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CENTRAL BANK OF NIGERIA COMMUNIQUÉ No. 122 OF THE MONETARY POLICY
COMMITTEE MEETING OF MONDAY 21ST AND TUESDAY 22ND JANUARY, 2019
Background

The Monetary Policy Committee (MPC) held its first meeting for fiscal 2019 on 21st
and 22nd January, 2019 amidst concerns over the slowdown in global economic
activity, arising from on-going trade tensions, tightening global financing
conditions and mounting external debt in Emerging Market and Developing
Economies (EMDEs). On the domestic front, the resurgence of moderate
inflationary pressure and possible threats to accretion to external reserves due to
softening crude oil prices were noted. The Committee reviewed the
developments in the global and domestic economic and financial environments
in 2018, as well as the risks and outlook in the short to medium term. Eleven (11)
members of the Committee were in attendance.
Global Economic Developments

The Committee noted the divergence in performance of most economies in 2018
leading to moderation in global output. In addition, a combination of factors
including: financial market volatilities, trade war between the US and key allies,
continuing monetary policy normalization by the US, BREXIT, the termination of the
European Central Bank’s (ECB) asset purchase program in

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December 2018 and the slowdown in the Chinese economy, further heightened
uncertainties for the global economy in 2019. Consequently, global growth has
been downgraded by the IMF to 3.5 per cent in 2019, from 3.7 per cent in 2018.
The Committee noted the gradual increase in global inflation, with inflationary
pressures intensifying in some Emerging Markets and Developing Economics
(EMDEs) that had in the recent past faced currency depreciation arising from
capital flow reversals arising from progressive monetary tightening by the Federal
Reserve. It is, however, expected that the recent decline in oil prices may reverse
the trend, especially for oil importing economies and thus moderate currency
depreciation in these countries.


Domestic Output Developments

The Committee noted the continued recovery in output growth in the domestic
economy after the 2016 recession as real GDP grew by 1.81 per cent in Q3 2018
from 1.50 per cent in Q2 2018. The services and agricultural sectors continued to
drive output growth, contributing 1.19 and 0.56 per cent, respectively. However,
the persistence of herdsmen attack on farmers, cattle rustling and flooding in
some parts of the country affected agricultural and livestock output. Based on
the Manufacturing and Non-Manufacturing Purchasing Managers’ Indices (PMI),
output growth for Q4 2018 is expected to expand further. The expected
performance projected in the PMI is attributed to continued stability in the foreign
exchange market, improvements in the flow of financing resources to the real
sector through the various interventions by the Bank, effective implementation of
the Economic Recovery and Growth Plan (ERGP) and the increase in non-oil
sector GDP. The outlook for growth, however, remains fragile as the late
implementation of the 2018 budget and the residual impact of flooding and
security challenges, constitute headwinds to growth. The Committee, therefore,
believes that the effective implementation of the 2018

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capital budget and the ERGP, improvement in the security situation, and
continued stability in the foreign exchange market will enhance aggregate
demand and output growth.
Developments in Money and Prices

The Committee noted that the broader measure of money supply, M3, grew by
16.58 per cent in 2018, above the provisional benchmark of 13.02 per cent. Broad
money (M2), also grew by 12.17 per cent in December 2018 over its level at endDecember 2017, in contrast to the provisional benchmark of 10.48 per cent for
2018. The increase in M2 reflected the growth in Net Foreign Assets (NFA) of 18.54
per cent in December 2018, above its provisional benchmark of
14.50 per cent. Credit to the private sector rose marginally by 1.96 per cent below
its provisional benchmark of 12.39 per cent, while credit to government grew by
33.77 per cent in December 2018, above its benchmark rate of 17.38 per cent.
The Committee noted the appreciable growth in credit to the private sector
which had been a constraint to growth in the real sector and expressed optimism
of further improvement in lending, through the sustained effort of the Bank to
enhance credit delivery to small and medium scale industries in the economy.
The MPC, thus, commended the Management of the Bank for its efforts so far in
sustaining credit delivery to the real sector of the economy.
The resurgence in inflationary pressure in the economy was of concern to the MPC
as headline inflation (year-on-year) inched up to 11.44 per cent in December
2018 from 11.28 per cent in November 2018. The increase in headline inflation was
driven by food inflation, which rose to 13.36 per cent in December 2018 from 13.30
per cent in November, while Core inflation declined marginally to 9.77 per cent
in December 2018 from 9.79 per cent in the previous month. The Committee,
however, observed that the uptick in inflation was attributed to
seasonal factors, which impacted mainly on food. Consequently, all measures of

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inflation, month-on-month, showed a decline. Thus, headline, food and core
inflation declined to 0.74, 0.81and 0.50 per cent in December 2018 from 0.84, 0.90
and 0.68 per cent, respectively, in November 2018.

The Committee observed that the near-term risks to inflation remain: the residual
impact of flooding on agricultural output, insecurity in parts of the food producing
belts of the country, exchange rate pass-through to inflation due to weakening
oil price and campaign-related spending towards the 2019 general elections.
Accordingly, the MPC urged the Federal Government to sustain its current effort
towards improving security to ease the food supply chain bottlenecks.
Money market interest rates in the review period, generally reflected the level of
liquidity in the banking system as the average inter-bank call rate declined
significantly to 7.17 per cent in November 2018 from 14.18 per cent in October
2018. The Open Buy Back (OBB) rate, which stood at 6.57 per cent in October
2018, increased marginally to 6.76 per cent in November 2018. On December 24
and 31, 2018, the interbank call and OBB rates, however, closed at 14.00 and
18.94 per cent, respectively. The improvement in net liquidity position and interest
rate reflected the combined effects of the CBN quasi-fiscal operations, OMO
auctions, maturing CBN Bills and foreign exchange interventions as well as
statutory allocations to state and local governments.
The Committee observed the decline in the equities market for the most part of
2018. On a year-on-year basis, the All-Share Index (ASI) decreased by 17.81 per
cent from 38,243.19 at end-December 2017 to 31,430.50 at end-December 2018.
The All-Share Index (ASI) further decreased by 1.35 per cent to 31,005.17 as at
January 18, 2019. Similarly, Market Capitalization (MC) decreased by 13.87 per
cent from N13.61 trillion at end-December 2017 to N11.72 trillion at end-
December 2018. It further declined by 1.37 per cent to N11.56 trillion as at

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January 18, 2019. The Committee observed that these developments largely
reflected the impact of the progressive monetary policy normalization in some
advanced economies and the sustained profit taking activities of foreign investors
arising from perceived political risk in the build-up to the 2019 general elections.
The MPC, however, remained optimistic of the gradual reversal of the current
trend in the medium term, given the current stability in the foreign exchange
market and the external reserves position, as well as continued improvements in
key macroeconomic indicators.

The Committee noted the relative stability at both the Bureau-de-Change (BDC)
and the Investors’ and Exporters’ (I&E) window of the foreign exchange market,
supported by the Bank’s proactive exchange rate management policies. It also
observed with satisfaction, the contribution to stability in the market of the
implementation of the Bilateral Currency Swap Agreement (BCSA) with China
and the inflow of the US$2.8 billion Euro bond. The Committee also noted the
marginal increase in the external reserves, from US$42.54 billion at end- December
2018 to US$43.28 billion as at January 21, 2019, noting that these improvements
would further strengthen investor confidence in the Nigerian economy.


The Overall Outlook and Risks

Forecasts for key macroeconomic indicators in 2019 portend a positive outlook
for the domestic economy. Output growth is expected to be driven by fiscal
stimulus from increase in oil and non-oil receipts to support the Federal
Government’s Economic Recovery and Growth Plan. The economy is projected
to grow by 2.0 per cent by the IMF, 2.2 per cent by the World Bank and 2.28 per
cent by the CBN. Key headwinds to these forecasts, however, are softening oil
prices, persistent security challenges arising from insurgency in the North East,

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herdsmen attack in some parts of the country and perceived political risks
associated with the 2019 general elections.
The outlook for inflation in the first half of 2019 is mixed, with the expectation of an
increase in the near-term before a gradual decline towards the mid-year. Inflation
is expected to rise marginally amidst palpable tailwinds, which include increased
spending preparatory to the 2019 general elections and continued disruptions to
the food supply chain in the insurgency prone areas and herdsmen attacks in
food producing regions of the country.
The MPC appraised the possibility of external shocks in 2019 as the outlook for the
global economy remains uncertain due to the effect of on-going trade tensions
between the US and its key allies, slower growth in China, unclear direction of
BREXIT negotiations and continuing monetary policy normalization in some
advanced economies. The Committee was of the view that oil prices may,
however, remain relatively stable, within the US$50pb bracket in view of recent
OPEC’s production cutting actions.


Committee’s Considerations

The Committee noted with satisfaction, the performance of the economy in 2018,
highlighting the achievements in key macroeconomic indicators in the face of
global uncertainties and domestic challenges. In particular, it noted the stability
in the exchange rate, stable accretion to external reserves, moderation in inflation
and the low but gradual improvement in real GDP growth in the last six
consecutive quarters commencing from Q2 2017. The MPC noted that given
global economic conditions and the risk confronting emerging markets and
developing economies in recent times, as well as the limited productive capacity
of the economy, the managed float foreign exchange management regime of
the CBN has delivered the most optimal results when compared with

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other emerging markets in recent times. Consequently, capital flows into the
domestic economy has continued unabated after an initial lull. The Committee
considered the risks to the global economy, noting the downward revision in
projected global output in 2019, the adverse impact of the trade war between
the U.S and its major trading partners, likelihood of lower crude oil prices, impact
on capital flows of continued monetary policy normalization by major advanced
economies, distorted signals on BREXIT negotiations, as well as pockets of other
socio-political tensions and perceived election risks on the domestic front.

The Committee commended the government’s focused expenditure on
investment in infrastructure and urged the Federal Government to sustain the
pace towards addressing the infrastructural deficit in Nigeria. It noted that the
immediate impact of this approach on GDP may be slow in coming, but will
eventually expand the economy’s productive base, reduce unemployment and
increase aggregate demand in a more sustainable manner and over a long
period of time.

The Committee acknowledged the strategic role of the private sector in
economic growth and remained concerned over the slow growth in credit to the
private sector through 2018, while noting the sudden increase at end- December
2018. The MPC commended the initiative of the Bankers Committee in addressing
the phenomenon of low credit to the small and medium scale enterprises through
partnering with the Nigeria Incentive-Based Risk Sharing System for Agricultural
Lending (NIRSAL) to establish a national Microfinance bank with branches in all
States and Local Government areas of the Federation to provide low interest rate
lending to small scale businesses. A further initiative by NIRSAL with the CBN to derisk lending to small scale enterprises is also being fine-tuned. On external
borrowing, the Committee noted the increase in the

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debt level, it advised for caution, noting that debt levels could fast be
approaching the pre-2005 Paris Club exit level.

