CENTRAL BANK OF NIGERIA
MONETARY
MONETARY
POLICY REVIEW
POLICY REVIEW
MONETARY
POLICY REVIEW
AUGUST 2023
AUGUST 2023
VOLUME XII, NUMBER 1
VOLUME XII, NUMBER 1
AUGUST 2023
VOLUME XII, 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
©2023 Central Bank of Nigeria
iii
CBN Monetary Policy Review
CBN Monetary Policy Review
CBN Monetary Policy Review
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
“To be a people-focused Central Bank promoting
confidence in the economy and enabling an
improved standard of living”
Mission Statement
“To ENSURE Monetary, Price and Financial System
Stability as a Catalyst for Inclusive Growth and
Sustainable Economic Development.”
Core Values
Integrity
Partnership
Accountability
Courage
Tenacity
Central Bank of Nigeria
CONTENTS
Page
iv
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Table of Contents
Statement by the Governor

vii
Chapter 1: Overview.. ..


Chapter 2: The Global Economy


2.1
Global Output ....


2.2
Global Inflation ..


2.3
Global Financial Market Developments ..
..
..
..

Chapter 3: Domestic Economy Developments..
..
..
..

3.1
Output Growth ..


3.2
Domestic Price Developments..


3.3
Monetary Policy and Liquidity Management..
..
..

3.4
Domestic Financial Markets Developments.. ..
..
..

3.5
Monetary Policy Committee Meetings
..
..
..

Chapter 4: Economic Outlook and Risks..


4.1
Outlook for Global Output .. ..


4.2
Outlook for Global Inflation .. ..


4.3
Outlook for Domestic Output Growth ..
..
..
..

4.4
Outlook for Domestic Inflation ..


4.5
Outlook for Monetary Policy in 2023 ..
..
..
..

4.6 The Risks to the Outlook ..


Appendices ..


List of Tables
Table 2.1:
Policy Rates of Selected Central Banks December 2022 –


June 2023


Table 2.2: Selected International Stock Market Indices as at June 30,


Table 2.3:
Sovereign Yields Spreads (Benchmark 10-Year Government


Bonds) as at June 30, 2023

..
..
..

Table 2.4:
Exchange Rates of Selected Countries (value in currency


units to US$)


Table 3.1:
Key Intervention in the Agriculture Sector
..
..

Table 3.2:
Key Intervention in the Industry Sector
..
..

Table 3.3:
Inflation Rates, July – December 2022 ..
..
..

Table 3.4:
Actual and Seasonally Adjusted Headline (Y-on-Y) ..

Table 3.5: OMO Bills Auction (January - June 2023) (N'billion)
..

Table 3.6:
CBN Standing Facilities (January 2022 - June 2023) (N'billion)29
Table 3.7:
Foreign Exchange Supply by the CBN (US$ Million) ..

Table 3.8a:
The Performance of Monetary Aggregates and their


Implications


Table 3.8b:
The Performance of Monetary Aggregates and their


Implications


Table 3.9: Weighted Average Monthly Money Market Interest Rates
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Page


(Jan – June 2023)


Table 3.10: Average &End-Period Monthly Spot Exchange Rates


(N/US$) July 2021 – June 2023)

..
..

Table 3.11: Average Nominal and Real Effective Exchange Rates


Indices (Jan 2022 - June 2023)
..
..
..

Table 3.12:
Monthly Foreign Exchange Flows through the CBN


(Jan 2022 - June 2023)


Table 3.13:
Monthly Foreign Exchange Flows through the Economy


(Jan 2022 - June 2023) ..


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

Table 4.2 Global Inflation Outlook ..


Table 4.3
Possible Variations in Nigeria's GDP growth outlook ..

Table 4.4
Inflation Forecast..


List of Figures
Figure 2.1:
Global Output Growth (2018 - 2025) ..
..
..

Figure 2.2:
Global Inflation (2018 - 2025) ..
..
..
..

Figure 3.1:
Gross Domestic Product Growth Rate (2021Q1 – 2023 Q2) 16
Figure 3.2:
Oil Sector and Non-oil GDP growth Rate (2021Q1 – 2023Q2) 16
Figure 3.3: Non-Oil Sector Performance (2020Q1 – 2022 Q2)
..

Figure 3.4: Oil Sector Performance (2020Q1 – 2022 Q2) ..
..

Figure 3.5:
Sub-Components of Agriculture Sector Growth (2022Q1 –


2023 Q2)


Figure 3.6:
Sub-Components of Industry Sector Growth (2022Q1 –


2023 Q2)..


Figure 3.7:
Sub-Components Services Sector Growth, (2022Q1 –


2023 Q2)..


Figure 3.8:
Quarterly Domestic Oil Production and Export


(2022Q1 – 2023 Q2)


Figure 3.9: Monthly Bonny Light Price, Jan 2021 - July 2023
..

Figure 3.10:
Headline, Core and Food Inflation Rates (Jan 2022 -


June 2023)


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


Jan 2022 - June 2023. ..


Figure 3.12: Major Components of Headline Inflation (M-on-M)


Jan 2022 - June 2023.


Figure 3.13:
Major Components of Food Inflation (Y-on-Y) Jan 2022 -


June 2023..


Figure 3.14: Major Components of Food Inflation (M-on-M) Jan 2022 -


June 2023 ..


Figure 3.15: Major Components of Core Inflation (Y-on-Y) Jan 2022 -


June 2023 ..


Figure 3.16:
Major Components of Core Inflation (M-on-M) Jan 2022 -


June 2023 ..


Figure 3.17:
Actual and Seasonally Adjusted Headline Inflation


Jan 2022 - June 2023..


Figure 3.18:
Standing Lending Facility (Jan 2022 - June 2023)
..

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Figure 3.19:
Standing Deposit Facility (Jan 2022 - June 2023) ..

Figure 3.20: Total FX Supply (Including Forward Sales (Jan 2022 -


June 2023)


Figure 3.21: Money Supply (M1), (M2) and (M3) (Jan 2022 - June 2023).. 31
Figure 3.22:
Growth in Money Supply (M1), (M2) and (M3) (Jan 2022 -


June 2023)


Figure 3.23:
Net Domestic Assets (NDA) (Jan 2022 - June 2023) ..

Figure 3.24: NDA, NDC and Other Assets (Net) (Jan 2022 - June 2023)..

Figure 3.25: Domestic Credit to Private Sector (Jan 2022 - June 2023)..

Figure 3.26: Structure of the Nigerian Capital Market (June 2023) ..

Figure 3.27: NGX All Share Index (ASI) and Market Capitalization (MC)


(June 2022 – June 2023)
..
.. ..
.. 38
Figure 3.28: Trends in Total Foreign and Domestic Transactions in Equities


(June 2022 – June 2023) ..


Figure 3.29:
NGX Market Capitalisation by Sector as at End-Jun 2023

Figure 3.30:
10-Year U.S. Dollar-denominated Bond Yield for Nigeria

(June 2020 – June 2023)


Figure 3.31:
FGN Bonds Yield Curves: December 29, 2022 & June 29,


2022 Vs June 30, 2023


Figure 3.32:
Monthly Naira/US Dollar Exchange Rate (July 2022 to June


Figure 3.33:
Nominal and Real Effective Exchange Rate (January 2022


to June 2023) ..


Figure 3.34:
Monthly Foreign Exchange Flows Through the CBN


(January 2022 to June 2023) ..
..
..
..

Figure 3.35:
Monthly Foreign Exchange Flows Through the Economy


(January 2022 to June 2023) ..
..
..
..

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

CBN Monetary Policy Review
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M
onetary policy formulation and implementation in the first half of 2023
encountered severe challenges which emanated from global and
domestic economic environments. The key risks from the global front was
the tight global financial conditions associated with sustained monetary policy
tightening by major central banks to tame inflationary pressure. Other factors that
shaped monetary policy during the period include the US banking crisis which
spread to Europe with potential for contagion to other parts of the world, impact of
ongoing Russia – Ukraine war and failure of Russia to renew the Black Sea Grains
Agreement, growing tensions between China and the U.S. and China's slow
recovery, as well as the increasing polarisation of the global economy.
On the domestic scene, growth performance remained muted, albeit on a
sustained positive trajectory. Factors weighing against broad-based measures by
monetary and fiscal authorities to bolster growth performance include the lingering
effect of the Pandemic, the impact of fuel subsidy removal and instability of the
exchange rate. Other factors were the lingering security challenges, legacy
infrastructural deficits, high cost of energy, and oil theft in the Niger Delta. Data from
the National Bureau of Statistics (NBS) showed that real Gross Domestic Product
(GDP) grew by 2.31per cent (year-on-year) in the first quarter and rose tepidly to 2.51
per cent (year-on-year) in the second quarter of 2023. Inflationary pressure
intensified during the review period, while the foreign exchange market witnessed
significant pressure arising from pent-up demand and low accretion to external
reserves. Efforts to address domestic exchange rate misalignment necessitated the
unification of the naira exchange rate, which led to further depreciation of the Naira
in June 2023.
The money market remained broadly active, with the banking system liquidity
conditions dictating market rate fluctuations. The Nigerian capital market sustained
its bullish run in the first half of 2023, driven primarily by increased foreign investor
participation in the market's equities segment, reflecting improved confidence in
the Nigerian economy. Consequently, the All-Share Index (ASI) increased by 18.96
per cent to 60,968.27 at the end of June 2023 from 51,251.51 at the end of December
2022.
The conduct of monetary policy in the review period focused on redressing the
persisting inflationary pressures with an eye on reinvigorating the weak growth
performance to its potential path. Thus, monetary policy assumed a contractionary
stance in the review period, reflecting the Bank's commitment to rein in inflation to
support the economy's fragile growth recovery. Consequently, the Monetary Policy
Committee (MPC) raised the MPR by 50 basis points to 18.50 per cent at the May
vii
2023 MPC meeting while maintaining the asymmetric corridor at +100/-700 basis
points. The CRR and the Liquidity Ratio were maintained at 32.50 and 30.0 per cent,
respectively.
The outlook for the domestic economy indicates a persistence of inflationary
pressure for the rest of 2023. This is predicated on existing risks to inflation, including
perennial flooding in major food-producing areas, lingering insecurity in farming
communities, and the high energy cost. Monetary policy will continue to be
proactive and supportive of financial stability and non-inflationary growth.
FOLASHODUN SHONUBI
Ag. Governor, Central Bank of Nigeria
August 2023.
viii
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CBN Monetary Policy Review

CHAPTER ONE

1.0
OVERVIEW
This chapter highlights key economic
and
financial
developments
that
shaped monetary policy as well as the
policy responses by the Bank during the
first half of 2023. In the period under
review, monetary policy faced some
challenges including, importantly, those
that
emanated
from
the
global
economic environment.

The
major
risks
from
the
global
environment included the possibility of a
contagion from the US banking crisis; the
Russia – Ukraine war; and increased
tension between China and the US.
Those conditions posed a significant
downside risk to the recovery of the
global economy. Russia’s decision to
decline further renewal of the Black Sea
Agreement raised concerns around
commodity prices. Slow recovery in
China constituted a drag on global
trade, just as increased polarization of
the global economy
(with
several
economies
seeking
macroeconomic
alliances with the group of BRICS
countries)
ramped
up
uncertainty
around trade flows. In the advanced
economies, inflation remained elevated
and well above long-run objectives, with
consequences for investment spending
and the recovery of output growth. This
re-enforced the likelihood of central
banks in that bloc sustaining policy
tightening for much longer, thereby
undermining
capital
flows
to
the
Emerging
Markets
and
Developing
Economies (EMDEs).

In EMDEs, inflationary pressure remained
heightened amid several headwinds.
Global financial conditions continued to
tighten
as
several
central
banks
maintained a push towards taming
inflation.
Gold
price
sustained
an
upward trend as investors sought a safe
haven and hedge against losses in the
event of a broader market downturn.

In the domestic economy, uncertainties
persisted
around
the
trajectory
of
growth.
Though
positive,
growth
performance remained generally weak.
During the review period, growth was
mainly driven by Services and Industry,
underpinned
by
a
relatively
expansionary
monetary
and
fiscal
policies. The effects of the Pandemic,
fuel subsidy removal and exchange rate
instability were prominent on output and
prices. Other downside risks included
security challenges (frequent clashes
between
herdsmen
and
farmers,
insurgency,
and
banditry);
legacy
infrastructural deficits; high cost of
energy; oil theft in the Niger Delta; as
well as exchange rate pressures. In
particular,
low
access
to
cash
constrained growth in the non-oil sector,
due to its impact on the activities in the
informal
sector.
Also,
elevated
inflationary
pressures
impacted
production
costs
and
consumer
demand during the period.

On the flipside, the economy benefited
from improved performance in oil output
owing to higher crude oil production,
reflective of the Federal Government’s
efforts to curb oil theft and vandalism. In
addition, growth was underpinned by
the
implementation
of
Federal


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Government
reforms
including
the
Medium-Term National Development
Plan (MTNDP). Also, the Central Bank of
Nigeria (CBN) through policies like the
Loan-to-Deposit Ratio (LDR) policy and
other
direct
interventions
in
the
Agriculture,
Industry,
and
Services
sectors ensured a significant expansion
in credit to key sectors of the economy.

According to the National Bureau of
Statistics (NBS), Real Gross Domestic
Product (RGDP) grew by 2.31 per cent
(year-on-year) in the first quarter of 2023
compared with 3.11 and 3.52 per cent in
the
corresponding
(Q1
2022)
and
preceding
(Q4
2022)
quarters,
respectively. This was mainly driven by
the growth of 2.77 per cent in the non-oil
sector, a decline from 6.08 and 4.44 per
cent
in
the
corresponding
and
preceding quarters, respectively. The
key drivers of growth in the non-oil sector
were Services (4.35%) and Industry
(2.34%). Accordingly, the contribution of
the non-oil sector to real GDP rose to
93.79 per cent in the first quarter of 2023
from 93.37 per cent in the corresponding
period of 2022. It, however, declined
compared with 95.66 per cent in the
preceding
quarter.
The
oil
sector,
however, contracted moderately by
4.21 per cent in the first quarter of 2023,
compared with -26.04 and -13.38 per
cent in the corresponding period and
preceding quarter, respectively.

In terms of prices, headline inflation
(year-on-year)
increased
by
0.97
percentage points from 21.82 per cent in
January to 22.79 per cent in June 2023.
Similarly, core inflation rose by 1.11
percentage points from 19.16 per cent in
January to 20.27 per cent in June 2023.
In the same vein, there was a significant
uptick
in
food
inflation
by
0.93
percentage points from 24.32 per cent in
January to 25.25 per cent in June 2023.
The prices of food and non-alcoholic
beverages were the major drivers of
headline inflation during the review
period.

In the foreign exchange market, the
exchange rate depreciated due to
increased demand. At the same time FX
supply dwindled owing to lower foreign
exchange earnings occasioned by low
crude oil production and theft. The FX
supply shortage and increased demand
inevitably
increased
depreciation
pressure on the naira in all the segments
of the market. Premium between the
official and parallel markets increased
significantly,
making
arbitrage
attractive. The development elicited
decisive action from the Bank, resulting
in the unification of the naira exchange
rate which led to the depreciation of the
Naira to about N770.88/US$ in June 2023.
The unification has been necessitated
by the need to align the exchange rate
with market realities, curtail unnecessary
demand pressure and activities of
speculators. In addition, the external
reserves
declined
owing
to
the
significant
intervention
at
the
I&E
segment of the foreign exchange
market. However, the Bank introduced
reforms
such
as
abolishing
the
Naira4Dollar scheme and the RT200
scheme. The Bank sustained restriction of
access to foreign exchange for 43 items,
and the suspension of sale of foreign
exchange to BDCs during the review
period.


CBN Monetary Policy Review

The Bank continued to use its monetary
policy
instruments
to
achieve
its
objectives of price and macroeconomic
stability in the first half of 2023. These
instruments were: The Monetary Policy
Rate (MPR); the Cash Reserve Ratio
(CRR); Liquidity Ratio; Open Market
Operations
(OMO)
and
Discount
Window Operations. Similarly, the Bank
continued periodic interventions in the
foreign exchange market, particularly
after its unification policy which took
effect on June 14, 2023. The Monetary
Policy Rate (MPR) remained the Bank’s
key instrument for monetary policy
management in the review period. The
Monetary
Policy
Committee
(MPC)
adopted a contractionary stance by
raising MPR by 50 basis point to 18.50 per
cent at the May 2023 MPC meeting,
while
maintaining
the
asymmetric
corridor at +100/-700 basis points. The
increase reflects the Bank’s commitment
to
rein-in
inflation
to
support
the
economy’s fragile growth recovery.

Although, Open Market Operations
(OMO) remained the main instrument of
Liquidity Management by the Bank,
there was no auction of CBN Bills
throughout the first half of 2023. This was
due to the high cost of liquidity
management which had increased over
the years. However, existing CBN bills in
the banking system continued to be
rolled over.

The activities of the Money market in the
first half of 2023 were largely driven by
the
banking
liquidity
conditions.
Following the removal of the fuel subsidy,
the
banking
system
liquidity
experienced a significant boost resulting
from the huge increase in the statutory
FAAC monthly disbursement as well as
maturing
government
and
OMO
securities.

Owing to the associated counterparty
risk in the segment, overnight market
participants continued to tilt towards the
collateralised window. The interbank call
rate trailed the MPR path, oscillating
within the corridor bands, reflecting the
improved potency of the standing
discount windows. The OBB segment,
which is the collateralised window of the
overnight segment, closed the first half
of

actively.
The
market
experienced more transaction volume.

The
Nigerian
capital
market
performance in the first half of 2023 was
generally positive, driven largely by
increased activities in the
equities
segment of the market. The equities
market
recorded
increased
foreign
investor
participation,
reflecting
improved confidence in the Nigerian
economy.
In
addition,
there
were
improvements in the performance of
stocks
across
various
sectors.
Consequently, the All-Share Index (ASI)
increased by 18.96 per cent to 60,968.27
on June 30, 2023, from 51,251.51 on
December
30,
2022.
Market
capitalization (MC) increased by 18.91
per cent to N33.20 trillion at end-June

from
N27.92
trillion
at
endDecember 2022.
Activities in the bond market continued
to be dominated by the Federal
Government of Nigeria (FGN) securities
in the first half of 2023. This was followed
by
corporate
bonds,
while
state/municipal bonds recorded the


CBN Monetary Policy Review

least activities within the period by
market volume.

In terms of outlook, the domestic
economy is expected to sustain its
recovery through the first half of 2023, on
the basis of improved growth prospects
in the oil sector and robust performance
of the non-oil sector. Agriculture and
Services
subsectors,
particularly,
telecommunications,
trade
and
financial services are expected to be
the main drivers of output growth in 2023.
In addition, the implementation of the
Nigerian
Upstream
Petroleum
Measurement Regulations (2023) by the
fiscal authorities, which involves the
reopening of major oil terminals and
removal of petrol subsidy is expected to
improve oil GDP through improved
investments in oil infrastructure. This is
also expected to drive growth in 2023.

On the downside, high cost of energy
goods owing to the Russia-Ukraine war
and legacy infrastructure challenges are
expected to affect the supply-side driver
of
output
growth.
Alternatively,
depressed consumer demand arising
from
high
inflation
and
the
tight
monetary policy stance, as well as
increased borrowing cost is expected to
dampen ongoing recovery in output.
These
factors
signpost
significant
headwinds to Nigeria’s expected output
growth. Based on these developments,
the Central Bank of Nigeria (CBN)
forecasts real GDP to grow by 2.82 per
cent in 2023. The projection for real GDP
growth was predicated on crude oil
prices of US$80 per barrel.

