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CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 137 OF THE MONETARY POLICY
COMMITTEE MEETING HELD ON MONDAY 26th AND TUESDAY 27th JULY, 2021
The Monetary Policy Committee (MPC) met on the 26th and 27th July, 2021
faced with cautious optimism for the recovery of both the global and domestic
economies. The performance of the global economy in the first two quarters of
the year had been favourable and is expected to continue for the rest of the
year. There is, however, renewed downside risk to this optimism associated with
the fast spread of new and deadlier strains of the COVID-19 virus. The high rate
of vaccination across the globe seems promising to drive herd immunity to
reduce mortality rates. In the domestic economy, the continued support by
both the monetary and fiscal authorities, is expected to yield favourable
outcomes and hopefully return the economy to a strong recovery path in the
next few quarters. The Committee reviewed the developments in the global
and domestic economic and financial environments over the second quarter
of 2021 and the outlook for the rest of the year.
Nine (9) members of the Committee were in attendance at this meeting.
Global Economic Developments
The Committee noted that while there has been reasonable gains in subduing
the Pandemic, lowering of restrictions and reopening of several economies, the
fast pace of mutation of new and deadlier strains of the virus is posing a
downside risk to the full recovery of the global economy. In addition, the
uneven access of vaccines across several countries is a significant risk to the
attainment of global herd immunity. Despite the above challenges,
governments all over the world have continued to ease restrictions to enable
the recovery of supply chain networks and enhance aggregate demand. The

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expected rebound in global output growth is dependent, therefore, on the
efficient deployment of COVID-19 vaccines with the expectations that the
evolving deadlier strains would be subdued. Even with the current outlook, the
International Monetary Fund (IMF) projects global growth at 6.0 per cent in
2021, compared with the last projection of 5.5 per cent. In line with this, the
Advanced Economies are projected to grow at 5.1 per cent while the Emerging
Markets and Developing Economies are projected to grow at 6.7 per cent.
Price development across several economies is expected to remain moderate
in the short to medium term with some prospects of a mild uptick. The
Committee further noted the rise in inflation above the long run objectives of
some key Advanced Economies, although reported as transient and therefore
not expected to lead to an adjustment of the stance of monetary policy. There
however, remains the lingering risk of an early return to monetary policy
normalization, should price development continue to trend upwards. Across
several Emerging Market and Developing Economies, inflationary trend was on
average mixed, with some of the economies recording higher rates, compared
with their peers. This was largely due to exchange rate pressures, capital flow
reversals, high energy costs, weak supply chains and poor response to policy
stimulus to combat the macroeconomic slowdown associated with the
Pandemic.
In the global financial markets, the Committee noted the increased demand
for equity securities, an indication of improved investor confidence in the global
recovery. In addition, it observed the progressive weakening of long-term
sovereign bond yields, as the demand for equities pick up. The MPC further
noted the moderation in the price of gold, signaling reduced demand, as
investors return to the financial markets. The unprecedented stimulus provided
by monetary and fiscal authorities to ease the impact of the Pandemic has,
however, heightened the risks of global financial crisis post-Pandemic and calls
for central banks across the globe to remain vigilant, should the need for
sudden policy adjustments arise.

