CENTRAL BANK OF NIGERIA
MONETARY
MONETARY
POLICY REVIEW
POLICY REVIEW
MONETARY
POLICY REVIEW
AUGUST 2020
AUGUST 2020
VOLUME IX, NUMBER 1
VOLUME IX, NUMBER 1
AUGUST 2020
VOLUME IX, NUMBER 1
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
©2020 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
The Global Economy ..


Chapter 3
The Domestic Economy


Chapter 4
Economic Outlook and Risk


Appendices


List of Tables
Table 2.1:
Policy Rates of Selected Central Banks August


2019 – July 2020


Table 2.2:
Selected International Stock Market Indices as at


June 30, 2020 ..


Table 2.3:
Exchange Rates of Selected Countries (value in currency


units to US$)


Table 3.1:
Inflation Rates, January – June 2020 ..
..
..

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


January - June 2020


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


January - June 2020


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


January - June 2020


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


January – June, 2020


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


January – June 2020 ..


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


January – June 2020.. ..


Table 3.8:
Actual and Seasonally Adjusted Headline Inflation


January – June 2020 ..


Table 3.9:
OMO Bills Auction (January – June, 2020) (N'billion) ..

Table 3.10:
CBN Standing Lending Facility (January 2019 – June 2020)
(N'ibllion)


Table 3.11:
CBN Standing Deposit Facility (January 2019 – June 2020)


(N'billion)


Table 3.12:
Foreign Exchange Supply by the CBN (US$ Million)
..

Table 3.13:
The Performance of Monetary Aggregates and their


Implications


Table 3.14:
Weighted Average Monthly Money Market Interest Rates


(Jan- Jun,2020)


Table 3.15:
Average Monthly Spot Exchange Rate (N/US$),


July 2019–June 2020


Table 3.16:
End-Month Exchange Rate (N/US$), July 2019 – June 2020

Table 3.17:
Nominal and Real Effective Exchange Rates Indices
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(Jan 2019 – June 2020)


Table 3.18:
Monthly Foreign Exchange Flows through the CBN


(Jan 2019 – June 2020)


Table 3.19:
Monthly Foreign Exchange Flows through the Economy


(Jan 2019 – June 2020)


Table 3.20:
NSE All-Share Index (ASI) and Market Capitalization (MC)


(June 2019 – June 2020)


Table 4.1:
Global Output and Inflation Outlook..
..
..

Table 4.2:
Inflation Forecast


List of Figures
Figure 3.1:
Gross Domestic Product Growth Rate (2019Q1 – 2020Q2)

Figure 3.2:
Non-oil Sector Performance (2019Q1 – 2020Q2)
..

Figure 3.3:
Performance of oil Sector (2019Q1 – 2020Q2)
..

Figure 3.4:
Agricultural Sector Contribution by Activity


(2019Q1-2020Q2)


Figure 3.5:
Industrial Sector Contribution by Activity (2019Q1-2020Q2) 18
Figure 3.6:
Services Sub-Sector Contribution, 2019Q1-2020Q2
..

Figure 3.7:
Quarterly Domestic Oil Production and Export


(2018Q1-2020Q2)


Figure 3.8:
Monthly Bonny Light Oil Price, January 2020 – June 2020

Figure 3.9:
Headline, Core and Food Inflation Rates


(January – June 2020) ..


Figure 3.10
Major Components of Headline Inflation (Y-on-Y),


January – June 2020 ..


Figure 3.11:
Major Components of Headline Inflation (M-on-M),


January – June 2020 ..


Figure 3.12:
Major Components of Food Inflation (Y-on-Y),


January – June 2020 ..


Figure 3.13:
Major Components of Food Inflation (M-on-M),


January – June 2020 ..


Figure 3.14
Major Components of Core Inflation (Y-on-Y)


January – June 2020 ..


Figure 3.15
Major Components of Core Inflation (M-on-M)


January – June 2020 ..


Figure 3.16:
Actual and Seasonally Adjusted Headline Inflation


January – June 2020 ..


Figure 3.17:
OMO Bills Auction (January – June, 2020)
..
..

Figure 3.18:
Standing Lending Facility (January – June 2020)
..

Figure 3.19:
Standing Deposit Facility (January - June, 2020)
..

Figure 3.20:
Total FX Supply (Including Forward Sales)


(January-June, 2020) ..


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Figure 3.21:
Money Supply (January - June 2020) ..
..
..

Figure 3.22:
Growth in Money Supply (January - June 2020)
..

Figure 3.23:
Net Domestic Asset (NDA) (January - June, 2020)
..

Figure 3.24:
NDA, NDC and Other Assets (Net) (January – June, 2020)

Figure 3.25:
Domestic Credit to Private Sector (January – June, 2020)

Figure 3.26:
Weighted Average Monthly Money Market Interest Rates


(Jan – Jun, 2020)


Figure 3.27:
Daily Interbank Call Rate (Jan – Jun 2020)
..
..

Figure 3.28:
Daily Open Buy Back Rate (OBB) - January - June 2020

Figure 3.29:
Daily Naira/US Dollar Exchange Rate, January – June 2020 53
Figure 3.30:
Nominal and Real Effective Exchange Rates Indices


(Jan 2019 – June 2020)


Figure 3.31:
Monthly Foreign Exchange Flows through the CBN


(Jan 2019 – Jun 2020) ..


Figure 3.32:
Monthly Foreign Exchange Flows through the Economy


(Jan 2019 – Jun 2020) (US$ Million)
..
..
..

Figure 3.33:
NSE All Share Index (ASI) and Market Capitalization (MC)


(June 2019 - June 2020)


Figure 3.34:
NSE ASI and MC (December 2019 – June 2020)
..

Figure 3.35:
NSE Market Capitalization by Sector as at End-June 2020

Figure 3.36:
NSE Market Capitalization by Sector as at End-Dec 2019

Figure 3.37:
Warren Buffett Valuation of Nigerian Equities Market ..

Figure 3.38:
10-Year U.S. Dollar-denominated Bond Yield for Nigeria


(June 2018 – June 2020)


Figure 3.39:
FGN Bonds Yield Curves: end-Jun 2019 vs. end-Dec. 2019


vs. end-June 2020


Figure 3.40:
Structure of the Nigerian Capital Market (June-2020)

Figure 4.1:
Inflation Forecast Fan Chart ..
..
..
..

List of Boxes
Box 3.1:
The Impact of the Covid-19 Pandemic on the Nigerian


Economy


Box 3.2:
The Nigerian Finance Act 2020: Implications for Monetary


Policy ..


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STATEMENT BY THE GOVERNOR
M
onetary policy in the first half of 2020 was confronted by severe
challenges posed by the collapse in crude oil prices following the oil price
war between Saudi Arabia and Russia, as well as the outbreak and rapid
spread of the Corona Virus Disease (COVID-19). As a result, the lockdowns and
measures to curtail the spread of the COVID-19 pandemic caused significant
disruptions to global supply chains, leading to sharp decline in global trade,
unprecedented collapse in crude oil demand and weakened aggregate demand.
Other vulnerabilities triggered by the pandemic included: rising corporate and
public debts; tightening financial conditions, and renewed financial market
fragilities across the globe.
As a consequence, the performance of the domestic economy slowed to 1.87 per
cent (year-on-year) in the first quarter of 2020 and subsequently dipped by 6.10 per
cent in the second quarter, heightening fears of an economic recession. Inflationary
pressure intensified while the foreign exchange market witnessed significant
pressure in the face of low accretion to external reserves. Thus, the naira weakened
in all segments of the foreign exchange market. Meanwhile, the Nigerian financial
market witnessed considerable stress, with persistent capital reversals, forcing the
capital market to close on a bearish note during the period. The bearish trend in the
capital market, partly due to the dip in oil prices and the Covid-19 pandemic,
significantly dampened investors' confidence. Thus, the All-Share Index (ASI)
decreased by 8.80 per cent from 26,842.07 at end-December 2019 to 24,479.22 at
end-June 2020. Other fragilities included: rising domestic and foreign sovereign
debts fuelled by expanding fiscal deficits. Nonetheless, the money market
remained broadly active with market rates reflecting liquidity conditions in the
banking system.
In consideration of the foregoing developments, monetary policy in the review
period was designed to mitigate inflationary pressures and signal the Bank's
commitment to support output recovery against the backdrop of a slowdown in
economic activities occasioned by the COVID-19 pandemic. Thus, the Bank
adopted a broadly accommodative monetary policy stance as the Monetary
Policy Rate (MPR) was reduced by 100 basis points to 12.5 per cent, while the
asymmetric corridor of +200/-500 basis points around the MPR, the CRR of 27.5 per
cent and Liquidity Ratio of 30.0 per cent, were maintained throughout the period.
These were complemented by the intensification of the Bank's development
finance interventions targeted at critical sectors of the real economy.
vii
The outlook for the domestic economy over the short-to-medium-term indicate that
the current inflationary pressure may not moderate owing to a combination of
factors including the pass-through from exchange rate depreciations to domestic
prices, rising food prices occasioned by disruptions to the food supply chains from
the COVID-19 lockdowns as well as increased liquidity from fiscal and monetary
stimulus to cushion the impact of the pandemic. Inspite of the current
circumstances, the policy community, financial markets and, indeed, the public are
fully assured that monetary policy will continue to be proactive by prioritizing the
attainment of price stability in an environment supportive of financial stability and
inclusive non-inflationary growth while fiscal policy takes the center stage in driving
economic recovery and development.
GODWIN I. EMEFIELE
Governor, Central Bank of Nigeria
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CHAPTER ONE

1.0
OVERVIEW

hapter one presents a synthesis
of the entire document by
highlighting key developments
that shaped monetary policy as well as
the attendant policy response by the
CBN during the review period. These
developments cover domestic output,
prices, monetary policy and liquidity
management as well as the financial
market.

During the first half of 2020, the thrust of
the Bank’s monetary policy signalled a
moderately accommodative policystance, reflecting key developments in
the global and domestic economic and
financial
environments.
These
developments included: the economic
strain caused by the outbreak and rapid
spread of the Corona Virus Disease
(COVID-19); disruptions of global supply
chain due to lockdowns in response to
the
COVID-19
pandemic;
overall
decline in economic activity arising from
weak aggregate demand and supply
globally; unprecedented collapse in
crude oil demand, leading to significant
decline in oil prices; sharp decline in
global trade; and crude oil price war,
largely between Saudi Arabia and
Russia. Others were financial market
fragilities
across
the
globe;
rising
corporate
and
public
debts;
and
tightening financial conditions. These
developments created considerable
stress in the domestic economy leading
to capital flow reversals and decline in
external
reserves
with
attendant
pressures
on
the
exchange
rate.
Consequently, the strains on demand
and supply coupled with the pressure on
the
exchange
rate
elevated
the
general price level as headline inflation
(year-on-year) rose from 12.13 to 12.56
per cent between January and June
2020.

The domestic output weakened, but
was buoyed largely by the supportive
policy environment, as well as sustained
real sector interventions by the Central
Bank of Nigeria (CBN), coupled with
efforts to ensure relative stability of the
exchange rate. The key drag on
domestic output came from external
weakness arising from low oil demand
and other complications induced by
the
outbreak
of
the
COVID-19
pandemic, resulting in low fiscal receipts
and limited budget implementation.
Available output data from the National
Bureau of Statistics (NBS) showed that
growth in real Gross Domestic Product
(GDP) slowed to 1.87 per cent in the first
quarter of 2020 compared with 2.55 and
2.10 per cent in the preceding and
corresponding
quarters
of
2019,
respectively. The development was
driven largely by the decline in both the
oil and non-oil sectors from 6.36 and 2.26
per cent recorded in the fourth quarter
of 2019 to 5.06 and 1.55 per cent in the
first quarter of 2020, respectively.

During the second quarter of 2020,
however, real Gross Domestic Product
(GDP) contracted significantly by 6.10
per cent (year-on-year) as against the
growth of 2.12 and 1.87 per cent in the
C
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corresponding period of 2019 and the
preceding quarter of 2020, respectively.
The contraction was driven by both the
oil and non-oil sectors. The oil sector
contracted by 6.63 per cent in the
second quarter of 2020, in contrast to
the growth of 7.17 and 5.06 per cent in
the corresponding period of 2019 and
preceding quarter of 2020, respectively.
Similarly, the non-oil sector contracted
by 6.05 per cent in the second quarter
of 2020, compared to the growth of 1.64
and 1.55 per cent in the corresponding
period of 2019 and preceding quarter of
2020, respectively.

The foreign exchange market during the
review period, witnessed significant
pressure, largely due to the reduced
foreign exchange inflows occasioned
by low oil price, worsened by the Covid19 shock. Thus, the naira weakened in
all segments of the foreign exchange
market, with rates in the parallel market
diverging remarkably from the official
exchange
rate.
The
development
elicited corrective policy action from
the Bank, resulting in the adjustment of
the naira exchange rate from N306/US$
to N326/US$ and N361/US$ in March and
April
2020,
respectively.
These
adjustments were intended to realign
the exchange rate with market realities,
in order to curtail unnecessary demand
pressure, and achieve the unification
and stability of the exchange rate in
Nigeria. The measure was also meant to
address the decline in the external
reserves as a result of the significant fall
in foreign exchange earnings from oil.
Other supportive policy measures such
as the use of Bank Verification Number
(BVN) in BDC transactions, and the
strategic suspension and resumption of
sale of foreign exchange to BDCs by the
Bank and International Money Transfer
Operators (IMTOs) were introduced to
achieve
stability
in
the
foreign
exchange market.

The Nigerian financial markets witnessed
considerable stress during the period,
largely on account of the severe
macroeconomic shock, caused by the
COVID-19
pandemic
and
the
associated
spill
overs.
These
were
accentuated by: the losses in global
stock
values;
declining
primary
commodity prices, disruptions to the
global supply chain associated with the
large scale global lockdown of mega
metropoles
and
whole
countries;
exchange
rate
volatilities;
rising
corporate and public debts; and rising
levels of unemployment; among others.

The Bank continued the conduct of
monetary
policy
using
various
instruments at its disposal to achieve the
objective
of
price
and
monetary
stability. These instruments were: the
Monetary Policy Rate (MPR), 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 management
in the review period. It was reduced by
100 basis points from 13.5 to 12.5 per
cent in May, 2020. The asymmetric
corridor of +200 and -500 basis points
around
the
MPR
was
maintained
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throughout the period. The reduction
signalled the Bank’s commitment to
support the recovery of output growth.
The
primary
tool
of
liquidity
management in the first half of 2020
remained the Open Market Operations
(OMO). OMO sales decreased by 27.03
per cent to N6,491.30 billion in the first
half of 2020 from N8,895.99 billion in the
preceding half of 2019 and by 45.12 per
cent
from
N11,827.64
from
the
corresponding half of 2019.

Liquidity conditions in the banking
system in the review period mirrored the
behaviour of money market interest
rates. The developments in net liquidity
position and flows, which culminated in
lower monthly average market rates,
showed the impact of CBN interventions
in the bid to support the economy,
following the outbreak of the COVID-19
pandemic. The rates oscillated widely
outside the Standing Facilities corridor
during the period, thus reflecting swings
in banking system liquidity. Money
market rates eased further as system
liquidity was supported by FGN coupon
payments and the injection of liquidity,
through stimulus packages to alleviate
the
impact
of
the
downturn
on
households and businesses. Overall,
liquidity in the system came from several
sources such as: statutory monthly
disbursement
by
the
Federation
Account Allocation Committee (FAAC)
to
states
and
local
governments;
maturing government securities and
OMO bills held by domestic individuals
and
local
corporates;
and
CBN
interventions in the real economy.
The performance of the Nigerian capital
market in the first half of 2020 was largely
bearish, driven primarily by the equities
segment of the market. This was mainly
attributable
to
the
increased
uncertainty introduced by the ravaging
effects of the COVID-19 pandemic,
accentuated by decline in reserves
triggered by the low crude oil price as
well
as
the
weak
corporate
environment. All these led to significant
sell-offs, as several investors exited the
market. In the bonds market, real yields
declined
progressively,
as
inflation
inched up. Consequently, the All-Share
Index (ASI) decreased by 8.80 per cent
from 26,842.07 at end-December 2019
to 24,479.22 at end-June 2020. Similarly,
it decreased by 18.31 per cent year-onyear compared with 29,966.87 at endJune 2019. Market capitalization (MC)
also moderated, by 1.47 per cent from
N12.96 trillion at end-December 2019 to
N12.77 trillion at end-June 2020. Thus, the
outcome represented a year-on-year
decline of 3.33 percent compared with
N13.21 trillion at end-June 2019.

Activities in the bond market in the first
half of 2020 were dominated by Federal
Government of Nigeria (FGN) securities.
Some activities were also recorded in
the
Sub-national
government
and
corporate bond segments, with the later
recording the least share by market
volume. The yield curve for June 2020
decreased at both the short and long
end of the curve, compared with the
preceding period. The development at
the short end reflected the high liquidity
level
within
the
banking
system.
However, the positive slope of the curve
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suggests that despite the rising cases of
coronavirus and the risk of recession,
investors’ outlook on the economy was
still strong.

At the beginning of 2020, the IMF
projected a 2.5 per cent growth rate for
the Nigerian economy, which it revised
to a negative growth of 3.4 per cent in
April following the outbreak of the
pandemic. Although the Fund had
further downgraded the outlook to a 5.4
per cent contraction, projections from
domestic sources such as the Central
Bank of Nigeria and the National Bureau
of
Statistics
are,
however,
less
pessimistic. The outlook is premised on
several factors including the sustained
development finance interventions of
the Bank, and other reforms and
palliatives by the fiscal authorities to
support the economy.

In terms of inflation, staff projections
indicate that headline inflation would
extend its upward trajectory. Estimates
showed that inflation is expected to rise
to 13.79 per cent at end-December
2020, which remains above the upper
limit of the indicative benchmark of 6-9
per cent. The year-on-year headline
inflation is expected to rise to 13.04,
13.18 and 13.39 per cent in July, August
and September 2020, respectively, from
12.47 per cent in June 2020. The upside
risk to inflation in the near-term remains
a
combination
of
monetary
and
structural
challenges,
including
the
continuing impact of Covid-19 on the
economy, exchange rate pressures,
poor
transport
infrastructure,
food
shortage issues due mainly to insecurity
in the agricultural producing areas of
the country and rising fiscal deficit.
Other factors include: the high cost of
imported food arising from the current
border protection policy, and increased
liquidity
due
to
Government
expenditure on palliatives to cushion the
effects of the COVID-19 pandemic on
the economy.

The thrust of monetary policy for the
remainder of 2020 will be shaped by the
need to support the weak economic
recovery
and
manage
inflation
expectations
to
ensure
that
the
downside risks to growth and upside risks
to inflation are well contained.


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CHAPTER TWO
THE GLOBAL ECONOMY

2.1
Global Output
lobal growth was projected to
contract by 4.9 per cent in
2020, following a moderate
expansion by 2.9 per cent in 2019. The
downward revision to global growth was
due to: the considerable weakening of
aggregate demand and disruptions to
the
supply
chain
network,
mostly
attributable to the outbreak of COVID19 and the associated lockdowns.
Consequently, businesses and investors
deferred spending to get a clearer
picture of the direction of the global
economy. This inevitably led to the
dampening of aggregate demand as
unemployment levels increased. The
robust intervention by central banks and
fiscal
authorities
was,
however,
expected to ease the effects of the crisis
and return the global economy to
growth path in 2021 and 2022.

According to the IMF, global growth is
projected to recover to 5.4 per cent in
2021. As the lockdown eases and
businesses reopen, aggregate demand
is expected to strengthen but with
investment picking up at a moderate
pace. As events unfold and a clearer
picture of the impact of the crisis is
formed, particularly in the second
quarter of 2020, the projection may well
be adjusted.

While all regions of the globe are
projected to end the year 2020 in
contraction,
the
depth
of
the
contraction is expected to vary across
regions with some regions worse hit than
others, depending on the extent of the
pandemic, duration of the lockdown
and
speed
of
containment.
Consequently, growth in the advanced
economies was projected to contract
by 8.0 per cent in 2020 as the speed of
containment
of
the
pandemic
is
expected to be slow while recovery is
projected at 4.8 per cent in 2021 as the
effect of the pandemic wanes and
investment picks up. The US and
Japanese economies are projected to
contract by 8.0 and 5.8 per cent,
respectively.

In the emerging market and developing
economies, growth in 2020 is expected
to contract by 3.0 per cent, as
aggregate demand remains weak and
the supply chains, which were down
throughout the lockdown, will struggle
to resume production and distribution.
As the Chinese economy pulls out of the
lockdown after containing the spread
of the virus, it is expected to post a
moderate growth of 1.0 per cent in 2020
after
a
very
difficult
first
quarter
performance. In India, the economy is
projected to contract by 4.5 per cent
due
to
weaknesses
imposed
and
exacerbated by a long period of
lockdown.
Brazil
and
Mexico,
the
biggest economies in Latin America, are
also projected to shrink by 9.1 and 10.5
per cent, respectively in 2020. In 2021,
however, growth in the emerging
market and developing economies is
projected to recover to 5.9 per cent, led
by the Chinese economy.

G
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In
Sub-Sahara
Africa,
growth
is
estimated to contract by 3.2 per cent as
the twin shocks of oil price crash and the
COVID-19
pandemic
exposes
the
underlying
macroeconomic
vulnerabilities of the region. The
Nigerian economy, a major oil exporting
economy was confronted with the huge
impact of the twin shocks to its
economy.
Consequently,
it
was
projected to contract by 5.4 per cent in
2020. Even though South Africa is an oil
importing economy, which should have
ordinarily benefitted from the oil price
shock, it has been under the burden of
legacy labour market and power supply
issues and is now saddled with a high
COVID-19
infection
rate,
lengthy
lockdown and rising unemployment. As
a result, the economy was expected to
contract by 8.0 per cent in 2020. The
region is however forecast to return to
positive growth of 3.4 per cent in 2021.

2.2
Global Inflation
The
July

edition
of
the
International Monetary Fund (IMF) World
Economic
Outlook,
projected
a
downward revision for inflation in 2020,
particularly
for
the
advanced
economies. The downward revision
reflected the continued weakening of
aggregate demand, as the risk of
voluntary social distancing rises in a
post-lockdown environment.

In the advanced economies, inflation is
expected to decline to 0.3 per cent in
2020 from 1.4 per cent in 2019. Inflation
in the US was projected to decline to 0.5
per cent in 2020 from 1.8 per cent in
2019. Similarly, in the euro area, changes
in
consumer
price
or
inflation
development was expected to decline
to 0.2 per cent in 2020 from 1.2 per cent
in
2019.
In
Japan,
inflation
was
estimated to follow the same trend,
declining to -0.1 per cent in 2020 from
0.5 per cent in 2019.

In the emerging market and developing
economies, inflation is expected to slow
to 4.4 per cent in 2020 down from 5.0 per
cent in 2019. Conversely, in China,
inflation
is
projected
to
increase
marginally to 3.0 per cent in 2020 from
2.9 per cent in 2019 (WEO, April 2020). In
Russia,
inflation
was
projected
to
decrease to 3.1 per cent in 2020 from 4.5
per cent in 2019. While in India inflation
is expected to decrease to 3.3 per cent
in 2020, from 4.5 per cent in 2019.

Inflation
projections
for
Sub-Sahara
Africa, particularly in the oil exporting
economies, indicate an increase mostly
due to the weak oil prices and the
resulting exchange rate depreciations.
Consequently, inflation is projected to
increase to 9.3 per cent in 2020 from 8.4
per cent in 2019. In Nigeria, the inflation
rate is estimated to increase to 13.4 per
cent in 2020, from 11.4 per cent in 2019.
Similarly, Ghana’s headline inflation is
estimated to increase to 9.7 per cent in
2020, from 7.2 per cent in 2019. Inflation
in Angola is estimated to rise to 20.7 per
cent in 2020, from 17.1 per cent in 2019.


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2.3
Global
Financial
Markets
Developments

2.3.1 Money Market and Central Bank
Policy Rates
There was synchronized monetary
policy response by major central banks
across the globe in the first half of 2020
largely driven by the risk of a major
global macroeconomic slowdown due
to the combined shocks from the oil
price
crisis
and
the
COVID-19
pandemic. The huge level of monetary
accommodation by central banks and
simultaneous
accommodative
fiscal
policy meant that the global economy
experienced excess liquidity in the first
half of 2020.

A total of fourteen (14) central banks
surveyed between January and June
2020, showed a broad trend towards
monetary accommodation by both the
advanced economies and emerging
market central banks.

Central
banks,
however,
remained
cautious
of
the
medium-term
implications of the current stance of
policy, as it portends the risk of a debt
crisis given the huge quantum of both
private and public debts prior to the
recent bout of monetary and fiscal
stimulus. With policy rates of most
advanced economy central banks now
straddling the zero-lower-bound, the
timing of the next phase of monetary
policy normalization must be precise
and gradual to avoid a debt crisis.
Central banks of emerging markets
including
Brazil,
India,
Russia
and
Indonesia lowered their policy rates to
varying degrees between January and
June 2020, in response to the broad
weakening of the global economy. The
Central Bank of Brazil lowered its policy
rate
four
consecutive
times
since
December 2019 to boost output growth
and support the economy’s sluggish
recovery in the light of the weak
recovery of oil price. Similarly, the
Central Bank of Russia lowered its policy
rate three times, to accommodate
growth concerns. The Reserve Bank of
South Africa, after a 25-basis points rate
cut in January 2020 and 200 basis points
in April 2020, further cut its policy rate in
May 2020 by 50-basis points as its
economy continued to contract. The
Reserve Bank of India and Bank of
Indonesia also cut rates, to support
recovery as the lockdown was gradually
eased. The Central Bank of Nigeria, at its
May 2020 meeting, also reduced its
policy rate by a 100-basis points to 12.50
per cent to cushion the impact of the
crisis.


