CENTRAL BANK OF NIGERIA
MONETARY
MONETARY
POLICY REVIEW
POLICY REVIEW
MONETARY
POLICY REVIEW
FEBRUARY 2020
FEBRUARY 2020
FEBRUARY 2020
Central Bank of Nigeria
33 Tafawa Balewa Way
Central Business District
P.M.B. 0187, Garki,
Abuja
Phone: +234 (0)9 462 36011
Website: www.cbn.gov.ng
E-mail:
ISSN: 2141-6281
©2017 Central Bank of Nigeria
Mandate
§Ensure monetary and price stability
§Issue legal tender currency in Nigeria
§Maintain external reserves to safeguard the international
value of the legal tender currency
§Promote a sound financial system in Nigeria
§Act as banker and provide economic and financial
advice to the Federal Government
Vision
“Be the model Central Bank delivering Price and
Financial System Stability and promoting
Sustainable Economic Development"
Mission Statement
“To be proactive in providing a stable framework for the economic
development of Nigeria through effective, efficient and
transparent implementation of monetary and exchange
rate policy and management of the financial sector"
Core Values

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

vii
Chapter 1
Overview..


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

Chapter 3
Price Developments ..


Chapter 4
Monetary Policy and Liquidity Management..
..

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

Chapter 6
Economic Outlook..


Appendices


List of Tables
Table 3.1:
Inflation Rates, July – Dec 2019
..
..
..

Table 3.2:
Major Components of Headline Inflation ((Y-on-Y), July –
December 2019..


Table 3.3:
Major Components of Headline Inflation (M-on-M), July -
December 2019


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


December 2019..


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


December 2019..


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


July - December. 2019 ..


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


July - December. 2019 ..


Table 3.8:
Actual and Seasonally Adjusted Headline Inflation July –
December 2019 2019 ..


Table 4.1:
OMO Bills Auction (January – December, 2019) (N'billion).. 41
Table 4.2:
CBN Standing Lending Facility (January 2018 –


December 2019) (N'billion)


Table 4.3:
CBN Standing Deposit Facility (January 2018 –


December 2019) (N'billion)


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

Table 4.5:
The Monetary Aggregates Outcomes (Growth in % except
otherwise stated


Table 4.6:
The Performance of Monetary Aggregates and their
Implications


Table 5.1:
Weighted Average Monthly MoneyMarket Interest Rates


(July – Dec, 2019)..


Table 5.2:
Average Monthly Spot Exchange Rates (Jan 2019 –


Dec 2019) (N/US$)


Table 5.3:
End-Month Exchange Rates (Jan – Dec 2019) (N/US$)

Table 5.4:
Nominal and Real Effective Exchange Rates Indices


(June 2018 – Dec 2019)


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


Table 5.6:
Monthly Foreign Exchange Flows through the Economy


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

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

Table 5.8:
Policy Rates of Selected Central Banks June 2019 –


December 2019


Table 5.9:
Selected International Stock Market Indices as at


December 31, 2019


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


units to US$)


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

Table 6.2:
Inflation Forecast


List of Figures
Figure 2.1:
Gross Domestic Product Growth Rate (2017Q1 – 2019Q4)

Figure 2.2:
Non-oil Sector Performance (2018 Q1 – 2019 Q4) ..
..

Figure 2.3:
Performance of the Oil Sector 2017Q1-2019Q4
..

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


2019Q4)


Figure 2.5:
Industrial Sector Performance by Activity (2017Q1-2019Q4) 14
Figure 2.6:
Services Sub-Sector Contribution, 2017Q1-2018Q4
..

Figure 2.7:
Quarterly Domestic Oil Production (2017Q1-2019Q4) ..

Figure 2.8:
Monthly Bonny Light Oil Price, July - December 2019 ..

Figure 3.1:
Headline, Core and Food Inflation Rates (July– Dec 2019)

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


Jul – Dec 2019 ..


Figure 3.3:
Major Components of Headline Inflation (M-on-M), July –


December 2019


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


July – December 2019 ..


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


July - December 2019 ..


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


July - December 2019 ..


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


July – December 2019 ..


Figure 3.8:
Actual and Seasonally Adjusted Headline Inflation


July – December 2019 ..


Figure 4.1:
OMO Bills Auction (July – December, 2019) ..
..

Figure 4.2:
Standing Lending Facility (July – December 2019)
..

Figure 4.3:
Standing Deposit Facility (July - December 2019)
..

Figure 4.4:
Total FX Supply (including Forward Sales)


(Jan - June, 2019)..


Figure 4.5:
Money Supply (M1), (M2) and (M3) (July - December, 2019) 45
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Figure 4.6:
Growth in Money Supply (M1), (M2) and (M3)


(July – December, 2019)


Figure 4.7:
Net Domestic Asset (NDA) (July – December, 2019) ..

Figure 4.8:
NDA, NDC and Other Assets (Net) (July – December, 2019) 47
Figure 4.9:
Domestic Credit to Private Sector (July – December, 2020) 47
Figure 5.1:
Weighted Average Monthly Money Market Interest Rates


(Jul. – Dec. 2019)


Figure 5.2:
Daily Interbank Call Rate (July – December 2019)
..

Figure 5.3:
Daily Open Buy Back Rate (July - December 2019) ..

Figure 5.4:
Daily Naira/US Dollar Exchange Rate (July –


December 2019)


Figure 5.5:
Nominal and Real Effective Exchange Rates Indices


(Jan 2019 – Dec 2019)..


Figure 5.6:
Monthly Foreign Exchange Flows through the CBN


(Jul 2018 – Dec 2019) ..


Figure 5.7
Monthly Foreign Exchange Flows through the Economy


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

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


(December 2018 - December 2019) ..
..
..

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

Figure 5.10:
NSE Market Capitalization by Activities/Sectors as at End-


Dec 2019


Figure 5.11:
NSE Market Capitalization by Activities/Sectors as at End


June 2019


Figure 5.12:
Warren Buffett Valuation of Nigerian Equities Market ..

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


(December, 2018 – December, 2019) ..
..
..

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


Jun 2019 vs. end-Dec. 2019 ..
..
..
..

Figure 5.15:
Structure of the Nigerian Capital Market (December 2019).. 70
Figure 6.1:
Fan Chart of Inflation Forecast
..
..
..

List of Boxes
Box 1
Implications of the Land Border Closure for the Nigerian


Economy


Box 2
Implications of Omo Restrictions for Monetary Policy In


Nigeria ..


Box 3
The Loan-to-Deposit Ratio and Monetary Policy in Nigeria

Box 4
The Global Standing Instruction and Financial Stability in


Nigeria ..


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STATEMENT BY THE GOVERNOR
M
onetary policy in the second half of 2019 faced challenges from persisting
imbalances in the global economy. These amongst others included:
subdued output growth, rising financial market vulnerabilities, weakening
multilateralism and growing unfair trade practices. Further manifestations of global
uncertainties were: the lingering BREXIT negotiations, regional hostilities in the Middle
East, increased political tensions between the US and Iran and rising public debt
levels as well as the trade war between the US and China. In the the light of these
developments, the major advanced economy central banks softened their
monetary policy to support flagging growth. The Emerging Markets and Developing
Economies (EMDEs) largely witnessed weakening commodity prices that
precipitated exchange rate and inflationary pressures, necessitating a nonaccommodating monetary policy regime.
On the domestic front, monetary policy contended with sluggish growth in an
environment of heightened inflationary pressures, weak private sector credit
growth, rising public debt and accommodative fiscal stance. The foreign exchange
market experienced relative stability, indicating the effectiveness of measures
under the prevailing flexible foreign exchange management policy of the Bank,
including the Investors' and Exporters' Window. There was also moderate stability in
the Banking system reflected in the reduction in non-performing loans and other
macroprudential indicators. These developments were, however, unable to mask
the underlying vulnerabilities in the domestic macroeconomy manifested in the
bearish capital market during the period.
Nonetheless, the economy sustained a positive growth sentiment with real gross
domestic product (GDP) improving to 2.28 per cent (year-on-year) in the third
quarter of 2019, from 2.12 per cent in the preceding quarter, strengthening further to
2.55 per cent (year-on-year) in the fourth quarter.
The money market remained active, with relatively low rates that mirrored liquidity
conditions in the banking system in the review period. The capital market remained
bearish as political risk factors and weakening macroeconomic fundamentals
continued to dampen investors' sentiments. Consequently, the stock market dipped
during the review period as All-Share Index (ASI) decreased by 10.42 per cent from
29,966.9 at end-June 2019 to 26,842.07 at end- December 2019.
The trend towards rising political risk, which led to an increase in capital outflows
towards the end of the review period, resulted in a resurgence of some exchange
vii
rate and inflationary pressures. The Bank however sustained its steady pace of
intervention in the foreign exchange market, while providing forward guidance to
sustain investor confidence in the naira.
Monetary policy gave careful considerations to the foregoing development, within
the context of fast-tracking growth while maintaining a handle on its price stability
mandate, Accordingly, the Bank sustained its tight monetary policy stance
throughout the review period by retaining the Monetary Policy Rate (MPR) at 13.5
per cent as well as holding all other policy parameters constant. In summary, the
Bank retained the MPR at 13.5 per cent, asymmetric corridor of +200/-500 basis
points around the MPR, CRR at 22.5 per cent and Liquidity Ratio at 30.0 per cent.
Outlook for the domestic economy over the short-to-medium-term indicates that
inflationary pressure could persist, being propelled by rising food prices that results
from the combined impact of the security challenges in food producing areas and
the current border protection policy of Government. Monetary policy will continue
to prioritize the pursuit of price stability under an environment supportive of financial
system stability and inclusive non-inflationary output growth.
GODWIN I. EMEFIELE
Governor, Central Bank of Nigeria
February 2020
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CHAPTER ONE
1.0
OVERVIEW

n the second half of 2019, monetary
policy was influenced by a number
of major developments in the global
and domestic economic and financial
environments. These included: rising
trade tensions, particularly between the
US and its key trading partners; growing
uncertainties
around
BREXIT;
rising
public debt levels in some Advanced
Economies and Emerging Markets and
Developing Economies (EMDEs); and
growing political uncertainties across
several regions. Other factors were:
increasing political tensions between
the US and Iran; heightened financial
market fragilities; rising corporate and
public debt levels; downturn in global
manufacturing; sustained downward
pressure on oil prices; subdued growth
in the European Union and Japan; and
dampening output growth in China.
These
challenges
resulted
in
the
depletion of the external reserves
position, owing to sustained capital
flow reversals compounded by sluggish
global output growth. Accordingly, the
Bank sustained its interventions in the
foreign exchange market under the
flexible
foreign
exchange
management
policy,
leading
to
stability in both the Bureau-de-Change
(BDC) and the Investors’ and Exporters’
(I&E) window. Nevertheless, headline
inflation increased by 0.90 percentage
point from 11.08 per cent in July to
11.98 per cent in December 2019.

The sluggish recovery of the domestic
economy continued, although with
positive
growth
sentiments.
These
sentiments derived largely from stability
in government following the successful
conclusion
of
the

general
elections
and
the
subsequent
strengthening of investor confidence in
the
economy.
The
recovery
was
supported by improved government
finances arising from increased oil
production and prices; improved credit
delivery due to the Bank’s new policy
measures; sustenance of the Bank’s
development finance interventions in
the real sector; as well as stability in the
foreign
exchange
market.
Consequently, growth in real gross
domestic product (GDP) improved to
2.28 per cent (year-on-year) in the third
quarter of 2019, from 1.81and 2.12 per
cent in the corresponding period of

and
the
preceding
quarter,
respectively. The oil sector was the
main driver of growth in the third
quarter, as it grew by 6.49 per cent up
from the contraction of 2.91 per cent in
the corresponding quarter of 2018. This
was,
however,
a
moderation
compared with the growth of 7.17 per
cent in the preceding quarter. The
development was largely attributed to
the resuscitation of Egina oil field, which
contributed
significantly
to
oil
production, OPEC approval to increase
production ceiling from 1.68 million
barrels per day (mbpd) to 1.77 mbpd
as well as improved export to China.
Similarly, the non-oil sector expanded
by 1.85 per cent in the third quarter of
2019, up from 1.64 per cent in the
corresponding period of 2018. The
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growth outcome was, however, lower
compared with 2.32 per cent in the
preceding quarter.

In the fourth quarter of 2019, real gross
domestic product (GDP) strengthened
further to 2.55 per cent (year-on-year)
from 2.38 and 2.28 per cent in the
corresponding period of 2018 and the
preceding quarter, respectively. The oil
sector was still the main driver of growth
at
6.36
per
cent
up
from
the
contraction of 1.62 per cent in the
corresponding quarter of 2018. This was,
however, a moderation compared with
the growth of 6.49 per cent in the
preceding quarter. In the same vein,
the non-oil sector grew by 2.26 per cent
in the fourth quarter of 2019, down from
2.70 per cent in the corresponding
period of 2018. It was, however, higher
compared with 1.85 per cent in the
preceding quarter. The key drivers of
the
non-oil
growth
were
Services,
(2.60%);
Agriculture,
(2.31%),
and
Industry, (0.81%).

The Nigerian financial market remained
moderately
stable
despite
the
existence of several cross currents
across
the
global
and
domestic
economies and financial markets. In
the global economy, the key issues
were: the persistent weakening of
global output growth and the risk of
recession across several economies;
declining
but
relatively
strong
job
growth in the US; the moderating but
strong trade tensions between the US
and China; growing threat to central
bank independence; persisting risk of
some
advanced
economies
being
trapped at the zero lower bound;
uneasy calm in the oil market; tensions
between the European Union and the
United Kingdom due to tense BREXIT
negotiations which was later calmed
by
the
UK
General
election
in
December 2019; rising levels of private
debt in the advanced economies and
public debt in some Emerging Market
and Developing Economies (EMDEs); as
well as a wave of volatility in major
financial markets.

In the review period, the foreign
exchange market continued to enjoy
relative stability under the prevailing
flexible
foreign
exchange
management policy, supported by the
continued intervention of the CBN in
the market. It is noteworthy that during
the preceding first half, the Bank made
a strategic shift towards the long-term
stability
of
the
foreign
exchange
market by deepening the policy on
restriction
of
access
to
foreign
exchange for imports that can be
produced
locally.
This
was
by
extending the policy to include more
items as well as encourage the local
production of such items for export. In
the review period, the policy was
further strengthened by the Bank’s
support for the partial closure of
Nigeria’s land borders by the fiscal
authority. The land border closure is
expected to have a complementary
effect
on
the
Anchor
Borrower’s
programme and other CBN initiatives
intended to boost local production and
relieve pressure on foreign exchange
for
imports.
Additional
foreign
exchange
measures
were
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implemented to strategically support
Nigeria’s signing unto the AfCFTA and
progress towards a single currency in
the West African sub-region. These
included the Bank’s participation in
several initiatives to improve trade
facilitation and automation of the
Nigerian Export Proceeds Form (Form
‘NXP’) for trade monitoring. Other
existing measures by the Bank included
the sustained use of the Investors’ &
Exporters’ window, the use of Bank
Verification Number (BVN) in BDC
transactions, sale of foreign exchange
to BDCs by the Bank and International
Money Transfer Operators (IMTOs), and
special foreign exchange auctions to
the real sector.

To achieve its objectives of price and
monetary stability, the Bank continued
to deploy its policy instruments in the
review period. These instruments were:
the Monetary Policy Rate (MPR); the
Standing Facilities window; the Cash
Reserve Ratio (CRR); Liquidity Ratio;
and Open Market Operations (OMO). It
also intervened periodically in the
foreign
exchange
market
to
complement these instruments. The
MPR remained the key instrument for
monetary policy management in the
review period. It was maintained at
13.5
per
cent
along
with,
the
asymmetric corridor of +200 and -500
basis points around the MPR throughout
the period. The Liquidity Ratio and the
Cash Reserve Ratio (CRR) were also
retained at 30.0 and 22.5 per cent,
respectively,
over
the
period.
The
primary
tool
used
for
liquidity
management in the second half of

remained
Open
Market
Operations (OMO).

The money market remained active,
with
market
rates
reflecting
the
changing liquidity conditions in the
banking system. The money market
rates fluctuated generally downwards
and below the lower bound of the
standing facility corridor for most of the
period. Overall, liquidity in the system
came from several sources including:
statutory monthly disbursement by the
Federation
Account
Allocation
Committee (FAAC) to States and local
governments; capital releases from
the

budget;
election-related
expenditures; maturities of government
securities and OMO bills; and CBN
interventions in the real economy. The
MPC retained its policy rate to address
growth concerns during the period.

The Nigerian capital market in the
second half of 2019 was mostly bearish,
driven
primarily
by
the
equities
segment, reflecting waning investor
confidence. This was attributable to the
continued perception of political risk
which resulted in some weakening of
macroeconomic
fundamentals.
This
perception arose from several lingering
issues around: softening oil prices;
weakening global demand; relatively
strong
US
economy;
and
rising
uncertainty in the global economy
leading to a rush into gold as a safer
asset. Domestically, insecurity in some
parts of the country, weakening of
macroeconomic
fundamentals,
pressure on external reserves as well as
the
increasing
public
debt
stock
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heightened the vulnerabilities. As a
result, the trend towards sell-off and
profit taking seen in the previous half
year persisted in the review period.
Consequently, the All-Share Index (ASI)
decreased by
10.42
per cent to
26,842.07 at end- December 2019 from
29,966.90
at
end-June
2019.
It
decreased
by
14.60
per
cent
compared
with
31,430.50
at
endDecember 2018. Market capitalization
(MC) also decreased by 1.87 per cent
to N12.95 trillion at end-December 2019
from N13.20 trillion at end-June 2019.
Compared with N11.72 trillion at endDec 2018, however, MC rose by 10.56
per cent.

