.1
OMO Bills Auction (January – June, 2019)
(N’billion)

Source: Financial Market Department

Date

% Change
Jan
2132.61
2,653.34

24.42
feb
845.28
1,188.91

40.65
Mar
1516.38
2,694.98

77.72
Apr
2084.46
693.05

-66.75
May
2033.42
975.81

-52.01
Jun
1086.61
475.92

-56.20
1st Half
9,698.76

8,682.01

-10.48
Jul
1669.13
Aug
1529.93
Sep
1651.51
Oct
1743.64
Nov
3020.28
Dec
3095.42
2nd Half
12,709.91

Cumlative
Figure
22,408.67

CBN Monetary Policy Review

Figure 4.1
OMO Bills Auction (January – June, 2019)

4.2.3 Reserve Requirements
The Cash Reserve Ratio (CRR) is an
important instrument of monetary policy
used to promote the delivery of credit to
the economy. The upward adjustment
of CRR reduces the ability of deposit
money banks to lend as more resources
are warehoused with the central bank,
while a downward review encourages
lending by the DMBs. Following the
global financial crisis of 2007/2008, the
MPC on April 8, 2009, lowered the CRR
from 2.0 to 1.0 per cent to ease financial
conditions and encourage lending to
stimulate economic activities. However,
in March 2016, the CRR was adjusted
upwards by 250 basis points to 22.5 from
20.0 per cent to tighten liquidity
conditions, curtail lending and tame
inflationary pressures. During the review
period, the Cash Reserve Ratio (CRR)
was maintained at 22.5 per cent of total
deposits in view of the persistence of
excess liquidity in the banking system.
The
liquidity
Ratio
(LR)
was
also
maintained at 30.0 per cent.
4.2.4 Standing Facilities
In the first half of 2019, the Bank
continued to use the standing facilities
(lending/deposit) window to manage
overnight liquidity in banking system
(Deposit Money Banks and the Discount
House). The asymmetric corridor was
kept unchanged at +200/-500 basis
points around the MPR.
The request for Standing Lending Facility
(SLF), increased by 160.40 per cent to
N12,121.76 billion in the first half of 2019
from N4,655.06 billion in the second half
of 2018. It also increased by 72.49 per
cent compared with N7,027.46 billion in
the corresponding period of 2018 (Table
4.2).
At the Standing Deposit Facility (SDF)
window,
the
volume
of
deposits
decreased by
21.32 per cent to
N8,020.95 billion in the first half of 2019
from N10,194.71 billion in the second half
of 2018. Compared with N10,684.38
billion in the corresponding period of
2018, it decreased by 24.93 per cent
(Table 4.3).
Transactions
at
the
two
windows
resulted in a net lending of N4,100.81
billion in the first half of 2019 in contrast
to the net deposit of N5,539.65 billion
and N3,656.92 billion in the preceding
and corresponding half years. The
development was due to occasional
liquidity stress. However, a combination
of these instruments helped to manage
liquidity levels in the banking system.
CBN Monetary Policy Review

Table 4.2
CBN Standing Lending Facility (January 2018 –
June 2019) (N’billion)


Figure 4.2
Standing Lending Facility (January – June 2019)


Table 4.3
CBN Standing Deposit Facility (January 2018 –
June 2019) (N’billion)

Source: Financial Market Department

Figure 4.3
Standing Deposit Facility (January - June, 2019)

4.2.5
Foreign Exchange Intervention
In the first half of 2019, the Bank
continued with the flexible foreign
exchange
management
policy,
supported by proactive strategies such
as the implementation of the Bilateral
Currency Swap Agreement (BCSA) with
China. The Bank continued to mandate
all Authorized Dealers who are agents to
Date

% Change
Jan
833.09
3,239.60

288.87
Feb
1020.15
3,136.42

207.45
Mar
952.23
2,143.70

125.12
Apr
1145.52
1,990.01

73.72
May
1847.69
895.78

-51.52
Jun
1228.78
716.26

-41.71
1st Half
7,027.46

12,121.76

72.49
Jul
441.1
Aug
53.04
Sep
483.4
Oct
864.8
Nov
684.7
Dec
2128.02
2nd Half
4,655.06

Cumlative
Figure
11,682.52

Date

% Change
Jan
1919.78
928.86

-51.62
Feb
1144.1
690.42

-39.65
Mar
1508.75
1,417.28

-6.06
Apr
2952.2
1,056.76

-64.20
May
1527.04
2,178.21

42.64
Jun
1632.51
1,749.43

7.16
1st Half
10,684.38

8,020.95

-24.93
Jul
1643.71
Aug
2073.1
Sep
2070.85
Oct
1345.34
Nov
2267.19
Dec
794.52
2nd Half
10,194.71

Cumlative
Figure
20,879.09

CBN Monetary Policy Review

approved International Money Transfer
Operator (IMTOs) to sell foreign currency
accruing
from
inward
money
remittances to licensed Bureau De
Change (BDCs) Operators in Nigeria. As
a result, there was relative stability at
both the Bureau-de-Change (BDC) and
the Investors’ and Exporters’ (I&E)
window
of
the
foreign
exchange
market.

The total supply of foreign exchange,
however, decreased by 59.93 per cent
to US$8,370.04 million in the first half of
2019 from US$20,887.20 million in the
second half of 2018. The development
represented an increase of 11.89 per
cent compared with US$9,499.92 million
in the corresponding period of 2018
(Table 4.4). The decrease in the supply
of foreign exchange was largely due to
foreign reserves depletion occasioned
by continued flight of capital in the
review period. Although, crude oil prices
increased moderately toward the end
of first half of 2019, its impact on reserves
was negated by capital flow reversals
as investors divested from the Nigerian
stock market due to monetary policy
normalization in the United States as well
as growing sovereign risk in the Nigerian
market due to the general elections in
the review period.


Table 4.4
Foreign Exchange Supply by the CBN (US$
Million)
Date

%
Change
(2018 -
2019)

Total FX
Supply
(including
Forward
Sales)
Total FX
Supply
(including
Forward
Sales)

Jan
1,343.12
1,473.17
74.71%
Feb
1,237.26
1,922.25
41.16%
Mar
1,300.93
1,159.78
-0.65%
Apr
1,422.35
1,244.32
-25.89%
May
2,039.51
1,455.05
-3.34%
Jun
2,156.75
1,115.47
92.39%
1st
Half
9,499.92
8,370.04
-11.89%
Jul
2,966.31

145.76%
Aug
3,733.66

157.58%
Sep
3,868.67

217.02%
Oct
3,481.15

164.53%
Nov
3,617.03

198.68%
Dec
3,220.38

146.45%
2nd
Half
20,887.20

170.89%
Source: Financial Market Department

Figure 4.4
Total FX Supply (including Forward Sales) (Jan -
June, 2019)

Administrative measures were sustained
by the Bank during the review period to
curb speculative activities in the foreign
exchange market, restore investors’

Jan
Feb Mar Apr May Jun
US$ 'Million
CBN Monetary Policy Review

confidence
in
the
Banks’
foreign
exchange management strategy, limit
arbitrage
opportunities
and
the
depletion of the external reserves.

4.3.0
Developments
in
Monetary
Aggregates
During
the
review
period,
the
performance
of
major
monetary
aggregates was mixed. Broad money
(M2) performed below its indicative
benchmark for 2019, as a result of
sluggish growth of the Net Foreign Assets
(NFA), which dampened the impact of
the substantial growth of Net Domestic
Assets (NDA) above its indicative target.
The increase in NDA was attributed to
the significant increase in credit to
government occasioned by increased
fiscal expansion and rising deficit in the
face of shortfall in government revenue.
The under-performance of the NFA was
on account of sluggish crude oil market.
The underperformance of monetary
aggregates implies that the economy is
not receiving adequate money supply
to support the envisaged growth target.
This may indicate a slowdown in
economic activity.
4.3.1
Broad Money (M3, M2)
Broader measure of money supply
(M3)
grew
by
4.97
per
cent
to
N35,018.77 billion at end-June 2019 from
N33,359.25 billion at end-December
2018. Compared with the end-June
2018 level of N29,343.83 billion, M3
increased by 19.34 per cent. The
annualized M3 growth rate of 9.94 per
cent at end-June 2019 was below the
2019 indicative growth target of 16.08
per cent.
Broad Money (M2) grew by 3.04 per
cent to N27,892.33 billion at end-June
2019 from N27,078.83 billion at endDecember 2018. Compared with the
end-June 2018 level of N24,814.00
billion, M2 increased by 12.41 per cent.
The annualized M2 growth rate of 6.08
per cent at end-June 2019 was below
the 2019 indicative growth target of
13.11 per cent.
The sluggish growth in the broad and
broader monetary aggregates below
their
target
growth
rates indicate
insufficient transactions and economic
activities to meet the government’s
non-inflationary growth objective. It
signified a shortage in the stock of
money to drive economic growth to the
projected trajectory. The weak growth
in the stock of money indicates sluggish
growth in aggregate demand, which
would dampen inflationary pressures.
The observed trend in these aggregates
was manifested in the sustained decline
in inflation in the first half of 2019.
Figure 4.5
Money Supply (M1), (M2) and (M3) (January –
June, 2019)


Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
Naira
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
M3

M2

M1

CBN Monetary Policy Review

Figure 4.6
Growth in Money Supply (M1), (M2) and (M3)
(January - June, 2019)

4.3.3
Narrow Money (M1)
Narrow Money (M1) declined by 5.05
per cent to N11,159.12 billion at endJune 2019 from N11,751.14 billion at endDecember 2018. It, however, grew by
4.28 per cent compared with N10,701.11
billion
at
end-June
2018.
When
annualized, M1 declined by 10.10 per
cent compared with the 2019 indicative
growth target of 17.20 per cent (Figures
4.4 and 4.5), indicating that M1 underperformed in the review period. The
weak performance of M1 is the result of
the decline in Currency in circulation
(13.55 per cent) and private sector
deposits at both the CBN (1.42 per cent)
and commercial banks (4.39 per cent).
The primary driver of the observed
developments in narrow money is a
significant drop in currency in circulation
(CIC) and deposits in both the CBN and
commercial banks.
The development in M1 is supportive of
the observed trend in M2 & M3, and
indicates that economic activities are
slow or slowing down as there are
insufficient transactions, business and
economic activities to sustain the
government’s growth objective. The
persistence of the trend is worrisome as
it may trigger a fresh round of economic
recession. Consequently, efforts must be
made to boost real sector economic
activities through both monetary and
fiscal stimulus packages to ensure that
the economy is propelled towards the
target growth trajectory.
4.3.4 Net Foreign Assets (NFA)
Net Foreign Assets (NFA) increased
marginally
by
0.40
per
cent
to
N18,471.24 billion at end-June 2019 from
N18,397.82 billion at end-December
2018. Compared with the end-June
2018 figure of N18,337.53 billion, NFA
grew by 0.73 per cent. The annualized
NFA growth rate of 0.80 per cent at endJune 2019 was significantly below the
2019 indicative growth target of 18.32
per cent. The under-performance of
NFA in the review period was attributed
to the 3.37 per cent decline in net
foreign assets held by the monetary
authorities.

The poor growth performance of NFA
vis-à-vis the target growth rate driven by
a decline in the NFA held by Monetary
Authorities, is a manifestation of efforts
by the CBN to stabilize the Naira. The
persistence of this trend in NFA could put
significant pressure on the international
value of the Naira. Consequently,
current export diversification efforts
should be sustained to help build up
external reserves in order to enhance
the growth in NFA.


Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
M3 Growth
M2 Growth
M1 Growth
CBN Monetary Policy Review

4.3.5
Net Domestic Assets (NDA)
Net Domestic Assets (NDA) increased
by 10.60 per cent to N16,547.53 billion at
end-June 2019 from N14,961.43 billion at
end-December 2018. Compared with
the end-June 2018 figure of N11,006,30
billion, NDA also grew by 50.35 per cent.
The annualized NDA growth rate of
21.20 per cent at end-June 2019 was
significantly above the 2019 indicative
growth target of 13.34 per cent. This is
attributable to the significant increase in
credit to government of 55.80 per cent
in the first half of 2019. The growth in NDA
was primarily driven by the growth in
credit to government and credit to the
private sector. The over performance of
growth in Credit to government vis-à-vis
the
target
is
a
manifestation
of
borrowings
to
fund
government
including electioneering and payment
of outstanding contractor obligations.
Likewise, the growth in private sector
credit was primarily driven by credit to
state government (i.e. approximately 93
per
cent).
In
essence
the
over
performance in the growth rate of NDA
vis-à-vis the target growth rate was due
to credit to the two main tiers of
government.
The developments in domestic credit
suggests a crowding out of credit to the
core private sector, thus contributing to
a possible slowdown in economic
activities. Typically, a precursor to
economic recession is a slowdown in
credit to businesses, leading to a
contraction of business and economic
activities. These signs are worrisome and
consistent with developments in both
the
broad
and
broader
money;
suggesting the need for real sector
stimulus.
Figure 4.7
Net Domestic Asset (NDA) (January – June, 2019)


Figure 4.8
NDA, NDC and Other Assets (Net) (January –
June, 2019)


4.4.3
Credit to the Government (Cg)
In the first half of 2019, Credit to
Government (Cg) grew by 55.80 per
cent to N7,581.49 billion at end-June
2019 from N4,866.09 billion at endDecember 2018. Compared with endJune 2018, Cg grew by 170.28 per cent
from N2,805.01 billion. The annualized
Cg growth rate of 111.60 per cent at
end-June 2019 was significantly above
the 2019 indicative growth target of
58.78 per cent. The development was
attributed to the need to fund the
growing budget deficit in the face of
revenue shortfalls.

Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
N'Billion
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
Net Domestic Asset

Net Domestic Asset (January -June, 2019)

Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
N'Billion
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
Net Domestic Assets

Net Domestic Credit

Other Assets (Net)

CBN Monetary Policy Review

Credit
to
government
expanded
significantly
above
the
indicative
benchmark; implying that government
borrowing relative to her deficits had
increased beyond projected level. The
implication is that more resources are
commandeered by the government
sector to meet growing deficit. This will
starve the private sector of credit and
lead to a general rise in interest rates in
the economy.
4.4.4
Credit to the Private Sector (Cp)
Credit to the private sector (Cp)
increased
by
9.00
per
cent
to
N24,751.13 billion at end-June 2019 from
N22,708.22 billion at end-December
2018. Compared with the end-June
2018 figure of N22,281.87 billion, it rose
by 11.08 per cent. The annualized Cp
growth rate of 18.00 per cent at endJune 2019 was significantly above the
2019 indicative growth target of 14.49
per cent. In spite of the increase in credit
to the private sector, this was not
reflected
in
activities
in
the
real
economy
considering
the
sluggish
output recovery and lingering high level
of
unemployment.
The
observed
increase in credit to the private sector
was in favour of state governments
(93.33%), and skewed against the core
private sector (6.67%). This development
justifies
the
CBN’s
intervention
of
targeted credit to the real sector of the
economy such as SMEs and small scale
farmers. This clearly indicates that high
lending
to
government
has
the
tendency to crowd out the private
sector over time.

Figure 4.9
Domestic Credit to Private Sector (January –
June, 2019)

4.4.5
Reserve Money (RM)
Reserve Money (RM) increased by
13.35 per cent to N8,088.46 billion at
end-June 2019 from N7,135.73 billion at
end-December 2018.
Compared with its end-June 2018 level
of N6,360.47 billion, RM increased by
27.17 per cent. The annualized RM
growth rate of 26.70 per cent at endJune 2019 was significantly below the
2019 indicative growth target of 56.74
per cent.
A summary of the major monetary
aggregates
and
their
provisional
outcomes as at end-June 2019 is
presented in Table 4.5.


Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
N'Billion
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
Credit to Private Sector

CBN Monetary Policy Review

CBN Monetary Policy Review

Table 4.6
The Performance of Monetary Aggregates and their Implications
S/N
Monetary
Aggregates
Performance
Implication

Overall
Monetary
Aggregates
Mixed
Evidence indicates economic slowdown
and possible recession, while developments
in the external sector indicates continued
reserves depletion and increased pressure
to depreciate the Naira. If not adequately
managed, the economy could return to a
state of stagflation.

Broad Money
(M3, M2)
Weak
and
below target
It signifies a shortage in the stock of money
to drive economic growth to the projected
trajectory. The weak growth in the stock of
money
indicates
sluggish
growth
in
aggregate demand, which would dampen
inflationary pressures.

Narrow Money
(M1)
Weak
and
below target
This indicates that economic activities are
slow or slowing down as there are
insufficient
transactions,
business
and
economic
activities
to
sustain
the
government’s growth objective.

Net
Foreign
Assets (NFA)
Significantly
below target
The poor growth performance of NFA vis-àvis the target growth rate was driven by
decline in the NFA held by Monetary
Authorities, which is a manifestation of
efforts of the CBN to stabilize the Naira.
Persistence of the trend in NFA could put
significant pressure to depreciate the naira.

Net Domestic
Assets (NDA)
Above target
Driven by credit to the two tiers of
government, crowding out credit to the
core private sector; depriving businesses
crucial funds for business activities including
expansion. This trend could be a precursor
to
economic slowdown
and
possible
recession.

Credit to the
Govt (Cg)
Overperformed
More resources are available to the
government sector thereby crowding out
the private sector

Credit to the
Private Sector
(Cp)
Overperformed
The overperformance of Cp was in favour of
state government as against the core
private sector, implying that the real
economy is not being funded. This could
lead to a slowdown in economic activity.
CBN Monetary Policy Review

Box 4.1
RECENT DEVELOPMENTS IN CENTRAL BANK INDEPENDENCE: IMPLICATIONS FOR
MONETARY POLICY
Introduction
The concept of central bank independence dates back in the history of central
banking. Central banking, however, remains a myth to several onlookers, thus
making the concept of central bank independence more of a farce. According to
Miskin (2000), the role of the central bank in a modern economy is a derivative of
developments in monetary economics. Mishkin argues that central banks should
maintain a strong focus on price stability in order to support the growth mandate of
the fiscal authority. In order words, there must be a close alignment between
monetary and fiscal policy to mitigate against the time inconsistency of monetary
policy. As a monetary authority, a central bank must have the free hand to manage
aggregate demand while supporting the supply side such that prices remain stable
in both the commodities and the financial markets. According to The Economist
magazine (February 10, 1990 p.10), “The only good central bank is the one that can
say no to politicians”.
There are, however, counter arguments to central bank independence in the
literature. It was been noted that central bankers are merely exercising a delegated
responsibility, as they are not elected. They are merely exercising the responsibility
delegated to them by an elected Government. Following from this argument,
therefore, central bank independence does not arise. They may, however, be given
some level of autonomy to the extent possible to manage their instruments of price
stability. This seems to have become the practice world-wide, until recent
developments which appear to erode this autonomy.
Recent Developments In Central Bank Independence
In recent times, the independence of central banks have come under severe threat
from the activities of elected politicians. This was demonstrated by developments in
the United States, India and Turkey.
In the United States, the President repeatedly and openly criticized the US Federal
Reserve System’s conduct of monetary policy, insisting that the Fed got it wrong by
returning to monetary policy normalization after more than a decade of monetary
accommodation. According to the US President, the Fed should have continued
with monetary accommodation to support the government’s fiscal expansion plans
to maximize the potentials of the US economy’s recovery from the global slowdown.
After several bouts of criticism, the Fed appears to have made a spectacular policy
CBN Monetary Policy Review

U-turn to the surprise of many onlookers. The Fed suddenly came up with forward
guidance of a likely dovish stance and subsequently returned to an
accommodative policy stance.
In India, the Governor of the Reserve Bank of India (RBI) was forced to resign midway through his three-year term due to purported pressure from the Government to
access the Bank’s excess reserves to boost economic growth. The disagreement
between the Government and the RBI was extensive and enduring, leading to the
eventual resignation of the Governor of the Reserve Bank.
In Turkey, the Governor of the Central Bank was recently sacked after refusing
several requests from the government to lower the Bank’s policy rate. The Turkish
Government told the press that the reason for the sack was the mounting difference
in opinion between the government and the Bank’s Governor on the Bank’s
approach to monetary policy. The sack had become inevitable after the Governor
of the Bank refused repeated calls from the Government to voluntarily resign, with
the Governor of the Bank stating that the Central Bank of Turkey had an
independent status which empowered him to remain in office until the expiration of
his appointed term.
In all three cases, the interference of the Government was unmistakable. The
interference of the US government was implicit but very significant as the US Fed, the
world’s leading central bank, is clearly expected to be a trail blazer. The case of the
Reserve Bank of India was, however, shrouded with some doubt as all the parties
involved chose to remain silent while the market interpreted the developments as a
case of political interference in central bank independence. Several calls, however,
went out to the public in the local press, particularly from a former Finance Minister,
urging the government to refrain from interfering in the central bank’s
independence. The case of the Turkish Central Bank was clearly an open abuse of
the Bank’s independence as the Governor was formally removed by the
Government after an extended period of differences which was followed by a
statement from the government confirming that the Governor was unable to agree
with the Cabinet Minister Coordinating the Economy on the best approach to
monetary policy.
Implications for Monetary Policy
For a central bank to successfully target inflation, it must be independent in its choice
of monetary policy. Since the late 1990s, central banks have steadily moved towards
an institutional structure of policy independence to enable them pursue an
approach free from political interference (See Debelle & Fischer 1994, Bernanke &
Mishkin 1997). Two broad strands of central bank independence are identified in the
literature (Cukierman et al 1992; Amato and Gerlach 2002). These are goal and
instrument independence. A central bank may have both goal and instrument
CBN Monetary Policy Review

independence but this is extremely rare. It is more common to have only goal or only
instrument independence with the other determined by politicians. Because inflation
is a monetary phenomenon, the independence of a central bank, particularly in the
choice of monetary policy instruments is thus highly strategic to successfully target
inflation (Angeriz and Arestis 2005; Wessel 2006). The central bank must, therefore,
always have the free will to deploy its policy instruments to target inflation and keep
it within the agreed band or target. With the increasing complexity of financial
markets, central banks will require more instruments and additional objectives to
enable policy makers cope with a much more complex institution (Bayoumi et al
2014). As the mandate of central banks broaden, the question of continued
relevance of the independent charter arises; should central banks remain
independent or should their powers be curtailed by politicians in a bid to refocus the
institution. If the continued interference of politicians persists and as a result, central
bank independence is eventually lost, what will be the impact on the price stability
objective?
It is important to confer central banks with some independence in the management
of their policy instruments because elected politicians have short term horizons,
which is the next election; while central bank decisions in the management of
inflation takes a longer term perspective. Also, in order to manage the expectations
of economic agents, central banks have to be credible; and central bank credibility
crucially derives from their ability to freely choose their policy instruments.
Consequently, the recent trend towards limiting the independence of central banks
may lead to adverse inflation outcomes as markets may no longer trust the inflationfighting ability of central banks and their instruments.

CBN Monetary Policy Review

CHAPTER FIVE
5.0
DEVELOPMENTS
IN
THE
FINANCIAL MARKETS
he Nigerian financial markets were
moderately calm during the review
period, as performance continued
to reflect developments in the
global and domestic economic and
financial
environments.
The
forces
underlying the developments from the
global front were: the escalating trade
war between the US and China; impact
of the new round of sanctions on Iran;
difficult BREXIT negotiations; a new
wave of tensions on the Korean
Peninsula; and vulnerabilities arising
from growing public and private debt in
some Emerging Market and Developing
Economies (EMDEs). As a result, financial
vulnerabilities
were
elevated
in
sovereign, corporate and non-bank
financial sectors in several systemically
important countries, with the risk that
strains in the financial sector could
again be transmitted to firms and
households, thereby hurting growth.
These forces were calmed by the dovish
monetary policy stance of major central
banks including the US Fed, the Bank of
England and the European Central
Bank. The stance which is expected to
remain in place in the near to medium
term and help sustain positive market
sentiments, was in response to the reemergence of signs of weakness in the
global economy.
It is noteworthy that in China where
financial vulnerabilities remain high
even as the authorities continued with
regulatory measures to address the
credit challenge, the recent inclusion in
the global bond benchmark index has
increased its importance in portfolio
flows. As a result, China is projected to
attract additional US$150 billion inflows
by 2020. Also, the development in the
housing market appears to be making
room for the possibility of a price
correction to stabilize housing prices.
Consequently,
the
global
financial
markets
rebounded
in
early

despite weak earnings outlook and
tightening credit spreads.
Thus,
amidst
prevailing
global
uncertainties,
the
International
Monetary Fund downgraded global
output growth from 3.7 per cent in 2018
to 3.6 per cent in 2019 with further
downward revision to 3.3 per cent.
At the domestic scene, the money
market remained active in the review
period, with market rates reflecting
liquidity
conditions in
the banking
system. The rates oscillated widely
outside the Standing Facilities corridor,
reflecting fluctuations in banking system
liquidity.
Stability
in
the
foreign
exchange market was sustained by CBN
intervention to stabilize the naira. More
fundamentally, the Bank made a
strategic shift towards the long-term
stability in the foreign exchange market
with efforts to deepen the policy on
restriction
of
access
to
foreign
exchange for imports that can be
produced locally.
T
CBN Monetary Policy Review

The Nigerian capital market in the first
half of 2019 remained bearish, reflecting
continuing negative investor sentiments,
attributable
to
rising
public
debt,
perceived increased sovereign risk and
weakening
macroeconomic
fundamentals.
The
market
thus,
experienced significant sell-offs and
profit taking activities in the review
period.
5.1
The Money Market
The money market remained active in
the review period, with market rates
reflecting liquidity conditions in the
banking system. The rates oscillated
outside the Standing Facilities corridor
for most of the review period. The
developments reflected the effect of:
withdrawals from the banking system for
monthly
disbursements
of
statutory
Federation
Account
Allocation
Committee (FAAC) allocations; OMO
sales
and
foreign
exchange
interventions. The fall in rates from April
to May 2019 was a reflection of a more
accommodative
monetary
policy
stance by the Bank following the
decision of the MPC to lower the rate in
March 2019. The easing stance was
underscored by the need to support
liquidity to increase lending at low
interest
rates,
stimulate
aggregate
demand and revive capital market
activities. The major sources of liquidity
during
this
period
included:
the
extended implementation of the 2018
Federal Government budget and 2019
budget, FAAC disbursements, maturing
CBN
bills
and
other
government
securities and OMO auctions. Others
included: the interventions of the CBN in
the real sector of the economy and
spending towards the 2019 general
elections.