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Domestic Economic Developments
Real Gross Domestic Product (GDP) grew by 0.51 per cent in the first quarter of
2021, compared with 0.11 per cent in the preceding quarter. In the non-oil
sector, Agriculture and Industry sub-sectors, were the major drivers of growth,
with growth rates of 2.28 and 0.94 per cent, respectively. The oil sector, year-on
year, contracted by -2.21 per cent in first quarter of 2021, compared with -19.76
per cent in the previous quarter. The weak performance in the oil sector was
attributed to several factors, including the declining quality of oil infrastructure,
lack of new investment in the sector and the need to comply with the OPEC+
production quota.
The Committee noted that the Manufacturing Purchasing Managers’ Index
(PMI), improved to 46.6 index points in July 2021, compared with 45.5 index
points in June 2021. Though it remained below the 50-index point mark, the
improvement is an indication of gradual recovery of output growth in the
economy. The Non-Manufacturing Purchasing Managers’ Index (PMI) also
increased to 44.8 index points in July 2021, compared with 43.0 index points in
June 2021.
The employment level index for July 2021 stood at 46.5 index points, relative to
the preceding month’s figure of 45.0, but, remained below the 50.0-index point
threshold. The Committee welcomed the sustained monetary and fiscal
stimulus to revamp the domestic economy and hoped that the distribution of
vaccines to subdue the Pandemic will continue unabated.
The Committee noted the continued moderation in headline inflation (year-onyear) to 17.75 per cent in June 2021 from 17.93 per cent in May 2021, the third
consecutive month of decline. The decrease was attributed to a marginal
decline in both the food and core components to 21.72 and 13.09 per cent in
June 2021 from 22.28 and 13.15 per cent in May 2021, respectively. The MPC
noted that, though, headline inflation remained well above the ceiling of the

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Central Bank’s 6-9 per cent corridor, it expressed optimism that the current
interventions by the Bank in various sectors of the economy will further depress
inflationary pressure as output growth improves and the negative output gap
closes.
On the performance of monetary aggregates, the Committee noted that
broad money supply (M3) declined to 2.02 per cent in June 2021, compared
with 2.99 per cent in May 2021. This development was largely driven by a
slowdown in the growth rate of Net Domestic Assets (NDA) and Net Foreign
Assets (NFA). Net Foreign Assets contracted by 3.65 per cent due to the
contraction of foreign asset holdings of the central bank, as well as non-interest,
primary mortgage, and microfinance banks. The marginal decline in Net
Domestic Assets reflected the slowdown in aggregate credit net, which
decreased to 4.30 per cent in June 2021, from 4.79 per cent in May 2021.
Accordingly, aggregate credit at end-May 2021 stood at N24.23 trillion,
compared with N22.68 trillion at end-December 2020. This represents a year-todate increase of N1.55 trillion.
Under the Bank’s development finance initiatives, the Bank granted N756.51
billion to 3,734,938 small holder farmers cultivating 4.6 million hectares of land,
of which N120.24 billion was extended for the 2021 Wet Season to 627,051
farmers for 847,484 hectares of land, under the Anchor Borrowers’ Programme
(ABP); for the Agribusiness/Small and Medium Enterprise Investment Scheme
(AGSMEIS), the sum of N121.57 billion was disbursed to 32,617 beneficiaries; and
for the Targeted Credit Facility (TCF), N318.17 billion was released to 679,422
beneficiaries, comprising 572,189 households and 107,233 Small and Medium
Scale Enterprises (SMEs).
Under the National Youth Investment Fund (NYIF), the Bank released N3.0 billion
to 7,057 beneficiaries, of which 4,411 were individuals and 2,646 SMEs. Under
the Creative Industry Financing Initiative (CIFI), N3.22 billion was disbursed to 356

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beneficiaries
across
movie
production,
movie
distribution,
software
development, fashion, and IT verticals.
Under the N1.0 trillion Real Sector Facility, the Bank released N923.41 billion to
251 real sector projects, of which 87 were in light manufacturing, 40 in agrobased industry, 32 in services and 11 in mining. On the N100 billion Healthcare
Sector Intervention Facility (HSIF), N98.41 billion was disbursed for 103 health care
projects, of which, 26 are pharmaceuticals and 77 are in the hospital services.
Similarly, the sum of N232.54 million was disbursed to 5 beneficiaries under the
CBN Healthcare Sector Research and Development Intervention (Grant)
Scheme (HSRDIS) for the development of testing kits and devices for Covid-19
and Lassa Fever.
On the National Mass Metering Programme (NMMP), N36.04 billion was
disbursed to 17 Meter Asset Providers, to nine (9) DisCos, for the procurement
and installation of 657,562 electricity meters. On the Nigerian Electricity Market
Stabilization Facility - 2 (NEMSF-2), the CBN released N120.29 billion to 11 DisCos,
to provide liquidity support and stimulate critical infrastructure investment
needed to improve service delivery and collection efficiency.
On money market development, the net liquidity position and interest rates in
the economy reflected the impact of the Bank’s liquidity management
operations. Accordingly, the monthly weighted average Inter-bank Call and
Open Buy Back (OBB) rates rose to 16.87 and 16.39 per cent in June 2021 from
15.95 and 16.18 per cent in May 2021, respectively.
The Committee noted the weak performance of the equities market despite the
recent increasing patronage by domestic investors. The All-Share Index (ASI)
decreased by 1.28 per cent to 37,947.18 on July 16, 2021, from 38,437.88 on May
31, 2021. Similarly, Market Capitalization (MC) decreased by 1.30 per cent to
N19.77 trillion on July 16, 2021, from N20.03 trillion on May 31, 2021.
The MPC noted that the Capital Adequacy Ratio (CAR) and the Liquidity Ratio
(LR) both remained above their prudential limits at 15.5 and 41.3 per cent,