Activities in the bonds market were
dominated by transactions in Federal
Government of Nigeria (FGN) securities,
with some activity also recorded in the
Sub-national
government
and
corporate bond segments. The 10-year
dollar-denominated
bond
yield
for
Nigeria decreased by 75 basis points to
3.04 per cent at end-December 2019,
from 3.79 per cent at end-June 2019.
Compared with 6.11 per cent at endDecember 2018, the yield fell by 306
basis points.

The upward pressure on price levels
which commenced in the second half
of 2019 is expected to continue into
2020, driven mainly by food prices as
the combined impact of the security
challenges in food producing areas
and
the
impact
of
the
border
protection policy has led to an uptick in
food prices. The anticipated increase in
electricity tariffs in 2020 may also
contribute to price increases during the
year. Staff projections indicate that
headline
inflation
(year-on-year)
is
projected to increase to 12.09, 12.18,
12.21 and 12.04 per cent in January,
February, March, and April 2020 before
declining to 11.83 and 11.68 per cent in
May and June respectively. The upside
risks to inflation remain the combination
of
monetary
and
structural
impediments, including poor transport
infrastructure,
food
shortage
due
mainly
to
insecurity
in
the
food
producing areas of the country, the
rising
public
debt
profile
of
government, the upward pressure on
imported food prices due to the land
border closure and increased liquidity
due to concurrent implementation of
the 2019 and 2020 FGN budgets.

Growth remains a challenge in the
review period. The recovery of Real
Gross Domestic Product (GDP) has
continued at a moderate pace, and
the outlook is that the economy will
continue to improve into 2020. Data
from the National Bureau of Statistics
(NBS) showed that real GDP grew by
2.55 in the fourth quarter of 2019
compared with 2.38 and 2.28 per cent
in the corresponding quarter of 2018
and the preceding quarter of 2019,
respectively. The outlook for 2020 is
positive, as the recovery is expected to
continue
into
the
year.
The
IMF
projection for output growth in Nigeria
in 2020, at 2.5 per cent is expected to
be an improvement over 2019. The CBN
has also projected a positive outlook at
2.39 per cent. These projections are
expected to be driven by improved oil
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CBN Monetary Policy Review

production
and
prices,
continued
investment in the agricultural and
manufacturing
sectors,
continued
implementation
of
the
Economic
Recovery Growth Plan (ERGP) and
sustained
stability
in
the
foreign
exchange market. Key headwinds to
the growth outlook are however: the
persisting
power
generation
and
transmission
challenges;
dearth
of
infrastructure;
continued
security
challenges
across
the
country;
continued
herders’
and
farmers’
conflicts; and the still low but improving
credit to the private sector.

The Bank will continue to deploy its
policy instruments and measures to
ensure that liquidity in the banking
system is effectively managed and
channeled to the real economy to
drive sustainable and inclusive noninflationary output growth.


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CHAPTER TWO
2.0
OUTPUT IN DOMESTIC ECONOMY

n the second half of 2019, the
sluggish recovery of the domestic
economy continued, although with
positive
growth
sentiments.
These
sentiments derived largely from stability
in government following the successful
conclusion
of
the

general
elections
and
the
subsequent
strengthening of investor confidence in
the
economy.
The
recovery
was
supported by improved government
finances arising from increased oil
production and prices; improved credit
delivery due to the Bank’s new policy
measures; sustenance of the Bank’s
development finance interventions in
the real sector; as well as stability in the
foreign
exchange
market.
The
recovery, however, continued to be
hampered by: the effect of the partial
land
border
closure;
disruption
of
economic activities due to multiple
security challenges across the country;
growing
infrastructure
deficits;
and
declining
external
reserves.
Accordingly,
growth
in
real
gross
domestic product (GDP) improved to
2.28 per cent (year-on-year) in the third
quarter of 2019, from 1.81and 2.12 per
cent in the corresponding period of

and
the
preceding
quarter,
respectively. The oil sector was the
main driver of growth in the third
quarter, as it grew by 6.49 per cent up
from the contraction of 2.91 per cent in
the corresponding quarter of 2018. This
was,
however,
a
moderation
compared with the growth of 7.17 per
cent in the preceding quarter. The
development was largely attributed to:
the resuscitation of Egina oil field which
contributed
significantly
to
oil
production; OPEC approval to increase
production ceiling from 1.68 million
barrels per day (mbpd) to 1.77 mbpd;
as well as improved export to China.
Crude oil production in the third quarter
of 2019 averaged 2.04 mbpd which
was higher than 1.94 mbpd and 2.02
mbpd in the corresponding period of

and
the
preceding
quarter,
respectively. However, the Oil sector’s
contribution to real GDP in Q3 2019
declined to 9.59 per cent from 10.53
per cent in the corresponding period of
2018, which was an improvement over
the 8.74 per cent in the preceding
quarter.

Similarly, the non-oil sector expanded
by 1.85 per cent in the third quarter of
2019, up from 1.64 per cent in the
corresponding period of 2018. It was,
however, lower compared with 2.32
per cent in the preceding quarter. The
key drivers of the non-oil growth were
Services, (3.24%); construction, (2.37%);
Agriculture,
(2.28%),
and
Industry,
(0.86%); while Trade contracted by 1.45
per cent. The contribution of the non-oil
sector to real GDP in the third quarter
of 2019 declined marginally to 90.23
per cent compared with 90.62 and
91.02 per cent in the corresponding
period of 2018 and the preceding
quarter, respectively.
In the fourth quarter of 2019, real gross
domestic product (GDP) strengthened
further to 2.55 per cent (year-on-year)
from 2.38 and 2.28 per cent in the
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corresponding period of 2018 and the
preceding quarter, respectively. The oil
sector was also the main driver of
growth in the fourth quarter, as it grew
by
6.36
per
cent
up
from
the
contraction of 1.62 per cent in the
corresponding quarter of 2018. This was,
however, a moderation compared with
the growth of 6.49 per cent in the
preceding
quarter.
Consequently,
crude oil production in the fourth
quarter of 2019 averaged 2.00 mbpd
higher
than
1.91
mbpd
in
the
corresponding period of 2018 but
slightly lower than the 2.02 mbpd
recorded in the preceding quarter. The
Oil sector’s contribution to real GDP in
fourth quarter of 2019 rose to 7.32 per
cent
from
7.06
per
cent
in
the
corresponding period of 2018, which
was a moderation compared with 9.77
per cent in the preceding quarter.

In the same vein, the non-oil sector
grew by 2.26 per cent in the fourth
quarter of 2019, down from 2.70 per
cent in the corresponding period of
2018.
It
was,
however,
higher
compared with 1.85 per cent in the
preceding quarter. The key drivers of
the
non-oil
growth
were
Services,
(2.60%);
Agriculture,
(2.31%),
and
Industry, (0.81%). The contribution of the
non-oil sector to real GDP in the fourth
quarter of 2019 declined to 92.68 per
cent from 92.94 per cent in the
corresponding period of 2018, but
higher compared the 90.23 per cent
recorded in the preceding quarter.


Figure 2.1
Gross Domestic Product Growth Rate (2017Q1 –
2019Q4)

Q1-2017 Q2-2017 Q3-2017 Q4-2017 Q1-2018 Q2-2018 Q3-2018 Q4-2018 Q1-2019 Q2-2019 Q3-2019 Q4-2019
Per cent
Source: National Bureau of Statistics

2.1 DOMESTIC ECONOMIC ACTIVITIES
In the second half of 2019, real GDP
growth was driven by activities in the oil
and non-oil sectors. The oil sector
contributed
significantly
to
output,
growing by 6.49 per cent, compared
with a contraction of 2.91 per cent in
the corresponding period of 2018. The
performance was, however, lower by
0.68 percentage point compared with
7.17 per cent in the preceding quarter.
Accordingly,
average
crude
oil
production in the third quarter of 2019
stood at 2.04 mbpd higher than 1.94
mbpd
and
2.02
mbpd
in
the
corresponding period of 2018 and the
preceding quarter, respectively.
The non-oil sector grew by 1.85 per
cent in the third quarter of 2019
compared with 2.32 per cent in the
corresponding period of 2018. This was,
however, higher than the growth of
1.64 per cent in the preceding quarter.
Activities in the non-oil sector were
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driven
by
transportation
(18.24%),
forestry
(3.78%),
administrative
and
support
services
(3.05%),
arts,
entertainment and recreation (2.89%),
crop
production
(2.41%)
and
accommodation and food services
(2.28%), which grew higher compared
with their respective growth rates of
11.95, 3.75, 2.02, 2.83, 1.87 and 2.66 per
cent in the corresponding quarter of
2018. Over the same period, however,
the growth of the information and
communication sub-sector moderated
to 9.88 from 12.09 per cent. Activities in
solid minerals and utilities contracted
by 12.85 and 9.10 per cent in contrast
to their growth rates of 3.58 and 13.44
per cent, respectively.
In the fourth quarter of 2019, real GDP
growth was driven by activities in the oil
and non-oil sectors. The oil sector
contributed
significantly
to
output
growth by 6.36 per cent, compared
with a contraction of 1.62 per cent in
the corresponding period of 2018. The
performance was, however, lower by
0.13 percentage point compared with
6.49 per cent in the preceding quarter.
Accordingly,
average
crude
oil
production in the fourth quarter of 2019
stood at 2.00 mbpd higher than 1.91
mbpd in the corresponding period of
2018, but lower than the 2.04 mbpd in
the preceding quarter.

Similarly, the non-oil sector grew by 2.26
per cent in the fourth quarter of 2019,
which was lower than 2.70 per cent in
the corresponding period of 2018. This
was, however, higher than the growth
of 1.85 per cent in the preceding
quarter. Activities in the non-oil sector
were driven by Finance and Insurance
(20.18%),
information
and
communication
(8.50%),
arts,
entertainment and recreation (4.85%),
water
supply,
sewage
&
waste
management (3.52%), crop production
(2.52%),
fishing
(2.33%)
and
accommodation and food services
(2.02%), compared with their respective
growth rates of -1.76, 13.20, 4.18, 1.85,
2.48, 1.97 and 2.05 per cent in the
corresponding
quarter
of
2018.
Activities in electricity, gas, steam & air
conditioner
and
mining
&
quarry
contracted by 7.82 and 5.87 per cent in
contrast to their growth rates of 0.95
and 17.68 per cent, respectively.

Figure 2.2
Non-oil Sector Performance (2018 Q1 – 2019 Q4)

2018Q1
2018Q2
2018Q3
2018Q4
2019Q1
2019Q2
2019Q3
2019Q4
Per cent
Agriculture
Industry
Construction
Trade
Services
Source: National Bureau of Statistics

Figure 2.3
Performance of the Oil Sector 2017Q1-2019Q4

Q1-2017
Q2-2017
Q3-2017
Q4-2017
Q1-2018
Q2-2018
Q3-2018
Q4-2018
Q1-2019
Q2-2019
Q3-2019
Q4-2019
Per cent
Source: NBS
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2.2 Sectoral Analysis
This section reviews the performance
of
key
sectors
of
the
economy,
highlighting the institutional and policy
factors which contributed to output
growth in the second half of 2019.

2.2.1
Agriculture
In the third quarter of 2019, real
agricultural GDP expanded by 0.37
percentage point to 2.28 per cent over
the 1.91 per cent in the corresponding
quarter of 2018. The development was
also an increase of 0.49 percentage
point compared with 1.79 per cent in
the preceding quarter. The growth of
the sector was driven largely by forestry
which grew by 3.78 per cent in the third
quarter of 2019 from 3.72 and 3.23 per
cent in the corresponding period of

and
the
preceding
quarter,
respectively. The crop production subsector also recorded a growth of 2.41
per cent up from 1.87 and 1.94 per
cent in the corresponding period of

and
the
preceding
quarter,
respectively. Fishing and livestock also
grew by 1.68 and 0.02 per cent
compared with the growth of 0.84 and
2.56 per cent in the corresponding
quarter of 2018 and 1.09 and -0.01 per
cent, respectively, in the preceding
quarter.

The overall contribution of the sector to
real GDP in the third quarter of 2019
stood at 32.41 per cent, higher than
32.28 and 25.03 per cent in the
corresponding period of 2018 and the
preceding quarter.
In the fourth quarter of 2019, real
agricultural output grew by 2.31 per
cent compared 2.46 per cent in the
corresponding quarter of 2018. The
development was a slight improvement
of 0.03 percentage point compared
with 2.28 per cent in the preceding
quarter. The growth of the sector was
driven largely by crop production
which grew by 2.52 per cent in the
fourth quarter of 2019 from 2.48 and
2.41 per cent in the corresponding
period of 2018 and the preceding
quarter, respectively. The fishing subsector also recorded a growth of 2.33
per cent up from 1.97 and 1.68 per
cent in the corresponding period of

and
the
preceding
quarter,
respectively. This was followed by the
forestry sub-sector which grew by 1.26
per cent compared with 1.73 and 3.78
per cent in the corresponding period of

and
the
preceding
quarter,
respectively.
Livestock
sub-sector,
however contracted by 0.20 per cent
compared with the growth of 2.35 and
0.02 per cent in the corresponding
quarter of 2018 and the preceding
quarter, respectively.

The overall contribution of the sector to
real GDP in the fourth quarter of 2019
stood at 28.15 per cent, compared with
28.13 and 32.41 per cent in the
corresponding period of 2018 and the
preceding quarter.

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Figure 2.4
Agricultural Sector Contribution by Activity
(2017Q1-2019Q4)

Per cent
Crop Production
Livestock
Forestry
Fishing
Source: NBS

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

2.2.1.2.1
The Agricultural Credit
Guarantee Scheme (ACGS)
In the second half of 2019, a total of
16,922 loans, valued at ₦2.38 billion
were guaranteed under the scheme
compared with 11,981 loans valued at
₦1.68 billion in the first half. The
development represented increases of
41.2 and 41.6 per cent, respectively, in
the
number
and
value
of
loans
guaranteed. Also, 15,212 loans valued
at ₦2.10 billion were repaid, compared
with 8,676 loans valued at ₦1.32 billion
in the first half. This reflected increases
of 75.3 and 59.0 per cent in the number
and value of loans repaid, respectively.
2.2.1.2.2
N200 Billion Commercial
Agricultural Credit Scheme (CACS)
Under the Scheme, ₦14.85 billion was
disbursed to 12 projects in the second
half of 2019, an increase of 206.82 per
cent compared with ₦4.84 billion to 6
projects in the first half. However, a
total of ₦13.04 billion was repaid by135
projects in the review period, which
was 45.46 per cent lower than the
repayment of ₦23.91 billion by 139
projects in the first half.

2.2.1.2.3
Micro,
Small
and
Medium Enterprises Development Fund
(MSMEDF)
In the second half of 2019, the sum of
₦2.00 billion was disbursed to one (1)
State government-sponsored project,
compared with ₦625.55 million for 1,103
projects in the first half of 2019.
Repayments
during
the
period
amounted to ₦2.11 billion compared
with ₦3.63 billion in the preceding
period.

2.2.1.2.4
Anchor
Borrowers’
Programme (ABP)
In the review period, ₦54.32 billion was
disbursed
to
348,719
smallholder
farmers in 35 States for the production
of rice, tomatoes, cassava, cotton,
maize,
sorghum,
soya
beans
and
sesame. This level of disbursement
represented an increase of 103.67 per
cent over the ₦26.67 billion as well as
46.54 per cent increase in the number
of beneficiaries compared with 237,967
farmers in the first half. Furthermore, a
total of 404,842 hectares of land were
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cultivated,
compared
with
259,086
hectares in the preceding period.
Repayments under the Programme
amounted to ₦17.24 billion in the
review period, compared with ₦2.89
billion in the first half.

2.2.1.2.5
Accelerated
Agriculture
Development Scheme (AADS)
Under the Scheme, the sum of ₦5.98
billion was disbursed to four (4) State
government-sponsored projects in the
review period compared with ₦1.37
billion disbursed to one (1) project in
the first half of 2019. The projects
include poultry, cassava, fish, maize
and livestock. The AADS has both
public and private windows, with the
public window funding the provision of
critical infrastructure for smallholder
farmers in designated locations, while
the private window provides credit
facilities for the farmers at a single-digit
interest rate.

2.2.1.2.6
Agribusiness/Small
and
Medium Enterprises Investment Scheme
(AGSMEIS)
In the review period, ₦10.83 billion was
disbursed to 3,337 projects, compared
with ₦1.29 billion to 595 projects in the
first
half
of
2019.
The
huge
disbursements
was
due
to
the
commencement of operations of the
NIRSAL National Microfinance Bank,
whose strategic focus is to leverage on
the AGSMEIS Fund for on-lending to
customers spread across its wide and
expanding
network
of
branches.
Repayment in the review period was
₦2.87 million, compared with ₦0.98
million in the preceding half year.

2.2.1.2.7
Non-Oil
Export
Stimulation Facility (NESF)
Under this Facility, ₦1.50 billion was
disbursed to one (1) project in the
second half of 2019 compared with
₦8.00 billion disbursed to two (2)
projects in the first half. In addition,
₦2.47 billion was repaid compared with
₦1.00 billion in the preceding period.

2.2.1.2.8
Export
Development
Facility (EDF)
The Facility aims at deepening access
to
credit
for
export-oriented
investments with a view to enhancing
foreign exchange earnings for the
economy. During the review period,
₦9.38 billion was disbursed to 28
projects across agriculture, industry and
the services sectors. There was no
repayment in both the review and
preceding periods.

2.2.1.2.9
Paddy
Aggregation
Scheme (PAS)
Under the Scheme, ₦3.5 billion was
released to three (3) projects in the
review period, compared with ₦35.20
billion released to 12 projects in the first
half of 2019. The financing enabled
small and medium-scale rice millers
procure paddy for all-year round rice
production. The sum of ₦2.083 billion
was repaid by two (2) projects.