The MPC also noted that although there was an increase in the inflation rate for
the second consecutive month, month-on-month inflation continued to
moderate, indicating that the year-on-year measures will also moderate in the
near term. This is supported by the stability in the naira exchange rate and thus,
urged the Bank to sustain this stability. To this end, it welcomed the narrowing of
the exchange rate premium between the BDC segment and the Investors’ and
Exporters’ (I&E) window of the foreign exchange market.

The Committee also noted with satisfaction the gradual reduction in Non-
Performing Loans of the deposit money banks (DMBs) which has further
strengthened their balance sheets. The Committee believes that as Government
pays off contractor debt and other obligations, there will be a sizable reduction
in the NPLs of the banking system.

The Committee also noted the attempt by Government to broaden the base of
the Value Added Tax (VAT) and urged the authorities to expedite action in that
respect, arguing that increased tax collection will reduce the pressure on
government expenditure and create fiscal buffers to improve macroeconomic
management.

The observed and recent high foreign capital inflow into the Nigerian economy
despite the perception of election risk, is evidence of the confidence of the
international community in the country’s macroeconomic management and
provides a compelling reason for the Committee to await clarity on
macroeconomic performance after the general elections in February and March
2019.

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In the light of the observed risk confronting the economy, including the global
and domestic inflationary pressures, which have intensified the risk of currency
depreciation, the MPC was of the view that a loosening option was very remote.
Weighing the balance of its judgement on price stability conducive to growth,
the MPC felt that tightening would result in the loss of the gains so far achieved,
noting that this may drive the banks to reprice their assets; thus increasing the cost
of credit as well as elevating credit risk in the economy. It will also worsen the
position of non-performing loans of the banks. The Committee also felt that
tightening would dampen investments and hamper improvements in output
growth, given the already fragile growth performance so far achieved.

The Committee’s Decision

In the light of the above, the MPC decided by a vote of all eleven (11) members
to keep the policy parameters unchanged from their current levels.
In summary, the MPC voted to:

I. Retain the MPR at 14 per cent;

II. Retain the asymmetric corridor of +200/-500 basis points around the MPR;

III. Retain the CRR at 22.5 per cent; and

IV. Retain the Liquidity Ratio at 30 per cent.

Thank you.


Godwin I. Emefiele
Governor, Central Bank of Nigeria
22nd January, 2019

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PERSONAL STATEMENTS BY THE MONETARY POLICY COMMITTEE MEMBERS

1.
ADAMU, EDWARD LAMETEK

Economic recovery strengthened in 2018 judging by the out-turn of key economic
parameters. In Q3 2018 real output grew by about 1.8 per cent, contrasting the
decline in 2017; inflation decelerated, on average and the naira exchange rate
remained stable. These improvements occurred despite many headwinds
including the uptick in political activities and uncertainties in the global economic
environment. Needless to say, the Monetary Policy Committee (MPC) adopted a
cautious approach to policy in 2018 in consideration of a broad spectrum of risks
emanating mainly from the international scene. Those risks which I will highlight
shortly effectively reshaped the outlook for capital flows, external reserves,
exchange rates and economic growth particularly in the emerging markets and
developing economies (EMDEs).
In 2018, monetary policy normalization continued in some of the advanced
economies. This combined with increased volatility in commodity prices to
pressure local currencies and capital markets in emerging markets and
developing economies (EMDEs). Meanwhile, the protracted trade dispute
between the U.S.A. and China, as well as geo-political tensions continued to
burden global economic activity, prompting downward revisions of global
growth forecasts for 2018. These developments resonated in slower output
growths, higher yields and unsettled stock markets across many countries
including Nigeria. In fact, most of the current projections of global output growth
for 2019 are less optimistic compared with the estimates for 2018. Specifically, the
IMF envisages a further weakening of global growth prospects in 2019.
In Q2 2018, Nigeria’s output recovery pace slowed, accompanied by a bearish
run on equities. Both the NSE All-Share Index (ASI) and market capitalization
streaked downwards through Q4 2018, chiefly on account of flow reversals
engendered by adverse external factors and election-related uncertainties.

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Those external conditions could persist in 2019, thereby muffling the outlook for
growth and financial stability. In light of these concerns and other considerations
outlined below, I voted at the January 2019 MPC meeting for a hold on all policy
parameters.
First, it is important to note that the developments on the external front could
translate to a protracted softening of oil prices and reduced capital inflows to
Nigeria, implying that the much needed domestic growth impetus may not be
coming from the external sector. In Q3 2018, the oil sector contracted even as
overall growth regained some momentum, driven mainly by services and
agriculture. Given the outlook for oil prices and the OPEC production cut, the
economic growth pattern in most of 2019 is likely to mimic Q3 2018. In essence,
decisions on all economic policy levers at this time need to incorporate
consideration for supporting the non-oil sector.
Like I stated in my November 2018 statement, improving credit to the real sector
continues to be a key imperative towards strengthening growth and job creation.
The Bank’s interventions in agriculture have clearly shown the immense prospects
with properly directed credit. Deposit money banks (DMBs) need to step up credit
delivery to the growth poles – agriculture, manufacturing, and services especially.
The last couple of months have witnessed a sustained improvement in banking
sector resilience – industry capital adequacy and liquidity ratios have grown,
while the non-performing loans (NPLs) ratio is on the decline. This should translate
to improved intermediation to be relevant. While monetary policy has to
accommodate the need to sustain current improvements in banking industry
Financial Soundness Indicators (FSIs), the DMBs would need to moderate their
appetite for government securities and oil & gas assets in order to gradually rebalance their asset portfolios.

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Second, at 11.44 percent in December 2018, inflation is higher than the policy
preference range set by MPC (6.0% - 9.0%). However, the increase in headline
inflation in December 2018 was essentially driven by the food price index which
rose by 13.56 per cent, year-on-year, from 13.30 per cent in November. This may
be attributed to the usual spike in demand for food on account of the year-end
festivities. Core inflation remained flat in December at 9.8 per cent. More
importantly, all the measures of inflation declined on the month-on-month basis
in December 2018.
Third, developments in the interbank market somehow suggest that the
sterilization actions of the Bank have remained very effective in reining-in excess
liquidity. It is important that such actions should continue to be a component of
monetary management in 2019 as liquidity threats do not appear to be abating
any time soon. Keeping domestic liquidity in check is important not only for
inflation, but also for the stability of the naira exchange rate.
Overall, my assessment is that risks to inflation have remained tepid
notwithstanding the year-on-year increase in headline inflation in December
2018. This could change depending on the short to medium-term evolution of
fiscal policy. Given elections in February and March, the fiscal outlook should
become clearer as from April 2019. On the other hand, the outlook for economic
growth is a bit concerning given the indications from the oil sector (especially the
volatility in crude prices) and sluggish consumption demand. I view the balance
of risks to economic growth tilting to the downside, which suggests that there is a
more urgent need to support growth or in the minimum delay any policy action
that might further tighten credit conditions.
It is important to stress nonetheless that a supportive monetary policy orientation
alone will not be sufficient to lift economic growth to the historical levels of 5-6 per
cent. Other policies of government, particularly fiscal and sector policies have to
be in the same mode. Over the short-term, I am especially hopeful that

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the implementation of a new national minimum wage will lift disposable incomes
and boost aggregate demand.


2. ADENIKINJU, ADEOLA FESTUS
Background
Nigeria, along with other countries faces potentially significant uncertainties in
2019. The possible outcomes are laced with probabilities which would exert
positive or negative influence on emerging countries’ economies. These
uncertainties have made several multilateral agencies to revise downwards their
projections on global output growth. Key drivers of these uncertainties include
trade war between the US and China, the slowing Chinese economy, resurgence
of protectionism and rise of nationalism in different parts of the world, the
uncertain Brexit negotiation, continued volatility in capital markets, America’s
domestic policies, among others.
Nigeria is also confronted with a number of uncertainties in 2019. The threats
around the general elections, the national minimum wage legislations, strikes by
Unions seeking improved working conditions, the continuous insurgencies in parts
of the country, impacts of climate change manifesting in increased incidence of
flooding, desertification and lower agricultural productivities, oil market volatilities
are additional challenges that will have impacts on the economic landscape in
2019.
Economic Developments

The global economic outlook is not very bullish for 2019. Global oil price is
projected to settle in the US$60-US$68 per barrel band. Although this band is
above the benchmark for 2019 budget, oil output is currently below the
benchmark value. Global inflation rate is expected to trend up gradually, as US

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domestic policies continue to impact on capital flows into emerging economies.
Output growth in major blocs, especially developed countries and China may
trend lower from their 2018 levels. Nigeria, therefore, needs to factor the various
scenarios into policy considerations for 2019. The external fragilities will have
impact on rate of foreign reserves accumulation and fiscal buffers to stabilize the
economy, as well as other macroeconomic indicators.
On the domestic front, output growth retains its fragile but positive trajectory in
2018, achieving a 1.81%, growth rate which is definitely below the long term
potentials of the economy. Headline inflation (year-on-year) rose marginally to
11.44% in December 2018, from 11.28% in November 2018. This is partly due to
seasonal effects. However, inflationary expectations surrounding the elections
and announcement effects of increase in national minimum wage remain muted
as at December 2018. The foreign reserves level at US$43.67.billion by mid-January
still provides respectable import coverage. The exchange rate market remain
stable at both the BDC segment and the I&E windows.
The monetary aggregates overshot their targets growth rates for 2018, suggesting
inflationary build up, which must be closely monitored. Projected annual growth
of M2 and M3 monetary aggregates by the end of fiscal 2018 stood at 12.17%
and 16.58% as against targeted benchmarks of 10.48% and 13.02%, respectively.
With respect to the banking and financial system, there is positive trend in all
financial system indicators (FSI) between November 2018 and January 2019. The
NPLs ratio continues its downward trend, capital adequacy ratio of the banking
sector improved three consecutive months, liquidity ratio inched northward,
aggregate assets and deposits of the banking sector also rose over the same
period. However, the monetary authority should not lower its guard and must
continue to monitor the banks and implement policies to consolidate and further
improve the FSI.