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respectively. The Non-Performing Loans ratio (NPLs) at 5.70 per cent in June 2021
showed progressive improvement, compared with 6.4 per cent in June 2020. The
Committee, however, urged the Bank to sustain its tight prudential regime to
bring Non-Performing Loans (NPLs) below the 5.0 per cent prudential
benchmark.
The Committee noted the marginal increase in the external reserves which rose
to $33.83 billion on 22nd July 2021 from US$32.78 billion as at 30th June 2021.
Outlook
The overall outlook for both the global and domestic economies, remain
clouded with downside risks despite the upbeat forecast for a speedy recovery.
These risks include lingering uncertainties surrounding the path to the
termination of the Pandemic, as new and deadlier strains of the virus continue
to pose a significant threat to the efficacy of the COVID-19 vaccines. In
addition, the uneven access to the vaccines across the globe is undermining
the realization of the current forecast.
Capital flows to emerging market economies, remain uncertain as the pace of
price development in the advanced economies pick up. While the US Federal
Reserve Bank and other major central banks have given indications that the
current rise in inflation is transitory, and may not require policy adjustment,
inflation is confronted with a significant upside risk. This may result in an early
return to monetary policy normalization, with adverse consequences for
financial system stability.
Available data and forecasts for key macroeconomic variables for the Nigerian
economy suggest a broad improvement for the rest of the year. This is hinged
on continued progress with the containment of the Pandemic, as well as
ongoing monetary and fiscal support. As a result, the Nigerian economy is
forecast to grow in 2021 by 3.15 per cent (CBN), 3.0 per cent (FGN) and 2.5 per
cent (IMF).

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The Committee’s Considerations
The Committee noted the gradual recovery in output growth following positive
growth in the first quarter and improving PMI in subsequent months, expressing
confidence that the second quarter output result will show further
improvement.
The MPC carefully accessed the options confronting it in the short to medium
term, analysing the downside risks to growth and upside risks to inflation. It
commended the continued effort by both the monetary and fiscal authorities
as well as public health agencies in stemming the Pandemic and its impact,
thus, returning the economy to a path of recovery. While the economy has
been gradually reopening, Members noted that the Pandemic was far from
over and therefore continued to hinder the recovery. It thus, urged the
Presidential Task Force on COVID-19 to intensify efforts towards procurement of
more vaccines to ensure that herd immunity is achieved in Nigeria.
The MPC was concerned about the broad level of insecurity across the country,
noting its impact on business confidence and overall economic activities. It
noted the persisting insecurity in key commodity producing areas and urged
the Federal Government to intensify security surveillance in farming
communities to ensure uninterrupted farming activities. Committee members
expressed optimism about the likely moderating impact of the forthcoming
harvests on food prices, as this would contribute to the ongoing broad
reduction in headline inflation. The CBN will continue to release maize from its
strategic maize reserve directly to feed-millers as part of its strategic response
to address rising food prices and moderate the price of maize across the
country.
Members further noted the contribution of poor infrastructure to rising domestic
price levels, re-iterating their call to the Federal Government to prioritize
investment in public infrastructure such as improved transportation networks,
power supply and telecommunication facilities. Funding for such projects, the