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2.2.1.2.10
Maize
Aggregation
Scheme (MAS)
The
Maize
Aggregation
Scheme
(MAS) is a working capital facility
introduced
to
improve
access
to
affordable credit for the purchase of
home-grown maize by feed millers,
poultry
farmers,
silo
&
warehouse
operators,
and
confectionery
companies. The broad objective is to
promote national food security through
increased domestic maize production,
stable prices and improved profit for
farmers. In the second half of 2019, ₦4.3
billion was disbursed to three (3)
projects under the Scheme.

2.2.1.2.11
National Food Security
Programme (NFSP)
Under the Programme, ₦14.50 billion
was disbursed to three (3) projects in
the review period, compared with
₦8.90 billion for two (2) projects in the
first half of 2019. Repayment in the
review
period
was
₦5.55
billion,
compared with ₦2.60 billion in the
preceding half year.

2.2.2
Industry

2.2.2.1 Industrial Production
The recovery of the industrial sector
was sustained during the review period.
In the third quarter, the sector grew by
3.74
per
cent
in
contrast
to
a
contraction of 0.59 per cent in the
corresponding period of 2018. The
sector, however, grew by 3.32 per cent
in the preceding quarter. The main
driver of growth in the sector was crude
petroleum and natural gas which grew
by 6.49 per cent in the review period, in
contrast to the contraction of 2.91 per
cent in the corresponding period of
2018. With a growth of 7.17 per cent in
the preceding quarter, the sub-sector
in the third quarter, recorded the
second consecutive quarter of growth
in 2019, having been in recession since
the
third
quarter
of
2018.
The
manufacturing sub-sector also grew by
1.10 per cent compared with 1.92 per
cent in the corresponding period of
2018 but recorded a contraction of
0.13 per cent in the preceding quarter.
The growth of the industrial sector was
moderated by a deeper contraction of
12.85 per cent in the solid minerals subsector compared with 3.58 and -2.54
per cent in the corresponding period of

and
the
preceding
quarter,
respectively. Nevertheless, the share of
the industrial sector in overall GDP
increased steadily to 18.64 per cent
from 18.38 and 18.20 per cent in the
corresponding period of 2018 and the
preceding quarter, respectively.

In the fourth quarter, the sector grew
by 2.75 per cent, higher than 0.95 per
cent recorded in the corresponding
period of 2018. It was, however, a
moderation when compared with 3.21
per cent in the preceding quarter. The
main driver of growth in the sector was
mining and quarry which grew by 6.07
per cent in the review period, in
contrast to the contraction of 1.23 per
cent in the corresponding period of
2018.
The
performance
was
a
moderation compared with the growth
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of 6.19 per cent in the preceding
quarter. Water supply, sewage, and
waste management sub-sector also
grew by 3.52 per cent compared with
1.85 per cent in the corresponding
period of 2018, in contrast to the
contraction of 1.90 per cent in the
preceding
quarter.
Similarly,
the
construction and manufacturing subsectors grew by 1.31 and 1.24 per cent
compared with 2.05 and 2.35 per cent
in the corresponding period of 2018,
and 2.37 and 1.10 per cent in the
preceding quarter, respectively. The
growth of the industrial sector was
moderated by the contraction of 7.82
per cent in the electricity, gas, steam &
air conditioner sub-sector compared
with 0.95 and -11.81 per cent in the
corresponding period of 2018 and the
preceding quarter, respectively. The
share of the industrial sector in overall
GDP stood at 20.27 per cent from 20.24
and
22.17
per
cent
in
the
corresponding period of 2018 and the
preceding quarter, respectively.

Figure 2.5
Industrial Sector Performance by Activity
(2017Q1-2019Q4)

Q1-2018
Q2-2018
Q3-2018
Q4-2018
Q1-2019
Q2-2019
Q3-2019
Q4-2019
Per cent
Mining and Quarrying
Electricity,Gas,Steam & Air conditioner
Manufacturing
Water supply, sewage, waste Mang.
Construction
Source: Statistics Department

2.2.2.2 Industrial Policy and Institutional
Support
The sector benefited from a number of
policy measures, reforms and incentives
in
the
period
under
review
as
highlighted below:
2.2.2.2.1
Power and Airline
Intervention Fund (PAIF)
In the second half of 2019, ₦3.76 billion
was released to two (2) power projects,
as against none in the preceding
period. One of the releases was for a
fresh
captive
project
to
increase
capacity utilization in a manufacturing
firm, while the other was augmented
funding to catalyze the completion of
an on-grid project. In the review period,
₦26.90 billion was repaid in respect of
68 projects, compared with ₦12.72
billion in the first half of 2019.
2.2.2.2.2
Federal Government of
Nigeria’s Special Presidential Fertilizer
Initiative (PFI)
As in the first half of 2019, no
disbursement was made under this
Initiative in the review period. However,
₦1.75 billion was repaid while the
number of functional blending plants
increased to 22.
2.2.2.2.3
Textile
Sector
Intervention
Facility (TSIF)
Under
this
Facility,
there
was
increased momentum of activities due
to the Textile Revival Policy of the Bank.
The
implementation
of
the
policy
recorded several milestones including
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the
signing
of
Memoranda
of
Understanding (MOUs) between cotton
producers,
ginners
and
textile
companies on the one hand, and the
uniformed parastatals in the country on
the other hand, for the procurement of
their uniforms from the Nigerian textiles
industry. Consequently, ₦19.67 billion
was disbursed from the Facility to 10
projects.
However,
there
was
no
disbursement in the first half of 2019.
Repayment in the review period was
₦3.11 billion, compared with ₦884.38
million in the preceding period.
2.2.2.2.4
CBN-BOI
Industrial
Facility
(CBIF)
In the review and preceding periods,
there
was
no
disbursement
and
repayments under the Facility, as all
outstanding disbursements were still
under moratorium.
2.2.2.2.5
Nigerian Electricity
Market Stabilization Facility (NEMSF)
Under
the
Facility,
there
was
a
disbursement of ₦6.1 billion to the
Nigeria Electricity Liability Management
Limited (NELMCO). NELMCO is a service
provider incorporated by the Federal
Government of Nigerian to provide
reassurance to investors on the safety
of their investments in the Power
Holding Company of Nigeria (PHCN)
successor companies, especially with
respect
to
freedom
from
encumbrances arising from possible
future litigations on legacy debts, staff
pensions,
suppliers
and
third-party
liabilities. There was no disbursement in
the preceding period. In the period
under review, ₦10.25 billion was repaid
compared with ₦9.36 billion in the first
half of 2019.
2.2.2.2.6
Nigeria Bulk Electricity
Trading Payment Assurance Facility
(NBET-PAF)
In the review period, ₦62.68 billion was
disbursed
under
this
Facility
as
assurance
payments
to
power
generating
companies
(gencos)
compared
with
₦248.40
billion
disbursed in the first half of 2019. No
repayment has been recorded under
this
Facility,
which
is
still
under
moratorium.

2.2.2.2.7
Real Sector Support
Facility (RSSF)
Under the Facility, ₦6.70 billion was
released compared with ₦40.00 billion
in the first half of 2019. In the review
period, ₦218.36 million was repaid
compared with ₦2.90 billion in the
preceding half year.

2.2.2.2.8
RSSF Using Differentiated
Cash Reserve Ratio (RSSF-DCRR)
In the period under review, ₦82.50
billion was disbursed to 46 projects,
compared with ₦75.55 billion to 18
projects in the first half. There was no
repayment in both the review and
preceding periods, as the loans were
still under moratorium.

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2.2.2.2.9
Creative Industry
Financing Initiative (CIFI)
The
Creative
Industry
Financing
Initiative (CIFI) commenced operations
in the second half of 2019, with the
disbursement of ₦410.62 million to 12
projects.

2.2.3 Construction
The
construction
sector
grew
remarkably to 2.37 per cent in the third
quarter compared with 0.54 and 0.67
per cent in the corresponding period of

and
the
preceding
quarter,
respectively. The development was
driven by strong capital releases from
the 2019 Federal Government budget.
The share of Construction in real GDP,
however fell from 4.45 per cent in the
preceding quarter to 3.01 per cent in
third quarter. It was also 3.01 per cent in
the corresponding period of 2018.

The construction sub-sector1 slowed to
1.31 per cent in the fourth quarter
compared with 2.05 and 2.37 per cent
in the corresponding period of 2018
and
the
preceding
quarter,
respectively.

2.2.4 Trade
The sluggish performance of the Trade
sector continued in the review period.
The
contraction
in
the
sector
deepened from 0.25 per cent in the
preceding quarter to 1.45 per cent in

1 Construction and Trade are sub-sectors under
Industrial sector based on NBS classification of
GDP
the third quarter, in contrast to the
growth of 0.98 in the corresponding
period of 2018. The development was
partly due to the partial land border
closure during the period. The share of
Trade in real GDP declined marginally
to 15.23 per cent in the third quarter of
2019 from 15.80 and 16.07 per cent in
the corresponding period of 2018 and
the preceding quarter, respectively.

In the fourth quarter, the contraction in
the trade sub-sector moderated to 0.58
per cent from 1.45 per cent in the
preceding quarter, in contrast to the
growth of 1.02 in the corresponding
period of 2018.

2.2.5 Services Sector
The
Services
sector
sustained
its
growth for seven consecutive quarters.
The sector grew by 3.24 per cent in the
third quarter of 2019, compared with
3.60
and
2.93
per
cent
in
the
corresponding period of 2018 and
preceding
quarter,
respectively.
Growth in the sector was driven by
transportation
(18.24%),
information
and
communication
(9.88%),
Administrative and Support Services
(3.05%),
Arts,
Entertainment
&
Recreation (2.89%), accommodation
and food services (2.28%), and finance
and insurance (1.07%). These compares
with their respective growth rates of
11.95, 12.09, 2.02, 2.83, 2.66 and -4.81
per cent in the corresponding period of
2018. However, the following
subsectors contracted during the period:
utilities (9.10%), Real Estate (2.31%), and
Professional,
Scientific
&
Technical
Services (2.62%). The share of the
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services sector in overall GDP improved
marginally to 33.88 per cent in the third
quarter of 2019 from 33.56 per cent in
the corresponding period of 2018. This
was, however, lower compared with
38.49
per
cent
in
the
preceding
quarter.

In the fourth quarter of 2019, the sector
grew by 2.60 per cent compared with
2.90 per cent in the corresponding
period of 2018 and the revised growth
of 1.87 per cent in the preceding
quarter, respectively. Growth in the
sector was driven by finance and
insurance (20.18%), information and
communication
(8.50%),
Arts,
Entertainment & Recreation (4.85%)
and
accommodation
and
food
services (2.02%). These compares with
their respective growth rates of -1.76,
13.20, 4.18 and 2.05 per cent in the
corresponding
period
of
2018.
However, real estate contracted by
3.45 per cent in the review period. The
share of the services sector in overall
GDP improved marginally to 53.64 per
cent in the fourth quarter of 2019 from
53.62 and 48.59 per cent in the
corresponding period of 2018 and the
preceding quarter.

Figure 2.6
Services Sub-Sector Contribution, 2017Q1-2018Q4

Transport
Info. & Comm
Accom &
Comm
Finance &
Insurance
Real Estate
Prof, Sci & Tech
Service
Admin &
Business
Support
Public Admin
Education
Health & Social
Service
Arts,
Entertainment
& Recreation
Other Services
Per cent
Q1-2017
Q2-2017
Q3-2017
Q4-2017
Q1-2018
Q2-2018
Q3-2018
Q4-2018
Q1-2019
Q2-2019
Q3-2019
Q4-2019
Source: CBN
2.2.6
OIL SECTOR
During the review period, the oil sector
witnessed
relative
stability
due
to
improved production and reduced
volatility in oil prices. The improved
production was a result of relative
peace in the oil producing areas, the
resuscitation of Egina oil field and
enactment of the Deep Off-shore and
Inland
Basin
Production
Sharing
Contract
Act
2019,
which
made
changes to the royalty rates paid by
firms
operating
under
production
sharing
contracts.
Consequently,
average crude oil production grew to
2.04 mbpd in the third quarter of 2019
compared with 1.94 mbpd in the
corresponding period of 2018. This
represented an increase relative to the
2.02 mbpd in the preceding quarter. In
the fourth quarter of 2019, crude oil
production
averaged
2.00
mbpd,
higher
than
1.91
mbpd
in
the
corresponding period of 2018 but
slightly lower than the 2.02 mbpd
recorded in the preceding quarter.

Oil
prices
in
the
review
period
fluctuated moderately due to tensions
in the Middle-East and the extension of
the Organization for the Petroleum
Exporting Countries (OPEC) production
cut. As a result, global oil prices
fluctuated largely within the range of
US$51-70 per barrel (pb). The upward
push on oil price levels in the third
quarter
of

was
however,
moderated by the continued high
investment in shale oil by the US. The
average price of Nigeria’s reference
crude, the Bonny Light 370API which
was at US$66.10 per barrel (PB) in July
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2019,
declined
marginally
to
US$65.27pb in September and peaked
at US70.39pb in December. Overall, the
average price of Bonny Light at
US$64.98pb in the second half of 2019
was US$4.98pb above the Federal
Government of Nigeria’s 2019 budget
benchmark
of
US$60.0pb.
This
compares with the average price of
US$65.77pb in the preceding half year.


Figure 2.7
Quarterly Domestic Oil Production (2017Q12019Q4)

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

Figure 2.8
Monthly Bonny Light Oil Price, July - December

Source: CBN


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BOX 1
IMPLICATIONS OF THE LAND BORDER CLOSURE FOR THE NIGERIAN ECONOMY
On 20 August 2019, Nigeria imposed restrictions on cross-border trade with its
neighbors through the partial closure of its land borders with Benin, Togo, Niger,
Cameroon and Chad. The decision was predicated on the need to address an
array of trade-related and security concerns mostly emanating from these
countries, whose economies had become dependent on Nigeria mostly through
unrecorded cross-border activities.

On trade, the need arose to stem the irate spates of illicit smuggling of
unauthorized goods into and out of the country, particularly facilitated by the lax in
security and enforcement around the borders. In particular, unrestricted smuggling
of cheap substitutes for staple food commodities into the country undermines
significant investments made to boost local production and attain self-sufficiency in
food production over the years. Another dimension of illicit trade practices across
the neighboring borders was the perennial export of subsidized petroleum products
and its subsequent resale in neighboring countries, thereby undermining the
petroleum subsidy scheme of the Federal Government of Nigeria.

National security concerns formed another major reason underlying the decision to
close the land borders. Existing protocols and provision of the Economic
Community of West African States (ECOWAS) permit Intra–regional movement
within West African sub region without a Visa. However, the informality and
clandestine nature of movements of casual workers, traders, Professionals and
refugees from one country to another though the land borders makes monitoring
and documentation of such movements an intractable challenge to the Customs
authority. However, the growing waves of criminality, kidnappings and banditry
across the country had been linked to the unfettered movements of foreign
nationals across Nigeria’s land borders, hence the need to restrict such movement
and divert them through the official air and sea ports of entry, where such can be
properly monitored and documented. Relatedly, they had been recorded
incidences of illicit smuggling of small arms and light weapons across the borders.

Analysis of the upsides and downside effects of the land border closure on the
macroeconomy have since proliferated, making it difficult to ascertain the proper
policy implications. However, consensus exists that the land border closure is a
temporary and short term measure put in place pending when Nigeria and its
frontier neighbors will find a common ground on the enforcement of regional
protocols on the cross-border transit of persons and goods.

On the upsides, the land border closure had significantly curbed smuggling and
illicit trade practices along the nation’s border corridor, translating into higher
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customs revenue from the seaports, which became the most viable entry and exit
points for trade between Nigeria and her neighbors. The Nigerian Customs Service
(NCS) indicated that it has recorded an unprecedented levels of revenue
generation since the land border closure. The NCS stated that daily customs
revenue has remained at an unprecedented average of between N4.7 and N5.8
billion since the border was closed. This development supports the revenue
generation drive to meet the yawning gaps in development financing needs of the
Federal Government of Nigeria.

The land border protectionist policy holds potentials for bolstering domestic food
production and national productivity levels in all sectors. The restriction of cheap
imports of products for which local production capacities exist offers competitive
advantage and expanded markets for local import substitution industries and
agricultural output, across their respective value chains. This goes a long way to
complement the non-oil export diversification drive of the government and the
various development financing activities of the Central Bank of Nigeria towards
developing the real sector of the economy to become a veritable source of
foreign exchange earnings.

Another significant payoff of the land border closure is the drastic reduction in
domestic consumption levels of petroleum products and the subsequent foreign
exchange savings on payment of subsidies on imported refined petroleum
products. Unrestrained cross border movements of refined petroleum products out
of the country had implied Nigeria had hitherto been subsidizing fuel consumption
in its neighboring countries. According to reports, sales of gasoline in Nigeria fell by
12.7% after the land border closure. Estimates of this reduction translate to monthly
subsidy savings of about $37million or $445 million annually.