Transactions largely took place in the
Open Buy Back (OBB) segment of the
money market with the interbank segment
experiencing fewer trading days and
lower volume of transactions. Rates at the
collateralized segment of the market
(Open Buy Back rates) were higher
compared
with
rates
at
the
uncollateralized interbank segment. The
higher premium on the collateralised
segment
was
perhaps
due
to
counterparty risks, oligopolistic nature of
the market, and the fact that only a few
banks control large volume of the
hedging instruments.
These developments motivated the MPC
to slightly loosen its monetary policy
stance from 14.0 per cent to 13.50 per
cent
during
the
period,
with
the
asymmetric corridor of +200/-500 basis
points and the Cash Reserve and Liquidity
Ratios of 22.5 and 30.0 per cent,
respectively, remaining unchanged.
5.1.1
Short-term
Interest
Rate
Developments
In the review period, liquidity conditions in
the money market, which mirrored the
behaviour of short term interest rates, were
driven by a number of factors; including:
statutory FAAC disbursements, OMO and
NTB
transactions,
extended
implementation of the 2018 FGN budget
and 2019 budget, continued CBN foreign
exchange interventions and spending
CBN Monetary Policy Review

during the 2019 general elections. OMO
remained the major instrument of liquidity
management in
the
review
period.
Although the interbank segment of the
money market had fewer trading days,
the market remained largely active with
both
segments
experiencing
high
volatility. As a result, the interbank call rate
oscillated between 5.14 and 16.71 per
cent, averaging 11.79 per cent, while the
OBB rate fluctuated over a wider range of
8.34 and 18.30 per cent, averaging higher
at 13.56 per cent. Overall, the average
interbank call rate was lower than the OBB
rate in the review period.
Table 5.1
Weighted Average Monthly Money Market
Interest Rates (January - June 2019)

Source: (Statistics, CBN)

Figure 5.1
Weighted Average Monthly Money Market
Interest Rates (Jan.–Jun. 2019)


(i)
The Interbank Call Rate
The interbank call segment witnessed a
high number of non-trading days in the
period
under
review.
The
high
frequency of non-trading days at the
uncollateralized segment of the market
was attributed largely to the persistent
preference for the collateralized OBB
instrument resulting from perceived
counterparty
risk
and
aversion
to
uncollateralized lending. Consequently,
interbank call rates rose from 15.0 per
cent in January to 16.71 per cent in
February but subsequently moderated
to 11.5 and 13.98 per cent in March and
April 2019, respectively. The rate fell
further to 5.14 per cent in May, closing
at 8.38 per cent in June. The interbank
call rate fluctuated between 5.14 and
16.71 per cent, averaging 11.79 per
cent in the review period, compared
with 11.36 per cent in the preceding half
year.
Analysis of the daily rates showed that
the call rate ranged between 4.00 and
23.00 per cent in January and June
2019. The observed spikes in rates in the
review period were largely accounted
for by increased OMO auctions during
the period. These spikes were, however,
moderated by improved system liquidity
conditions
arising
from
FAAC
disbursements,
payment
of
OMO
maturities,
and
foreign
exchange
purchases.


MONTHS INTERBANK
OBB
MPR
SDF
SLF
NIBOR -
30DAYS
Jan-19

Feb-19

Mar-19

Apr-19

May-19

Jun-19

Average

CBN Monetary Policy Review

Figure 5.2
Daily Interbank Call Rate (January – June 2019)

(ii)
The Open Buy Back (OBB) Rate
The OBB segment of the market was
more active in the period under review
compared with the interbank call
segment.
The
preference
for
collateralized OBB transactions reflects
the perception of risk amongst market
participants
in
the
interbank
call
segment of the market, which is
uncollateralized. The OBB rate rose from
17.5 per cent in January to 18.3 per cent
in February, declining significantly to
12.3 per cent in March 2019. It further
rose to 16.2 per cent in April and
slumped to 8.34 per cent in May, closing
at 8.71 per cent in June 2019. It
fluctuated between 8.34 and 18.3 per
cent, averaging 13.56 per cent in the
period, compared with 11.86 per cent in
the preceding half year. The daily rates
oscillated between 4.04 and 44.05 per
cent from January to June 2019. It
spiked in February and April, largely as a
result of increased OMO operations,
naira deposits by commercial banks for
the purchase of foreign currency and
revenue remittances by the Nigeria
National
Petroleum
Corporation
(NNPC), Nigeria Customs Service (NCS),
Federal Inland Revenue Service (FIRS)
and other government agencies during
FAAC. The rate, however, closed at 4.04
per
cent
at
end-June
following
improved liquidity conditions.
Figure 5.3
Daily Open Buy Back Rate (January- June 2019)


(iii)
The Nigeria Interbank Offered Rate
(NIBOR)
The Nigerian money market reference
rate, the NIBOR, showed relative stability
across most tenors in the review period.
The weighted average 30-day NIBOR,
fell sharply from 15.21 per cent in
January to 8.59 per cent in February
2019. It, however, rose to 12.08 per cent
in April, and finally closed at 12.1 per
cent in June 2019. The average NIBOR
rate for the review period was 11.71 per
cent, down from 13.37 per cent in the
preceding half year, suggesting the
slight easing of liquidity conditions
(Table 5.1).

5.2
Foreign Exchange Market
The
foreign
exchange
market
experienced relative stability during the
first half of 2019 due to the relatively
CBN Monetary Policy Review

stable
oil
prices
and
improved
accretion to external reserves to support
the CBN’s interventions in the market. In
addition, the Bank sustained the policy
on repatriation of export proceeds as
well as return of unutilized foreign
exchange sourced from CBN auctions.
More fundamentally, the Bank made a
strategic shift towards the long term
stability in the foreign exchange market
with efforts to deepen the policy on
restriction
of
access
to
foreign
exchange for imports that can be
produced locally. The deepening of this
policy entails extending it to more items
as well as encouraging the local
production of such items for export, in
line with the recent Export Facilitation
Initiative
(EFI)
of
the
Bank.
The
development
is
expected
to
complement existing measures such as
the directive to International Money
Transfer Operators (IMTOs) to sell foreign
exchange to BDCs; the adoption of
Bank Verification Number (BVN) in BDC
transactions; as well as special foreign
exchange auctions to the real sector
and
small
and
medium-scale
enterprises. These measures significantly
contributed in stabilizing the foreign
exchange market.


Figure 5.4
Daily Naira/US Dollar Exchange Rate (January –
June, 2019)

5.2.1
Average Exchange Rates
The foreign exchange rate at the
interbank market depreciated by 0.17
per cent to an average of N306.90/US$
in the first half of 2019 from N306.38/US$
in the second half of 2018. The BDC rate,
however, appreciated by 0.29 per cent
to N359.76/US$ in the first half of 2019
from an average of N360.79/US$ in
second half 2018 (Table 5.2).
Table 5.2
Average Monthly Spot Exchange Rates (Jul 2018
– June 2019) (N/US$)


Month / Year
Interbank Rate
BDC Rate
2018: Jul
305.81
359.36
Aug
306.06

Sep
306.27
359.25
Oct
306.51
360.81
Nov
306.72
362.88
Dec
306.92
363.46
Average
306.38
360.79
2019: Jan
306.85
360.94
Feb
306.77
359.69
Mar
306.92
359.24
Apr
306.96

May
306.95
359.75
Jun
306.95
359.94
Average
306.9
359.76
CBN Monetary Policy Review

5.2.2
End-Period (Month) Exchange
Rates
There was relative stability in both the
Interbank and the BDC segments of the
foreign exchange market. The rate at the
interbank segment depreciated by 0.36
per cent to N306.89/US$ at end-June 2019
from N305.78/US$ at end-December 2018.
At
the
BDC
segment,
the
naira
appreciated
by
0.66
per
cent
to
N359.63/US$ at end-June 2019 compared
with N362.00/US$ at end-December 2018.
In the review period, the premium
between the two segments narrowed,
reflecting the continued effectiveness of
the foreign exchange policies of the Bank
(Figure 5.5 and Table 5.3).

Table 5.3
End-Month Exchange Rates (Jul 2018 – Jun 2019)
(N/US$)


5.2.3
Nominal
and
Real
Effective
Exchange Rates
The Nominal Effective Exchange Rate
(NEER) appreciated by 0.73 per cent to an
average of 180.36 in the first half of 2019
from an average of 181.67 in the second
half of 2018. It, however, appreciated by
6.17 per cent when compared with 191.48
recorded in the corresponding period of
2018. On the other hand, the Real
Effective
Exchange
Rate
(REER)
appreciated by 4.80 per cent to an
average of 84.42 in the first half of 2019
from an average of 88.47 in the second
half
of
2018.
The
average
REER
appreciated by 14.96 per cent (Table 5.4)
compared with 97.05 recorded in the
corresponding period of 2018. Both NEER
and REER appreciated in the review
period,
implying
a
loss
in
trade
competitiveness (Table 5.4 and figure 5.6).
Monitoring
Nigeria’s
trade
competitiveness is important, particularly
given her recent accession to the African
Continental
Free
Trade
Agreement
(AfCFTA) because of the potential loss
Nigeria
will
incur
if
she
looses
competitiveness.

Table 5.4
Nominal and Real Effective Exchange Rates
Indices (Jan 2018 – May 2019)

Month / Year
Interbank Rate
BDC Rate
2018: Jul
305.90
359.00
Aug
306.15
359.00
Sep
306.35
360.00
Oct
306.60
361.75
Nov
306.80
367.00
Dec
307.00
361.00
Average
305.78
362.00
2019: Jan
306.75
360.25
Feb
306.85
359.50
Mar
306.95
359.00
Apr
306.95
359.00
May
306.95
360.00
Jun
306.90
360.00
Average
306.89
359.63
NEER
REER
2018: Jan
196.82
101.42
Feb
194.48
99.75
Mar
194.86
99.13
Apr
191.14
96.68
May
187.45
93.96
Jun
184.14
91.35
2018:H1 Average
191.48
97.05
2018: Jul
184.94
91.42
Aug
181.18
88.82
Sep
181.32
88.27
Oct
179.22
86.7
Nov
181.68
87.14
Dec
181.98
86.67
2018:H2 Average
181.67
88.47
2019:Jan
183.86
87.1
Feb
181.52
85.72
Mar
179.85
84.56
Apr
179.08
83.85
May
177.57
82.41
Jun
180.28
82.85
2019:H1 Average
180.36
84.42
CBN Monetary Policy Review

Figure: 5.5
Nominal and Real Effective Exchange Rates
Indices (Jan 2018 – Jun 2019)


5.2.4 Foreign Exchange Flows through
the CBN
Foreign exchange inflows through the
CBN increased by 6.91 per cent to
US$30,908.52 million in the first half of
2019 from US$28,910.42 million in the
preceding half year. It also increased by
1.64
per
cent
compared
with
US$30,409.76
million
in
the
corresponding period of 2018. Outflows,
however, declined by 13.60 per cent to
US$28,846.75 million in the first half 2019
from
US$33,388.79
million
in
the
preceding period. On a year-on-year
basis,
foreign
exchange
outflows
recorded an increase of 25.74 per cent
compared with US$22,942.11 million in
the corresponding period of 2018. The
development resulted in a positive net
inflow of US$2,061.77 million in the first
half of 2019, which was lower than
US$7,467.65 million in the corresponding
half of 2018, in contrast to the net
outflow of US$4,478.38 million in the
second half of 2018 (Table 5.5 and
Figure 5.7). The significant improvement
in net flows was largely due to lower
capital reversals observed during the
review period.
Table 5.5
Monthly Foreign Exchange Flows through the CBN
(Jan 2018 – Jun 2019)
Dates
Inflow
(CBN)
Total
Outflow
(CBN)
Net Flow
(CBN)
18-Jan
4,212.56
2,734.38
1,478.18
18-Feb
7,303.15
3,163.07
4,140.08
18-Mar
5,076.48
3,754.12
1,322.36
18-Apr
4,238.05
3,437.72
800.33
18-May
4,373.01
4,821.91
-448.9
18-Jun
5,206.51
5,030.91
175.6
2018 H1
Total
30,409.76
22,942.11
7,467.65
18-Jul
4,722.44
6,014.85
-1,292.41
18-Aug
3,957.38
5,102.75
-1,145.36
18-Sep
4,239.49
6,270.21
-2,030.72
18-Oct
2,871.70
4,929.03
-2,057.33
18-Nov
8,061.53
5,216.64
2,844.89
18-Dec
5,057.88
5,855.31
-797.44
2018 H2
Total
28,910.42
33,388.79
-4,478.37
19-Jan
5,397.41
5,690.85
-293.44
19-Feb
5,228.38
5,362.41
-134.03
19-Mar
7,758.24
5,248.48
2,509.76
19-Apr
3,852.66
4,271.03
-418.37
19-May
5,075.77
4,597.62
478.14
19-Jun
3,596.06
3,676.36
-80.30
2019 H1
Total
30,908.52
28,846.75
2,061.77

Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
Mar-19
May-19
NEER
REER
CBN Monetary Policy Review

Figure 5.6:
Monthly Foreign Exchange Flows through the CBN
(Jan 2018 – Jun 2019)

5.2.5 Foreign Exchange Flow through the
Economy
Gross foreign exchange inflow to the
economy increased by 31.88 per cent
to US$69,285.75 million in the first half of
2019 from US$52,536.35 million in the
second half of 2018. This represented a
3.52 per cent increase compared with
US$66,931.28
million
in
the
corresponding period of 2018. On the
other hand, gross foreign exchange
outflow decreased by 13.25 per cent to
US$30,761.56 million in the first half of
2019, from US$35,460.03 million in the
second half of 2018. This represented a
23.40 per cent increase compared with
US$24,928.57
million
in
the
corresponding period of 2018. Thus,
during
the
period,
total
foreign
exchange
flows
to
the
economy
resulted in a net inflow of US$38,524.18
million, 125.60 per cent higher than
US$17,076.32 million in the preceding
half year. The net inflow was, however,
8.28 per cent lower than US$42,002.71
million in the corresponding period of
2018. The increase in net inflow through
the economy during the period was due
to higher inflows from improved foreign
exchange receipts, owing to relatively
high crude oil prices and increased
capital inflows from sustained tight
monetary policy stance.


Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
Mar-19
May-19
Inflow (CBN)
Total Outflow (CBN)
Net Flow (CBN)
CBN Monetary Policy Review

Table 5.6
Monthly Foreign Exchange Flows through the Economy
(Jan 2017 – June 2019) (US$ Million)
PERIOD
Inflow
(CBN)
Inflow
(Autono
mous)
Total
Inflows
Outflows
(CBN)
Outflows
(Autono
mous)
Total
Outflow
Net Flow
Net Flow
(CBN)
Net Flow
(Autono
mous)
Jan-18

Feb-18

Mar-18

Apr-18

May-18

Jun-18

2018 H1 Total 30,414.98 36,516.30 66,931.28 22,942.33 1,986.24 24,928.57 42,002.71 7,472.65 34,530.06
Jul-18

Aug-18

Sep-18

Oct-18

Nov-18

Dec-18

2018 H2 Total 28,910.42 23,625.93 52,536.35 33,388.79 2,071.24 35,460.03 17,076.32 -4,478.37 21,554.69
Jan-19

Feb-19

Mar-19

Apr-19

May-19

Jun-19

2019 H1 Total 30,908.52 38,377.23 69,285.75 28,846.76 1,914.81 30,761.56 38,524.18 2,061.76 36,462.42


CBN Monetary Policy Review

Figure 5.7
Monthly Foreign Exchange Flows through the
Economy
(Jan 2018 – May 2019) (US$ Million)

5.3
Capital Market
The Nigerian capital market in the first
half of 2019 remained bearish, reflecting
continuing negative investor sentiment,
attributable to rising public debt stock,
perceived
sovereign
risk
and
weakening
macroeconomic
fundamentals. In addition to these
factors, there was significant capital
outflow
following
the
continued
monetary policy normalization by the US
Fed.
Coupled
with
the
uncertain
political environment following the 2019
general elections, the market thus
experienced significant sell-offs and
profit taking activities.

5.3.1
Equities Market
The All-Share Index (ASI) decreased by
4.66 per cent to 29,966.87 at end-June
2019 from 31,430.50 at end-December
2018. Similarly, it decreased by 21.71 per
cent compared with 38,278.55 at endJune 2018. Market capitalization (MC),
however, increased by 12.71 per cent to
N13.21 trillion at end-June 2019 from
N11.72 trillion at end-December 2018.
Compared with N13.87 trillion at endJune 2018, it fell by 4.76 per cent. The
increase in market capitalization in the
review period was as a result of new
listings
in
the
market,
prominent
amongst which were MTN, Skyway
Aviation Handling Company and the
merger between Access Bank and
Diamond Bank. The new listings will
increase the market capitalization of
equities as well as market depth and
liquidity.

Table 5.7:
NSE All-Share Index (ASI) and Market
Capitalization (MC) (June 2018 – June 2019)

Source: Nigerian Stock Exchange (NSE)

Figure 5.8:
NSE All Share Index (ASI) and Market
Capitalization (MC) (June 2018– June 2019)

Source: Nigerian Stock Exchange (NSE)
0.00
10,000.00
20,000.00
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
Mar-19
May-19
Total Inflows
Total Outflow
Net Flow
Jun-18
38,278.55

13.87

Jul-18
37,017.78

13.41

Aug-18
34,848.45

12.72

Sep-18
32,766.37

11.96

Oct-18
32,466.27

11.85

Nov-18
30,874.17

11.27

Dec-18
31,430.50

11.72

Jan-19
30,557.20

11.39

Feb-19
31,718.70

11.83

Mar-19
31,041.42

11.67

Apr-19
29,159.74

10.96

May-19
31,069.37

13.68

Jun-19
29,966.87

13.21

MC(Equities)
N’Trillion)
Date
ASI

Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
(N' Trillion)
All-Share Index
Equities Market Capitalisation (N' Trillion)
CBN Monetary Policy Review

Figure 5.9:
NSE ASI and MC (December 2018 – June 2019)

Source: Nigerian Stock Exchange (NSE)

5.3.2 Market Turnover
Aggregate stock market turnover in
the first half of 2019 increased by 33.74
per cent to 46.22 billion shares, valued
at N538.57 billion in 463,313 deals
compared with 34.56 billion shares,
valued at N400.50 billion in 400,384 deals
in the second half of 2018. Market
turnover, however, decreased by 30.87
per cent from 66.86 billion shares, valued
at N798.63 billion in 646,829 deals in the
corresponding half of 2018. The increase
in market turnover in the review period
was largely attributable to the new
listings
of
MTN,
Skyway
Aviation
Handling Company and the merger
between Access Bank and Diamond
Bank, as well as sell-offs by investors in
preference for short-tenored money
market instruments.

5.3.3 Sectoral Contribution to Equity
Market Capitalization
In the review period, ‘Other’ sectors
dominated
overall
market
capitalization.
The
contribution
of
‘Other’ sectors to market capitalization
increased to 35.72 per cent at end-June
2019 from 20.55 per cent in the second
half of 2018. The classification of ‘Other’
sectors comprises of sectors with few
participants trading in the Nigerian
Stock Exchange (NSE). The dominance
of ‘Other’ sectors was mainly due to the
listing of MTN Nigeria on Thursday, 16
May, 2019. Sectors that also contributed
significantly to the overall increase in
market capitalization in the review
period included: Building materials;
Banking; and Food & Beverages, with
market shares of 25.25, 11.66 and 11.03
per cent, respectively (Figure 5.11).

Figure 5.10:
NSE Market Capitalization by Sector as at EndDecember 2018


Source: Nigerian Stock Exchange (NSE)


Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
(N' Trillion)
All-Share Index
Equities Market Capitalisation (N' Trillion)
Food and Beverages
13.41%
industrial goods
3.21%
Banking
14.16%
Insurance
0.99%
Agriculture
1.12%
Breweries
9.55%
Conglomerates
0.74%
Oil and Gas
2.29%
Building Materials
30.02%
Construction
0.59%
Personal Household
products
2.29%
Services
1.08%
Other Sectors
20.55%
CBN Monetary Policy Review

Figure 5.11:
NSE Market Capitalization by Sector as at EndJune 2019

Source: Nigerian Stock Exchange (NSE)

5.3.4 The Warren Buffett Valuation
Metric and Nigeria’s Equities
Market
The Warren Buffett valuation metric
showed that the Nigerian equities
market was moderately undervalued in
the review period. The valuation metric
was 71.0 per cent in Q1 2019 below the
threshold of 75.0 – 115.0 per cent of
normal valuation. In the Q2 2019,
however, the valuation metric stood at
78.0 per cent. Below 75.0 per cent, the
market is undervalued and above 115.0
per cent, the market is overvalued. The
undervaluation in the review period was
attributed to the following factors:
increased sell-off and profit taking
activities;
weakening
corporate
earnings; and capital flight due to the
uncertain political environment and
continued
monetary
policy
normalisation by the US Fed. The
undervaluation
of
equities
in
the
reviewed
period
offers
attractive
investment opportunities for domestic
and foreign investors.

Figure 5.12:
Warren Buffett Valuation of Nigerian Equities
Market


5.3.5 Bond Market
Bond market activities in the first half of
2019 were dominated by Federal
Government of Nigeria (FGN) securities.
The
Sub-national
government
and
corporate
bonds
segments
also
witnessed some activities, with the latter
recording the least share by market
volume.

5.3.5.1 FGN Eurobond
The 10-year dollar-denominated bond
yield for Nigeria decreased by 232 basis
points to 3.79 per cent at end-June 2019
from 6.11 per cent at end-December
2018. Compared with 4.47 per cent at
end-June 2018, it fell by 211 basis points
(Figure
5.14).
This
reflects
an
improvement
in
foreign
investor
Food and Beverages
11.03%
industrial goods
2.85%
Banking
11.66%
Insurance
0.84%
Agriculture
0.99%
Breweries
5.90%
Conglomerates
0.53%
Oil and Gas
1.71%
Building Materials
25.25%
Construction
0.53%
Personal Household
products
2.03%
Services
0.95%
Other Sectors
35.72%
NSE Market Capitalization by Sector as at June 28, 2019

Q1-2014
Q3-2014
Q1-2015
Q3-2015
Q1-2016
Q3-2016
Q1-2017
Q3-2017
Q1-2018
Q3-2018
Q1-2019
Per cent
CBN Monetary Policy Review

perception of the long term sovereign
risk.

Figure 5.13:
10-Year U.S. Dollar-denominated Bond Yield for
Nigeria (June 29, 2018 – June 28, 2019)


FGN bond yield fell by 163.53 basis
points to 13.24 per cent at end-June
2019 from 14.88 per cent at endOctober 2018, and by 8.59 basis points
when compared with 13.16 per cent at
end-June 2018. The long end of the yield
curve, as at end-June 2019, showed a
positive premium over its October 2018
position, suggesting an improvement in
overall
macroeconomic
condition
(Figure 5.14).

Figure 5.14:
FGN Bonds Yield Curves: end-June. 2018 vs. endOct. 2018 vs. end-June 2019

5.3.5.2. State/Local Government Bonds
The
sub-national
bonds
market
continued to record low activity during
the review period. The total value of
outstanding state/local governments
bonds increased by 9.81 per cent to
N565.82 billion at end-June 2019 from
N515.26 billion at end-December 2018.
Compared with N562.82 billion at endJune 2018, it increased marginally by
0.53 per cent.

5.3.5.3 Corporate Bonds
Activity
in
the
corporate
bonds
segment improved during the review
period.
The
value
of
outstanding
corporate bonds at end-June 2019
increased by 15.94 per cent to N297.44
billion from
N256.56 billion in the
preceding half year. The value also
increased by 11.10 per cent compared
with N267.72 billion in the corresponding
period.

5.3.5.4 Overall Analysis of the Nigerian
Capital Market
The value of FGN bonds decreased by
1.30 per cent to N9.26 trillion at endJune 2019 from N9.38 trillion at end-Dec
2018, remaining unchanged compared
with N9.26 trillion at end-June 2018. FGN
bonds accounted for 39.66 per cent of
aggregate market capitalization at
end-June
2019.
The
value
of
state/municipal
bonds,
corporate
bonds and supranational bonds were
N565.82 billion, N297.44 billion and
CBN Monetary Policy Review

N12.95 billion, accounting for 2.42, 1.28
and 0.05 per cent of aggregate market
capitalization, respectively. The equities
market contributed 56.59 per cent of
aggregate market capitalization at
end-June 2019, while FGN bonds,
state/municipal
bonds,
corporate
bonds
and
supranational
bonds
accounted for the balance of 43.41 per
cent (Figure 5.15).

Figure 5.15:
Structure of the Nigerian Capital Market (June,
2019)

5.4
Global
Financial
Market
Developments
In the first half of 2019, there was
heightened uncertainty in the global
financial markets as a result of: the
increasing complexities around BREXIT
negotiations;
intensified
trade
war
between the US, China and other key
trade partners; and renewed tensions
on
the
Korean
Peninsula.
The
development led to a broad slowdown
in the global economy necessitating a
dovish monetary policy response from
major central banks across the globe.
The US Fed which had continued its
normalization programme during the
period gave forward guidance of its
suspension
and
possible
reversal
towards the end of the first half. In the
same vein, the European Central Bank
(ECB) which had terminated its asset
purchase programme in the second
half of 2018, indicated reluctance to
progress
with
its
normalization
programme. Also, the Bank of England
(BOE) and the Bank of Japan (BoJ)
sustained
their
broadly
accommodative
monetary
policy
stance in the review period.
The uncertainties also permeated the
commodities market, giving rise to a
supply glut in the oil market as demand
contracted.
Coupled
with
the
continued US-led sanctions against Iran
and the crisis in Venezuela, OPEC and
non-OPEC members extended their
production ceiling for a further 9 months
to March 2020 to support prices.
Accordingly, liquidity conditions in the
global economy during the review
period reflected the tacit return to
monetary policy accommodation by
major central banks in the advanced
economies.
Most
currencies
appreciated against the US dollar,
coupled
with
improved
yields
in
emerging market economies and the
recovery of commodity prices, the
performance of major global stock
markets was largely positive.

Equities
56.58%
FGN
Bonds
39.66%
State/Mu
nicipal
Bonds
2.42%
Corporate
Bonds
1.27%
Supranation...
CBN Monetary Policy Review

5.4.1 Money Market and Central Bank
Policy Rates
The tacit return to monetary policy
accommodation by some major central
banks shaped liquidity conditions in the
global economy during the review
period. This was as a result of broadly
weakening
growth
conditions
occasioned by growing uncertainties in
the global economy.
In the wake of a slowing global
economy
and
threats
to
the
US
economy, the U.S Fed switched from an
aggressive pace of normalization to a
dovish stance. The Bank of England
continued to hold its policy rate
constant to avert a recession as the
uncertainty around BREXIT threatened
to dampen growth. The Bank continued
to warn of the drastic impact of a
disorderly
BREXIT
on
the
macroeconomy. In the Euro Area, the
downgrade of growth forecast by the
ECB was reversed in part as the new
round of stimulus injected into the
economy
showed
signs
of
some
recovery. The German, French and
Italian economies, however, remained
drags on the Zone’s growth prospects in
2019. The ECB foreclosed the likelihood
of a rate hike till the end of 2020, as its
monetary
policy
remained
largely
accommodative. The Bank of Japan
also retained its policy rate in response
to prevailing uncertainties in the global
economy.
Central banks in the Emerging Markets
and Developing Economies (EMDEs)
maintained a largely accommodative
stance during the review period. The
Reserve Bank of India lowered its policy
rate to 5.75 per cent in June from 6.50
per cent in January. The Bank of Russia
also lowered its policy rate to 7.50 per
cent from 7.75 per cent in January. The
Reserve Bank of South Africa retained its
policy rate to support the economy’s
recovery from recession. The People’s
Bank of China also retained its policy
rate during the period to address growth
concerns. The Central Bank of Brazil held
its rate constant to support its postrecession recovery. Other central banks
that cut their policy rates in the review
period were: the Central Bank of Egypt
from 16.75 to 15.75 per cent; the Bank of
Ghana from 17.0 to 16.0 per cent; and
the Central Bank of Nigeria from 14.0 to
13.5 per cent, to address growth
concerns.

Table 5.8:
Policy Rates of Selected Central Banks December
2018 – June 2019
Source: www.cbrates.com


Country
Dec.

Jan.