Headline
Inflation
witnessed
acceleration for the first six months in
2023, rising from 21.82 per cent in
January to 22.79 per cent in June 2023.
Food inflation surged to 25.25 percent in
June 2023 from 24.32 per cent while core
inflation rose from 19.16 per cent to 20.27
per cent. Estimates from the forecast
showed that inflation is likely to increase
to 23.06 per cent in July 2023, which is still
above the upper limit of the indicative
benchmark of 6–9 per cent. The trend of
the year-on-year headline inflation is,
expected to sustain it current trajectory
to 23.95 per cent in October 2023 and
24.53
percent
in
December
2023.
Although upside risks to inflation in the
near term remain, due to a combination
of monetary and structural factors, it is
expected
that
the
contractionary
monetary policy stance adopted will
rein in inflationary pressure in the near
term. The upside risks include subsidy
removal, liberalisation of the foreign
exchange
market,
lingering
insecurity/banditry
in
agricultural
producing areas of the country causing
food shortages, spillover effects from the
Russian-Ukraine war, and the effect of
2023 general elections spending. Other
factors which could potentially induce
inflationary pressure are exchange rate
pressures, capital inflow reversals, and
an increase in fiscal deficits. Some
attenuating factors, however, include
an increase in the monetary policy rate
and the base effect of the intervention
in the agricultural sector.

Monetary policy in the second half of
2023 would continue to be tight in view
of the elevated inflationary pressures.
The ultimate objective remains the


CBN Monetary Policy Review

attainment of price and financial system
stability to support inclusive growth. In
line with the MTEF, the CBN would
manage expectations, provide timeconsistent policies, respond to shocks to
reinforce the ongoing recovery and
maintain macroeconomic stability of the
country.


CBN Monetary Policy Review

CHAPTER TWO
THE GLOBAL ECONOMY

2.1 Global Output
lobal economic growth for 2023
was projected to slow to 3.0 per
cent compared with 3.5 per
cent in 2022 (IMF WEO, July 2023). The
slowdown is expected to result mainly
from ongoing geopolitical tensions, high
inflation, tight monetary and financial
conditions, high debt levels, and limited
fiscal buffers in several economies.
Growth is, however, expected to be
supported by moderation in energy
prices, easing supply chain constraints,
and the reopening of the Chinese
economy, post-COVID lockdown.

In the Advanced Economies, growth
was estimated to decline to 1.5 per cent
in 2023 compared with 2.7 per cent in
2022.
The
ongoing
tightening
of
monetary policy to curb inflationary
pressures
continued
to
squeeze
household
consumption
and
credit
growth.
In
addition,
weak
manufacturing
and
relatively
high
energy prices, continued to hamper
output growth. In the United States (US),
the sustained interest rate hike by the
Federal Reserve is expected to constrain
output growth down to 1.8 per cent in
2023 compared with 2.1 per cent in 2022.
The recovery is however anticipated to
be supported by resilient consumption
growth and a strengthening labour
market. In the Euro Area, growth was
expected to decline considerably to 0.9
per cent in 2023 from 3.5 per cent in
2022. This is mainly hinged on weakening
manufacturing performance in some of
its major economies such as Germany,
as well as spill-overs from the RussiaUkraine war. In the United Kingdom,
growth was also estimated to decline to
0.4 per cent in 2023 from 4.1 per cent in
2022.
This
downward
pressure
is
expected from an extended period of
high energy prices, continued postBREXIT uncertainties and persistently high
inflationary pressures. In Japan, output
growth was projected to rise to 1.4 per
cent in 2023 from 1.0 per cent in 2022,
supported by accommodative policies
and rising aggregate demand.

Figure 2.1: Global Output Growth (2018 - 2025)

Source: IMF Database (2023)

In the Emerging Market and Developing
Economies (EMDEs), output growth was
projected to remain unchanged at 4.0
per cent in 2023 same as in 2022. This was
driven by the reopening of the Chinese
economy,
easing
supply
chain
disruption, and improving net exports. In
China, growth was anticipated to rise to
5.2 per cent in 2023 compared with 3.0
per cent in 2022 following the lifting of its
zero-COVID policy and reopening of the
economy.
In
India,
growth
was
projected to slow to 6.1 per cent in 2023
from 7.2 per cent in 2022, reflecting the
impact of adverse weather. Output
growth in Brazil was expected to decline
to 2.1 per cent in 2023, compared with
G


CBN Monetary Policy Review

2.9 per cent in 2022, attributable to
moderation in the price of its key exports,
sugar and oil.

In Sub-Saharan Africa (SSA), output
growth was estimated at 3.5 per cent in
2023, compared with 3.9 per cent in
2022, reflecting the impact of legacy
infrastructural and persisting security
challenges in the region. In addition to
these,
growth
continued
to
be
constrained by exchange rate pressures,
rising public debt and capital outflows
due to perceived sovereign risks.

In Nigeria, output growth was projected
to moderate to 3.2 per cent in 2023, from
3.3 per cent in 2022, on account of
continued incidences of oil theft as well
as persisting security and infrastructural
challenges. In South Africa, growth was
estimated at 0.3 per cent in 2023
compared with 1.9 per cent in 2022. The
economy continued to be burdened
with power supply shortages and labour
market disruptions.

2.2
Global Inflation
Global inflation remained high and
above the long-run objective of several
central
banks
but
continued
its
moderation due to persistent hike in
interest rate by major central banks. In
addition, consumer price levels also
moderated following the easing of
supply-side constraints supported by the
Black Sea Grain deal between Russia
and Ukraine as well as the lifting of
China’s zero COVID-19 policy. The
declining global inflation was also
attributed to the substantial fall in food
and energy prices during the period.
Accordingly,
global
inflation
was
expected to decelerate to 6.8 per cent
in 2023 from 8.7 per cent in 2022.

In the Advanced Economies, prices
generally
moderated,
following
sustained monetary policy tightening,
slowdown in energy prices, and easing
of global supply chains. Consequently,
inflation was forecast to moderate to 4.7
per cent in 2023 compared with 7.3 per
cent in 2022, remaining above the 2.0
per cent long-run objectives of central
banks in the group. In the United States,
inflation was expected to average 4.5
per cent in 2023 compared with 8.0 per
cent in 2022, driven mainly by declining
energy prices. In the Euro Area, inflation
was projected to average 5.3 per cent
in 2023 from 8.4 per cent in 2022 due to
declining energy prices and easing
supply chain constraints.

In the United Kingdom, inflation was
forecast to moderate to 6.8 per cent in
2023 from 9.1 per cent in 2022, on
account of sustained interest rate hikes
and falling energy prices. Inflation in
Japan was projected to average 2.7 per
cent in 2023 from 2.5 per cent in 2022, as
government sustained fiscal stimulus to
spur growth.


CBN Monetary Policy Review

Figure 2.2: Global Inflation (2018 - 2025)

Source: IMF Database (2023)

In the Emerging Market and Developing
Economies
(EMDEs),
inflation
was
projected to average 8.3 per cent in
2023 compared with 9.8 per cent in 2022,
on account of declining food and
energy
prices.
However,
most
economies in this group continue to
experience exchange rate pressures
due to high level of capital outflows as
investors
reassigned
their
portfolios
towards more attractive US dollardenominated fixed income assets. In
India, inflation was forecast to moderate
to 4.9 per cent in 2023 from 6.7 per cent
in 2022 due to a decline in energy prices.
Russian
inflation
was
projected
to
decelerate significantly to 7.0 per cent in
2023 from 13.8 per cent in 2022, due to
the base effect as currency stabilises
from the earlier impact of sanctions
imposed on the country due to the war
in
Ukraine.
In
Brazil,
inflation
was
estimated to moderate to 5.0 per cent in
2023 from 9.3 per cent in 2022, on
account of a stronger currency buoyed
by increased exports. However, in China,
inflation was expected to increase
marginally to 2.0 per cent in 2023 from
1.9 per cent in 2022 due to the
reopening of the economy, thereby
leading to higher aggregate demand.

Among
the
Sub-Saharan
African
economies, inflation in South Africa was
forecast to average 5.8 per cent in 2023
compared with 6.9 per cent in 2022, due
to falling energy and food prices.
Inflation in Nigeria was projected to
average
20.1
per
cent
in

compared with 18.8 per cent in 2022,
driven largely by the increase in the cost
of food, exchange rate depreciation
and rising cost of utilities. Inflation in
Ghana was projected to accelerate
considerably to 45.4 per cent in 2023
from 31.9 per cent in 2022, owing to
exchange rate pressures and rising cost
of food, transportation, and housing &
utilities.

2.3
Global
Financial
Market
Developments
Global financial conditions remained
tight in the review period as most central
banks continued with monetary policy
normalisation
to
tame
inflationary
pressures. Consequently, the risk of debt
default remained high due to the
burgeoning private and public debt
portfolios across several countries. Equity
markets in most economies recorded
bullish performance on account of
moderating inflationary pressure and
improved
earnings
of
global
conglomerates.

2.3.1 Central Bank Policy Rates
During the first half of 2023, most central
banks sustained their interest rate hikes,
albeit at a slower pace as inflation
2018 2019 2020 2021 2022 2023 2024 2025
World

AEs

EMDEs 4.914 5.125 5.176

per cent
World
AEs
EMDEs
Estimates
Forecas


CBN Monetary Policy Review

remained high and above their long-run
objective, but had commenced a
gradual and steady descent. Fourteen
(14) central banks were surveyed in the
review period.

In the advanced economies, the US
Federal Reserve Bank (The Fed), the
European Central Bank (ECB) and the
Bank of England (BoE) continued with
their policy rate hikes in the review
period as inflationary pressures persisted.
Consequently, the Fed, ECB and BoE
raised their policy rates by 125, 150, and
150 basis points, respectively, and
maintained guidance for further rate
hikes if inflationary pressures persist. The
Bank
of
Japan
(BoJ),
however,
maintained its negative interest rate
regime in the review period to address
deflationary trends.

Across
the
emerging
market
and
developing
economies
(EMDEs),
monetary
policy
actions
varied
in
response to peculiar headwinds. These
include, capital outflows, exchange rate
depreciation, high inflation, increased
sovereign risk, and limited fiscal buffers.
Consequently, the Reserve Bank of India,
the Reserve Bank of South Africa, the
Central Bank of Egypt, the Central Bank
of Nigeria, the Central Bank of Kenya,
and the Bank of Ghana all raised their
policy rates in the period. Other central
banks such as the Central Bank of Brazil,
the Central Bank of Russia, and the Bank
of Indonesia kept their policy rates
unchanged in view of moderating
inflationary pressure and exchange rate
stability. The Peoples Bank of China,
however, lowered its policy rate to
support growth recovery.

Table 2.1: Policy Rates of Selected Countries
(December 2022 – June 2023)
Country

Dec

Jan

Feb

Mar

April

May

June

Egypt
16.2

16.2

16.2

18.2

18.2

18.2

18.2

Kenya


S. Africa

Ghana
27.0

27.0

28.0

29.5

29.5

29.5

29.5

Nigeria
16.5
17.5

17.5

18.0
18.0
18.5

18.5

Brazil
13.7

13.7

13.7

13.7

13.7

13.7

13.7

USA

Japan

Euro
Area

India

Russia

China

UK

Indonesi
a

Source: cbrates.com

2.3.2 Global Capital Markets
Major global stock markets recorded
bullish performance in the review period,
largely driven by moderating global
inflation and improved earnings of major
conglomerates.

In Europe, the German DAX, French
CAC 40, and United Kingdom FTSE 100
indices increased by 16.0, 13.7 and 1.1
per cent, respectively, during the review
period. Similarly, the Mexican Bolsa and
the
Canadian
S&P/TSX
Composite
indices in North America increased by
8.1 and 4.0 per cent, respectively. The
United States S&P 500 index, however,
declined by 10.8 per cent. In South
America, the Argentina Merval and
Brazilian Bovespa indices increased by
116.20 and 7.6 per cent, respectively.


CBN Monetary Policy Review

The
Columbian
COLCAP
index,
however, decreased by 11.9 per cent. In
Asia, the Japanese Nikkei 225, Indian BSE
Sensex, and Chinese Shanghai SE indices
increased by 27.2, 6.4 and 3.7 per cent,
respectively. In Africa, the Egyptian EGX
CASE
30,
Nigeria
NGX
All-Share,
Ghanaian GSE All-Share, and South
African JSE All-Share indices increased
by 21.0, 19.0, 14.9 and 4.1 per cent,
respectively. The Kenyan Nairobi NSE 20
index however, declined by 6.0 per
cent.


Table 2.2: Selected International Stock Market Indices as at June 30, 2023
Country
Index
30-Jun-22
30-Dec-22
30-Jun-23
June 30,
2022 -
June 30,
2023 %
Change
Dec 30,
2022 -
June 30,
2023%
Change
AFRICA


Nigeria
NGX 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

Source: Bloomberg


CBN Monetary Policy Review

Table 2.3: Sovereign Yields Spreads (Benchmark 10-Year Government Bonds) as at June 30, 2023
Country
June
30,

Yield
(%)
Dec 30,

Yield
(%)
April
28,

Yield
(%)
June
30,

Yield
(%)
Change
in Yield
(Basis
Points)
June 30,

Spread
over the
U.S. (Basis
points)
AFRICA


Nigeria (U.S. $)


Ghana (U.S. $)


NORTH
AMERICA


Canada

Mexico

US


SOUTH
AMERICA


Brazil

Columbia


EUROPE


France

Germany

Greece

Italy

Portugal

Spain

UK


ASIA


China

Japan

Source: Bloomberg


CBN Monetary Policy Review

2.3.4 Global Commodity Prices
Global commodity prices sustained their
downward trend in the period under
review, largely driven by declining prices
of food & agricultural commodities,
crude
oil,
metals
and
non-fuel
commodities.

The continuation of the Black Sea Grains
deal which ensured the safe passage of
grains and other commodities from
Ukrainian ports to the global market also
contributed
to
the
dampening
of
commodity prices. Consequently, the
Food
and
Agriculture
Organization
(FAO) Food Price Index fell to 122.70
points at end-June 2023 from 131.80
points at end-December 2022. The subindices of vegetable oils, dairy and
cereals fell to 115.8, 116.7 and 126.6
points from 144.60, 138.20 and 147.30
index points at end-December 2022,
respectively. On the other hand, the subindices of sugar and meat rose to 152.2
and 119.0 points at end-June 2023, from
117.20 and 112.40 points at endDecember 2022.

The IMF primary commodity price index
also decreased to 154.1 points at endJune 2023 from 194.3 points endDecember 2022. All the major subindices under the primary commodity
index except edibles, fell during the
period. Energy, industrial inputs, metals
and non-fuel declined respectively to
165.8, 156.4, 179.0 and 145.9 points at
end-June 2023 from 258.5, 162.0, 184.3
and
150.0
index
points
at
endDecember 2022.

Similarly, the performance of the oil
sector
weakened,
reflecting
the
slowdown in global economic activities.
As a result, the average price of the
OPEC Reference Basket declined to
US$75.19 per barrel at end-June 2023
from US$79.68 per barrel at endDecember 2022.

2.3.5 Global Foreign Exchange Market
During the first half of 2023, most of the
currencies
surveyed,
depreciated
against the US dollar largely due to
continued monetary policy rate hikes by
the US Federal Reserve Bank and weak
macroeconomic
fundamentals.
In
Africa, the Nigerian Naira, Egyptian
pound, Ghanaian cedi, Kenyan shilling,
and South African rand all depreciated
against the US dollar by 46.30, 39.16,
29.05,
16.11
and
13.59
per
cent,
respectively.
In
Asia,
the
Chinese
renminbi, Japanese yen, and Indian
rupee all depreciated against the US
dollar by 7.59, 5.93 and 3.69 per cent,
respectively.

In South America, the Argentine Peso
and and Colombian peso depreciated
against the US dollar by 51.22 and 0.44
per cent, respectively while the Brazilian
Real appreciated by 9.81 per cent
against the US dollar. In North America,
the Mexican Peso appreciated against
the US dollar by 17.40 per cent, while the
Canadian dollar depreciated by 2.27
per cent.

In Europe, the British pound and euro
appreciated against the US dollar by 3.8
and 3.26 per cent, respectively while the
Russian ruble depreciated by 38.77 per
cent, due to the impact of sanctions.


CBN Monetary Policy Review

Table 2.4: Exchange Rates of Selected Countries (value in local currency units to US$)


CBN Monetary Policy Review

CHAPTER THREE
DOMESTIC ECONOMIC DEVELOPMENTS

3.1 Output Growth
he Nigerian economy maintained a
positive growth trajectory in the first
half of 2023, albeit at a subdued
pace. Data from the National Bureau of
Statistics (NBS) showed that real GDP
grew by 2.31 per cent (year-on-year) in
the first quarter of 2023 compared with
3.11
and
3.52
per
cent
in
the
corresponding and preceding quarters,
respectively. This was mainly driven by
the growth of 2.77 per cent in the non-oil
sector, a decline from 6.08 and 4.44 per
cent
in
the
corresponding
and
preceding quarters, respectively. The
key drivers of growth in the non-oil sector
were Services (4.35%) and Industry
(2.34%). Accordingly, the contribution of
the non-oil sector to real GDP rose to
93.79 per cent in the first quarter of 2023
from 93.37 per cent in the corresponding
period of 2022. It, however, declined
compared with 95.66 per cent in the
preceding quarter.

The oil sector, however, contracted
moderately by 4.21 per cent in the first
quarter of 2023, compared with -26.04
and -13.38 per cent in the corresponding
and preceding quarters, respectively.

In the second quarter of 2023, real GDP
grew by 2.51 per cent compared with
3.54 and 2.31 per cent (year-on-year) in
the corresponding quarter of 2022 and
preceding quarter, respectively. This was
mainly driven by a 3.58 per cent growth
in the non-oil sector compared with 4.77
and 2.77 per cent in the corresponding
and preceding quarters, respectively.
The key drivers of growth in the non-oil
sector were Services (4.42%), Industry
(3.61%),
and
Agriculture
(1.50%).
Accordingly, the contribution of the nonoil sector to real GDP rose to 94.66 per
cent in the second quarter of 2023 from
93.67 and 93.79 per cent in the
corresponding and preceding quarters,
respectively.

The oil sector, however, recorded a
deeper contraction of 13.43 per cent in
the second quarter of 2023, compared
to -4.21 and -11.77 per cent in the
preceding and corresponding quarters,
respectively.

Key factors that constrained growth
during the review period include tight
fiscal space caused by low revenue
from persistent oil theft and vandalism
which
impeded
oil
output.
Others
included persistent inflationary pressure
which
increased
production
costs,
lowered
disposable
income
and
depressed consumer demand.

Despite these challenges, growth was
considerably
buoyed
by
the
implementation of the Medium-Term
National Development Plan (MTNDP) of
the Federal Government and increased
flow of credit to the real sector through
the Central Bank’s Loan-to-Deposit Ratio
(LDR) policy.


T


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Figure 3.1: Gross Domestic Product Growth Rate
(2021Q1 – 2023Q2)

Source: National Bureau of Statistics (NBS)


Figure 3.2: Oil Sector and Non-Oil GDP Growth Rate
(2021Q1 – 2023Q2)


3.1.1 DOMESTIC ECONOMIC ACTIVITIES
In the first half of 2023, real GDP was
driven by activities in both the non-oil
and oil sectors. In the first quarter of 2023,
the non-oil sector grew by 2.77 per cent,
3.31 percentage points below the
growth
of
6.08
per
cent
in
the
corresponding period of 2022 and 1.67
percentage points below the 4.44 per
cent growth in the preceding quarter.
The non-oil sub-sectors which drove
overall
growth
were
Mining
and
Quarrying
(37.71%);
Financial
and
Insurance (21.37%); Information and
Communication
(10.32%);
Electricity,
Gas, Steam and Air Conditioner (9.53);
Transportation and Storage (9.36%);
Water Supply, Sewage, and Waste
Management (5.57%); Accommodation
&
Food
Services
(3.59%)
and
Construction (3.27%). These compare
with their respective growth rates of
14.16, 23.24, 12.07, -11.20, -17.14, 13.22,
1.93,
and
4.83
per
cent
in
the
corresponding period of 2022.