On the downsides, the implementation of the land border closure policy has
witnessed an uptick in domestic inflation, mainly being fueled by increases in food
prices. Available price statistics from National Bureau of Statistics indicated that
following the implementation of the boarder closure policy in August 2019, the
food component of the inflation index increased to 13.51% in September 2019 from
13.2% in August 2019 and then to 14.09% in October 2019. Food inflation further
rose to 14.48% in November to close the year at 14.67% in December 2019. The NBS
reports had indicated that staples like rice, poultry products, frozen fish, cooking
oil/fats and bread/cereals which are the most smuggled products led the increase
in prices nationally. This was likely due to the fact that local productive capacities
for these food items were particularly not ready to cope with the sudden increase
in demand that the land border closure occasioned and have not been able to
expand inventories to take advantage of it in the short run, hence the spiral into
food inflation.
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Another major disadvantage of land border closure is the disruptions caused to the
huge volume of informal trade and thus livelihood of people that depend on such
trade along Nigeria’s border corridor. While paucity of reliable data does not
enable an accurate quantification of informal cross border trade, anecdotal
evidence suggest that it might be twice as much as the size of the formal trade
flows, and with thousands of the populace depending on such trade for daily
livelihoods. Similarly, the closure has negatively affected many businesses that buy
their raw materials from Nigeria’s neighbors and others small scale enterprises
(SMEs) that exports their output to neighboring countries through informal cross
border trade. Thus, the persistence of the land border closure will worsen the
already precarious unemployment situation in the country.
At the level of regional and international cooperation, unilateral border closure
remains inconsistent with Nigeria’s key multilateral commitments. Under the
ECOWAS Protocol, member states have expressed their commitments to the
establishment of a common market, including the liberalisation of trade by
abolition of customs duties levied on imports and exports, and the abolition,
among Member States, of non-tariff barriers in order to establish free trade. Also,
Nigeria’s membership of the World Trade Organization (WTO) since 1995, is
obligated to comply with similar commitments at a multilateral level. More
particularly, the action is being viewed negatively as an early warning signal that
can undermine the realization of the lofty goals of recently signed African
Continental Free Trade Agreement (AfCFTA).


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CHAPTER THREE

3.0
PRICE DEVELOPMENTS

he benign inflation environment
witnessed
in
the
first
half
dramatically reversed during the
second half of 2019 following a buildup of inflationary pressures in the
domestic
economy.
There
was
a
noticeable and consistent inflationary
trajectory towards the upper band of
the inflation threshold of 12 per cent2,
implying the need to prioritize price
stability in the policy mix by the
monetary
authority.
In
effect,
inflationary pressure in the domestic
economy continued in the second half
of 2019, despite the Bank’s relatively
tight
monetary
policy
stance.
All
measures of inflation trended upwards,
with
headline
inflation
consistently
above the upper limit of the Bank’s
indicative benchmark of 6 - 9 per cent.
Overall, domestic price developments
reflected the interplay of both supply
and demand side factors.
On the supply side, closure of the
country’s
land
borders
significantly
influenced price developments in the
second
half
of
2019.
The
announcement of the border closure
introduced supply-side shocks owing to
the high volume of imports through the
land border and the relatively high
import content in the consumption

2 Several studies indicated an inflation threshold
of 12 per cent for Nigeria (see Doguwa, I.S.
“Inflation and Economic Growth in Nigeria:
Detecting the Threshold Level”, CBN Journal of
Applied Statistics Vol.3 No.2, pp 99-124).
basket of households in Nigeria. Other
structural factors were: the continued
insurgency in the North-East region,
armed banditry and kidnapping in rural
communities across the country, as well
as the activities of herders, all of which
affected
food
production
and
distribution. The inflationary pressure
was,
however,
moderated
by
continued
stability
in
the
foreign
exchange market. The naira exchange
rate
remained
stable
in
the
two
segments of the foreign exchange
market,
following
sustained
implementation of the Bank’s existing
measures and interventions to boost
foreign
exchange
liquidity
in
the
market. Other measures included the
sustained use of the Investors’ and
Exporters’ (I&E) window, restriction of
access to foreign exchange for 43
items, the use of Bank Verification
Number (BVN) in BDC transactions, and
sale of foreign exchange to BDCs by
the Bank and International Money
Transfer
Operators
(IMTOs).
Other
factors
were
the
build-up
of
expectations
in
relation
to
the
impending increase in electricity tariff
and the review of the Value Added Tax
(VAT)
rate
as
well
as
the
implementation of the new national
minimum wage.

On the demand-side, domestic prices
were influenced by developments in
the money market, characterized by
high
liquidity
despite
the
Bank’s
relatively tight monetary policy stance
during the review period. The Inter-Bank
Call and Open Buy Back (OBB) rates
generally
trended
downwards
on
T
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account of excess liquidity in the
banking system. The Bank’s use of
Open
Market
Operations
(OMO)
moderated money market liquidity and
reined in inflation. The net effect of
these developments was an upward
trend in inflationary pressures.

3.1
Trends in Inflation
Headline, core and food inflation
maintained an upward trend in the
second half of 2019, predominantly
driven by food inflation. The headline,
core
and
food
measures
of
the
consumer price index (CPI) stood at
307.47, 280.63 and 339.88, respectively,
in December 2019 compared with
292.62, 269.95 and 319.94 in July 2019.
Food inflation (year-on-year) thus, rose
by 1.28 percentage points from 13.39
per cent in July to 14.67 per cent in
December 2019. Core inflation also rose
by 0.53 percentage point from 8.80 per
cent in July to 9.33 per cent in
December 2019. As a result, headline
inflation increased by 0.90 percentage
point from 11.08 per cent in July to
11.98 per cent in December 2019
(Figure 3.1 and Table 3.1).

Table 3.1
Inflation Rates, July – Dec 2019
CPI
Y-on-Y 12MMA CPI
Y-on-Y 12MMA CPI
Y-on-Y 12MMA
Jul 2019

Aug 2019

Sep 2019

Oct 2019

Nov 2019

Dec 2019

Headline Inflation
Core Inflation
Food Inflation
Source: NBS

Figure 3.1
Headline, Core and Food Inflation Rates (July–
Dec 2019)

Source: NBS

3.1.1 Headline Inflation
Major
components
of
headline
inflation in the review period trended
upwards, driven mainly by Food & NonAlcoholic Beverages which rose from
7.36 per cent in July to 8.11 per cent in
December 2019. This was followed by
housing, water, electricity, gas & other
fuels, which increased from 1.20 per
cent to 1.28 per cent over the same
period (Table 3.2 and Figure 3.4).
Overall, headline inflation rose from
11.08 per cent in July to 11.98 per cent
in December 2019.

The rising trend in headline inflation in
the review period was largely due to
supply-side factors which included: the
Nigeria land border closure which put
upward pressure on the prices of food
and other imported items; continued
insurgency in the North-East; increasing
pace
of
armed
banditry
and
kidnapping; and activities of herders in
farming
communities
across
the
country, all of which adversely affected
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agricultural production and distribution,
thus, pushing the general price level
upwards.
The
demand-side
factors
were the increased fiscal liquidity from
rising FAAC disbursements and liquidity
surfeit in the banking system, both of
which exerted demand pressure on
domestic prices.

The Bank engaged in several policy
and operational measures to moderate
both the supply and demand side
pressures on domestic price levels.
Some
of
these
were:
sustained
intervention in the real sector to
improve the domestic supply of food;
and restriction of individuals and local
corporates from participation in Open
Market Operation (OMO) auctions to
curb the growth in money supply. In
addition,
the
Bank’s
continued
participation in the foreign exchange
market
helped
to
stabilize
the
exchange rate and moderate inflation
pass-through.

Table 3.2
Major Components of Headline Inflation ((Y-onY), July – December 2019
Headline
Food & NonAlcoholic BeClothing &er, Elect.GaFurnishing Health
Transport
Education
Jul 2019

Aug 2019

Sep 2019

Oct 2019

Nov 2019

Dec 2019

Change btw
July & Dec.


Source: NBS


Figure 3.2
Major Components of Headline Inflation (Y-on-Y),
Jul – Dec 2019

Source: NBS

On a month-on-month basis, headline
inflation declined from 1.01 per cent in
July to 0.85 per cent in December 2019.
The major drivers of the decline were
the prices of food and non-alcoholic
beverages, which fluctuated from 0.70
per cent in July to 0.55 per cent in
December; and Housing, Water, Elect.
Gas & Other Fuel, from 0.11 per cent in
July to 0.08 per cent in December 2019
(Table 3.3 and Figure 3.5). The declining
trend
in
month-on-month
headline
inflation contrasted with the rise in the
year-on-year measure. This is, however,
an indication that year-on-year inflation
is expected to decline in the near term.
This also implies that the current price
pressure is driven by transient factors.

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Table 3.3
Major Components of Headline Inflation (M-onM), July - December 2019
Headli
ne
Food
& NonAlcoho
lic Bev.
Alcoho
lic Bev.
Tobacc
o &
Kola
Clothi
ng &
footw
ear
Housin
g,
Water,
Elect.G
as &
Other
Fuel
Furnis
hings,
House
hold
Equip
&HH
Maint. Health
Transp
ort
Educat
ion
Jul-19

Aug-19

Sep-19

Oct-19

Nov-19

Dec-19

Chang
e btw
July &
Dec.
-0.16
-0.15

-0.02

Source: NBS

Figure 3.3
Major Components of Headline Inflation (M-onM), July – December 2019

Source: NBS

3.1.2 Food Inflation
Food inflation (year-on-year) rose from
13.39 per cent in July to 14.67 per cent
in December 2019, an increase of 1.28
percentage points. The major source of
the
increase
was
the
price
of
processed foods, which increased by
1.41 percentage points from 5.69 to
7.10 per cent. Farm produce, however,
declined by 0.14 percentage point
from 7.70 per cent in July to 7.56 per
cent in December 2019. The increase in
the price of processed foods was
accounted for by changes in the prices
of meat; oil & fats; and sugar, jam,
honey, etc. which rose by 0.16, 0.12
and
0.01
percentage
points,
respectively, during the review period.
The main factors responsible for the
increase in the price of processed food
were largely the unfavourable weather
conditions, effects of Nigeria’s land
border closure and seasonal spending
related
to
end-of-year
festivities,
despite the Bank’s sustained tight
monetary policy stance.

Table 3.4
Major Components of Food Inflation (Y-on-Y),
July - December 2019

Source: NBS

Figure 3.4
Major Components of Food Inflation (Y-on-Y),
July – December 2019

Source: NBS

In contrast to the year-on-year trend,
food
inflation
declined
by
0.28
percentage point on a month-onmonth basis, fluctuating between 1.26
per cent in July and 0.97 per cent in
December 2019. The key driver of the
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decline was farm produce which fell by
0.33 percentage point from 0.69 to 0.36
per cent. Within the farm produce
category, the decline was traceable
to: rice; millet; and yam, potatoes &
other tubers, which fell by 0.18, 0.14
and
0.05
percentage
point,
respectively. The price of processed
food,
however,
rose
by
0.04
percentage point from 0.57 per cent in
July to 0.61 per cent in December 2019.

Table 3.5
Major Components of Food Inflation (M-on-M),
July- December 2019

Source: NBS

Figure 3.5
Major Components of Food Inflation (M-on-M),
July - December 2019

Source: NBS


3.1.3
Core Inflation
Core inflation (year-on-year) trended
upwards from 8.80 per cent in July to
9.33 per cent in December 2019, an
increase of 0.53 percentage point. The
rise in core inflation was driven by
increases in processed foods (0.33
percentage point), Housing, Water,
Elect.
Gas
&
Other
Fuel
(0.09
percentage
point),
Clothing
&
footwear
(0.07
percentage
point),
Education (0.03 percentage point),
and Transport (0.02 percentage point).
Other components remained largely
stable (Table 3.6 and Figure 3.8). The
substantial
rise
in
the
prices
of
Processed
Food
and
Clothing
&
Footwear were traceable to the supply
shortage arising from the land border
closure. This was, however, moderated
by the Bank’s intervention programmes
to support domestic production, given
the country’s rich agro-ecology that
enables the cultivation of a variety of
agricultural substitutes. In addition, the
stability in the exchange rate doused
the inflation pass-through to domestic
prices.

Table 3.6
Major Components of Core Inflation
(Y-on-Y)July-December. 2019
Core
Processed
Food
NonAlcoholic
Beverages
Alcoholic
Bev.
Tobacco &
Kola
Clothing &
footwear
Housing,Wat
er, Elect.Gas
& Other Fuel
Furnishings,
Household
Equip &HH
Maint.
Health
Transport
Communic
ation
Recreation &
culture
Education
Restaurant
& Hotels
Misc
Goods &
Services
Jul 2019

Aug 2019

Sep 2019

Oct 2019

Nov 2019

Dec 2019

Change btw
July & Dec.


Source: NBS

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Figure 3.6
Major Components of Core Inflation
(Y-on-Y) July - December 2019

Source: NBS

On a month-on-month basis, core
inflation, increased by 0.04 percentage
point from 0.77 per cent in July to 0.81
per cent in December 2019. Housing,
Water, Elect. Gas & Other Fuel was the
major driver, rising from 0.15 per cent in
July to 0.17 per cent in December 2019.
Others were Transport, Health and
Education
which
rose
by
0.01
percentage
point
a
piece,
while
processed
food
declined
by
0.04
percentage point (Table 3.7 and Figure
3.7).

Table 3.7
Major Components of Core Inflation
(M-on-M) July - December. 2019
Core
Processed
Food
NonAlcoholic
Beverages
Alcoholic
Bev.
Tobacco &
Kola
Clothing &
footwear
Housing,Wat
er, Elect.Gas
& Other Fuel
Furnishings,
Household
Equip &HH
Maint.
Health
Transport
Communic
ation
Recreation &
culture
Education
Restaurant
& Hotels
Misc
Goods &
Services
Jul 2019

Aug 2019

Sep 2019

Oct 2019

Nov 2019

Dec 2019

Change btw
July & Dec.


Source: NBS
Figure 3.7
Major Components of Core Inflation
(M-on-M) July – December 2019

Source: NBS

3.1.4 Seasonally-Adjusted Inflation
In the review period, actual and
seasonally-adjusted
measures
of
headline inflation trended upwards, in
contrast to the downward trend in the
first half of 2019 (Table 3.8 and Figure
3.8). Actual headline inflation in the
second half of 2019, however, trended
above
the
seasonally-adjusted
measure, indicating the presence of
seasonal
price
pressures.
Prior
to
September
2019,
actual
headline
inflation was below the seasonallyadjusted measure, indicating that the
seasonal adjustment was effective in
addressing seasonal factors. However,
following the land border closure in
August and its subsequent knock-on
effect
on
prices,
actual
headline
inflation rose above the seasonallyadjusted measure. Other contributory
factors to the rise were: increased
spending associated with end-of-year
festivities; rising food prices due to
production and distribution challenges
in some parts of the country; as well as
insurgency in the north-east region.


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Table 3.8
Actual and Seasonally Adjusted Headline
Inflation July – December 2019

Date
Inflation SA
Inflation
Jul-19
11.08
11.29
Aug-19
11.02
11.27
Sep-19
11.24
11.27
Oct-19
11.61
11.30
Nov-19
11.85
11.35
Dec-19
11.98
11.40
Source: NBS

Figure 3.8
Actual and Seasonally Adjusted Headline
Inflation July – December 2019

Source: NBS

3.2
Key
Factors
that
Influenced
Domestic Prices
A combination of cost-push, demandpull and moderating factors influenced
inflationary developments in the review
period. The net effect of the interplay
of these factors was a rise in headline
inflation. A summary of the key factors
included: the effect of the land border
closure; production and distribution
challenges due to insurgency in the
North
East,
armed
banditry
&
kidnapping; as well as herders attack
on farming communities across the
country. Others were: the persistent
surfeit of liquidity in the banking system;
fiscal
injections
due
to
FAAC
allocations; and the impact of festive
and
other
seasonal
activities.
To
moderate
these
forces,
the
Bank
continued its intervention in the real
sector,
while
maintaing
a
tight
monetary policy stance and stable
exchange rate regime.

3.2.1 Demand-side Factors
The demand-side factors that drove
headline inflation in the review period
were: improved Federal Government
capital spending supplemented by the
effect of other injections such as
payments of outstanding salaries and
contractor obligations by Government
and
implementation
of
the
new
national
minimum
wage,
amongst
others. To moderate the impact of
these factors, the Bank maintained a
tight monetary policy stance and
stable exchange rate regime to help
rein-in inflation.

3.2.2. Supply-side Factors
The supply side factors which drove
prices in the upward direction in the
review period were largely the decision
of the Federal Government to close her
land
borders
with
neighbouring
countries
and
heightened
security
challenges in the country. Both factors
affected
supply
thereby
putting
upward pressure on prices. In addition,
unfavourable weather conditions in the
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review period affected agricultural
output. Furthermore, the build-up of
expectations
in
relation
to
the
impending increase in electricity tariff
and the review of the Value Added Tax
(VAT) rate affected inflation outcomes.

3.2.3 Moderating Factors
The relative stability so far achieved in
the foreign exchange market as well as
the sustained tight monetary policy
stance of the Bank helped to moderate
pressure on domestic prices in the
review period. In addition, the early
passage and implementation of the

budget
improved
investor
confidence in the economy, thereby
removing
uncertainties
about
the
policy direction of Government in the
fiscal year.


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CHAPTER FOUR
4.0 MONETARY POLICY AND LIQUIDITY
MANAGEMENT

n the second half of 2019, monetary
policy design and implementation
was
shaped
by
fundamental
developments
in
the
global
and
domestic
economic
and
financial
environments.
These
developments
pointed to continuing imbalances in
the global economy as reflected in
sluggish
output
growth,
rising
vulnerabilities in the financial markets,
weakening multilateralism and growing
unfair trade practices. The imbalances
and efforts to address them, further
gave rise to uncertainties as reflected
in the lingering BREXIT negotiations,
regional hostilities in the Middle East,
increased political tensions between
the US and Iran and rising public debt
levels as well as the trade war between
the US and China. Consequently, in an
environment of subdued growth and
weak
aggregate
demand,
major
advanced economy central banks
sustained the softening of monetary
policy in order to support flagging
growth.
The
EMDEs
witnessed
weakening commodity prices which,
coupled
with
growing
global
uncertainties, fueled exchange rate
and inflationary pressures leading a
majority
to
maintain
a
nonaccommodating
monetary
policy
regime.