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Aggregate credit expansion to the real economy continues to pose serious
challenges. Net credit growth to the private sector is lower than provisional
benchmark for 2018. The high interest rate spread and the high lending rates are
challenges that require new and innovative approaches. The proposed National
Microfinance Bank; strengthening of the existing Micro Finance Banks, and other
initiatives by the CBN to promote financial inclusion and access to credit by those
in the rural areas, semi/urban; and even the poor areas in the cities across the
country at affordable interest rates would boost real sector activities at the MSMEs
level.
The Bank has in the past few years been successful in managing inflation and
exchange rate expectations. It has also succeeded in creating the environment
for foreign capital inflows, however, there is a need for coordination between
monetary and fiscal authorities to unlock the economic potentials of the
economy and of Nigerians. Addressing infrastructure constraints and measures to
promote competitiveness of local products will be critical to economic
diversification. Widening the revenue base beyond oil revenue will enhance the
fiscal space for the government in 2019. Dependence on oil revenue, in such an
uncertain global economic environment will continue to undermine government
fiscal performance and increase national debt. This is a time to build fiscal buffer
to cushion the economy against macroeconomic shocks and help finance
diversification objectives. The current and growing level of national debt should
be urgently addressed before it becomes unsustainable.
Decision

Short and medium term inflationary outlook presents a cautionary approach, in
view of the multiple layers of uncertainties domestically and globally. However,
inflationary build up remains moderate. The usual spending spree associated with
previous general elections is yet to manifest in any significant increase in money
supply to the economy. There is also the need to protect the fragile growth rate

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which a further tightening of the economy would portend.
Hence, I cast my vote to hold the existing monetary policy parameters at this
meeting, cautiously watching as the year unfolds unto the various projected
outcome paths.
3.
AHMAD, AISHAH N.

At its first meeting of 2019, the Monetary Policy Committee, myself included,
unanimously voted to maintain the current monetary policy stance, retaining the
MPR at 14.0 per cent; CRR at 22.5 per cent; liquidity ratio at 30.0 per cent and the
asymmetric corridor at +200/–500 basis points. The data presented at the meeting
provided no compelling reasons to significantly alter the monetary policy stance
at this time; particularly given the global and domestic uncertainties which are
yet to fully unfold so early in the year.
In my view, the economic imperatives confronting us at this moment concern how
we will, in the words of the IMF, “address [remaining] vulnerabilities, and prepare
for when a serious slow down materializes”. For Nigeria, this is analogous to
addressing long entrenched structural vulnerabilities in our economy: high import
dependency, over reliance on foreign exchange earned from a single
commodity with an increasingly volatile price - oil, high unemployment and low
labour productivity and a sustained era of stubbornly low growth. These issues
require urgent attention if we are to create a vibrant, globally competitive
economy that provides opportunity and prosperity for all its citizens.
Notwithstanding this long term view, a number of recent global economic
developments have potential to degenerate, bringing our vulnerabilities sharply
into focus. These call for review, reflection and action to ensure the Nigerian
economy sustains its positive growth trajectory.

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Global growth environment is expected to be decidedly weaker in 2019
The risks to global growth which intensified over the second half of 2018, have
persisted and are expected to heighten as 2019 progresses. This is somewhat
validated by the further downward revision of the IMF’s global output growth
projections to 3.5 and 3.6 per cent in 2019 and 2020, respectively, 0.2 and 0.1
percentage points below last October’s projections. Although the global
economic outlook remains broadly positive, the spillover effects of sluggish
momentum in the second half of 2018, global trade policy uncertainty,
weakening financial market conditions, the possibility of a “no-deal” Brexit and a
greater-than-envisaged slowdown in China (6.6 per cent in 2018; slowest in almost
three decades) remain major headwinds to global growth in 2019.
Slower global growth prospects may have a negative impact on global demand
and price of crude oil, which has potential adverse implications for Nigeria as a
major oil producer. The US Fed’s normalization program is another significant
potential headwind which may impact the ability to attract foreign exchange
flows with implications for exchange rate stability. Thankfully, recent economic
developments in the US suggest the Fed may delay further rate hikes.

More worrisome is the volatile movement in crude oil prices since August 2018.
From an average of US$73.64p/b in August 2018, it rose to US$82.5p/b in October
before declining to US$58.16p/b in December of the same year. This reflects
supply influences partly driven by the US policy on Iranian oil exports and, more
recently, fears of softening global demand. As of January 21, 2019, the price of
Bonny light crude per barrel, hovered around US$62, whilst oil price futures
indicate the price may stay within the US$60 margin through the year. The
prediction notwithstanding, the trajectory over the medium term remains unclear,
thus threatening economic stability, particularly in emerging and developing oil
exporting countries.

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This volatility in crude oil prices, coupled with reliance on oil for about 90.0 per
cent of foreign exchange earnings remains a key risk factor for the Nigerian
economy, with significant implications for continued accretion to external
reserves, and as a direct consequence, exchange rate and price stability. More
importantly, the scope of the fiscal authority to stimulate growth remains
constricted, in view of the attendant low revenue and fiscal buffers as well as rising
public debt. This raises further concerns with regards to growth prospects in the
medium-to-long term and calls for even greater focus and commitment to
achieving fiscal consolidation.
External sector performance withstood significant headwinds as the naira
emerged relatively unscathed from the emerging markets currency challenges of
Q3 2018 due to the Fed’s normalization, coupled with the idiosyncratic foreign
portfolio investment sell offs in anticipation of the 2019 general elections. Nigeria’s
stock of external reserves remains relatively healthy at US$43.1bn (January 21,
2019) - on account of reducing imports, and increased autonomous inflows
through the Investors’ and Exporters’ Foreign Exchange (I&E) Window. Thus, in
spite of these headwinds, confidence in the economy is relatively strong,
evidenced by improved inflows from US$7.0bn to US$8.7bn in November and
December 2018, respectively. Relative stability in the exchange rate has
manifested along with improving convergence within the foreign exchange
market, reflected in narrowing premium between the BDC and interbank market
segments. Thanks in part to the bold reforms of the Central Bank since 2016 and
other complementary fiscal measures which are yielding dividends.
The relative stability of the exchange rate, monetary tightening and other supply
side initiatives has helped keep inflation largely under control. Headline Inflation
moderated from 15.37 per cent to 11.44 per cent between December 2017 and
2018, reflecting considerable decline in the price level. Although it increased

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marginally from 11.28 per cent to 11.44 per cent in November and December
2018, respectively, due largely to modest increases in food prices to 13.56 per cent
in December 2018 from 13.30 per cent in the preceding month, the near term risks
to price stability (Increased general election spending and proposed increase in
the national minimum wage) appear largely benign.
Since Nigeria’s exit from recession in Q2 2017, GDP growth has remained fragile,
averaging about 1.5 per cent, far below the pre-2016 recession levels. This fragility
is further exacerbated by rising unemployment rates, reaching as high as
23.1 per cent in Q3 2018 (y-o-y); indicating that the economy is operating far
below its potential. Although the medium term outlook for growth remains
positive, based on projections of 2.2 and 2.0 per cent by the World Bank and IMF,
respectively, a stronger, more resilient and inclusive growth is desirable in view of
the currently high unemployment and population growth rates and weak per
capita income. This requires more coherent and balanced set of policies
particularly with respect to revenue reforms, targeted investments in growth
enhancing sectors, a more technologically driven production process and overall
diversification of the economic base away from over reliance on crude oil.
Improving financial soundness indicators reflect growing banking sector
resilience. Data provided by bank staff showed that the industry capital
adequacy ratio increased considerably from 10.23 per cent in December 2017 to
15.26 per cent in December 2018; marginal improvement in non-performing loans
ratio recorded is also expected to strengthen further on account of the recent
promissory notes issued by the Federal government to settle contractor debts,
whilst liquidity ratios, return on asset and return on equity remained robust. The
improvements in capital buffers is a positive development which will be critical
should a downward trend in crude oil prices manifest given banks’ portfolio
concentrations in the oil and gas sector.

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Notwithstanding the robust liquidity levels, credit to private sector remains lower
than required to support business investment and long-term growth. Growth in
lending portfolios is particularly important to diversify banks’ asset portfolios away
from energy-related assets as earlier mentioned. Banks are strongly encouraged
to commit fully to de-risking their portfolios in this aspect through new lending to
SMEs and previously overlooked, but high potential sectors such as services and
creative industries.
The use of innovative technology by some of the larger commercial banks for
more efficient and scaled deployment of retail lending is commendable, even as
the micro finance sector is repositioned to more effectively serve its target
segments. Naturally, these efforts will continue to be supported by continued derisking initiatives by the CBN especially for SMEs to improve the industry risk
appetite, to engender more sustainable lending.
Juxtaposing the signals from the global environment with domestic economic
developments, there are indications that the risks to price stability remain ever
present, coupled with the challenge of a persistent low growth environment. The
monetary authority must therefore remain vigilant and forward looking to
successfully deliver on its mandate to maintain price stability conducive to
economic growth.

Classified as
4.
ASOGWA, ROBERT CHIKWENDU

Background:

The first MPC meeting in 2019 was held at a time when risks to global growth were
tilted to the downside with a mix of predictions around political, financial and
trade issues that could shape the near-term outlook of the global economy in
2019. With consumer price inflation generally contained in many advanced
economies in the twilight of 2018, policy priorities in the face of this diminished
growth optimism may largely focus on strengthening resilience. As such, the shape
of monetary policy at the international level will be amply passive until around the
third quarter of 2019. For Nigeria, beyond these global downside risks, the
domestic economic outlook will be influenced additionally by oil price
movements as well as financial markets response to the post 2019 election
developments and the prospects of a stronger non-oil sector performance.
Concerns about these global growth risks and the monetary accommodation
sentiments which can influence domestic capital flows and exchange rate
stability should therefore guide policy rate choices by MPC members at this
meeting.
The International Economy: Signs of Expected Downturns in 2019.

The optimism about a robust global economic outlook now look dim with earlier
forecasts for several major economies downgraded for 2019 especially the early
quarters of the year. Specifically, growth in advanced economies is projected to
slow from an estimated 2.3 percent in 2018 to 2.0 percent in 2019 and 1.7 percent
in 2020. The key triggers of the expected downturn include the escalating trade
actions with consequences for higher prices in China and US, higher input costs
and heightened financial market volatility. Besides, the geopolitical tensions in the
Middle East and East Asia are other downside risks to

Classified as
global growth. These effects will generally have spill over consequences for
several developed and emerging markets.
In China, growth has steadily been slowing from 6.9 percent in 2017 to 6.6 percent
in 2018, which is the lowest level in about 10 years and the expectation is that it
will fall further to 6.2 percent in 2019. Eventhough there are recent monetary and
fiscal measures designed to support growth, the outcome may just remain
modest if US trade tensions becomes aggressive in the year. Growth in the US is
projected to decline to 2.5 percent in 2019 and even soften further to
1.8 percent in 2020.