Output in the oil sector, however,
recorded a moderate contraction of
4.21 per cent in the first quarter of 2023
compared with -26.04 and -13.38 per
cent
in
the
corresponding
and
preceding
quarters,
respectively.
Average daily oil production rose to 1.51
million barrels per day (mbpd) in the first
quarter of 2023, compared with 1.49 and
1.34 mbpd in the corresponding and
preceding quarters, respectively. This
increase resulted from the government’s
efforts
to
address
oil
theft
and
vandalism. Also, according to the
Organization of the Petroleum Exporting
Countries (OPEC), Nigeria’s rig count
increased to 13 in Q1 2023 from 10 in Q4
2022 indicating improvement in drilling
activities. Although crude oil production
levels
have
increased,
it
however
continues to underperform, due to oil
theft, pipeline sabotage, divestments by
international
oil
companies,
low
investments into the sector, and the
impact of dilapidated infrastructure.

In the second quarter of 2023, the nonoil sector grew by 3.58 per cent from 4.77
per cent in the corresponding period,
and 2.77 per cent in the preceding

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Per cent

Q1-2021
Q2-2021
Q3-2021
Q4-2021
Q1-2022
Q2-2022
Q3-2022
Q4-2022
Q1-2023
Q2-2023
Oil Sector
Non-Oil GDP


CBN Monetary Policy Review

period. The non-oil sub-sectors which
drove overall growth were Mining and
Quarrying
(31.89%);
Financial
and
Insurance (26.84%); Information and
Communication
(8.60%);
and
Manufacturing
(2.20%).
These
performances
compared
with
their
respective growth rates of 37.71, 21.37,
10.32,
and
1.61
per
cent
in the
preceding period and 20.95, 18.48, 6.55,
and 3.00 per cent in the corresponding
period of 2022.

The oil sector, however, recorded a
deeper contraction of 13.43 per cent in
the second quarter of 2023, compared
to -4.21 and -11.77 per cent in the
preceding and corresponding quarters,
respectively.
Average
daily
oil
production dropped to 1.22 mbpd in the
second quarter of 2023 compared with
1.43
and
1.51
mbpd
in
the
corresponding and preceding quarters,
respectively. The decrease in oil output
reflected the persistent challenges of oil
theft and pipeline vandalism. However,
there was increased drilling activities
evidenced by the rise in Nigeria’s rig
count to 14 in Q2 2023 from 13 in Q1
2023.

Figure 3.3: Non-oil Sector Performance (2021Q2 –
2023Q2)

Source: NBS
Figure 3.4: Performance of oil Sector (2021Q2 –
2023Q2)

Source: NBS

3.1.2 Sectoral Analysis
This section analyses the key drivers of
sectoral growth in the review period.

3.1.2.1 Agriculture
In the first quarter of 2023, agricultural
output contracted by 0.90 per cent,
compared with growth of 3.16 and 2.05
per cent in the corresponding and
preceding quarters, respectively. The
contraction was driven by livestock (-
30.57%) and fishing (-2.92%) compared
with 5.55 and 3.14 per cent in the
corresponding period, and -1.59 and -
3.02 per cent in the preceding quarter,
respectively.
Crop
production
and
forestry, however, grew by 1.93 and 1.24
per cent in Q1 2023, compared with 2.97
and 1.37 per cent in the corresponding
period, and 2.41 and 1.63 per cent in the
preceding quarter, respectively. The
share of the agriculture sector in overall
GDP declined to 19.63 per cent in the
first quarter of 2023 from 21.09 and 24.90
per cent in the corresponding and
preceding quarters, respectively.
In the second quarter of 2023, the
agriculture sector grew by 1.50 per cent,
compared with 1.20 and -0.90 per cent

Q 2
2 0 2 1
Q 3
2 0 2 1
Q 4
2 0 2 1
Q 1
2 0 2 2
Q 2
2 0 2 2
Q 3
2 0 2 2
Q 4
2 0 2 2
Q 1
2 0 2 3
Q 2
2 0 2 3
AGRICULTURE
INDUSTRIES
SERVICES

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

per cent
per cent


CBN Monetary Policy Review

in the corresponding and preceding
quarters, respectively. Output growth in
the sector was driven by forestry which
grew by 1.88 per cent compared with
1.29
and
1.24
per
cent
in
the
corresponding and preceding quarters,
respectively. This was followed by crop
production which grew by 1.82 per cent
compared with 1.54 and 1.93 per cent in
the
corresponding
and
preceding
quarters,
respectively.
The
fishing
subsector also grew by 0.29 per cent
compared with 0.89 and -2.92 per cent
in the corresponding and preceding
quarters, respectively. The improvement
in the sector was mainly due to the
support of the Federal Government and
the
Bank.
Livestock,
however,
contracted by 2.30 per cent compared
with -2.87 and -30.57 per cent in the
corresponding and preceding quarters,
respectively. The share of Agriculture in
the total GDP stood at 23.01 per cent in
the second quarter of 2023, compared
with 23.24 and 21.66 per cent in the
corresponding and preceding quarters,
respectively.

Figure 3.5: Sub-Components of Agricultural Sector
Growth (2022Q1 – 2023Q2)

Source: Statistics Department

1 Note that H1 2023 figures contained in this report
are provisional.
3.1.2.1.1
Agricultural Policies and
Institutional Support1
In
the
review
period,
the
Bank
commenced the winding down of its
intervention in the agriculture sector, as
shown in table 3.1.

Table 3.1: Monetary Interventions in the Agriculture
Sector
Interventions
First half of 2023
2nd half of 2022
Disburs
ement
(N'bn)
Repay
ments
(N'Bn)
Disburs
ement
(N’Bn)
Repay
ments
(N'bn)
Commercial
Agriculture
Credit Scheme
(CACS)

Micro, Small
and Medium
Enterprises
Development
Fund

Anchor
Borrowers’
Programme
(ABP)

Accelerated
Agriculture
Development
Scheme (AADS)

Agribusiness/
Small and
Medium
Enterprises
Investment
Scheme
(AGSMEIS)

Paddy
Aggregation
Scheme (PAS)
-
4.5
-

National Food
Security
Programme
(NFSP)

Source: Central Bank of Nigeria

3.1.2.2 Industry
The industry sector recorded a positive
performance of 0.31 per cent in Q1 2023,
compared with contractions of 6.81 and

Q1-2022Q2-2022Q3-2022Q4-2022Q1-2023Q2-2023
Per cent
Crop Production
Livestock
Forestry
Fishing


CBN Monetary Policy Review

0.94 per cent in the corresponding and
preceding
quarters,
respectively.
Growth in the sector was driven largely
by
electricity,
gas,
steam
&
air
conditioning,
construction,
and
manufacturing subsectors which grew
by 9.53, 3.27, and 1.61 per cent in the first
quarter of 2023, compared with -11.20,
4.83,
and
5.89
per
cent
in
the
corresponding period, and 15.22, 3.80,
and 2.83 per cent in the preceding
quarter, respectively. The growth of the
sector
was
moderated
by
the
contraction in the mining & quarrying
sub-sector by -3.96 per cent in the first
quarter of 2023.

In the second quarter of 2023, output
growth in the industry sector, however,
contracted by 1.94 per cent, compared
with -2.30 and 0.31 per cent in the
corresponding and preceding quarters,
respectively. The negative performance
in the sector was mainly driven by a
contraction of 12.16 per cent in mining
and quarrying in the second quarter of
2023, from -2.30 and -3.96 per cent in the
corresponding and preceding quarters,
respectively.
Under
the
sub-sector,
crude petroleum & natural gas, and
coal mining contracted by 13.43 and
15.73 per cent in the second quarter of
2023, compared with -11.09 and -11.77
per cent in the corresponding quarter,
and -4.21 and 1.19 per cent in the
preceding
quarter,
respectively.
However, water supply, sewage & waste
management; electricity, gas, steam &
Air
conditioner;
construction;
and
manufacturing
sub-sectors
recorded
expansions of 20.56, 6.10, 3.42, and 2.20
per cent in the review period. These
compare with 23.73, -11.48, 4.02, and
3.00 per cent in the corresponding
period, and 5.57, 9.53, 3.27, and 1.61 per
cent, respectively, in the preceding
quarter. The share of the sector in the
overall GDP declined to 18.56 per cent
in the review period, compared with
19.40 and 21.05 per cent in the
corresponding and preceding quarters,
respectively.

Figure 3.6: Sub-Components of Industry Sector
Growth (2022Q1-2023Q2)
Source: National Bureau of Statistics

3.1.2.2.1
Industry
Policies
and
Institutional Support
In
the
review
period,
the
Bank
commenced the winding down of its
intervention in the industry sector, as
shown in table 3.2.


Mining and Quarrying
Manufacturing
Electricity,Gas,Steam & Air conditioner
Water supply, sewage, waste Mang.
Construction


CBN Monetary Policy Review

Table 3.2: Monetary Interventions in the Industry Sector
Interventions
First half of 2023
2nd half of 2022
Disbursement
(N'bn)
Repayments
(N'Bn)
Disbursement
(N)
Repayments
(N'bn)
Real Sector Support Facility (RSSF)
Using Differentiated Cash Reserve
Ratio (RSSF-DCRR)

Export Development Facility (EDF)

Creative Industry Financing
Initiative (CIFI)

Targeted Credit Facility (TCF)

Presidential Fertilizer Initiative (PFI)
-

-

Real Sector Support Facility (RSSF)

Non-oil Export Stimulation Facility
(NESF)

Shared Agent Network Expansion
Facility (SANEF)

Nigeria Youth Investment Fund
(NYIF)

Health Sector Intervention Fund
(HSIF)

Healthcare Sector Research and
Development Intervention
Scheme (HSRDIS)

COVID-19 Intervention Facility for
the Manufacturing Sector (CIMS)

SME/Rediscounting & Refinancing
Facility (SMERRF)

CBN-BOI Industrial Facility (CBIF)
-
-

-
Textile Sector Intervention Facility
(TSIF)

100 for 100 Policy for Production
and Productivity (100 for 100 PPP)

Tertiary Institutions
Entrepreneurship Scheme (TIES)

Youth Entrepreneurship
Development Fund (YEDP)

Power and Airline Intervention
Fund (PAIF)

5.87
-
4.38
Nigerian Bulk Electricity Trading -
Payment Assurance Programme
(NBET-PAF)

Nigerian Electricity Market
Stabilization Facility (NEMSF 1 & 2)

National Mass Metering
Programme (NMMP)

Intervention Facility for National
Gas Expansion Programme
(IFNGEP)

Source: Central Bank of Nigeria


CBN Monetary Policy Review

3.1.3.1 Services Sector
The services sector sustained its growth
in the review period. In the first quarter of
2023, the sector grew by 4.32 per cent
compared with 7.45 and 5.69 per cent in
the
corresponding
and
preceding
quarters, respectively. The growth in the
sector was driven mainly by Financial &
insurance
(21.37%);
Information
&
Communication
(10.32%);
and
Transportation & Storage (9.36%). These
performances
compared
with
their
respective growth rates of 23.24, 12.07,
and -17.41 per cent in the corresponding
period, and 11.61, 10.35, and 0.78 per
cent in the preceding period. The share
of services in the total GDP increased to
57.29 per cent in the first quarter of 2023
compared with 56.17 and 56.27 per cent
in the corresponding and preceding
quarters, respectively.

Similarly, the services sector sustained its
strong performance in the second
quarter of 2023. The sector grew by 4.42
per cent compared with 6.70 and 4.35
per cent in the corresponding and
preceding
quarters,
respectively.
Growth in the sector was driven mainly
by financial & insurance (26.84%), and
Information
&
Communication
subsector (8.60%). These compared with
18.48
and
6.55
per
cent
in
the
corresponding quarter, and 21.37 and
10.32 per cent in the preceding quarter,
respectively.

Conversely, the transportation & storage
sub-sector contracted significantly by
50.64 per cent in the second quarter of
2023 compared with expansions of 51.66
and 9.36 per cent in the corresponding
and preceding quarters, respectively.
The poor performance of the sub-sector
was attributed mainly to the removal of
petroleum
subsidy
by
the
Federal
Government.

The share of services in the overall GDP
increased to 58.42 per cent in the
second quarter of 2023 from 57.35 and
57.29 per cent in the corresponding and
preceding periods, respectively.

Figure 3.7: Sub-Components of Services Sector
Growth (2022 Q1-2023 Q2)

Source: NBS

3.1.4.1 Oil Sector
In the first half of 2023, the oil sector
contracted significantly, on account of
divestments
by
multinational
oil
companies, oil theft, vandalism, and
aging infrastructure.

Nevertheless,
average
daily
oil
production rose to 1.51 mbpd in the first
quarter of 2023, compared with 1.34
mbpd in the preceding quarter. This
increase resulted from the government’s
efforts
to
address
oil
theft
and
vandalism, as well as increase in rig

Trade
Accommodation and Food Services
Transportation and Storage
Information and Communication
Arts, Entertainment & Recreation
Financial and Insurance


CBN Monetary Policy Review

count to 13 in Q1 2023 from 10 in Q4
2022. In the second quarter of 2023, oil
production declined to 1.22 mbpd in the
second quarter of 2023 compared with
1.51 mbpd in the preceding quarter. This
was below the Organization for the
Petroleum Exporting Countries (OPEC)
production quota of 1.74 mbpd for 2023.

During the review period, oil prices in the
international market softened due to
supply glut, and weak global growth.
Accordingly, the price of Nigeria’s
reference crude, the Bonny Light 370API,
declined to US$76.22 per barrel (pb) at
end-June 2023 from US$126.94 at endJune 2022 and US$82.58 per barrel at
end-December 2022.

Although the oil price of US$76.22 was
above the 2023 budget benchmark of
US$73 per barrel, the prevailing shortfalls
in
oil
production
undermined
the
expected gains in oil revenue.

Figure 3.8: Quarterly Domestic Oil Production and
Export (2021Q1-2023Q2)

Source: NBS


Figure 3.9: Monthly Bonny Light Oil Price, January
2021 - July 2023

Source: Bloomberg

3.2 Domestic Price Developments
Inflationary pressures persisted during
the review period, driven largely by rising
food and energy prices. The major
factors that put upward pressure on
prices in the review period were the
impact of the continued war in Ukraine
on global food supply as well as capital
flow
reversals
associated
with
the
normalisation of monetary policy in the
advanced economies. Other domestic
legacy
factors
such
as
poor
infrastructure, high insecurity, exchange
rate
pressures,
and
perennial
fuel
shortages
also
contributed
to
inflationary pressures in the economy.
Consequently, all three measures of
inflation (headline, food, and core)
trended upwards, with headline inflation
remaining above the upper band of the
Bank’s indicative benchmark range (6.0
– 9.0 per cent). The uptrend in prices
reflected the combined effect of various
demand and supply-side factors.


1.2
1.4
1.6
MBPD

Jan-21
May-21
Sep-21
Jan-22
May-22
Sep-22
Jan-23
May-23


CBN Monetary Policy Review

On
the
demand-side,
price
development was largely impacted by
the level of liquidity in the economy. Key
sources of liquidity include: increase in
election-related spending towards the
2023 general elections; disbursement of
various palliatives to businesses and
households;
maturity
of
tenored
securities;
and
increase
in
FAAC
disbursements arising from savings from
subsidy payments, exchange rate gains,
and receipts from financial year-end
corporate
tax.
Consequently,
aggregate demand remained strong
throughout the period, putting upward
pressure on domestic prices.

On
the
supply-side,
the
lingering
insecurity across the country, particularly
in
food
producing
areas,
had
a
significant impact on food production,
thus driving up prices of farm produce
and processed food. In addition, the
exchange rate passthrough to domestic
prices as well as rising cost of energy
contributed significantly to the uptick in
headline inflation during the period.
Other
supply-side
factors
which
contributed to rising inflation include,
adverse weather conditions due to
climate change and high cost of grains
and farm inputs, a direct impact of the
Russia-Ukraine war.

3.2.1 Trends in Inflation
The
three
measures
of
inflation
maintained upward trajectories in the
period under review. Headline inflation
(year-on-year)
increased
by
0.97
percentage point to 22.79 per cent in
June 2023 from 21.82 per cent in January
2023. Similarly, core inflation rose by 1.11
percentage points to 20.27 per cent in
June 2023 from 19.16 per cent in January
2023. Food inflation also rose to 25.25 per
cent in June 2023 from 24.32 per cent in
January 2023, a 0.93 percentage point
increase (Table 3.3).

Table 3.3: Inflation Rate (Jan – Jun 2023)
Month
Headline
Core
Food

YoY
12MMA
YoY
12MMA
YoY
12MMA
January

February

March

April

May

June

Source: NBS

Figure 3.10: Headline, Core, and Food Inflation
Rates (Jan – June 2023)

Source: NBS


Percent
Headline (Y-o-Y)
Core (Y-o-Y)
Food (Y-o-Y)


CBN Monetary Policy Review

3.2.1.1 Headline Inflation
Headline inflation increased to 22.79
per cent in June 2023 from 21.82 per
cent in January 2023, driven largely by
Food and Non-Alcoholic Beverages,
which increased to 15.15 per cent in
June 2023 from 14.45 per cent in January
2023. Similarly, Transport, Education and
Health increased to 1.41, 0.65, and 0.49
per cent in June 2023 from 1.20, 0.59,
and 0.44 per cent in January 2023,
respectively.
The
prices
of
other
components such as Housing, Water,
Electricity,
Gas
&
Other
Fuels;
Miscellaneous Goods & Services; and
Restaurant & Hotels recorded mild
increases during the period.

Figure 3.11: Major Components of Headline
Inflation (Y-on-Y), Jan – Jun, 2023

Source: NBS

On a month-on-month basis, headline
inflation increased to 2.13 per cent in
June 2023 from 1.87 per cent in January
2023, driven mainly by Food and NonAlcoholic Beverages, which rose to 1.46
per cent in June 2023 from 1.26 per cent
in January 2023. Mild increases were also
recorded in the costs of Transport,
Health, and Clothing & Footwear by
0.02, 0.01, and 0.01 percentage points,
respectively in the second quarter of
2023 (Figure 3.12). Acceleration in both
the year-on-year and month-on-month
headline inflation during the period,
reflected the influence of base effect
and other legacy factors such as
insecurity and infrastructural deficit.

Figure 3.12: Major Components of Headline
Inflation (M-on-M), Jan – Jun 2023

Source: NBS

3.2.1.2 Food Inflation
Food inflation (year-on-year) rose to
25.25 per cent in June 2023 from 24.52
per cent in January 2023, driven by
increase in the price of farm produce to
11.46 per cent in June 2023 from 11.06
per cent in January 2023. Similarly,
processed food rose by 0.33 percentage
point to 13.79 per cent in June 2023 from
13.45 per cent in January 2023.

The major items of farm produce that
accounted for the increase in price
include millet (0.52ppts); local rice

Headline
Food & Non-Alcoholic
Bev.
Housing,Water,
Elect.Gas & Other
Fuel
Clothing & footwear
Transport
Furnishings,
Household Equip &HH
Maint.
Education
Health
Miscellaneous Goods
& Services
Restaurant & Hotels
Alcoholic Bev.
Tobacco & Kola
Recreation & culture

Headline
Food & NonAlcoholic Bev.
Housing,Water,
Elect.Gas & Other
Fuel
Clothing & footwear
Transport
Furnishings,
Household Equip
&HH Maint.
Education
Health
Miscellaneous
Goods & Services
Restaurant & Hotels
Alcoholic Bev.
Tobacco & Kola
Recreation & culture
Communication


CBN Monetary Policy Review

(0.35ppts); agric rice (0.13ppts); and
yam, potatoes, & other tubers (0.14ppts).
The rise in the price of processed food
was due majorly to increase in the prices
of maize paste (0.84ppts); unsliced
bread (0.68ppts); yam flour sold loose
(0.67ppts);
and
eko
(agidi/kafa)
(0.31ppts). In general, the increase in
food price was caused by food supply
shortages
resulting
from
lingering
insecurity in food producing areas;
coupled with the rise in transport costs.

Figure 3.13: Major Components of Food Inflation (Yon-Y), Jan – Jun, 2023

Source: NBS

Consistent with the increasing year-onyear
trend,
month-on-month
food
inflation increased by 0.31 percentage
point from 2.08 per cent in January to
2.40 per cent in June 2023. The price of
farm produce rose by 0.43 percentage
point from 0.57 per cent in January to
1.00 per cent in June 2023. The key
drivers of the increase in farm produce
were: millet (jero or maiwa) sold loose
(0.18ppts); agric rice (0.16ppts); local
rice(0.14ppts); and yam, potatoes, &
other tubers (0.08ppts).