CBN Monetary Policy Review

Table 2.1: Policy Rates of Selected Central Banks August 2019 – July 2020
Country
Aug.

Sept.

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

Apr.

May.

June

July

Egypt

Kenya

S. Africa

Ghana

Nigeria

Brazil

USA

Japan

Euro Area

India

Russia

China

UK

Indonesia

Source: www.cbrates.com

2.3.2
Global Capital Markets
Global stock markets were mostly
bearish throughout the review period for
several reasons, including the oil price
shock, the COVID-19 pandemic and the
associated lockdown. Other factors
responsible
for
the
bearish
trend
included: trade tensions between the
United States and China; and growing
private and public sector debts in the
advanced
and
emerging
market
economies, which led to the tightening
financial conditions across the globe.

In Europe, the UK FTSE 100, French CAC
40 and German DAX indices declined
by 17.80 per cent, 17.40 and 8.50 per
cent, respectively. In North America, the
United States S&P 500, the Canadian
S&P/TSX Composite and the Mexican
Bolsa indices increased by 4.60, 9.80,
and 13.00 per cent, respectively. In
South America, the Brazilian Bovespa,
the
Argentine
Merval
and
the
Columbian COLCAP indices decreased
by 17.20, 6.50, and 33.30 per cent,
respectively. In Asia, the Japanese
Nikkei 225, the Chinese Shanghai SE and
the Indian BSE Sensex indices decreased
by 5.80, 2.10, and 15.40 per cent,
respectively. In Africa, the Nigerian NSE
All-Share, the South African JSE AllShare, the Kenyan Nairobi NSE 20, the
Egyptian
EGX
CASE

and
the
Ghanaian GSE All Share indices all
decreased by, 8.80, 5.20, 26.50, 22.90,
and 15.80 per cent, respectively. The
rush to gold as a haven asset also
broadly contributed to the downturns
observed across these markets.


CBN Monetary Policy Review

Table 2.2: Selected International Stock Market Indices as at June 30, 2020
Country
Index
30-Jun-19
31-Dec-19
30-Jun-20
Jun 30, 2019 - Jun 30,
2020 % Change
Dec 31, 2019 - Jun 30, 20
% Change
AFRICA
Nigeria
NSE All-Share Index

South Africa
JSE All-Share Index

Kenya
Nairobi NSE 20 Share index

Egypt
EGX CASE 30

Ghana
GSE All-Share Index


NORTH AMERICA
US
S&P 500

Canada
S&P/TSX Composite

Mexico
Bolsa

SOUTH AMERICA
Brazil
Bovespa Stock

Argentina
Merval

Columbia
COLCAP

EUROPE
UK
FTSE 100

France
CAC 40

Germany
DAX

ASIA
Japan
NIKKEI 225

China
Shanghai SE A

India
BSE Sensex

Table 2d: Selected International Stock Market Indices as at June 30, 2020
Source: Bloomberg


2.3.3
Global Commodity Prices
Commodity prices witnessed significant
decline during the review period owing
to the outbreak of the COVID-19
pandemic,
which
resulted
in
the
shutting down of production and supply
chain globally. Consequently, the IMF
primary
commodity
price
index
decreased by 21.26 per cent to 91.8
points at end-June 2020 from 116.6
points at end-December 2019. All the
commodity sub-indices fell during the
review period. The sub-indices of nonfuel, edibles, industrial inputs, metals
and energy all decreased, by 0.55, 3.53,
5.71,
5.38,
and
47.05
per
cent,
respectively, to 108.6, 95.6, 114.0, 123.0,
and 67.4 points at end-June 2020 from
109.2, 99.1, 100.1, 120.9, 130.0, and 127.3
points at end-December 2019. In the
petroleum sector, actual prices per
barrel based on the OPEC Reference
Basket decreased by 43.76 per cent to
US$38.22
at
end-June

from
US$67.96 at end-December 2019.

The Food and Agriculture Organization
(FAO) Food Price Index decreased by
7.82 per cent to 93.1 points in June 2020
from 101.0 points in December 2019. The
decline in the index was due largely to
the impact of the COVID-19 pandemic
and attendant economic shutdown.
The sub-indices of meat, dairy, cereals,
vegetable oils and sugar all decreased
during the review period.

CBN Monetary Policy Review

2.3.4
Global
Foreign
Exchange
Markets
In the first half of 2020, most currencies
depreciated against the US dollar in
response to the twin shocks of the oil
price crisis between Saudi Arabia and
Russia and the COVID-19 pandemic.
Other lingering vulnerabilities from the
second half of 2019 also contributed to
the exchange rate pressures particularly
in major emerging market economies.
Consequently, in North America, the
Canadian dollar and the Mexican peso
depreciated, by 16.61 and 4.73 per
cent, respectively. In South America, the
Brazilian real, the Argentine peso, and
Colombian peso, depreciated by 25.03,
14.66, and 11.94 per cent, respectively.

In Europe, the British pound, the Euro
and the Russian ruble depreciated by
6.90 per cent, 0.04, and 10.30 per cent,
respectively. The Chinese yuan and
Indian rupee also depreciated, by 1.67
and 5.67 per cent, respectively. The
Japanese yen, however, appreciated
by 1.63 per cent.

In Africa, the Nigerian naira, the South
African rand, the Kenyan shilling, the
Egyptian pound, and the Ghanaian
cedi all depreciated, by 14.96, 18.58,
4.83,
0.74,
and
0.70
per
cent,
respectively.


Table 2.3: Exchange Rates of Selected Countries
(value in currency units to US$)

Currency
28-Jun-19
31-Dec-19
30-Jun-20
Dec 19 - Jun 20
(% App/Dep)
AFRICA
Nigeria
Naira

South Africa
Rand

Kenya
Shilling

Egypt
Pound

Ghana
Cedi

NORTH
AMERICA
Canada
Dollar

Mexico
Peso

SOUTH
AMERICA
Brazil
Real

Argentina
Peso

Colombia
Peso

EUROPE
UK
Pound

Euro Area
Euro

Russia
Ruble

ASIA
Japan
Yen

China
Yuan

India
Rupee

Source: bloomberg
Exchange Rates of Selected Countries (Value in currency units to US$)

CBN Monetary Policy Review

CHAPTER THREE
THE DOMESTIC ECONOMY

3.1
Output in the Domestic Economy

he Nigerian economy in the first half
of

witnessed
several
headwinds
arising
from
the
outbreak of the novel Coronavirus
(COVID-19)
pandemic,
which
compounded
existing
legacy
challenges, including: security issues,
growing infrastructure deficits, fiscal
weaknesses, partial land border closure,
and instability in the oil market. In
response to the pandemic, the Federal
Government implemented nationwide
lockdown measures to contain its
spread, including restriction of intra and
inter-state movements, closure of some
government
agencies,
businesses,
recreational
facilities,
schools,
and
airspace,
amongst
others.
Consequently, aggregate demand and
supply were severely constrained for the
half year, leading to a sharp downturn in
economic activities. In addition, the
price war between Saudi Arabia and
Russia coupled with low demand led to
the collapse in crude oil prices in the first
quarter
of
2020,
thus,
further
compounding the weaknesses in the
macroeconomy.

Data from the National Bureau of
Statistics (NBS) showed that real Gross
Domestic
Product
(GDP)
growth
moderated to 1.87 per cent (year-onyear) in the first quarter of 2020 from 2.10
and 2.55 per cent in the corresponding
and
preceding
quarters
of
2019,
respectively. The oil sector, which grew
by 5.06 per cent, was the main driver of
growth in the quarter. This was an
improvement from the contraction of
1.46 per cent in the corresponding
period of 2019, but a decline from the
6.36 per cent recorded in Q4 2019. The
outcome was due to an increase in oil
output to 2.07 million barrels per day
(mbpd), compared with 1.99 and 2.0
mbpd
in
the
corresponding
and
preceding
quarters
of
2019,
respectively. Nigeria ramped up oil
production to compensate for the fall in
prices.

The non-oil sector also grew, but at a
slower pace of 1.55 per cent in Q1 2020
compared with 2.47 and 2.26 per cent
in the corresponding and preceding
quarters of 2019. The key drivers of the
non-oil growth were Agriculture (2.20%),
Services (1.57%) and Industry (0.46%).
The non-oil l sector’s contribution to real
GDP, however, reduced to 90.50 per
cent from 90.78 and 92.68 per cent in
the
corresponding
and
preceding
quarters of 2019, respectively.

The severity of the impact of the
lockdown measures to contain the
pandemic intensified in the second
quarter of 2020 as real Gross Domestic
Product (GDP) contracted significantly,
by 6.10 per cent (year-on-year). The
outcome contrasted with the growth of
2.12
and
1.87
per
cent
in
the
corresponding period of 2019 and the
preceding quarter of 2020, respectively.
The contraction was driven by both the
oil and non-oil sectors in the review
T
CBN Monetary Policy Review

period. The oil sector contracted by 6.63
per cent in the second quarter, in
contrast to a growth of 7.17 and 5.06 per
cent in the corresponding period of
2019 and the preceding quarter of 2020,
respectively. Oil output declined owing
to a reduction in the OPEC+ production
ceiling in response to lower demand
occasioned by the lockdown measures
imposed
by
different
jurisdictions
globally to contain the pandemic. As a
result, oil output declined to 1.81 million
barrels per day (mbpd), compared with
2.02
and
2.07
mbpd
in
the
corresponding period of 2019 and
preceding quarter of 2020, respectively.

The non-oil sector, also contracted, by
6.05 per cent in the second quarter of
2020, in contrast to the growth of 1.64
and 1.55 per cent in the corresponding
period of 2019 and the preceding
quarter of 2020, respectively. The key
drivers of the contraction were Industry
(-15.43%) and Services (-6.78%), while
Agriculture grew by 1.58 per cent. The
non-oil sector contributed 91.07 per
cent to total real GDP in the second
quarter of 2020 compared with 91.02
and 90.05 per cent in the corresponding
period of 2019 and the preceding
quarter, respectively.


Figure 3.1: Gross Domestic Product Growth Rate
(2019Q1 – 2020Q2)
Source: National Bureau of Statistics (NBS)

3.1.1
DOMESTIC
ECONOMIC
ACTIVITIES
In the first half of 2020, real GDP growth
was driven by activities in both the oil
and non-oil sectors. The oil sector grew
by 5.06 per cent in the first quarter of
2020, representing a 6.52 percentage
points increase, compared with a
contraction of 1.46 per cent in the
corresponding period of 2019 and a
decline of 1.3 percentage points from
the growth of 6.36 per cent recorded in
the preceding quarter of 2019. Average
crude oil production rose to 2.07 million
barrels per day (mbpd), compared with
1.99 and 2.0 mbpd in the corresponding
and the preceding quarters of 2019,
respectively.

The non-oil sector grew by 1.55 per cent,
which was lower by 0.92 percentage
point compared with 2.47 per cent
recorded in the corresponding quarter
of 2019 and also 0.71 percentage point
lower than the 2.26 per cent in the
preceding quarter of 2019. Activities in
the non-oil sector was driven mainly by
CBN Monetary Policy Review

Finance
&
Insurance
(20.79%),
Information & Communication (7.65%),
Transport & Storage (2.82%), Crop
production (2.38%), Forestry (1.71%) and
Construction (1.69%) compared with
their respective growth rates of -7.60,
9.48, 19.50, 3.27, 2.19, and 3.18 per cent.
Growth of the non-oil sector was
moderated by contractions in Mining
and
quarrying
(53.55%),
Public
administration
(8.72%),
Real
estate
(4.75%) and Electricity, gas, steam & Air
conditioning (2.31%) compared with
their respective growth rates of 11.03, -
14.21, 0.93, and 8.47 per cent in the
corresponding period of 2019.

In the second quarter of 2020, however,
the oil sector contracted significantly,
by 6.63 per cent compared with the
growth of 7.17 and 5.06 per cent in the
corresponding quarter of 2019 and the
preceding period of 2020. Average
crude oil production declined by 10.40
and 12.56 per cent to 1.81 million barrels
per day (mbpd), compared with 2.02
and 2.07 mbpd in the corresponding
period of 2019 and the preceding
quarter of 2020, respectively.

The non-oil sector also contracted, by
6.05 per cent in the second quarter of
2020 in contrast to the growth of 1.64
and 1.55 per cent in the corresponding
period of 2019 and preceding quarter of
2020, respectively. The contraction in
non-oil sector activities were driven
mainly by Transport & Storage (-49.23%),
Accommodation & Food Services (-
40.19%),
Construction
(-31.77%),
Education (-24.12%), Real Estate (-
21.99%) and Trade (-16.59%). Others
were: Professional, Scientific & Technical
Services (-15.41%); Other Services (-
15.07%);
Arts,
Entertainment
&
Recreation (-8.93%); Manufacturing (-
8.78%); and Mining & Quarrying (-4.81%).
These compare with their respective
growth rates of 8.02, 2.92, 0.67, 0.96, -
3.84, -0.25, 1.21, 2.55, 0.81, -0.13, and -
2.54 per cent in the corresponding
period of 2019. The contraction of the
non-oil
sector
was
moderated
by
growth in Finance & Insurance (18.49%),
Information & Communication (15.09%),
and Fishing (5.68%), compared with their
respective growth rates of -2.24, 9.01,
and 1.09 per cent in the corresponding
period of 2019.

Figure 3.2: Non-oil Sector Performance (2019Q1 –
2020Q2)

Source: National Bureau of Statistic (NBS)


CBN Monetary Policy Review

Figure 3.3: Performance of oil Sector (2019Q1 –
2020Q2)

Source: National Bureau of Statistic (NBS)

3.1.2
Sectoral Analysis
The key factors that contributed to
output performance in major sectors in
the review period are analysed in this
section.

3.1.2.1 Agriculture
In the first quarter of 2020, growth in real
agricultural output moderated to 2.20
per cent from 3.17 and 2.31 per cent in
the corresponding period and the
preceding
quarter,
of
2019,
respectively. This was driven mainly by
moderation in the growth of crop
production sub-sector to 2.38 per cent in
the first quarter of 2020 from 3.27 and
2.52 per cent in the corresponding
period and the preceding quarter of
2019, respectively. Also growth of the
Fishing sub-sector moderated to 1.49
per cent in the first quarter of 2020 from
7.09
and
2.33
per
cent
in
the
corresponding
period
and
the
preceding quarter of 2019, respectively.
Equally, the forestry sub-sector growth
moderated to 1.71 per cent in the first
quarter of 2020 from 2.19 per cent in the
corresponding period. It was, however,
an improvement compared with 1.26
per cent in the preceding quarter. The
livestock
sub-sector
growth
also
moderated to 0.63 per cent from 0.88
per cent in the corresponding period.
The
outcome
was,
however,
an
improvement over the contraction of
0.20 per cent in the preceding quarter.

During the second quarter of 2020, real
agricultural output growth moderated
further to 1.58 per cent from 1.79 and
2.20 per cent in the corresponding
period of 2019 and preceding quarter of
2020, respectively. Growth in the sector
was driven mainly by the fishing subsector which grew by 5.68 per cent in
the
second
quarter,
a
significant
improvement when compared with 1.09
and 1.49 per cent in the corresponding
period of 2019 and the preceding
quarter
of
2020,
respectively.
The
livestock sub-sector also grew, by 2.26
per cent in the review period compared
with a contraction of 0.01 per cent, in
the corresponding period of 2019 and
the growth of 0.63 per cent in the
preceding quarter. The crop production
sub-sector growth rate moderated to
1.44 per cent in the second quarter of
2020 from 1.94 and 2.38 per cent in the
corresponding period of 2019 and the
preceding
quarter,
respectively.
Furthermore, the forestry sub-sector
grew by 1.08 per cent in the review
period from 3.23 and 1.71 per cent in the
CBN Monetary Policy Review

corresponding period of 2019 and the
preceding quarter, respectively. The
share of the agriculture sector in overall
GDP increased to 24.65 per cent from
22.78 and 21.96 per cent in the
corresponding period of 2019 and the
preceding quarter, respectively.

Figure 3.4: Agricultural Sector Contribution by
Activity (2019Q1-2020Q2)

Source: Statistics Department,CBN

3.1.2.1.1.0
Agricultural Policies and
Institutional Support
During
the
review
period,
the
agricultural sector continued to enjoy a
number of existing and new policies,
reforms, and institutional support, as
highlighted below:

3.1.2.1.1 The Agricultural Credit
Guarantee Scheme (ACGS)
The ACGS Fund was established in 1977
to encourage bank lending to the
agricultural sector, especially smallholder farmers by providing guarantee.
In the first half of 2020, a total of 9,641
loans, valued at ₦1.48 billion were
guaranteed
under
the
scheme
compared with 16,922 loans, valued at
₦2.38 billion in the second half of 2019.
The
development
represented
a
decrease of 43.02 and 37.82 per cent,
respectively, in the number and value of
loans guaranteed. Also, 6,089 loans
valued at ₦0.79 billion were repaid,
compared with 15,212 loans valued at
₦2.10 billion in the second half of 2019.
These reflected decreases of 59.97 and
62.38 per cent in the number and value
of loans repaid, respectively.

3.1.2.1.1.2
N200
Billion
Commercial
Agriculture Credit Scheme (CACS)
The CACS was established in 2009 to
finance large ticket projects along the
agricultural value chain. It allows state
governments including the FCT to
access up to N1billion each for some
types of agricultural intervention.

Under the Scheme, ₦27.09 billion was
disbursed to 15 projects in the first half of
2020, an increase of 82.42 per cent,
compared with ₦14.85 billion to 12
projects in the second half of 2019.
However, a total of ₦29.04 billion was
repaid by 264 projects in the review
period, representing an increase of
122.55 per cent over the repayment of
₦13.04 billion by 135 projects in the
second half of 2019.

3.1.2.1.1.3 Micro, Small and Medium
Enterprises
Development
Fund
(MSMEDF)
The
MSMEDF
was
established
to
enhance the flow of credit to MSME subCBN Monetary Policy Review

sectors,
especially
women
entrepreneurs at low interest rate.
In the first half of 2020, there was no
disbursement compared with ₦2.00
billion
disbursed
to
one
State
Government project in the second half
of 2019. Repayments during the period
amounted to ₦4.97 billion compared
with ₦2.11 billion in the preceding
period.

3.1.2.1.1.4
Anchor
Borrowers’
Programme (ABP)
The ABP was launched in 2015 to
create an ecosystem that links small
holder farmers to local processors. In the
review period, ₦154.93 billion was
disbursed to 897,674 smallholder farmers
across the country for the production of
rice, maize, cassava, cotton, maize,
ginger, fish, onion, cocoa, soya beans,
and sesame. This compares with ₦54.32
billion disbursed to 348,719 farmers in the
preceding period. In addition, a total of
1,095,891
hectares
of
land
were
cultivated,
compared
with
404,842
hectares in the second half of 2019.
Repayments
in
the
review
period
totaled ₦22.80 billion compared with
₦17.24 billion in the preceding period.

3.1.2.1.1.5
Accelerated
Agriculture
Development Scheme (AADS)
The broad objective of the AADS is to
increase
agricultural
production
towards food security, job creation, and
economic diversification by engaging
youths in agriculture-related enterprises.
The sum of ₦6.00 billion was disbursed to
four
State
government-sponsored
projects in the review period, compared
with ₦5.98 billion disbursed to four
projects in the second half of 2019. The
projects included rice, poultry, cassava,
fish, maize and soya beans.

3.1.2.1.1.6
Agribusiness/
Small
and
Medium Enterprises Investment Scheme
(AGSMEIS)
The
Scheme
was
established
to
promote access to finance for small and
medium enterprises and develop the
agriculture value chain by leveraging
equity contributions of commercial
banks.

The Scheme disbursed ₦26.62 billion to
6,727 projects in the review period
compared with ₦10.83 billion released
to 3,337 projects in the second half of
2019. Repayment in the review period
was ₦27.16 million, compared with
₦2.87 million in the preceding half year.

3.1.2.1.1.7
Paddy
Aggregation
Scheme (PAS)
This is a short-term working capital loan
facility under the Commercial Agric
Credit Scheme to boost the capacity of
integrated rice millers to purchase
paddy during harvest period when
prices are lowest.

Under the Scheme, ₦3.20 billion was
released to three projects in the review
period compared with ₦3.50 billion for
12 projects in the second half of 2019.
There was no repayment during the first
half of 2020 compared with the sum of
CBN Monetary Policy Review

₦2.08 billion repaid by two (2) projects in
the second half of 2019.

3.1.2.1.1.8 Rice Distribution Fund (RDF)
The Rice Distribution Fund (RDF) is a
working capital facility introduced to
improve rice distribution across the
country. In the first half of 2020, the sum
of ₦1.00 billion was disbursed to six
projects under the Scheme.

3.1.2.1.1.9
National
Food
Security
Programme (NFSP)
The
NFSP
provides
financing
for
identified
off-taker
companies
to
support
the
Federal
Government’s
Strategic Grain Reserves. The funding is
used to mop up and procure grains,
such as soya, corn/maize, sorghum, and
millet and to fund commercial farming
and processing.

Under the Programme, ₦9.00 billion was
disbursed to two (2) projects in the
review period, compared with ₦14.50
billion for three (3) projects in the second
half of 2019. Repayment in the review
period was ₦2.85 billion, compared with
₦5.55 billion in the preceding half- year.

3.1.2.2 Industry

3.1.2.2.1
Industrial Production
Growth
in
the
industrial
sector
witnessed a slowdown during the review
period. In the first quarter of 2020, the
sector grew by 2.26 per cent compared
with 0.42 and 2.75 per cent in the
corresponding period of 2019 and the
preceding quarter, respectively. At 4.58
per cent, the Mining and Quarrying subsector was the main driver of the growth
in the first quarter of 2020 in contrast to
a contraction of 1.37 per cent in the
corresponding period of 2019. The
development
was,
however,
a
moderation compared with the growth
of 6.07 per cent in the preceding
quarter. Under the sub-sector, activity in
the crude petroleum & natural gas
expanded by 5.06 per cent from a
contraction of 1.46 per cent in the
corresponding period of 2019 and
growth of 6.36 per cent in the preceding
quarter.
Other
sub-sectors
that
contributed to the Industrial sector
growth were the construction and
manufacturing
sub-sectors.
The
Construction sub-sector grew by 1.69
per cent compared with 3.18 and 1.31
per cent in the corresponding and
preceding
quarters
of
2019,
respectively.
Similarly,
the
Manufacturing sub-sector grew by 0.43
per cent in the first quarter of 2020
compared with 0.81 and 1.24 per cent
in the corresponding and the preceding
quarters of 2019, respectively. Growth in
the industrial sector was moderated by
the
performance
of
utilities.
The
Electricity, Gas, Steam, & Air Conditioner
sub-sector contracted by 2.31 per cent
compared with 8.47 and -7.82 per cent
in the corresponding and preceding
quarters of 2019, respectively. Also, the
Water
Supply,
Sewage,
&
Waste
Management sub-sector contracted,
by 0.18 per cent in the first quarter of
2020 compared with growth of 3.75 and
3.52 per cent in the corresponding and
preceding
quarters
of
2019,
CBN Monetary Policy Review

respectively. The share of the industrial
sector in the overall GDP increased to
23.65 per cent in the first quarter of 2020
from 23.56 and 20.27 per cent in the
corresponding
period
and
the
preceding quarter of 2019, respectively.

In the second quarter of 2020, the
industrial sector, however, contracted
significantly
by
12.05
per
cent
compared with the growth of 2.84 and
2.26 per cent in the corresponding
period of 2019 and the preceding
quarter, respectively. The main driver of
the contraction in the sector was the
Construction
sub-sector
which
contracted significantly, by 31.77 per
cent, in contrast to the growth of 0.67
and 1.69 per cent in the corresponding
period of 2019 and the preceding
quarter of 2020, respectively. This was
followed by a deeper contraction in the
Manufacturing sub-sector by 8.78 per
cent in the review period, compared
with -0.13 per cent in the corresponding
period of 2019 and a growth of 0.43 per
cent in the preceding quarter. Other
sub-sectors that contributed to the
contraction in the industrial sector were
Mining & Quarrying and Electricity, Gas,
Steam & Air Conditioner. The Mining &
Quarrying sub-sector contracted by
6.60 per cent in the second quarter of
2020 compared with a growth of 7.0
and 4.58 per cent in the corresponding
period 2019 and the preceding quarter.
Similarly, Electricity, Gas, Steam, & Air
Conditioner contracted by 3.0 per cent
in the review period compared with 0.43
and -2.31 per cent in the corresponding
period of 2019 and the preceding
quarter, respectively. The contraction of
the industrial sector was moderated by
the growth in the Water supply, sewage
and waste management sub-sector by
5.71 per cent compared with 14.35 and
-0.18 per cent in the corresponding
period of 2019 and the preceding
quarter of 2020, respectively. With this
performance, the share of the industrial
sector in overall GDP declined to 21.87
per cent from 23.34 and 23.65 per cent
in the corresponding period of 2019 and
the preceding quarter, respectively.

Figure 3.5: Industrial Sector Contribution by Activity
(2019Q1-2020Q2)
Source: Statistics Department,CBN

3.1.2.2.2
Industrial
Policy
and
Institutional Support:
The industrial sector benefited from
several
existing
and
new
policy
measures, reforms and incentives in the
period under review as highlighted
below:


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3.1.2.2.2.1
Real
Sector
Support
Facility (RSSF) Using Differentiated Cash
Reserve Ratio (RSSF-DCRR)
The
RSSF
support
startups
and
expansion financing needs of large
enterprises
in
manufacturing,
agricultural value chain and selected
service sub-sectors with potentials for
high growth, contribution to accretion
to foreign reserves, expanding the
industrial
base
and,
consequently,
diversifying the economy.

In the period under review, ₦131.6 billion
was released to 55 projects, compared
with ₦82.50 billion disbursed to 46
projects in the second half of 2019. Also,
₦11.65 billion was repaid in the first half
of 2020, while there was no repayment
in the preceding period, as the loans
were still under moratorium.