In the Eurozone, the heightened trade tensions and declining business
environment is also driving a deceleration of growth expected in 2019. The
Eurozone growth numbers which peaked in the second half of 2017 has declined
since then to 1.8 percent in 2018 and there are predictions for a further decline to
1.6 percent in 2019. In Germany for instance, the purchasing managers index fell
in January 2019 for the fifth consecutive month in a row leading to a cut in the
country’s economic growth forecast for 2019. Similarly, Japan’s recovery remains
weak with growth predictions of less than 1 percent in 2019 as the slowdown in
China’s economy and the fallout from trade tensions between US and China
drags growth further down.
For many emerging markets, the downturn spill-over from key advanced
economies will likely see growth decelerate in 2019. Eventhough Brazil, India and
Russia experienced some mild pick up in 2018, such countries as Argentina, South
Africa and Turkey will remain under intense pressure to recover from the recessions
and near- recessions experienced in 2018. With severe headwinds including
further dim in growth for several advanced economies, extended slow pace of
world trade, tightening financial conditions and continued weakening of capital
flows, growth in these emerging markets may still stagnate especially in the first
two quarters of 2019. Similarly, for many African Countries, growth

Classified as
forecasts for 2019 has also been downgraded, but there are expected possible
improvements in commodity prices by mid-2019 and for which growth rates may
look positive at that time for several resource intensive countries in the continent.
Major Central Banks appear to be adopting a more cautious approach with
policy interest rates for many global economies likely to remain unchanged in the
early parts of 2019 given the expected weaker growth and the muted inflationary
pressures experienced in key economies. While the US Federal Reserve raised the
target range for the federal funds rate in December 2018 and plan additional
rate increases at least two times in 2019, it has also signalled that the pace of
removing this accommodation may likely be more modest than expected and
even happen in the latter part of the year. The Bank of England may also likely
refrain from rate hikes early in 2019 as the Brexit process remain uncertain, while
the European Central Bank which ended its net asset purchases in December
2018 may also not hike rates until early in 2020.

Mixed Bag of Domestic Macroeconomic Fortunes:
Recent economic indicators in Nigeria such as GDP, External Reserves,
Unemployment and Inflation presents a mixed bag of economic fortunes. Based
on latest figures, while growth and external reserves were on the upward spiral,
there were downside trends for both inflation and unemployment. The 2018 third
quarter real GDP which grew by 1.81 per cent is encouraging when compared to
the 1.50 per cent growth in the second quarter of 2018 and was primarily driven
by a rebound of the non-oil sector. Similarly, the Manufacturing Purchasing
Managers Index (PMI) for December 2018 stood at 61.1 points indicating
expansion in the manufacturing sector for the 21st consecutive month and also
shows faster growth when compared to the index in the earlier month. Similarly,
the composite PMI for the non-manufacturing sector stood at 62.2 points in
December 2018 also indicating expansion in the non-manufacturing sector for the
20th consecutive time. External reserves also made an upward

Classified as
bound in November 2018 compared to the levels in the preceding month.
Eventhough it dropped by December 2018, the levels have since picked up in the
middle of January (prior to the MPC meeting).

On the downside, the recent unemployment rates for 2018 released by the
National Bureau of Statistics (NBS) in December 2018 support the earlier fears that
the economic recession may have worsened the employment levels as there
were increases in unemployment rate to 20.4 per cent in the last quarter of 2017
and further to 23.1 per cent in the third quarter of 2018. Unfortunately, the youths
seem to have more than a fair share of the worsening unemployment trend as
the gap between the youth unemployment rate and the aggregate
unemployment rate widened as from the second quarter of 2017. Often, the
incidence of unemployment in Nigeria has been attributed to the slow pace of
job creation, which has been weaker than the labour force growth. For instance,
between 2010 and 2017, the average job growth was about 1.6 per cent while
the labour force growth was 3.9 per cent.

Similar to the unemployment figures, the year-on-year headline inflation rate
increased marginally from 11.28 percent in November 2018 to 11.44 percent in
December 2018, but on month-on-month basis, inflation rates dropped from 0.80
percent in November 2018 to 0.74 percent in December 2018, while year-on- year
core inflation declined to 9.77 percent in December 2018 from 9.70 percent in
November 2018. This marginal uptick in inflation is attributed to movements in food
inflation, which rose year-on-year to 13.56 percent from the
13.30 percent level in November, while on a month-on-month basis, it declined
from 0.90 percent to 0.81 percent. These have been due to rises in prices of farm
produce and several processed foods which are linked to the several conflicts in
the major food producing regions as well as the adverse weather conditions that
occurred for several months in 2018.

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Financial Sector Soundness:

The domestic capital market continued a negative trend in December 2018 with
both the All Share Index and the Equity Market Capitalization declining year-on-
year and month-on—month basis. The bearish sentiment has been linked to the
declining ratio of foreign to domestic participation in the equity market, partly
attributed to the monetary policy normalization in some advanced economies as
well market perception of the anticipated 2019 election risks.
On the banking system, CBN staff report indicate modest improvement of the
indicators as compared to the situation at the MPC meeting of November 2018.
Both the Capital Adequacy Ratio and the Non-Performing Loans (NPLs) Ratio
showed positive signs in December 2018 and partly attributed to some prompt
corrective actions taken by the Central Bank. On the profitability indicators (ROE
and ROA), there were mixed signals based on the December 2018 data. While
ROE increased marginally between October and December 2018, the ROA
decreased marginally during the same period. Of key concern however, is the
trend in total bank credit which reduced in November 2018 and further in
December but surprisingly total bank assets increased between November 2018
and December. The inverse movement between bank total assets and bank total
credit at the same time may simply be as a result of banks’ excessive interest in
securitization and other non-traditional banking activities rather than real sector
lending. The negative implications of this credit reluctance by banks in a period
of economic recovery have been discussed severally and remain significantly
limiting for the economy.
Policy Decision:

With the expectations of a slower global growth in 2019 and the diminished
chances of policy rate increases by many advanced economies at least in the

Classified as
early parts of 2019, a cautious policy rate choice seems realistic at this time.
Moreover, with domestic inflation rates at near subdued levels and possible post
2019 elections financial market recovery, my strong opinion is for policy
parameters to remain largely unchanged for this period.
I will thus vote to:

• Retain the MPR at 14.0 %
• Retain the CRR at 22.5%
• Retain the Asymmetric Corridor at +200/-500 basis points
• Retain the Liquidity Ratio at 30.0%.

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5.
BALAMI, DAHIRU HASSAN

The year 2018 has been turbulent both globally and domestically, witnessing
changes politically and economically which have implications on the Nigerian
economy. At the global level, these include normalization of U.S economy and
increase in the level of interest rate in U.S which has led to the outflow of both
foreign direct investments (FDIs) and foreign portfolio investments (FPIs) from less
developed countries to the U.S. economy. Others include the trade war between
the US and China, slow growth in the Chinese economy, the volatility in the oil
prices at the international level, and the issue relating to the Brexit etc. At the
domestic level, the performance of the 2018 budget has been affected
negatively by the following factors: poor internal revenue generations and late
approval of the budget by national assembly and late release for capital projects
budget. Other domestic challenges identified were floods, herdsmen/farmers
conflict and insurgency in the North-East which are all being minimized still with us
in 2019.
The Monetary Policy within the 2019 Budget Proposal

The N8.83 trillion budget is decomposed into recurrent expenditure of N4.04 trillion
and capital expenditure of N2.031 trillion, and the remainder account for servicing
debt. The 2019 budget proposal is less than the 2018 budget by N300 billion with
the amount allocated to capital expenditure less than the amount budgeted in
2018.The 2019 budget was based on five assumptions that have implications on
monetary policy to drive the economy.
Firstly, the assumption of price of crude oil at U.S$60 per barrel. The benchmark oil
price per barrel was US$38.0, US$44.5 and US$51.0 for 2016, 2017, and 2018
respectively, which has implications for monetary policy due to low level of
Federal Government expected revenue projections and fiscal deficit. The
reliability of the 2019 budget would be based on realistic nature of the

Classified as
assumptions. With the current volatility in the international oil market the
assumption that the price of crude oil at US$60 per barrel may not be realistic due
to the dynamics of the international oil market including the role of Saudi Arabia,
Iran, US and other non-OPEC countries such as Russia. It should be noted that
even countries like Russia, Azerbaijan and Mexico etc. have lowered their
benchmark to US$58 per barrel. In 2019, the main challenge monetary policy will
face if crude oil price goes down below the budget estimate will be low inflow of
foreign exchange into the external reserves and this has implications on the
exchange rate which is critical to the stability of the foreign exchange market and
inflation in the economy since Nigeria economy is an import dependent
economy.
Secondly, the assumption of oil production output of 2.3m barrel per day. Again
in terms of oil production, this may not be realistic if no other new oil fields or new
investments are not put into production of crude oil as well as the maintenance
of peace in Niger Delta region. For 2018, Nigeria was not able to achieve the 2.2
million barrels per day, but ended up with 1.98 million barrels per day in 2018. It is
expected that the organizations of petroleum exporting countries (OPEC) is likely
to meet in the future in order to cut the oil output, this is likely to affect Nigeria’s oil
output in terms of allocation from OPEC. If the 2019 oil output assumption is not
achieved, it will translate into low level of inflows into the country this will also
impact on the foreign exchange market and the level of foreign reserves thereby
affecting price stability in the economy.
Thirdly, the assumption of exchange rate at N305.0 to US$1.The assumption on the
exchange rate of N305.0 to $1 can only be achieved through constant Central
Bank’s intervention in the various segments of the foreign exchange market such
as the interbank segment, investor’s and importer’s window and the Bureau De
Change segment. Again the volatility of the oil price and output of the oil
production will affect the level of external reserves which is highly