On the contrary, the price of processed
food moderated by 0.11 percentage
point to 1.40 per cent in June 2023 from
1.51 per cent in January 2023, driven
mainly by the slowdown in the prices of
Bread (unsliced) (0.09ppts); Eko (agidi)
(0.05ppts); and Maize Paste-White(ogi)
(0.01ppts) in June 2023.

Figure 3.14: Major Components of Food Inflation
(M-o-M), Jan – Jun 2023

Source: NBS

3.2.1.3 Core Inflation
Core inflation (year-on-year) rose to
20.27 per cent in June 2023 from 19.16
per cent in January 2023, an increase of
1.12 percentage points. The rise in core
inflation was driven by Processed Food
(1.05
ppts),
Education
(0.16
ppts),
Restaurant & Hotels (0.08 ppts), Transport
(0.07 ppts), and Clothing & Footwear
(0.04 ppts) (Figure 3.15). The rise in core
inflation was largely attributed to the
high
cost
of
energy,
as
well
as
manufacturing
and
food-processing
inputs.

FOOD
Processed Food
Maize PasteWhite
(Ogi/Akamu)
Bread Unscliced
500g
Yam flour, sold
loose
Eko(Agidi/Kafa)
Oil & Fats
Farm Produce
Millet (Jero or
Maiwa) Sold
Loose
Rice Local, Sold
Loose
Yam, Potatoes &
other tubers
Rice Agric Sold
Loose

FOOD
Processed
Food
Bread Unsliced
500g
Eko
(Agidi/Kafa)
Maize PasteWhite (Ogi/
Akamu)
Farm Produce
Yam, Potatoes
& other tubers
Millet (Jero or
Maiwa) sold
loose
Rice Agric, sold
loose
Rice local, sold
loose
per cent


CBN Monetary Policy Review

Figure 3.15: Major Components of Core Inflation (Yon-Y) January – June 2023

Source: NBS

On a month-on-month basis, core
inflation, however, decreased by 0.08
percentage point to 1.74 per cent in
June 2023 from 1.82 per cent in January
2023. The key drivers of the decline were:
Housing, water, electric gas & other fuel
(0.20ppts);
furnishing,
household
equipment & household maintenance
(0.05ppts);
alcoholic
beverages,
tobacco & Kola (0.04ppts); and nonalcoholic beverages (0.03ppts) (Figure
3.16).


Figure 3.16: Major Components of Core Inflation
(M-on-M) January – June 2023

Source: NBS

3.2.2
Seasonally Adjusted Inflation
The seasonally-adjusted measure of
headline inflation trended upwards but
below the actual headline measure
between January 2023 and June 2023
(Table 3.8 and Figure 3.10). The upward
trend in both the actual and seasonallyadjusted measures, reflected the sharp
rise in fuel prices as a result of perennial
shortages
of
petroleum
products
coupled with the removal of subsidy on
these products towards the end of the
review period. Other contributory factors
include the depreciation of the naira
and supply-side disruptions associated
with the ongoing war in Ukraine.


Core
Processed Food
Housing, Water,
Elect. Gas &
Other Fuel
Clothing &
footwear
Transport
Furnishings,
Household Equip
& HH Maint.
Education
Health
Miscellaneous
Goods & Services
Restaurant &
Hotels
Non-Alcoholic
Beverages
Alcoholic Bev.
Tobacco & Kola
Recreation &
culture
Communication

Core
Processed Food
Housing, Water,
Elect. Gas & Other
Fuel
Clothing &
footwear
Transport
Furnishings,
Household Equip
& HH Maint.
Education
Health
Miscellaneous
Goods & Services
Restaurant &
Hotels
Non-Alcoholic
Beverages
Alcoholic Bev.
Tobacco & Kola
Recreation &
culture
Communication
per cent
per cent


CBN Monetary Policy Review

Table
3.4:
Actual
and
Seasonally
Adjusted
Headline Inflation (January – June 2023)
Month
Inflation
SA Inflation
Jan-23
21.82
19.36
Feb-23
21.91
19.87
Mar-23
22.04
20.37
Apr-23
22.22
20.82
May-23
22.41
21.20
Jun-23
22.79
21.54
Source: NBS and CBN

Figure 3.17: Actual and Seasonally Adjusted
Headline Inflation (January – June 2023)

Source: NBS and CBN

3.2.3 Moderating Factors
The Bank responded to the rising
inflationary pressure by maintaining a
tight monetary policy stance throughout
the review period. Consequently, the
Monetary
Policy
Committee
(MPC)
adjusted the policy rate at each of the
three meetings in the review period,
adjusting from 16.50 per cent to 18.50
per cent, a total of 200 basis points, while
holding all other policy parameters
constant. This was complemented by
the application of the Differentiated
Cash Reserve Ratio (DCRR).

Other
factors
that
moderated
inflationary pressures during the review
period included government policies to
improve the ease of doing business and
implementation of industrial policies to
boost productivity.

3.3
Monetary
Policy
and
Liquidity
Management
The design and implementation of
monetary policy in the first half of 2023
was influenced by developments in the
global and domestic economic and
financial environment. On the global
scene,
monetary
and
financial
conditions remained tight as the US and
other
Advanced
Economy
central
banks progressed with monetary policy
normalisation. Financial system stability
was further threatened with the banking
crisis which emanated in the US and
spread to Europe. In addition to this, the
build-up of both private and public debt
across the advanced and emerging
market economies further increased the
vulnerability of the global economy to a
debt crisis.

On
the
domestic
scene,
key
developments with impact on liquidity
conditions in the review period were:
cyclical
disbursements
through
Federation
Account
Allocation
Committee (FAAC); Ways and Means
Advances; disbursements through social
safety programs; quasi-fiscal operations
by the CBN; election-related spending;
monetization of foreign loans; and
maturity of tenored instruments. The
combined impact of these sources of
liquidity exerted upward pressure on
domestic prices.

Inflation
SA Inflation
per cent


CBN Monetary Policy Review

3.3.1
Instruments
of
Liquidity
Management
In the review period, the Bank sustained
the use of its monetary policy instruments
to achieve the objectives of monetary
and price stability. These instruments
included: the Monetary Policy Rate
(MPR); the Cash Reserve Ratio (CRR);
Liquidity Ratio; Open Market Operations
(OMO)
and
Discount
Window
Operations.
Similarly,
the
Bank
continued its periodic interventions in
the foreign exchange market.

3.3.1.1 Monetary Policy Rate (MPR)
The
Monetary
Policy
Rate
(MPR)
remained the Bank’s key instrument for
signalling monetary policy stance in the
review period. The MPC maintained its
contractionary stance, raising the MPR
by 200 basis points (cumulatively) to
18.50 per cent from 16.50 per cent, and
retained the asymmetric corridor at
+100/-700 basis points. The increase
reflected the Bank’s commitment to
rein-in inflation.

3.3.1.2 Open Market Operations (OMO)
In the first half of 2023, the Bank
sustained the use of Open Market
Operations
(OMO)
for
Liquidity
Management,
supported
by
other
instruments
(Table
3.5).
While
new
auctions were limited, some maturing
obligations were rolled over.


Table 3.5: OMO Bills Auction (January – June 2023)
(N’billion)

Source: CBN

3.3.1.3 Reserve Requirements
During the first half of the year, the
Cash Reserve Ratio (CRR) and Liquidity
Ratio (LR); were used to complement
the MPR for macro-prudential and
liquidity management. The CRR and LR
were retained at 32.5 and 30.0 per cent,
respectively.

3.3.1.4 Standing Facilities
In the first half of 2023, Other Depository
Corporations (ODCs) sustained the use
of
the
standing
facilities
(lending/deposit) window to meet their
daily
liquidity
requirements.
The
asymmetric corridor was maintained at
+100/-700 basis points around the MPR.

The
demand
for
SLF
increased
marginally by 0.57 per cent to N9,425.25
billion in the first half of 2023 from
N9,372.01 billion in the preceding period
of 2022. This was, however, a significant
Date

% Change
Jan
130.00
0.00
-100%
Feb
248.12
0.00
-100%
Mar
170.00
0.00
-100%
Apr
-
0.00
-
May
100.00
0.00
-100%
Jun
40.00
0.00
-100%

st Half
688.12
0.00 -100.00%
Jul
0.00
Aug
5.84
Sep
70.00
Oct
0.00
Nov
20.00
Dec
0.00

nd Half
95.84
Cumulative Figure
783.96


CBN Monetary Policy Review

increase of 108.54 per cent, compared
with
N4,519.68
billion
in
the
corresponding period of 2022. Similarly,
transactions
at
the
SDF
window
increased
by
161.46
per
cent
to
N3,202.79 billion in the first half of 2023
from N1,224.48 billion in the preceding
period of 2022. This also represented an
increase of 51.32 per cent compared
with
N2,116.52
billion
in
the
corresponding
period
of
2022.
Consequently, net transactions at the
Standing Facility window resulted in a
lending of N6,222.46 billion in the first half
of 2023 compared with N8,147.53 billion
and N2,403.16 billion in the preceding
and corresponding half year.

Table 3.6: CBN Standing Facilities (January 2021 –
June 2023) (N’billion)

Source: CBN


Figure 3.18: Standing Lending Facility (January –
June 2023)

Source: CBN

Figure 3.19: Standing Deposit Facility (January -
June 2023)

Source: CBN

3.3.1.5 Foreign Exchange Intervention
During the review period, the Bank
continued to intervene in the inter-bank
foreign exchange market to stabilise the
exchange rate. In furtherance of this
objective, the Bank unified the various
exchange rate windows into one with
Jan
Feb
Mar
Apr
May
Jun
N'Billions
SLF
Jan
Feb Mar Apr May Jun

N'Billion
SDF


CBN Monetary Policy Review

effect from June 14, 2023. The new
policy
allowed
market
players
to
participate in a single foreign exchange
market, to trade freely (willing buyer and
willing
seller
model).
Under
this
arrangement, the exchange rate of the
naira was to be determined mainly by
the forces of demand and supply.
Amongst others, the policy aimed to
address the liquidity and demand
pressures in the market, in addition to
minimizing
speculation
and
roundtripping.

Total foreign exchange intervention by
the Bank decreased by 31.34 per cent to
US$6,336.74 million in the first half of 2023
from
US$9,228.81
million
in
the
corresponding period. It also declined
by 23.48 per cent compared with
US$8,281.64 million in the preceding half
(Table 3.8).

Table 3.7: Foreign Exchange Supply by the CBN
(US$ Million)


Source: CBN


Figure 3.20: Total FX Supply by the CBN (including
Forward Sales) January – June 2023

Source: CBN

3.3.2
Developments
in
Monetary
Aggregates
In the first half of 2023, monetary
aggregates grew significantly, driven by
development finance interventions and
a relatively lax fiscal stance. On an
annualised basis, the observed growth in
total monetary liabilities (M3) surpassed
the indicative benchmark for the year, in
the period under review. From the asset
side, the major drivers of expansion in
money supply in the first half included
claims on government and the private
sector. In June 2023, owing to the policyinduced adjustment in the exchange
rate of the naira, the NFA became a
major source of expansion in money
supply.

3.3.2.1 Broad Money (M3)
In the review period, broad money
supply (M3) grew significantly by 25.42
per cent to N65,438.22 billion at endJune 2023 from N52,176.89 billion at endDecember 2022. When compared with
the end-June 2022 level of N48,898.34
Date

%
Change
Total FX Supply
(including Forward Sales)
Total FX Supply
(including Forward Sales)
Jan
1,421.68
1,343.78
Feb
1,461.19
1,078.44
Mar
1,712.77
1,153.76
Apr
1,486.47
1,078.44
May
1,632.90
1,124.78
Jun
1,513.80
557.54

st Half
9,228.81
6,336.74
-31.34%
Jul
1,290.25
Aug
1,508.34
Sep
1,244.75
Oct
1,220.79
Nov
1,212.68
Dec
1,804.82
2nd Half
8,281.64


CBN Monetary Policy Review

billion, it increased by 33.83 per cent.
The key drivers of growth in M3 during the
review period were: ODCs demand
deposits with the CBN and their foreign
currency deposits. The spike in the naira
equivalent of foreign currency deposits
was on account of the revaluation
arising
from
the
exchange
rate
unification policy of the Bank towards
the end of the period. Foreign Currency
Deposits of the ODCs with the CBN grew
by 72.14 per cent to N17,695.29 billion at
end-June 2023 from N10,279.77 billion at
end-December 2022.

Figure 3.21: Money Supply (M1) and (M3) (January
– June 2023)


Source: CBN

Figure 3.22: Growth in Money Supply (M1), (M2)
and (M3) (January – June 2023)

Source: CBN

3.3.2.2 Narrow Money (M1)
Narrow Money (M1) increased by 19.92
per cent to N24,870.93 billion at endJune 2023 from N20,883.13 billion at endDecember
2022.
Year-on-year,
M1
increased by 22.23 per cent when
compared with N20,348.21 billion at
end-June 2022. The growth in M1, was
primarily driven by an increase in
transferable deposits in the review
period by 22.20 per cent. COB a key
component of M1 however, declined by
11.91 per cent, reflecting the spill-over
effects of Naira redesign policy of the
Bank.

3.3.2.3 Net Foreign Assets (NFA)
Net Foreign Assets (NFA) significantly
grew by 59.64 per cent to N11,112.80
billion at end-June 2023 from N6,961.24
billion as at end-December 2022. When
compared with N6,109.03 billion in the
corresponding period of 2022, NFA
increased by 81.91 per cent. There was
a spike in the growth of NFA which was
largely attributed to shocks from the
exchange
rate
unification
policy.
Similarly, Claims on Non-resident grew by
51.81 per cent in the review period while
Liability to Non-resident increased by
48.37 per cent.

3.3.2.4 Net Domestic Assets (NDA)
Net Domestic Assets (NDA) increased
by 18.92 per cent to N53,794.13 billion at
end-June 2023 from N45,233.77 billion at
end-December 2022 and by 25.72 per
cent, from N42,789.31 billion when
compared
with
the
corresponding
period of 2022. The significant growth in

N'Billion
M3
M1
Growth
M3 Growth
M2 Growth
M1 Growth


CBN Monetary Policy Review

NDA was largely attributable to 31.15 per
cent and 28.02 per cent growth in NDC
and (OIN) in the review period.

Similarly, Net Domestic Credit (NDC)
increased year-to-date by 31.15 per
cent, largely driven by the growth in net
credit to government (NCg) and credit
to private sector (CPs) of 39.64 and 26.60
per cent, respectively. The continuous
increase in CPs reflects the Bank’s
regulatory measures to improve lending
to the real sector as well as its sustained
development
finance
interventions.
These interventions were targeted at
improving the flow of credit to critical
sectors in the economy, an indication of
improved financing in the economy
through the banking system. However,
the continuous expansion of NCg as
earlier highlighted, was attributable to
decreased government revenue in the
first half of 2023.

Figure 3.23: Net Domestic Asset (NDA) (January -
June 2023)

Source: CBN


Figure 3.24: NDA, NDC and Other Assets (Net)
(January – June 2023)

Source: CBN

3.3.2.5 Credit to the Government (Cg)
Credit to Government (Cg) increased
by 39.64 per cent to N31,233.08 billion at
end-June 2023 from N22,366.60 billion at
end-December 2022. When compared
with
N18,214.63
billion
in
the
corresponding period of 2022, it grew by
71.47 per cent. This outcome was due to
Government’s continued borrowing to
fund the deficit in the 2023 budget,
amidst low revenue in the first half of the
year.

3.3.2.6 Credit to the Private Sector (Cp)
Credit to the private sector (Cp)
increased
by
26.60
per
cent
to
N52,812.46 billion at end-June 2023 from
N41,714.95 billion at end-December
2022, largely driven by ODC’s credit to
the core private sector by over N9 trillion.
The unexpected spike in the month of
June 2023 from the preceding month

N''Billions

N''Billions
Net Domestic Assets
Net Domestic Credit
Other Assets (Net)


CBN Monetary Policy Review

reflected the monetized FX credits
availed to the private sector by the
ODCs. When compared with N39,233.61
in the corresponding period of 2022, it
grew by 34.61 per cent. The moderate
increase in credit to the private sector
would
further
stimulate
aggregate
demand and promote growth in the
economy.
The
sustained
implementation of the Loan to Deposit
Ratio
(LDR)
also
supported
the
enhanced performance of the CPs.

Figure 3.25: Domestic Credit to Private Sector
(January – June 2023)

Source: CBN

3.3.2.7 Monetary Base (MB)
Monetary Base (MB) increased by 8.15
per cent to N17,339.25 billion at endJune 2023 from N16,032.96 billion at endDecember 2022, largely driven by
Required Reserves of ODCs by 18.88 per
cent. The growth in MB was further
moderated by the sharp decline in CIC
by about 20.03 per cent in the review
period, reflecting the spillover effects of
Naira redesign policy by the Bank. The
MB at end-June 2023 level of N17,339.25
billion performed closely below the Q2
provisional indicative benchmark of
N17,508.82 billion by N169.57 billion. The
performance
of
MB
was
largely
attributed to the surge in the total
deposit liability of the ODCs due to the
expansion witnessed in the banking
sector within the review period. A
summary
of
the
major
monetary
aggregates
and
their
provisional
outcomes as at end-June 2023 is
presented in Table 3.8 below.


N''Billions


CBN Monetary Policy Review

Table 3.8a: The Performance of Monetary Aggregates
Variables
Actual
Actual
Actual
Benchmark
H1:2023
Deviation
from
Benchmark
Change in
H1, 2023
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 (%)

Source: CBN


CBN Monetary Policy Review

Table 3.8b: The Performance of Monetary Aggregates and their Implications
S/N
Monetary
Aggregates
Performance
Implication

Overall
Monetary
Aggregates
Close to their
respective
annual
targets
There was persistent expansion of money supply
in
the
economy,
because
the
H1-2023
performance of the monetary numbers are
close to their annual benchmarks. If this trend
continues, all the monetary aggregates would
outperform
their
respective
benchmarks,
suggesting effective monetary policy to address
substantial growth to tame inflation.

Broad Money
(M3, M2)
Close to the
annual
target
Both M3 and M2 as at end-June 2023,
performed relatively close to their annual
benchmarks. Thus, the growth signifies liquidity
surfeit, indicating that, M2 and M3 would
outperform their targets if the trend continues.
The growth in broad money supply mainly came
from foreign currency deposits, and transferable
deposits of the ODCs, reflecting the impact of
exchange rate unification, revaluation, and
ease of FX restriction in the banking industry.

Narrow
Money (M1)
Close to the
annual
target
Increase in Transferable deposits is the major
driver in the growth of M1 in the review period,
with an average of about N3 trillion, indicating
an expansion in business activities especially
prior to the removal of subsidy. The growth in M1
is
commendable
because,
despite
the
continuous increase in M1 in the H1 2023, CIC,
one of the key components of M1, has been
contracting, suggesting a reduction in the
volume of cash in circulation, affirming the spill
over end-effect of Naira redesign policy of the
Bank.

Net
Foreign
Assets (NFA)
below target
The performance of NFA in the second half of
the year has been impressive, especially in the
month of June with an increase of over N6 trillion
from the preceding month. This reflects the
immediate impact of exchange rate unification
policy. Similarly, the improvement in the growth
of NFA was driven by increase in foreign asset
holdings of the Monetary Authority especially in
the second quarter of 2023, which reflects the
positive accretion to reserves in absolute terms,
while Liability to Non-residents moderated
during the review period. Thus, if the trend in NFA
continues, it would surpass its annual target.


CBN Monetary Policy Review

Net Domestic
Assets (NDA)
above
target
The performance in NDA is largely driven by
growth in private sector credit and credit to
government, although, credit to government
may lead to the crowding out of private sector
credit if the trend continues.