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Committee noted, could be sourced through Public-Private-Partnerships, as
well as the issuance of diaspora bonds. It emphasized the complementary role
these bonds would play to boost foreign exchange supply, improving accretion
to reserves and easing the exchange rate pressure.
Notwithstanding, the moderate decline in market indices, the Committee
noted that the equities market remained in a good place, indicating sustained
investor confidence in the Nigerian economy.
The MPC applauded the continued resilience of the banking system in the face
of severe shocks to both the domestic and global economies. Members noted
Management’s effort in maintaining a reasonably low level of non-performing
loans ratio, even though aggregate credit moderated slightly. The Committee
encourages Nigerian banks to extend more credit to consumers and firms to
enhance consumption and production activities necessary to strengthen the
recovery.
Committee members noted the persistent reduction in remittance of oil
revenue to the Consolidated Revenue Fund, stemming largely from rising levels
of cost under-recovery and other obligations, particularly to Joint Venture
Contracts. The Committee thus, urged the Government to continue to explore
additional sources of non-oil revenue, as this would reduce the over
dependence on a single revenue source.
Members applauded the efforts by the Federal Government to encourage the
use of gas in motor vehicles and the payment for conversion of 1 million
Premium Motor Spirit (PMS)-driven vehicles to gas-driven, to reduce overall cost
of PMS consumption. The Committee encouraged the participation of private
sector initiatives to develop and expand modular refineries while it frowns at
cross-border smuggling of PMS.
The Committee also noted the increased contribution of the non-oil sector to
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of the economy and reduce reliance on crude oil export proceeds and called
for increased support for the non-oil sector in the country.
Overall, Members were confident that the Bank was taking the right steps
toward the restoration of macroeconomic stability, while noting the downside
risks to growth and the upside risks to price developments.
The Committee’s Decision
At this meeting, the MPC was delighted that inflation had begun to trend
downwards, while output growth had remained positive. Committee, however,
was of the opinion that there was a need to continue to put in place policy
measures that will further and faster drive down inflation, while at the same time
accelerate output growth to levels above population growth rate. Whereas,
the arsenal at its disposal had almost become fully exhausted, MPC believe
that there is the need to continue to use those tools that had been adopted so
far, even in a more aggressive manner. MPC, therefore, encourage the Bank to
continue using its existing administrative methods to rein-in inflation by the use
of its discretionary CRR policy to mop-up liquidity from the banking system as
the need arises.
The Committee also encouraged the Bank to continue the use of its intervention
mechanism to deploy funds to output-stimulating and employment-generating
sectors of the economy, such as, the Targeted Credit Facility, AGSMEIS,
Agriculture and Manufacturing.
In the Committee’s view, the current situation, neither gives room for tightening,
as this will hurt output growth, nor, loosening, as this will exacerbate inflationary
pressures.
On tightening, MPC feels that whereas this will limit excess liquidity available to
attack the foreign exchange market, it nevertheless feels that tightening will
reduce money supply and thus, inhibits the ability of Deposit Money Banks
(DMBs) to create credit that is needed to stimulate manufacturing output which
could also help to moderate prices.

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On loosening, whereas MPC feels this should transmit into lower market interest
rates which could improve the ability of obligors to repay their loans and reduce
NPLs, it nevertheless feels loosening would not only exacerbate inflationary
pressure, but this would increase negative real rate of return and discourage
investments in the domestic economy.
Based on the above considerations, the MPC made the decision to hold all
policy parameters constant; believing that a hold stance will enable the
continued permeation of current policy measures in supporting the recorded
growth recovery and macro-economic stability.
The Committee thus decided by a unanimous vote to retain the Monetary
Policy Rate (MPR) at 11.5 per cent.
In summary, the MPC voted to:
I. Retain the MPR at 11.5 per cent;
II. Retain the asymmetric corridor of +100/-700 basis points around the MPR;
III. Retain the CRR at 27.5 per cent; and
IV. Retain the Liquidity Ratio at 30 per cent.
Thank you.
Godwin I. Emefiele
Governor, Central Bank of Nigeria
27th July 2021