Classified as
relevant for the management of foreign exchange rate market as well as price
stability is the main mandate of the CBN. The higher the level of inflow through
higher crude oil price, loyalties, petroleum and tax, the higher will be the level of
reserves, the current stability in the foreign exchange market is due to CBN
interventions as highlighted earlier. Exchange rate stability is very vital because
Nigeria does not produce and export goods apart from the crude oil and gas
and the goods produced are vulnerable to shocks. The pass through effect of
exchange rate to prices in the economy is high should depreciation occur.
Since exchange rate is a strong weapon of trade Nigeria should adopt a
managed floating exchange rate regime due to productive base to support
floating the naira.
Fourthly, is the assumption of a growth rate at 3.01%. Nigeria’s economic growth
remains fragile and weak after exiting from the 2016 recession in 2017. The growth
rate of less than 2 percent is far lower than the population growth of 2.82 per cent.
The assumption of growth rate at 3.01% will also be possible only if there is
improvement in access to credit to the real sector of the economy particularly for
the small and medium scale enterprises (SMEs), small holder farmers and increase
in the level of consumption in the economy by households.
Diversification of the economy is therefore necessary particularly in the areas of
manufacturing, mining and agricultural sector to promote economic growth. The
following challenges in the economy will affect the growth process: trend in the
crude oil market, balance of payments disequilibrium, exchange rate volatility,
fiscal crisis, growth prospect and other domestic developments in the economy.
It should be noted that the growth that has been achieved is not inclusive hence
the need for financial inclusion. Growth can be better supported through the
reduction in inflation. Consequently, the macro- economy still require a lot of
support to actualise the growth target of 3.01

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percent that was projected for the year 2019 through the utilisation of
unconventional monetary policies by the CBN.
Lastly, the assumption of inflation rate at 9.98%. This assumption may not be
feasible in the first quarters of 2019 due to the following expected electionary
expenditure and increase in the level of wages and salaries; poor infrastructural
facilities such as inadequate supply of electricity; all of which may directly effect
the cost of production. In addition, low level of agricultural output as a result of
natural phenomenon such as flood and farmers/herds men clashes could also
cause supply constraint and drive food inflation upwards. To achieve inflation rate
of 9.98 per cent therefore, the following must be taken into consideration,
application of development finance through making soft loan provision by
government through agencies like Bank of Industry (BOI), Bank of Agriculture
(BOA), Nigerian Development Bank (DBN) and other micro-finance agencies to
households and firms in the economy to stimulate economic activity. Also,
investment in the infrastructural facilities including roads to promote growth in the
medium term.
CBN should ensure credit allocation through its intervention schemes to provide
microfinance credits so as to reduce the cost of production in the agricultural and
the SMEs sectors of the economy. It should be noted that both fiscal and
monetary policies should be coordinated for advancement of credit to the real
sectors of the economy and the level of interest rate charged by the Deposit
Money Banks (DMBs).
On the basis of the analysis I vote to hold because further tightening would
encourage DMBs to re-price assets leading to increase in cost of credit. This will
further exacerbate the already high levels of NPLs and increase cost of credit
thereby dampening new investment, and depress aggregate demand.
Loosening on the other hand would worsen the level of inflation in the
economy by raising the level of liquidity and this will intensify the demand

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pressure in the foreign exchange market. The argument to hold will enable us
to maintain the stability that has so far been achieved particularly in the
improvement in capital adequacy ratio from 13.80 per cent in October 2018
to 15.26 per cent, NPLs from 14.05 percent to 11.68 per cent, and liquidity ratio
of 49.31per cent to 51.87 per cent in November 2018. Again with the current
policies, the Return on Equity (ROE) has increased from 21.43 per cent to a high
of 22.31 per cent, which are indications that the polices are working though
slowly, but in the positive direction.
I therefore vote to hold rates and support the sale of government securities
such Nigerian Treasury Bills (NTB) and Open Market Operation (OMO) to
manage price stability in the economy due to pressure on inflation and
exchange rate. The CBN should be more aggressive by adding more to the
existing 41 items exempted from accessing interbank foreign exchange in
order to conserve foreign exchange for critical sectors of the Nigerian
economy. I therefore vote to:
i.
Retain the MPR at 14.00 percent;
ii.
Retain the CRR at 22.5 percent;
iii. Retain the Liquidity Ratio at 30.00 per cent, and
iv. Retain the Asymmetric Corridor at +200 and -500 basis points around the
MPR.

Classified as
6.
ISA-DUTSE, MAHMOUD
A. INTRODUCTION

The global economy witnessed several challenging developments in 2018 which
constrained economic performance resulting in moderation in output growth, an
upward price trend and exacerbation in financial market fragilities. The global
political economy scenario that prevailed since mid-2018 is essentially the same
in the current period. On the domestic scene, the various risks to macroeconomic
stability remain with election related concerns.
B. EXTERNAL ECONOMIC CONDITIONS

The major developments that characterized the global economic landscape in
2018 include monetary policy normalization in key advanced economies,
unabating hindrance to freer trade, the seemingly intractable BREXIT conundrum
and the lower level adjustment of oil price. Thus, the International Monetary Fund
(IMF) forecast the global economy to grow at 3.5% in 2019 as against the earlier
projection of 3.7% to account for downside risks to growth. This implies that highly
oil-dependent economies, such as Nigeria, may not witness an improvement in
oil demand. Nonetheless, the US Energy Information Administration projected the
price of oil to average $61 per barrel in 2019 against the backdrop of OPEC and
non-OPEC agreement to cut oil production. Thus, oil price developments may not
adversely affect Nigeria’s external reserves and foreign exchange rate stability. A
slight uptick in global inflation of 3.3% is expected in 2019, up from 3.2% in 2018.
The global economy experienced a tight policy environment 2018 as the US
Federal Reserve Bank relentlessly pursued its policy normalization agenda through
four rate hikes. Although indication of US funds rate hike in 2019 is relatively
subdued, yet it is expected that the impact of previous policies will continue to
engender capital outflows and currency weakening in vulnerable

Classified as
Emerging Market and Developing Economies. The recent termination of the €3
trillion asset purchase programme by the European Central Bank (ECB) is a signal
for the possible commencement of an upward trajectory in policy rate in the Euro
area. The implication for Nigeria is that the Central Bank may need to use more
of its reserves to stabilize the domestic currency despite the hold on interest rates
by the Bank of England as BREXIT uncertainty heightens. The trend witnessed in
the global capital market in 2018 may continue, with even deeper bearish
sentiments in 2019 as more cautious trading and sell offs by investors is anticipated
as capital flows to policy normalizing advanced economies.
C. DOMESTIC ECONOMIC CONDITIONS

Increasing output of goods and services is of paramount importance as it is
essential in moderating inflationary pressure and providing jobs. Policy options
aimed at promoting price stability should therefore take into account the
implications for economic growth, employment and poverty reduction. Although,
the economy performed better in Q3 2018 with a real GDP growth of 1.81%
compared with 1.50% in Q2 2018, the underlying data clearly underscore the
fragility of the growth process. The oil sector has continued to experience
negative growth with a contraction of 2.91% in Q3 2018, while the non-oil sector
trended upward with a growth of 2.32% in the same period, with the services
sector contributing over 51% of the total and the high employment generating
agricultural and manufacturing sectors lagging far behind. Data from the
National Bureau of Statistics indicates that unemployment rate rose to 23.1% in Q3
2018.
Headline inflation recorded marginal increase during the review period, standing
at 11.26%, 11.28% and 11.44% in October, November and December 2018,
respectively. The figures remained above the single digit target of the Central
Bank, but it is noteworthy that the month –on-month data shows a deceleration
in the rate of increase from 0.80% in November to 0.74% in

Classified as
December 2018. Though the progression in price development appears mild and
seems to pose no serious risk in the near term, there is palpable anxiety that unless
the fiscal and monetary authorities brace up in their stabilizing roles, the
multiplicity of upside risks to inflation such as insecurity-constrained agricultural
production, implementation of the new minimum wage, high liquidity injections
from 2018 budget implementation and quasi-fiscal injections of CBN might
perpetuate and aggravate the inflation spiral.
Furthermore, there is the need to employ appropriate policy mix to rein-in money
growth in view of the fact that both M3 and M2, over-shot their benchmarks by
28% and 16%, respectively, in December 2018. Reserve money also exceeded its
benchmark in December 2018. More needs to be done to manage net banking
system liquidity. Capital outflows occasioned by sustained stock sell-off by
investors have continued to exert a downward pressure on the equities market
with negative implications for external reserves accretion.
D. VOTING DECISION

Given current conditions and immediate outlook for the economy, coupled with
the need to appropriately balance price stability considerations with policies that
will sustain the growth momentum, I voted to retain all policy parameters as
follows:
• MPR at 14.0% per annum
• The asymmetric corridor at +200/-500 basis points around the MPR
• Liquidity ratio at 30.0% per annum
• CRR at 22.5% per annum

Classified as
7.
NNANNA, OKWU JOSEPH

The economy recorded relative expansion during the quarter. However, growth
was fragile. Persisting deep structural factors such as: weak economic
diversification, protracted unemployment and the huge infrastructure deficit,
remain serious binding constraints. Available data showed that Real GDP rose to
1.81 per cent in third quarter, compared with 1.50 per cent in the second quarter
of 2018 (NBS, 2018). The growth reflected the 2.32 per cent growth in non-oil
sector. Services and agriculture sectors were the major drivers, contributing 1.19
and 0.56 percentage points, respectively. The oil sector, however, contracted by
2.91 per cent.
Though broad money supply grew higher than the programmed target, it
remained relatively consistent with the current GDP growth and inflation levels.
The uptick in inflation revealed early signs of incipient inflationary pressures on
account of cost-push factors and simmering food inflation. Headline inflation,
year-on-year increased marginally in December 2018 to 11.44 per cent,
compared with 11.28 per cent in the preceding month. Similarly, food inflation
rose to 13.56 per cent at end-December 2018, from 13.30 per cent in the
preceding month. Core inflation, however, fell slightly to 9.77 per cent relative to
9.79 per cent recorded at end-November 2018. While upside risks to the inflation
outlook in the near-term remained contingent on the expected wage increase
and election spending, these parameters are unlikely to trigger consumer
demand in the short-run. Consequently, the danger of demand-pull induced
inflationary pressure is not warranted.
The financial system remained resilient, despite concerns about non-performing
loans (NPLs) in the banking sector. Sustained regulatory oversight is reducing the
NPLs, and the relative rebound in the oil sector, would further strengthen financial
stability. Overall, credit to the core private sector has remained sticky upward, as
government borrowing continued to gain momentum. Money

Classified as
market rates reflected liquidity conditions in the banking system. The monthly
average inter-bank call and OBB rates were 22.68 and 22.94 per cent,
respectively, for December 2018.
I see sufficient scope and merit in a well-tailored capital expenditure in the key
sectors of the economy, while reducing subsidies. Hopefully, the manage-float
regime will strengthen external reserves buffers, ensure greater flexibility of the
exchange rate and guarantee foreign exchange liquidity.
On the balance of risks, I vote to keep all the policy metrics at their
contemporaneous levels.