Credit to the
Govt (Cg)
Close
to
target
The performance of NCg has been close to
target in the review period and if it continues, it
will significantly exceed its annual target. This
arose from borrowings by the government to
service its current debts due to huge deficit
financing gap in the 2023 budget, amidst
shortfall in expected revenue in the second half
of the year.

Credit to the
Private Sector
(Cp)
close
to
target
The performance demonstrates the increasing
role of the private sector in driving economic
activities. Growth in output and employment is
as a result of credit made available to the real
sector. However, more efforts should be
channelled towards sustaining the increase in
credit to the private sector which has been
observed in the month of June 2023, and if
sustained, would boost economic activities
which drives growth.
Source: CBN

3.4
Domestic
Financial
Market
Developments
During the first half of 2023, the Nigerian
financial market remained confronted
with
several
global
and
domestic
headwinds.
These
include:
the
unabating war in Ukraine, which has
continued to put upward pressure on
commodity prices, following Russia’s
refusal to renew the Black Sea Grains
Agreement; supply chain disruptions
associated with China’s slow recovery;
progressive
tightening
of
financial
conditions
as
Advanced
Economy
central banks continue with monetary
tightening
to
moderate
inflationary
pressures. This was in addition to capital
flow reversals from Emerging Market and
Developing Economies (EMDEs) to safe
haven assets and Advanced Economy
fixed-income securities.

Consequently, demand pressure in the
foreign
exchange
market
persisted
despite
the
Bank’s
continued
interventions. To improve transparency
and enhance market confidence, the
Bank
adopted
a
market-driven
exchange rate management system
(willing buyer-willing seller) towards the
end of the review period.

In the Nigerian capital market, there was
improved confidence, signposted by
increased investor participation. This was
driven by several factors including the
successful
conclusion
of
the

general
elections,
unification
of
exchange rates, increased corporate
earnings, and low yield in the fixed-


CBN Monetary Policy Review

income securities. The money market
also recorded improved activity in the
interbank call and collateralized Open
Buy Back (OBB) segments, reflecting
liquidity condition in the banking system.
This was driven by cyclical FAAC
disbursements,
and
maturing
Government and CBN securities. To this
end, the Bank maintained a tight
monetary policy stance throughout the
review period, hiking the MPR by a total
of 200 basis points and maintained a
window of +100/-700 basis points around
the MPR, as well as retained the Cash
Reserve Ratio (CRR) and Liquidity Ratio
(LR)
at
27.5
and
30.0
percent,
respectively.

3.4.1
The Money Market
In the review period, the OBB segment
of the market dominated activities with
the rate declining to an average of 12.60
per cent from 13.20 and 14.15 per cent
in the previous and corresponding
halves of 2022. The OBB, recorded its
lowest rate of 9.55 per cent in June 2023
and highest rate of 17.25 per cent in
April.

The interbank call rate recorded an
average of 12.95 per cent in the period
compared with 12.06 per cent in the
second half of 2022 and 13.00 per cent
in first half of 2022. The segment
recorded the highest rate of 15.85 per
cent in April 2023 and lowest rate of
11.66 per cent in June. Activities in the
interbank call were, however, less
frequent than in the OBB segment which
recorded
more
trading
days.
The
preference of market participants for
the collateralized OBB segment is an
indication of risk aversion amongst key
players.

The 30-day Nigerian Interbank Offered
Rate (NIBOR), which mirrors the Nigerian
interbank short-term lending rates for
some selected banks rose slightly to an
average of 13.59 per cent in the review
period from 12.13 per cent in the
preceding half. The NIBOR recorded the
highest rate of 15.49 per cent in April
2023 and the lowest rate of 12.47 per
cent in January.

Activities in the money market were
driven primarily by: fluctuations in market
liquidity
as
a
result
of
maturing
obligations; increased disbursement by
FAAC; and adjustments to the Monetary
Policy Rate, amongst others (Table 3.9).

Table 3.9: Weighted Average Monthly Money
Market Interest Rates (%) January-June, 2023
Period
MPR
SDF
SLF
Interbank
OBB
NIBOR-

Days
Jan-23

Feb-23

Mar-23

Apr-23

May-23

Jun-23

Average

Source: CBN
Note: NIBOR figures daily averages

3.4.2 The Capital Market
The Nigerian capital market, in the first
half of 2023, was generally bullish, driven
largely by increased activities in the
equities segment. In total, the equities
market contributed 55.41 per cent of
aggregate market capitalization at endJune 2023, compared with 45.30 per
cent at end-December 2022. The bonds
market accounted for 44.57 per cent at
end-June 2023, compared with 54.70


CBN Monetary Policy Review

per cent at end-December 2022, while
the exchange-traded funds accounted
for the balance of 0.02 per cent at endJune 2023.

Figure 3.26: Structure of the Nigerian Capital
Market (June 2023)

Source: NGX

3.4.2.1 Equities Market
The All-Share Index (ASI) increased by
18.96 per cent to 60,968.27 at end-June
2023, from 51,251.51 at end-December
2022, an increase of 17.66 per cent
compared
with
end-June
2022.
Similarlily, Market capitalization (MC)
increased by 18.91 per cent to N33.20
trillion at end-June 2023 from N27.92
trillion
at
end-December
2022,
an
increase of 18.83 per cent compared
with the corresponding period of 2022.


Figure 3.27: NGX All Share Index (ASI) and Market
Capitalization (MC) (June 2022 - June 2023)

Source: NGX
Portfolio Participation in Equity Trading in
the Nigerian Stock Market at End-June
2023.
Total equity transactions in the Nigerian
Exchange
Limited
(NGX)
stood
at
N406.75 billion for the period ended June
2023. This performance in comparison
with December 2022 (N140.70 billion)
indicated a tremendous increase of
189.09 percent.

Foreign Vs. Domestic Transactions
The equities market recorded increased
foreign investor participation, reflecting
improved confidence in the Nigerian
economy.
In
addition,
there
were
improvements in the performance of
stocks across various sectors.

Total
foreign
transactions
between
January and June 2023 stood at N145.08
billion compared with N1.31 trillion for
domestic transactions. Between endDecember 2022 and end-June 2023,
total
foreign
transactions
rose
tremendously by 200.72 per cent to
N45.74 billion from N15.21 billion.

FGN Bonds
State/Municipal bonds
Corporate bonds
Equities
ETP


ASI
MC(Equities N’Trillion)


CBN Monetary Policy Review

On the other hand, total domestic
transactions
increased
by
112.11
percent from N170.20 billion at endJanuary 2023 to N361.01 billion at endJune 2023.

During the review period, domestic
participation
accounted
for
88.75
percent of total equity transactions,
while foreign participation accounted
for
11.25
percent
of
total
equity
transactions.

Figure 3.28: Trends in Total Foreign and Domestic
Transactions in Equities (June 2022 – June 2023)
Source: NGX

Aggregate stock market turnover in the
first half of 2023 stood at 66.32 billion
shares, valued at N707.60 billion in
598,639
deals.
This
represents
a
significant increase of 171.24 per cent
compared with 24.45 billion shares,
valued at N332.58 billion in 449,233 deals
in the second half of 2022. The market
turnover also increased by 15.39 per
cent from 76.53 billion shares, valued at
N 831.83 billion in 616,334 deals in the first
half of 2022.

Foreign portfolio investment outflows
during the period exceeded inflows by
N0.74 billion in the first half of 2023.

In terms of sectoral contribution, market
capitalization was dominated by the
“Telecommunication” sector, with a
share of 31.70 per cent at end-June
2023, compared with 41.45 per cent at
end-June 2022. Other sectors that
contributed
significantly
to
overall
market capitalization included Dangote
Cement, Building Materials and Food &
Beverages, with market shares of 14.63,
9.47 and 10.96 per cent, respectively, at
end-June 2023 (Figure 3.29).
Figure 3.29: NGX Market Capitalization by Sector
as at end-June 2023

Source: Nigerian Exchange Group


Total Foreign Transactions (N'Billion)
Total Domestic Transactions (N'Billion)

Rest of Food and Beverages (10.96%)
Construction (0.21%)
Banking (5.91%)
Insurance (0.63%)
Breweries (2.47%)
Conglomerates (0.66%)
Oil and Gas (0.99%)
Industrial goods (1.13%)
Dangote Cement (14.63%)
Dangote Sugar (0.91%)
NASCON (Dangote Salt) (0.15%)
Rest of Building Materials (9.47%)
Agriculture (0.39%)
Personal Household products (0.81%)
Services (0.38%)
Other Sectors (50.28%)


CBN Monetary Policy Review

3.4.2.2 The Bond Market
Activities in the bond market continued
to be dominated by the Federal
Government of Nigeria (FGN) securities
in the first half of 2023. This was followed
by
corporate
bonds,
while
state/municipal bonds recorded the
least activities by market volume.
The value of FGN bonds increased by
14.70 per cent to N25.24 trillion at endJune 2023 from N22.01 trillion at endDecember 2022, and 4.22 per cent
compared
with
the
N21.34
trillion
recorded at end-June 2022. FGN bonds
accounted for 42.13 per cent of
aggregate market capitalization at endJune 2023. The value of state/municipal
bonds and corporate bonds were
N286.23
billion
and
N1.17
trillion
accounting for 0.48, and 1.96 per cent of
aggregate
market
capitalization,
respectively.

The 10-year dollar-denominated bond
yields for Nigeria were positive in the first
half of 2023. The yields, however,
declined by 164 basis points to 10.20 per
cent at end-June 2023 compared with
11.84 per cent at end-December 2022. It
also decreased by 224 basis points
compared with 12.44 per cent at endJune 2022 (Figure 3.30).

Figure 3.30: 10-Year U.S. Dollar-denominated Bond
Yield for Nigeria (June 2020 – June 2023)

Data Source: Bloomberg
The yield curve for end-June 2023
increased
at
the
long
end,
in
comparison to the preceding period of
end-December
2022.
However,
in
comparison to end-June 2022, the yield
curve for end-June 2023 increased at
both the short and long ends. The
positive development at the short end
reflected high liquidity level within the
banking system, as there seems to be a
strong preference for short term fixed
income assets by investors, to take
advantage of the attractive yields.
Furthermore,
the
steep
long
end
indicated a larger difference between
short-term
and
long-term
return
expectations. In summary, the average
yields at end-June 2023 rose to 12.98 per
cent compared with 11.52 per cent at
end-June 2022, but a decline compared
with 13.04 per cent at end-December
2022.

The
normal-shaped
yield
curve
indicated that despite Nigeria’s current
macroeconomic challenges, investors
are optimistic of growth prospect in the
medium to long term.

Figure 3:31: FGN Bond Yield Curves: June 29th 2022,
December 29th 2022 & June 30th 2023

Data Source: FMDQ


Per cent

Yield (%)
Time to maturity
29 Jun 2022
29 Dec 2022
30Jun2023


CBN Monetary Policy Review

Activities at the sub-national bonds
market increased within the review
period, although still largely below the
corporate and federal government
bonds segments. The total value of
outstanding
state/local
government
bonds increased by 92.21 per cent to
N286.23 billion at end-June 2023, from
N148.91 billion at end-December 2022.

Activities
in
the
corporate
bonds
segment increased during the review
period.
The
value
of
outstanding
corporate bonds increased by 10.87 per
cent from N10.58 trillion in December
2022 to N11.74 trillion at end-June 2023.
In general, the relatively improved
performance of the capital market in
the review period, reflected positive
investor sentiment in the economy. This
development was largely driven by an
optimistic economic outlook premised
on the successful political transition and
subsequent reforms introduced by the
new administration such as exchange
rate
unification
and
fuel
subsidy
removal.

3.4.3
Foreign Exchange Market
The Nigerian foreign exchange market
continued to be influenced by several
global and domestic developments
during the first half of 2023. The lingering
war in Ukraine, China’s slow recovery,
sustained interest rate hikes by the
Advanced Economy central banks,
amongst
other
factors
have
exacerbated
pressure
on
prices
including exchange rate and capital
outflow with implications on growth.

At
the
domestic
front,
crude
oil
production remained below the OPEC
quota due largely to legacy challenges
facing
the
Nigerian
oil
sector.
Consequently, the decline in foreign
exchange earnings, high dependence
on imports and huge fiscal deficit further
heightened pressure in the foreign
exchange market.

In response, the Bank sustained its
intervention in the foreign exchange
market for most part of the review
period, in addition to maintaining tight
monetary policy stance to rein in
inflation and encourage capital inflows.
Furthermore, the Bank on June 14, 2023,
unified the various exchange rate
windows into a single market known as
the Nigeria Foreign Exchange Market
(NFEM)
to
address
the
persistent
demand
pressure
and
improve
transparency,
liquidity,
as
well
as
confidence in the market.

3.4.3.1 Average
and
End-Period
Exchange Rates
The
average
exchange
rate
depreciated by 10.30 per cent to
N486.05/US$ in the first half of 2023 from
N436.01/US$ in the preceding half of
2022.

In
the
period
under
review,
the
exchange rate depreciated significantly
by 40.13 per cent from ₦461.50/US$ at
end-January 2023 to ₦770.88/US$ at
end-June 2023. The depreciation was
associated with the Bank’s decision to
unify the various windows of foreign
exchange
market
into
NFEM.
Consequently,
the
end-period


CBN Monetary Policy Review

exchange rate moved from ₦439.68/US$
in the second half of 2022 to ₦513.06/US$
at the end of the first half of 2023. This
represents
a
14.30
per
cent
depreciation.
Table 3.10: Average & End-Period Monthly Spot
Exchange Rate (N/US$), July 2021 – June 2022
Period
I&E
(Average)
I&E
(EndPeriod)
2022: July
417.26
426.00
August
426.06
430.00
September
435.57
435.10
October
440.85
441.00
November
445.58
446.00
December
450.71
460.00
Average
436.01
439.68
2023:
January
460.99
461.50
February
460.92
460.00
March
460.76
460.00
April
461.01
460.00
May
461.92
466.00
June
610.71
770.88
Average
486.05
513.06
Source: CBN

Figure 3.32: Monthly Naira/US Dollar Exchange
Rate July 2022 –June 2023

Source: CBN
3.4.3.2 Nominal
and
Real
Effective
Exchange Rates
The Nominal Effective Exchange Rate
(NEER) increased by 15.06 and 16.17 per
cent to an average of 230.51 in the first
half of 2023 from 195.79 and 193.24 in the
corresponding and preceding period of
2022, respectively. The increase in NEER
signifies an appreciation of the local
currency against the weighted basket of
currencies of Nigeria’s trading partners.

The Real Effective Exchange Rate (REER)
increased by 0.69 and 8.50 per cent to
66.57 in the first half of 2023 from 66.11
and 60.91 in the corresponding and
preceding period of 2022, respectively.
The
increase
in
REER
indicates
a
decrease in trade competitiveness with
Nigeria’s trading partners as exports
became
expensive
and
imports
become cheaper.

Table 3.11: Average Nominal and Real Effective
Exchange Rates Indices (January 2022 – June
2023)
Period
NEER
REER
Jan
197.81
68.2
Feb
200.86
68.6
Mar
200.41
68.18
Apr
193.07
65.05
May
192.43
64.04
Jun
190.15
62.59
2022: H1 Average
195.79
66.11
Jul
191.88
62.38
Aug
190.14
60.99
Sep
186.48
59.01
Oct
188.26
59.25
Nov
195.91
60.53
Dec
206.75
63.29
2022: H2 Average
193.24
60.91
Jan
209.80
63.07
Feb
204.67
60.76

2022: Jul
Aug
Sep
Oct
Nov
Dec
2023: Jan
Feb
Mar
Apr
May
Jun
I&E (Monthly Average)
I &E (End-Month)


CBN Monetary Policy Review

Mar
208.45
60.93
Apr
208.53
60.11
May
206.39
58.51
Jun
345.23
96.06
2023: H1 Average
230.51
66.57
Source: CBN

Figure: 3.33: Nominal and Real Effective Exchange
Rates Indices (January 2022 – June 2023)

Source: CBN

3.4.3.3 Foreign Exchange Flows through
the CBN
Foreign exchange inflows through the
CBN totalled US$12,576.13 million at the
end of the first half of 2023. Compared
with
US$16.402.44
million
and
US$13,487.73 million in the corresponding
and preceding half year, it declined by
23.33 and 6.76 per cent, respectively.
Total foreign exchange outflows through
the Bank also declined by 9.86 and 5.16
per cent from US$16,888.19 million and
US$16,052.64 million in the corresponding
period
and
preceding
half
year,
respectively, to US$15,223.65 million in
the first half of 2023.

Consequently, there was a higher net
outflow of US$2,647.52 million in the first
half of 2023, compared with US$485.75
million and US$2,564.91 million in the
corresponding and the preceding half
year,
respectively.
This
may
be
attributable to lower receipts from oil
and non-oil sources.
Table 3.12: Monthly Foreign Exchange Flows
through the CBN (Jan. 2022 – June 2023) (Million
US$)
US$ (Million)
Date
Inflow
(CBN)
Outflow
(CBN)
Net Flow
(CBN)
Jan-22
1,823.21
2,601.21
-778.00
Feb-22
2,492.77
2,288.37
204.40
Mar-22
3,316.66
3,545.00
-228.34
Apr-22
2,468.19
2,860.86
-392.66
May-22
2,118.72
2,123.01
-4.29
Jun-22
4,182.88
3,469.74
713.14
2022 H1
Total
16,402.44
16,888.19
-485.75
Jul-22
2,267.65
3,152.07
-884.42
Aug-22
3,230.27
2,892.34
337.93
Sep-22
1,781.20
2,498.36
-717.16
Oct-22
1,608.56
2,188.06
-579.50
Nov-22
1,999.59
2,376.11
-376.52
Dec-22
2,600.45
2,945.69
-345.24
2022 H2
Total
13,487.73
16,052.64
-2,564.91
Jan-23
1,841.14
2,298.49
-457.35
Feb-23
2,534.44
2,458.84
75.60
Mar-23
2,792.70
4,099.30
-1,306.60
Apr-23
2,358.20
2,389.03
-30.83
May-23
1,700.27
2,026.89
-326.61
Jun-23
1,349.38
1,951.10
-601.72
2023 H1
Total
12,576.13
15,223.65
-2,647.52
Source: CBN

Jan
Mar
May
2022: H1 Average
Aug
Oct
Dec
Jan
Mar
May
2023: H1 Average
NEER
REER


CBN Monetary Policy Review

Figure 3.34: Monthly Foreign Exchange Flows
through the CBN
(Jan. 2022 – June 2023) (US$’ Billion)

Source: CBN

3.4.3.4 Foreign Exchange Flow through
the Economy
Total foreign exchange inflow to the
economy decreased by 10.94 and 2.26
per cent to US$33,733.50 million in the first
half of 2023 from US$37,876.44 million
and US$34.512.80 million in the first half
and second half of 2022, respectively.
Similarly, foreign exchange outflows
during the period also decreased by
21.45 and 8.86 per cent to US$17,294.12
million
from
US$
22,017.63
and
US$18,974.45 million in the corresponding
half year and the preceding period,
respectively.

Accordingly,
net
foreign
exchange
inflow to the economy during the period
stood at US$16,439.38, which was higher
than


US$15,858.81
million
and
US$15,538.36 million in the corresponding
period and the preceding half year. The
improvement may be attributed to
increased non-oil remittances and the
impact of the unification of the foreign
exchange market.