3.1.2.2.2.2 Non-Oil Export Stimulation
Facility (NESF)
The NESF is a financing scheme that
aimed to improve the access of
exporters to concessionary finance for
expansion and diversification of the
non-oil export basket.

Under this Facility, ₦9.00 billion was
released to two (2) projects in the first
half of 2020 compared with ₦1.50 billion
disbursed to one (1) project in the
second half of 2019. In addition, ₦2.85
billion was repaid compared with ₦2.47
billion in the preceding period.


3.1.2.2.2.3
Export
Development
Facility (EDF)
During the review period, there was no
disbursement due to the impact of the
COVID-19 pandemic which resulted in
general decline in export demand. This
outcome compares with ₦9.38 billion
disbursed to 28 projects in agriculture,
industry and the services sectors. There
was no repayment in the review period.

3.1.2.2.2.4
Creative
Industry
Financing Initiative (CIFI)
The
Creative
Industry
Financing
Initiative (CIFI) was introduced as a
window under the AGSMEIS to improve
access
to
long-term,
low-interest
financing
by
entrepreneurs
and
investors in the Nigerian creative industry
and information technology (IT) subsectors. The core of the initiative was to
increase
participation
of
youth
entrepreneurs in economic activities
such as fashion, information technology,
software development, movies and
music production and distribution.

Under the initiative, ₦1.10 billion was
disbursed to 160 projects in the first half
of 2020 compared with ₦410.62 million in
the second half of 2019.

3.1.2.2.2.5
Targeted Credit Facility
(TCF)
Targeted
Credit
Facility
(TCF),
managed by NIRSAL Microfinance Bank
(NMFB), was introduced in the first half of
2020 to cushion the impact of the
COVID-19 pandemic on households
CBN Monetary Policy Review

and businesses. During the period under
review the sum of ₦33.38 billion was
disbursed to 41,600 projects.

3.1.2.2.2.6 Health Sector Intervention
Fund (HSIF)
The Health Sector Intervention Fund
(HSIF) was introduced to strengthen the
sector’s capacity to meet potential
increase in demand for healthcare
products and services due to the
impact of the COVID-19 pandemic. The
Facility provided affordable credit to
indigenous pharmaceutical companies
and other players on the healthcare
value
chain
intending
to
expand
capacity. A total of ₦20.96 billion was
disbursed to fifteen projects in the first
half of the 2020.

3.1.2.2.2.7
COVID-19
Intervention
Facility for the Manufacturing Sector
(CIFMS)
The COVID-19 Intervention Facility for
the Manufacturing Sector (CIFMS) was
introduced as a stimulus measure to
strengthen the Nigerian manufacturing
sector, by providing finance to boost
local manufacturing and support mass
employment in the country. The Facility
disbursed
₦137.49
billion
to

manufacturing companies in the review
period.


3.1.2.3 Services Sector
During the review period, the hitherto
strong performance of the Services
sector weakened as a result of the
impact
of
pre-existing
challenges
compounded
by
the
headwinds
associated with the outbreak of the
novel
Coronavirus
(COVID-19)
pandemic.

Accordingly, growth of the Services
sector moderated to 1.57 per cent in the
first quarter of 2020, compared with 2.41
and 2.60 per cent in the corresponding
and
preceding
quarters
of
2019,
respectively. The outcome in the first
quarter of 2020 was driven by Finance &
Insurance
(20.79%),
Information
&
Communication (7.65%), Transportation
& Storage (2.82%), Arts, Entertainment, &
Recreation (1.53%), Human Health &
Social Services (1.06%), Other Services
(1.06%) and Education (0.69%). These
compare with their respective growth
rates of -7.60, 9.48, 19.50, 7.12, -0.16,
2.35,
and
0.18
per
cent
in
the
corresponding period of 2019. The
decline in the growth rate on the other
hand,
was
driven
by
Public
Administration (-8.72%), Real Estate (-
4.75%),
Accommodation
&
Food
Services
(-2.99%),
Trade
(-2.82%),
Administrative & Support Services (-
1.90%) and Professional, Scientific &
Technical Services (-0.39%), compared
with their respective growth rates of -
14.21, 0.93, 4.15, 0.85, 1.43, and 1.73 per
cent in the corresponding period of
2019. The share of the Sector in overall
GDP, stood at 54.39 per cent in the first
quarter of 2020 compared with 54.55
CBN Monetary Policy Review

and 53.64 per cent in the corresponding
and
preceding
quarters
of
2019,
respectively.

During
the
second
quarter,
the
moderation in the sector which began
in the first quarter intensified, leading to
a sharp contraction of 6.78 per cent
compared with the growth of 1.94 and
1.57 per cent in the corresponding
period of 2019 and the preceding
quarter
of
2020,
respectively.
The
contraction in the sector was driven by
Transportation
&
Storage
(-49.23%),
Accommodation & Food Services (-
40.19%), Education (-24.12%), Trade (-
16.59%), and Other Services (-15.07%).
These compare with their respective
growth rates of 8.02, 2.92, 0.96, -0.25,
and 2.55 per cent in the corresponding
period of 2019. The contraction was,
however, moderated by the growth in
the Finance & Insurance (18.49%) and
Information & Communication (15.09%)
sub-sectors
compared
with
their
respective growth rates of -2.24 and 9.01
per cent in the corresponding period of
2019. The share of the Sector in overall
GDP declined to 53.49 per cent in the
second quarter of 2020 from 53.87 and
54.39 per cent in the corresponding
period of 2019 and preceding quarter,
respectively.


Figure 3.6: Services Sub-Sector Contribution,
2019Q1-2020Q2

Source: Statistics Department,CBN

3.1.2.4 Oil Sector
In the first half of 2020, the oil sector
witnessed significant fluctuations arising
from two main causes; the economic
effect of the COVID-19 pandemic and
the oil price war between Saudi Arabia
and Russia. The pandemic resulted in
lockdowns across the globe leading to
a near total shutdown of production
and
manufacturing
activities
thus,
hampering demand for crude oil in the
international market. The price war
between Saudi Arabia and Russia
compounded the existing problem of a
global supply glut, which led to an
unprecedented drop in crude oil prices
towards the beginning of the second
quarter. Nevertheless, average crude oil
production increased to 2.07 mbpd in
the first quarter of 2020 from 1.99 and 2.0
mbpd
in
the
corresponding
and
preceding
quarters
of
2019,
respectively.

Per cent
Q1-2019
Q2-2019
Q3-2019
Q4-2019
Q1-2020
Q2-2020
CBN Monetary Policy Review

In
the
second
quarter,
however,
average crude oil production declined
to 1.81 million barrels per day (mbpd)
compared with 2.02 and 2.07 mbpd in
the corresponding period of 2019 and
the
preceding
quarter
of
2020,
respectively.

Crude
oil
prices
also
weakened
significantly in the review period, due
largely to global supply glut occasioned
by the price war between Saudi Arabia
and Russia, as well as weak aggregate
demand resulting from the global
lockdown measures to contain the
spread of the COVID-19 pandemic. In
addition, recurrent crisis in the Middle
East, trade tensions between the US and
China as well as sanctions by the US on
Iran and Venezuela also contributed to
the weakness. Consequently, the price
of Nigeria’s reference crude, the Bonny
Light 370API, which stood at US$66.68
per
barrel
(pb)
in
January
2020,
declined to US$32.29 pb in March 2020.
The continued spread of the COVID-19
pandemic and resulting lockdown led
to further softening in the price of crude
oil to US$14.28 pb in April 2020 before
recovery to US$27.9 and US$40.23 pb in
May and June 2020, respectively.
Overall, the average price of Bonny
Light of US$39.99 pb in the first half of
2020 was slightly above the revised
budget benchmark of US$30pb used by
the Federal Government of Nigeria.


Figure 3.7: Quarterly Domestic Oil Production and
Export (2018Q1-2020Q2)

Source:National Bureau of Statistics ( NBS)

Figure 3.8: Monthly Bonny Light Oil Price, January
2020 – June 2020

Source: Statistics Department,CBN

Jan-20
Feb-20 Mar-20
Apr-20 May-20 Jun-20
US$
CBN Monetary Policy Review

Box 3.1: The Impact of the Covid-19 Pandemic on the Nigerian Economy

In December 2019, a novel coronavirus disease broke out in Wuhan City, Hubei
Province, China triggering severe global health challenges and disruptions to
economic activities. The Disease rapidly spread to other parts of the world causing
the World Health Organization (WHO) in January 2020, to declare the outbreak a
public health emergency of international concern and on March 11, 2020, it was
officially declared a pandemic.

In response to the rapid spread of the virus and the high infection and mortality rates
from the disease in many countries around the world, governments embarked on
measures to control the spread, which included: restrictions on movements across
international borders, lockdown measures and social physical distancing protocols
to minimize person-to-person interactions as well as other health and safety
measures including the use of face masks, hand sanitizers, body temperature
checks, test of persons with symptoms, the quarantine of positive cases in
designated isolation centres/ facilities, and contact tracing.

With over four million COVID-19 cases worldwide and about half a million deaths as
at end-June 2020, the global pandemic led to pressure on health facilities,
economic disruptions and social dislocations around the world leading to a gloomy
outlook for the global economy. As a result, the International Monetary Fund (IMF)
projected a 4.9 per cent contraction in global output in 2020, though with gradual
recovery from 2021 through 2022.

Effects of the Pandemic
The COVID-19 pandemic has had severe effects on economic activities, lives and
livelihood systems around the world. The pandemic was a major shock to the global
economy that drove down commodity prices. The most affected were energy and
metals prices following the sharp downturn in economic activities and the global
slowdown that ensued. Crude oil, a commodity largely used in powering economic
activities including transportation, manufacturing, etc, experienced the steepest
price decline due to collapsed demand. However, with the oil producing countries
still maintaining their production quotas, a supply glut was created which further
pushed down prices. Consequently, government finances were terribly affected. In
Nigeria, with oil prices down to US$18.5 per barrel on April 1st, 2020 from about
US$70.5pb on December 19th, 2019, there was a sharp drop in government revenue.
At that level, oil price was far below the projected budget benchmark. In addition,
the restrictions on movements and the eventual lockdown measures to contain the
spread of the virus, businesses were shut down which affected the generation of tax
revenues. The economic impact of the pandemic resulted in a 6.05 per cent
contraction in the gross domestic product (GDP) in the second quarter of 2020 from
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a growth of 1.87 per cent in the preceding quarter. The contraction was attributed
to the weak performance of both the oil and the non-oil sectors of the economy
during the period. In the areas of trade, the pandemic significantly eroded the gains
made over the years in international trade liberalization and trade protocols. The
adverse effects of the pandemic on trade have been projected to be more severe
than the 2008-09 Global Financial Crisis (GFC) given its impact on both aggregate
demand and supply with disruptions in global value chains (GVCs). With trade
liberalization and globalization, manufacturing has come to be organized in GVCs,
with countries relying on production networks for supply of raw materials as well as
intermediate products. What the COVID-19 pandemic has done was to disrupt this
value chain with distortionary effects on economic activities. The breakdown in
logistics network had severe implications for producers and consumers in various
countries. In addition, the restriction on movements in an effort to curb the spread
of the virus further constrained the availability of labour and transport, leading to
shut-down in various sectors of the global economy.

The tourism industry was also affected owing to the travel restrictions and the slump
in demand among travellers. Countries around the world, imposed quarantines,
entry bans, or other restrictions to citizens or recent travellers to the most affected
areas. Others imposed broad restrictions on foreign countries and regions, or
prevented their citizens from travelling overseas, all in effort to contain the spread
of the virus. In addition, museums, amusement parks, tourist sites, and sporting
venues were closed. The United Nation World Tourism Organisation (UNWTO)
estimated global tourism to decrease by 58 – 78 per cent in 2020 with potential loss
of about US$1.0 trillion in international tourism receipts. The Organisation further
reported that international tourist numbers declined by 65 per cent in the first half of
2020.

The Education sector was not spared by the pandemic. The lockdowns in response
to COVID-19 interrupted schooling with nationwide school closures. While the
educational community, particularly privately managed institutions, made efforts to
continue learning through virtual means during the period, the public schools were
completely closed. In Nigeria, as in many developing countries, students from
privileged backgrounds, found their way through alternative learning opportunities
relying on remote learning through technology, while those from poorer
backgrounds largely remained shut out of the closed schools. Teachers were also
finding it difficult to adapt to new pedagogical concepts and modes of delivery for
which they were not well-trained. The crisis, thus, exposed the many inadequacies
and inequities in our educational systems.


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Responses of Monetary and Fiscal Authorities
In response to the destabilizing impact of COVID-19, both the monetary and fiscal
authorities implemented measures to mitigate the effects on the economy, lives and
livelihoods. Generally, central banks responded with policy measures aimed at
reflating the economies through liquidity injections to stimulate both aggregate
demand and supply. The Central Bank of Nigeria announced a range of measures
to mitigate the impact and ensure that economic activities are not completely shut
down. The measures included: a one-year extension of moratorium on principal
repayments for CBN intervention facilities; the reduction of the interest rate on the
Bank’s intervention loans from 9.0 to 5.0 per cent; raising of the Loan-to-Deposit ratio
policy to ensure more credit to the private sector; creation of a N50 billion targeted
credit facility for affected households and small and medium enterprises; granting
regulatory forbearance to banks to restructure loan terms facilities in affected
sectors as well as improving foreign exchange supply to the CBN by directing oil
companies and oil servicing companies to sell to the CBN rather than the Nigerian
National Petroleum Corporation. Other measures were: additional N100 billion
intervention fund in healthcare loans to pharmaceutical companies and
healthcare practitioners intending to expand/build capacity; identification of few
key local pharmaceutical companies that will be granted funding facilities to
support the procurement of raw materials and equipment required to boost local
drug production; and N1 trillion in loans to boost local manufacturing and
production across critical sectors. The Bank also moved towards a unified exchange
rate system to ease pressure on the foreign exchange market. Also, for on-lending
facilities, the Bank directed financial institutions to engage International
development partners and negotiate concessions to ease the pains of borrowers.

Similarly, the government responded with measures aimed at promoting domestic
production, building of local capacity in strategic sectors and saving lives. The
Federal Government of Nigeria revised her 2020 budget downwards by 6.45 per
cent to N9.71 trillion from N10.59 trillion, including a 22.62 percent cut in capital
spending. The crude oil benchmark price was also lowered to US$28pb from
US$57pb. Also, the Government extended a three-month repayment moratorium
for all TraderMoni, MarketMoni and FarmerMoni loans, to ameliorate the impact on
households and small businesses. Similar moratorium was extended to all Federal
Government funded loans issued by the Bank of Industry, Bank of Agriculture, and
the Nigeria Export-Import Bank. In addition, the Government designed a N2.3 trillion
Economic Sustainability Plan whose objectives are: to prevent business collapse and
ensure liquidity; use of labour intensive methods to retain or create jobs in key
economic areas; undertake jobs that enhance growth and create infrastructural
investments in roads, bridges, solar power, and communications technologies. The
overall goal was to ensure that the economy weathered through the pandemic
with minimal disruptions.
CBN Monetary Policy Review

Conclusion
From the foregoing, it is clear that the COVID-19 pandemic, was a health challenge
that brought with it severe economic difficulties, resulting in loss of lives and
livelihoods, economic disruptions, and output contractions across nations. These
were confronted with decisive responses by the fiscal and monetary authorities to
mitigate the spread and protect lives, livelihoods as well as moderate the impact
on economic activities. The outcome of measures by the Nigerian Government to
address the crisis has been particularly successful in cushioning the adverse impacts
of the crisis on the citizens.


3.2
Price Developments
In the first half of 2020, inflationary
pressures
intensified,
due
to
the
shortages in the economy created by
the
lingering
impact
of
existing
challenges,
exacerbated
by
the
outbreak of the COVID-19 pandemic.
These, coupled with the generally
accommodative
monetary
policy
environment, continued to signpost an
unfavourable
inflation
outlook.
In
particular, the border protection policy,
disruption of supply chains, banditry,
and kidnapping as well as herder-farmer
crisis
in
rural
farming
communities
affected the food production and
distribution system. Consequently, all
three measures of inflation, namely
headline, food, and core, trended
upwards,
with
headline
inflation
remaining outside the upper band of
the Bank’s indicative benchmark of 6-9
per cent. This development generally
reflected the combined effects of a
number of supply- and demand-related
factors.

On the supply side, the exchange rate
remained under pressure due to the
decline in oil price, owing to the price
war between Saudi Arabia and Russia
and was worsened by the impact of the
COVID-19 shock. As a result, the external
reserves declined due to the slowdown
in accretion resulting from downward
pressure on oil prices. Thus, the naira
weakened in all segments of the
market, with the exchange rate in the
parallel market diverging markedly from
the official rate. The development
elicited decisive action from the Bank,
resulting in the adjustment of the
exchange
rate
from
N306/US$
to
N326/US$ in March 2020 and N361/US$
in April 2020. These adjustments were in
line with efforts to unify the exchange
rates in the market. Other supply factors
that influenced price developments in
the review period were; the continued
restriction
of
access
to
foreign
exchange for 41+ items, use of Bank
Verification Number (BVN) in BDC
transactions,
and
the
strategic
suspension and later resumption of sales
of foreign exchange to BDCs by the
Bank and International Money Transfer
Operators
(IMTOs).
Overall,
the
exchange
rate
pass-through
to
domestic prices contributed to the
acceleration of core inflation.

CBN Monetary Policy Review

On the demand-side, money market
activities continued to impact domestic
price
developments.
The
implementation of the Bank’s policy on
Loan-to-Deposit ratio and the lowering
of the monetary policy rate (MPR) in the
review period kept the Inter-Bank Call
and Open Buy Back (OBB) rates
relatively low, even as the cash reserve
requirements
were
increased,
in
response to the liquidity conditions in the
banking
system.
Thus,
the
accommodative
monetary
policy
stance of the Bank in response to the
adverse
economic
conditions
also
influenced price movements.

3.2.1
Trends in Inflation
The headline, food and core measures
of inflation maintained steady upward
trajectories during the period under
review. The consumer price index (CPI)
increased from 310.2, 282.9, and 343.2
index points, respectively, in January
2020 to 326.1, 295.0, and 363.9 index
points in June 2020. Food inflation (yearon-year) increased moderately by 0.33
percentage point from 14.85 per cent in
January to 15.18 per cent in June 2020.
Similarly, core inflation rose by 0.78
percentage point to 10.13 per cent in
June 2020, from 9.35 per cent in
January.
Consequently,
headline
inflation increased by 0.43 percentage
point from 12.13 per cent in January to
12.56 per cent in June 2020 (Figure 3.9
and Table 3.1). Thus, the major driver of
overall acceleration in consumer prices
during the period was core inflation.


Table 3.1: Inflation Rates, January – June 2020
CPI
Y-on-Y 12MMA CPI
Y-on-Y 12MMA CPI
Y-on-Y 12MMA
Jan 2020 310.16

Feb 2020 312.61

Mar 2020 315.23

Apr 2020 318.45

May 2020 322.17

Jun 2020 326.07

Headline Inflation
Core Inflation
Food Inflation
Source: National Bureau of Statistics (NBS) data
base

Figure 3.9: Headline, Core and Food Inflation Rates
(January – June 2020)
Source: National Bureau of Statistics (NBS) data
base

3.2.1.1 Headline Inflation
The major components of headline
inflation increased during the first half of
the year. Headline inflation in the review
period was largely driven by Food and
Non-Alcoholic
Beverages
which
increased by 0.28 percentage point
from 8.20 per cent in January to 8.48 per
cent in June 2020. Others included:
Health
which
increased
by
0.05
percentage point from 0.57 to 0.62 per
cent; Transport, by 0.03 percentage
point from 0.24 to 0.27 per cent, and
Furnishing, Household
Equipment &
Household
Maintenance,
by
0.02
percentage point from 0.40 to 0.42 per
cent (Table 3.2 and Figure 3.10). In

Headline (Y-on-Y)
Core (Y-on-Y)
Food (Y-on-Y)
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general, headline inflation rose by 0.43
percentage point from 12.13 per cent in
January to 12.56 per cent in June 2020.

Price development in the period largely
reflected
the
impact
of
supply
shortages owing to the lockdown
measures to address the COVID-19
/pandemic. In addition, the passthrough effect of the depreciation of
the exchange rate arising from the
decline in earnings from oil, combined
with pre-existing factors such as the land
border protection policy, increased
spate of insecurity as well as activities of
herdsmen
in
farming
communities
negatively influenced domestic price
developments.

Table 3.2 Major Components of Headline Inflation
((Y-on-Y), January - June 2020

Source: National Bureau of Statistics (NBS) data
base


Figure 3.10 Major Components of Headline
Inflation (Y-on-Y), January – June 2020

Source: National Bureau of Statistics (NBS) data
base

On a month-on-month basis, headline
inflation increased by 0.34 percentage
point from 0.87 per cent in January to
1.21 per cent in June 2020. The major
drivers
included:
Food
and
Nonalcoholic Beverages, which rose by 0.29
percentage point from 0.56 to 0.85 per
cent; Furnishing, Household Equipment
& Household Maintenance, by 0.01
percentage point from 0.03 to 0.04 per
cent; Health, by 0.01 percentage point
from 0.02 to 0.03 per cent; and
Transport, by 0.01 percentage point
from 0.05 to 0.06 per cent (Table 3.3 and
Figure 3.11). It is noteworthy that both
the year-on-year and month-on-month
headline inflation rates increased during
the period, indicating that the upward
pressure on prices is likely to persist in the
medium term. Consequently, policy
should prioritise measures to dampen
the pressure in view of the fact that
inflation is gradually exceeding the
lower double-digit band of the policy
target.

Headlin
e
Food &
NonAlcoholi
c Bev.
Furnishi
ngs,
Househo
ld Equip
&HH
Maint.
Healt
h
Trans
port
Com
munic
ation
Recre
ation
&
cultur
e
Educ
ation
Resta
urant
&
Hotels
Miscella
neous
Goods
&
Service
s
Jan '20

Feb '20

Mar '20

Apr '20

May '20

Jun '20

%Change
(Jan - Jun

Headline
Food & Non-Alcoholic
Bev.
Furnishings,
Household Equip &HH
Maint.
Health
Transport
Communication
Recreation & culture
Education
Restaurant & Hotels
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Headline
Food &
NonAlcoholic
Bev.
Furnishin
gs,
Househol
d Equip
&HH
Maint.
Health
Transport Communi
cation
Recreatio
n &
culture
Education
Restaura
nt &
Hotels
Miscellan
eous
Goods &
Services
Jan '20

Feb '20

Mar '20

Apr '20

May '20

Jun '20

%Chang
e (Jan -
Jun

Table 3.3: Major Components of Headline Inflation
(M-on-M), January - June 2020


Source: National Bureau of Statistics (NBS)

Figure 3.11: Major Components of Headline
Inflation (M-on-M), January – June 2020

Source: National Bureau of Statistics (NBS)

3.2.1.2 Food Inflation
Food inflation (year-on-year) rose by
0.33 percentage point from 14.85 per
cent in January to 15.18 per cent in June
2020, due largely to the rise in the price
of processed food by 0.51 percentage
point from 6.89 to 7.40 per cent. The
price of farm produce, on the other
hand, fell by 0.19 percentage point from
7.96 per cent in January to 7.77 per cent
in June 2020.

The increase in the price of processed
food was accounted for by the increase
in price of Yellow Gari Sold Loose by 0.4
percentage point from 0.80 to 1.20 per
cent, Gari White Sold Loose by 0.2
percentage point from 0.19 to 0.39 per
cent, and Bread Unsliced 500g by 0.1
percentage point from 0.16 to 0.26 per
cent. The decrease in the price of farm
produce was driven by decrease in the
price of Rice Agric Sold Loose by 0.24
percentage point from 1.57 to 1.33 per
cent and Rice Local Sold Loose by 0.18
percentage point from 1.29 to 1.11 per
cent.

Table 3.4: Major Components of Food Inflation (Yon-Y), January - June 2020
Food
Processe
d Food
Meat
Fish &
Sea Food
Milk,
Cheese
& Eggs
Oil &
Fats
Sugar, Jam,
Honey, ect.
Bread
Unsliced
500g
Gari White
Sold Loose
Gari Yellow
Sold Loose
Farm
Produce
Fruits
Vegetabl
es
Yam,
Potatoes &
Other
Rice
Agric
Sold
Rice
Local
Sold
Jan-20

Feb-20

Mar-20

Apr-20

May-20

Jun-20

Change
btw Jan &
Jun 2020

Source: National Bureau of Statistics (NBS)

Figure 3.12: Major Components of Food Inflation
(Y-on-Y), January – June 2020

Source: National Bureau of Statistics (NBS)

Consistent with the year-on-year trend,
month-on-month food inflation also rose
by 0.50 percentage point from 0.99 per
cent in January to 1.48 per cent in June
2020. The price of processed food rose
by 0.21 percentage point from 0.31 per
cent in January to 0.53 per cent in June

Headline
Food & Non-Alcoholic Bev.
Furnishings, Household
Equip &HH Maint.
Health
Transport
Communication
Recreation & culture
Education
Restaurant & Hotels
Miscellaneous Goods &
Services

Jan

Feb

Mar

Apr

May

Jun

Headline
Food & Non-Alcoholic
Bev.
Furnishings,
Household Equip &HH
Maint.
Health
Transport
Communication
Recreation & culture
Education
Restaurant & Hotels
CBN Monetary Policy Review


Jan

Feb

Mar

Apr

May

Jun

Food
Processed Food
Meat
Fish & Sea Food
Milk, Cheese & Eggs
Oil & Fats
Sugar, Jam, Honey,
etc.
Farm Produce
Fruits
Vegatables
Yam, Potatoes &
other tubers
2020. Similarly, the price of farm produce
rose, by 0.29 percentage point from 0.67
per cent to 0.96 per cent in the same
period. Thus, the 0.50 percentage point
increase in food inflation was due to the
increases
in
the
prices
of
both
processed food and farm produce
components. The key drivers of the
increase
in
the
processed
food
category were; fish & sea food, and oils
& fats, which rose by 0.02 percentage
point apiece, while the drivers of the
increase in the farm produce category
were Yam, Potatoes & Other tubers,
which increased by 0.08 percentage
point.