On the domestic scene, growth also
remained sluggish in an environment of
heightened inflationary pressure, weak
credit growth, rising public debt and
accommodative fiscal stance. These
conditions were symptomatic of an
economy transiting from recession to
growth. Although the financial system
experienced
moderate
stability
as
reflected in relative stability in the
foreign
exchange
market
and
reduction in non-performing loans, the
bearish
capital
market
indicated
underlying vulnerabilities. The need to
support the financial system as well as
achieve price stability consistent with
non-inflationary
output
growth,
informed
monetary
policy
management by the Bank during the
review period.

4.1
DECISIONS
OF
THE
MONETARY
POLICY COMMITTEE (MPC)
Monetary policy was influenced by a
number of major developments in the
global and domestic economic and
financial
environments
during
the
second half of 2019. These included:
rising
trade
tensions,
particularly
between the US and its key trading
partners; growing uncertainties around
BREXIT; rising public debt levels in some
Advanced Economies and Emerging
Markets and Developing Economies
(EMDEs);
and
growing
political
uncertainties across several regions.
Other factors were: increasing political
tensions between the US and Iran;
heightened financial market fragilities;
rising corporate and public debt levels;
downturn
in
global
manufacturing;
sustained downward pressure on oil
prices;
subdued
growth
in
the
I
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European
Union
and
Japan;
and
dampening output growth in China.
On the domestic front, the challenges
were: slow private sector credit growth;
high unemployment; delayed fiscal
policy intervention arising from low
revenue and lack of fiscal buffers; high
cost
of
energy,
transport
and
production
inputs;
heightened
insecurity across the country; mild
resurgence of anticipated inflationary
pressures
towards
the
December
festive season; rising public debt; and
slow pace of oil price recovery.

These challenges and the need to
achieve the Bank’s objective of price
stability conducive to sustainable and
inclusive economic growth were the
key considerations that shaped the
design
and
implementation
of
monetary policy in the review period.

4.1.1 July 2019 MPC Meeting
The July 22 and 23, 2019 Monetary
Policy
Committee
(MPC)
meeting
reviewed international and domestic
economic
developments
in
an
environment of subdued global growth
and
fragile
domestic
economic
recovery. On the global front, output
growth remained weak, leading to the
downgrade of 2019 global growth
forecast to 3.3 per cent from 3.6 per
cent by the International Monetary
Fund (IMF). The weak growth outcome
was
traceable
to
a
number
of
headwinds
including
rising
trade
tensions between the US and its key
trading partners, rising public debt
levels in many Advanced Economies
and Emerging Markets and Developing
Economies (EMDEs) as well as growing
political uncertainties across several
regions. Global inflation, particularly in
the advanced economies, continued
to trend downwards and significantly
below
the
long-run
objective,
necessitating
a
gradual
return
to
accommodative monetary policy. The
Committee observed that if the trend
persists, the global economy is poised
for another round of loose monetary
policy.

At the domestic scene, the Committee
welcomed
the
continued
output
recovery, as data from the National
Bureau of Statistics (NBS) showed that
real Gross Domestic Product (GDP)
grew by 2.01 per cent in the first quarter
of 2019 compared with 2.38 and 1.89
per
cent
in
the
preceding
and
corresponding
quarters
of
2018,
respectively. The growth was driven by
the non-oil sector. The MPC was also
optimistic
about
the
prospects
of
continued
output
expansion
as
indicated by the Manufacturing and
Non-Manufacturing
Purchasing
Managers’ Indices (PMI), which grew
for the 27th and 26th consecutive
months in June 2019, at 57.4 and 58.6
index points, respectively. It, however,
noted the downside risks to the growth
outlook to include: slow private sector
credit growth; high unemployment;
and delayed fiscal policy intervention
arising from underlying challenges of
low
revenue
and
fiscal
buffers;
amongst
others.
The
Committee
believes that in the short run, the
continued intervention by the Bank in
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the real sector would partly ameliorate
these downside risks, while sound fiscal
policy is expected to drive growth in
the medium to long-run.

On price developments, the MPC was
pleased
with
the
moderation
in
headline inflation rate (year-on-year) to
11.22 per cent in June from 11.40 per
cent in May 2019. This was attributed to
the decline in both the Food and Core
components to 13.56 and 8.80 per cent
in June, from 13.70 and 9.03 per cent in
May 2019, respectively. The Committee
partly
attributed
this
favourable
outcome to the CBN’s support to the
real
sector,
particularly
agricultural
production, as well as the prevailing
stability
in
the
Nigerian
foreign
exchange market.

Developments in the financial market
and financial stability indicators also
received the attention of the MPC. In
the financial market, the MPC was
concerned about bearish trend in the
equities segment of the capital market
in spite of the sustained capital inflow
into the economy, reflecting continued
portfolio reallocation from equities to
fixed income securities. As a result, the
All-Share Index (ASI) declined by 9.11
per cent to 28,566.79 index points on
July 12, 2019, from 31,430.50 index
points at end-December 2018. Market
Capitalization, however, grew by 18.77
per cent to N13.92 trillion from N11.72
trillion over the same period, due
largely to the additional listing of new
firms.

The
Committee
welcomed
the
continued
stability
in
the
foreign
exchange market and the steady
accretion to external reserves, which
stood at US$44.88 billion as at July 19,
2019, representing a 0.38 per cent
increase from US$44.71 billion at endJune 2019. In addition, the MPC noted
the steady moderation in the NonPerforming Loan (NPL) ratio of the
banking industry to 9.36 per cent in
June from 10.95 per cent in May 2019.

The
Committee’s
considerations
centered on the need to stabilize the
domestic
macro-environment,
while
addressing emerging developments in
the African region. Accordingly, the
MPC emphasized the need to boost
output
growth
through
sustained
increase in consumer and mortgage
lending as well as loans to Small and
Medium-scale Enterprises. In this regard,
it observed the Bank’s prescription of
new benchmark for loan-to-deposit
ratio in order to redirect the focus of
deposit
money
banks
(DMBs)
to
lending. The MPC further noted that
although inflation moderated in June
2019, the pressure on prices continued
to be associated with structural factors
including the high cost of electricity,
transport, and production inputs.

On
the
fiscal
challenges,
the
Committee urged the fiscal authorities
to
expedite
action
to
improve
government revenue by expanding the
economy’s tax base to stem the
growth
in
public
borrowing.
The
Committee also called on the Bank to
intensify efforts to encourage Nigerians
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in the diaspora to use official channels
for home remittances, as this will
complement
other
measures
to
improve
Nigeria’s
current
account
balance.

On the African Continental Free Trade
Agreement
(AfCFTA),
which
the
country
recently
signed,
the
Committee
urged
the
Federal
Government to put in place necessary
measures aimed at realizing its full
benefit
and
potentials
for
the
economy. In particular, the MPC noted
the need to resuscitate moribund
industries in Nigeria and improve key
infrastructure
to
strengthen
the
productive base of the economy,
create job opportunities and boost
exports.
Relatedly,
the
Committee
welcomed the positive developments
towards the creation of a common
currency in the West African sub-region
by January 2020 and commended the
Federal Government and the Central
Bank of Nigeria for pushing forward the
initiative.

The policy options for the MPC at this
meeting were to tighten, loosen or hold
policy. In this regard, the Committee
was mindful of the emerging reality
from its assessment that whilst the focus
on
growth
was
imperative,
the
mandate of price stability remains
sacrosanct. The MPC believes that
considering the developments in the
external sector and the fact that
inflation was moderating, tightening of
monetary policy may not be an option
as it could restrict DMBs’ capacity to
create money and credit to support
the slowly recovering economy. On the
other hand, the Committee believes
that whilst loosening could increase
money supply, stimulate aggregate
demand
and
strengthen
domestic
production, the economy could be
awash
with
liquidity
especially
if
loosening drives growth in consumer
credit without commensurate increase
in aggregate output. The argument to
hold was partly anchored on the
recent
actions
of
the
Bank’s
management involving the prescription
of
minimum
threshold
of
loan-todeposit ratio for Deposit Money Banks
(DMBs). The MPC was of the view that
this action, targeted at stimulating
credit growth to the real sector and
accelerate investment, needs to be
supported and sustained.

Based on the foregoing, the MPC
decided by a vote of all eleven (11)
members
to
keep
the
policy
parameters unchanged. Thus, the MPC
retained the MPR at 13.5 per cent; the
asymmetric corridor of +200/-500 basis
points around the MPR; the CRR at 22.5
per cent; and the Liquidity Ratio at 30
per cent.

4.1.2 September 2019 MPC Meeting
At the 19th and 20th September, 2019
MPC meeting, developments in the
global
and
domestic
economic
environments were analyzed in the light
of softening global output growth and
weaker-than-anticipated
domestic
output recovery. On the global front,
the Committee observed a buildup of
vulnerabilities
in
major
Advanced
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Economies and the potential for spillovers to the Emerging Markets and
Developing
Economies
(EMDEs).
Accordingly, the MPC noted that
output growth across major advanced
economies remained subdued, owing
to legacy headwinds, including the
subsisting trade war between the US
and China, regional hostilities in the
Middle-East, rising public debt levels,
growing uncertainties around BREXIT
and
increasing
political
tensions
between the US and Iran. In the EMDEs,
output growth was broadly mixed. As a
result, the International Monetary Fund
(IMF) further revised its global growth
forecast for 2019 downwards by 0.1
percentage point to 3.2 per cent. Price
developments
continued
to
soften
across
the
major
advanced
and
emerging
market
economies
as
aggregate
demand
weakened,
resulting in a unified response by major
central banks towards accommodative
monetary policy.

On the domestic economy, data from
the National Bureau of Statistics (NBS)
showed
that
real
Gross
Domestic
Product (GDP) grew by 1.94 per cent in
the second quarter of 2019, compared
with 2.10 and 1.50 per cent in the
preceding and corresponding quarters,
respectively. The growth was driven
mainly by the oil sector, which grew by
5.15 per cent, while the non-oil sector
grew by 1.64 per cent. In September
2019, the Manufacturing and NonManufacturing Purchasing Managers’
Indices (PMI) grew moderately to 57.7
and 58.0 index points, respectively.
Overall, the MPC noted that the weak
domestic growth was consistent with
global trends of dampening output
growth.

On price developments, the MPC
noted the continued moderation in
headline inflation (year-on-year) to
11.02 per cent in August 2019 from
11.08 per cent in July 2019, driven by
decline
in
the
food
and
core
components to 13.17 and 8.68 per cent
in August from 13.39 and 8.80 per cent
in
July
2019,
respectively.
The
Committee
observed
that
developments in the food and core
components of inflation was partly due
to improved agricultural production,
supported by the Bank’s sustained
intervention in the sector as well as the
continued
stability
in
the
foreign
exchange market. The Committee,
however, noted that rising insecurity in
the food producing areas of the
country, increased liquidity injection
from
FAAC
disbursements
and
bunching of capital releases due to the
late budget cycle were putting upward
pressure on prices.

In the financial market, the MPC
observed the continued bearish trend
in the equities segment, while noting
the increased activity in the sovereign
bonds
segment,
reflecting
investor
preference for fixed income securities.
Consequently, the All-Share Index (ASI)
declined by 11.62 per cent to 27,779.00
index points on September 13, 2019,
from 31,430.50 index points at endDecember 2018. Market Capitalization
(MC), however, grew by 15.37 per cent
to N13.62 trillion from N11.72 trillion over
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the same period. The increase in
market capitalisation was attributed to
the listing of 2.75 billion ordinary shares
by Airtel Africa in July 2019.

The Committee observed that broad
money supply (M3) growth annualized
to 8.48 per cent, but remained below
the 2019 indicative benchmark of 16.08
per cent. The development was largely
driven by the 24.36 per cent increase in
Net Domestic Credit (NDC) by August
2019 from the level at end-December
2018. Further analysis showed that the
growth in NDC stemmed from the
significant increase of 94.33 per cent in
credit to Government against 9.36 per
cent increase in private sector credit.
With this pattern of growth in monetary
aggregates, the Committee urged the
Management of the Bank to explore
new initiatives to improve lending to
the
private
sector,
while
urging
Government
to
seek
alternative
funding options outside the banking
sector.

In its considerations, the Committee
noted the delay in implementation of
the 2019 budget as partly responsible
for the decline in output growth in the
second quarter of 2019, although the
growth was an improvement over that
of the corresponding quarter of 2018.
The MPC urged the Bank to sustain its
intervention in the real sector of the
economy to reduce the output gap
and enable a moderation in price
development.

On
financial
system
stability,
the
Committee noted the improvements in
the financial soundness indicators and
urged the Bank to sustain its regulatory
surveillance. On this note, it applauded
the recent directives to deposit money
banks to increase their Loan-to-Deposit
Ratio (LDR), while underscoring the
need to grow consumer, mortgage
and
corporate
credit
to
reduce
unemployment,
drive
aggregate
demand and increase output growth.
The
MPC
also
commended
the
introduction of the Global Standing
Instruction (GSI) initiative aimed at derisking
credit
in
the
industry
by
committing bank customers to repay
their loans.

The MPC further emphasized the critical
need for urgent steps towards creation
of more jobs in the country to reduce
unemployment and insecurity. As an
interim solution, the Committee called
on Government at all levels to ratchet
up public works programmes aimed at
easing
the
threat
of
rising
unemployment in the country. The MPC
also noted the Government’s current
drive to increase Value Added Tax
(VAT), adding that this will improve
fiscal revenue, support Government
expenditure and reduce the budget
deficit. With projections from the oil
futures market indicating that oil prices
will remain tight around the budget oil
price benchmark, the MPC urged the
National Assembly to exercise restraint
from increasing the oil price budget
benchmark
to
avoid
budgetary
overruns at the implementation stage
of the budget. The Committee further
called on the Government to urgently
build fiscal buffers by purposefully
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freeing-up
redundant
public
assets
through an efficient, effective and
transparent privatization process.

In reaching its decision, the Committee
assessed the options to tighten, loosen
or hold. The MPC felt the imperative to
tighten given that inflation at 11.02 per
cent in August remained above the
Bank’s target range of 6-9 per cent and
the relatively weak crude oil price had
slowed
accretion
to
reserves
considerably. On the contrary, the
Committee was of the view that with a
fragile
growth
outlook,
tightening
would increase the cost of credit,
contract
investment
and
constrain
output growth. The Committee felt that
loosening will increase system liquidity
and heighten inflationary pressures in
the economy. On the option to hold,
the MPC felt that this would allow a
clear understanding of the volume and
timing of liquidity injections into the
economy, before deciding on possible
adjustments to the stance of monetary
policy. The Committee was also of the
opinion
that
retaining
the
current
position of policy offers a pathway to
appraising the impact of the Bank’s suit
of heterodox monetary policies to
encourage credit flow to the real
sector, especially in the light of the
subsisting implementation of the Loanto-Deposit Ratio policy.

Consequently, the MPC decided by a
unanimous vote to retain the Monetary
Policy Rate (MPR) at 13.5 per cent and
to hold all other policy parameters
constant. Thus, the Committee voted to
retain the MPR at 13.5 per cent; the
asymmetric corridor of +200/-500 basis
points around the MPR; the CRR at 22.5
per cent; and the Liquidity Ratio at 30.0
per cent.

4.1.3 November 2019 MPC Meeting
The MPC meeting of 25th and 26th
November

appraised
developments in both the global and
domestic economies as well as the
outlook for the rest of 2019 and the first
quarter of 2020. On the global front,
output growth remained weak due to
the impact of a number of factors
which
included:
the
trade
war
between the US and China; growing
vulnerabilities in the financial markets;
downturn
in
global
manufacturing;
slowdown in energy demand in China;
sustained downward pressure on oil
prices; and uncertainty around BREXIT.
These headwinds resulted in slowing
global trade, weakening aggregate
demand
and
contraction
in
the
aggregate supply chain. In the light of
these
developments,
the
IMF
in
October further revised global growth
forecast for 2019 downwards to 3.0 per
cent from its previous projection of 3.2
per cent in July 2019.

In the Advanced economies, inflation
remained subdued and well below
their
long-run
objectives
with
unemployment trending mostly below
the Non-Accelerating Inflation Rate of
Unemployment (NAIRU). As such, the
recent
trend
towards
monetary
accommodation by key central banks
is expected to continue into the
foreseeable future. In major EMDEs,
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however, prices trended upwards with
output
gaps
widening
and
unemployment
remaining
relatively
high.
On the domestic front, data from the
National Bureau of Statistics (NBS)
showed
that
real
Gross
Domestic
Product (GDP) grew by 2.28 per cent in
the third quarter of 2019, compared
with 2.12 in the preceding quarter and
1.81 per cent in the corresponding
quarter of 2018. The improved growth
was driven largely by the performance
of the oil sector, which grew by 6.49 per
cent, while the non-oil sector grew by
1.85 per cent. The Manufacturing and
Non-Manufacturing
Purchasing
Managers’
Indices
(PMI)
also
expanded in October 2019. Headwinds
to
the
growth
outlook
included:
continued high level of unemployment,
mild resurgence of inflationary pressures
towards the December festive season,
rising
public
debt,
high
level
of
insecurity, and slow pace of oil price
recovery. Despite these headwinds,
growth is expected to pick-up on the
back of recent actions to boost credit
to the private sector through the Loanto-Deposit Ratio (LDR) and Global
Standing Instruction (GSI) initiatives,
sustained interventions by the Bank in
selected employment and growthenhancing sectors, as well as fiscal
policy measures to support growth.

On price developments, the MPC
noted the uptick in headline inflation
(year-on-year) from 11.24 in September
to 11.61 per cent in October 2019. The
seasonal end-of-year uptick in price
levels was accentuated by the border
closure, but expected to ease off in the
medium-to-long term as the economy
increases
investment
in
food
production.
Consequently,
food
inflation rose from 13.51 to 14.09 per
cent in September and October 2019,
respectively. Core inflation, however,
declined marginally from 8.94 to 8.88
per cent in September and October
2019, respectively.