Table 3.13: Monthly Foreign Exchange Flows through the Economy (January 2022 – June 2023) (US$ Million)
Period
Inflows
(CBN)
Inflows
(Autonomous)
Total
Inflows
Outflows
(CBN)
Outflows
(Autonomous)
Total
Outflow
Net Flow
Net
Flow
(CBN)
Net Flow
(Autonomous)
Jan-22

Feb-22

Mar-22

Apr-22

May-22

Jun-22

2022 H1
Total

Jul-22


Jan-22
Mar-22
May-22
2022 H1 Total
Aug-22
Oct-22
Dec-22
Jan-23
Mar-23
May-23
2023 H1 Total
Inflow (CBN)
Outflow (CBN)
Net Flow (CBN)


CBN Monetary Policy Review

Aug-22

Sep-22

Oct-22

Nov-22

Dec-22

2022 H2
Total

Jan-23

Feb-23

Mar-23

Apr-23

May-23

Jun-23

2023 H1
Total

Source: CBN


Figure 3.35: Monthly Foreign Exchange Flows through the Economy (January 2022 – June 2023) (US$ Billion)

Source: CBN Statistics Department

Jan-22
Feb-22
Mar-22
Apr-22
May-22
Jun-22
2022 H1 Total
Jul-22
Aug-22
Sep-22
Oct-22
Nov-22
Dec-22
2022 H2 Total
Jan-23
Feb-23
Mar-23
Apr-23
May-23
Jun-23
2023 H1 Total
Total Inflows
Total Outflow
Net Flow


CBN Monetary Policy Review

3.5
Monetary
Policy
Committee
Meetings
In the first half of 2023, the Monetary
Policy Committee (MPC) met in January,
March, and May to consider key
developments that shaped the course
of monetary policy during the period.

At
its
January

meeting, the
Committee noted that output growth
recovery was subdued in the third
quarter of 2022 but expected to improve
in the fourth quarter on the back of
continued support of both monetary
and fiscal policies. The MPC also noted
the continued upside risks to price
development
which
include:
the
forthcoming 2023 general elections;
perennial scarcity of PMS; persistent rise
in other energy prices; exchange rate
pressure;
as
well
as
the
lingering
insecurity. Members, however, noted
that the current policies on naira
redesign and cash withdrawal limit were
moderating
factors
to
price
development
as
Currency-OutsideBanks was expected to continue to
moderate beyond the implementation
stage of these policies. The MPC also
noted the continued resilience of the
banking
system,
evidenced
by
improvement in the ratio of NonPerforming
Loans
(NPLs)
between
November and December 2022. The
Committee
further
noted that
the
liquidity
ratio
was
well
above
its
prudential
limit,
while
the
Capital
Adequacy Ratio (CAR) remained within
its prudential range of 10.0 -15.0 per
cent.

The MPC was of the view that although
the inflation rate moderated marginally
in December, the economy remained
confronted with the risk of high inflation
with adverse consequences on the
general standard of living. The MPC was
therefore unanimous in its position to
continue to tighten policy, to rein in
inflation.

Based on the foregoing considerations,
the Committee thus decided by a
majority vote to raise the Monetary
Policy Rate (MPR) by 100 basis points to
17.5 per cent; retain the Asymmetric
Corridor around the MPR at +100/-700
basis points; retain the CRR at 32.5 per
cent; and the Liquidity Ratio at 30 per
cent.

During the March 2023 meeting, the
Committee noted the sustained positive
growth
trajectory
and
called
for
increased monetary and fiscal policy
coordination to support the recovery in
light of risks confronting the domestic
economy.

In terms of price development, members
noted that headline inflation remained
high with elevated upside risks in spite of
sustained tight policy stance.

The MPC noted that key Financial
Soundness Indicators (FSIs) remained
robust due to the stringent prudential
guidelines put in place by the CBN. In
addition to this, the MPC examined the
possible impact of further policy rate
hikes on the stability of the banking
system and was convinced that further
hikes would not adversely impact the
stability of the banking system. The


CBN Monetary Policy Review

Committee also noted the continued
impact of exchange rate pressure on
domestic price levels and called for
policies to attract both portfolio and
foreign direct investments to Nigeria.

The Committee thus decided by a
majority vote to raise the Monetary
Policy Rate (MPR) by 50 basis points to
18.00 per cent; retain the asymmetric
corridor at +100/-700 basis points around
the MPR; the CRR at 32.50 per cent; and
the Liquidity Ratio at 30 per cent.

At the May 2023 meeting, members
expressed concern about the high level
of inflation, despite maintaining a tight
monetary policy stance since May 2022.
The
Committee
noted
that
the
continued rise in headline inflation
remained
the
biggest
challenge
confronting macroeconomic stability in
Nigeria. Headline inflation in the view of
Members, remained high due largely to
a
host
of
non-monetary
factors,
including the perennial scarcity of
Premium
Motor
Spirit
(PMS)
and
expectations of hikes in the pump price
of PMS; high and rising price of other
energy
sources;
and
a
host
of
headwinds confronting the food supply
chain.

The MPC noted that output growth on a
year-on-year basis declined in the first
quarter
of
2023.
Members
were,
however, unanimous on the need to
continue
to
focus
on
price
and
monetary stability, whilst keeping in sight
growth concerns. It therefore, enjoined
the Government to explore ways of
increasing non-oil revenue, including the
expansion of the tax bracket to improve
fiscal space and support growth.

Members expressed satisfaction with the
banking and financial system stability
indicators but noted that the risk of
global financial contagion is yet to
dissipate. To this end, Management was
enjoined to maintain strict vigilance to
insulate
the
banking
system
from
potential spillover effects.

Based on the foregoing considerations,
the Committee decided by a majority
vote to raise the Monetary Policy Rate
(MPR) by 50 basis points to 18.50 per
cent; retain the asymmetric corridor at
+100/-700 basis points around the MPR;
the CRR at 32.50 per cent; and the
Liquidity Ratio at 30.0 per cent.

The Communiques of the MPC meetings
held in the review period are contained
in the appendix.


CBN Monetary Policy Review

CHAPTER FOUR
ECONOMIC OUTLOOK AND RISKS

4.1 Outlook for Global Output
he global economy continued to
be confronted by several significant
headwinds
in
2023.
Though
moderating,
these
headwinds
are
expected to persist through to the end
of the year and into 2024. Key amongst
these headwinds is the slow recovery
from the COVID-19 pandemic and the
ongoing war between
Russia and
Ukraine. The recovery is thus, expected
to continue at a slower than expected
pace. Consequently, global growth is
projected to moderate to 3.0 per cent in
2023 and 2024, from 3.5 per cent in 2022.
As central banks across the globe
progress
with
the
normalisation
of
monetary policy, rising interest rates
exert continued downward pressure on
growth.
The
recently
resolved
heightened risk of global financial
contagion emanating from the US debt
ceiling stand-off, US banking crisis and
Swiss banking crisis have, however,
contributed
to
moderating
the
downside risks to the growth outlook.

In the advanced economies, growth is
projected to slow to 1.5 per cent, in 2023
and further to 1.4 per cent in 2024 from
2.7 per cent in 2022. The slowdown is
predicated on continued tightening
financial
conditions
following
the
synchronized normalisation of monetary
policy by central banks in the group. This
is expected to be accentuated by the
persistent high energy prices due to
supply
constraints
arising
from
the
ongoing Russian-Ukraine war. In the
United States, growth is expected to
continue to slow from 2.1 per cent in
2022 to 1.8 per cent in 2023 and further
to 1.0 per cent in 2024. In the United
Kingdom and the Euro Area, growth is
also expected to slow from 4.1 and 3.5
per cent in 2022 to 0.4 and 0.9 per cent
in 2023 but improve to 1.0 and 1.5 per
cent in 2024, respectively. Japan is the
only
major
advanced
economy
expected to improve on its recovery
from 1.1 per cent in 2022 to 1.4 per cent
in 2023 but slow to 1.0 per cent in 2024.

In
the
emerging
markets
and
developing
economies,
growth
is
expected to remain stable at 4.0 per
cent in 2023, same as in 2022 but rise
moderately to 4.1 per cent in 2024. The
moderate improvement is expected, as
most economies are anticipated to
grow above the group’s average in
2024.
In
China,
growth
remains
unchanged at 5.2 per cent in 2022 and
2023 but is expected to decline to 4.5
per cent in 2024. This is anticipated to be
driven largely by the continued housing
market
downturn,
with
resultant
downward pressure on growth, even
though net exports remain strong. In
India, while the economy is projected to
slow from 7.2 per cent in 2022 to 6.1 per
cent in 2023, the continued growth in
domestic investments is expected to
improve output growth to 6.3 per cent in
2024. In Russia, growth is forecast to
improve to 1.5 and 1.3 per cent in 2023
and 2024, respectively, from -2.1 per
cent in 2022 as government spending is
projected to increase, fuelling recovery
in
retail
trade,
construction,
and
industrial production. Output growth in
Brazil is projected to slow to 2.1 and 1.2
per cent in 2023 and 2024, respectively,
T


CBN Monetary Policy Review

from 2.9 per cent in 2022, driven by
moderation in commodity prices.

In
sub-Saharan
Africa,
growth
is
expected to moderate from 3.9 per cent
in 2022 to 3.5 per cent in 2023 but
recover to 4.1 per cent in 2024. The
moderation is expected to be driven
largely by slowdown in the two major
economies in the group, Nigeria and
South Africa. In Nigeria, growth is
projected to decline from 3.6 per cent in
2022 to 3.3 per cent in 2023 and further
to 3.2 in 2024, largely reflecting security
issues in food and oil producing areas of
the country. In South Africa, growth is
anticipated to slow from 1.9 per cent in
2022 to 0.3 per cent in 2023 before
recovering to 1.7 per cent in 2024. The
decline in 2023 reflects ongoing power
shortages but is expected to be offset in
2024 by the resilience of the services
sector.


Table 4.1 Global Output and Inflation Outlook

2021*
2022*
2023*(p)
2024*(p)
A. World Output


World Output

Advanced Economies

USA

Euro Area

Japan

UK

Canada

Other Advanced Economies

Emerging & Developing Economies

Latin America and the Caribbean

Middle East and Central Asia

Sub-Saharan Africa

B. Commodity Prices (US Dollars)


Oil

Non-fuel

C. Consumer Prices


Advanced Economies

Emerging & Developing Economies

Source: IMF WEO, April 2023; * IMF WEO July 2023
(p) refers to Forecasts


CBN Monetary Policy Review

4.2
Outlook for Global Inflation
In 2023, global inflation is expected to
moderate on account of continued
monetary policy tightening, declining
commodity prices and subdued inflation
in China. Consequently, inflation is
projected to decline to 6.8 and 5.2 per
cent in 2023 and 2024, respectively, from
8.7 per cent in 2022.

Core inflation is expected to continue to
respond
positively
to
monetary
tightening, declining to 6.0 and 4.7 per
cent in 2023 and 2024, respectively, from
6.5 per cent in 2022. In the advanced
economies,
the
response
of
core
inflation to monetary policy remains
sluggish, compared with China where
the decline is more progressive. Overall,
inflation
in
several
economies
is
expected to remain above their central
bank targets in 2023.

Table 4.2 Global Inflation Outlook

2023*
2024*
World Consumer Prices
8.7**
6.8**
5.2**
Advanced Economies
7.3**
4.7**
2.8**
USA
8.0
4.5
2.3
Euro Area
8.4
5.3
2.9
Japan
2.5
2.7
2.2
Emerging & Developing
Economies
9.8**
8.3**
6.8**
China
1.9
2.0
2.2
Russia
13.8
7.0
4.6
India
6.7
4.9
4.4
Sub-Saharan Africa
14.5
14.0
10.5
Nigeria
18.8
20.1
15.8
Ghana
31.9
45.4
22.2
Angola
21.4
11.7
10.8
LIC
18.5
16.9
13.1
Ethiopia
33.9
31.4
23.5
Source: IMF WEO, April 2023
*Forecast, ** IMF WEO July 2023
4.3 Outlook for Domestic Output Growth
The domestic economy is expected to
sustain its growth momentum in the
second half of 2023, on account of
improved output in the oil and non-oil
sectors. The Agriculture and Services
sectors are expected to be the key
drivers of output growth in the non-oil
sector. In addition, the implementation
of the Nigerian Upstream Petroleum
Measurement Regulations (2023) which
involves the reopening of major oil
terminals and removal of petrol subsidy
is expected to increase oil GDP through
improved
investments
in
oil
infrastructure.

Downside risks to this outlook include the
dampening impact of high energy
prices on output growth, other legacy
infrastructural deficits such as poor road
networks, lingering security challenges,
and
intermittent
power
supply.
Monetary policy may thus remain tight
throughout the
forecast period to
address high and rising inflation.

Consequently, the Central Bank of
Nigeria (CBN) forecasts real GDP to grow
by 2.82 per cent in 2023, predicated on
a crude oil price of US$80 per barrel.

Table 4.3: Possible Variations in Nigeria’s GDP
growth outlook
Period/Indicato
r
Pessimisti
c
Baseline
Optimisti
c
2022Q1
3.11
3.11
3.11
2022Q2
3.54
3.54
3.54
2022Q3
2.25
2.25
2.25
2022Q4
3.52
3.52
3.52

3.1
3.1
3.1
2023Q1
2.31
2.31
2.31


CBN Monetary Policy Review

2023Q2f
1.9
2.73
3.23
2023Q3f
2.2
2.75
3.21
2023Q4f
2.69
3.48
4.2
2023f
2.27
2.82
3.24
Crude oil price
$70/b
$80/b
$90/b
Crude oil
production
1mbpd
1.2mbp
d
1.4mbpd
Govt
Expenditure
5% lower
than
budget
MTEF
(₦21.83
trillion)
5%
higher
than
budget
Economic
Activity
1 index
point
decline in
PMI
1 index
point
increase
in PMI
1 index
point
increase
in PMI
Source: CBN Staff Estimates

4.4 Outlook for Domestic Inflation
Staff estimates indicate that year-onyear headline inflation may increase to
23.06 per cent in July 2023, above the
upper limit of the indicative benchmark
of 6.00–9.00 per cent. This trajectory is
expected to be sustained, with inflation
rising to 23.95 and 24.53 per cent in
October
and
December
2023,
respectively.

Near-term upside risks to inflation remain,
perennial
flooding
in
major
foodproducing areas; lingering insecurity,
especially in farming communities; and
the high cost of energy. It is, however,
expected that sustaining the current
contractionary monetary policy stance
will contribute to rein in inflationary
pressure in the short to medium-term.

In addition to other legacy structural risks
to inflation, the recent removal of
subsidy on PMS and the liberalization of
the foreign exchange market, constitute
new and potent upside risks to price
development. The impact of these risks
is, however, expected to moderate as
the economy gradually stabilizes. Fiscal
operations that may exert upward
pressure
on
inflation,
include
the
increased disbursement by the Federal
Accounts Allocation Committee (FAAC)
as a result of subsidy savings and
exchange rate differential; and planned
social security disbursements by the
Federal Government as palliatives and
conditional cash transfers.


CBN Monetary Policy Review

Table 4.4: Inflation Forecasts
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
2023m1
21.82
19.16
24.32
Actual
2023m1
1.87
1.82
2.08
2023m2
21.91
18.84
24.35
2023m2
1.71
1.06
1.90
2023m3
22.04
19.86
24.45
2023m3
1.86
1.84
2.07
2023m4
22.22
20.14
24.61
2023m4
1.91
1.46
2.13
2023m5
22.41
20.06
24.82
2023m5
1.94
1.81
2.19
2023m6
22.79
20.27
25.25
2023m6
2.13
1.74
2.40
Forecast
2023m7
23.06
21.78
25.56
Forecast
2023m7
2.04
3.02
2.29
2023m8
23.36
22.03
25.96
2023m8
2.02
1.80
2.31
2023m9
23.66
22.28
26.33
2023m9
1.60
1.79
1.73
2023m10
23.95
22.52
26.69
2023m10
1.48
1.13
1.51
2023m11
24.24
22.76
27.04
2023m11
1.63
1.88
1.68
2023m12
24.52
23.00
27.38
2023m12
1.94
1.53
2.16

Figure 4.1: Fan Chart of Inflation Forecast

Source: CBN Staff Estimates


Per cent


CBN Monetary Policy Review

4.5
Outlook for Monetary Policy in
The Second Half of 2023
The
outlook
for
the
design
and
implementation of monetary policy by
the Bank in the second half of 2023 is
anchored on the forecast for price
development and growth prospects in
the short to medium term. The Bank will
also align its policies with the Federal
Government’s
Medium-Term
Expenditure Framework (MTEF) 20232025.

Global inflation is expected to decline
from 8.7 per cent in 2022 to 6.8 per cent
in 2023 and 5.2 per cent in 2024 (IMF
WEO
July
2023).
The
expected
downtrend
would
reflect
the
dampening
impact
of
continued
tightening of monetary policy across the
globe as well as declining global
commodity prices. This development is
expected to impact domestic inflation
and, thus, influence the direction of the
Bank’s monetary policy.

In the domestic economy, inflationary
pressure is projected to persist in the short
to medium term. Monetary policy would,
therefore,
closely
monitor
global
spillovers
and
domestic
drivers
of
inflation in order to deploy appropriate
tools to manage inflation.
Monetary
policy
will,
therefore,
strengthen collaboration with the fiscal
authority to address shocks exerting
upward pressure on domestic prices.
Monetary policy is thus expected to be
proactive to moderate the anticipated
rise in domestic prices while fiscal policy
will focus on the structural drivers.

4.6 Major Risks to the Outlook

4.6.1 Risks to Global Output and Inflation
Global
output
growth
remains
confronted with substantial risks despite
significant improvements observed in
the first half of 2023. The major downside
risks to growth observed in the first half of
the year, remain a key concern to the
recovery of output growth. These risks
emanate from the ongoing war in
Ukraine; growing tensions between the
US and China; as well as continued
disruptions to global trade, associated
with pockets of geo-political tension
across the globe. Others include the
discontinuation of the Black Sea Grains
Agreement and the recent spate of
military coups in some African countries
which
attracted
polarized
global
responses.

While
global
core
inflation
has
continued to decline at a slower than
expected pace, there are expectations
that it could fall faster than anticipated.
This expectation is primarily anchored on
businesses reducing profit margins to
offset the rising cost of production. This
will thus likely moderate the need for an
aggressive adjustment of monetary
policy to curb rising prices.

4.6.2 Risks to Domestic Output
Real GDP growth in 2023 is projected to
decline to 3.2 per cent from 3.3 per cent
in 2022 (IMF July 2023 WEO). Risks to
domestic
output
growth,
however,
remain
on
the
downside
as
the
economy continues to grapple with
legacy headwinds. These risks include;


CBN Monetary Policy Review

the rising cost of energy, supply chain
disruptions from global geo-political
tensions,
exchange
rate
pressure,
legacy
infrastructural
deficits,
and
lingering security challenges across the
country. Others include the persistent
incidences of oil theft, aging and
inadequate oil-production infrastructure
as well as other operational challenges
in the sector, which have significantly
reduced oil production and revenue.

4.6.3 Risks to Domestic Inflation
Staff projection indicates that inflation
may continue to rise in the second half
of 2023 given the current developments
in the global and domestic economy.
The key upside risks driving this forecast
include; the continued impact of the
ongoing war in Ukraine, the sustained
policy rate hikes by advanced economy
central banks, geo-political tensions
impacting
global
trade,
and
heightened exchange rate pressures in
emerging market economies.

In the domestic economy, key upside
risks to the projection include the
lingering security challenges and likely
rise in the cost of production and
transportation
associated
with
high
energy
prices
and
continued
depreciation of the exchange rate.


CBN Monetary Policy Review

APPENDICES

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO.

OF
THE
MONETARY POLICY COMMITTEE MEETING
HELD ON MONDAY 23rd AND TUESDAY
24th JANUARY 2023

The Monetary Policy Committee (MPC)
held its first meeting for 2023 on the 23rd
and 24th January, 2023, as optimism of a
rebound in global output recovery
waned considerably, giving room for
increased concerns of a likely global
recession in 2023. This is driven by several
global shocks impacting negatively on
growth and price development. Major
headwinds to global growth include:
ongoing geopolitical tensions in some
regions; intensified disruptions to the
energy
market;
persisting
supply
bottlenecks; resurgence of the COVID19 pandemic in major industrial cities in
China; and tightening external financial
conditions. In addition to these, the slow
growth in global trade, continued
volatility in the oil market and growing
private and public debt portfolios, are
clear signals of increasing uncertainty,
imposing a drag on growth.

In the domestic economy, output
growth recovery was subdued in the
third quarter of 2022, but expected to
recover
moderately
in
the
fourth
quarter on the back of continued
support of both monetary and fiscal
policy through various interventions in
growth-enhancing
sectors.
At
this
meeting, the Committee reviewed
these and other developments in the
global and domestic economic and
financial environments in 2022, as well
as the outlook and risks for 2023.