Table 3.5: Major Components of Food Inflation (Mon-M), January – June, 2020
Food
Processed
Food
Meat
Fish & Sea
Food
Milk, Cheese
& Eggs
Oil & Fats
Sugar, Jam,
Honey, etc.
Farm
Produce
Fruits
Vegatab
les
Yam,
Potatoes &
other tubers
Jan 2020

Feb 2020

Mar 2020

Apr 2020

May 2020

Jun 2020

Change
btw Jan &
Jun. 2020

Source: National Bureau of Statistics (NBS)

Figure 3.13: Major Components of Food Inflation
(M-on-M), January – June 2020


Source: National Bureau of Statistics (NBS)


3.2.1.3 Core Inflation
Core inflation (year-on-year) rose by
0.78 percentage point from 9.35 per
cent in January 2020 to 10.13 per cent in
June 2020. The rise in core inflation was
driven by Processed Food, which rose by
0.17 percentage point from 3.95 to 4.09
per cent; Housing, Water, Electricity &
Other Fuel by 0.13 percentage point
from 1.92 to 2.05 per cent; Transport by
0.09 percentage point from 0.82 to 0.91
per cent; Clothing & Footwear by 0.08
percentage point from 0.94 to 1.02 per
cent, and Restaurant & Hotels by 0.07
percentage point from 0.05 to 0.12 per
cent.
Other
components
of
core
inflation remained largely stable in the
review period (Table 3.6 and Figure
3.14). The rise in price of processed food
was due largely to adverse external
sector developments, which led to
sharp depreciation in the exchange
rate, with a pass-through effect to
domestic prices.

Table 3.6: Major Components of Core Inflation
(Y-on-Y) January – June 2020
Source: National Bureau of Statistics (NBS)


Core
Process
ed Food
NonAlcoholic
Beverages
Alcoholic
Bev.
Tobacco
& Kola
Clothing
&
footwear
Housing,
Water, Elect.
Gas & Other
Fuel
Furnishings,
Household
Equip & HH
Maint.
Health
Trans
port
Comm
unicati
on
Recreati
on &
Culture
Educ
ation
Restau
rant
and
Hotels
Jan-2020

Feb-2020

Mar-2020

Apr-2020

May-2020

Jun-2020

Change
btw Jan &
June 2020


CBN Monetary Policy Review

Figure 3.14 Major Components of Core Inflation (Yon-Y) January – June 2020

Source: National Bureau of Statistics (NBS)

On a month-on-month basis, core
inflation
also
increased,
by
0.04
percentage point from 0.82 per cent in
January to 0.86 per cent in June 2020.
The increase was driven by: Processed
Food, which increased from 0.31 per
cent in January to 0.35 per cent in June
2020, and Housing, Water, Electricity,
Gas & Other Fuels from 0.17 to 0.18 per
cent over the same period (Table 3.7
and Figure 3.15).

Table 3.7: Major Components of Core Inflation (Mon-M) January – June 2020

Source: National Bureau of Statistics (NBS)


Figure 3.15 Major Components of Core Inflation
(M-on-M) January – June 2020

Source: National Bureau of Statistics (NBS)

3.2.2
Seasonally-Adjusted Inflation
The actual and seasonally-adjusted
measures of headline inflation trended
upwards
in
the
review
period,
continuing the rising trend witnessed in
the second half of 2019 (Table 3.8 and
Figure 3.16). Actual headline inflation
continued to reflect the general price
level in the economy, trending above
the seasonally-adjusted measure in the
first two months of 2020. This indicated
that seasonal adjustment was able to
remove
the
effect
of
seasonality;
however, in the remaining months the
seasonally adjusted measure trended
above actual inflation, indicating the
return of seasonality. The overall upward
trend in both actual and seasonallyadjusted measures of inflation were
attributed mainly, to the COVID-19
pandemic, sustained border protection
policy, exchange rate adjustment by
the Bank and disruptions in the global
supply chain following lockdowns and
other measures to curtail the spread of
the Pandemic.


Core
Processed Food
Non-Alcoholic Beverages
Alcoholic Bev. Tobacco &
Kola
Clothing & footwear
Housing, Water, Elect.
Gas & Other Fuel
Furnishings, Household
Equip & HH Maint.
Health
Transport
Communication
Recreation & Culture
Education
Restaurant and Hotels
Core
Processed
Food
NonAlcoholic
Beverages
Alcoholic
Bev.
Tobacco &
Kola
Clothing
&
footwear
Housing,
Water,
Elect.
Gas &
Furnishings,
Household
Equip &HH
Maint.
Health
Trans
port
Communi
cation
Recrea
tion &
Culture
Education
Restaurant
and Hotels
Misc.
Goods
and
Service
Jan-20

Feb-20

Mar-20

Apr-20

May-20

Jun-20

Change
btw Jan &
June 2020
0.04
0.04

0.01

-0.01


Core
Processed Food
Non-Alcoholic Beverages
Alcoholic Bev. Tobacco &
Kola
Clothing & footwear
Housing, Water, Elect. Gas
& Other Fuel
Furnishings, Household
Equip &HH Maint.
Health
Transport
Communication
Recreation & Culture
Education
CBN Monetary Policy Review

Table 3.8: Actual and Seasonally Adjusted
Headline Inflation January – June 2020
Date
Inflation
SA
Inflation
Jan-20
12.13
11.44
Feb-20
12.20
11.93
Mar-20
12.26
12.33
Apr-20
12.34
12.48
May-20
12.40
12.96
Jun-20
12.47
13.08
Source: Statistics Department,CBN.

Figure 3.16: Actual and Seasonally Adjusted
Headline Inflation January – June 2020

Source: National Bureau of Statistics (NBS)

3.2.3
Key
Factors
that
Influenced
Domestic Prices
During the review period, inflationary
pressures reflected the inter-play of
cost-push,
demand-pull
and
moderating
factors.
The
inflation
outcome witnessed was therefore a
product of the net effect of these forces.
The key highlights of these factors
included: the effect of the COVID-19
pandemic;
supply
side
bottlenecks
resulting from shutdown of economic
activities;
the
sustained
border
protection measures; exchange rate
pressures; weakness in global oil prices;
growing insecurity; and farmer-herder
crisis which affected the agricutural
supply
chain.
Others
were:
the
continued efforts by the Bank to
improve production in the real sector
through
its
intervention
programs;
relative instability in domestic energy
prices; and the liquidity effects of
COVID-19 interventions.

3.2.3.1 Demand-side Factors
Headline inflation in the review period
was influenced by several demand-side
factors. These factors included: liquidity
injections through capital releases for
infrastructural
projects;
real
sector
intervention programmes; the gradual
implementation of the new minimum
wage and the payment of some
contractors’ obligations; and panic
buying ahead of COVID-19 lockdown;
as well as the Bank’s accommodative
monetary policy stance. These factors
contributed to the uptick in domestic
prices.

3.2.3.2 Supply-side Factors
A
number
of
supply-side
factors
exacerbated the inflationary pressure
during the review period. These factors
included: the disruptions to production
and distribution activities following the
COVID-19 lockdown; increased security
challenges across the country; lingering
impact of the land border protection
policy; and herders attack on farming
communities in the food producing
regions of the country. In addition, the
dwindling accretion to external reserves

Jan-20
Feb-20
Mar-20
Apr-20 May-20
Jun-20
Inflation
SA Inflation
CBN Monetary Policy Review

as a result of low oil prices led to the
depreciation of the exchange rate and
subsequent pass-through to domestic
prices.
All
these
accentuated
inflationary
pressures
despite
good
weather
and
sustained
agricultural
sector funding interventions by the CBN.

3.2.3.3 Moderating Factors
Even
though
headline
inflation
trended upwards in the review period,
several factors moderated the uptick.
These included: the Bank’s sustained
interventions
in
the
real
sector,
particularly
in
agriculture
and
manufacturing; stability in domestic
energy prices; as well as interventions by
the Federal Government to ease the
impact of the lockdown. In addition, the
Bank’s sustained intervention in the
foreign exchange market helped to
ease liquidity constraints faced by
importers and other investors in the real
sector. The lull in economic activities
also moderated demand for foreign
exchange.

3.3
Monetary
Policy
and
Liquidity
Management
In the first half of 2020, monetary policy
was shaped by developments in the
global and domestic economic and
financial environments. On the global
scene, the key development was the
severe macroeconomic shock caused
by the low oil price, compounded by
the outbreak and spread of the COVID19 pandemic. Factors responsible for
the
shock
included:
the
broad
slowdown in the advanced economies;
declining primary commodity prices;
extreme weather conditions in some
regions; capital reversals and exchange
rate pressures in some Emerging Market
and Developing Economies (EMDEs)
with pass-through to their domestic
prices,
although
inflation
in
the
advanced economies remained below
their long-run objectives. Other factors
were: growing vulnerabilities across
global financial markets; risks to price
and financial stability; losses in global
stock values; rising corporate debt in the
advanced economies and public debt
in some EMDEs; as well as the general
rebalancing of portfolios towards cash
and gold, as investors sought safer
assets.
The
pandemic
caused
disruptions to the global supply chain,
owing to large scale lockdown of major
cities. As a response, most central banks
embarked on a synchronised approach
to monetary accommodation.

The
domestic
front
witnessed
remarkable
moderation
in
output
growth due to the lockdown measures
to contain the pandemic as well as
disruptions to the supply chain owing to
restrictions on inter-state travels. The
projection was that the moderation in
output was likely to persist. Other
developments
included:
continued
uptick in headline inflation driven by
both the food and core components;
dismal performance in the equities
market;
sustained
resilience
and
improved performance of key banking
sector indicators such as the declining
ratio of Non-Performing Loans (NPLs);
reduced domestic supply of foreign
CBN Monetary Policy Review

exchange; and the continued impact
of deteriorating infrastructure.

3.3.1 Monetary Policy Response to
Evolving Economic Conditions
Monetary policy management in the
first half of 2020 was geared towards
responding
to
the
emerging
developments
in
the
global
and
domestic
economic
and
financial
environments.
These
developments
include the outbreak and rapid spread
of the Coronavirus Disease (COVID-19),
which
had
knock-on
effects
on
economic activities, lives and livelihood.
As a consequence, there was overall
decline in economic activities triggered
by weak aggregate demand and
supply, leading to a sharp decline in
global trade. The oil market was severely
affected
by
the
unprecedented
collapse in oil demand, compounded
by the oil price war between Saudi
Arabia and Russia. Other factors were:
the
significant
downturn
in
stock
markets; volatility in exchange rates;
rising corporate and public debts;
capital
flow
reversals;
shocks
to
commodity prices, and the escalating
tensions between the US and China as
well as the uncertainty associated with
the possibility of a second wave of the
pandemic,
which
affected
policy
choices.

The challenges at the domestic front
included:
persisting
inflationary
pressures; weak economic activity due
to the lockdown measures to contain
the spread of the pandemic; disruptions
in supply chains owing to restrictions on
interstate travel; lower oil revenue
leading to reduced supply of foreign
exchange and growing fiscal deficits;
and inadequate infrastructure.

These challenges and the desire to
achieve the Bank’s objective of price
stability conducive to sustainable and
inclusive
growth
were
the
key
considerations that shaped monetary
policy in the first half of 2020.

The
monetary
authority
undertook
proactive policy responses in order to
mitigate these challenges and support
national
economic
recovery.
Consequently, the Bank took decisive
action
to
safeguard
the
Nigerian
financial system and the economy from
the emerging headwinds. The key
policies
included:
extension
of
moratorium on loans by an additional
one (1) year, starting from March 2020,
to ease pressure on loan repayments;
reduced
interest
rates
on
CBN
interventions from 9 to 5 per cent over
the next one year; creation of a N50
billion fund to support households and
Small and Medium Enterprises (SMEs)
affected by COVID-19; credit support
for the healthcare sector; regulatory
forbearance
to
DMBs
to
consider
temporary
and
time-limited
restructuring of the tenor and loan terms
for households and businesses most
affected
by
COVID-19;
and
strengthening of the loan-to-deposit
ratio
(LDR)
policy.
The
Bank
also
announced an intervention fund of N1.1
trillion to cushion the adverse effects of
the
Coronavirus
outbreak
on
the
economy. This was in addition to the
CBN Monetary Policy Review

N1.5 trillion private sector-driven Infraco
Project
fund,
targeted
at
the
construction of critical infrastructure
across
the
country.
Furthermore,
pharmaceutical
companies
were
assisted through loan interventions to reestablish drug manufacturing firms in
Nigeria and curtail the spread of the
corona virus. These interventions were
expected to inject about N3.5 trillion into
the economy.

The Bank equally intervened in the
foreign exchange market by adjusting
the exchange rate from N306/US$ to
N326/US$ in March 2020 and N361/US$
in April 2020, in line with efforts to unify
the market exchange rates.

In addition, the Bank strengthened its
development
finance
interventions
through several on-going and new
schemes such as: The N200 billion
Commercial Agriculture Credit Scheme
(CACS); Micro, Small and Medium
Enterprises
Development
Fund
(MSMEDF);
Anchor
Borrowers’
Programme (ABP); Real Sector Support
Facility
(RSSF);
Creative
Industry
Financing Initiative (CIFI); COVID-19
Intervention
Facility
for
the
Manufacturing Sector (CIFMS); and the
Health Sector Intervention Fund, among
others.

3.3.2
Monetary
Policy
Committee
Meetings
The Monetary Policy Committee (MPC)
met three times during the review
period, namely in January, March and
May. The key considerations during the
January meeting were: the persistent
increase in the rate of inflation over the
last
few
months,
driven
by
both
monetary
and
structural
factors;
impediments
such
as
infrastructure
deficit and the long-standing clashes
between herdsmen and farmers, which
were constraining domestic production;
as well as rising public debt at a pace
faster than both domestic and external
revenues.

Based on the foregoing, the January
MPC decided by a vote of 9 members
to raise the Cash Reserve Requirement
(CRR) by 500 basis points from 22.5 to
27.5 per cent, while leaving all other
policy parameters constant.

At the March 2020 meeting, the MPC
was concerned among others, that the
muted outlook for the first half of the
year may dampen overall growth
prospects for 2020. In addition, the
Committee
noted
the
weakened
revenue
position
of
the
Federal
Government, arising from the sharp
drop in oil prices.

The Committee was also concerned
that the overall medium-term outlook
for the global economy remained
uncertain with prospects of further
deterioration in the financial market
conditions and weak global output
growth.
The
MPC
equally
took
cognizance of the impact of the
decline in oil prices on accretion to
external reserves and the emergence of
exchange rate pressures, endorsing the
prompt action of the Bank in adjusting
CBN Monetary Policy Review

the exchange rate to remove distortions
and unify market segments.

The March MPC, therefore, decided by
a
unanimous
vote
to
retain
the
Monetary Policy Rate (MPR) at 13.5 per
cent and to hold all other policy
parameters.

During the May 2020 meeting, the key
considerations were the uncertainties
around the global economy due to the
COVID-19 pandemic and associated
containment
measures
which
continued to disrupt normal economic
activities. The MPC was also concerned
about
the
heightened
inflationary
pressure attributed to a combination of
monetary and structural factors.

Accordingly, the May MPC voted to:
reduce the MPR to 12.5 per cent; retain
the Asymmetric Corridor of +200/-500
basis points around the MPR; retain the
CRR at 27.5 per cent; and retain the
Liquidity Ratio at 30 per cent.

The communiqués of the MPC meetings
are contained in the appendix.

3.3.3 Instruments
of
Liquidity
Management
In order to achieve its objective of
price and monetary stability, the Bank
continued to deploy various instruments
in the first half of 2020. These instruments
were: the Monetary Policy Rate (MPR);
the Cash Reserve Ratio (CRR); Liquidity
Ratio; Open Market Operations (OMO);
and
Discount
Window
Operations.
These were periodically complemented
with
interventions
in
the
foreign
exchange market.

3.3.3.1 Monetary Policy Rate (MPR)
The
Monetary
Policy
Rate
(MPR)
continued
to
be
the
Bank’s
key
instrument for signalling monetary policy
stance and management in the review
period. It was reduced by 100 basis
points to 12.5 per cent in May 2020, while
the asymmetric corridor of +200/-500
basis points around the MPR was
maintained throughout the period. The
reduction
signalled
the
Bank’s
commitment to support output recovery
in the face of slowdown in economic
activities partly occasioned by the
COVID-19 pandemic.

3.3.3.2 Open Market Operations (OMO)
The Bank continued to deploy the
Open Market Operations (OMO) as the
primary tool for liquidity management.
OMO sales decreased by 27.03 per cent
to N6,491.30 billion in the first half of 2020
from N8,895.99 billion in the preceding
half of 2019. The outcome was also a
decrease of 45.12 per cent from
N11,827.64 billion in the first half of 2019
(Table 3.9).


CBN Monetary Policy Review

Table 3.9: OMO Bills Auction (January – June,
2020) (N’billion)

Source: Financial Market Department,CBN.

Figure 3.17: OMO Bills Auction (January – June,
2020)

Source: Financial Market Department, CBN.

3.3.3.3 Reserve Requirements
The Bank sustained the use of the Cash
Reserves Ratio (CRR) and Liquidity Ratio
(LR) as macro-prudential and liquidity
management instruments in the first half
of 2020 to complement the MPR and
OMO auctions. The Monetary Policy
Committee raised the CRR to 27.5 from
22.5 per cent in January 2020 but
maintained Liquidity Ratio at 30.0 per
cent, to curb the observed excess
liquidity in the banking system.

3.3.3.4 Standing Facilities
In the first half of 2020, Deposit Money
Banks (DMBs) and the Discount House
(DH) continued to access the standing
facilities (lending/deposit) window to
meet their daily liquidity requirements.
The asymmetric corridor, which defines
the
window
in
the
market,
was
maintained at +200/-500 basis points
around the MPR.

Under the Window, the requests for
Standing
Lending
Facility
(SLF)
decreased by
56.05
per cent to
N3,317.40 billion in the first half of 2020
from N7,548.37 billion in the second half
of 2019. This also reflected a decrease of
72.68 per cent from N12,141.26 billion in
the first half of 2019 (Table 3.10).

Similarly, the volume of deposits under
the Standing Deposit Facility (SDF),
moderated by 24.25 per cent to
N3,084.75 billion in the first half of 2020
from N4,072.20 billion in the second half
of
2019.
This
also
represented
a
decrease of 61.76 per cent compared
with
N8,067.22
billion
in
the
corresponding period of 2019 (Table
3.11).

Transactions at the Window resulted in a
lower net lending of N232.65 billion in the
first
half
of

compared
with
N3,476.17 billion and N4,074.04 billion in
the preceding and corresponding half
years. The development indicated that
fewer banks experienced liquidity stress.


Date

% Change
Jan
3,070.42 2,193.52
-29%
Feb
3,474.13 1,574.64
-55%
Mar
2,158.57 673.38
-69%
Apr
841.21 676.19
-20%
May
1,152.67 114.00
-90%
Jun
1,130.64 1,259.57
11%

st Half
11,827.64 6,491.30
-45%
Jul
1,348.83
Aug
608.11
Sep
1,801.03
Oct
1,962.21
Nov
1,446.31
Dec
1,729.50

nd Half
8,895.99
Cumulative Figure
20,723.63
CBN Monetary Policy Review

Table 3.10: CBN Standing Lending Facility (January
2019 – June 2020) (N’billion)

Source: Financial Market Department, CBN

Figure 3.18: Standing Lending Facility (January –
June 2020)

Source: Financial Market Department, CBN

Table 3.11: CBN Standing Deposit Facility (January
2019 – June 2020) (N’billion)

Source: Financial Market Department, CBN
Figure 3.19: Standing Deposit Facility (January -
June, 2020)

Source: Financial Market Department, CBN.

3.3.3.5 Foreign Exchange Intervention
The review period witnessed significant
pressure in the foreign exchange market
arising from the shock to the oil market,
compounded
by
the
COVID-19
pandemic. In the face of declining
foreign exchange inflows and accretion
to external reserves, the Bank’s foreign
exchange management strategy was
to align the exchange rate to market
realities and promote a trend towards
full
exchange
rate
unification.
Consequently,
the
growing
supply
constraints in the foreign exchange
market
led
to
a
5.3
per
cent
depreciation of the naira to N380/US$
from N360/US$.

Total
foreign
exchange
supply
decreased by
26.96
per cent to
US$10,308.01 million in the first half of
2020 from US$14,113.31 million in the
second half of 2019. It, however,
increased by 22.88 per cent when
compared with US$8,388.50 million in the
corresponding period of 2019 (Table
3.12). The decrease in supply was largely
due to the combined impact of the oil
price shock and the containment
measures of the COVID-19 pandemic.
Date

% Change
Jan
3,232.63
580.77
Feb
3,328.80
510.27
Mar
1,955.75
957.34
Apr
2,011.93
277.93
May
896.82
398.84
Jun
715.33
592.25
1st Half
12,141.26
3,317.40
-72.68%
Jul
1,508.97
Aug
3,201.93
Sep
1,497.88
Oct
343.57
Nov
720.58
Dec
275.44
2nd Half
7,548.37
Total
19,689.63
Date

% Change
Jan
976.66
611.46

Feb
704.41
523.41

Mar
1,402.26
356.80

Apr
1,056.76
601.53

May
2,178.21
549.50

Jun
1,748.92
442.05

1st Half
8,067.22
3,084.75
-61.76%
Jul
1,291.45
Aug
361.43
Sep
405.56
Oct
710.75
Nov
555.34
Dec
747.67
2nd Half
4,072.20
Total
12,139.42
CBN Monetary Policy Review

Table 3.12: Foreign Exchange Supply by the CBN
(US$ Million)

Source: Financial Market Department, CBN.

Figure 3.20

Source: Financial Market Department, CBN.

3.3.4
Developments
in
Monetary
Aggregates
In
response
to
the
tweaking
of
monetary
policy
instruments,
the
performance of monetary aggregates
was mixed relative to their benchmarks
in the review period. Growth in broad
money supply (M3) was below its
indicative benchmark for 2020 in view of
the
Bank’s
restriction
of
non-bank
agents from participation in OMO bill
auctions. The other measure of money
supply (M2), however, grew above its
benchmark as maturing OMO securities
were not rolled-over, thus increasing the
demand deposit portion of narrow
money supply (M1). The growth in broad
money supply reflected the behaviour
of its key components namely, Net
Domestic Assets (NDA) and Net Foreign
Assets (NFA).

Net Domestic Assets (NDA) contracted
relative to its benchmark in the review
period.
Its
key
component,
Net
Domestic
Credit
(NDC)
grew
moderately, driven by growth in private
sector credit, as credit to government
contracted. The contraction in credit to
government
was
in
line
with
Government’s policy of preference for
foreign borrowing to restructure the
public debt portfolio.

Net Foreign Asset grew significantly
above its benchmark in the review
period, driven primarily by the monetary
authority’s foreign assets, mostly the
COVID-19
loans
and
grants
from
abroad.

3.3.4.1 Broad Money (M3, M2)
The broad measures of money supply
(M3 & M2) grew in the review period. M3
grew by 1.71 per cent to N35,345.80
billion at end-June 2020 from N34,752.62
billion at end-December 2019. When
compared with the end-June 2019 level
of N34,036.80 billion, it increased by 3.85
per cent. The annualized M3 growth
rate of 3.4 per cent at end-June 2020
was below the 2020 indicative growth
target of 4.66 per cent. Similarly, M2
grew by 11.86 per cent to N32,171.34
billion at end-June 2020 from N28,759.34
Date

%
Change
Total FX Supply
(including Forward Sales)
Total FX Supply
(including Forward Sales)
Jan
1,480.92
1,604.27
Feb
1,932.96
3,364.39
Mar
1,159.78
3,344.29
Apr
1,244.32
674.87
May
1,455.05
639.76
Jun
1,115.47
680.43

st Half
8,388.50
10,308.01
22.88%
Jul
2,160.21
Aug
3,160.16
Sep
1,985.79
Oct
1,908.88
Nov
2,317.46
Dec
2,580.81
2nd Half
14,113.31
CBN Monetary Policy Review

billion
at
end-December
2019.
Compared with the end-June 2019 level
of N27,034.54 billion, it increased by
19.00 per cent. The annualized M2
growth rate of 23.72 per cent at endJune 2020 was much higher than the
2020 indicative growth benchmark of
14.82 per cent.

The increase in M2 was primarily driven
by the increase in M1 by 15.87 per cent
and quasi money by 9.41 per cent
owing to the prohibition of the non-bank
public from investing in OMO bills. Thus,
the proceeds of matured OMO bills
were not rolled-over but became part
of M1 deposits or reinvested in other
near money instruments.

Figure 3.21: Money Supply (January - June 2020)

Source: Statistics Department, CBN.


Figure 3.22: Growth in Money Supply (January -
June 2020)

Source: Statistics Department, CBN.

3.3.4.2 Narrow Money (M1)
Narrow Money (M1) increased by
15.90 per cent to N12,204.25 billion at
end-June 2020 from N10,530.32 billion at
end-December 2019. It also increased
by 28.44 per cent compared with
N9,502.16 billion at end-June 2019.
When annualized, M1 increased by
31.79 per cent, which was significantly
higher than the 2020 indicative growth
benchmark of 7.60 per cent (Figures 3.21
and 3.22). The performance of M1 was
attributable to the significant increase in
Demand Deposits by 13.14 per cent,
owing to the inability of DMBs to roll-over
matured CBN bills held on behalf of the
non-bank public.