Feb.

Mar.

Apr.

May.

Jun.

Egypt

Kenya

S. Africa

Ghana

Nigeria

Brazil

USA

Japan

Euro Area

India

Russia

China

UK

Indonesia

CBN Monetary Policy Review

5.4.2 Global Capital Market
The performance of major global stock
markets was largely positive in response
to developments in the review period.
On average the US dollar depreciated
against most currencies as the Fed
switched from a normalizing mode to a
dovish stance, resulting in the flow of
capital away from the short end of the
yield curve. In the face of growing
uncertainties from BREXIT and the US
trade
wars,
a
number
of
other
advanced economy central banks also
maintained a
dovish
stance,
thus
enabling capital to flow towards stock
markets.

Consequently, in Europe, the Russian
MICEX, the UK FTSE 100, French CAC 40
and
German
DAX

indices
all
increased by 17.27, 10.37, 17.09 and
17.42 per cent, respectively.
In North America, the United States S&P
500, Canadian S&P/TSX Composite and
Mexican Bolsa indices increased by
17.35,
14.38,
and
3.65
per
cent,
respectively. Also, in South America, the
Brazilian Bovespa, the Argentine Merval
and the Columbian indices increased
by 14.88, 37.98 and 16.82 per cent,
respectively.
In Asia, the Japanese Nikkei 225, the
Chinese Shanghai SE and the Indian BSE
Sensex index increased by 6.30, 19.48,
and 9.22 per cent, respectively.
In Africa, the South African JSE All-Share
and Egyptian EGX CASE 30 indices
increased by 10.37 and 8.17 per cent,
respectively, while the Nigerian NSE AllShare Index, Kenyan Nairobi NSE 20, and
Ghanaian
GSE
All
Share
indices
decreased by 4.66, 7.08, and 4.18 per
cent, respectively.


CBN Monetary Policy Review

Table 5.9
Selected International Stock Market Indices as at June 28, 2019


Country
Index
29-Jun-18
31-Dec-18
28-Jun-19
June 29, 2018 -
June 28, 2019 %
Change
Dec 31, 2018 -
June 28, 2019
% Change
AFRICA
Nigeria
ASI

South Africa
JSE African AS

Kenya
Nairobi NSE 20

Egypt
EGX CSE 30

Ghana
GSE All Share

NORTH AMERICA
US
S&P 500

Canada
S&P/TSX Composite

Mexico
Mexico Bolsa (IPC)

SOUTH AMERICA
Brazil
Bovespa Stock

Argentina
Merval

Colombia
COLCAP

EUROPE
UK
FTSE 100

France
CAC 40

Germany
DAX

Russia
MICEX


ASIA
Japan
NIKKEI 225

China
Shanghai SE A

India
BSE Sensex

Source: Bloomberg
CBN Monetary Policy Review

5.4.3 Commodities
In the review period, commodity prices
recovered from the downward trend
observed in the second half of 2018. This
was in spite of the continuing trade war
between the US and China, the
enforcement
of
earlier
imposed
sanctions on Iranian oil as well as a
broad
slowdown
in
the
global
economy. Consequently, the OPEC
reference basket rose by 27.26 per cent
to an average of US$65.60pb in June
2019 from US$51.55pb in December
2018. In addition, OPEC and non-OPEC
member
countries
extended
their
production ceilings to support prices.
The non-fuel price index which reflects
price development in metals, however,
declined in the review period. The price
of Aluminium fell by 8.56 per cent to
US$1,756.0/mt
in
June

from
US$1,920.38/mt
in
December
2018.
Similarly, the price of Zinc also fell by 0.58
per cent to US$2,601.0/mt in June 2019
from US$2,616.29/mt in December 2018.
The Food and Agriculture Organization
(FAO) Food Price Index rose by 6.93 per
cent to 172.7 points in June 2019 from
161.5 points in December 2018. The subindices of meat, dairy, Cereals and
sugar rose, while vegetable oil fell. The
development was due to strong import
demand from Asia as supplies from
Oceania contracted. In the US, the
reduced supply of maize export also
resulted in a sharp rise in the price of
cereals, while sugar quotations which
were hitherto depressed due to large
supplies, improved as the Brazilian real
appreciated against the US dollar.

5.4.4 Global Foreign Exchange Market
Most currencies appreciated against
the US dollar in the first half of 2019,
indicating that risk sentiments appeared
to have regained some momentum
supported by advanced economy
central banks signalling the likelihood of
further
monetary
policy
accommodation.
In
addition,
the
relatively
strong
commodity
prices,
particularly oil, increased the prospect
of building reserves to support fleeing
capital, coupled with improved yields in
the emerging market economies.
Accordingly, in North America, the
Canadian dollar and the Mexican peso
both appreciated by 4.10 and 2.24 per
cent, respectively. Similarly, in South
America,
the
Brazilian
real
and
Colombian peso appreciated by 0.64
and 1.18 per cent, respectively, while
the Argentine peso depreciated by
11.26 per cent.
In
Europe,
the
Russian
rubble
appreciated by 10.26 per cent and the
British pound stabilized against the US
dollar. The Euro, however, depreciated
against the U.S dollar by 0.89 per cent.
In Asia, the Chinese yuan, Indian rupee,
and Japanese yen all appreciated
against the US dollar by 0.12, 0.10 and
1.63 per cent, respectively. In Africa, the
Nigerian naira, South African rand, and
Egyptian pound also appreciated by
CBN Monetary Policy Review

0.03,
1.89
and
7.36
per
cent,
respectively, while the Kenyan shilling
and Ghanaian cedi both depreciated
against the U.S. dollar by 0.44 and 10.10
per cent, respectively.


Table 5.10
Exchange Rates of Selected Countries (value in currency units to US$)

Currency
31-Dec-18
28-Jun-19
Dec 18 - Jun 19
(% App/Dep)
AFRICA
Nigeria
Naira
307.00
306.90
0.03
South Africa
Rand
14.35
14.08
1.89
Kenya
Shilling
101.85
102.30
-0.44
Egypt
Pound
17.92
16.69
7.36
Ghana
Cedi
4.92
5.47
-10.10
NORTH
AMERICA
Canada
Dollar
1.36
1.31
4.10
Mexico
Peso
19.65
19.22
2.24
SOUTH
AMERICA
Brazil
Real
3.87
3.85
0.64
Argentina
Peso
37.66
42.44
-11.26
Colombia
Peso
3249.75
3211.86
1.18
EUROPE
UK
Pound
0.78
0.78
0.00
Euro Area
Euro
0.87
0.88
-0.89
Russia
Ruble
69.72
63.23
10.26
ASIA
Japan
Yen
109.69
107.93
1.63
China
Yuan
6.88
6.87
0.12
India
Rupee
69.77
69.70
0.10
Source: bloomberg
Exchange Rates of Selected Countries (Value in currency units to US$)
CBN Monetary Policy Review

CHAPTER SIX
ECONOMIC OUTLOOK

6.1
OVERVIEW

lobal growth was projected to
slow to 3.2 per cent in 2019,
from 3.6 per cent in 2018, as a
result of persisting headwinds from 2018.
The growth was earlier projected at 3.5
per cent but later revised downwards to
3.2 per cent. This was predicated on:
weakening
output
growth
in
the
advanced
and
emerging
market
economies
resulting
from
subdued
investment and demand for consumer
durables;
continuing
trade
wars
between the US and its key trading
partners; escalating uncertainties about
a no-deal BREXIT; and pockets of geopolitical tensions in the Middle East and
the Korean peninsula. The growth
projection is associated with further
downside risks such as: increasing
financial vulnerabilities as a result of an
extended era of low interest rate
regime; diminishing monetary policy
space as advanced economy central
banks return to policy accommodation;
rising public and private debt; and
increasing debt service burden.

The tailwinds expected to moderate the
downturn are: improved capital flows to
the Emerging Markets and Developing
Economies
(EMDEs)
as
advanced
economy central banks retreat to a
dovish
monetary
policy
stance;
stabilising oil prices as OPEC and nonOPEC members extend their production
ceiling to March 2020 and countryspecific expansionary fiscal policies to
smoothen the downturn in aggregate
demand.

Growth in the advanced economies
where aggregate demand remains
generally
subdued
with
declining
inflationary pressures is expected to slow
to 1.9 per cent in 2019 from 2.2 per cent
in 2018. This downward revision is
premised on a broad slowdown across
key economies in the group, such as the
United States, the Euro area, the United
Kingdom and Canada. In the United
States, growth is expected to moderate
to 2.6 per cent in 2019 from 2.9 per cent
in 2018. The growth for the US is
expected to be driven by unwinding
fiscal
stimulus,
softening
domestic
demand, and weaker imports reflecting
the impact of the trade war with its key
trading partners. Growth in the Euro
area is also projected to moderate to
1.3 per cent in 2019 from 1.9 per cent in
2018, owing to weak external demand
in the German auto market, uncertain
fiscal policy in Italy and a residual
impact of the ‘yellow vest’ protests in
France. Growth in the United Kingdom,
where the expectation of a disorderly
no-deal BREXIT is getting stronger, would
dip moderately to 1.3 per cent in 2019
from 1.4 per cent in 2018. The Japanese
economy is, however, projected to
grow by 0.9 per cent in 2019 up from 0.8
per cent in 2018, due to improved net
exports and sustained fiscal support.

Similarly, growth in the Emerging Markets
and Developing Economies (EMDEs) is
G
CBN Monetary Policy Review

expected to slow to 4.1 per cent in 2019
from 4.5 per cent in 2018. The decline
reflects impact of tariffs on trade and
investment particularly in China, weaker
sentiments in Latin America, especially
Brazil
and
Mexico,
and
deep
humanitarian and economic crisis in
Venezuela.
In the Middle East and North Africa
(MENA) region, growth is expected to
slow to 1.0 per cent in 2019 from 1.6 per
cent in 2018. The slowdown will largely
be accounted for by the crippling
effect of tighter US sanctions on Iran and
civil strife across other economies in the
region, including Syria and Yemen.

In
sub-Saharan
Africa,
growth
is
projected to improve to 3.4 per cent in
2019 from 3.1 per cent in 2018, as strong
growth
in
resource
rich
countries
partially off-set the weak performance
of the region’s largest economies.
Growth in Nigeria is expected to
strengthen to 2.3 per cent in 2019 from
1.9 per cent in 2018. In Angola, the
economy will grow by 0.44 per cent in
2019 from a contraction of 1.7 per cent
in 2018. Growth in Angola, Nigeria and
other oil exporting countries in the
region, would be supported by relatively
higher oil prices. In South Africa, growth
is expected to slow to 0.7 per cent in
2019 from 0.8 per cent in 2018. Growth in
South Africa would remain subdued due
to unfavourable impact of labour
market crisis, energy supply issues and
weak agricultural production.


6.2
Outlook for Global Output
The
slowdown
in
global
growth
observed in 2019 could persist in the
absence of robust policy interventions in
key economies across the globe. The
key downside risks are evidenced by a
decline in global trade activities and
weakening industrial production and
lingering trade tensions between the
United States and China. Furthermore, in
the face of high uncertainty in the
international
policy
environment,
economic
sentiments and
business
confidence indicators have weakened.
Although
improving
monetary
conditions have provided some degree
of stabilization in capital flows and
global financial markets, there are still
considerable downside risks from the
build-up of financial fragilities, and
persistent trade tensions and concerns
about the consequences of climate
change. There are growing signs in the
policy horizon of improving tailwinds as
reflected in: improved capital flows to
the Emerging Markets and Developing
Economies (EMDEs), likelihood of a
further extension by OPEC and nonOPEC members’ production ceiling
beyond March 2020 and coordinated
country-specific
expansionary
fiscal
policies
to
improve
aggregate
demand. Against this backdrop, global
output is expected to improve to 3.5 per
cent in 2020 from 3.2 per cent in 2019
(WEO IMF, July 2019).
In the advanced economies, growth is
projected to decline to 1.7 per cent in
2020 from 1.9 per cent in 2019, led by
CBN Monetary Policy Review

declines in the US to 1.9 per cent from
2.6 per cent and Japan to 0.4 per cent
from 0.9 per cent. The reduction can be
attributed primarily to the impact of the
declining fiscal stimulus, particularly in
the United States. This is however
expected
to
be
moderated
by
improving labour market outcomes and
favourable
financial
conditions.
Meanwhile growth in the euro area is
projected to improve to 1.6 per cent in
2020 from 1.3 per cent in 2019. Similarly,
growth in the United Kingdom and
Canada were expected to improve to
1.4 and 1.9 per cent in 2020 from 1.3 and
1.5 per cent in 2019, respectively.
In
the
Emerging
Markets
and
Developing
Economies,
growth
is
projected to increase to 4.7 per cent in
2020 from 4.1 per cent in 2019. The
development would be led by India
projected to grow to 7.2 per cent from
7.0 per cent, Brazil to 2.4 per cent from
0.8 per cent, Russia to 1.9 per cent from
1.2 per cent and Mexico to 1.9 per cent
from 0.9 per cent. Conversely, China is
forecast to experience a gradual
slowdown to 6.0 per cent from 6.2 per
cent in 2019.
In India, growth is expected to increase
on account of strong business and
investment confidence, easing financial
conditions,
lower
oil
prices,
accommodative
fiscal
policy
and
recent structural reforms. Similarly, the
expansion in the Brazilian economy is
expected
to
be
driven
by
the
implementation
of
the
new
government’s
reform
agenda,
improving
business
confidence,
reduced policy uncertainty, disinflation
and
strengthening
labour
market
conditions.
Growth in the Middle East and North
African region is expected to increase
to 3.0 per cent in 2020 from 1.0 per cent
in 2019. This growth is expected to be led
by Saudi Arabia, which is projected to
grow by 3.0 per cent from 1.9 per cent
in 2019. The outlook for the region would
however,
be
weighed
down
by:
macroeconomic
adjustment
challenges in Pakistan; US sanctions on
Iran; and civil tensions and conflicts in
Iraq, Syria, and Yemen.
In
Sub-Saharan
Africa,
growth
is
projected to improve to 3.6 per cent in
2020 from 3.4 per cent in 2019. The
development is predicated on reduced
policy
uncertainty
and
improved
investment in large economies in the
region, together with continued robust
growth
in
non-resource
intensive
countries. Nigeria is projected to grow
by 2.6 per cent in 2020, from 2.3 per cent
in
2019.
Similarly,
South
Africa
is
expected to grow by 1.1 per cent in
2020 from 0.7 per cent in 2019.