8.
OBADAN, MIKE IDIAHI
Nigeria has remained an active participant in the global economy with
developments in the global economy having serious implications – positive and
negative - for the local economy in the spheres of policy making, macro-
economic performance and growth, among others. Some of the global
developments that have affected the local economy and which have
implications for the direction of monetary policy are as follows:
• Tensions in US-China trade relations which have been prompted by
imposition of tariffs by the US on imports from trade partners, particularly,
China and European Union, and counter tariffs by these countries on US
exports to them. Negotiations between the US and China, for example,
aimed at preventing a full blown trade war has continued. It is hoped that
the negotiations will yield some results by the end of February 2019.
Meanwhile, the tariffs and counter-tariffs have the implications of slowing
the growth of the warring countries and their trading partners including
Nigeria and hence global growth.

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• Global growth. The momentum of global economic activity slowed in 2018
and global growth trends became more fragile as growth in some major
advanced economies slowed further. For example, output growth in the US
economy in the third quarter of 2018, slowed to 3.4 percent compared to
4.2 percent (year-on-year) in the second quarter. The Japanese economy
contracted by 0.6 percent in the third quarter of 2018 after it grew by 0.7
percent in the second quarter. Growth trends in the Emerging and
Developing Economies have become increasingly mixed. The Chinese
economy slowed to 1.5 percent (quarter-on-quarter) in the third quarter of
2018 from 1.7 percent in the second quarter. This has elicited serious
concerns in view of the increased significance of China in global trade. The
South African economy expanded by 2.2 percent (quarter-on-quarter) in
the third quarter after a contraction of 0.4 percent in the second quarter of
2018. In 2019, the IMF forecast for global growth is
3.7 percent, same as in 2018, reflecting shocks to global output in the
second half of 2018 in major advanced economies and weaker outlook for
some emerging markets and developing economies. The need to
strengthen global growth cannot be overemphasized as weak growth
could culminate in a recession with spill-over effects.
• Normalisation of monetary policy in the US and EU. In the US, this has
entailed raising the monetary policy rate; four times in 2018, the fourth being
by 25 basis points in December. In the Euro area, monetary
accommodation continued at a reduced monthly rate of 30 billion euros.
The European Central Bank put an end to its monthly purchase programme
of bonds at the end of December 2018, after a total commitment of US$
3.0 trillion. The implication of the monetary normalization is the rise in interest
rates in the US relative to other economies and the reverse flow of capital
from emerging and developing economies to the US. In Nigeria, the huge
capital flight

Classified as
experienced in 2018 was largely due to the normalization, and it had
adverse effect on the nation’s external reserves and exchange rate
stability. Nigeria would need to brace itself up to likely huge capital outflows
as more normalization actions are taken abroad.
• Global inflation. This has continued to trend up and is affected by energy
prices and currency depreciations in emerging markets and developing
economies. Global inflation grew by 3.2 percent in 2018 compared to 3.1
percent in 2017. In 2019, it is estimated to grow by 3.3 percent. With Nigeria’s
heavy dependence on importation of goods and services, rising world
prices are transmitted to the local economy as imported inflation through
imported goods and services. A depreciation of the naira exchange rate
further increases imported inflation through the pass- through effect. This is
a threat to domestic macroeconomic stability.
• Oil market instability. Oil price has been volatile against the backdrop of
uncertainties about the direction of global trade, BREXIT negotiations and
severity of Iranian sanctions. As at January 10, 2019, the price of Bonny Light
crude stood at $58.50 per barrel compared with $72.82 per barrel in
November 2018. By January 18, 2019, however, the price increased to
$62.83 per barrel. Although OPEC and non-OPEC agreed to cut oil
production by 1.2 million bpd, it is not certain if the regime of high oil prices
witnessed throughout 2018 will be replicated in 2019 because of rising
supply and a weaker outlook for demand, weakening global economic
activities, especially in the Eurozone, and the collaboration between the
United States and Saudi Arabia to increase oil supply in the market with a
view to lowering crude oil prices. The increased investment in shale oil
production in the U.S remains a significant threat to future oil price increase.
According to the U.S. Energy Information Administration (EIA), crude oil
production averaged 11.5 million b/d in November 2018, an increase of
150,000 barrels compared with the previous month. Futures

Classified as
prices, however, trended upwards with March-June 2019 deliveries of
US$58.65, US$58.82, US$59.57, and US$60.07 per barrel respectively. Even
these prices will challenge the annual budget and macroeconomic
performance of a country like Nigeria that relies heavily on oil earnings for
foreign exchange and domestic revenue.


Basis of Opinion

My opinion is informed by the implications of the various global developments
outlined above and specific developments in the Nigerian economy, especially
since the last Monetary Policy Committee Meeting. These include the following:
Weakening oil market. As was noted above, oil price has been volatile and the
signals from the oil futures market have been mixed. Consequently, the ability of
the Central Bank to support the naira in the short to medium term may be
constrained by renewed pressure as declining oil price may result in a slowdown
in accretion to external reserves, especially if capital inflows are also weakening.
Under the circumstances of external sector vulnerabilities and volatile oil prices,
especially declining oil prices, and limited oil output, the recovery of the economy
from low growth trajectory may be unattainable, while the Central Bank’s ability
to maintain exchange rate stability may be impaired. Although, the contribution
of oil to Nigeria’s GDP is a little lower than 10 percent, it remains a major driver of
economic activities in the country. Therefore, monetary policy support may be
inevitable as has been the case in the past few years.

Economic growth. The economy has remained on the path of recovery
supported by moderate increase in oil production and price, leading to gradual
accretion to foreign reserves and relative stability in the foreign exchange market
and rate. However, growth remains low and fragile at 1.95, 1.50, and

Classified as
1.81 percent in quarters 1, 2 and 3 of 2018, respectively. The growth was driven
mainly by activities in the non-oil sector
Also, the outlook for growth remains fragile as the contraction in the oil sector
poses risks to the achievement of the growth target of 4.8 percent in the
Economic Recovery and Growth Plan (ERGP) in 2018. It is thus necessary for
monetary policy to continue to support growth through facilitating access to
bank credit at affordable cost and with both conventional and non-
conventional strategies.
Inflation. In 2018, inflationary pressure in the economy moderated. From 15.37
percent at the end of December, 2017, headline inflation (year-on-year)
consistently declined to 11.23 percent at end-March, 2018. However, it inched up
marginally to 11.26, 11.28 and 11.44 percent in October, November and
December 2018, respectively, largely due to increase in food prices arising from
adverse weather conditions and slight volatility in exchange rate during the
period. Also, insurgency and armed banditry continued to disrupt economic
activities including agricultural output in the North-Eastern and North-Western
parts of the country and parts of the Middle-Belt.
It is instructive to note that on year-on-year basis, core inflation declined
continuously from 9.88 percent in October 2018 to 9.77 percent in December
2018. Similarly, on month-on-month basis, core inflation declined from 0.81
percent to 0.50 percent during the same period. Also, although all the measures
of inflation indicated moderation in 2018, they consistently remained outside the
target range of 6 – 9 percent. Nevertheless, they are far from the alarming range
of the previous two years.
Importantly, so far, the identified headwinds to inflation have not materialized as
expected, for example, election spending and implementation of the national
minimum wage, as headline inflation witnessed only marginal increase last

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December. Such increase was not unexpected during that period of festivities.
Election spending has not reflected much on consumption spending as a major
element of aggregate demand and driver of growth. The national minimum
wage has yet to be implemented. The prospect of election spending producing
a big shock on inflation is not strong with election about one month away. Also,
the national minimum wage, when implemented, is not likely to have a big
impact on prices as the proportion of public sector employees which is most likely
to benefit from it is very small – 5 percent of the total work force in the country.
The informal sector which employs the largest number of workers is not likely to
implement the national minimum wage otherwise it may retrench workers. Even
then, election spending, capital budget and minimum wage implementation
should also have a positive impact on aggregate output with a possible
ameliorating effect on prices. Under the circumstances, only marginal increases
may be witnessed in inflation in the next few months and thereafter, perhaps, a
downward trend.
Monetary growth. For nearly the whole of 2018, the key monetary aggregates –
narrow money (M1), broad money (M2) and (M3) – underperformed as they
remained below their benchmarks. It was only in December that M2 and M3
performed above their benchmarks. In December 2018, M3 grew by 16.58
percent compared to the benchmark of 13.0 percent, while M2 grew by 12 .17
percent compared to the benchmark of 10.48 percent. While the growth of M3
was driven largely by growth in Net Foreign Assets and Net Domestic Assets, the
growth of M2 was largely driven by time and savings deposits of deposit money
banks. The performance of monetary aggregates confirm the observation that
inflation in the country is not purely a monetary phenomenon; both monetary and
structural factors including cost push factors have been in operation.
Generally, money supply remains weak to drive the growth momentum in the
economy. The rather risky unconducive investment environment and weak

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transmission mechanism continue to undermine the flow of credit to the real
sector of the economy. As improved growth is very much desired at this time,
monetary policy, through the Central Bank of Nigeria’s development
interventions, will need to be sustained while a judicious balance is struck
between economic growth and price stability objectives.
Conclusion

In light of the prevailing circumstances of low and fragile growth with
corresponding high level of unemployment and incidence of poverty, inflationary
pressure prospects that are marginal, and money supply that is weak to drive the
real sector of the economy, raising the monetary policy rate will not be a desirable
option at this point in time. Raising it may further dampen the prospects of
achieving quick economic recovery and inclusive growth in the country.
Therefore, I vote to maintain the monetary policy instruments at their current
levels:
MPR, 14.0%;

CRR, 22.5%;

Liquidity Ratio, 30.0%;

Asymmetric corridor, +200/-500 basis points.

It is expected that the fiscal authorities would conduct fiscal policy in such a way
as not to overburden monetary policy while taking necessary actions to address
major problems that tend to undermine the effectiveness of monetary policy
including the serious phenomenon of insecurity in the country, herdsmen/farmers
conflicts, bourgeoning fiscal deficits and external debt, among others.

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9.
SANUSI, ALIYU RAFINDADI

1. Decision:

A key consideration in my decision to vote for a hold on all the policy parameters,
today, is the need to strengthen the improvements in output recovery and price
stability over the medium term. This is against the background of increased
uncertainties arising from the global as well as domestic economic and political
developments. These include, for instance, the lingering US-China trade tensions,
BREXIT
negotiations,
financial
market
vulnerabilities,
monetary
policy
normalisation in the US as well as the termination of the asset purchase
programme by the European Central Bank. On the domestic front, economic and
political developments, which include the February 2019 general elections,
implementation of the new minimum wage, are important sources of
uncertainties in short to medium term. In addition, analysis of the available data
and Staff forecasts suggest that, while output recovery could be dampened by
further tightening, the threat to inflation is significant in the medium term and
loosening the current monetary policy stance could jeopardise successes
achieved in the disinflation efforts. I, therefore, voted to maintain the current
policy stance.