Twelve (12) members of the Committee
attended this meeting.

Global Economic Developments
The Committee noted with concern,
the growing evidence of increased
militarization of the war in Ukraine and
the consequence of a prolonged war
on the recovery of the global economy.
It also noted the renewed concern of
the possibility of yet another Pandemic
reverberating the global economy in
2023, as infection rates rise in China,
following
its
lifting
of
COVID-19
restrictions. These two factors alongside
the tightening
of
global
financial
conditions remain major headwinds to
global
economic
growth.
The
combined impact of these shocks on
the global economy could result in
further disruptions to commodity and
energy markets as well as the efficient
functioning of global supply chains. In
the Advanced Economies, fiscal policy
retreated to give way to monetary
adjustment, while in the Emerging
Markets and Developing Economies,
fiscal
capacity
is
being
greatly
undermined by the array of shock
spillovers from the global economy. The
International Monetary Fund (IMF), in its
October 2022 World Economic Outlook,
retained its global output growth
projection for 2022 at 3.2 per cent, but
further
downgraded
in
the

forecast to 2.7 per cent compared with
2.9 per cent in its July 2022 forecast. The
World Bank in its latest forecast,
indicated a much lower global growth
expectation of 1.7 per cent for 2023.


CBN Monetary Policy Review

On price development,
the MPC
observed
that
inflation,
in
most
Advanced
Economies,
although
trending
downwards,
remained
significantly
above
their
long-run
objectives and is expected to remain
elevated throughout 2023. This is driven
by the continued high price of food
and energy, a fallout of the war in
Ukraine, lagged impact of the massive
liquidity support rolled out to douse the
impact of the COVID-19 pandemic,
and persisting disruptions to the global
supply chain as China faces a renewed
surge of the Pandemic. Fears that
Russia may renege on its commitment
to the Black Sea grains deal is also
building expectations of possible rise in
short-term price levels. In the Emerging
Markets and Developing Economies,
inflation is expected to moderate
marginally in 2023, but remain broadly
elevated due to a combination of
factors such as the persisting high price
of grains and other commodities;
continued exchange rate pressures;
and other legacy structural factors.

In the global financial markets, the
continued normalisation of monetary
policy has led to the tightening of
external
financial
conditions
and
increased volatility in the equities
market. With the increased fears of a
likely global recession in 2023, investors
have commenced a move towards
safe-haven assets such as gold and
silver to safeguard their investments.

In the Advanced Economies, corporate
debt levels remain considerably high as
pressure
builds
to
avoid
default
scenarios with the continued hike of
monetary policy rates. In the Emerging
Market and Developing Economies, the
persistence of rising public debt profiles
and capital flow reversals are putting
severe pressure on exchange rates,
posing
a
challenge
to
external
sustainability.

Domestic Economic Developments
Available data from the National
Bureau of Statistics (NBS) revealed that
Real Gross Domestic Product (GDP)
grew by 2.25 per cent (year-on-year) in
the third quarter of 2022, compared
with 3.54 per cent in the second quarter
of 2022 and 4.03 per cent in the
corresponding period of 2021. The
economy has continued on a path of
positive growth for eight consecutive
quarters. This is driven largely by support
by the Bank and the fiscal authority to
growth enhancing sectors.

Staff projections showed that output
growth
recovery
is
expected
to
continue reasonably in 2023, given the
expected
sustained
positive
performance during the fourth quarter
of

and
steady
rebound
in
economic activities.

The MPC welcomed the moderation in
inflation
following
ten
consecutive
months of uptick, as headline inflation
(year-on-year) declined marginally to
21.34 per cent in December 2022 from
21.47 per cent in November 2022.
Month-on-month
headline
inflation
however, increased to 1.71 per cent in
December 2022 from 1.39 per cent in
the preceding month, due to a rise in
consumer spending during the festive
period.


CBN Monetary Policy Review

The
Committee
observed
the
continued growth in money supply with
broad money (M3) growth exceeding
the 2022 provisional benchmark of
15.21 per cent at 16.52 per cent (yearto-date) in December 2022, compared
with 13.92 per cent in November 2022.
This was largely driven by increased
claims on other sectors (other financial
corporations,
state
and
local
governments,
public
nonfinancial
corporations, and the private sector).
Money market rates oscillated below
and within the asymmetric corridor of
the
standing
facilities
window,
reflecting changing liquidity conditions
in the banking system. Accordingly, the
monthly
weighted
average
Open
Buyback (OBB) rate decreased to 11.61
per cent in December 2022 from 12.56
per cent in November 2022, while the
monthly
average
inter-bank
rate,
increased
to
12.08
per
cent
in
December 2022 from 11.89 per cent in
November 2022.

The MPC noted the continued resilience
of the banking system, evidenced by
the progressive improvement in the
Non-Performing Loans (NPLs) ratio from
4.9 per cent in November 2022 to 4.2
per cent in December 2022. The
Committee also noted that the liquidity
ratio was well above its prudential limit
at 44.1 per cent, while the Capital
Adequacy Ratio (CAR) remained at
13.8 per cent in December 2022
compared with the preceding month,
staying within its prudential range of
10.0 -15.0 per cent.
The equities market was bullish in the
review period, as the All-Share Index
(ASI) and Market Capitalization (MC)
increased to 51,251.06 and N27.92
trillion on December 30, 2022, from
43,839.08
and
N23.88
trillion
respectively, on October 31, 2022. This
reflected
better-than-expected
corporate
earnings
and
improved
investor confidence in the country.

The Committee noted the marginal
decline in the external reserves, as gross
external reserves decreased by 0.95 per
cent at end-December 2022 to US$36.55
billion, from US$36.9 billion at endNovember
2022.
This
reflects
the
exchange rate pressure accentuated
by
a
combination
of
heightened
demand and slow accretion to reserves.

The
Committee
reviewed
the
performance of the Bank’s various
interventions
aimed
at
stimulating
production and productivity across the
real sector. Between September and
October
2022,
under
the
Anchor
Borrowers’ Programme (ABP), the Bank
disbursed N41.02 billion to several
agricultural
projects,
bringing
the
cumulative disbursements under the
Programme to ₦1,067.29 billion to over
4.6
million
smallholder
farmers
cultivating or rearing 21 commodities
across the country. The Bank also
released N300 million to finance largescale agricultural projects under the
Commercial Agriculture Credit Scheme
(CACS),
bringing
the
total
disbursements under the Scheme to
₦745.31 billion for 680 projects in agroproduction and agro-processing.

In addition, the Bank released the sum
of ₦48.30 billion under the ₦1.0 trillion
Real Sector Facility to seven (7) new real
sector
projects
in
agriculture,
manufacturing,
and
services.


CBN Monetary Policy Review

Cumulative disbursements under the
Real Sector Facility currently stood at
₦2.15 trillion disbursed to 437 projects
across the country, comprising 240 in
manufacturing, 91 in agriculture, 93 in
services and 13 mining sector projects.
Furthermore, under the 100 for 100
Policy on Production and Productivity
(PPP), the Bank has disbursed the sum of
₦20.78 billion to nine (9) projects in
healthcare,
manufacturing,
and
services. This brings the cumulative
disbursements under the facility to
₦114.17 billion to 71 projects across
healthcare, manufacturing, services
and agriculture. The Bank released
₦4.00 billion under the Intervention
Facility for the National Gas Expansion
Programme (IFNGEP) to promote the
adoption of compressed natural gas
(CNG)
as
the
preferred
fuel
for
transportation and liquefied petroleum
gas (LPG) as the preferred cooking fuel.
In the MSME sector, the Bank supported
entrepreneurship
development
with
the disbursement of the sums of N1.33
billion and N10.00 million under the
Agribusiness/Small
and
Medium
Enterprise
Investment
Scheme
(AgSMEIS)
and
Micro,
Small,
and
Medium Enterprise Development Fund
(MSMEDF), respectively, to support
entrepreneurship development in the
country, bringing the total disbursement
under the interventions to N150.22
billion and N96.08 billion, respectively.
Under the Export Facilitation Initiative
(EFI), the Bank funded export-oriented
projects with the sum of N5.34 billion,
bringing the cumulative disbursement
under the intervention to N44.58 billion.

Outlook
The broad outlook for the recovery of
both
the
global
and
domestic
economies remain uncertain with the
path to full recovery clouded by
significant downside risks. The key risks
remain the lingering headwinds from the
Russian-Ukraine
war,
heightened
inflationary
pressure
across
several
economies and sharp slowdown of
economic activities in China with the
resurgence of COVID-19 pandemic
across its major cities. Others include: the
tightening
of
external
financial
conditions,
as
monetary
policy
normalization continues; increasing risk
of a global debt crisis, as both corporate
and public debt levels burgeon; and the
increasing
likelihood
of
a
global
recession in 2023.

Available data and forecasts for key
macroeconomic indicators for Nigeria
suggest that the economy will continue
to grow through 2023, but at a subdued
pace. The continued high level of
insecurity; perennial scarcity of Premium
Motor Spirit (PMS) and high cost of other
energy sources; increased spending
towards the 2023 general elections;
rising cost of debt servicing; and
deteriorating fiscal balances, remain the
key sources of shocks to the Nigerian
economy. Accordingly, the economy is
forecast to grow in 2023 by 2.88 per cent
by the CBN estimate.

The Committee’s Considerations
At this meeting, although the MPC was
delighted that inflation (year-on-year)
had started to moderate, it was not
convinced that a marginal 13 basis


CBN Monetary Policy Review

points dip in inflation was enough to
begin to celebrate. The Committee
was therefore not of the opinion that a
hold or loosen option was desirable.
This is because loosening under a
double-digit inflationary condition will
be tantamount
to
an
immediate
reversal
of
the
expected
further
downward
trend
in
inflation.
Committee also felt that loosening will
negate the objective of dampening
the pent-up aggregate demand that
fueled the rise in inflation post-COVID19 pandemic.

As for hold, the Committee was
reluctant in considering this option
because a hold option would signal
MPC’s quick adjustment of its policy
stance due to a one-time, marginal
decline in inflation, suggesting a weak
confidence in its previous policy stance
at taming inflation.

The MPC was therefore unanimous in its
position
to
continue
to
tighten.
However, the dilemma at this meeting
was whether to continue tightening
aggressively or moderately. To the
Committee, a moderate tightening
may slow the rate of deceleration in
inflation without necessarily hurting
output. For those members who felt
that an aggressive stance was needed,
they were of the view that Nigeria’s
inflation at a rate above 20 per cent,
was already a threat to growth and
among the highest in the world. To this
group of members, aggressively raising
the policy rate was paramount to
reining
in
inflation
because
an
aggressive tightening stance would
further narrow the negative real interest
rate margin. MPC also feels that a
tightening
stance
would
signal
confidence in the effectiveness of its
Monetary Policy direction to rein in
inflation,
improve
financial
system
stability, and moderate exchange rate.

The Committee’s Decision
Members
welcomed
the
recent
deceleration in year-on-year headline
inflation, noting that the persistence in
policy rate hikes over the last few
meetings of the Committee had started
to yield the expected decline in
inflation.

The Committee thus deliberated on
either to hike rates further or hold for the
impact of the last four rate hikes to
continue to feed through. At this MPC,
therefore, the options considered were
primarily to hold the policy rate or
tighten further to consolidate the gains
of previous rate hikes. Loosening, in the
view
of
members,
would
gravely
undermine the gains of the last four rate
hikes.

The MPC noted the continued upward
risk
to
price
development
characterized by the forthcoming 2023
general elections; perennial scarcity of
PMS; continued rise in other energy
prices; exchange rate pressure; as well
as rising insecurity. Members, however,
noted that the current naira redesign
and cash withdrawal limit policies are
huge moderating factors to price
development as Currency OutsideBanks is expected to continue to
moderate beyond the implementation
stage of these policies.


CBN Monetary Policy Review

The MPC was of the view that although
the inflation rate moderated marginally
in December, the economy remained
confronted with the risk of high inflation
with adverse consequences on the
general
standard
of
living.
The
Committee,
therefore,
decided
to
sustain the current stance of policy at
this point in time to further rein in
inflation.

One (1) member voted to increase the
MPR by 150 basis points, Four (4)
members by 50 basis points, and Seven
(7) members by 100 basis points, In
summary, the MPC voted to:
i.
Raise the MPR by 100 basis points
to 17.5 per cent;
ii.
Retain the asymmetric corridor of
+100/-700 basis points around
the MPR;
iii.
Retain the CRR at 32.5 per cent;
and IV.
Retain
the
Liquidity Ratio at 30 per cent.
Thank you.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
24th January 2023


CBN Monetary Policy Review

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO.

OF
THE
MONETARY POLICY COMMITTEE MEETING
HELD ON MONDAY 20th AND TUESDAY 21st
MARCH, 2023

The Monetary Policy Committee (MPC)
met on 20th and 21st March 2023, faced
with new and existing headwinds,
undermining the full recovery of the
global economy. These include the
recent bank failures in the United States
and Switzerland, amidst widespread
monetary
policy
tightening,
which
introduced a new dimension to the risks
confronting the global financial system,
as well as the persisting high but
receding global inflation. The continued
hostilities between Russia and Ukraine
and its implications to the smooth
functioning of the global supply chain
also remain a critical strain to the
recovery of global output growth.

In the domestic economy, output
recovery progressed at a relatively
moderate
pace,
while
headline
inflation trended upwards, albeit less
aggressively,
driven
mainly
by
a
marginal increase in food inflation.
The Committee assessed key risks to the
global economy associated with these
developments and their impact on the
Nigerian economy, as well as the
outlook for the rest of the year.

Twelve (12) members of the Committee
attended this meeting.

Global Economic Developments
The Monetary Policy Committee noted
the new and existing headwinds to the
broad stability of the global economy.
Primary amongst these is the risk of a
global financial contagion from the
recent bank failures in the United States
and Switzerland. In Europe, the war
between
Russia
and
Ukraine
has
continued unabated, causing critical
strains to the commodities and energy
markets as supply chain bottlenecks
remain, while the lingering risk of the
resurgence of several variants of the
Corona virus persists after China set
aside
its
Zero-COVID
Policy.
Furthermore, the deteriorating relations
between the US, China, Russia and
some major oil producers in the Middle
East,
continue
to
contribute
to
increased volatility in the oil market.

In
the
Emerging
Markets
and
Developing Economies, the unfolding
tight external financing conditions and
shock spillovers from the Advanced
Economies, could further dampen the
recovery of output growth.

In light of these developments, the
International Monetary Fund (IMF), in its
January 2023 World Economic Outlook,
forecast global output growth for 2023
at 2.9 per cent, compared with 3.4 per
cent in 2022. Growth is, however,
expected to improve to 3.1 per cent in
2024.

While global inflation shows sign of
deceleration,
monetary
policy
normalization is progressing unabated,
especially amongst key Advanced
Economy central banks, targeted at
moderating global demand pressure.
Price
development
across
several
economies is thus expected to remain
high
throughout
2023,
but
to
decelerate gradually in 2024.


CBN Monetary Policy Review

The key factors expected to keep
inflation above the long-run target of
several central banks include: the
persisting disruption to energy markets
associated
with
continued
war
between Russia and Ukraine; high
commodity
prices;
and
general
disruptions to the global supply chain
associated with uncertainties around
the COVID-19 pandemic in China and
the ongoing tensions between the US
and China over Taiwan’s sovereignty.

Across several Emerging Market and
Developing
Economies,
inflationary
pressures have remained high due
largely to rising energy prices, high
prices of grains and exchange rate
pressures associated with capital flows
to high yield US dollar-denominated
assets.

In
the
global
financial
markets,
renewed fears of a global financial
contagion are forcing investors to move
away from the equities market to safer
assets such as gold, while others seek
higher returns in treasury securities with
improved
yields.
With
several
Advanced Economy central banks
progressing
with
monetary
policy
normalization,
global
financial
conditions will likely remain tight, thus
reinforcing
the
reassignment
of
financial portfolios to reflect the risk
aversion of investors.

Domestic Economic Developments
Data from the National Bureau of
Statistics (NBS) showed that Real Gross
Domestic Product (GDP) grew by 3.10
per cent in 2022. In the fourth quarter of
2022, it grew by 3.52 per cent (year-onyear), compared with 3.98 per cent in
the corresponding period of 2021 and
2.25 per cent in the preceding quarter.
The economy maintained a positive
growth trajectory for nine consecutive
quarters, since exiting recession in 2020.
The improved performance was driven
largely by sustained growth in the
services and agricultural sectors, a
rebound
in
economic
activities
associated with economic recovery
and continued intervention in growth
enhancing sectors by the Bank. Staff
projections showed that output growth
recovery is expected to continue into
2023 and 2024.

The Committee, however, observed
with concern, the marginal increase in
headline inflation (year-on-year) in
February 2023, to 21.91 per cent, from
21.82 per cent in January 2023, a 0.09
percentage
point
increase.
This
increase was attributed largely to a
minimal rise in the food component to
24.35 per cent in February 2023, from
24.32 per cent in January 2023, while
the core component moderated to
18.84 per cent in February 2023, from
19.16 per cent in January 2023. The
shocks to the food component were
driven by high cost of transportation of
food items, lingering security challenges
in major food-producing areas and
legacy infrastructural problems, which
continue
to
hamper
food
supply
logistics.

Broad money supply (M3) grew by 13.14
per cent (annualized) in February 2023
(year-to-date),
below
the

provisional annual benchmark of 17.18
per cent. This was driven largely by the
growth in Net Foreign Assets (NFA),


CBN Monetary Policy Review

which was attributed to the increase in
foreign asset holdings of the Central
bank and decrease in foreign claims on
Other Depository Corporations (ODCs).
Money market rates reflected the tight
liquidity conditions in the banking
system. Consequently, the monthly
weighted average Open Buyback
(OBB)
and
Inter-bank
Call
rates
increased to 12.74 and 12.54 per cents
in February 2023, from 10.14 and 10.35
per cent in January 2023, respectively.
The Committee noted the continued
stability in the banking system, reflected
by the performance of the Financial
Soundness Indicators (FSIs). The Capital
Adequacy Ratio (CAR) stood at 13.7
per cent, Non-Performing Loans (NPLs)
ratio of 4.2 per cent and Liquidity Ratio
(LR) of 43.1 per cent, as of February
2023.

The
MPC
observed
the
sustained
improvement in the equities market in
the review period, as the All-Share Index
(ASI) and Market Capitalization (MC)
both increased to 54,915.39 and N29.92
trillion on March 17, 2023, from 51,251.06
and N27.92 trillion on December 30,
2022, respectively, indicating renewed
investor confidence in the Nigerian
financial market.

The Committee, however, noted the
marginal decline in the level of gross
external reserves to US$36.13 billion in
February 2023, from US$36.4 billion in
January 2023, a decrease of 0.7 per
cent, reflecting the downtrend in crude
oil prices, as global uncertainties persist.
The
Committee
reviewed
the
performance of the Bank’s various
interventions
aimed
at
stimulating
production and productivity across the
real sector. Between January and
February 2023, the Bank disbursed
N12.65 billion to three (3) agricultural
projects under the Anchor Borrowers’
Programme
(ABP),
bringing
the
cumulative disbursement under the
Programme to ₦1.09 trillion to over 4.6
million smallholder farmers cultivating or
rearing 21 agricultural commodities on
an approved 6.02 million hectares of
farmland across the country.

The Bank also released the sum of ₦23.70
billion under the ₦1.0 trillion Real Sector
Facility to eight (8) new real sector
projects in agriculture, manufacturing,
and services. Cumulative disbursements
under the Real Sector Facility currently
stands at ₦2.43 trillion, disbursed to 462
projects across the country, comprising
257 manufacturing, 95 agriculture, 97
services and 13 mining sector projects.
Under the 100 for 100 Policy on
Production and Productivity (PPP). The
Bank also released ₦3.01 billion under
the
Nigerian
Electricity
Market
Stabilisation Facility (NEMSF-2) for capital
and
operational
expenditure
of
distribution companies (Discos) aimed
at improving their liquidity status and aid
their recovery of legacy debt. This brings
the cumulative disbursement under the
facility to ₦254.39 billion.