CBN Monetary Policy Review

6.3
Downside
Risks
to
Global
Outlook
Despite the prospects of global growth
picking up reasonably well in 2020, on
balance, the risks to the outlook remain
tilted to the downside. The downside
risks to the outlook are broadly in the
areas
of
trade,
financial
market
conditions,
macroeconomic
imbalances,
commodity
market
conditions and climate change issues.
Growing policy uncertainty as a result of
lingering trade tensions could impose a
further drag on growth. The likely
continued
deterioration
in
investor
confidence may also result in portfolio
realignment from risky to safer assets as
financial conditions tighten in more
vulnerable economies. The effects of
these factors could be exacerbated by
the possibility of a no-deal BREXIT; weak
economic data indicating a prolonged
slowdown
of
global
growth;
and
lingering fiscal uncertainty in emerging
and developing Europe. In the medium
term, the consequences of climate
change, including extreme weather
events could further weaken growth
prospects.

In the Emerging Market and Developing
Economies, the downside risks to the
outlook include the associated effect of
the on-going trade war between the US
and
China
and
rising
policy
uncertainties
which
could
depress
investment and trigger financial market
volatility. The rising public and corporate
debt levels could also introduce a new
source of vulnerabilities in this group of
economies. In addition, slowdowns in
major
economies
could
have
substantial spill-over effects for EMDEs.

In
Sub-Sahara
Africa,
the
outlook
harbours several downside risks. There is
the possibility of a spill-over of traderelated deceleration in growth from key
trading partners such as, China, the Euro
Area, and the United States. Being
primary commodity exporters, revenues
are likely to be depressed as oil and
other
commodity
prices
face
considerable volatility.

In the Middle East and North Africa
Region, risks also remained tilted to the
downside for both oil exporting and
importing countries. Geo-political risks
are elevated in some oil exporters, while
political challenges remain high in oil
importing
countries.
The
tensions
between the US and Iran would pose
substantial
risk
for
the
region’s
economies. Several countries in the
region are also confronted with fragile
peace situations and growing tensions
such as Yemen, Syria and Libya.


CBN Monetary Policy Review

Table 6.1
Global Output and Inflation Outlook

*

*
A. World
Output


World Output

Advanced
Economies

USA

Euro Area

Japan

UK

Canada

Other
Advanced
Economies

Emerging &
Developing
Economies

Commonweal
th of
Independent
States

Latin America
and the
Caribbean

Middle East
and North
Africa

Sub-Saharan
Africa

B. Commodity
Prices (US'
Dollars)


Oil

Non-fuel

C. Consumer
Prices


Advanced
Economies

Emerging &
Developing
Economies

Source: IMF WEO Update, July 2019
*Forecast


6.4
Global Inflation Outlook
According
to
the
IMF’s
World
Economic Outlook (WEO) Update for
April 2019, global inflation is expected to
moderate to 3.58 per cent in 2019 from
3.64 per cent in 2018, before inching up
to 3.62 per cent in 2020. The decline in
inflation in 2019 is expected on the
backdrop of several developments,
principal
amongst
which
is
the
expectation of continued stability in oil
prices, following the retention of a
production ceiling by OPEC and nonOPEC members. In addition to this,
commodity prices have also been on a
downward trend. The recent return to
monetary accommodation by major
advanced economy central banks is,
however, expected to reverse this trend
in 2020.
In
the
advanced
economies,
the
projection for inflation is an initial decline
in 2019 to 1.6 per cent from 2.0 per cent
in 2018 before rising to 2.0 per cent in
2020. While wage growth has been
strong in these group of economies,
growth in aggregate demand has not
been commensurate, thus leading to a
broad weakening of core inflation. In
the United States, inflation is projected
to decline sharply to 2.0 per cent in 2019
from 2.4 per cent in 2018, before
commencing an uptick to 2.7 per cent
in 2020, with core inflation exceeding
the long-run objective of 2.0 per cent.
Euro Area inflation is also expected to
decline to 1.3 per cent in 2019 from 1.8
CBN Monetary Policy Review

per cent in 2018 before commencing a
moderate rise to 1.6 per cent in 2020.
The Euro area is thus expected to
continue monetary accommodation
beyond 2020 as growth in aggregate
demand may remain weak for some
time to come. In the United Kingdom,
inflation is projected to moderate to 1.8
per cent in 2019 from 2.5 per cent in
2018 before moving in an upward
trajectory to 2.0 per cent in 2020. In
Japan, however, consumer prices are
expected to rise to 1.1 and 1.5 per cent
in 2019 and 2020, respectively, from 1.0
per cent in 2018 as the Bank of Japan
persists with monetary accommodation
to
offset
the
expected
rise
in
consumption tax rate due in October
2019.
In the emerging market and developing
economies, inflation is expected to
peak at 4.8 per cent in 2019 before
moderating marginally to 4.7 per cent in
2020 as commodity prices stabilize.
Specifically, the IMF projects that there
could
be
a
temporary
boost
to
consumer price inflation in Russia,
projected to rise to 5.0 per cent in 2019
from 2.9 per cent in 2018 due to a
proposed increase in value added
taxes. A moderation to 4.5 per cent is,
however, expected in 2020. Inflation in
China is estimated to rise to 2.3 and 2.5
per cent in 2019 and 2020, respectively,
from 2.1 per cent in 2018. The rise in
inflation in China will be driven by
strengthening aggregate demand as
the economic rebalancing produces a
strong middle class in China. It is also
expected to rise in India to 3.9 and 4.2
per cent, respectively in 2019 and 2020
from 3.5 per cent in 2018 as aggregate
demand strengthens with rising food
prices. In Brazil, inflation is expected to
fall to 3.6 per cent in 2019 from 3.7 per
cent in 2018 before rising to 4.1 per cent
in 2020. The decline in inflation in 2019
comes on the back of a strengthening
domestic currency as sugar export
supplies dwindle.
In Sub-Saharan Africa, headline inflation
is projected to fall to 8.1 per cent in 2019
from 8.5 per cent in 2018 and further to
7.4 per cent in 2020 as oil and other
commodity prices recover relative to
2018. In Nigeria, according to the IMF,
headline inflation is expected to decline
from 12.1 per cent in 2018 to 11.7 per
cent apiece in 2019 and 2020 as the
exchange rate is expected to remain
stable in the medium term due to
stabilizing oil prices. Similarly, inflation in
Angola is projected to decline to 17.5
and 11.1 per cent in 2019 and 2020,
respectively, from 19.6 per cent in 2018
as the oil market stabilizes. Inflation in
South Africa is however, expected to
rise to 5.0 and 5.4 per cent in 2019 and
2020, respectively from 4.6 per cent in

due
to
persisting
energy
challenges and legacy labour market
issues.
In
the
MENA
region,
including
Afghanistan and Pakistan, headline
inflation is estimated to decline to 9.7
and 9.3 per cent in 2019 and 2020,
respectively, owing to sustained stability
in energy prices.
CBN Monetary Policy Review

6.5 Outlook for Domestic Output Growth
The
anticipated
recovery
of
the
domestic economy has been weaker
than expected amid increased oil
sector
contraction.
Real
GDP
moderated further to 1.94 per cent in
the second quarter of 2019 from 2.10 per
cent in the first quarter. The growth was
led by Services, industry and Agriculture.
The oil sector grew significantly by 5.15
per cent in Q2 2019, compared with
contractions of 1.46 and 3.95 per cent in
the
preceding
quarter
and
the
corresponding period of 2018.
With the slowdown in GDP growth in Q2
2019, the GDP growth projection by
Bank staff was also revised downward
from 2.72 per cent to 2.27 per cent for
2019 due to weaker-than-expected
domestic
demand
amid
high
unemployment, decline in crude oil and
gas production and escalation of trade
tensions, involving major economies
(Euro Area, the United States and
China) which is likely to weigh on global
demand. The IMF projects Nigeria’s
growth at 2.3 per cent in 2019.
Nevertheless,
sustaining
stable
exchange
rates,
robust
external
reserves,
financial
system
stability,
enhanced flow of credit to the real
sector, sustained calmness in the Niger
Delta, improved production/export of
oil to build fiscal buffers, expected
improvements in tax revenue, effective
implementation
of
the
Economic
Growth Recovery Plan by the Federal
Government and the CBN special
interventions in selected sectors in
Agriculture and SME are expected to
support output growth.
Key headwinds to the growth outlook
however, are low credit to the private
sector, high and sticky NPLs, fall in
capital and remittance inflows, high
unemployment rate, high level of
insecurity in food producing areas and
crude oil production below the budget
benchmark of 2.3 mbpd. The continued
intervention by the Bank in the real
sector is, however, expected to partly
subdue these downside risks, while fiscal
policy is expected to drive growth in the
long term.
6.6
Outlook for Domestic Inflation
Staff estimates suggest that the yearon-year
headline
inflation
would
moderate to 11.13, 11.10, and 11.18 per
cent in July, August and September
2019, respectively from 11.22 per cent in
June 2019 due to the gradual decline in
food prices. Upside risk to inflation
remain food shortage due mainly to
insecurity
in
agricultural
producing
areas of the country, high liquidity
injection
from
the
continued
implementation of the 2018 FGN budget
and 2019 budget, as well as increased
FAAC disbursements.
As the Bank
continues
to
manage
liquidity
conditions in the domestic economy,
inflationary
developments
will
also
continue to be monitored to ensure that
the risks to inflation and growth are
minimized.

CBN Monetary Policy Review

Table 6.2: Inflation Forecast
YEAR-ON-YEAR INFLATION RATE
12-MMA INFLATION RATE
Status
Month
Headline
inflation
Food
inflation
Core
inflation
Status
Month
Headline
inflation
Food
inflation
Core
inflation
Actual
Jan-19
11.37
13.51
9.90
Actual
Jan-19
11.80
13.93
10.34
Feb-19
11.31
13.47
9.80
Feb-19
11.56
13.62
10.19
Mar-19
11.25
13.45
9.46
Mar-19
11.40
13.42
10.04
Apr-19
11.37
13.70
9.28
Apr-19
11.31
13.34
9.91
May-19
11.40
13.79
9.03
May-19
11.30
13.37
9.77
Jun-19
11.22
13.56
8.84
Jun-19
11.30
13.42
9.64
Forecast
Jul-19
11.13
13.47
8.82
Forecast
Jul-19
11.29
13.45
9.54
Aug-19
11.10
13.29
8.99
Aug-19
11.27
13.46
9.44
Sep-19
11.18
13.41
9.24
Sep-19
11.25
13.44
9.36
Oct-19
11.29
13.57
9.52
Oct-19
11.23
13.43
9.28
Nov-19
11.31
13.60
9.81
Nov-19
11.21
13.41
9.22
Dec-19
11.37
13.69
10.49
Dec-19
11.19
13.38
9.17

Figure 6.1: Fan Chart of Inflation Forecast

Source: CBN Staff Estimates

Actual
Forecast
CBN Monetary Policy Review

6.7
The Outlook for Monetary Policy
in 2019
The conduct of Monetary Policy in 2019
will continue to be anchored on the
Medium-Term
Framework.
This
will
enable the Bank to consistently anchor
expectations
and
prevent
market
agents
from
overly
engaging
in
speculative activities in response to
temporary shocks. In the circumstance,
the primary objective of monetary
policy remains maintenance of price
stability. Thus, the Bank will remain
focused on policies that engender a
reduction in inflationary pressures. This
will continue to involve effective liquidity
management
and
creating
an
environment conducive for inclusive
and sustainable growth.
The Bank will continue to monitor
developments in the global economy
which
influence
the
direction
of
monetary policy in the near to medium
term. Risks from the global economy
include the effect of the rising trade
tensions, particularly between the US
and its key trading partners in Europe,
Canada and China, rising debt levels in
some
advanced
economies
and
EMDEs,
slower
growth
in
China,
heightened uncertainty around BREXIT
negotiations,
secondary
sanctions
against Iran, increasing fragile financial
markets and overall higher uncertainty
for global economic policies. Given
these risks, the IMF reviewed downward
the forecast for 2019 output growth to
3.3 per cent from an earlier estimate of
3.6 per cent.
Other challenges to monetary policy
include: Increasing capital outflow and
sustaining exchange rate stability, high
cost of liquidity management, financial
market volatility and constrained credit
growth. Furthermore, headline, food
and core inflation are likely to trend
slightly upwards in the near term, due to
the harvest season and the familiar
structural factors such as the high cost of
energy,
transport
and
production
inputs. These issues will continue to
demand close attention and monitoring
in monetary policy implementation.
Growth headwinds that are expected
to aid monetary policy implementation
include accretion to reserves following
the moderate rise in oil prices, renewed
peace in the Niger-Delta, improved
agricultural production and effective
implementation
of
the
Economic
Growth Recovery Plan by the Federal
Government. Furthermore, sustained
stability in exchange rate supported by
increased foreign portfolio inflow is
expected to support monetary policy
implementation.


CBN Monetary Policy Review

Appendices
CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
No.