3.3.4.3 Net Foreign Assets (NFA)
Net Foreign Assets (NFA) increased by
30.49 per cent to N7,576.75 billion at
end-June 2020 from N5,806.32 billion at
end-December 2019. Compared with
the end-June 2019 figure of N9,946.58
billion, NFA declined by 23.83 per cent.
The annualized growth rate of NFA of
60.98 per cent at end-June 2020 was
CBN Monetary Policy Review

significantly above the 2020 indicative
growth target of 37.19 per cent. The
performance
of
NFA
above
its
benchmark in the review period was
driven largely by Claims on NonResidents in the Monetary Authority’s
Account.

3.3.4.4 Net Domestic Assets (NDA)
Net Domestic Assets (NDA) contracted
by 4.07 per cent to N27,769.05 billion at
end-June 2020 from N28,946.30 billion at
end-December 2019. Compared with
the end-June 2019 figure of N24,090.22
billion, NDA grew by 15.27 per cent. The
annualized 8.13 per cent contraction in
NDA was far lower than the 2020
indicative growth benchmark of -1.86
per cent.

Net Domestic Credit (NDC) increased
by 5.16 per cent, driven largely by credit
to the private sector, which increased
by 9.32 per cent owing to the Bank’s
regulatory measure to improve lending
to the real sector as well as its
development
finance
interventions.
These interventions were targeted at
improving the flow of credit to critical
sectors of the economy, especially in
the light of the weak performance and
heightened uncertainties associated
with the COVID-19 pandemic. Credit to
government, however, declined by 4.15
per cent primarily due to Government’s
policy of restructuring her debt portfolio
in favour of foreign borrowing. The
moderate performance of NDA was
also attributable to the behaviour of
Other Items Net (OIN), which increased
by 109.48 per cent, thus dampening the
impact of NDC on NDA.

Figure 3.23: Net Domestic Asset (NDA) (January -
June, 2020)

Source: Statistics Department, CBN.

Figure 3.24: NDA, NDC and Other Assets (Net)
(January – June, 2020)

Source: Statistics Department, CBN.

3.3.4.5 Credit to the Government (Cg)
Credit to Government (Cg) contracted
by 6.53 per cent to N8,863.20 billion at
end-June 2020 from N9,482.79 billion at
end-December 2019. Compared with
the end-June 2019 figure of N7,650.62
billion, it grew by 15.85 per cent. The
annualized contraction of 13.07 per
cent in Cg at end-June 2020 was
significantly below the 2020 indicative
growth target of 22.50 per cent. The
significant
decline
in
credit
to
government
is
the
outcome
of
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Government’s new policy in favour of
foreign borrowing in line with the need
to restructure its domestic debt portfolio.

3.3.4.6 Credit to the Private Sector (Cp)
Credit to the private sector (Cp)
increased by 9.30 per cent to N29,183.70
billion at end-June 2020 from N26,699.79
billion
at
end-December
2019.
Compared with the end-June 2019
figure of N24,387.86 billion, it grew by
19.66 per cent. The annualized growth
of 18.61 per cent in Cp at end-June 2020
was above the 2019 indicative growth
target of 14.14 per cent. With the
decline
in
government
borrowing,
private sector credit is now picking up
thereby reducing the crowding out
effect
of
government
borrowing
witnessed in the recent past. Credit to
the core private sector stood at 55.68
per cent of the total credit to the private
sector, and accounted for 40.26 per
cent of the actual growth in credit to the
private sector. The outcome implies that
credit to States and Local governments
may still be crowding out credit to the
core private sector.


Figure 3.25: Domestic Credit to Private Sector
(January – June, 2020)

Source: Statistics Department, CBN.

3.3.4.7 Reserve Money (RM)
Reserve Money (RM) increased by
52.91 per cent to N13,257.04 billion at
end-June 2020 from N8,669.83 billion at
end-December 2019. Compared with its
end-June 2019 level of N7,187.18 billion,
RM grew by 84.45 per cent. When
annualized, it grew by 105.82 per cent,
significantly above the 2020 indicative
growth target of 62.23 per cent. The
performance of RM was attributed to
the increase in excess reserves of DMBs
owing to their inability to rollover
maturing CBN bills held on behalf of
non-bank economic agents.

A summary of the major monetary
aggregates
and
their
provisional
outcomes as at end-June 2020 is
presented in Table 3.13.


CBN Monetary Policy Review

Table 3.13: The Performance of Monetary Aggregates and their Implications
Variables
Actual
Actual
Actual
Benchmark
H1:2020
Deviation
from
Benchmark
Change in
H1, 2020
over H2,

H1
H2
H1

M3 (N'b)

M3 (%)

M2 (N'b)

M2 (%)

M1 (N'b)

M1 (%)

RM (N'b)

RM (%)

NDC (N'b)

NDC (%)

Cg (N'b)

Cg (%)

Cp (N'b)

Cp (%)

NFA (N'b)

NFA (%)

NDA (N'b)

NDA (%)


CBN Monetary Policy Review

S/N
Monetary
Aggregates
Performance
Implication

Overall
Monetary
Aggregates
Mixed-
The mixed performance is indicative of growing
uncertainties
and
weakening
economic
fundamentals. The improved performance of NFA
which is not due to improved export revenue is a
major concern for policy.

Broad Money
(M3, M2)
Mixed
While M3 performed below its benchmark, M2
grew significantly above its target, providing
mixed policy signals. The behaviour of M2 appears
consistent with the prevailing uptrend in inflation.

Narrow
Money (M1)
Strong
and
above target
The strong performance is not indicative of
improved economic activities, but merely the
result of a portfolio shift arising from the inability of
DMBs to reinvest matured OMO bills on behalf of
the non-bank public. This concern is further
amplified by the weak signals from other monetary
aggregates, consistent with weakening economic
activities.

Net
Foreign
Assets (NFA)
Significantly
above target
The improved performance of NFA which is not
due to improved export revenue is a major
concern for policy.

Net Domestic
Assets (NDA)
below target
The contraction in NDA is worrisome in view of the
sharp slowdown in growth which requires both
monetary and fiscal stimulus.

Credit to the
Govt (Cg)
Below target
The underperformance of credit to government
reflects Government’s new policy in favour of
foreign borrowing in line with the need to
restructure its domestic debt portfolio. The
underperformance of credit to government
signposts the crowding in of private sector
investments.

Credit to the
Private Sector
(Cp)
Above target
The improved performance demonstrates the
increasing role of the private sector in driving
economic activities. As more credit is made
available to the real sector, there would be a
corresponding growth in output and employment.
Source: Statistics Department, CBN.


CBN Monetary Policy Review

Box 3.2: The Nigerian Finance Act 2020: Implications for Monetary Policy

The Nigeria Finance Act (2020) was promulgated as an Act of the National Assembly
after being assented to by President Muhammdu Buhari on January 13th, 2020. The
Act was in response to the need to reform Nigeria’s tax laws to align with global best
practices, support Micro, Small and Medium scale Enterprises (MSMEs) in line with
Ease of Doing Business Reforms, incentivise private sector’ investment in
infrastructure and capital markets, and increase government tax revenues. Key
amendments introduced by the Finance Act included: increase in value-added tax
(VAT) rate from 5 to 7.5 per cent; expansion of the list of VAT-exempt items to include
a number of staple foods, food additives, water, etc; and exemption of small
companies (with annual gross turnover of N25 million or less) from payment of
Companies’ Income Tax. Others are: amendment of CITA to capture non-resident
companies that provide digital services within the Nigerian digital space; and
requirement for Tax Identification Number as a pre-condition for opening a
company or business bank account or continuing operation of a company or
business bank account in Nigeria.

As part of the strategic objectives of the Act, the inclusion of the digital economy
and profit of non-resident companies are consistent with global best practices,
which tracks and harnesses tax revenue from activities occurring within the fiscal
space. Similarly, the goal of boosting small and medium scale enterprises and
adoption of targeted incentives to stimulate capital market activities and
infrastructure development would drive increase in economic activities. The Act also
addresses past investment impeding tax provisions which limited dividend pay-out.
Overall, the Act is intended to incentivise economic activities to stimulate GDP
growth and increase the tax revenue base.

The Act signposts a return to active fiscal supervision involving the regular review of
the macro environment and stimulation of business activities in the economy. It
introduced changes to the Companies Income Tax Act, Value Added Tax Act,
Petroleum Profits Tax Act, Personal Income Tax Act, Capital Gains Tax Act, Customs
and Excise Tariff Etc. (Consolidation) Act and Stamp Duties Act. The amendments
cut across five broad areas which included to: a) promote fiscal equity by mitigating
instances of regressive taxation; b) align domestic tax law with global best practice;
c) introduce tax incentives for investment in infrastructure and capital markets; d)
support small businesses and e); and, raise government revenue from various fiscal
measures.

The Act exempts any capital sum of N10 million or less received as compensation for
loss of office from the 10 per cent Capital Gains Tax and introduced (CGT) tax
concessions for business reorganisations to exempt chargeable gains on assets
CBN Monetary Policy Review

transferred pursuant to a related party business reorganisation. Income earned by
foreign companies from technical, management, consultancy or professional
services that are remotely provided to a person resident in Nigeria are taxable and
limited to Withholding Tax (WHT) deducted from them on such payments. Foreign
companies that “transmit, emit or receive signals, sounds, messages, images or data
of any kind from cable, radio, electromagnetic systems or any other electronic or
wireless apparatus to Nigeria in respect of any activity to the extent that the
company has significant economic presence in Nigeria and profit can be
attributable to such activity” are taxable.

On dividends, the Act exempts profits from Excess Dividend Tax (EDT) rule to mitigate
the incidence of (double) taxation by excluding certain profits from the rule. These
include; franked investment income, after-tax profits, tax-exempt income and
distributions made by Real Estate Investment Companies etc.

Expense deductibility rules were modified in order to close existing loopholes.
Companies are enjoined to track and/or apportion the costs relating to their taxexempt business segments and revenue streams to ensure that such expenses are
disallowed for tax purposes.

On gross-up Clauses, the Act reduced incidence of corporate tax on companies on
behalf of third parties and aligned Management Fee and other party cost with
transfer pricing regulations, thus, ameliorating hurdles faced in getting tax
deductibility approvals on such expenses incurred abroad by Nigerian companies.
Going forward, Nigerian Companies (not involved in banking and insurance
business) are only allowed to make a maximum of 30 per cent deductible interest
on foreign sourced debt on its Earnings before Interest, Tax, Depreciation, and
Amortisation (EBITDA) in the accounting period. The excess are now to be carried
forward and treated as tax-deductible for a maximum of five tax years.

The Act further simplified the commencement and cessation tax rules on newly
registered companies (i.e. first 3 years) and the liquidation of an existing company
(i.e. last 2 years). Taxes are paid based on accounting periods as companies file and
pay taxes based on the first 3 years of assessment. The Act also reduced the
maximum WHT exemptions on loans provided by foreign companies from 100 to 70
per cent, retained the other partial exemptions (i.e. at 40% and 10%) and made
clarification on the conditions for granting exemptions by defining “repayment
period” and “moratorium period.

On minimum tax, the previous rule, which was revenue-based applied 0.5 per cent
on residual of franked investment income over qualifying turnover, was amended in
the new Act such that companies with less than N25 million are exempt, while those
CBN Monetary Policy Review

with at least 25 per cent imported capital are no longer exempt from it. Non-resident
companies previously exempted would now fall within the minimum tax net.

On progressive tax rate, again, start-ups and small enterprises with less than N25M
gross turnover are exempt from tax, medium scale businesses with gross turnover of
between N25 and N100 million are subject to 20 per cent CIT rate, while those with
gross turnover in excess of N100 million are subject to 30 per cent CIT rate. Payment
modalities have also been changed such that self-assessed companies must pay tax
in full on or before the date of filling, tax credit of 1 per cent for large scale and 2 per
cent for medium scale businesses if payment is made 90 days prior to filing, while
penalties and interest on same for late payment has been increased to N50,000 for
the first month and N25,000 for every subsequent month.

In the new Act, indirect tax – VAT was increased by 50 per cent from 5 to 7.5 per cent
and incentives given to SMEs to support their growth. The compliance threshold is
meant to reduce tax administration cost, raise tax yield, encourage voluntary tax
payment, bring businesses into the tax net and encourage their growth. Incorporeal
assets like rights, trademark, royalty, patent, goodwill etc. and services rendered to
Nigerian entities in Nigeria by a resident or non-resident company are now taxable.
Imported goods are now subject to excise duties while electronic receipts have
chargeable Stamp Duties applied to them under the Act.

The tax exemption clause on export profits was amended to facilitate growth in the
Consumer and Industrial market. Companies, however, need to show that the export
proceeds are used to procure raw materials, plant, equipment and spare parts. All
imported excisable goods fall into the ED net and importers must account for same
to Nigeria Customs Service. The expanded list of VAT exempt goods and services is
designed to enhance domestic production of such goods. The basic food items list
inclusive of tuition is designed also to moderate the impact of the VAT increase on
the welfare of the Nigerian populace. Tax exemption was granted to companies
engaged in agricultural production for 5 years with an extension of further 3 years
based on satisfactory performance of the business. The reduction of withholding tax
(WHT) from 5.0 to 2.5 per cent on infrastructure projects is designed to improve their
profitability owing to the lean margins in the sector.

In summary, the amendments are expected to spur activities of companies while the
company income tax reduction for medium scale enterprises as well as tax
exemption of small companies are expected to enhance their cash flow and
provide absorptive buffers to domestic and global economic shocks. Additionally,
the amendments to commencement rule and ability to carry losses forward would
moderate failure risk at inception so that businesses can get enough traction as a
going concern. The amendments on dividends, which is expected to further spur
CBN Monetary Policy Review

investments in businesses, particularly in the capital market, is a significant fund
provider to businesses. The changes to export profit tax would encourage backward
integration and encourage capacity building in local production of raw materials,
equipment, and parts, and spur investment in the industrial sector. The amendments
relating to interest deductibility and taxation of foreign service should mitigate the
risk of base erosion and profit shifting by multinational corporations (MNC’s). The
amendments are expected to significantly enhance government’s non-oil revenue,
moderate dependence on debt funding, and improve the tax/GDP ratio.

Collectively, the Finance Act has three major implications for monetary policy. These
are: reduced borrowing by government as tax revenue rises with the implication of
reduced crowding out of the private sector in the capital market. This will mean that
market and retail interest rates will fall sharply. There will be increased investment in
the capital markets as retention is set to increase as a result of the amendments to
the dividend policy leading to increased market activities, reduced outflows, and
hence, reduced pressure on the exchange rate. In addition, the graduated
corporate tax system will allow smaller corporates to increase investment and
employment, thereby, driving output growth. Also, the effective implementation of
the Act will ensure that more firms conduct their businesses through the banking
system and, thus, improve the transmission of monetary policy impulses to the real
economy.
CBN Monetary Policy Review

3.4
Developments
in
Financial
Markets
The Nigerian financial markets in the
first
half
of

experienced
considerable stress, emanating from
shocks in both the global and domestic
economic and financial environments.
On the global front, the oil price war
between Saudi Arabia and Russia
weakened oil prices sharply leading to a
fall in accretion to reserves and a buildup of pressures on the exchange rate. In
addition, the COVID-19 pandemic led
to a global lockdown and subsequent
crippling of the global supply chain for
several months in the review period. The
combination of these shocks meant that
aggregate global demand and supply
remained tepid over a considerable
period, thus, forcing investors to seek
refuge in safe havens. Consequently,
the domestic financial markets suffered
a sustained and significant outflow of
capital. In addition to the foregoing, the
global economy was confronted with
severe vulnerabilities, such as: the
persistent weakening of global output
growth and the risk of recession across
several economies; declining primary
commodity
prices;
exchange
rate
volatility
across
several
emerging
market economies; rising corporate and
public
debts;
rising
levels
of
unemployment;
tightening
financial
conditions; and capital flow reversals.

Inflation in most advanced economies
in the first half of the year remained
muted
and
below
their
long-run
objectives.
While
these
economies
suffered from depressed price levels
prior to the outbreak of COVID-19, the
lockdown that ensued in the wake of
the outbreak further weakened price
development through a depressed
aggregate demand, triggered by the
prolonged
lockdown.
Price
development thus remained relatively
subdued throughout the first half of 2020
despite huge and synchronized liquidity
injections by several central banks. In
Emerging
Market
&
Developing
Economies,
price
development
remained
mixed
with
upward
inflationary pressure mostly notable in
the
oil
exporting
countries.

The
depressed oil price resulted in reduced
earnings and increased exchange rate
pressure for these economies, feeding
into
inflationary
pressures.
The
oil
importing countries, however, benefited
from lower oil prices, thus resulting in
lower levels of inflation.

The domestic money market remained
broadly
active
with
market
rates
fluctuating according to the liquidity
conditions in the banking system. In
some instances, the rates fluctuated
significantly outside the bands of the
Standing Facilities Corridor, reflecting
fluctuations in the liquidity conditions.
The Central Bank, however, maintained
stability in the foreign exchange market
through regular interventions in the
market,
to
douse
exchange
rate
pressures and uncertainties. In the
capital market, the All-Share Index (ASI)
and
Market
Capitalization
(MC),
recovered substantially towards the end
of the first quarter, as investor sentiments
buoyed globally following significant
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measures by both monetary and fiscal
authorities to mitigate the pandemic.

3.4.1
The Money Market
In the first half of 2020, money market
rates frequently fluctuated outside the
floor and ceiling of the Standing
Facilities Corridor. The persistent volatility
in the money market interest rates
reflected
the
unstable
liquidity
conditions in the banking system. The
upside risks to the money market rates
were, however, dowsed by the huge
injections
of
monetary
and
fiscal
stimulus in the wake of the outbreak of
COVID-19. Subsequently, money market
rates eased, as system liquidity was
buoyed by various injections into the
economy through the banking system.
The recorded decline in rates in the
Inter-Bank Market and the Open Buy
Back (OBB) segments between April
and June was an indication of the
Central
Bank’s
shift
into
an
accommodative
monetary
policy
stance which kept the short term market
active through the period of the
pandemic. Other sources of system
liquidity
included
statutory
monthly
disbursements
by
the
Federation
Account Allocation Committee (FAAC)
to
states
and
local
governments;
maturities of OMO bills and government
securities held by individuals and local
corporates;
and
other
regular
interventions by the CBN in the real
economy.

During the review period, the interbank
segment of the market witnessed fewer
trading days which resulted in a lower
volume of transactions, compared with
the
OBB
segment.
The
continued
preference for trading in collaterized
(OBB)
segment
indicates
the
persistence of counterparty risk within
the banking system.

At the May 2020 meeting of the MPC,
the Committee lowered the Monetary
Policy Rate (MPR) from 13.50 per cent to
12.50 per cent to support the economy
so as to navigate through the oil price
and COVID-19 shocks, even though
domestic prices were trending upward
and the exchange rate was confronted
with significant pressure.

3.4.1.1 Short-term
Interest
Rate
Developments
Liquidity levels in the banking system
remained the key determinant of the
level of interest rates in the money
market in the review period. The major
sources of banking system liquidity
included: auctions and maturities of
OMO and CBN bills; sales and maturities
of Nigerian Treasury Bills (NTBs) and
Treasury Bonds; as well as the monthly
statutory FAAC disbursements and other
fiscal operations by the various tiers of
government. Banking system liquidity
increased during the period, particularly
in the second quarter of the year as the
Bank
increased
monetary
accommodation
to
support
the
economy
through
the
COVID-19
pandemic.

Nonetheless, both segments of the
money market (OBB and Interbank)
remained
active
and
experienced
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considerable volatility in rates as liquidity
conditions
fluctuated,
with
more
activities observed in the OBB segment.
The
interbank
call
rate
oscillated
between 4.64 and 10.29 per cent,
averaging about 7.11 per cent during
the period. The OBB rate also fluctuated,
between 5.45 and 11.78 per cent,
averaging higher at 8.19 per cent in the
review period.

Table 3.14: Weighted Average Monthly Money
Market Interest Rates (Jan- Jun,2020)
Source: Statistics Department, CBN.

Figure 3.26: Weighted Average Monthly Money
Market Interest Rates (Jan – Jun, 2020)


Source: Statistics Department, CBN

1) The Interbank Call Rate
Activities
in
the
uncollateralized
interbank call segment of the market
was low throughout the review period
with a high number of non-trading days.
This
was,
however,
contrary
to
developments
in
the
collaterized
segment where trading days were
much higher than the non-trading days,
a reflection of the continued perception
of counterparty risk in the money
market. Consequently, interbank call
rates rose rapidly from a monthly
average of 5.74 per cent in January
2020 to 10.29 per cent in March before
crashing to 4.64 per cent in May and
closed at 5.75 per cent in June. The
market was mostly calm in June 2020.

Analysis of the daily interbank rates in
the review period showed that the call
rate ranged from 2.00 per cent on
various trading days in May 2020 to 18.00
per cent recorded in March 2020. The
peak of 18.00 per cent in March was
largely due to a restraint in trading by
banks in the wake of the increased
uncertainty as the pandemic and
associated lockdown forced economic
activities to slow sharply. The trough of
2.00 per cent on the other hand
signaled the restoration of market
confidence as the government eased
the COVID-19 lockdown measures.

Figure 3.27: Daily Interbank Call Rate (Jan – Jun
2020)


Source: Statistics Department, CBN.

PERIOD
Interbank
OBB
SDF
MPR
SLF
NIBOR-

DAYS


Jan-20

Feb-20

Mar-20

Apr-20

May-20

Jun-20

Average

CBN Monetary Policy Review

2) The Open Buy Back (OBB) Rate
The OBB segment of the market
witnessed a higher number of trading
days and transactions, compared with
the interbank call segment as Deposit
Money
Banks
(DMB)
showed
a
preference for collaterized transactions.
The monthly weighted average OBB
rate rose from 6.98 per cent in January
2020 to 8.12 percent in February 2020.
This increase was associated with the
declining system liquidity following the
Bank’s decision at the January 2020
MPC meeting, to increase the CRR from
22.5 per cent to 27.5 per cent. In
addition to this, DMBs also pulled back
on trading in March 2020 as uncertainty
built
up
around
the
COVID-19
pandemic. The OBB rate dropped from
5.52 per cent in April to 5.45 per cent in
May but surged to 11.31 per cent in June
2020.

Although the monthly averages showed
that the fluctuations of the OBB rate
were within a range of 5.52 per cent and
11.31 per cent, analysis of the daily rates
indicated that the OBB rate fluctuated
between 1.77 and 25.14 per cent during
the first half of 2020. The spike of 25.14
per
cent
observed
in
April
was
associated with the withdrawal of
liquidity
from
the
banking
system
through OMO auctions. The average
OBB rate for the period January – June
stood at 8.19 per cent, which was slightly
lower than the 8.61 per cent recorded in
the second half of 2019.


Figure 3.28: Daily Open Buy Back Rate (OBB) -
January - June 2020

Source: Statistics Department, CBN.

3)
The Nigeria Interbank Offered
Rate (NIBOR)
The Nigerian money market reference
rate
(NIBOR),
experienced
some
fluctuations in the period under review.
The rate rose from 9.32 and 9.09 per cent
in January and February, respectively,
to peak at 10.93 per cent in March 2020.
This period marked the advent of the
COVID-19 pandemic in Nigeria. It was
also indicative of a drop in system
liquidity,
thereby,
mirroring
the
developments in the interbank call and
OBB rates. As indicated in Table 3.14, the
30-day weighted average of NIBOR
continued to drop between April and
June 2020. The NIBOR stood at 9.95 per
cent in April, 6.13 per cent in May and
5.82 per cent in June 2020.

3.4.2 Foreign Exchange Market
In the first half of 2020, the Bank
maintained its interventions in the

Per cent
CBN Monetary Policy Review

foreign exchange (FOREX) market in
order to maintain an adequate level of
liquidity and stabilize the exchange rate.
Despite
these
interventions
in
the
market, exchange rate volatility in the
review period was very evident, as
foreign investors sought safe haven
assets in the light of the oil price and the
COVID-19 pandemic shocks to the
economy.

Consequently, the Bank adjusted the
naira exchange rate to N360.00 in
March 2020, from N306.00. It also set out
plans to prioritize the accessibility of
foreign exchange for the importation of
essential items. In addition, the Bank
maintained its previous policies on
foreign exchange management such
as: the restriction on foreign exchange
sales to 41+ items; the adoption of Bank
Verification Number (BVN) in BDC
transactions; the systematic monitoring
of
DMBs
to
prevent
speculative
activities; and direct interventions in the
foreign exchange market as well as
injections
through
the
International
Money Transfer Operators (IMTOs) and
BDCs to ensure adequate system-wide
liquidity.

Figure 3.29: Daily Naira/US Dollar Exchange Rate,
January – June 2020

Source: Statistics Department, CBN.
3.4.2.1 Average Exchange Rates
The
interbank
exchange
rate
depreciated by an average of 9.88 per
cent from N306.94/US$ in the second
half of 2019 to N337.26/US$ in the first
half of 2020 (see table 3.15). The
average BDC exchange rate also
depreciated during the same period, by
11.64 per cent from N359.28/US$ in the
second half of 2019 to N401.11/US$ in
the first half of 2020.

Table 3.15: Average Monthly Spot Exchange Rate
(N/US$), July 2019–June 2020
Month / Year
Interbank Rate
BDC Rate
Jul – 2019
306.94
359.44
Aug – 2019
306.95
359.00
Sep – 2019
306.92
359.00
Oct – 2019
306.96
359.00
Nov – 2019
306.94
359.00
Dec – 2019
306.95
360.25
Average
306.94
359.28
Jan – 2020
306.96
361.00
Feb – 2020
306.96
359.00
Mar – 2020
326.63
376.89
Apr – 2020
361.00
419.11
May – 2020
361.00
443.89
Jun – 2020
361.00
446.79
Average
337.26
401.11


Source: Statistics Department, CBN.