Outlook
The overall outlook for the full recovery
of both the global and domestic
economies, remained clouded by new
and legacy downside risks.

Available data and forecasts for key
macroeconomic
variables
for
the
Nigerian economy, suggest that the


CBN Monetary Policy Review

domestic economy will continue to
recover for the rest of 2023 at a
moderate pace, in light of evolving and
persisting shocks to the economy. The
continued upward pressure on inflation,
rising cost of debt and debt servicing, as
well as deteriorating fiscal balances
remain
headwinds,
which
may
undermine the smooth path to a faster
recovery. Accordingly, the Nigerian
economy is forecast to grow in 2023 by
3.03 per cent (CBN), 3.37 per cent (FGN)
and 3.20 per cent (IMF).

The Committee’s Considerations
At this meeting, MPC focused its
attention not only on the inflationary
trends in most major economies, but
also on the reported impact of policy
rate hikes: aimed at rein-in inflation on
financial system stability in the global
financial system.

The MPC hence took time out to discuss
the recent bank failures in the US and
Switzerland, an event that occurred
following the persistent interest rate
hikes in the US, and how this has
adversely impacted the broad portfolio
of banks in the US. It noted that whereas
MPR was increased by 500 basis points
in Nigeria, from 12.5 per cent in 2022 to
17.5 per cent in January 2023, the
Financial Soundness Indicators (FSIs) in
Nigeria shows that the Nigerian banking
system remain resilient due largely the
stringent prudential guidelines put in
place by the CBN which has resulted in
a strong build-up of not only the Cash
Reserve Ratio (CRR) in Nigeria, but also
the
Liquidity
Ratio
and
capital
Adequacy Ratio.

In the light of these strong FSIs, MPC was
comforted that its various decisions in
increasing MPR have had moderate
impact on inflation, given that the rate
appears to have plateaued in Nigeria.
The Committee’s major considerations
at this meeting, therefore, focused on
arriving at key policy mechanisms to
shield the economy from emerging
shocks from the global economy, as
well as sustain its focus on domestic
price stability.

Headline inflation, in the view of
members,
remained
high
with
increased
expectations
of
price
development, due to the perennial
scarcity of PMS and ongoing discourse
around the removal of fuel subsidy. With
the prices of other energy products also
rising,
members
stressed
the
importance
of
addressing
price
development.

The Committee also considered the
continued impact of exchange rate
pressure on domestic price levels and
called for policies to attract both
portfolio and foreign direct investment
to Nigeria. It maintained optimism that,
the continued progress made with the
RT200 FX programme, Naira-4-dollar
and
other
policies
targeted
at
attracting diaspora remittances, would
continue to help improve accretion to
the external reserves and improve
liquidity
in
the
foreign
exchange
market.

While output growth remains on a
positive trajectory, Members called for
increased
monetary
and
fiscal
coordination to support the recovery in
light of risks confronting the domestic


CBN Monetary Policy Review

economy. To this end, the Committee
enjoined the fiscal authority to explore
other avenues to improve non-oil
revenue to reduce the fiscal deficit and
public debt burden.

Following
new
risks
of
financial
contagion emerging from the scenario
of failed banks in some Advanced
Economies, members examined the
possibility of shocks to the Nigerian
banking system from these banks and
concluded that the Nigerian banking
system remains reasonably insulated
from such likely contagion. The CBN has
been able to achieve this through
stringent micro and macro-prudential
guidelines that have ensured that
individual banks and the banking
industry in Nigeria have adequate
buffers to ward-off global contagion. In
addition to this, the MPC examined the
possible impact of further policy rate
hikes on the stability of the banking
system and was convinced that further
hikes would not adversely impact the
stability of the banking system. The
Committee, however, called on the
Bank’s Management to strengthen its
regulatory oversight on the banking
system to ensure that the banking
industry remain stable and resilient.
The Committee’s Decision
The
MPC
noted
that
while
the
continued rise in headline inflation
remained
a
significant
problem
confronting
the
economy,
other
macroeconomic variables are moving
in the right direction, despite observed
headwinds.

The
Committee’s
debate
at
this
meeting, therefore, was whether to
continue its rate hike to further dampen
the rising inflation trajectory or hold to
observe emerging development and
allow for the impact of the last five rate
hikes to permeate the economy.
Loosening, in the view of members,
would gravely undermine the gains
achieved so far.

The MPC observed the continued
upward risk to price development
around expectations on the removal of
the PMS subsidy; rising prices of other
energy sources; continuing exchange
rate pressure; and uncertain climatic
conditions. These in the view of
members,
provides
a
compelling
argument for an upward adjustment of
the policy rate, albeit, less aggressively.
The Committee, however, noted that
the naira redesign and cash withdrawal
limit policies have resulted in a sizeable
reduction in Currency-Outside-Banks,
indicating an expected improvement
in the potency of monetary policy tools.

Members, however, remained aware of
the ongoing challenges associated
with the limits imposed on cash
withdrawals in the face of frequent
downtime
in
bank
electronic
transaction channels. The Committee
thus
called
on
Other
Depository
Corporations,
online
payment
platforms, and other stakeholders to
ensure that the prevailing incidence of
network failures is overcome in the
immediate and short term. This would
ensure that the Naira Redesign and
Cash Withdrawal Limit Policies lead to
an improved in-road of the CBN
Cashless program and efficiency of the
transmission mechanism of monetary
policy.


CBN Monetary Policy Review

Members, thus, resolved by a majority
vote to raise the Monetary Policy Rate
(MPR) by 50 basis points. In Summary,
ten (10) members voted to raise the
MPR by 50 basis points, one (1) member
voted to raise the MPR by 25 basis points
and one (1) member voted to hold the
MPR. All members voted to keep all
other parameters constant.

The MPC, therefore, voted to:
i.
Raise the MPR by 50 basis points
to 18.0 per cent;
ii.
Retain the asymmetric corridor of
+100/-700 basis points around
the MPR;
iii.
Retain the CRR at 32.5 per cent;
and IV.
Retain
the
Liquidity Ratio at 30 per cent.
Thank you.

Godwin I. Emefiele, CON
Governor, Central Bank of Nigeria
21st March 2023


CBN Monetary Policy Review

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ NO. 148 OF THE 291ST
MEETING OF THE MONETARY POLICY
COMMITTEE HELD ON TUESDAY
23RD, AND WEDNESDAY 24TH MAY, 2023

The Monetary Policy Committee (MPC)
met on the 23rd and 24th of May 2023,
confronted with persisting and emerging
risks to both the global and domestic
economies. On the global scene, the
key risks are the fear of contagion arising
from the US banking crisis; the ongoing
Russia – Ukraine war; and growing
tensions between China and the US. In
addition to these, the oil market has
remained volatile even as global trade
figures continue to decline. In the
domestic economy, the major risks
identified include high public debt, high
inflation, declining oil production, and
moderate recovery of output growth.

The
Committee
assessed
these
developments and the outlook for the
rest of the year.

Eleven (11) members of the Committee
attended this meeting.

Global Economic Developments
The Committee deliberated on the key
headwinds confronting the recovery of
global growth, including the impact on
global trade associated with the RussiaUkraine war; the risk of contagion from
the US banking crisis, as investors
exercise caution; and the downside risks
from the build-up of hostilities between
the US and China. Output growth
recovery has thus, remained moderate
in some countries and subdued in others.

Members noted that despite concerted
efforts by the Advanced Economy
central banks, inflation has remained
broadly elevated and well above longrun objectives, with consequences for
investment spending and the recovery
of output growth. In the Emerging
Markets and Developing Economies,
inflationary pressure remains heightened
amid several headwinds.

Global
financial
conditions
have
continued to tighten as several central
banks maintain their push towards
taming inflation. Gold price sustained an
uptrend as investors seek a safe haven
asset to hedge against losses in the
event of a broader market downturn,
with growing fears of a global financial
contagion associated with the banking
crisis in the US and Europe.

Consequently,
the
International
Monetary Fund (IMF), in its April 2023
World
Economic
Outlook
further
downgraded
the
output
growth
forecast for 2023 to 2.8 per cent
compared with its January forecast of
2.9 per cent. Growth is however,
expected to improve moderately to 3.0
per cent in 2024.

Domestic Economic Developments
According to the National Bureau of
Statistics (NBS), Real Gross Domestic
Product (GDP) grew by 2.31 per cent
(year-on-year) in the first quarter of
2023, compared with 3.11 per cent in
the corresponding quarter of 2022 and
3.52 per cent in the preceding quarter.
The economy moderated on its current
recovery trajectory, posting positive,
albeit lower growth, for the tenth


CBN Monetary Policy Review

consecutive quarter, in spite of a
multitude of headwinds to its full
recovery. The growth performance was
driven largely by the sustained growth
in the services and agricultural sectors;
progressive
uptrend
in
economic
activities across several sub-sectors;
and
sustenance
of
broad-based
support
by
the
Bank
in
growth
enhancing sectors. Staff projections
showed that output growth recovery is
expected to continue reasonably in
2023,
given
the
significant
improvements
in
the
Composite
Purchasing Managers’ Index (PMI),
which rose to 51.1 index points in April
2023 from 42.6 index points in March
2023.

The Committee noted the persisting
uptick in inflation, as headline inflation
(year-on-year) rose to 22.22 per cent in
April 2023 from 22.04 per cent in the
previous month. While this amounted to
a
moderate
increase
of
0.18
percentage point. The recent uptick
was driven largely by the increase in
both the food and core components,
which rose moderately to 24.61 and
20.14 per cent in April 2023 from 24.45
and 19.86 per cent, respectively, in
March 2023. The lingering insecurity in
major food-producing areas; high cost
of transportation driven by rising energy
costs; activities of middlemen in the
food distribution channels; as well as
the persistence of shocks from legacy
infrastructural
bottlenecks,
remains
major
drivers
of
the
inflationary
pressure.
The MPC observed that the economy
continued to be weighed down by high
import bills, leading to pressure on
foreign exchange and resultant increase
in
the
general
price
level.
The
Committee noted that the economy
needs to build up the stock of foreign
reserves to act as buffers against shocks.
In addition, the current trend in price
development would continue to be
monitored by the Bank with greater
collaboration with the fiscal authority, to
address the drivers of inflation.

Broad money supply (M3) in April 2023
grew by 22.11 per cent (annualized),
largely driven by the increase in Net
Domestic Assets (NDA). Money market
rates
reflected
the
relatively
tight
liquidity
conditions
in
the
banking
system.
Consequently,
the
monthly
weighted average Open Buyback (OBB)
and Inter-bank Call rates increased to
17.05 and 15.80 per cent in April 2023,
from 14.07 and 14.75 per cent in March
2023, respectively.

The Committee noted the sustained
stability
in
the
banking
system,
evidenced by the performance of the
Financial Soundness Indicators (FSIs). The
Capital Adequacy Ratio (CAR) stood at
12.8 per cent, Non-Performing Loans
(NPLs) ratio at 4.4 per cent and Liquidity
Ratio (LR) at 45.3 per cent, as of April
2023.

The MPC noted the momentary lull in the
equities market in the review period
following
end-of-year
activities
by
several companies on the Exchange.
The All-Share Index (ASI) and Market
Capitalization
(MC)
declined
to
52,403.51 and N28.53 trillion on April 28,
2023, from 55,806.26 and N30.40 trillion
on February 28, respectively.


CBN Monetary Policy Review

The
Committee,
also,
noted
the
moderate decline in the level of gross
external reserves to US$34.91 billion in
April 2023, from US$35.14 billion at endMarch 2023, attributable to transactions
in the foreign exchange market and
largely to miniscule accretion to reserves
from crude oil exports.

The Bank disbursed the sum of ₦25.6
billion under the ₦1.0 trillion Real Sector
Facility to eight (8) new real sector
projects in manufacturing packaging,
pharmaceuticals, plastic and cosmetic
products.
Cumulative
disbursements
under the Real Sector Facility currently
stands at ₦2.56 trillion disbursed to 462
projects across the country, comprising
257 manufacturing, 95 agriculture, 97
services and 13 mining sector projects.
Under the 100 for 100 Policy on
Production and Productivity (PPP), the
Bank disbursed the sum of ₦13.81 billion
to
three
(3)
projects
in
the
manufacturing sector. This brings the
cumulative disbursement under the
facility to ₦173.31 billion, disbursed to 81
projects comprising 45 manufacturing,
23 agriculture, 5 healthcare, and 8
services
sector
projects
with
an
estimated 23,343 direct jobs created.
Under the Nigerian Electricity Market
Stabilisation
Facility
(NEMSF-2)
for
capital, and operational expenditure of
distribution companies (Discos), the
Bank disbursed ₦11.82 billion to ease
liquidity constraints and support the
recovery of legacy debt. Under the
scheme so far, the Bank has disbursed a
cumulative sum of ₦254.39 billion.
Outlook
The broad outlook for the full recovery
of both the global and domestic
economies
remained
clouded
by
legacy and emerging risks.

Available data and forecasts for key
macroeconomic
indicators
in
the
Nigerian economy, suggest that the
economy will continue on a moderate
recovery path through 2023 as legacy
headwinds
linger.
These
include
insecurity in food producing areas; high
cost of energy and rising cost of debt
servicing. Accordingly, the economy is
forecast to grow in 2023 by 3.03 per cent
(CBN), 3.75 per cent (FGN) and 3.29 per
cent (IMF).

The Committee’s Considerations
At
this
meeting,
the
MPC
was
concerned
that,
despite
the
tight
monetary policy stance adopted since
its May 2022 meeting, inflation had not
decelerated towards the Bank’s long run
objective. The MPC noted that the
continued rise in headline inflation,
albeit moderately, remained the biggest
challenge confronting macroeconomic
stability in Nigeria. Headline inflation in
the view of Members, remained high
due largely to a host of non-monetary
issues outside the reach of the central
bank such as the perennial scarcity of
Premium
Motor
Spirit
(PMS)
and
expectations of short-term hikes in the
pump price of PMS; high and rising price
of various energy sources; and a host of
headwinds confronting the food supply
chain.
In
the
circumstance,
the
Committee enjoined the fiscal authority
to explore other avenues to expand the
fiscal safety net in an urgent bid to
improve its ability to respond to legacy
and emerging shocks. Non-oil revenue
sources, such as the expansion of the tax


CBN Monetary Policy Review

bracket, will enable the reduction of
fiscal deficit and public debt to improve
fiscal space.

Confronted by these challenges, the
Committee tasked the Bank’s Research
and Monetary Policy Departments to
evaluate the counterfactual evidence
from available data, using empirical
analysis. The results revealed that
following each monetary policy rate
hike, the rise in inflation moderated
relative to what it could have been, if
the MPC had not aggressively raised
rates at all.

In fact, the empirical evidence provided
showed that whereas inflation in April
2023 stood at 22.22 per cent, the
counterfactual evidence suggests that,
it could have risen to 30.48 per cent in
April 2023, had the MPC not taken any
action to raise policy rates as it did since
May last year. Indeed, the cumulative
effect of MPC’s policy rate hikes
moderated the rise in inflation by about
800 basis points since last year.
The Committee was also concerned
that output growth, on a year-on-year
basis dropped to 2.31 per cent during
the first quarter of 2023 compared with
3.11 per cent during the first quarter of
2022. The challenge at this meeting,
therefore, centered around whether to
hold or loosen, in order to refocus on
growth, or tighten further, in order to
tame the rise in inflation. Members were,
however, unanimous that given that
rising inflation would hurt growth, it is
imperative to continue to focus on price
and monetary stability, though in a less
aggressive manner.

The
Committee
called
on
the
Management of the Bank to continue to
explore
avenues
to
improve
the
exchange rate policy to moderate
pressure
in
the
foreign
exchange
market. Members were optimistic that
the continued progress made with the
RT200, Naira-for-dollar and other policies
targeted
at
attracting
trade
and
diaspora remittances, would continue to
support accretion to reserves and
improve
liquidity
in
the
foreign
exchange market.

While output growth remains on a
positive trajectory, the MPC noted the
need for increased monetary and fiscal
coordination to support recovery in light
of the identified risks confronting the
domestic economy.

Members expressed satisfaction with the
banking and financial system stability
indicators presented to the Committee.
They, however, noted that the risk of
global financial contagion is yet to
dissipate. To this end, Management was
enjoined to maintain strict vigilance to
insulate
the
banking
system
from
potential spillover effects. So far, the
Bank has sustained stringent micro-and
macro prudential measures to ensure
that the banking system remains resilient
with adequate buffers to ward-off both
external and domestic shocks.

In its consideration as to whether to hold,
loosen or tighten, the MPC was of the
view that a hold or loosen option was not
desirable at this time given that a hold
may compromise the Bank’s decision to
tame the rising inflation, particularly
when its in-house staff estimates have
projected that headline inflation would


CBN Monetary Policy Review

continue to rise in the immediate months
ahead before decelerating. As to
whether to loosen, this option was
considered
undesirable,
because
loosening, in the face of persistently
rising
headline
inflation
would
compound the inflationary pressure and
trigger
further
macroeconomic
instability.

The Committee also felt that loosening
would further widen the negative real
interest
rate
margin
and
worsen
domestic financial and money market
conditions: including triggering a naira
depreciation.

The Committee’s Decision
In the opinion of the Committee, the
key policy dilemma at this meeting was
whether to hold or hike the policy rate
marginally to offset the moderate
increase in headline inflation.

Considering the option of a hold policy,
the Committee reiterated the empirical
counterfactual evidence of a ‘donothing’ and believed that the rate hikes
have indeed helped moderate the
continued rise in inflation, albeit, monthon-month. In addition, the evidence
revealed that the policy rate hikes have
also moderated growth in new credit
and reduced the pent-up aggregate
demand contributing to the inflationary
pressures. Members were unanimous in
their conclusion, that the current policy
stance is indeed impacting the targeted
parameters and yielding the expected
outcome, although slowly.

Reviewing the argument to further hike
the policy rate in a bid to subdue
aggregate demand, Members noted
that the current uptrend in inflationary
pressure was driven by a combination of
both demand and supply side issues. The
MPC observed the continued upward
risk
to
price
development
driven
primarily by expectations of rising energy
and food prices; unabating security
challenges in food producing areas; as
well
as
persisting
exchange
rate
pressure. The Committee thus felt it was
expedient to continue to address the
demand-side issues falling within the
ambit of its policy tools.

The balance of the argument thus
leaned sufficiently in favour of a further
hike
(albeit
less
aggressively),
considering the adverse impact of rising
inflation on real income. The MPC
therefore opted to tighten, though
moderately, so as to:
i.
indicate the MPC’s conviction
that the current policy stance is
moderating the rising inflation,
albeit
month-on-month,
and
sustaining
the
stance
would
consolidate the gains made so
far;
ii.
support
the
efforts
toward
moderating
the
demand-pull
inflation,
as
cost
of
funds
increases,
and
discourages
further build-up in aggregate
demand, in the face of declining
output growth;
iii.
narrow the negative real interest
rate gap and moderate the
associated
consequences,
including discouraging domestic
savings mobilization and waning
investors confidence;
iv.
effectively
moderate
the
monetary phenomenon in the


CBN Monetary Policy Review

current drivers of inflation by
tapering both economic and
financial conditions and sweepup excess liquidity in the system;
and
v.
boost the Bank and Committee’s
credibility following its earlier
forward guidance to continue to
tighten when confronted with
unabated rising inflation.

Members,
thus,
resolved
by
a
unanimous vote to raise the Monetary
Policy Rate (MPR), moderately. Ten (10)
members voted to raise MPR by 50 basis
points and one (1) member voted to
raise the MPR by 25 basis points. All
members voted to keep all other
parameters constant.

In summary, the MPC voted to:
i.
Raise the MPR to 18.5 per cent
from 18.0 per cent;
ii.
Retain the Asymmetric Corridor
of +100/-700 basis points around
the MPR;
iii.
Retain the CRR at 32.5 per cent;
and
iv.
Retain the Liquidity Ratio at 30
per cent.

Thank you.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
24th May 2023