OF
THE
MONETARY
POLICY
COMMITTEE
MEETING OF MONDAY 21ST AND TUESDAY
22ND JANUARY, 2019
1.0
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
NonManufacturing Purchasing Managers’
CBN Monetary Policy Review

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-onyear) 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.
CBN Monetary Policy Review

The Committee observed that the nearterm 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

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 AllShare Index (ASI) decreased by 17.81
per
cent
from
38,243.19
at
endDecember 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
CBN Monetary Policy Review

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

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

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
CBN Monetary Policy Review

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
socio-political 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 end-December 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 finetuned. 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, monthon-month
inflation
continued
to
moderate, indicating that the year-onyear 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.
CBN Monetary Policy Review

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


CBN Monetary Policy Review

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO.

OF
THE
MONETARY
POLICY
COMMITTEE
MEETING
OF
MONDAY
25TH
AND
TUESDAY 26TH MARCH, 2019
1.0
Background
The Monetary Policy Committee (MPC)
met on the 25th and 26th March, 2019;
against the backdrop of developments
in the global and domestic economic
environments in the first quarter of 2019.
Eleven (11) members of the Committee
were present.

Global Economic Developments
The Committee noted with concern the
weakening
performance
of
global
output growth at the end of 2018 and
observed that developments in the first
quarter of 2019 were characterised by
legacy headwinds from the second half
of 2018. These include: the continued
trade war between the US and China,
policy uncertainty amongst advanced
economy
central
banks;
persisting
uncertainties
surrounding
BREXIT
negotiations; vulnerabilities in major
financial markets and rising public debt
in
some
Emerging
Market
and
Developing
Economies
(EMDEs).
Consequently, global output growth for
2019 was downgraded by the IMF from
3.7 per cent to 3.5 per cent.

Price
developments
across
major
advanced economies, continued to
moderate
in
the
review
period
alongside signals of weakening output
growth. In the light of this development,
the US Fed, the Bank of England and the
European Central Bank retreated from
their earlier stance of monetary policy
normalisation in favour of a monetary
policy accommodation. This led to
volatilities in the financial markets of the
advanced economies as the balancing
of portfolios moved capital from the
equities to the bonds market.

The
MPC
noted
the
moderate
appreciation of the US dollar against the
currencies of most advanced and
emerging market economies. It further
noted the trend of declining long term
yields in the US, and the likelihood that
capital flows may be redirected to
EMDEs in the medium term.

Domestic Output Developments
Output data from the National Bureau
of Statistics (NBS) indicate that real Gross
Domestic Product (GDP) grew by 2.38
per cent in Q4 2018 from 1.81 and 2.11
per cent in the previous quarter and
corresponding period of 2017. The major
impetus for growth came from the nonoil sector, which grew by 2.7 per cent in
Q4 2018, while the oil sector contracted
by 1.62 per cent.

The
Committee
welcomed
the
continued positive sentiments in the
Manufacturing and Non-Manufacturing
Purchasing Managers’ Indices (PMIs) for
the 24th and 23rd consecutive months in
March 2019. The manufacturing PMI
rose by 57.4 index points compared with
57.1 in the previous month. Similarly, the
non-manufacturing PMI increased by
CBN Monetary Policy Review

58.5 index points compared with 58.4 in
February 2019. The increase in both
measures of PMI was driven by increases
in
production,
employment,
raw
material inventories and new orders. This
improved outlook was attributable to
the continued stability in the foreign
exchange market, various interventions
by the Bank in the real sector and the
effective
implementation
of
the
Economic Recovery and Growth Plan
(ERGP) by the Federal Government.
Furthermore, on the current measure of
national output, the MPC noted the
need to rebase the GDP, an exercise
which was last carried out in 2010.

Developments in Money and Prices
The Committee noted that broad
money supply (M2) contracted by 1.98
per cent in February 2019, below its level
at end-December 2018. Net Foreign
Assets (NFA) contracted by 7.47 per
cent in February 2019 relative to its level
at end-December 2018. In contrast, M3
grew by 4.31 per cent in February 2019
compared
with
its
level
at
endDecember 2018. Net Domestic Credit
also grew by 10.68 per cent in February
2019.
The
growth
in
NDC
was
accounted for by the increase in credit
to Government which grew by 17.20 per
cent in February 2019 over its level at
end-December 2018. Credit to the
private sector also rose by 6.41 per cent
compared with its growth benchmark of
9.41 per cent. Given the positive
trajectory, the Committee urged the
Management of the CBN, to sustain the
various
initiatives
of
the
Bank,
particularly the partnership between
the Bankers Committee and the Nigeria
Incentive-Based Risk Sharing System for
Agricultural Lending (NIRSAL) aimed at
establishing a national microfinance
bank to cater for the MSMEs of the
economy.

The Committee noted the continued
moderation in inflation as headline
inflation (year-on-year) declined further
to 11.31 per cent in February 2019 from
11.37 and 11.44 per cent in January 2019
and December 2018, respectively. The
decrease in headline inflation was
driven mainly by food inflation, which
declined to 13.47 per cent in February
2019 from 13.51 per cent in January
2019, while core inflation declined
marginally to 9.80 per cent from 9.91 per
cent in the previous month. On a monthon-month basis, headline, food and
core inflation declined to 0.73, 0.82 and
0.65
per
cent
in
February
2019,
respectively, from 0.74, 0.83 and 0.81 per
cent in January 2019. The Committee
noted the upside risks to inflation to
include;
high
cost
of
energy,
infrastructure constraints, insecurity in
some
parts
of
the
country;
and
anticipated increase in liquidity from the
late
implementation
of
the

budget, and noted that most of these
factors were outside the ambit of
monetary policy. The MPC, therefore,
urged the Federal Government to
sustain its current effort in stimulating
output growth by executing the policies
approved in the ERGP.

CBN Monetary Policy Review

The net liquidity position reflected the
impact of OMO auctions,
foreign
exchange
interventions,
statutory
allocations
to
states
and
local
governments, and maturing CBN Bills.
Consequently, the average Inter-bank
call rate increased to 16.45 per cent in
February 2019 from 15.00 per cent in
January 2019. The Open Buy Back (OBB)
rate, however, declined marginally to
18.79 per cent in February 2019 from
19.71 per cent in January 2019. The
interbank call rates, however, closed at
8.0 per cent on March 8, 2019, while the
OBB closed at 14.39 on March 22, 2019.
The Committee noted that in spite of the
recent upsurge in capital inflow into the
economy, the All-Share Index (ASI) and
Market Capitalization (MC) continued
to decline, reflecting global sentiments
in portfolio rebalancing from equities to
fixed income securities. This generally
reflected the perceived risk at the long
end of the yield curve.

The Committee noted with satisfaction,
the continued stability in the foreign
exchange market at the Investors’ and
Exporters’ (I&E) window of the market. In
particular,
it
also
observed
the
moderate improvement in oil prices and
stable accretion to external reserves,
which stood at US$45.2 billion as at
March 21, 2019, a 6.73 per cent increase
from US$42.35 billion at end-February
2019.

The Overall Outlook and Risks
The medium term outlook for the global
economy continues to be uncertain
with
indications
of
increasing
macroeconomic
vulnerabilities
and
downward revision of the forecast for
global output growth.

On the domestic economy, available
data on key macroeconomic indicators
for output growth in the first quarter of
2019, and forecasts for the rest of the
year,
suggests
continued
positive
outcomes. Based on recent projections,
the economy is expected to grow by 2.0
per cent (IMF), 2.2 per cent (World Bank)
and 2.74 per cent (CBN). The projection
is hinged on: the enhanced flow of
credit to the real sector; sustenance of
a stable exchange rate; moderating
inflation rate; CBN special interventions
in growth-enhancing sectors, especially,
agriculture and non-agricultural SMEs;
improved growth in the non-oil sector
and the effective implementation of the
ERGP by the Federal Government,
amongst
others.
The
Committee
expressed
optimism
that
the
establishment of the NIRSAL National
Microfinance Bank and the enactment
of the Secured Transactions in Movable
Assets Act 2017 will stimulate lending to
small and medium enterprises.

Committee’s Considerations
The Committee observed the tepid
output growth in 2018, but noted with
satisfaction that it strengthened in the
last quarter of 2018 as well as the
positive forecast for 2019. It further
noted
with
great
satisfaction,
the
continued moderation in all measures of
inflation,
sustained
stability
in
the
CBN Monetary Policy Review

exchange rate and the robust level of
external reserves. It commended the
recent upsurge in capital inflows into the
economy,
noting
this
to
be
a
demonstration of sustained confidence
by the foreign investor community in the
Nigerian economy. The Committee was,
however,
not
unmindful
of
developments in the global economy,
noting the recent slowdown in growth in
some advanced economies and the
dovish stance of some major central
banks as an early warning sign of
broader
macroeconomic
vulnerabilities. It, therefore, underscored
the need to monitor the trend in capital
flows and the continued downturn in
the equities market, noting that the
recent surge in portfolio inflows were
concentrated in the money market.

The Committee noted the relative
volatility in oil prices and its impact on
accretion to reserves which could easily
undermine the stability observed in the
foreign exchange market. It, however,
noted that current developments in the
oil futures market indicate that oil prices
will remain considerably above the
Federal Government’s 2019 budget
benchmark. The Committee, therefore,
urged the Federal Government to
strengthen
its
current
revenue
mobilization efforts as well as explore
additional sources of revenue in order to
improve fiscal buffers. It further urged
the Federal Government to sustain its
implementation of the ERGP, while
ensuring that growth is all inclusive. It
reiterated the need to concentrate
effort on addressing the problem of
weak power infrastructure, as well as
support domestic manufacturing. The
Committee also called on all relevant
institutions of the government to address
the menace of smuggling and dumping
of goods into Nigeria; and encouraged
the Bank to continue to explore
available scenarios to deal with the
activities of economic and policy
saboteurs, including those involved in
dumping and smuggling, in a bid to
accelerate domestic production of
goods in Nigeria.

The MPC noted the positive moderate
outlook for growth and the risks in the
horizon. The Committee also noted that
having achieved a relatively stable
exchange rate with price stability, it is
imperative that monetary policy should
explore the next steps necessary for
enhancing
growth,
reducing
unemployment and diversifying the
base
of
the
economy.
It
further
observed that per capita income
growth
is
very
negligible,
while
aggregate demand remains weak.
Aggregate output also remains below
the potential output level, implying
sufficient headroom for non-inflationary
growth.
This
new
direction
has,
therefore, become imperative against
the backdrop of the aftermath of the
general national elections and strong
inflow of foreign direct and portfolio
investments into the economy.

The Committee urged for the speedy
passage of the other aspects of the
Petroleum Industry Bill (PIB) to fast track
the development of the value chain in
CBN Monetary Policy Review

the sector and create employment. It
also welcomes the passage of the
National Minimum Wage Bill by the
National Assembly and call for its
speedy implementation in order to
boost domestic aggregate demand.
The Committee further observed that
the performance of the monetary
aggregates
were
below
their
benchmarks, indicating headroom for
monetary growth. The MPC noted the
encumbrances
and
constraints
imposed on fiscal policy and the
associated vulnerabilities as it has
consistently failed to mobilise sufficient
revenues to support development as
enunciated in the ERGP, leaving room
for continued debt financing, not
previously
envisaged.
Against
this
backdrop, it is imperative for monetary
policy to provide the much needed
leverage to support output growth and
employment generation in the country.

On
a
more
cautious
note,
the
Committee expressed concern and
sympathises with the fiscal authorities,
over the growing fiscal deficit, external
debt and debt service, and urged the
need to closely monitor the public
procurement
process
in
order
to
improve efficiency in public resource
management.

On financial system stability, the MPC
noted the improvements in key financial
soundness indicators and commended
the
Federal
Government
for
the
settlement
of
debt
owed
to
oil
marketers, which has considerably,
helped in reducing the non-performing
loans (NPLs) portfolio of the banking
industry. The Committee, therefore,
urged the Government to expedite
action
in
settling
all
outstanding
contractor-related arrears so as to
improve the NPLs position and stabilise
the banking system. In addition, the
MPC reiterated the Bank’s commitment
to improve credit delivery, especially to
small and medium scale enterprises,
while acknowledging efforts by the
Central Bank of Nigeria in coordinating
the de-risking of lending to the private
sector
through
the
collaboration
between the Bankers’ Committee and
NIRSAL.

In its consideration of the best monetary
policy option, the Committee noted the
need for all agencies of Government to
work hard, not only in consolidating the
growth so far achieved, but also in
ensuring that appropriate policies are
put in place and implemented to
create jobs on a mass scale and
diversify the economy in a proper
direction. In doing this, the policy
options facing the MPC at this meeting
is a decision between retention of the
current stance of monetary policy or a
slight loosening of the policy rate,
backed by the substantial stability of the
major macroeconomic indicators. The
Committee felt that given the relative
stability in the key macroeconomic
variables, there is the need to signal a
new direction that is pro-growth.

In its arguments, the Committee was
convinced that doing this would further
uphold the Bank’s commitment to
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promoting strong growth by way of
encouraging
credit
flow
to
the
productive sectors of the economy. The
MPC
felt
that
signalling
through
loosening by a marginal reduction
would serve to manage the sentiments
in the capital markets owing to the
wider spread in yields in the EMDEs,
relative to the advanced economies.
Moreover, the real interest rate in the
country would still remain positive.

The Committee’s Decision
In light of the above, the MPC decided
by a vote of six out of eleven members
to reduce the Monetary Policy Rate
(MPR) by 50 basis points. Two members
voted to reduce the MPR by 25 basis
points, while one member voted to
reduce it by 100 basis points. Two
members, however, voted to hold the
MPR at its current level. Ten members
voted to hold all other parameters
constant, while a member voted to
reduce the Cash Reserve Ratio (CRR) by
100 basis points from 22.5 to 21.5 per
cent.
In summary, the MPC voted to:
I. Adjust the MPR by 50 basis points from
14.00 to 13.50 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
25th March 2019


CBN Monetary Policy Review

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO.