In the financial markets, the MPC noted
that the persisting bearish trend in the
equities market began to abate in
November 2019. Consequently, the AllShare Index (ASI) grew by 2.41 per cent
to 26,991.42 index points on November
22, 2019, from 26,355.35 index points at
end-October
2019.
Market
Capitalization (MC) also grew by 1.54
per cent to N13.03 trillion from N12.83
trillion over the same period, due
largely to portfolio shift from short-term
Government securities to equities. The
Committee also noted the increased
patronage in the sovereign bonds
market in response to recent policy
measures.

The Committee equally noted the
improved resilience of the banking
system, as the Non-Performing Loan
(NPL) ratio declined further to 6.56 per
cent at end-October 2019 from 6.67
per cent at end-September 2019. It,
however,
noted
that
this
figure
remained
above
the
prudential
benchmark of 5.0 per cent, and thus
urged the Bank to sustain its current
prudential regime.

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In its consideration, the MPC assessed
the impact of the Bank’s monetary
policy
measures
in
achieving
macroeconomic and financial system
stability. The Committee noted the
success
of
home-grown
heterodox
policies such as the use of the GSI to
address the activities of serial borrowers
in the banking system; the LDR to
improve credit delivery to the real
sector by DMBs; the Differentiated Cash
Reserve Requirement (DCRR) to boost
investment
in
the
economy;
Development
Finance
Initiatives
in
agriculture, micro, small and mediumscale enterprises (MSMEs) and other
real sector activities; as well as the
restriction
of
local
corporate
and
individual investors from CBN OMO
auctions.

The MPC also took into consideration
the improvements in output growth in
the third quarter of 2019, noting that
the current direction of the Purchasing
Managers
Index
suggests
stronger
growth
in
the
fourth
quarter.
It,
however, re-emphasized the need for
diversification
to
strengthen
the
productive base of the economy and
reduce dependence on oil. As a key
pillar of economic diversification, the
MPC directed the attention of the fiscal
authorities to the immense potentials of
the gas sub-sector and the urgency to
encourage
horizontal
integration
through private sector participation.
This,
the
Committee
argued
will
improve domestic power supply and
export earnings. The Committee, called
on Government to urge the Pensions
Commission to improve the prudential
requirements
for
Pension
Fund
Administrators
to
refocus
their
investment
portfolios
away
from
Government securities to other viable
long-term investments in real estate,
manufacturing,
agriculture
and
infrastructure.
The
Committee
was
mindful of the prevailing inflationary
pressure from uptick in food prices
resulting from the recent land border
closure which constricts food supply,
coupled with seasonal rise in demand.
The MPC noted that the upward price
movement arising from the land border
closure
was
reactionary
and
temporary.
Moreover,
significant
investments
and
interventions
had
been made over the last three years to
sustainably increase domestic food
supply.

On the fiscal sector, the Committee
identified the need for institutional
reforms through policies that would
automate day-to-day processes of key
revenue-generating
and
security
agencies such as the Nigerian Customs.
In reaching its decision, the MPC
reviewed
the
upsides
and
the
downsides of the options to tighten,
loosen or hold. It was conscious that,
while
tightening
may
encourage
capital
inflows,
it
could
constrain
output growth. The Committee also
noted that a reduction in the policy
rate will improve growth prospects, but
will also put upward pressure on
inflation. The argument to hold was
anchored on the positive outcome of
actions already taken by the Bank,
especially the current policy on loan-todeposit ratio, which has resulted in
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aggregate loans and advances rising
by over N1.1trillion between June and
October 2019. These outcomes need to
be supported and sustained as they
have assisted in boosting credit to the
agricultural and manufacturing sectors.

Consequently, the MPC decided by a
unanimous vote to retain the Monetary
Policy Rate (MPR) at 13.5 per cent and
to hold all other policy parameters
constant. In summary, the Committee
retained the MPR at 13.5 per cent,
asymmetric corridor of +200/-500 basis
points around the MPR, CRR at 22.5 per
cent and Liquidity Ratio at 30.0 per
cent.

4.2.0
Instruments
of
Liquidity
Management
To achieve its objectives of price and
monetary stability, the Bank continued
to deploy its policy instruments in the
review period. These instruments were:
the Monetary Policy Rate (MPR); the
Standing Facilities window; the Cash
Reserve Ratio (CRR); Liquidity Ratio;
and Open Market Operations (OMO). It
also intervened periodically in the
foreign
exchange
market
to
complement these instruments.

4.2.1 Monetary Policy Rate (MPR)
The MPR remained the key instrument
for monetary policy management in
the review period. It was maintained at
13.5
per
cent
along
with,
the
asymmetric corridor of +200 and -500
basis points around the MPR throughout
the period. The retention signalled the
Bank’s commitment to sustain it existing
policies to support the macroeconomic
stability so far achieved.

4.2.2 Open Market Operations (OMO)
The
primary
tool
for
liquidity
management in the review period
remained the Open Market Operations
(OMO).
There
was,
however,
a
decrease in OMO sales by 24.79 per
cent to N8,895.99 billion in the second
half of 2019 from N11,827.64 billion in
the preceding half of 2019 (Table 4.1).
The development also represented a
decrease of 30.0 per cent compared
with the auction of N12,709.91 billion in
the corresponding period of 2018.

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Table 4.1
OMO Bills Auction (January – December, 2019)
(N’billion)
Date

%
Chan
ge
Jan

2,132.61

3,070.42
44%
Feb

845.28

3,474.13
311%
Mar

1,561.38

2,158.57
38%
Apr

2,084.46

841.21
-60%
May

2,033.42

1,152.67
-43%
Jun

1,086.61

1,130.64
4%
1st Half

9,743.76
11,827.6

21%
Jul
1,669.13
1,348.83
-19%
Aug
1,529.93
608.11
-60%
Sep
1,651.51
1,801.03
9%
Oct
1,743.64
1,962.21
13%
Nov
3,020.28
1,446.31
-52%
Dec
3,095.42
1,729.50
-44%
2nd Half
12,709.91
8,895.99
-30%
Cumulative
Figure
22,453.67
20,723.6

-8%
Source: CBN

Figure 4.1
OMO Bills Auction (July – December, 2019)

Source: CBN


4.2.3
Reserve Requirements
In the second half of 2019, the Bank
sustained the use of the Cash Reserve
Ratio (CRR) and the Liquidity Ratio (LR)
as
macro-prudential
and
liquidity
management tools to complement the
MPR and OMO auctions. The CRR was
maintained at 22.5 per cent and the
Liquidity Ratio at 30.0 per cent to curb
the persistent liquidity surfeit in the
banking system.

4.2.4
Standing Facilities
In the second half of 2019, the Bank
continued to deploy the standing
facilities (lending/deposit) window to
meet the daily liquidity requirements of
the Deposit Money Banks. During the
period,
the
asymmetric
corridor
remained unchanged at +200/-500
basis points around the MPR.

The value of request for Standing
Lending Facility (SLF), decreased by
37.83 per cent to N7,548.37 billion in the
second half of 2019 from N12,141.26
billion in the first half of 2019. This,
however, represented an increase of
62.15
per
cent
compared
with
N4,655.06 billion in the corresponding
period of 2018 (Table 4.2).

At the Standing Deposit Facility (SDF)
window,
the
volume
of
deposits
decreased by
49.52
per cent to
N4,072.20 billion in the second half of
2019 from N8,067.22 billion in the first
half of 2019. Compared with N10,194.71
billion in the corresponding period of
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CBN Monetary Policy Review

2018, it also decreased by 60.06 per
cent (Table 4.3).
Transactions
at
the
two
windows
resulted in a lower net lending of
N3,476.17 billion in the second half of
2019 compared with the net lending of
N4,074.04 billion in the preceding half
year, in contrast to the net deposit of
N5,539.65 billion in the corresponding
half year.

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

%
Change
Jan

833.09
3,232.63

Feb
1,020.15
3,328.80

Mar

952.23
1,955.75

Apr
1,145.52
2,011.93

May
1,847.69
896.82

Jun
1,228.78
715.33

1st Half
7,027.46
12,141.26
72.77%
Jul
441.10
1,508.97
Aug
53.04
3,201.93

Sep
483.40
1,497.88
Oct
864.80
343.57

Nov
684.70
720.58
Dec
2,128.02
275.44

2nd
Half
4,655.06
7,548.37
62.15%
Total
11,682.52


Source: CBN


Figure 4.2
Standing Lending Facility (July – December 2019)

Source: CBN

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

% Change
Jan
1,919.78
976.66

Feb
1,144.10
704.41

Mar
1,508.75
1,402.26

Apr
2,952.20
1,056.76

May
1,527.04
2,178.21

Jun
1,632.51
1,748.92

1st
Half
10,684.38
8,067.22
-24.50%
Jul
1,643.71
1,291.45

Aug
2,073.10
361.43

Sep
2,070.85
405.56

Oct
1,345.34
710.75

Nov
2,267.19
555.34

Dec
794.52
747.67

2nd
Half
10,194.71
4,072.20
-60.06%
Total
20,879.09
12,139.42

Source: CBN


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Figure 4.3
Standing Deposit Facility (July - December 2019)

Source: CBN

4.2.5
Foreign Exchange Intervention
In
the
review
period,
the
Bank
sustained its interventions in the foreign
exchange market under the flexible
foreign exchange management policy,
leading to stability in both the Bureaude-Change (BDC) and the Investors’
and Exporters’ (I&E) window. Additional
foreign
exchange
measures
were
implemented to strategically support
the signing-on of Nigeria to AfCFTA and
the progress towards a single currency
in the West African sub-region. In this
regard, the Bank participated in several
initiatives to improve trade facilitation,
and automated the Nigerian Export
Proceeds Form (Form ‘NXP’) for trade
monitoring
of
commercial
exports.
Other existing measures by the Bank
included the sustained use of the
Investors’
&
Exporters’
window,
restriction
of
access
to
foreign
exchange for 43 items, the use of Bank
Verification Number (BVN) in BDC
transactions,
and
sale
of
foreign
exchange to BDCs by the Bank and
International Money Transfer Operators
(IMTOs). The Bank also sustained the
repatriation of export proceeds as well
as return of unutilized foreign exchange
sourced
from
foreign
exchange
auctions to the CBN. Accordingly,
relative stability was maintained in the
foreign exchange market in the review
period.

Total
supply
of
foreign
exchange
increased
by
68.25
per
cent
to
US$14,113.31 million in the second half
of 2019 from US$8,388.50 million in the
first half of 2019. The development,
however, represented a decrease of
32.43
per
cent
compared
with
US$20,887.20
million
in
the
corresponding period of 2018 (Table
4.4). The increase in the supply of
foreign exchange was largely due to
the increased intervention in the review
period. The softening of monetary
policy stance in advanced economies
in the second half of 2019 resulted in
portfolio adjustments from equities to
bonds. The associated decline in longterm yields in the advanced economies
induced
capital
flows
towards
Emerging
Markets
and
Developing
Economies (EMDE) including Nigeria.
These flows moderated the impact of
declining oil prices on accretion to
reserves in the second half of 2019.


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

%
Chan
ge

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

Jan
1,343.12
1,480.92

Feb
1,237.26
1,932.96

Mar
1,300.93
1,159.78

Apr
1,422.35
1,244.32

May
2,039.51
1,455.05

Jun
2,156.75
1,115.47

1st
Half

Jul
2,966.31
2,160.21

Aug
3,733.66
3,160.16

Sep
3,868.67
1,985.79

Oct
3,481.15
1,908.88

Nov
3,617.03
2,317.46

Dec
3,220.38
2,580.81

2nd
Half
20,887.20
14,113.31

Source: CBN

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

Source: CBN


4.3.0
Developments
in
Monetary
Aggregates
The
major
monetary
aggregates
generally underperformed relative to
their benchmarks in the review period.
The broad measures of money supply
(M3) and (M2) growth rates were below
their indicative benchmarks for 2019.
The primary driver of the observed
underperformance
was
the
sharp
contraction in Net Foreign Assets (NFA),
which
was
moderated
by
the
significant growth in Net Domestic
Assets (NDA). The performance of NDA
was largely driven by the growth of
credit to government, as a result of
expansionary fiscal operations in the
face of revenue shortfalls. Sluggish
crude oil prices in addition to profit
taking and capital outflows contributed
to the steady decline in NFA in the
second half of 2019.
The underperformance of monetary
aggregates is indicative of insufficient
economic-wide liquidity to support the
realization of Federal Government’s
output
growth
target,
resulting
in
sluggish growth.

4.3.1
Broad Money (M3, M2)
The two broad measures of money
supply (M3) and (M2) were below their
indicative benchmarks for 2019. M3
grew by 2.10 per cent to N34,752.62
billion at end-December 2019 from
N34,036.80 billion at end-June 2019.
Compared with the end-December
2018 level of N32,717.20 billion, it
increased by 6.22 per cent, which is
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below the 2019 indicative growth
target of 16.08 per cent.

Similarly, M2 grew by 6.38 per cent to
N28,759.33 billion at end-December
2019 from N27,034.54 billion at endJune 2019. Compared with the endDecember 2018 level of N26,433.00
billion, it increased by 8.80 per cent,
which is below the 2019 indicative
growth target of 13.11 per cent.
The sluggish growth in the broad
monetary
aggregates
below
their
target growth rates in the second half
of 2019, is consistent with the pattern
observed in the first half of 2019. The
persistent under-performance clearly
re-affirms the indication of insufficient
money stock to support economic
activities needed to achieve the noninflationary
growth
objective
of
government,
notwithstanding
the
liquidity surfeit in the banking system.
This
pattern
of
growth
in
broad
monetary aggregates is indicative of
weak growth in credit to support output
growth.

Figure 4.5
Money Supply (M1), (M2) and (M3) (July -
December, 2019)

Source: CBN


Figure 4.6
Growth in Money Supply (M1), (M2) and (M3)
(July – December, 2019)

Source: CBN

4.3.3
Narrow Money (M1)
Narrow Money (M1) grew by 10.82 per
cent to N10,530.32 billion at endDecember 2019 from N9,502.16 billion
at end-June 2019. Compared with the
end-December 2018 level of N10,397.70
billion, it grew by 1.28 per cent, which is
below the indicative growth target of
17.20 per cent for 2019 (Figures 4.5 and
4.6). The performance of M1 is driven
by
growth
in
both
Currency-inCirculation
(4.86
per
cent)
and
Demand Deposits (28.38 per cent).

The trend is indicative of a slowdown in
economic
activities
as
well
as
increased use of e-payment channels.
The volume of e-payment transactions
increased by 4,408.1 per cent from
2,082.6 million at end-December 2018
to 93,885.1 million at end-December
2019. In terms of value, e-payment
transactions increased by 342.3 per
cent
from
N138,672.23
billion
to
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N613,401.95
billion
over
the
same
period.

4.3.4 Net Foreign Assets (NFA)
Net Foreign Assets (NFA) contracted
by 41.62 per cent to N5,806.32 billion at
end-December 2019 from N9,946.58
billion at end-June 2019. Compared
with the end-December 2018 figure of
N11,841.70 billion, it also contracted
50.97 per cent, significantly below the
2019 indicative growth target of 18.32
per cent. The under-performance of
NFA in the review period was attributed
to the huge decline of 163.17 per cent
in
net
foreign
assets
held
by
commercial
banks,
and
also
the
decline of 51.46, 15.57 and 10.71 per
cent in the net foreign assets held by
merchant
banks,
the
monetary
authorities and the non-interest banks,
respectively.

The poor performance of NFA relative
to its growth target can be attributed
to the steady decline in foreign reserves
in the second half of 2019. The decline
is as a result of the slowdown in
accretion to foreign reserves in the
wake of declining oil prices leading to
a build-up of pressure on the exchange
rate. The need to diversify the Nigerian
economy can no longer be overemphasized.

4.3.5
Net Domestic Assets (NDA)
Net Domestic Assets (NDA) increased
by 20.16 per cent to N28,946.30 billion
at end-December 2019 from N24,090.22
billion at end-June 2019. Compared
with the end-December 2018 figure of
N20,875.51 billion, NDA grew by 38.66
per cent, significantly above the 2019
indicative growth target of 13.34 per
cent.

Net Domestic Credit (NDC) increased
by 12.93 per cent to N36,182.59 billion
at end-December 2019 from N32,038.49
billion at end-June 2019. Compared
with the end-December 2018 figure of
N28,416.54 billion, NDC grew by 27.33
per cent, which is close to the 2019
indicative growth target of 29.41 per
cent. The difference between the NDA
and NDC is accounted for by the
growth in ‘net other liabilities’.

The revenue shortfalls as result of the
drop in oil prices in the second half of
2019 and increased expenditure due to
payments of outstanding contractor
obligations were the major reasons for
the
huge
increase
in
credit
to
government. Credit to the two tiers of
government
accounted
for
approximately 56 per cent of the
increase in Net Domestic Credit. As was
the case in the first half of 2019, the
increased growth rate of NDA vis-à-vis
its target in the second half of 2019 was
primarily attributed to credit to the two
main tiers of government.

Credit to the private sector, however,
improved considerably, accounting for
approximately 44 per cent of the
growth in NDC in the review period. This
reflects the impact of the Bank’s new
policy
on
loan-to-deposit
ratio
introduced in July 2019.


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Figure 4.7
Net Domestic Asset (NDA) (July – December,
2019)

Source: CBN

Figure 4.8
NDA, NDC and Other Assets (Net) (July –
December, 2019)

Source: CBN

4.3.6
Credit to the Government (Cg)
Credit to Government (Cg) in the
second half of 2019 grew by 23.95 per
cent to
N9,482.79
billion
at
endDecember 2019 from N7,650.62 billion
at end-June 2019. Compared with the
end-December 2018 figure of N4,914.71
billion, it grew by 92.95 per cent,
significantly above the 2019 indicative
growth target of 58.78 per cent. The
significant rise in Cg is attributed to
shortfalls in revenue and the need to
fund the growing budget deficit of the
Federal Government.