3.4.2.2 End-Period (Month) Exchange
Rates
At
the
Interbank
segment,
the
exchange
rate
remained
relatively
constant at the end of the period
compared with the beginning of the
period while at the BDC segment,
significant depreciation was observed.
Table 3.16 indicates that the interbank
segment slightly strengthened against
the dollar at the end of February, closing

Naira (N)
CBN Monetary Policy Review

at N306.95 while a rate of N361.00/US$
was recorded in March and remained
so till the end of the period under review.
At the Bureau de Change (BDC)
segment, the rate depreciated to
N409.00/US$ in March from N359.00/US$
at end-February and continued to
depreciate moderately to end-June
2020, to close at N455.00 US$

With the end-period exchange rate
remaining higher than the average
exchange rate for the period, against
the background of weakening external
environment, there is the likelihood of
continued
depreciation
of
the
exchange beyond the review period.

Table 3.16: End-Month Exchange Rate (N/US$),
July 2019 – June 2020
Month / Year
Interbank Rate
BDC Rate
Jul – 2019
306.75
360.25
Aug – 2019
306.85
359.50
Sep – 2019
306.95
359.00
Oct – 2019
306.95
359.00
Nov – 2019
306.95
360.00
Dec – 2019
306.95
360.00
Average
306.89
359.63
Jan – 2020
307.00
359.00
Feb – 2020
306.95
359.00
Mar – 2020
361.00
409.00
Apr – 2020
361.00
440.00
May – 2020
361.00
442.50
Jun – 2020
361.00
455.00
Average
342.99
410.75
Source: Statistics Department, CBN

3.4.2.3 Nominal
and
Real
Effective
Exchange Rates
The Nominal Effective Exchange Rate
(NEER) appreciated by 1.09 per cent, to
an average of 176.80 in the first half of
2020 from an average of 178.73 in the
corresponding half of 2019. It, however,
depreciated
by
0.67
per
cent
compared with the average of 175.61
per cent recorded in the second half of
2019. The Real Effective Exchange Rate
(REER) appreciated by 10.99 per cent
from an average of 83.66 in the first half
of 2019 to an average of 75.37 per cent
in the first half of 2020. Compared with
the average of 78.64 per cent recorded
in the second half of 2019, the REER
appreciated by 4.34 per cent in the
period under review (Table 3.17). The
appreciation of the NEER indicates
strengthening of the domestic currency
relative to currencies of the trading
partners. The appreciation of the REER
implied a loss of trade competitiveness
with Nigeria’s trading partners as exports
became less profitable, while imports
tend to be cheaper (Table 3.17 and
figure 3.30).

Table 3.17: Nominal and Real Effective Exchange
Rates Indices (Jan 2019 – June 2020)
Period
NEER
REER
Jan-19
181.24
85.87
Feb-19
180.02
85.02
Mar-19
178.77
84.06
Apr-19
178.31
83.49
May-19
176.55
81.94
Jun-19
177.51
81.62
2019: H1 Average
178.73
83.66
Jul-19
178.22
81.36
Aug-19
175.29
79.43
Sep-19
174.02
78.14
Oct-19
174.76
77.95
Nov-19
175.04
77.43
Dec-19
176.32
77.53
2019: H2 Average
175.61
78.64
Jan-20
176.39
76.98
Feb-20
174.69
75.80
CBN Monetary Policy Review

Mar-20
175.12
75.16
Apr-20
176.50
74.88
May-20
176.99
74.17
Jun-20
181.08
75.20
2020: H1 Average
176.80
75.37
Source: Statistics Department, CBN.

Figure 3.30: Nominal and Real Effective Exchange
Rates Indices (Jan 2019 – June 2020)

Source: Statistics Department, CBN.

3.4.2.4 Foreign
Exchange
Flows
through the CBN
Foreign exchange inflow through the
CBN decreased sharply by 18.75 per
cent to US$25,039.55 million in the first
half of 2020 from the US$30,819.73 million
recorded in the first half of 2019. The
outcome was a decline of 3.15 per cent
when compared with the US$25,853.79
million recorded in the second half of
2019.
Similarly,
foreign
exchange
outflows through the CBN declined by
5.28 per cent to US$27,324.79 million in
the first half of 2020 from US$28,846.76
million in the first half of 2019. Compared
with the US $32,300.86 million recorded
during the second half of the preceding
year, outflows in the current period
declined by 15.41 per cent. Overall,
there was a lower net outflow of
US$2,285.24 million in the review period
compared with US$6,447.07 million in
the preceding half year and a net inflow
of
US$1,972.97
million
in
the
corresponding period of 2019. The
contraction in both inflows and outflows
of forex during the review period was
attributed to the twin shocks of the
COVID-19 pandemic and decline in oil
prices to the global economy, both of
which crystalized in the first half of 2020.

Table 3.18: Monthly Foreign Exchange Flows
through the CBN (Jan 2019 – June 2020) in US$
Million
PERIOD
Inflow
(CBN)
Outflows
(CBN)
Net Flow
(CBN)
Jan-19
5,397.41
5,690.85
-293.44
Feb-19
5,228.38
5,362.41
-134.03
Mar-19
7,758.24
5,248.48
2,509.76
Apr-19
3,852.66
4,271.03
-418.37
May-19
4,986.98
4,597.62
389.36
Jun-19
3,596.06
3,676.36
-80.30
2019 H1 Total
30,819.73
28,846.76
1,972.97
Jul-19
4,747.84
5,540.36
-792.51
Aug-19
3,459.58
5,237.95
-1,778.37
Sep-19
4,152.02
5,425.34
-1,273.32
Oct-19
3,520.49
4,952.03
-1,431.54
Nov-19
4,978.75
5,385.84
-407.09
Dec-19
4,995.11
5,759.35
-764.24
2019 H2 Total
25,853.79
32,300.86
-6,447.07
Jan-20
5,271.65
6,652.58
-1,380.93
Feb-20
5,594.29
5,722.81
-128.52
Mar-20
4,121.73
6,997.01
-2,875.28
Apr-20
5,940.18
3,164.66
2,775.52
May-20
2,006.29
2,187.25
-180.96
Jun-20
2,105.41
2,600.48
-495.06
2020 H1 Total
25,039.55
27,324.79
-2,285.24
Source: Statistics Department, CBN.


Jan-19
Mar-19
May-19
Jul-19
Sep-19
Nov-19
Jan-20
Mar-20
May-20
NEER
REER
CBN Monetary Policy Review

Figure 3.31: Monthly Foreign Exchange Flows
through the CBN (Jan 2019 – Jun 2020)

Source: Statistics Department, CBN.

3.4.2.5 Foreign Exchange Flow through
the Economy
Gross foreign exchange inflow to the
economy dropped by 4.57 per cent to
US$64,349.50 million in the first half of
2020 from US$67,433.55 million in the
corresponding half of 2019. It also
decreased, by 11.57 per cent when
compared
with
the
inflow
of
US$72,766.77 million in the second half of
2019. Gross foreign exchange outflows
also fell, by 5.38 per cent to US$29,105.13
million in the period under review, from
US$30,759.51
million
in
the
corresponding period of 2019. It also
declined by 15.87 per cent when
compared
with
the
inflow
of
US$34,596.63 million in the second half
2019. Overall, the outcome resulted in a
lower net inflow of US$35,244.38 million,
compared with US$36,674.04 million and
US$38,170.14
million
in
the
corresponding period of 2019 and
preceding
second
half
of
2019,
respectively.
The decrease in gross foreign exchange
flows in the economy was also directly
attributable to the twin shocks of the
COVID-19 pandemic and the decline in
oil prices that hit the economy in the
review period.

Table 3.19: Monthly Foreign Exchange Flows
through the Economy (Jan 2019 – June 2020)

Source: Statistics Department, CBN.

Figure 3.32: Monthly Foreign Exchange Flows
through the Economy (Jan 2019 – Jun 2020) (US$
Million)


Total Inflows
Total Outflow
Net Flow
Source: Statistics Department, CBN.

Inflow (CBN)
Outflows (CBN)
Net Flow (CBN)
PERIOD
Inflow
(CBN)
Inflow
(Autonomous)
Total Inflows
Outflows
(CBN)
Outflows
(Autonomous)
Total
Outflow
Net Flow
Net Flow
(CBN)
Net Flow
(Autonomous)
Jan-19

Feb-19

Mar-19

Apr-19

May-19

Jun-19

2019 H1 Total

Jul-19

Aug-19

Sep-19

Oct-19

Nov-19

Dec-19

2019 H2 Total

Jan-20

Feb-20

Mar-20

Apr-20

May-20

Jun-20

2020 H1 Total

CBN Monetary Policy Review

3.4.3
Capital Market
The performance of the Nigerian
capital market in the first half of 2020
witnessed a bearish trend arising from
the huge capital outflow due to the
broad waning of investor confidence
and heightened negative sentiments.
This was precipitated by the increased
uncertainty associated with the initial oil
price shock that was subsequently
aggravated
by
the
COVID-19
pandemic and economic lockdown. In
the wake of these shocks, pressure on
the
exchange
rate
increased
as
accretion to external reserves waned.
There were significant sell-off activities in
the Nigerian Capital Market as investors
sought safe haven assets. These resulted
in a significant decline in stock market
capitalization while the bonds market
witnessed a narrowing of real yields as
inflation inched up.

3.4.3.1 Equities Market
The All-Share Index (ASI) decreased by
8.80 per cent from 26,842.07 at endDecember 2019 to 24,479.22 at endJune 2020. Compared with 29,966.87 at
end-June 2019, it also decreased, by
18.31 per cent year-on-year. Market
Capitalization (MC) also decreased, by
1.47 per cent to N12.77 trillion at endJune 2020 from N12.96 trillion at endDecember 2019. It also decreased, by
3.33
percent
year-on-year
when
compared with the N13.21 trillion at
end-June 2019.


Table 3.20: NSE All-Share Index (ASI) and Market
Capitalization (MC) (June 2019 – June 2020)
Date
ASI
MC(Equities)
N’Trillion)


Jun-19
29,966.87
13.21
Jul-19
27,718.26
13.51
Aug-19
27,525.81
13.39
Sep-19
27,630.56
13.45
Oct-19
26,355.35
12.83
Nov-19
27,002.15
13.03
Dec-19
26,842.07
12.96
Jan-20
28,843.53
14.86
Feb-20
26,216.46
13.66
Mar-20
21,300.47
11.10
Apr-20
23,021.01
12.00
May-20
25,267.82
13.17
Jun-20
24,479.22
12.77
Source: Nigerian Stock Exchange (NSE)

Figure 3.33: NSE All Share Index (ASI) and Market
Capitalization (MC) (June 2019 - June 2020)

Source: Nigerian Stock Exchange (NSE)

Figure 3.34: NSE ASI and MC (December 2019 –
June 2020)

Source: Nigerian Stock Exchange (NSE)
CBN Monetary Policy Review

3.4.3.1.2 Market Turnover
Aggregate stock market turnover in the
first half of 2020 decreased by 9.32 per
cent to 41.91 billion shares valued at
N495.65
billion
in
567,184
deals
compared with 46.22 billion shares,
valued at N538.57 billion in 463,313 deals
in the second half of 2019. Compared
with 34.56 billion shares, valued at
N400.50 billion in 400,384 deals in the
corresponding period of 2019, however,
it increased by 21.27 per cent. The
bearish trend in the equities segment
generally
reflected
the
unsavoury
domestic and foregin macroeconomic
environments induced by the oil price
crisis
and
the
Covid-19
health
pandemic.

3.4.3.1.3 Sectoral Contribution to Equity
Market Capitalization
The category classified as ‘Other
Sectors’
maintained
a
dominant
position in terms of contribution to
overall stock market capitalization in the
review period. Its contribution to Market
capitalization, however, decreased to
22.18 in the review period from 25.86 per
cent at end-December 2019. ‘Other
Sectors’ comprises of subsectors with
few participants trading on the Nigerian
Stock Exchange (NSE). The dominance
is attributed to the recent listing of some
telecommunication companies on the
exchange. Other sectors that also
contributed
to
the
overall
market
capitalization
were
the
Food
&
Beverages and Banking, with market
shares of 8.61 and 8.15 per cent,
respectively (Figure 3.35).
Figure 3.35: NSE Market Capitalization by Sector as
at End-June 2020

Source: Nigerian Stock Exchange (NSE)

Figure 3.36: NSE Market Capitalization by Sector as
at End-Dec 2019

Source: Nigerian Stock Exchange (NSE)

3.4.3.1.4 The Warren Buffett Valuation
Metric and Nigeria’s Equities Market
The Warren Buffett valuation metric
measures the ratio of the market value
of securities to GDP as an indicator of
market valuation. The range 75.0 and
115.0 per cent is considered to be
normal valuation for the index, while

Rest of Food and Beverages
Construction
Banking
Insurance
Breweries
Conglomerates
Oil and Gas
industrial goods
Dangote Cement
Dangote Sugar
NASCON (Dangote Salt)
Rest of Building Materials
Agriculture
Personal Household products
Services
MTN Nigeria
Other Sectors
CBN Monetary Policy Review

ratios below and above the interval are
considered
as
undervaluation
and
overvaluation of the equities market,
respectively. The valuation metric for Q1
2020 was 66.0 per cent, which is below
the lower threshold of 75.0 per cent,
implying an undervaluation of the
Nigerian equities market in the first
quarter of 2020. During Q2 2020, the
valuation metric moved up to 83.0 per
cent, which is within the normal range
suggesting a normal pricing of the
market in the second quarter of 2020.
The undervaluation in Q1 2020 may not
be
unrelated
to
the
dampened
investors sentiments in the wake of the
outbreak of Covid-19 pandemic during
the period; while the improvement in Q2
2020 reflected a return of optimism as
the curve of the pandemic began to
flatten in response to the containment
measures as well as to the monetary
and fiscal stimulus implemented to bring
the economy back on course.

Figure 3.37: Warren Buffett Valuation of Nigerian
Equities Market

Source: Nigerian Stock Exchange (NSE) and
National Bureau of Statistics (NBS).

3.4.3.2 Bond Market
In the first half of 2020, the bonds
market was dominated by transactions
in Federal Government of Nigeria (FGN)
securities. Some activities were also
recorded
in
the
Sub-national
government
and
corporate
bond
segments, with the later recording the
least share by market volume.

3.4.3.2.1 FGN Bonds
The 10-year dollar-denominated bond
yield for Nigeria rose marginally by 7.0
basis points to 3.74 per cent at end-June
2020 from 3.04 per cent at endDecember 2019. Compared with the
3.79 per cent at end-June 2019, the yield
declined by 0.05 basis point (Figure
3.38). This rise in yield reflected the
perception of increased risk by investors
in the country’s sovereign securities.

Figure 3.38: 10-Year U.S. Dollar-denominated Bond
Yield for Nigeria (June 2018 – June 2020)

Source: Bloomberg

The yield on FGN bonds declined by 443
basis points to 8.61 per cent in June 2020
from
13.04
per
cent
in
the
corresponding
period
of
2019.
Compared with the yield at endDecember 2019, it declined by 215 basis
points or 10.76 per cent. This decline was
driven by increased demand for the

Q1-2014
Q3-2014
Q1-2015
Q3-2015
Q1-2016
Q3-2016
Q1-2017
Q3-2017
Q1-2018
Q3-2018
Q1-2019
Q3-2019
Q1-2020
Per cent
WARREN BUFFET INDICATOR
CBN Monetary Policy Review

securities by institutional investors due to
the liquidity surfeit in the banking system.

Figure 3.39: FGN Bonds Yield Curves: end-Jun 2019
vs. end-Dec. 2019 vs. end-June 2020

Source: Financial Market Dealers Quotation
(FMDQ)

3.4.3.2.2 State/Local Government Bonds
The
sub-national
bonds
market
generally
witnessed
marginal
improvement in activity during the
review period. The total value of
outstanding state/local governments
bonds increased by approximately 4.20
per cent to N369.70 billion at end-June
2020 from N354.90 billion at endDecember 2019.

3.4.3.2.3 Corporate Bonds
Activities in the corporate bonds
segment improved in the review period
with the value of outstanding corporate
bonds at end-June 2020 increasing by
47.50 per cent to N526.52 billion at endJune 2020 from N355.82 billion in the
second half of 2019. The development
supported the view that investors in the
capital market during the review period
tended to show preference for fixed
income securities relative to equities.

3.4.3.3 Overall Analysis of the Nigerian
Capital Market
The value of FGN bonds increased by
13.03 per cent to N13.79 trillion at endJune 2020 from N12.20 trillion at endDecember 2019. It also increased, by
48.92 per cent, compared with the
N9.26 trillion recorded at end-June 2019.
At
end-June
2020,
FGN
bonds
accounted for 50.20 per cent of
aggregate market capitalization, while
state/municipal
bonds,
corporate
bonds
and
supranational
bonds
accounted for 1.35, 1.92, and 0.01 per
cent, with values of N369.70 billion,
N526.52
billion,
and
N3.24
billion,
respectively.
The
equities
market
represented
46.51
per
cent
of
aggregate market capitalization at
end-June 2020, while FGN bonds,
state/municipal
bonds,
corporate
bonds,
and
supranational
bonds
accounted for the balance of 53.49 per
cent (Figure 3.40).

Figure 3.40: Structure of the Nigerian Capital
Market (June-2020)

Source: Nigerian Stock Exchange (NSE).

Market Capitalisation (N' Millions)
FGN Bonds
State/Municipal bonds
Corporate bonds
Supranational bonds
Equities
CBN Monetary Policy Review

CHAPTER FOUR
ECONOMIC OUTLOOK AND RISKS

4.1
Outlook for Global Output
s developments around the
COVID-19 pandemic continue
to
manifest,
the
broad
projection for global growth in 2020 is a
contraction of 4.9 per cent with an
anticipated recovery to 5.4 per cent in
2021. This recovery is largely hinged on
the projection that the pandemic and
its downside risks would have been
mostly contained before the end of
2021. With threats of a second-round of
the pandemic building up, economic
agents however, remain reluctant to
invest in the recovery as they await
more clarity on the full impact of the
pandemic.

In the advanced economies, growth is
projected to recover to 4.8 per cent in
2021 from a contraction of 8.0 per cent
in 2020. The lockdown and social
distancing
regulations
as
well
as
voluntary
social
distancing
and
increased use of internet sources has
largely
crippled
the
anticipated
recovery in the second half of 2020, thus
raising doubts about full recovery in
2021. Tentatively, output growth in the
United States is expected to rebound to
4.5 per cent in 2021 from a contraction
of 8.0 per cent in 2020. In the euro area,
growth is estimated to recover to 6.0 per
cent
in

from
a
projected
contraction of 10.2 per cent in 2020.
Similarly, the United Kingdom economy
is also expected to recover to 6.3 per
cent in 2021 following a projected
contraction of 10.2 per cent in 2020,
while Japan’s economy is forecast to
recover to 2.4 per cent in 2021 from an
expected contraction of 5.8 per cent in
2020.

In the emerging market and developing
economies, growth is expected to
recover to 5.9 per cent in 2021 following
a projected contraction of 3.0 per cent
in 2020 on the back of China’s early
containment of the pandemic and
return to production in the first half of
2020. The Chinese economy is, thus,
forecast to grow to 8.2 per cent in 2021
from 1.0 per cent in 2020. India’s
economy,
following
an
extended
lockdown period is expected to recover
to 6.0 per cent in 2021 from a projected
contraction of 4.5 per cent in 2020.

In
Sub-Sahara
Africa,
growth
is
projected to improve to 3.4 per cent in
2021 from an expected contraction of
3.2 per cent in 2020 on the assumption
that the pandemic would be sufficiently
contained in the second half of 2020. It
is also expected that growth in major
trading
partners
will
rebound
substantially enough to support growth
in the region. In Nigeria, growth is
estimated to recover to 2.6 per cent in
2021 following a projected contraction
of 5.4 per cent in 2020. South Africa is
also expected to recover to 3.5 per cent
in 2021 following a contraction of 8.0 per
cent in 2020.


A
CBN Monetary Policy Review

Table 4.1 Global Output and Inflation Outlook

2019 2020*
2021*
A. World Output


World Output

Advanced
Economies

USA

Euro Area

Japan

UK

Canada

Other
Advanced
Economies

Emerging &
Developing
Economies

Commonwealth
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, June 2020
*Forecast

4.2
Outlook for Global Inflation
According
to
the
IMF’s
World
Economic
Outlook
for
July
2020,
projections for inflation have been
revised downwards for 2020, particularly
for the advanced economies. The
downward
revision
reflected
the
continued weakening of aggregate
demand, as the risk of voluntary social
distancing rises in a post lockdown
world. Inflation was, however, expected
to rise gradually in 2021 as normal
economic activities resume.

In the advanced economies, inflation is
expected to decline to 0.3 per cent in
2020 from 1.4 per cent in 2019 before
rising to 1.1 per cent in 2021. Inflation in
the US was projected to decline to 0.5
per cent in 2020 from 1.8 per cent in 2019
before rising to 1.5 per cent in 2021.
Similarly, in the euro area, consumer
price development was expected to
decline to 0.2 per cent in 2020 from 1.2
per cent in 2019 before rising to 0.9 per
cent in 2021. In Japan, inflation was
estimated to follow the same trend,
declining to -0.1 per cent in 2020 from
0.5 per cent in 2019 before rising to 0.3
per cent in 2021.

In the emerging market and developing
economies, inflation is expected to slow
to 4.4 per cent in 2020 down from 5.0 per
cent
in

before
increasing
marginally to 4.5 per cent in 2021.
Conversely,
in
China,
inflation
is
projected to increase marginally to 3.0
per cent in 2020 from 2.9 per cent in 2019
before declining to 2.6 per cent in 2021
(WEO, April 2020). In Russia, inflation was
projected to decrease to 3.1 per cent in
2020 from 4.5 per cent in 2019 and to
further decline marginally to 3.0 per
cent in 2021. Growth in consumer prices
in India are expected to decrease to 3.3
per cent in 2020 from 4.5 per cent in 2019
with a marginal increase to 3.6 per cent
in 2021.

Inflation
projections
for
Sub-Sahara
Africa, particularly in the oil exporting
economies, indicate an increase mostly
CBN Monetary Policy Review

due to the weak oil prices and the
resulting exchange rate depreciations.
Consequently, inflation is projected to
increase to 9.3 per cent in 2020 from 8.4
per cent in 2019 before slowing to 7.6
per cent in 2021. In Nigeria, the inflation
rate is estimated to increase to 13.4 per
cent in 2020 from 11.4 per cent in 2019,
before slowing to 12.4 per cent in 2021.
Similarly, Ghana’s headline inflation is
estimated to increase to 9.7 per cent in
2020 from 7.2 per cent in 2019 before
declining to 8.5 per cent in 2021.
Inflation in Angola is estimated to rise to
20.7 per cent in 2020 from 17.1 per cent
in 2019 and further to 22.3 per cent in
2021.

4.3
Outlook for Domestic Output
Growth
The Nigerian economy is projected to
contract
in

on
account
of
disruptions of economic activities during
the COVID-19 pandemic and the oil
price
shock
that
preceded
the
pandemic. At the beginning of the year,
the IMF had projected a 2.5 per cent
growth rate for the Nigerian economy in
2020, which it revised to a contraction of
3.4 per cent in April following the
outbreak of the COVID-19 pandemic.
However,
following
the
economy’s
response to the lockdown measures, the
Fund further downgraded its growth
outlook to a contraction of 5.4 per cent.
The Central Bank of Nigeria and the
National
Bureau
of
Statistics
are,
however, projecting a less pessimistic
growth outlook premised on several
factors
including
the
sustained
development finance interventions of
the Bank, and other reforms and
palliatives by the fiscal authorities to
support the economy.

4.4
Outlook for Domestic Inflation
Staff projections indicate that headline
inflation would continue its upward
trajectory through to the end of 2020.
Year-on-year
headline
inflation
is
expected to rise to 13.04, 13.18 and
13.39 per cent in July, August and
September 2020, respectively from 12.47
per cent in June 2020. Consequently,
inflation is thus expected to reach 13.79
per cent by end-December 2020, well
above the upper limit of the indicative
benchmark of 6-9 per cent.


CBN Monetary Policy Review

Table 4.2: 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-20
12.13
14.85
9.35
Actual
Jan-20
0.87
0.99
0.82
Feb-20
12.20
14.90
9.43
Feb-20
0.79
0.87
0.73
Mar-20
12.26
14.98
9.73
Mar-20
0.84
0.94
0.80
Apr-20
12.34
15.03
9.98
Apr-20
1.02
1.18
0.93
May-

12.40
15.04
10.12
May-

1.17
1.42
0.88
Jun-20
12.47
15.03
10.20
Jun-20
1.13
1.36
0.92
Forecast
Jul-20
13.04
15.04
10.53
Forecast
Jul-20
1.52
1.26
1.07
Aug-

13.18
15.01
10.80
Aug-

1.12
1.20
0.92
Sep-20
13.39
14.97
10.81
Sep-20
1.23
1.27
0.89
Oct-20
13.35
14.85
10.86
Oct-20
1.03
1.23
0.79
Nov-

13.51
14.81
10.93
Nov-

1.17
1.22
0.85
Dec-

13.79
14.78
11.15
Dec-

1.10
0.95
1.01
Source: National Bureau of Statistics (NBS) and CBN Staff Estimates

Figure 4.1: Inflation Forecast Fan Chart

Source: CBN Staff Estimates

4.5
The Outlook for Monetary Policy
in 2020
Monetary Policy in 2020 will continue
to focus on short term developments
and the medium-term outlook for the
economy.
In
the
prevailing
circumstance, monetary policy will,
therefore, maintain a balance between
its core objective of price stability while
supporting the recovery of output
growth.