2. Background and Justification

2.1.
Global Economic Developments

While the major global economic and political issues that shaped the second half
of 2018 subsist, they are likely to dominate the first half of 2019, thereby raising
policy uncertainties. The geopolitical tensions and policy uncertainty could have
adverse effects on global output and the international oil market and could,
therefore, have important implication for domestic price stability and output
recovery.

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During the year 2018, the global economic and policy environments were
characterised by uncertainties originating from many political economy
developments, which made policymaking challenging. The most prominent of
these developments were the US-China trade war; uncertainties surrounding
BREXIT; monetary policy normalisation in the US; and, the termination of the ECB’s
€3 trillion asset purchase programme in December 2018. The uncertainties relating
to the evolution of these events have shaped, not only the evolution of global
output growth, but also its forecasts. For instance, the IMF’s global output
projection was revised downward during the year from the initial estimates of 3.9
per cent to 3.7 per cent. These developments also contributed to uncertainties in
the evolution of global inflation, commodity prices as well as global financial
market development. The domestic policy environment in 2018, which is
intricately linked to the global economy, was therefore challenging. For instance,
the path of domestic price and concerns for exchange rate stability was raised
by the possible effect of the rising yields in the US following the rate hikes of 25bps
by the Fed that started in February 2018. The increasing yield in the US had, during
the year, led to a reduction in capital flows and reversal in many developing and
emerging markets, leading to reserves depletion and currency adjustments in
many economies. Despite the fall in US headline inflation from 2.2 per cent in
November 2018 to 1.9 per cent in December 2018, the Fed raised its rate for the
4th time in the year during its December meeting and provided forward guidance
of at least two additional rates hikes in 2019. Although the Bank of England has
refrained from raising its repo rate due to the adverse effects of BREXIT on output,
it has maintained its forward guidance on the need to continue normalisation of
monetary policy. In the international oil market, OPEC and non-OPEC oil
producers have agreed to a production cut of 1.2mbpd effective from January
2019. Nigeria’s quota is expected to drop by 44,000 bpd to 1.72 mbpd. Increased
investment in shale oil production in the US,

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which averaged 11.5mbd in November 2018, will continue to be a significant
threat to future oil price increases. Deliveries for March to June 2019 oil futures,
however, show a positive trend, from $58 per barrel for March to $70 per barrel for
June deliveries.

2.2.
Domestic Economic Developments

Review of domestic economic development in 2018 suggests that the current
policy stance has delivered lower inflation, positive output growth, stable
exchange rate and appreciable external reserves accretion.

The output recovery was sustained in the first three quarters of 2018, which
remained positive, albeit fragile. In the first quarter of 2018, domestic output grew
by 1.95 per cent; while in the second and third quarter, it increased by 1.50 and
1.81 per cent, respectively. The third quarter output growth was driven mainly by
the non-oil sector, which grew by 2.32 per cent, while that of the oil sector
contracted by 2.91 per cent. Data on the Manufacturing PMI and forecasts from
the Composite Index of Economic Activity (CIEA) indicates that fourth quarter real
GDP will expand. In terms of contribution to GDP, the non-oil sector contributed
90.62 per cent in Q3. The annual growth, which is projected to be 1.81 per cent
for 2018, is significantly higher than the 0.79 per cent achieved in 2017.

The headline inflation (Y-o-Y) increased slightly to 11.44 per cent in December
2018 from 11.28 per cent in November 2018, driven by food prices and marginal
exchange rate pressure. Food inflation rose to 13.56 per cent in December 2018
from 13.30 per cent in November 2018. Key drivers of food price developments
include higher demand for agricultural output, prices of processed food and farm
produce as well as the adverse effects of insurgency and rural armed
banditry. On a month-on-month basis, headline inflation declined to 0.74 per

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cent in December 2018 from 0.80 per cent in November 2018, driven by a decline
in both food and core inflation. Despite remaining sticky at low double digits, the
headline inflation has significantly declined from 15.37 per cent in December 2017
to 11.44 per cent in December 2018, representing 3.93 percentage points during
the year.

Exchange rates have been broadly stable during the year 2018. The average rate
at the Investor and Exporter (I&E) window, for example, has slightly depreciated
from N360.53 per USD in January 2018 to N364.76 per USD in December 2018,
representing a depreciation of 1.13 per cent. The exchange rate was even more
stable at the BDCs segment where it depreciated by only
0.07 per cent from N363.20 per USD in January 2018 to N363.46 in December 2018.
External reserves, which have been key to the stability achieved in the foreign
exchange market, have also increased from $39.35 billion in December 2017 to
$42.54 in December 2018, representing a growth of 8.11 per cent. Indeed, the
growth in reserves during the year peaked at $47.34 billion in April before
declining.
The decline was driven by measures taken by the bank to stabilise the foreign
exchange markets by increasing foreign exchange supply through sales in the I&E
window, BDCs and interbank forwards. The financial sector has been stable and
resilient during the year. The total assets of the banking industry have increased
by N2.67 trillion representing an increase of 6.55 per cent between December
2017 and December 2018. The high non-performing loans (NPL) in the industry has
also significantly moderated during the year, from a peak of
16.21 per cent in February 2018 to 11.68 per cent in December 2018. This
moderation in NPLs, if sustained, would encourage banks to increase lending to
the economy, which has remained challenging during the year. The
unemployment rate has remained stubbornly high at 23.10 per cent as at the third
quarter of 2018, compared with 22.73 per cent during the previous quarter.

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This is why monetary policy during 2018 focused on developing heterodox policies
aiming to increase the flow of credit to the employment generating sectors of the
economy. Having maintained all the policy parameters, monetary policy during
the year relied on OMO to the influence interest rates and yields, which, among
other things, have worked well in mitigating the adverse effects of the wellanticipated capital, flow reversals following policy normalisation in the US.


3. The Basis for My Policy Choice


I voted to maintain the status quo in today’s meeting based on the perception of
the increased global and domestic economic and political uncertainties, which
could have differing effects on the evolution of inflation, output, and exchange
rate stability in the medium term. Although further tightening may stem the rise in
inflationary pressure; attract capital inflows; and reduce reversals, it may also
increase the cost of credit, dampen domestic investment, and therefore
jeopardise the fragile output recovery. Given that the current policy stance has
worked well in supporting the disinflation and output recovery in 2018 hold on all
parameters would enable us to monitor the political and economic development
while maintaining the current level of stability. I, therefore, choose to retain the
current policy stance, under which most of the price and output gains were
achieved.
Consequently, I voted to:

• Retain the MPR at 14.00 per cent;
• Retain the CRR at 22.5 per cent;
• Retain the asymmetric corridor at +200/–500 basis points; and
• Retain liquidity ratio at 30.0 per cent.

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10.
SHONUBI, FOLASHODUN A.
Global Economic Developments
As with other emerging and developing economies, dynamics of global
macroeconomic conditions and political economic developments continued to
have implications for monetary policy in Nigeria. Persistent tensions in US-China
trade relations, volatilities in the global financial market and protracted regional
crises have been major challenges to the global economy. The latest IMF – World
Economic Report (WEO) report revised global growth downward to 3.7 per cent
in 2019, same as in 2018, from earlier projection of 3.9 per cent. The lack of
progress around BREXIT has also been a source of uncertainties, with implications
for ripple effects on emerging and developing economies. In addition, the
agreement for further output cut by the Organisation of Petroleum Exporting
Countries (OPEC) have significant implications on revenue profile and exchange
rate pressure, thereby constituting key drag on the growth prospect of oil
exporting countries in 2019, as output allocations reduce and oil prices fluctuates.
These developments underscores the need for a policy posture that enhances
the ability of the domestic economy to ward-off possible negative
externalities/spillovers.
Domestic Economic Environment

Notwithstanding the uptick in inflation in the last two months, the overall dynamics
of movement in prices does not portend the need for urgent and drastic policy
actions. Attributed, mainly, to pressures from increased seasonal spending,
headline inflation, on year-on-year basis, rose to 11.44 per cent in December 2018,
translating to average of 12.15 per cent for 2018. The overall dynamics of
movement in general prices, however, indicated moderation in inflationary
pressure as the month-on-month changes in headline, food and core inflation
trended downward. This further highlights the sustained effectiveness of the
largely non-expansionary monetary policy stance, including

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measures to ensure exchange rate stability, reduce pass-through and curb excess
liquidity. In terms of near-term risks, impact of the planned wage rise and election
spending are anticipated to be moderate, on account of low aggregate
demand and significantly moderated campaign-related spending. Effort by the
Government to improve security and boost agricultural productivity will, however,
be critical to curbing inflationary pressure from possible food shortages due to
disruption of farming activities arising from insecurity, flooding and investmentgap in agricultural activities.
Output growth remained generally weak and fragile, though sentiments for future
growth remained mildly strong, due to sustained efforts to gradually diversify the
production base of the economy and cautious optimism about favourable
international oil price. After the economy gladly exited the 2016 recession, growth
crept to 1.81 per cent in the third quarter, from 1.50 per cent in the second quarter
of 2018, driven mainly by activities in the agricultural and services sectors. The suboptimal performance of the economy was also reflected in further increase in the
unemployment and underemployment rates. However, on account of sustained
stability in the exchange rate and effect of other measures to facilitate expansion
in
production,
the
composite
Purchasing
Managers’
Index
(PMI)
for
manufacturing and non-manufacturing sectors continued to signify future
expansion in domestic output. Overall, the sluggishness of growth highlights the
need to intensify implementation of measures, including targeted credit delivery
and the current infrastructure expansion by Government to facilitate improved
productivity and increased aggregate demand.
While performance of monetary aggregates in 2018 surpassed the provisional
benchmark, the sudden growth at end-December does not negate the fact that
on average, performance was generally within the target, though it did not
translate to the real economy. Growth in broad money supply (M2), at 12.17 per

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cent at end-December 2018, reflected mainly the above benchmark increase in
credit to the government and net foreign asset, while growth in credit to the
private sector remained very marginal at 1.96 per cent, against its 12.40 per cent
benchmark growth for fiscal 2018. Hence, a priority policy issue is the lack of
appreciable growth in credit to the private sector and insufficient of overall
monetary expansion to drive or translate to growth in the real economy. This was
evidenced by the decline in the velocity of money to 0.59 in Q32018 from 0.60 in
the corresponding period of 2017, indicating consummation of fewer transactions
in the economy.
Movements in the money market rates was influenced by the liquidity condition
in the banking system, which was buoyed, mainly, by statutory allocations to the
tiers of government, CBN quasi-fiscal injections and maturing CBN bills, but
moderated by CBN OMO auctions and foreign exchange interventions. The interbank and Open-Buy-Back rates were higher at end-December 2018, due to
intensified liquidity mop up by the CBN to ward-off the undesired effect of excess
liquidity. The spread between the maximum lending and average deposit rates
remained high, a constraint to increased demand for lending. In the capital
market, sustained profit taking and foreign investors’ apathy due to a
combination of factors precipitated bearish sentiments, though the gradual
reversal witnessed in December 2018, on account of improved macroeconomic
conditions and exchange rate stability, is expected to persist into the first quarter
of 2019.