4.4.4
Credit to the Private Sector (Cp)
Credit to the private sector (Cp) in the
review period, increased by 9.48 per
cent to N26,699.79 billion at endDecember 2019 from N24,387.86 billion
at end-June 2019. Compared with the
end-December

figure
of
N23,501.83 billion, it grew by 13.61 per
cent, which is slightly below the 2019
indicative growth target of 14.49 per
cent.

Although both Cg and Cp grew, the
huge
increase
in
Cg
above
the
benchmark
in
the
review
period
indicated that government borrowing
was still crowding out private sector
credit. However, the CBN’s initiatives
and
intervention
programmes
to
improve credit to the real sector
moderated the crowding out effect of
Government borrowing.

Figure 4.9
Domestic Credit to Private Sector (July –
December, 2020)

Source: CBN
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4.4.5
Reserve Money (RM)
Reserve Money (RM) increased by
20.63 per cent to N8,669.83 billion at
end-December 2019 from N7,187.18
billion at end-June 2019. Compared
with its end-December 2018 level of
N7,180.01 billion, it grew by 20.75 per
cent,
significantly
below
the

indicative growth target of 56.74 per
cent. The underperformance of RM was
attributed to an increase in short-term
foreign liabilities. While bank deposits
increased
by
28.38
per
cent
to
N6,226.84 billion from N4,850.31 billion,
the moderate growth of RM in the
review period was due to the slow
year-on-year increase in currency-incirculation of 4.86 per cent from
N2,329.71 billion to N2,442.99 billion.
A summary of the major monetary
aggregates
and
their
provisional
outcomes as at end-December 2019 is
presented in Tables 4.5 and4.6.


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Table 4.5
The Monetary Aggregates Outcomes (Growth in % except otherwise stated)
Variables
Actual
Actual
Actual
Benchmark
H2:2019
Deviation
from
Benchmark
Change
in H2,
2019 over
H1, 2019
H2
H1
H2

M3 (N'b)

M3 (%)

M2 (N'b)

M2 (%)

M1 (N'b)

M1 (%)

RM (N'b)

RM (%)

NDC
(N'b)

NDC (%)

Cg (N'b)

Cg (%)

Cp (N'b)

Cp (%)

NFA (N'b)

NFA (%)

NDA
(N'b)

NDA (%)

Source: CBN


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

Overall
Monetary
Aggregates
Underperformed
The
underperformance
of
monetary
aggregates is indicative of insufficient
economic-wide liquidity to support the
realization of Government growth target,
resulting in sluggish growth.

Broad Money
(M3, M2)
Moderate
and
below target
The persistent under-performance clearly
indicates insufficient money stock to
support economic activities needed to
achieve
the
non-inflationary
growth
objective of government notwithstanding
the liquidity surfeit in the banking system.

Narrow Money
(M1)
Moderate
and
below target
The trend is indicative of a slowdown in
economic activities as well as increased
use of e-payment channels.

Net
Foreign
Assets (NFA)
Significantly
below target
The persistent weak NFA growth and the
associated reserves depletion could lead
to pressure on the naira and exacerbate
current inflationary uptick.

Net Domestic
Assets (NDA)
Above target
Largely driven by credit to government.
Revenue shortfalls as result of the drop in
oil prices in the second half of 2019 and
increased expenditure due to payments
of outstanding contractor obligations
were the major reasons for the huge
increase in credit to government.

Credit to the
Govt (Cg)
Overperformed
The significant rise in Cg is attributed to
shortfalls in revenue and the need to fund
the growing budget deficit of the Federal
Government.

Credit to the
Private Sector
(Cp)
Slightly
underperformed
Although both Cg and Cp grew, the
huge
increase
in
Cg
above
the
benchmark
in
the
review
period
indicated that government borrowing
was still crowding out private sector
credit. However, the CBN’s initiatives and
intervention
programmes
to
improve
credit to the real sector moderated the
crowding out effect of Government
borrowing.
Source: CBN

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BOX 2
IMPLICATIONS OF OMO RESTRICTIONS FOR MONETARY POLICY IN NIGERIA
Traditionally, Central Banks across the globe use Open Market Operations (OMO)
as an instrument for liquidity management. A central bank can either use its OMO
to increase system liquidity by buying OMO bills/short-tenored treasury securities
from the banking system or reduce system liquidity by selling OMO bills/shorttenored treasury securities. These instruments are thus traded in a primary market
organized by the central bank and beneficiaries are expected to hold them on
their books to maturity to enable the central bank achieve its liquidity
management objective. In other words, OMO securities by original design, are not
tradeable in the secondary market.

At the Central Bank of Nigeria, OMO auctions have always been deployed as a
liquidity management instrument. It, however, gained increased popularity when
the Bank decided to allow Deposit Money Banks (DMBs) the privilege of
discounting their OMO-bills in a secondary market to accommodate capital inflows
from portfolio investors due to the shortage of viable securities in the Nigerian
money market. In the light of this development, the secondary OMO market
gained huge popularity not only with foreign portfolio investors but also with
domestic Corporate and Individual investors who were also in search of short-term,
low risk, highly liquid and viable securities to invest in.

Over time however, government treasury bills (T-Bills), a money market instrument
with similar and often indistinguishable features from the OMO bills, was forced to
trade at per with the OMO bills or loose popularity. The ensuing competition thus
propped up the price of T-Bills, forcing government to borrow at a much higher
cost than it’s resources could accommodate.

With the Monetary Policy Rate at 14 per cent, the Standing Facilities Corridor at
+200/-500 and inflation above the ceiling of the CBN’s 6-9 per cent tolerance
range, portfolio investors in Nigeria were unwilling to accept any yield below the
current rate of inflation in order to maintain a positive real rate of return on their
investments. The fundamental problem was thus identified to be inflation, which
was driving the rate of return in the money market upwards. The high return
attracted by these money market instruments was however, driving an increase in
money supply due to the high activities of domestic Corporates and Individuals
while this was in turn pushing up the cost of liquidity management for the CBN.

To address the high cost of borrowing by government and redirect investment from
the secondary OMO market to other markets, the CBN came up with a regulation
to restrict domestic Corporates and Individuals from investing in the secondary
OMO market.
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Impact on Monetary Policy
Because OMO auctions are designed to perform a liquidity management function,
the discounting of the bills in a secondary market is at cross purpose with the
original liquidity management objective. The intention to discount to portfolio
investors only, was however expected to be managed and controlled as this would
have impacted only a limited proportion of the outstanding OMO bills portfolio.
With domestic Corporates and Individuals playing actively in the market, however,
OMO lost its liquidity management ability, leading to a sharp rise in the growth of
money supply and subsequent rise in monetary induced inflationary pressure. In
addition to this, government treasury bills also came under intense pressure to yield
a near similar rate as OMO bills discounted, to remain competitive. The combined
impact of this development was a broad rise in the cost of capital as rate of return
on money market instruments was pushed upwards.

In the wake of this development, traditional monetary policy instruments such as
the Monetary Policy Rate (MPR) and the Cash Reserve Ratio (CRR) lost
considerable potency as money supply was growing much faster than could be
curbed. To address this anomaly therefore, the CBN released a circular to Domestic
Money Banks to restrict the sale of OMO bills to foreign portfolio investors only while
other domestic money market investors were to trade in the government treasury
bill market. This had the twin impact of sharply slowing the growth in money supply
and increasing the demand for government T-Bills. The slowdown in the growth rate
of money supply implied that the rate of monetary induced inflation would be
curbed as outstanding OMO bills attain maturity. To augment this, the recent
increase in CRR was also to take out a substantial amount of liquidity from the
banking system thus also reducing the cost of liquidity management.

On the demand for government securities, the sharp rise in demand has led to a
rapid drop in rates in the money market, thus forcing the short end of the yield
curve to come down rapidly. The current situation however, is that domestic
money investors are now receiving a negative real return as inflation has remained
well above the ceiling of the CBN’s inflation band. Over time, however, as investors
reallocate their investments across other markets such as the equity market, the
government bond market and the real estate market, returns in the money market
for government T-Bills is expected to trend upwards while inflation trends
progressively downwards until equilibrium is achieved.
This adjustment mechanism may take some time but will eventually happen as
investors seek a positive real return.


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BOX 3
THE LOAN-TO-DEPOSIT RATIO AND MONETARY POLICY IN NIGERIA
The Credit market plays a significant role in the growth of an economy. Credit
stimulates consumption, production and distribution activities, and therefore drives
economic growth. There is generally a utility maximization constraint when
economic agents – households, firms and government – rely only on their savings.
Access to credit enables these agents to maximize their consumption/production
possibility frontiers. Credit leads to increase in spending, thus increasing income
levels which in turn leads to higher gross domestic product growth. Deposit money
banks (DMBs), as financial intermediaries, are central in the provision of credit to
facilitate the economic activity of households, firms and government. In their
intermediation between surplus and deficit spending units, DMBs mobilize deposits
from households, firms and government and channel them towards durable
consumption spending and business investment in the form of loans. Thus, the
transformation of liabilities into assets is the key function of DMBs. The role of
monetary policy is to facilitate this liabilities-to-assets transformation as access to
finance by consumers and producers is key to socio-economic growth.

The Central Bank of Nigeria, through its monetary policy pronouncements, has
always encouraged commercial banks to ease access to credit to the micro, small
and medium-scale enterprises in Nigeria. Yet, over the years, the growth in credit to
the private sector has been abysmally low. It became noticeable that Nigeria’s
banks are some of the most reluctant lenders among major emerging markets, with
an average loan-to-deposit ratio (LDR) below 60 per cent, compared with 76 per
cent in Kenya, 90 per cent in South Africa and 78 per cent across Africa. On the
other hand, the actual liquidity ratio of the Nigerian banking industry has been in
excess of the 30 per cent prudential minimum, meaning that the banks have been
holding a significant size of their assets in liquid form – predominantly in government
securities, which is why they have been reluctant to extend credit to real sector
activities. The observed weak flow of credit to the real sector was what informed
the Bank’s new policy on Loan-to-Deposit ratio to correct the anomaly. In other
words, the policy became necessary because while banks liquidity ratio increases,
there was also a noticeable increase in their investment in government securities,
although lending to the private sector declines.
The Loan-to-Deposit Ratio (LDR) is the ratio of a bank’s total outstanding loans for a
period to its total deposit balance over the same period. An LDR ratio tells how
much a bank lends out of the deposits it has mobilized. It indicates how much of a
bank's core funds are being used for lending, which is the main banking function. A
higher ratio indicates more use of deposit resources for lending and a very low ratio
indicates that banks are not making full or appropriate use of their resources for
lending. Similarly, if the ratio is above a certain level, it portends a pressure on
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resources. For example, an LDR of 50 per cent means that a bank lends N5 to
customers for every N10 that it mobilizes as deposits, while an LDR of 100 per cent
means that a bank lend a naira for every naira it mobilizes as deposits. This is
however, not without some challenges because an LDR of 100 per cent also means
that the bank does not have sufficient cash on hand for contingencies. A
combination of prudence and regulatory requirements suggests that for a
traditional bank, the LDR should be around 80-90 per cent.
The first circular on the regulatory measures to improve lending to the real sector of
the Nigerian economy was issued on July 3, 2019, indicating that all DMBs were
required to maintain a minimum LDR of 60 per cent by September 30, 2019, subject
to quarterly reviews. The circular further noted that to encourage SMEs, Real
Mortgage and Consumer lending, these sectors shall be assigned a weight of 150
per cent in computing the LDR for this purpose., and that the Bank shall provide a
framework for classification of enterprises/businesses that shall fall under these
categories. As a measure to enforce compliance, the circular made clear that
failure to meet the stipulated minimum LDR by the specified date shall result in a
levy of additional Cash reserve Requirement (CRR) equal to 50 per cent of the
lending shortfall of the target LDR.
Following the policy initiative for DMBs to maintain a minimum 60 per cent LDR,
there was an appreciable growth in the level of industry gross credit by N829.40
billion or 5.33 per cent from N15,567.66 billion at end-May 2019 to N16,397.06 billion
at end-September 2019. To maintain the momentum, the Bank, through a circular
on September 30, 2019, reviewed upwards the LDR from 60 to 65 per cent, with
DMBs expected to meet the stipulated ratio by December 31, 2019. By endDecember 2019, credit to the private sector had grown by 13.61 per cent and
industry gross credit increased by N2.0 trillion.
It is necessary to sustain the momentum generated by this policy measure to
improve the flow of credit to the private sector. The private sector is the most
sustainable driver of growth, given its capacity to innovate, generate employment
and create wealth. Innovative ideas often remain latent for lack of finance to
realize and commercialize them. Most large-scale enterprises began as small-scale
businesses and only grew over time. In an economy driven largely by micro, small
and medium-scale enterprises, access to finance is the only way such businesses
can grow, employ more hands and get formalized.
A key requirement in driving the LDR policy is the creditworthiness of borrowers
because banks are known to be risk averse. The Central Bank of Nigeria has also
continued to encourage banks not to relax their risk assessment policy and lending
standards, with a commitment to fast-track the development of credit scoring
system to promote increase intermediation. This is expected to complement the
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existing measures such as the Bank Verification Number (BVN) and the Global
Standing Instruction (GSI) all of which are aimed at de-risking lending and ensuring
the achievement of safe and sound financial system.


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CHAPTER FIVE
5.0 DEVELOPMENTS IN THE FINANCIAL
MARKETS

n the second half of 2019, the
Nigerian financial market remained
moderately
stable
despite
the
existence of several cross currents
across
the
global
and
domestic
economies and financial markets. At
the global economy, the key issues
were: the persistent weakening of
global output growth and the risk of
recession across several economies;
declining but
relatively
strong
job
growth in the US; the moderating but
strong trade tensions between the US
and China; growing threat to central
bank independence; persisting risk of
some advanced economies being
trapped at the zero lower bound;
uneasy calm in the oil market; tensions
between the European Union and the
United Kingdom due to tense BREXIT
negotiations which was later calmed
by
the
UK
General
election
in
December 2019; rising levels of private
debt in the advanced economies and
public debt in some Emerging Market
and Developing Economies (EMDEs); as
well as a wave of volatility in major
financial markets.

In the light of these developments,
major Central Banks such as the US
Federal Reserve Bank (US Fed), the
Bank
of
England
(BoE)
and
the
European
Central
Bank
(ECB),
maintained a dovish stance, expected
to remain in place throughout 2020, to
support the recovery of the global
economy. In some Emerging Market &
Developing Economies, there was a
trend towards rising political risk, which
led to an increase in capital outflows
towards the end of the review period.
The
resulting
impact
was
the
resurgence of some exchange rate
and inflationary pressures.

The domestic money market remained
active in the review period, with some
volatility in market rates, reflecting the
changing liquidity conditions in the
banking system. At the long end of the
yield curve, the All-Share Index (ASI)
and
Market
Capitalization
(MC)
continued to decline, reflecting global
sentiments in portfolio rebalancing from
equities to fixed income securities. The
foreign exchange market, however,
remained mostly stable as the CBN
maintained its intervention to stabilize
the naira.

5.1
The Money Market
In the review period, the money market
remained active, with market rates
reflecting
the
changing
liquidity
conditions in the banking system. The
money
market
rates
fluctuated
generally downwards and below the
lower bound of the standing facility
corridor for most of the period. This
development which contrasted with
the earlier trend where the market
rates fluctuated above the upper band
of
the
standing
facilities
corridor
indicated the efficacy of monetary
policy as well as reduced perception of
counterparty
risk
by
market
participants in the review period. The
rates were higher at the collateralized
I
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OBB segment which witnessed more
transactions than the uncollateralized
Interbank segment as a result of
counterparty
risks
and
oligopolistic
nature of the market as few banks
control a large volume of the hedging
instruments. Overall, liquidity in the
system came from several sources such
as: statutory monthly disbursement by
the Federation
Account
Allocation
Committee (FAAC) to States and local
governments; capital releases from the

budget;
election-related
expenditures; maturities of government
securities and OMO bills; and CBN
interventions in the real economy.

Accordingly,
the
Monetary
Policy
Committee
(MPC)
held
all
policy
parameters unchanged during the
period
to
allow
earlier
changes
permeate the banking system and the
real economy. The Monetary Policy
Rate (MPR) was retained at 13.50 per
cent during the review period with its
asymmetric corridor of +200/-500 basis
points. The Cash Reserve Ratio (CRR)
and Liquidity Ratio (LR) were also
maintained at 22.5 and 30.0 per cent,
respectively.

5.1.1
Short-term
Interest
Rate
Developments
Short-term interest rate developments
in the review period were influenced
by liquidity conditions in the banking
system, arising from various sources
such as: statutory FAAC disbursements;
capital releases from the 2019 budget;
election-related
spending;
maturing
government securities and OMO bills;
and CBN intervention programmes.
Both segments of the money market
(OBB and interbank call) remained
active with volatility in rates as liquidity
conditions
fluctuated,
with
more
activities observed in the OBB segment.
The
interbank
call
rate
oscillated
between 3.82 and 11.61 per cent,
averaging 6.05 per cent during the
period.
Similarly,
the
OBB
rate
fluctuated but more widely between
3.24 and 13.67 per cent, averaging
higher at 8.61 per cent in the period.