The Bank will continue to monitor
developments in the global economy
which
may
influence
the
near-to
medium term direction of monetary
policy. The risk to global output growth
includes the continued containment of
the COVID-19 pandemic characterized
by disruptions to the global supply
chain, volatility in exchange rates, rising
corporate and public debts, rising
unemployment,
tightening
financial
conditions,
capital
flow
reversals,
negative shocks to commodity prices,
and overall higher uncertainty of global
economic policies. Given these risks, the
IMF reviewed the forecast for 2020
output
growth
downwards
to
a
contraction
of
4.9
per
cent,

CBN Monetary Policy Review

percentage points below the April
forecast of -3.0 per cent.

Other challenges to monetary policy
include
rising
fiscal
stimulus
by
government to cushion the impact of
the
lockdown,
increasing
capital
outflow,
exchange
rate
pressures,
financial
markets
volatility
and
constrained credit growth. Furthermore,
headline, food, and core inflation are
likely to trend upwards in the near term,
due to rising cost of food, driven by
disruptions to the supply chain and other
legacy structural factors such as the
high cost of energy, transport, and
production inputs. These issues will
continue to demand close attention
and monitoring.

Monetary policy implementation is,
however, expected to be supported by
the effective implementation of the
Economic Sustainability Plan; improved
agricultural production; provision of
social safety nets to ensure sustainability;
and improved accretion to reserves
following the moderate recovery of oil
prices. Besides, expected stability in the
exchange rate, supported by increased
foreign portfolio inflow would support
monetary policy implementation. Thus,
the thrust of monetary policy for the rest
of 2020 is to sustain an accommodative
monetary policy stance to avert a
recession, while supporting a noninflationary output recovery of the
Nigerian economy. An enhanced policy
coordination between the fiscal and
monetary authorities is expected to be
a key part of the strategy for a noninflationary and sustainable economic
growth and development.

4.6
Risks to the Outlook
Across
all
regions
of
the
global
economy, the major downside risk of the
outlook for the rest of 2020 and 2021
remains the uncertainties surrounding
the containment of the pandemic and
the ease of return to normal economic
activities stemming from periods of
extended lockdown, mandatory social
distancing, voluntary social distancing,
and the impending risk of a secondround
pandemic.
These
factors
collectively make it difficult to forecast
the speed and extent of the recovery
likely to take place as the global
economy remains in contraction.

The pace of recovery has, however,
been varied across different regions with
some regions still appearing to be
deeply affected by the pandemic while
others are coping better with the crisis.
China for example, has recovered
substantially and continues to wax
stronger in containing the pandemic. In
contrast, the United States is still battling
to contain the crisis alongside several
other advanced economies. A key risk
to the containment of the crisis is,
however, the risk of a second wave of
the pandemic in some countries where
some relative containment have been
achieved. As lockdowns are eased and
some normalcy to economic activities
returns, the risk of a second-round
pandemic may escalate.

CBN Monetary Policy Review

In the advanced economies, a major
impending risk expected to follow the
containment of the crisis is the risk of a
financial
crisis
and
sharp
rise
in
inflationary pressure, as the extent of
both monetary and fiscal stimulus
deployed to contain the crisis was
unprecedented.
In
the
emerging
market and developing economies, the
large size of the informal sector implies
that the containment of the crisis will be
more difficult as stimulus measures will
permeate
unevenly
through
the
economy. Thus, in the post-crisis period,
the pace of the recovery is not likely to
be robust but gradual and enduring. In
addition to this, the rising pace of public
debt in these groups of economies also
portends signals of imminent fiscal crises.

In the domestic economy, the downside
risks to growth include the continued
lockdown measures to contain the
pandemic,
thus
stifling
economic
activities as well as the continued weak
oil prices.

Upside risks to inflation in the near-term
remains the combination of monetary
and structural impediments, including:
exchange rate pressure; continued
impact of the COVID-19 pandemic on
the
economy;
poor
transport
infrastructure; food shortage due mainly
to the insecurity in the agricultural
producing areas of the country; and
increasing fiscal deficit. Others include:
the higher cost of imported food
exacerbated by the policy on border
protection; increased liquidity due to
increased fiscal stimulus by government;
injections from the Federation Account
Allocation Committee (FAAC); and VAT
increase. As the Bank continues to
manage liquidity conditions in the
domestic
economy,
inflationary
developments
will
need
to
be
monitored to ensure that the upside risk
to inflation is subdued. Thus, there is
need to strengthen fiscal and monetary
policy coordination to enable the Bank
to focus more on its main objective of
maintaining price stability.


CBN Monetary Policy Review

Appendices

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO.

OF
THE
MONETARY
POLICY
COMMITTEE
MEETING HELD ON THURSDAY 23rd AND
FRIDAY 24th JANUARY, 2020

1.0
Background
The Monetary Policy Committee (MPC)
held its 271st meeting, the first in fiscal
2020, on the 23rd and 24th of January,
2020.
The
Meeting
held
in
an
environment
of
sluggish
global
economic
recovery
and
financial
market
vulnerabilities,
and
tepid
domestic
growth.
The
Committee
appraised these developments and the
outlook for the first quarter of 2020, as
well as the rest of the year. All the Eleven
(11) members of the Committee were in
attendance.

Global Economic Developments
The headwinds that characterized the
global economy in 2019 showed signs of
moderation, giving way to improved
prospects for economic recovery in
2020. Consequently, global output is
projected to grow by 3.3 per cent in
2020 from 2.9 per cent in 2019. The
downside risks to the global outlook,
include:
broad
slowdown
in
the
advanced economies; resurgence of
financial stress in the Emerging Markets
and Developing Economies (EMDEs);
rising
geo-political
tensions
in
the
Middle-East;
and
extreme
weather
conditions in some regions. Output
growth
across
major
advanced
economies, remains fragile, due to
weak
recovery
in
manufacturing
activities and sluggish rise in global
trade. Consequently, growth in the
Advanced Economies is projected to
slow to 1.6 per cent in 2020, from 1.7 per
cent in 2019. With most EMDEs facing
brighter prospects, output growth is
expected to recover to 4.4 per cent in
2020 from 3.7 per cent in 2019. The major
impetus for this recovery is expected to
come from India, Brazil and Russia.

In most advanced economies, inflation
remained below their long-run targets,
reflecting weak aggregate demand in
the Euro Area and Japan, as well as
moderating wage growth in the US,
despite the robust job performance.
Central
Banks
in
the
advanced
economies are thus, expected to
continue
with
monetary
accommodation into the medium term.
In
the
EMDEs,
however,
inflation
prospects remain mixed, with some
economies facing stronger upside risks
than others.

Domestic Economic Developments
Real Gross Domestic Product (GDP)
continued to improve, although slowly.
It grew to 2.28 per cent in the third
quarter of 2019, compared with 2.12
and 1.81 per cent in the preceding and
corresponding
quarters
of
2018,
respectively.
The
improvement
in
growth was driven, largely, by the
performance of the oil sector, which
grew by 6.49 per cent, while the non-oil
sector grew by 1.85 per cent. Staff
projections estimate real GDP in Q4 2019
and Q1 2020 at 2.20 and 2.35 per cent,
respectively. The Manufacturing and
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Non-Manufacturing
Purchasing
Managers’ Indices (PMI) grew further in
December 2019, for the 33rd and 32nd
consecutive months, to 60.8 and 62.1
index points, respectively. The optimism
in growth prospects in Q1 2020, and the
rest of the year, is anchored on the
enhanced flow of credit to the private
sector,
to
improve
manufacturing
activities, and financial and exchange
rate stability. In addition, the Bank’s
continued intervention in Agriculture,
and Small & Medium Scale Enterprises
(SMEs) is expected to boost growth.
Identified
headwinds
to
growth,
however, include; uncertainty in the oil
market,
high
unemployment,
rising
public debt and security challenges
across the country.

The Committee noted the continued
uptick in headline inflation (year-onyear) in December 2019 to 11.98 per
cent, from 11.85 per cent in the previous
month. The increase in inflation, which
was
anticipated,
was
largely
attributable to increase in both the food
and core components, by 14.67 and
9.33 per cent in December 2019 from
14.48 and 8.99 per cent in November,
respectively.

The increase in the food component
reflects largely seasonality effect and
the impact of the continued insurgency
in some food producing areas of the
country.
Although,
Staff
forecasts
suggest a short-term upward trend in
prices, the Committee believes that the
Bank’s continued intervention in the real
sector is expected to increase domestic
production and lower prices in the
medium-term.

The Committee observed that broad
money supply (M3) grew by 6.22 per
cent (year-to-date) in December 2019.
Aggregate Credit (Net) similarly grew to
27.33 per cent in December 2019, from
23.12 per cent in the previous month.
This was largely attributed to an increase
in Credit to Government, which grew to
92.95 per cent in December 2019, from
72.36 per cent in the previous month.
Credit to the Private Sector also grew to
13.61 per cent in December 2019, from
12.82 per cent in the previous month.
Consequently, sectoral distribution of
credit between end-May 2019 and endDecember

was
as
follows:
manufacturing
(N446.44
billion);
General Retail and Consumer Loans
(N419.02 billion); General Commerce
(N248.48 billion); Agriculture, Forestry
and Fishing (N160.94 billion); Information
and Communications (N156.47 billion);
Finance and Insurance (N129.87 billion);
Construction
(N86.54
billion);
and
Transportation and Storage (N68.61
billion), amongst others. The Committee
observed with delight that, over the last
six months, aggregate credit grew by
N2.0 trillion and urged the Management
of the Bank to sustain the current
momentum of improved flow of credit
to the Private Sector, while exploring
other options with the fiscal authorities
to strengthen the legal framework for
the enforcement of credit recovery.

Lower money market interest rates, in
the review period, reflected the liquidity
overhang
in
the
banking
system,
CBN Monetary Policy Review

resulting
from
the
restriction
of
individuals and non-bank corporates in
the
domestic
economy
from
participating in OMO bill auctions.
Consequently, the monthly weighted
average Inter-bank call and Open Buy
Back (OBB) rates fell sharply to 3.82 and
3.24 per cent, in December 2019, from
11.42 and 10.73 per cent, respectively, in
the previous month.

The Committee noted the improved
performance in the equities market, as
the All-Share Index (ASI) and Market
Capitalization grew by 11.61 and 18.27
per cent, respectively, between endOctober 2019 and 10th January, 2020.
This was indicative of the shift by
domestic investors from the money
market to the equities market in
response to the Bank’s policy to restrict
their investments in the OMO bills
auction.

The MPC also noted the improved
performance and sustained resilience of
the banking system, evidenced by the
continued moderation of the NonPerforming Loans (NPLs) ratio from 6.6
per cent in October to 6.1 per cent in
December 2019. The Committee noted
that the improvement reflected the
Bank’s
continued
deployment
of
heterodox policies to ensure that NPLs
fell below the prudential benchmark of
5.0 per cent.

Outlook
Although global output is projected to
expand moderately in 2020, compared
with the previous year, the overall
medium-term outlook for the global
economy remains uncertain, due to the
persistence of several headwinds. These
include: the lingering trade tensions
between the US and its major trading
partners; rising levels of both corporate
and
public
debts;
continued
geopolitical tensions in the Middle-East;
fragile
recovery
of
manufacturing
activities; and the narrowing policy
space by which central banks in the
advanced economies can respond to
future
macroeconomic
shocks.
In
addition,
predicted
weather-related
disasters could pose further threats to
global output recovery.

On the domestic side, available data on
key macroeconomic indicators show
prospects of improved output growth
for the economy in 2020. Revised
projections for 2020, show that the
economy is expected to grow by 2.50
per cent (IMF), 2.10 per cent (World
Bank) and 2.35 per cent (CBN). The
underlying projection is anchored on
the following conditions: enhanced flow
of credit to the real sector of the
economy; sustained stability in the
exchange
rate;
continued
CBN
interventions in agriculture and nonagricultural
Small
and
Medium
Enterprises (SMEs); and the effective
implementation
of
the
Economic
Recovery and Growth Plan (ERGP). The
downside risks to this projection are
primarily the rising stock of public debt
and lack of fiscal buffers. Others include
the persistent security threat in major
food-producing
areas,
poor
and
inadequate infrastructure and weak
public and private sector investment.

CBN Monetary Policy Review

The Committee’s Considerations
The Committee noted the persistent
increase in the inflation rate, which
stood at 11.98 per cent in December
2019. It also noted that the inflation was
driven by both monetary and structural
factors. Having addressed the monetary
factors,
the
headroom
for
further
monetary policy measures has become
constrained,
being
supported
by
empirical evidence which suggests that
inflation above 12.00 per cent is inimical
to output growth in the Nigerian
economy. The MPC thus called on the
fiscal authorities to speedily address
legacy structural impediments giving
rise
to
upward-trending
price
developments. Amongst these, the
Committee
identified
infrastructure
deficit and the long-standing clashes
between herdsmen and farmers, which
are constraining domestic production
and contributing substantially to the rise
in food inflation. The MPC, therefore,
urged the Federal Government to
relentlessly seek innovative ways of
addressing security challenges across
the country in order to boost aggregate
food supply. The Committee further
noted the contribution of imported food
and other tradeables to the rise in price
levels but emphasized the opportunity
to ramp up production of domestic
substitutes supported by the Bank’s
development
finance
initiatives,
particularly
in
agriculture
and
manufacturing sectors.

The Committee noted the improvement
in the financial soundness indicators,
growth in assets of the banking system
and
the
gradual
switch
in
the
composition
of
DMB
assets
from
investments in government securities to
growth in credit portfolio. It, however,
noted that lending rates at the retail
segment of the market had remained
fairly sticky downwards as deposit rates
had declined substantially. It also noted
that in some cases, DMBs were not
encouraging term deposits in their
portfolios and therefore, emphasized
the Bank’s commitment towards the
implementation of the Loan-to-Deposit
ratio (LDR) policy.

On fiscal operations, the Committee
applauded the Government for the
recent signing of the 2020 Finance Bill
which
opens
a
new
vista
of
opportunities
in
public
financial
management.
The
MPC,
however,
cautioned that public debt was rising
faster than both domestic and external
revenue, noting the need to tread
cautiously in interpreting the debt to
GDP ratio. The Committee also noted
the rising burden of debt services and
urged the Fiscal Authorities to strongly
consider building buffers by not sharing
all the proceeds from the Federation
Account at the monthly FAAC meetings
to avert a macroeconomic downturn, in
the event of an oil price shock.

It urged Government to gradually
reduce reliance on oil receipts and
focus on revenue diversification through
reforms
of
the
tax
system.
The
Committee also called on Government
to rationalize fiscal expenditure towards
reducing the current excessively high
cost of governance.

CBN Monetary Policy Review

The MPC expressed concern about the
rising
inflation,
which
increased
consecutively in the last 4 months as at
December 2019 to 11.98 per cent and
higher than its target range of 6-9%. This
rising price level is attributable to a
combination of structural and supply
side factors, expansionary fiscal policy;
and growth in money supply arising from
rising liquidity surfeit in the industry due
to changes in the Bank’s OMO policy. In
furtherance of its primary mandate to
maintain price and monetary stability
and in view of the anticipated mediumterm liquidity surfeit from maturing OMO
bills
held
by
local
private
and
institutional investors, which would not
be
rolled
over,
the
Committee
considered it prudent to raise the CRR to
curtail liquidity surfeit in the banking
system.

The
Committee
is
confident
that
increasing the CRR at this time is
fortuitous
as
it
will
help
address
monetary-induced
inflation
whilst
retaining the benefits from the Bank’s
LDR policy, which has been successful in
significantly increasing credit to the
private sector as well as pushing market
interest
rates
downwards.
The
Committee further encouraged the
Management of the Bank to be more
vigorous in its drive to improve access to
credit through its pursuit of the Loan-todeposit ratio policy as doing this would
help,
not
only
in
creating
job
opportunities but also help in boosting
output growth and in moderating
prices. It is noteworthy that Gross credit
in the industry grew by N2 Trillion
between May 2019 and December
2019;
channeled
primarily
to
the
employment-stimulating sectors such as
agriculture
and
manufacturing,
in
addition to increased lending to the
retail and SME segments, which is
expected to help boost domestic
output growth in the short to medium
term. To retain the gains from credit
expansion and current industry focus on
lending, the Committee advised the
Bank to sustain its LDR Policy and in
addition continue to deploy its DCRR
policy which directs new funding for
greenfield projects and expansion to
critical sectors of the economy.

The Committee’s Decision
On the arguments to tighten, the
Committee noted that given that
inflation rate inched up in December
2019 and that the rate is still above the
upper band of the 6-9 per cent
threshold, tightening may be necessary
to tame the rising trend in inflation. In
addition, the relatively bearish outlook
of the equities market indices points to
waning investor confidence in equity in
preference for coupon rate on bonds.
Raising the policy rate, could be a
policy choice to reverse the tendency
and attract more foreign portfolio
investments. Also, the risks to the level of
reserves persist as prices of oil futures
remain
uncertain.
Policy
tightening
would enhance the accretion to foreign
reserves and attain relative stability in
the
foreign
exchange
market.
Moreover, raising rates would reinforce
the stability of the foreign exchange
market as an upswing in the rate will
inhibit demand pressures in the market
through a decline in money supply.
CBN Monetary Policy Review

Although tightening would limit the
ability of DMBs to create money,
ultimately leading to a reduction in
money supply and curtail their credit
creation
capabilities,
which
would
eventually lead to rising cost of credit
and credit risk as DMBs re-price their risk
assets, the MPC believes that the
aggressive pursuit of the current loan-todeposit
ratio
policy
thrust
would
continue to help to catalyze credit
growth and positively impact growth
and prices.

On the decision to loosen, members
noted that the relative stability in the
foreign
exchange
market
provides
confidence to foreign investors. There is,
therefore, no immediate concern that
loosening would exert pressures on the
foreign exchange market in the near
term. In addition, an accommodative
monetary policy stance would motivate
banks to lend to maintain their profit
performance
and
would
result
in
decline
of
the
overall
cost
of
production. This would further affirm the
Bank’s support for stimulating output
growth.

The Committee also feels that the
downside to loosening is that it could
amplify inflationary pressures as the
economy
experiences
increased
liquidity surfeit, particularly if loosening
drives
growth
in
consumer
credit,
without corresponding adjustment in
output,
thus
escalating
inflationary
pressures. An interest rate reduction
would increase money supply and exert
pressure
on
the
exchange
rate.
Moreover,
an
accommodating
monetary
policy
stance
may
not
necessarily lower the retail lending rate,
as interest rates are generally sticky
downwards.

On the argument for a Hold, the MPC
acknowledged that a mix of heterodox
monetary and financial policy measures
have recently been deployed by the
Bank. Noting the existence of a lag
between the policy pronouncement
and its impact on the economy, a hold
in the rate would ensure its efficient
impact
on
the
economy.

The
Committee noted the slow pace and
low rate of economic growth as real
GDP growth of 2.10, 2.12 and 2.38 per
cent
in
Q1,
Q2
and
Q3
2019,
respectively,
being
below
the
population growth rate, still needs
sustained policy support. Maintaining
monetary policy rate at its present level
is essential for sustainable support to
growth before any possible adjustments.
This will enable policy to react suitably to
developments as they occur in the near
term. In addition, retaining the current
policy position provides avenues to
evaluating the impact of the heterodox
monetary and financial policies to
support lending by the banking industry
without altering the policy rate.

On the downsides to holding, the
Committee noted that it would reduce
the
speed
of
economic
recovery
relative to loosening, exert a drag on
output growth, as DMBs continue to
utilize bonds sales instead of engaging
in financial intermediation to the private
sector.

CBN Monetary Policy Review

In view of the foregoing, the Committee
by a decision of 9 members, voted to
alter the Cash Reserve Requirement
(CRR) by 500 basis points from 22.5 to
27.5 per cent, while leaving all other
policy
parameters
constant.
Two
members voted to leave all parameters
constant.
In summary, the MPC voted to:

1.
Change the CRR from 22.5 to
27.5 per cent;
2.
Retain the MPR at 13.5 per cent;
3.
Retain the asymmetric corridor
of +200/-500 basis points around
the MPR;
4.
Retain the Liquidity Ratio at 30
per cent.

Thank you.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
24th January, 2020


CBN Monetary Policy Review

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO.

OF
THE
MONETARY
POLICY
COMMITTEE
MEETING
OF
MONDAY
23RD
AND
TUESDAY 24TH MARCH 2020

1.0
Background
The Monetary Policy Committee (MPC)
met on the 23rd and 24th March 2020,
amidst heightened uncertainty in the
global macroeconomic environment
arising from major disruptions associated
with the outbreak of the Coronavirus
Disease (COVID-19) and the oil price
war between Saudi Arabia and Russia.
The
Committee
assessed
the
developments
in
the
global
and
domestic
environments
in
the
first
quarter of 2020 and the outlook for the
rest of the year, including the threats to
capital flows, growing vulnerabilities
across global financial markets, the
probability of a global recession, risks to
price and financial stability as well as the
quick intervention by central banks to
restore normalcy, with guidance for
further action. Ten (10) members of the
Committee were in attendance at this
meeting.

Global Economic Developments
The Committee noted with concern, the
combined demand and supply shocks
to the global economy arising from the
outbreak of COVID-19 and the oil price
war between Saudi Arabia and Russia. It
also noted the weakening performance
of global output growth since January
2020, reflected in losses in global stock
values; declining primary commodity
prices, disruptions to the global supply
chain associated with large scale global
lockdown of mega metropoles and
whole countries; and social distancing.
Also, there has been adverse shocks to
global capital flows; vulnerabilities and
uncertainties in major financial markets;
as well as rising corporate debt in the
advanced economies and public debt
in
some
Emerging
Market
and
Developing
Economies
(EMDEs).
Consequently, global output growth in
2020 is projected to fall significantly
below the initially projected level of 3.3
per cent.

Inflation in the advanced countries
continues to trend below long run
targets, except in the United States,
especially in the light of prevailing
headwinds and heightened global
uncertainties. Central banks in the
Advanced
Economies
have
thus
engaged in a coordinated approach
with peers to embrace quantitative
easing across every sector, notably in
transportation,
travel
and
tourism,
health and setting up of social safety net
funds, to stem the impact of these
headwinds on aggregate demand and
supply chains. In the EMDEs, price
developments remained mixed with
upward inflationary pressure in some of
the key economies.

Domestic Economic Developments
Data from the National Bureau of
Statistics (NBS) showed that growth in
real Gross Domestic Product (GDP)
continued to improve in Q4 of 2019.
Consequently, real GDP grew by 2.55
per cent in the fourth quarter of 2019,
compared with 2.28 and 2.38 per cent
in the preceding and corresponding
CBN Monetary Policy Review

quarters of 2019 and 2018, respectively.
Growth in Q4 2019, was driven largely by
the strong performance of the oil sector,
which grew by 6.36 per cent, though
lower than 6.49 per cent recorded in the
previous quarter, while the non-oil sector
grew
by
2.27
per
cent.
The
Manufacturing and Non-Manufacturing
Purchasing Managers’ Indices (PMI)
expanded, though at a lower rate in
February 2020, for the 35th and 34th
consecutive months to 58.3 and 58.6
index
points,
respectively.
Staff
projections indicate that real GDP in Q1
and Q2 2020 will slow because of the
tepid global demand, resulting from the
recent
outbreak
of
COVID-19,
depressed global aggregate demand
and supply, and the oil price war which
has resulted in supply glut and decline in
crude oil prices. This muted outlook for
the first half of the year may thus,
dampen overall growth prospects for
2020. To mitigate this trend, the Bank
took decisive action to safeguard the
Nigerian financial system and the
economy
from
the
emerging
headwinds. The key policies include:
provision of extended moratorium on
loans by an additional 1 year beginning
from March 2020. This is to ease pressure
on loan repayments. The Bank also
reduced interest rates from 9 to 5 per
cent
on
its
existing
intervention
programmes over the next one year;
created a N50 billion fund to support
households and Small and Medium
Enterprises (SMEs) affected by COVID19; introduced credit support for the
healthcare
sector;
introduced
regulatory forbearance to consider
temporary
and
time-limited
restructuring of loan terms and tenors to
households and businesses affected by
COVID-19, and strengthened the loanto-deposit ratio (LDR) policy. The Bank
also announced an intervention fund of
N1.1 trillion to cushion the adverse
effects of the Coronavirus outbreak on
the economy. The sum of N1.0 trillion
from this amount will be used to support
local manufacturing to boost import
substitution, while the balance of N100
billion will be used to support the health
services sector and products through
the
provision
of
loans
to
the
pharmaceutical companies, hospitals
and other health practitioners to build
new hospitals and health facilities or
expand existing ones to first class health
centres. This is in addition to the N1.5
trillion private sector driven Infraco
Project fund, designed to target the
construction of critical infrastructure
across
the
country.
In
addition,
pharmaceutical companies would be
assisted through loan interventions to reestablish drug manufacturing firms in
Nigeria and curtail the spread of the
corona virus. In summary, it is expected
that through these interventions, about
N3.5 trillion would be injected as stimulus
to support the Nigerian economy during
this trying time.

The Committee noted the continued
uptick in headline inflation (year-onyear) for the sixth consecutive month to
12.20 per cent in February 2020 from
12.13 per cent in the previous month.
The increase in inflation, was largely
attributed to increases in the food and
core components, which rose to 14.90
and 9.43 per cent in February 2020, from
CBN Monetary Policy Review

14.85 and 9.35 per cent in January 2020,
respectively. This was driven by shocks to
food prices associated with renewed
insurgency in major food producing
areas of the Country and persisting
infrastructural deficits.

The MPC observed that broad money
supply (M3) contracted for the second
consecutive month by 2.29 per cent
(year-to-date)
in
February
2020,
reflecting the decline in Net Foreign
Assets
and
Net
Domestic
Assets.
Specifically, the contraction in M3 was
driven primarily by a decline in securities
other than shares and currency outside
depository corporations in the review
period. Net Aggregate Credit, however,
grew by 1.34 per cent in February 2020.