OF
THE
MONETARY
POLICY
COMMITTEE
MEETING
OF
MONDAY
20TH
AND
TUESDAY 21ST MAY, 2019
1.0
Background
The Monetary Policy Committee (MPC)
met on the 20th and 21st of May 2019,
amidst uncertainties in the global
financial,
economic
and
political
environments. All Eleven (11) members
of the Committee were present.
Global Economic Developments
The
Committee
reviewed
developments in the global economy,
noting with concern, the declining trend
in
global
output
growth,
which
commenced in the second half of 2018.
Accordingly, the International Monetary
Fund
downgraded
global
output
growth from 3.7 per cent in 2018 to 3.6
per cent in 2019 and further revised it
downwards to 3.3 per cent in 2019. The
decrease in the global composite
Purchasing Managers’ Index (PMI) in the
last three months provides further fillip to
this downgrade. The Committee noted
that the weakening global output
growth continued amidst prevailing
uncertainties from familiar headwinds
including: the further escalation of trade
tensions between the US and China;
imposition of new rounds of sanctions on
Iran; breakdown of BREXIT negotiations;
a new wave of tension on the Korean
Peninsula;
vulnerabilities
in
major
financial markets and rising public and
private debt in some Emerging Market
and Developing Economies (EMDEs).
Despite these uncertainties, inflation in
the advanced economies remained
muted and largely below their 2.0 per
cent long-run targets. As a result, most
central
banks
in
the
advanced
economies, including the US Fed, Bank
of England and the European Central
Bank, adopted a dovish monetary
policy stance, which is expected to
remain in place in the near to medium
term, as signs of weakness in the global
economy re-emerged. In the Emerging
Market
Developing
Economies,
however, developments were mixed,
with
inflation
rising
in
some,
but
moderating in others. In response, the
financial
markets
witnessed
the
rebalancing of portfolios from equities to
fixed income securities, and some stock
markets posting losses. In the main, the
Emerging
Market
Developing
Economies are expected to continue to
benefit
from
the
accommodative
monetary
policy
stance
of
the
advanced
economies
through
increased capital inflows.
Domestic Output Developments
Available output data from the National
Bureau of Statistics (NBS) showed that
real Gross Domestic Product (GDP)
grew by 2.01 per cent in the first quarter
of 2019 compared with 2.38 and 1.89
per
cent
in
the
previous
and
corresponding
quarters
of
2018,
respectively. This was largely driven by
the non-oil sector, which grew by 2.47
per cent in the first quarter of 2019 while
the oil sector contracted by 2.40 per
cent. Staff projections indicate real GDP
growth of 2.34 and 2.36 per cent in Q2
CBN Monetary Policy Review

and
Q3
2019,
respectively,
including
a
reduction
in
the
unemployment rate. The Monetary
Policy Committee observed that actual
output
remains
below
potential,
implying that the economy still had
sufficient headroom for non-inflationary
growth. This is expected to be driven
largely by sustained stability in the
financial system; continued special
interventions
in
Agriculture,
manufacturing and SMEs sectors, by the
Bank; sustained effort in improving
transport
infrastructure
to
address
distribution
challenges;
continued
expansion of business activities as
indicated by the PMI and increased
supply of foreign exchange to growthstimulating sectors of the economy,
among others.
The Committee noted the continued
expansion of the Manufacturing and
Non-Manufacturing
Purchasing
Managers’ Indices (PMI) for the 25th and
24th consecutive months in April 2019
and broadly welcomed this positive
development in economic activities in
Nigeria. The manufacturing PMI grew by
57.7 index points compared with 57.4
index points in the previous month.
Similarly, the non-manufacturing PMI
grew by 58.7 index points compared
with 58.5 index points in March 2019. The
growth in both measures of PMI were
anchored by marginal increases in
production, employment level and new
orders.


Developments in Money and Prices
The Committee noted the growth in
broad money supply (M3) by 5.42 per
cent in April 2019 from the level at endDecember 2018, annualized to 16.36
per
cent,
above
the
indicative
benchmark rate of 14.47 per cent for
2019. This was largely driven by the
growth of 19.62 per cent in Net
Domestic Assets (NDA). In contrast, Net
Foreign Assets (NFA) contracted by 5.83
per cent in April 2019 relative to the level
at end-December 2018. In spite of the
significant underperformance of M1 at -
4.26 per cent annualised to -12.77 per
cent, M2 grew by 1.85 per cent in April
2019, annualized to 5.54 per cent, which
was significantly below the benchmark
rate of 12.99 per cent for 2019. This
development was largely due to the
growth in time and savings deposits by
6.53 per cent. The Net Domestic Credit
(NDC) grew by 19.31 per cent in April
2019 from the level at end-December
2018, annualized to 57.92 per cent,
above its indicative benchmark of 11.82
per cent. The growth in NDC was
attributed to the significant increase in
credit to both government and the
private sector by 64.44 and 9.64 per
cent,
respectively,
in
April
2019,
compared with end-December 2018.
The
Committee
noted
the
developments
in
the
monetary
aggregates and enjoined the Bank to
initiate
moves
towards
improving
lending to the private sector and urged
other intermediary institutions in the
financial
sector
to
support
these
CBN Monetary Policy Review

initiatives by improving their credit
delivery to boost output growth.
The Committee noted the uptick in
inflation as headline inflation (year-onyear) rose slightly to 11.37 per cent in
April 2019 from 11.25 per cent in March
2019. The increase in headline inflation
was driven mainly by food inflation
which rose by 13.70 per cent in April
2019 from 13.45 per cent in March 2019.
Core
inflation,
however,
declined
marginally to 9.28 per cent in April from
9.46 per cent in March 2019. In April
2019, month-on-month headline, food
and core inflation increased to 0.94, 1.14
and 0.70 per cent from 0.79, 0.88 and
0.53
per
cent
in
March
2019,
respectively. The MPC noted that the
recent uptick in inflationary pressure was
seasonally driven and anticipated.
Liquidity conditions in the banking
system reflected the net impact of
Open
Market
Operations
(OMO)
auctions, maturing CBN Bills, statutory
allocations
to
states
and
local
governments as well as interventions by
the CBN in the foreign exchange
market. Consequently, the monthly
weighted average Inter-bank call and
Open Buy Back (OBB) rates increased to
13.98 and 16.15 per cent in April 2019
from 10.80 and 12.17 per cent in March
2019, respectively. The daily unsecured
interbank and the OBB rate, fluctuated
within the standing facilities corridor,
closing at 6.57 per cent and 5.55 per
cent on May 10 and May 16, 2019,
respectively, reflecting the reaction of
the money market to the 50 basis point
reduction in the policy rate at the
meeting of the MPC in March 2019.
The Committee observed the continued
bearish trend in the equities market in
spite of the sustained capital inflows into
the economy during the period under
review. The All-Share Index declined by
8.14 per cent to 28,871.83 index points
on May 17, 2019 from 31,430.50 index
points as at end-December 2018, while
market capitalization grew by 8.53 per
cent to N12.72 trillion on May 17, 2019
from N11.72 trillion at end-December
2018. The recent growth in market
capitalization reflected new listings in
the market, prominent amongst which
is: MTN and Skyway Aviation Handling
Company Plc and additional listing from
the merger between Access Bank and
Diamond Bank.
The
Committee
welcomed
the
continued stability at both the Bureaude-change (BDC) and the Investors’
and Exporters’ (I&E) windows of the
foreign exchange market, expressing
optimism in the recovery of crude oil
prices due to the OPEC production
ceiling and other geo-political issues
affecting oil exports.
The
MPC
also noted
the
steady
accretion to external reserves, which
stood at US$45.42 billion as at May 16,
2019, an increase of 2.20 per cent from
US$44.44 billion at end-April 2019.
The Overall Outlook and Risks
The overall medium term outlook for the
global economy remains mixed and
uncertain with growing indications of
CBN Monetary Policy Review

persistent
macroeconomic
vulnerabilities, global financial market
fragilities, accommodative monetary
policy,
policy
uncertainties
and
weakening global output.
Data
on
the
domestic
economy
suggests some fragility in output growth
during the second quarter of 2019 with
improved outlook for the rest of the
year.
Accordingly,
revised
output
projections indicate that the economy
would grow by 2.1 per cent according
to the International Monetary Fund
(IMF), 2.2 per cent by the World Bank
and 2.38 per cent by the CBN in 2019.
This outlook is hinged on the following
key
factors:
the
effective
implementation
of
the
Economic
Recovery and Growth Plan (ERGP);
supportive monetary policy; enhanced
flow of credit to the real sector;
sustained stability of the exchange rate;
and improved fiscal buffers; amongst
others. The Committee, thus, expects
that monetary policy would focus on
improving access to credit, reducing
unemployment
and
stimulating
economic growth.
Committee’s Considerations
The Committee took into consideration
the continued slowdown in the global
economy
and
the
persisting
uncertainties, including the ongoing
trade wars between the US and its major
trade partners, financial fragilities in a
number
of
countries,
the
debtconstrained fiscal operations of most
EMDEs, including Nigeria, and the
volatility
in
the
oil
market.
The
Committee, therefore, enjoined the
Federal government to urgently build
fiscal buffers through a more realistic
benchmark oil price for the Federal
Budget.

The MPC noted the 2.01 per cent growth
in real GDP during the first quarter of
2019 compared with 1.89 per cent in the
corresponding
quarter
of
2018.
Although output growth in the first
quarter was slower than 2.38 per cent
recorded in the preceding quarter, it
emphasized that actual output remains
well below the economy’s long-run
potential, indicating the existence of
spare
capacity
for
non-inflationary
growth in the economy, an opportunity
which should be explored through
increased credit delivery to the private
sector. Not impressed by the flow of
credit from the Deposit Money Banks
(DMBs) to the private sector, the MPC
called on the CBN management to
urgently put in place modalities to
promote Consumer, and Mortgage
lending in the Nigerian economy, noting
that doing this will greatly and positively
impact on the flow of credit and
ultimately result in output growth.

The MPC called for a close monitoring of
the uptick in inflationary pressures in April
2019, driven largely by food shortages
during
the
Easter
season,
the
commencement of the planting season
as well as persisting security challenges
in some of the food producing regions
of the country. The Committee, urged
the relevant authorities to strengthen
efforts
to
address
the
security
CBN Monetary Policy Review

challenges
and
improve
food
production. It encouraged financial
intermediating institutions to ensure that
loans to the agricultural sector were
channelled effectively to end users.

The MPC welcomed the improvement in
financial soundness indicators (FSIs), but
noted
that
although
the
NonPerforming Loan (NPL) ratio moderated,
it remained above the prudential
benchmark.
Consequently,
the
Committee
considered
and
recommended to the CBN, a proposal
to
develop
a
comprehensive
administrative, legal and regulatory
framework to speed up the recovery of
delinquent loan facilities of the banking
system;
involving
structured
engagement with relevant stakeholders
and authorities, in order to mitigate
credit risk and ultimately open up the
credit delivery space in the Nigerian
economy.

The
Committee
extended
warm
felicitations in an expression of gratitude
to the President and Commander in
Chief of the Armed Forces of the
Federal Republic of Nigeria, President
Muhammadu Buhari, and the Senate of
the Federal Republic, respectively, for
the
reappointment
and
prompt
confirmation of the Governor of the
Central Bank of Nigeria, Godwin I.
Emefiele, for a second 5-year term in
office. In particular, the Committee
noted that the reappointment was in
recognition of the contributions of the
CBN to maintaining macroeconomic
stability
and
it
would
engender
confidence and build policy credibility
and deliver stability to the Nigerian
financial markets.

In view of the abundant opportunities
available to banks for unfettered access
to government securities, which tends to
crowd out private sector lending, the
Committee called on the Bank to
provide a mechanism for limiting DMBs
access to government securities so as to
redirect bank’s lending focus to the
private sector, noting that this would
spur the much needed growth in the
economy. It called on the Government
to use all machinery at its disposal to
increase tax revenue to enable the
government
fund
its
budget
adequately.

The Committee’s Decision
The global and domestic developments
have conditioned an environment of
low optimism in the macroeconomic
and financial sector space, forcing
central
banks
to
return
to
accommodative monetary policy.
As
in
the
past,
the
Committee
considered the options of whether to be
more accommodative, tighten or hold it
position.
The
Committee
felt
that
although the slight inflation uptick
should result in tightening, it nevertheless
felt that doing this will limit the ability of
DMBs to increase credit at this time,
given the need to support or redirect
the focus of DMBs to new credit in
support of consumer, mortgage and
other priority sectors of the economy,
including,
SMEs,
agriculture
and
CBN Monetary Policy Review

manufacturing. It also felt that given the
fragile state of the economy, increasing
the cost of credit would further diminish
investment flow and impact negatively
on output growth.
As regards loosening, some members
felt that it was desirable to aggressively
stimulate growth, restart the capital
market activities and increase lending
at lower rates; which would ultimately
stimulate
domestic
aggregate
demand.
Those against loosening felt that given
that there was a marginal increase in
headline inflation for April 2019, there is
need to restrain from loosening in order
not to exacerbate inflationary pressures.
They also felt the economy would
experience liquidity surfeit and without
corresponding increase in real sector
output, inflationary pressures could be
elevated; resulting in likely exchange
rate pressures.
As for members who favoured a hold
position, maintaining monetary policy
rate at its present level was essential for
better understanding of the momentum
of growth before determining any
possible modifications. They also felt
that retaining the current policy stance
provides an avenue for evaluating the
impact of
the
Bank’s
intervention
policies to support lending to the priority
sectors of the economy.
Consequently,
the
MPC
decided
against
the
backdrop
of
these
developments by a vote of 9 members
out of 11, to hold all parameters of
monetary
policy
constant.
Two
members voted, however, to reduce
the monetary policy rate by 25 basis
points.
In summary, the MPC voted to:
I. Retain the MPR at 13.50 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
21st May, 2019