The banking industry continued to respond favourably to the various measures by
the CBN to enhance financial system stability, as key prudential ratios generally
improved, though asset quality remain challenged. Industry capital adequacy
and liquidity ratios, at 15.26 and 51.87 per cent, respectively, were above the
levels in September 2018 and the prudential threshold. Asset quality, measured by
the non-performing loans (NPL) ratio also improved over the

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position in October 2018, but remained above the minimum threshold of 5.0 per
cent. Overall, while performance of the banking sector generally showed gradual
and consistent improvement in the health and soundness of the institutions,
mainly, due to timely regulatory actions, decisive resolution of outlier institutions
will further strengthen the resilience of the industry.
Relative stability and sustained convergence in foreign exchange rate, coupled
with marginal accretion to external reserves, as a result of the various measures
by the Bank has strengthened investors’ confidence, encouraged gradual
resurgence of stable capital inflow and aided domestic investment planning for
productive activities. Overall balance of payments surplus in the external sector,
supported by exchange rate stability, reduced premium and gradual return of
inflow have combined to portend continued positivity in the external sector. As I
noted in my earlier statement, previous worry about gradual outflow of foreign
capital is waning and therefore, with less volatility in the international crude oil
market and continued implementation of the various measures, including foreign
exchange intervention, viability of the external sector is expected to be
preserved. Moreover, the Bank must sustain its measures to facilitate and promote
export, as well as, significantly reduce import to further consolidate the sector’s
viability.
Overall Considerations and Decision
Current macroeconomic conditions, including moderated inflation, exchange
rate stability, balance of payments surplus and level of external reserves stock
highlight the efficacy of monetary policy in 2018. Whereas exchange rate play a
central role in the Nigeria economy, especially considering the dynamics of trade
and structure of the economy, the macroeconomic consequences of fully
floating the domestic currency – volatile exchange rate, inflation, challenged
business and production planning, capital flight and currency crisis, among

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others, will be devastating. Hence, a retention of the current policy posture in the
external sector will aid further consolidation of the gains made so far.
Notwithstanding the increase in inflation in the last quarter of 2018, declining
month-on-month trend showed moderating overall inflationary pressure, and
thus, affirmed effectiveness of the current monetary policy regime in curbing rising
prices. Pass-through effect has waned significantly, on account of stable
exchange rate, while expected pressure from electioneering spending and the
planned wage rise are projected to be marginal, with muted impact on inflation.
The gradual improvement in the health of the banking system is expected to
continue in 2019, as banks implement regulator prescribed corrective and
preventive measures, as well as, benefit from the positive spillover from the
favourable macroeconomic conditions.
With a less than stable and robust revenue base, especially in the face of the
mono-product nature of the economy, lack of fiscal buffers constitute a major
policy priority. This has continued to expose the economy to the vulnerabilities of
volatile international oil price and thus re-emphasises the imperative for ensuring
a robust fiscal buffer build-up.
Overall, just as price stability is within control, financial stability concerns appear
to have slightly abated, while external sector viability remain deftly on course.
Real growth, however, remained weak and fragile, requiring intensified
implementation of growth enhancing measures. With the significant progress
achieved through the various intervention programmes of the Bank, it is
imperative that maintaining this regime, supported by the aggressive and
targeted programmes to facilitate sustainable expansion in the real sector, will
enhance the growth prospect of the domestic economy.

I therefore vote to retain:

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• MPR at 14.0 per cent;
• The asymmetric corridor of +200/-500 basis points around the MPR
• Cash Reserve Ratio (CRR) at 22.5 per cent; and

• Liquidity Ratio at 30.0 per cent.

11.
EMEFIELE, GODWIN I.
GOVERNOR OF THE CENTRAL BANK OF NIGERIA AND CHAIRMAN, MONETARY
POLICY COMMITTEE
Short-term global economic outlook remained weak as muted economic
activities and heightened risks continued to dampen prospects. International
trade and investments have moderated, while trade tensions remain elevated.
Disagreements in the UK parliament over the BREXIT deal, also, amplified global
uncertainties. A number of Emerging Market and Developing Economies
experienced significant financial market pressures, which diminished growth
prospects in these countries and increased debt vulnerabilities, particularly in
low-income countries. Consequently, from a rate of 3.8 percent in 2017, the IMF
projects a slowdown to 3.7 percent in 2018 and further deceleration to 3.5
percent in 2019 and 3.6 percent in 2020. This is driven largely by the poor
performance of key European economies and the moderation of the Chinese
economy.

Amidst all this, the short-term outlook of the Nigerian economy remains modest,
as recovery of output growth is expected to progress in 2019. Growth is projected
at about 2.3 percent both by the IMF and our in-house analysis for 2019. This could
be accompanied by a moderate rise in inflation over the short- term driven
largely by cyclical and political factors in the domestic space. Data by the
National Bureau of Statistics shows evidence of consolidation in economic
recovery as real GDP growth increased to 1.81 percent in 2018q3 from 1.5
percent recorded in 2018q2. This implies an annualised expansion of about 2.0

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percent for the entire 2018 with a robust prospect for 2018q4 outcome. The Q3
growth performance was largely driven by non-oil growth (especially in
agriculture and services sectors). The favourable growth sentiment is supported
by positive Purchasing Managers’ Index (PMI) –both in the manufacturing and
non-manufacturing indexes– buoyed by the continued stability in the foreign
exchange market and the drive for increased credits to the real sector of the
economy.

Regardless of this upswing, cautious policy is irrefutable as growth is still low and
the rebound fragile, while per capita income and unemployment rate stayed
outside tolerable levels. Besides, the modest short-term prospect is threatened by
a delicate oil price dynamics, persistent herder–farmer conflicts, weak
aggregate demand, and pensiveness around the 2019 general elections. I am
of the view that a favourable resolution of these challenges, reinforced by
sustained foreign exchange stability, as well as continued implementation of the
2018 capital budget would boost short-term outlook.

Data on domestic prices shows a marginal uptick in year-on year headline
inflation rate from 11.3 percent in November 2018 to 11.4 percent in December
2018, with near-term outlook suggesting a slight build-up of inflationary pressure
by mid-2019. The observed rise largely reflected the 0.03 percentage point
increase in food inflation to 13.6 percent relative to the preceding month even
as core inflation stayed largely unchanged around 9.8 percent. Analysis of
month-on-month inflation, however, showed a deceleration in the three
components during the review month; implying a possible slowdown on year- onyear rates in the short-term. Though the current stability in the foreign exchange
market continues to impact favourably on inflation, near-term risks subsist;
including the residual effects of the 2019 electioneering spending, and supply
disruptions across major food-belts of the country.

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Liquidity conditions indicate an expansion in monetary aggregates in 2018. While
M1 growth at 5.2 percent was subpar, M2 and M3 measures of money stock at
12.2 percent and 16.6 percent outstripped their respective targets of
10.5 percent and 13.0 percent. Breakdown of money stock shows a substantial
18.5 percent expansion in net foreign assets (exceeding its 14.5 percent target
for 2018) vis-à-vis a modest 6.4 percent growth in net domestic credit. At about
2.0 percent, private sector credit (PSC) growth was significantly below the target
of 12.4 percent. I note the unsatisfactory pace of PSC and continue to emphasise
the importance of enhanced credit flows to strategic private sector ventures
through an effective collaboration of all stakeholders. I remain aware of the risk
aversion of banks to supposedly high risk real sector ventures. Yet, improvements
in banks NPL position and our continuing efforts at de-risking the target activities
are steps in the right direction. We expect that this could begin to bolster
domestic investment, household demand, and aggregate productivity, while
accelerating economic diversification, and ensuring strong and inclusive growth.

In my consideration, I once again, note the welcome stability at the foreign
exchange market and near convergence of rates at different segments of the
market in 2018, and expect this to continue in 2019. I also note that the prevailing
macroeconomic stability and short-term prospects remain cautious due to
multifaceted global and domestic risks. On the global scene, rising yields in the
US and the concomitant capital flow reversals threaten our foreign exchange
(FX) reserves, exchange rate and inflation. This is further exacerbated by the
trade-wars, global political tensions, and fragilities in the crude oil market. On the
domestic front, the financial outlay and uncertainties accompanying the 2019
general elections are expected to impact inflation expectations within the shortterm. I reiterate that even as economic recovery stayed fragile, effective
anchoring of inflation expectations remain sacrosanct.

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Besides, potential fall in oil prices could debilitate our FX reserves and could
adversely impact the exchange rate with ramifications for inflation. It remains
urgently imperative to create institutional structures that would insulate the
economy from oil shocks. My inclination today, given the near-term inflation
expectations and risks to exchange rate stability, is to further tighten monetary
policy stance. However, the dilemma of the trade-off between inflation and
output remains afoot. As I have said before, a rate hike could derail our weak
recovery; even as we understand the need to urgently stimulate the domestic
economy. I remain mindful of the need to pursue a policy of price stability without
losing sight of the importance of economic growth. On a balance of judgement
and evidence (and with an eye on oil price dynamics and other latent risks), my
predisposition is, thus, to prudently hold all parameters at their current level.

I acknowledge that the relative stability witnessed since the end of the 2016
recession reflects the continued potency of our past policy decisions. Overall, I
am of the view that the current levels of key policy parameters are sufficiently
tight. An adjustment at this time could significantly disrupt on-going permeation
of past decisions. In my view, the current level of real policy rate remains
appropriate to balance the objectives of exchange rate stability, price stability
and output stabilisation without introducing disruptive policy shocks. Therefore, I
vote to:

• Retain the MPR at 14.0 percent;

• Retain the CRR at 22.5 percent;

• Retain the asymmetric corridor at +200/–500 basis points; and

• Retain liquidity ratio at 30.0 percent

Classified as
GODWIN I. EMEFIELE, CON
Governor
January 2019