The Committee noted with satisfaction
the growth in aggregate credit by N2.35
trillion since the inception of the LDR
policy, reflecting the potency of the
policy and thus urged the Management
of the Bank to sustain the current
momentum of improved flow of credit
to the private sector in Nigeria. It
emphasized the need for coordination
with the fiscal authorities, to strengthen
access to credit to some critical sectors
of the economy, including the weak
and vulnerable population, particularly
those in the informal sector through the
setting up of a special fund, as well as
support the enforcement of credit
recovery.
Accordingly,
sectoral
distribution of credit between end-May
2019 and end-February 2020 was as
follows: Manufacturing (N533.06 billion);
General Retail and Consumer Loans
(N380.71 billion); General Commerce
(N229.87 billion); Agriculture, Forestry
and Fishing (N163.04 billion); Information
and Communications (N163.69 billion);
Finance and Insurance (N131.20 billion);
Construction
(N112.25
billion);
and
Transportation and Storage (N45.42
billion), amongst others.

The
Committee
noted
the
dismal
performance in the equities market as
the All-Share Index (ASI) decreased by
17.30
per
cent
and
Market
Capitalization (MC) by 10.73 per cent
between end-December 2019 and
March 20, 2020. The decline was largely
attributed
to
profit
taking
and
divestment by foreign portfolio investors,
the delisting of shares of three quoted
companies
and
capital
outflow
associated with the COVID-19 and
subdued global economic activity.

The MPC noted the continued resilience
of the banking system, evidenced by
the further moderation in the ratio of
Non-Performing Loans (NPLs) from 6.59
per cent in January to 6.54 per cent in
February
2020.
Although
the
ratio
remained
above
the
prudential
benchmark
of
5.0
per
cent,
the
Committee expressed confidence in
the Bank’s regulatory regime and
commitment to maintaining stability in
the banking system.

Outlook
The overall medium-term outlook for the
global economy remains uncertain with
increased
deterioration
in
financial
market conditions and weak global
output growth. The major headwinds to
the current projection for global growth
CBN Monetary Policy Review

includes: disruption to the global supply
chain
arising
from
the
COVID-19
pandemic; oil price downturn as a result
of
subdued
global
demand,
vulnerabilities in major financial markets;
rising corporate debt in the advanced
economies and public debt in some
Emerging
Market
and
Developing
Economies;
as
well
as
broad
uncertainties leading to adverse shocks
to foreign investment flows.

On the domestic front, available data
on
key
macroeconomic
variables
indicate the likelihood of subdued
output
growth
for
the
Nigerian
economy in 2020. Based on the current
downturn in oil prices, staff projections
indicate that output in the 2020 would
be less than earlier envisaged. The major
downside risks to this outlook, however,
include:
the
continued
spread
of
COVID-19; further decline in crude oil
prices and the reduction in accretion to
external reserves; reduced government
revenue leading to weak aggregate
demand; declining non-oil receipts; as
well as infrastructural and security
challenges.
These
headwinds
will,
however, be partly mitigated by: the
timely and effective response of the
monetary
and
fiscal
authorities
in
containing the spread of the COVID-19
viral infection, the recalibration and
adjustment of the 2020 Federal Budget
to the revised thresholds while pegging
expenditure to critical sectors of the
economy, adoption of a new fiscal
regime to encourage the build-up of
fiscal
buffers;
sustained
CBN
interventions
in
selected
sectors;
enhanced flow of credit to the real
sector
and
deliberate
policies
to
diversify the Nigerian economy.

The Committee’s Considerations
The Committee reviewed the prevailing
adverse
conditions
in
the
global
economy
such
as
the
COVID-19
pandemic and the oil price shock as
well as the likelihood of continued oil
supply glut into the near future, focusing
on the impact of these headwinds on
the Nigerian economy.

The Committee observed that not only
will the COVID-19 pandemic result in
health crises, it will also result in massive
economic crises that will force many
countries into recession, including the
leading industrialised countries. The
MPC took into cognisance the impact
of the decline in oil prices on accretion
to external reserves and the emergence
of
exchange
rate
pressures.
The
Committee
thus
commended
and
endorsed the Management of the Bank
for
its
prompt
response
with
the
adjustment of the exchange rate to
uniform market rates and the removal of
distortions. It, however, took note of the
likely impact of the exchange rate
adjustment on the economy.

The Committee noted the weakened
revenue
position
of
the
Federal
Government, arising from the sharp
drop in oil prices. It reiterated the need
for government to urgently reduce
reliance on oil revenue by gradually
diversifying the economy and improving
tax collection. To this end, the MPC
noted the speedy response of the
Federal Government to the oil price
CBN Monetary Policy Review

shock by the revision of the 2020 budget
downwards by N1.5 trillion and the oil
price benchmark to US$30 per barrel.
The MPC urged the NASS to fully
cooperate
with
the
Federal
Government in coming up with a
budget that reflects our new realities. In
addition, the Committee noted the
introduction
of
price
modulation
measures, resulting in reduction in the
pump price of PMS from N145 to N125
per litre and its contributory effect in
boosting aggregate demand, lowering
inflation and improving the welfare of
the ordinary Nigerians.

The MPC further noted the persistence
of inflationary pressures attributed to a
combination of monetary and structural
factors, and thus urged the Federal
Government to leverage on Public
Private Partnership (PPP) to intensify
investment in infrastructure to increase
output
and
employment.
The
Committee cited the potentials for
Foreign Direct Investment (FDI) flows to
the
Nigerian
auto
manufacturing,
aviation and rail industries, which could
take advantage of these viable and
untapped
domestic
and
regional
markets.

The Committee noted the sustained
improvement in the financial soundness
indicators, applauding the continued
decline in the ratio of non-performing
loans, growth in assets of the banking
system and profitability of the industry in
the
light
of
increasing
global
uncertainties. It also recognised the
success of the Bank’s loan-to-deposit
ratio policy and its potential to alleviate
production
shortfalls,
reduce
unemployment and boost aggregate
demand, urging the Bank to pursue this
and
other
related
policies
to
a
conclusive end.

The MPC underscored the COVID-19
pandemic as a public health crisis which
will
continue
to
undermine
any
monetary
or
fiscal
stimulus
unless
appropriate measures are taken to
trace, test, isolate and treat infected
persons in order to curtail the spread,
while ensuring the that migration across
the country is significantly reduced. The
MPC, therefore, called on the Federal
Government to take the necessary steps
to safeguard the population through
close
monitoring
and
emergency
readiness measures to identify and care
for infected persons in the country,
including
compulsory
restriction
of
movement to curtail spread of the
pandemic.

On the choices before the Committee,
the MPC noted the recent actions of the
Bank, targeted at strengthening the
resilience of the financial system and
alleviating the initial impact of the crisis.
In its wisdom, the Committee felt that
tightening would result in reining in the
rising trend in inflation, and that it would
support reserve accretion. However, it
would reduce money supply and limit
DMBs credit creation capacity, thus
resulting in increasing the cost of credit,
with adverse impact on output growth.
Tightening would
also
result
in
a
reduction in aggregate demand as a
fall in disposable income results in output
compression; whereas at this time,
CBN Monetary Policy Review

policy
emphasis
should
be
on
stimulating
aggregate
supply
and
demand, both already weakened by
COVID-19.

With respect to loosening, whereas the
Committee felt it would stimulate the
economy in the short term, and boost
aggregate supply and demand, the
Committee nevertheless, was of the
view that there was a need to be
cautious in loosening given the fact that
it
would
exacerbate
an
already
worsening
inflationary
condition,
resulting in massive pressure on reserves
and the exchange rate.

Based
on
the
balance
of
these
arguments, the MPC, in taking note of
the recent actions already taken by the
Management of the Bank in response to
the COVID-19, resolved to allow time for
the
measures
to
permeate
the
economy while allowing the pandemic
to wear out its plateau before deciding
on further supporting policy measures to
boost
and
strengthen
aggregate
demand and supply in the recovery
phase of the economy. The choice to
hold also considered the subsisting LDR
and the DCRR policies, which sterilize
excess liquidity in the banking system,
hence an increase in the MPR would be
counter-productive.

The monetary policy stance arrived at
this meeting took cognisance of the
need
to
address
the
unfolding
unfavourable
macroeconomic
developments, rein in inflation, support
growth and employment through the
extant
interventions
and
recent
initiatives, check capital outflows and
support external reserves accretion, and
dampen pressure and ensure foreign
exchange market stability.

A review of the policy options indicates
relative
tightness
of
the
current
monetary policy stance. The CRR was
increased at the last MPC meeting. Time
is required for its full effects to manifest.
Increasing the MPR will be contradictory
to the recent reduction of interest rate in
the CBN intervention windows from 9 to
5 per cent. Besides, an increase in MPR
will be taken by the Deposit Money
Banks (DMBs) as in invitation to increase
lending rates and this will be most
undesirable at this point in time when
efforts are being made to avert a
recession. Besides, a reduction in the
MPR, will not encourage the DMBs to
reduce
lending
rates.
But
other
strategies of the CBN are making the
DMBs to reduce lending rates in
furtherance of the growth objective.

The Committee’s Decision
The Committee noted the continued
rise in domestic prices; the glut in oil
supplies and low oil prices in the wake of
the current global shocks; exchange
rate
pressure
and
other
domestic
monetary and fiscal responses to the
evolving crises. In view of the foregoing,
the
Committee
decided
by
a
unanimous vote to retain the Monetary
Policy Rate (MPR) at 13.5 per cent and
to hold all other policy parameters
constant.


CBN Monetary Policy Review

In summary, the MPC voted to:
I.
Retain the MPR at 13.5 per cent;
II.
Retain the asymmetric corridor
of +200/-500 basis points around
the MPR;
III.
Retain the CRR at 27.5 per cent;
and
IV.
Retain the Liquidity Ratio at 30
per cent.

Thank you.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
24th March 2020


CBN Monetary Policy Review

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO.

OF
THE
MONETARY
POLICY
COMMITTEE
MEETING HELD ON THURSDAY 28th MAY

1.0
Background
The Monetary Policy Committee (MPC)
met on 28th May, 2020 in an environment
of
severe
macroeconomic
shock
caused by the fatal spread of the Novel
COVID-19 Pandemic, which first started
as a health crisis in December 2019 in
China and quickly morphed into a
global economic crisis in the ensuing
months.
The
pandemic
induced
economic shock is mainly characterised
by disruptions to the global supply
chain, on account of the mitigating
measures put in place by various
governments to contain the spread of
the disease. The effects on the global
economy have been unprecedented
and indeed severe. These include
significant
stock
market
crashes;
exchange
rate
volatilities;
rising
corporate and public debt; rising levels
of unemployment; tightening financial
conditions; capital flow reversals; and
negative shocks to commodity prices,
to mention a few.
Under this period of economic crisis, the
Committee assessed the developments
in the global and domestic economic
environments in the first five (5) months
of 2020, and the outlook for the rest of
the year. Ten (10) members of the
Committee were in attendance.

Global Economic Developments
The
Committee
reviewed
developments in the global economy,
noting
the
swift
and
widespread
monetary and fiscal stimulus responses
to mitigate the economic crisis and
avoid
economic
recession.
They
observed that since the duration of the
pandemic is unknown, forecasts for
global growth projection for 2020 differs
amongst institutions and central banks.
While the IMF output growth forecast for
2020 was downgraded by 3.0 per cent
in 2020, compared with an initial growth
projection of 3.3 per cent, the forecast
by the Organisation for Economic Cooperation and Development (OECD)
showed a moderation in global output
growth from 2.9 per cent in 2019 to 2.4
per cent in 2020 and 3.3 per cent in
2021. Most central banks in Emerging
and Developing Economies (EMDEs)
have mixed forecasts, reflecting the
intensity of the demand and supply
shocks, as well as the effectiveness of
the mitigating measures and stimulus by
their monetary and fiscal authorities.

The MPC noted that inflation in most
Advanced Economies remained largely
below their 2.0 per cent long-run targets.
This was partly due to supressed
aggregate demand, occasioned by
the
lockdown,
with
resulting
low
expectations of future income, forcing
spending to be directed to only
essential goods and services.

The Committee, however, noted that,
although, recent monetary decisions in
most advanced economies had been
accommodative, portfolio flow reversals
from
Emerging
and
Developing
Economies had continued, indicating
general
rebalancing
of
portfolios
CBN Monetary Policy Review

toward cash and gold as safe assets by
investors. This development has resulted
in renewed pressure on exchange rates
of some Emerging and Developing
Economies with a likely pass-through to
their domestic prices. In addition, a likely
medium-term
impact
of
these
synchronized liquidity injections and
other
forms
of
monetary
accommodation is the compounding of
the already huge global corporate and
public debt portfolios which may result
in a spike in global debt post-COVID-19.

Domestic Economic Developments
Available output data from the National
Bureau of Statistics (NBS) showed that
real Gross Domestic Product (GDP) grew
by 1.87 per cent in the first quarter of
2020 compared with 2.55 and 2.10 per
cent
in
the
preceding
and
corresponding
quarters
of
2019,
respectively. This was driven largely by
5.06 per cent growth in the oil sector
and 1.55 per cent in the non-oil sector.
The economy, however, expanded by
2.27 per cent in 2019, the most since
2015, compared to 1.91 per cent in
2018.

The
Manufacturing
and
nonManufacturing Purchasing Manager’s
Indices (PMIs) declined significantly to
42.4 and 25.3 index points, respectively,
in May 2020, compared with 51.1 and
49.2 index points in March 2020. The
contraction in the manufacturing and
non-manufacturing PMIs was attributed
to slower growth in production, new
orders, employment level, raw materials
and input prices. The employment level
index for the manufacturing and nonmanufacturing PMIs also contracted
further to 25.5 and 32.0 index points,
respectively, in May 2020 compared
with 47.1 and 47.3 index points in March
2020.
Generally,
the
purchasing
managers’ activities in May 2020, were
largely affected by the lockdown of the
global economy to curtail the spread of
the COVID-19 pandemic.

In the light of the above developments,
the
Monetary
Policy
Committee
commended the Bank’s effort on the
recent measures put in place to
mitigate the economic impact of the
twin shocks on the Nigerian economy.
The Committee expressed support for
the sustenance of the broad-based
stimulus and liquidity facilities to curb the
adverse effects of the shocks.

The Committee also noted with concern
the persisting uptick in inflation for the
eighth consecutive month as headline
inflation (year-on-year) rose to 12.34 per
cent in April 2020 from 12.26 per cent in
March 2020. The uptick largely reflected
the increase in both the food and core
components, which rose to 15.03 and
9.98 per cent in April 2020 from 14.98
and 9.73 per cent in March 2020,
respectively. The MPC noted that the
recent increase in inflationary pressure
was largely due to a combination of
factors including; disruptions in supply
chain owing to restrictions on inter-state
travels; reduced domestic supply of
foreign exchange; continued impact of
deteriorating domestic infrastructure;
and spillover effects of the Pandemic on
global supplies, amongst others. Against
this
background,
the
Committee
CBN Monetary Policy Review

emphasized
the
need
to
sustain
measures already put in place to
maintain price stability. It noted that as
the supply of goods and services
increase, following the gradual easing
of
the
lockdown
and
return
of
economic activities, there would be
increase in aggregate supply.

On
monetary
aggregates,
the
Committee noted the marginal growth
in broad money (M3) to 2.66 per cent in
April 2020 from 2.42 per cent in March
2020, largely due to increases in Net
Domestic
and
Foreign
Assets.
The
growth in M3 was, however, significantly
below the indicative benchmark of
13.09 per cent for 2020. Aggregate Net
Credit also grew significantly by 8.07 per
cent in April 2020 compared with 4.90
per cent in March 2020, although this
remained
below
the
indicative
benchmark of 16.85 per cent for the
year.

The
Committee,
therefore,
observed that there was relative scope
for increased money supply to fund
economic activities and boost output
recovery.

In the review period, money market
rates
remained
relatively
stable
reflecting the prevailing high liquidity
condition
in
the
banking
system.
Accordingly, weighted average Interbank call and Open Buy Back (OBB)
rates decreased to 7.33 and 5.52 per
cent in April from 10.29 and 11.78 per
cent in March 2020, respectively.
The Committee observed that though
the equities market was largely bearish
in the first quarter of 2020, moderate
improvement continued to be recorded
since the beginning of the second
quarter. Consequently, the All-Share
Index (ASI) and Market Capitalization
(MC) increased by 18.33 per cent a
piece, between end-March 2020 and
May 22, 2020. This bullish trend reflected
improved
investor
sentiments
in
response to the mitigating measures
introduced
at
the
onset
of
the
pandemic by the monetary and fiscal
authorities and positive outlook in the
global oil market. The MPC expressed
confidence that the current monetary
and fiscal policy measures would further
strengthen investor confidence.

The Non-Performing Loans (NPLs) ratio
decreased to 6.58 per cent at end-April
2020 compared with 10.95 per cent in
the corresponding period of 2019 due
largely to recoveries, write offs and
disposals.
The
development
was
adjudged by the Committee as a sign of
reasonable stability in the banking
system and urged the Bank to maintain
its toolkit of prudential and regulatory
measures to ensure that NPLs stay below
the prudential benchmark of 5.0 per
cent.

Outlook
The overall medium-term outlook for the
global
economy
remains
broadly
uncertain as the COVID-19 pandemic
and associated containment measures
continue to disrupt normal economic
activities across the globe. The global
economy remains largely confronted
with several headwinds, some of which
include: weak aggregate demand due
to declining consumer and investor
confidence; disruption in global supply
CBN Monetary Policy Review

chains;
shocks
to
oil
and
other
commodity prices; continued lull in
global financial markets; adverse shocks
to global capital flows; as well as rising
corporate
debt
in
the
advanced
economies and public debt in some
Emerging
Market
and
Developing
Economies.

Available data on key macroeconomic
variables in the domestic economy
indicate that the economy achieved a
positive output growth during the first
quarter of 2020. The Committee noted
that even if the lag effects of COVID-19
result in a low negative output growth in
the second quarter of 2020, it could
quickly be reversed to avoid a recession
by Q3 2020 based on the far-reaching
measures taken by the monetary and
fiscal
authorities
to
mitigate
the
combined effects of the COVID-19
pandemic
and
oil
price
shock.
Projections by both the IMF and Federal
Government indicate that the economy
would contract in 2020 by -3.40 per
cent.

Given
more
recent
developments, however,
CBN Staff
projections indicate a somewhat less
pessimistic range of contraction. This
forecast is underlined by the measures
to curtail the rapid spread of COVID-19;
improvement in crude oil prices which
stood at about US$34.8 per barrel as at
28th May 2020. The moderate recovery
in crude oil prices would reduce the
pressure on the external reserves and
government revenue. Headwinds to
growth, however, remains the legacy
issues of the persistent infrastructural and
security challenges.

The Committee’s Considerations
Central
to
the
Committee’s
considerations were the impact of the
COVID-19 pandemic, the oil price shock
and the likely short to medium-term
consequences
on
the
Nigerian
economy. In particular, the Committee
acknowledged
the
gradual
improvement
in
macroeconomic
variables particularly the improvement
in the equities market, the containment
measures of the COVID-19 induced
health crisis, as well as, the impact of the
increase in crude oil price on the
external reserves.

The Committee noted the stability in the
banking system shown by the increase
in total asset by 18.8 per cent and total
deposits by 25.52 per cent (year-onyear). The performance of the Loan-toDeposit Ratio (LDR) policy which was
introduced in July 2019 showed that
total credits increased by N3.1 trillion or
20.45 per cent, with manufacturing,
retail
&
consumer
loans,
general
commerce and agriculture as major
beneficiaries.

The Committee recognised that under
the N100 billion Healthcare Sector
Intervention
Fund,
the
Bank
has
approved and disbursed N10.15 billion
for some projects for the establishment
of advanced diagnostic and health
centres and the expansion of some
pharmaceutical plants for essential
drugs and intravenous fluids. As part of
the N1trillion intervention targeted at
Agriculture and Manufacturing firms, the
Bank has disbursed N93.2bn under
the Real Sector Support Fund to boost
CBN Monetary Policy Review

local manufacturing and production
across critical sectors. This consists of
over 44 greenfield and brownfield
projects. The Bank has also approved
N10.9 billion to 14,331 beneficiaries
under the N50 billion Targeted Credit
Facility for households and SME's, out of
which N4.1billion has been disbursed to
5,868
successful
beneficiaries.
The
Committee directed Management to
reach out to the banks to encourage
them to offer and disburse these funds
to those priority sectors of the economy
so as to stimulate aggregate demand
and create more jobs.

The
MPC
appraised
the
Federal
Government’s resolve to maintain the
core of its spending plans for 2020 as this
remained vital for the attainment of the
much-needed economic recovery. It
also
applauded
the
government’s
efforts
at
revising
the
oil
price
benchmark
downwards
to
reflect
prevailing conditions. It reiterated the
urgent need for the Government to
improve tax collections, through a
gradual, but purposeful diversification of
the economy’s revenue base. The
Committee also urged Government to
remain focused on the implementation
of the revised 2020 - 2022 Medium Term
Expenditure Framework (MTEF) as the
basis for sustainable fiscal policy.

The MPC emphasized the need for
Government to work towards a gradual
reopening of the economy in line with
recommendations of the Presidential
Task Force (PTF) and advice from
medical experts, insisting that efforts
must be directed at saving not only lives
but also livelihoods. This is to enable the
resumption
of
economic
activities
necessary
to
stimulate
growth,
accelerate the pace of recovery and
restore
livelihoods,
particularly
the
vulnerable in our society.

On prices, the MPC expressed concern
about
the
heightened
inflationary
pressure attributed to a combination of
monetary and structural factors. While
price stability remains the Bank’s primary
mandate, the Committee expressed the
need for a balanced approach in
supporting growth in the face of rising
domestic prices.

With respect to output, the Committee
urged the Federal Government to
continue
exploring
options
of
partnership with the private sector to
fund investment in infrastructure. This
would aid employment generation,
support production and boost output
growth. The Committee also reiterated
the need for foreign and domestic
investments to support growth in key
sectors of our economy, including
Nigerian auto manufacturing, aviation
and rail industries. The Committee
expects that on the backdrop of the
various
stimulus
packages
and
increased credit at lower interest rates,
the impact of the COVID-19 pandemic
would be relatively less severe than had
earlier been expected and the reversal
in growth deceleration would become
more optimistic.

The Committee commended the Bank’s
role in effective oversight of the banking
system, as evidenced by the relative
CBN Monetary Policy Review

stability in key financial soundness
indicators and systemic resilience of the
banking sector, in the face of severe
external shocks.

On the choice before the Committee,
the MPC observed the weakening of
the
global
macroeconomic
environment
due
to
the
adverse
impacts of COVID-19 and drop in crude
oil prices, which has resulted in negative
output in most economies. The MPC also
feels that the logical expectation is that
to ensure that the global economy
reverses from the recession timely, what
policy makers must do is to take actions
that will necessarily stimulate growth
and recovery. For Nigeria, although the
Q1 2020 GDP turned out pleasantly at
1.87 per cent and rate of inflation
somewhat moderated, Nigeria may
escape a recession if concerted efforts
are sustained to stimulate output.

Accordingly, on balance on whether to
hold, loosen, or tighten, the MPC was of
the view that tightening of policy stance
is for now inappropriate. This is because
tightening
will
result
in
further
contraction of aggregate demand,
leading to decline in output. Tightening
will also increase cost of credit and
reduce
investment
and
impact
negatively on output growth.

As regards the option of holding
previous policy stance, the MPC felt that
a hold may indicate that the monetary
authorities are insensitive to prevailing
weak economic conditions. There is,
therefore, the need to signal a direction
towards
immediate
recovery.
The
Monetary Policy Committee also feels
that a hold decision may slowdown the
trajectory of the weakened economy,
compared with a loosening stance,
thereby slackening output growth,

On loosening, whereas the Monetary
Policy Committee is concerned that
excess
liquidity
engendered
by
loosening
may
overshoot
the
economy’s absorptive capacity and
accelerate
inflationary
pressure,
it
nevertheless feels that given the slow
rate of acceleration of inflation, the
accommodative stance will stimulate
aggregate demand and supply in the
short
term.
This
is
because
an
accommodative stance, through a
lowering of the policy rate will stimulate
credit expansion to critically important
sectors
that
will
also
stimulate
employment and revive economic
activity for quick growth recovery.

The MPC noted that if all stimulus
packages already announced by the
Bank such as concessionary rates, loan
restructuring, and targeted loans to
agriculture, manufacturing and health
sector are well utilized, this will produce
the desired impetus needed to boost
economic recovery in Nigeria.

The Committee’s Decision
After reviewing the three options, the
MPC noted that the imperative for
monetary policy at the May 2020
meeting was to strike a balance
between supporting the recovery of
output growth while maintaining stable
price development across inflation, the
exchange rate and market interest
CBN Monetary Policy Review

rates. To this end, the Committee noted
that the Cash Reserve Requirement
(CRR) was recently adjusted upwards as
a means of tightening the stance of
policy. In its response to the COVID-19
pandemic, however, the Bank reduced
interest rates associated with all CBN
interventions from 9 to 5 per cent.
Increasing MPR at this stage will thus be
counter-intuitive
and
will
result
in
upward pressure on retail market rates.
The
Committee
maintained
that
although a sharp decline in output
growth is expected in Q2 2020 and
maybe the third quarter, if the current
stimulus
initiatives
are
properly
implemented, the economy would
reverse to positive growth by the fourth
quarter. Hence the optimism on the part
of the Committee that the economy
may not slide into recession.

In view of the foregoing, the Committee
decided by a unanimous vote to
reduce the Monetary Policy Rate (MPR)
and to hold all other policy parameters
constant. Seven (7) members voted for
a reduction of the policy rate by 100
basis points, two (2) members by 150
basis points and one (1) member by 200
basis points.

In summary, the MPC voted to:
I.
Reduce the MPR to 12.5 per
cent;
II.
Retain the Asymmetric Corridor
of +200/-500 basis points around
the MPR;
III.
Retain the CRR at 27.5 per cent;
and
IV.
Retain the Liquidity Ratio at 30
per cent.
Thank you.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
28th May 2020