Table 5.1
Weighted Average Monthly MoneyMarket
Interest Rates (July – Dec, 2019)
PERIOD
Interban
k
OBB
SDF
MPR
SLF
NIBOR
- 30
DAYS


Jul 19
6.52
7.73
8.5

13.5

15.5

11.01
Aug 19
8.00
12.3

8.5

13.5

15.5

13.37
Sep 19
11.61
13.6

8.5

13.5

15.5

13.34
Oct 19
6.37
7.22
8.5

13.5

15.5

12.46
Nov 19
0.00
7.44
8.5

13.5

15.5

12.91
Dec 19
3.82
3.24
8.5

13.5

15.5

11.55
Average
6.05
8.61
8.5

13.5

15.5

12.44
Source: CBN

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CBN Monetary Policy Review

Figure 5.1
Weighted Average Monthly Money Market
Interest Rates (Jul. – Dec. 2019)

Source: CBN

(i)
The Interbank Call Rate
The
interbank
call
segment
was
moderately inactive with several nontrading
days,
reflecting
continuing
counterparty risks as evidenced by the
preference of market participants for
the collateralized OBB segment in the
review period. Interbank call rates thus
rose from a monthly average of 6.52
per cent in July 2019 to 11.61 per cent
in
September
before
decreasing
sharply to 3.82 per cent in December
2019. The market was mostly quiet in
November 2019.

Analysis of the daily rates in the review
period showed that the call rate
ranged between 2.00 and 25.00 per
cent during the review period. The
peak of 25.00 per cent recorded in
September was largely the result of a
contraction
in
liquidity
conditions
arising
from
CBN
Open
Market
Operations and capital repatriation by
foreign portfolio investors. In contrast,
the
trough
of
2.00
per
cent
in
December 2019 indicated increased
system liquidity from: statutory FAAC
disbursements; other FGN expenditures
and maturing government securities
and OMO bills. The interbank call rate
oscillated between 3.82 and 11.61 per
cent, averaging 6.05 per cent in the
review period compared with 11.79 per
cent in the preceding half year.

Figure 5.2
Daily Interbank Call Rate (July – December 2019)

Source: CBN

(ii)
The Open Buy Back (OBB) Rate
As in the preceding half year, the OBB
segment was more active compared
with the interbank call segment. The
preference for OBB transactions reflects
continued perception of heightened
interbank risks, arising from information
asymmetry in the market. The average
monthly OBB rate rose from 7.73 per
cent in July to 13.67 per cent in
September before decreasing to 3.24
per cent in December 2019.

As in the interbank call segment, the
spike in the OBB rate in September was
largely due to low levels of liquidity in
the
banking
system
following
the
issuance
of
short-term
government
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securities, CBN OMO auctions and
capital repatriation by foreign portfolio
investors. The OBB rate fluctuated more
widely between 3.24 and 13.67 per
cent, averaging 8.61 per cent in the
period compared with 13.56 percent in
the preceding half year.

Analysis of the daily rates showed that
the OBB rate fluctuated between 2.42
and 28.17 per cent in the review
period. The spike of 28.17 per cent
observed in mid-September 2019 was
attributed to the withdrawal of liquidity
from the banking system through OMO
auctions, naira deposit by commercial
banks for the purchase of foreign
currency
and
remittances
by
government
revenue
generating
agencies in preparation for FAAC
distributions. The rate, however, closed
at 2.42 per cent at end-December

following
improved
liquidity
conditions.

Figure 5.3
Daily Open Buy Back Rate (July - December
2019)

Source: CBN


(iii)
The Nigeria Interbank Offered
Rate (NIBOR)
The Nigerian money market reference
rate, the NIBOR, experienced slight
fluctuations in the review period. The
rate generally fluctuated to a high of
13.37 per cent in September 2019 from
about 11.01 per cent in July 2019,
mirroring the developments in the
interbank call and OBB rates. The
weighted average 30-day NIBOR, rose
from 11.01 per cent in July to 13.34 per
cent in September 2019, dropping to
12.91 per cent in November before
closing at 11.55 per cent at endDecember 2019. The average NIBOR
rate for the review period was 12.44 per
cent, a significant increase from 11.71
per cent in the preceding period, in
contrast to the declining short-term
rates observed in the interbank market
(Table 5.1).

5.2
Foreign Exchange Market
In the second half of 2019, the foreign
exchange market continued to enjoy
relative stability under the prevailing
flexible
foreign
exchange
management policy, supported by the
continued intervention of the CBN in
the market. It is noteworthy that during
the preceding first half, the Bank made
a strategic shift towards the long-term
stability
of
the
foreign
exchange
market by deepening the policy on
restriction
of
access
to
foreign
exchange for imports that can be
produced
locally.
This
was
by
extending the policy to include more
items as well as encourage the local
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production of such items for export. In
the review period, the policy was
further strengthened by the Bank’s
support for the partial closure of
Nigeria’s land borders by the fiscal
authority. The land border closure is
expected to have a complementary
effect
on
the
Anchor
Borrower’s
programme and other CBN initiatives
intended to boost local production
and
relieve
pressure
on
foreign
exchange
for
imports.
Additional
foreign
exchange
measures
were
implemented to strategically support
Nigeria’s signing unto the AfCFTA and
progress towards a single currency in
the West African sub-region. These
included the Bank’s participation in
several initiatives to improve trade
facilitation and automation of the
Nigerian Export Proceeds Form (Form
‘NXP’) for trade monitoring. Other
existing measures by the Bank included
the sustained use of the Investors’ &
Exporters’ window, the use of Bank
Verification Number (BVN) in BDC
transactions, sale of foreign exchange
to BDCs by the Bank and International
Money Transfer Operators (IMTOs), and
special foreign exchange auctions to
the real sector.

Figure 5.4
Daily Naira/US Dollar Exchange Rate (July –
December 2019)

Source: CBN
5.2.1
Average Exchange Rates
The exchange rate at the Interbank
segment depreciated by 0.01 per cent
to an average of N306.94/US$ in the
second half of 2019 from N306.90/US$
in the first half of the 2019, while the
BDC rate appreciated by 0.41 per
cent, from N360.76/US$ in first half 2019
to N359.28/US$ in the second half of
2019 (Table 5.2).

Table 5.2
Average Monthly Spot Exchange Rates (Jan 2019
– Dec 2019) (N/US$)
Month / Year
Interbank
Rate
BDC
Rate
2019: Jan
306.85
360.94
Feb
306.77
359.69
Mar
306.92
359.24
Apr
306.96
359.00
May
306.95
359.75
Jun
306.95
359.94
Average
306.90
359.76
2019: Jul
306.94
359.44
Aug
306.95
359.00
Sept
306.92
359.00
Oct
306.96
359.00
Nov
306.94
359.00
Dec
306.95
360.25
Average
306.94
359.28
Source: CBN

5.2.2
End-Period (Month) Exchange
Rates
During
the
review
period,
both
segments of the foreign exchange
market
(the
Interbank
and
BDC
segments) experienced relative stability
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with minor movements in the exchange
rate. The interbank segment recorded
an end-period average of N306.98/US$
at the end of the second half of 2019, a
depreciation
of
0.03
per
cent
compared with N306.88/US$ in the first
half of 2019. At the BDC segment, the
naira appreciated by 0.06 per cent to
an end-period average of N359.50/US$
at end-June 2019 from N359.71/US$ at
end-December 2019 (Figure 5.5 and
Table 5.3).

Table 5.3
End-Month Exchange Rates (Jan – Dec 2019)
(N/US$)
Month /
Year
Interbank
Rate
BDC Rate
2019: Jan
306.75
360.25
Feb
306.77
359.76
Mar
306.92
359.24
Apr
306.96
359.00
May
306.95
360.00
Jun
306.90
360.00
Average
306.88
359.71
2019: Jul
306.85
359.00
Aug
307.00
359.00
Sep
307.00
359.00
Oct
307.00
359.00
Nov
307.00
359.00
Dec
307.00
362.00
Average
306.98
359.50
Source: CBN

5.2.3
Nominal
and
Real
Effective
Exchange Rates
The Nominal Effective Exchange Rate
(NEER) appreciated by 1.57 per cent,
from an average of 180.36 in the first
half of 2019 to an average of 177.56 in
the second half. Compared with 182.07
in the corresponding period of 2018 it
appreciated by 2.54 per cent. The Real
Effective Exchange Rate (REER) also
appreciated in the review period by
4.48 per cent from an average of 84.40
in the first half of 2019 to an average of
80.78 in the second half. Compared
with
88.62
per
cent
in
the
corresponding period of 2018 the
average REER appreciated by 9.71 per
cent (Table 5.4). The appreciation of
the NEER signifies strengthening of the
domestic
currency
relative
to
currencies of trading partners, while the
appreciation of the REER implies a loss
of trade competitiveness with Nigeria’s
trading partners as exports become
less profitable and imports cheaper
(Table 5.4 and figure 5.6).

Table 5.4
Nominal and Real Effective Exchange Rates
Indices (June 2018 – Dec 2019)
Period
NEER
REER
Jun-18
184.14
91.35
Jul-18
184.94
91.42
Aug-18
181.18
88.82
Sep-18
181.32
88.27
Oct-18
179.22
86.7
Nov-18
181.68
87.14
Dec-18
181.98
86.67
2018:H2
Average
182.07
88.624

Jan-19
183.86
87.11
Feb-19
181.52
85.77
Mar-19
179.85
84.57
Apr-19
179.08
83.67
May-19
177.57
82.41
Jun-19
180.27
82.88
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2019:H1
Average
180.36
84.40
Jul-19
179.16
81.79
Aug-19
175.26
79.41
Sep-19
174.54
78.37
Oct-19
177.56
79.20
Nov-19
175.80
77.77
Dec-19
179.62
78.92
2019:H2
Average
177.56
80.78
Source: CBN

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

Source: CBN

5.2.4 Foreign Exchange Flows through
the CBN
Foreign exchange inflow through the
CBN decreased by 16.11 per cent to
US$25,853.79 million in the second half
of 2019, from US$30,819.73 million in the
preceding period. It was, however, an
increase of 44.22 per cent when
compared with US$17,926.59 million in
the corresponding period of 2018.
Outflows also decreased by 11.97 per
cent to US$32,300.86 million in the
second half of 2019 from US$28,846.76
million in the preceding period. It was,
however, an increase of 51.69 per cent
when compared with US$21,293.59
million in the corresponding period of
2018. The development resulted in a
net outflow of US$6,447.07 million in the
second half of 2019 compared with a
net inflow of US$1,972.97 million in the
first half. This net outflow in the second
half
was
largely
attributed
to
divestments
by
foreign
portfolio
investors from Nigeria.

Table 5.5
Monthly Foreign Exchange Flows through the CBN
(Jul 2018 – Dec 2019)
Period
Inflow
(CBN)
Outflow
(CBN)
Net Flow
(CBN)
Jul-18
2,548.53
3,498.61
-950.08
Aug-18
3,411.80
3,927.11
-515.31
Sep-18
3,671.76
4,463.98
-792.22
Oct-18
2,784.31
3,325.66
-541.35
Nov-18
1,844.64
1,697.48
147.16
Dec-18
3,665.55
4,380.75
-715.2
2018 H2
Total
17,926.59
21,293.59
-3,367.00
Jan-19
5,397.41
5,690.85
-293.44
Feb-19
5,228.38
5,362.41
-134.03
Mar-19
7,758.24
5,248.48
2,509.76
Apr-19
3,852.66
4,271.03
-418.37
May-19
4,986.98
4,597.62
389.36
Jun-19
3,596.06
3,676.36
-80.30
2019 H1
Total
30,819.73
28,846.76
1,972.97
Jul-19
4,747.84
5,540.36
-792.51
Aug-19
3,459.58
5,237.95
-1,778.37
Sep-19
4,152.02
5,425.34
-1,273.32
Oct-19
3,520.49
4,952.03
-1,431.54
Nov-19
4,978.75
5,385.84
-407.09
Dec-19
4,995.11
5,759.35
-764.24
2019 H2
Total
25,853.79
32,300.86
-6,447.07
Source: CBN

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Figure 5.6
Monthly Foreign Exchange Flows through the CBN
(Jul 2018 – Dec 2019)

Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19
Inflow (CBN)
Outflow (CBN)
Net Flow
Source: CBN

5.2.5 Foreign Exchange Flow through
the Economy
Gross foreign exchange inflow to the
economy increased by 7.91 per cent to
US$72,766.77 million in the second half
of 2019, from US$67,433.55 million in the
first
half.
When
compared
with
US$41,552.52
million
in
the
corresponding
period
of
2018,
it
increased by 75.12 per cent. Gross
foreign
exchange
outflows
also
increased
by
12.80
per
cent
to
US$34,696.63 million in the second half
of 2019, from US$30,759.51 million in the
first half. Compared with US$23,364.83
million in the corresponding period of
2018, it increased remarkably by 48.50
per cent. The outcome resulted in a
higher net inflow of US$38,170.14 million
compared with US$36,674.04 million
and
US$18,187.69
million
in
the
preceding
half
year
and
the
corresponding period of 2018.
The
increased
inflow
was
largely
attributable to the effectiveness of the
Investors’ and Exporters’ (I&E) window
and the sustained tight monetary
policy stance of the Bank.


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Table 5.6
Monthly Foreign Exchange Flows through the Economy
(Jan 2018 – Dec 2019) (US$ Million)
PERIOD
Inflow
(CBN)
Inflow
(Autonomous) Total Inflows Outflows
(CBN)
Outflows
(Autonomous)
Total
Outflow Net Flow Net Flow
(CBN)
Net Flow
(Autonomous)
Jan-18

Feb-18

Mar-18

Apr-18

May-18

Jun-18

2018 H1 Total

Jul-18

Aug-18

Sep-18

Oct-18

Nov-18

Dec-18

2018 H2 Total

Jan-19

Feb-19

Mar-19

Apr-19

May-19

Jun-19

2019 H1 Total

Jul-19

Aug-19

Sep-19

Oct-19

Nov-19

Dec-19

2019 H2 Total


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

Source: CBN

5.3
Capital Market
The Nigerian capital market in the
second half of 2019 was mostly bearish,
driven
primarily
by
the
equities
segment, reflecting waning investor
confidence. This was attributable to the
continued perception of political risk
which resulted in some weakening of
macroeconomic
fundamentals.
This
perception arose from several lingering
issues around: softening oil prices;
weakening global demand; relatively
strong
US
economy;
and
rising
uncertainty in the global economy
leading to a rush into gold as a safer
asset. Domestically, insecurity in some
parts of the country, weakening of
macroeconomic
fundamentals,
pressure on external reserves as well as
the
increasing
public
debt
stock
heightened the vulnerabilities. As a
result, the trend towards sell-off and
profit taking seen in the previous half
year persisted through the review
period. The Treasury bond yields, even
though still high, declined progressively,
as inflation inched up.


5.3.1
Equities Market
The All-Share Index (ASI) decreased
by 10.42 per cent to 26,842.07 at end-
December 2019 from 29,966.90 at endJune 2019. Similarly, it decreased by
14.60
per
cent
compared
with
31,430.50
at
end-December
2018.
Market
capitalization
(MC)
also
decreased by 1.87 per cent to N12.95
trillion at end-December 2019 from
N13.20
trillion
at
end-June
2019.
Compared with N11.72 trillion at endDec 2018, however, MC rose by 10.56
per cent.

Table 5.7
NSE All-Share Index (ASI) and Market
Capitalization (MC) (December 2018 – December
2019)
Date
ASI
MC(Equities)
N’Trillion)
Dec-18
31,430.50
11.72
Jan-19
30,557.20
11.39
Feb-19
31,718.70
11.83
Mar-19
31,041.42
11.67
Apr-19
29,159.74
10.96
May-19
31,069.37
13.68
Jun-19
29,966.87
13.21
Jul-19
27,718.26
13.51
Aug-19
27,525.81
13.39
Sep-19
27,630.56
13.45
Oct-19
26,355.35
12.83
Nov-19
27,002.15
13.03
Dec-19
26,842.07
12.96
Source: Nigerian Stock Exchange (NSE)

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Figure 5.8
NSE All Share Index (ASI) and Market
Capitalization (MC) (December 2018 - December
2019)

Source: Nigerian Stock Exchange (NSE)

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

Source: Nigerian Stock Exchange (NSE)

5.3.2
Market Turnover
Aggregate stock market turnover in
the second half of 2019 decreased by
28.17 per cent to 33.20 billion shares,
valued at N420.13 billion in 419,491
deals compared with 46.22 billion
shares, valued at N538.57 billion in
463,313 deals in the first half of 2019.
Market turnover also decreased by 3.94
per cent on a year-on-year basis from
34.56 billion shares, valued at N400.50
billion in 400,384 deals as at end
December 2018. The significant decline
in market turnover was consistent with
the general bearish trend in the market
in
response
to
both
foreign
and
domestic developments. In addition,
the delay in setting up cabinet and
policy agenda by the newly re-elected
government and the slow recovery
from recession created uncertainties
for
investors
thereby
undermining
market activity.

5.3.3
Sectoral Contribution to Equity
Market Capitalization
The sectoral classification of equities
by the Nigerian Stock Exchange (NSE)
are:
agriculture;
construction/real
estate;
consumer
goods;
financial
services; health care; information and
communications technology; industrial
goods, natural resources; oil and gas;
services; utilities; and conglomerates. In
the
review
period,
‘other
sectors’
dominated
overall
market
capitalization.
The
contribution
of
‘other sectors’ to market capitalization
increased to 42.35 per cent at end-Dec
2019 from 35.72 per cent in the first half
of 2019. The classification of ‘other
sectors’ comprises of sectors with small
individual market shares trading in the
NSE. The dominance of ‘other sectors’
classification is mainly due to the listing
of MTN Nigeria, a telecommunications
company which was quoted on the
NSE on Thursday, 16 May 2019. In
addition, activities that contributed
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significantly
to
the
overall
market
capitalization were Building Materials,
Banking and Food & Beverages, with
market shares of 20.68, 10.33 and 11.40
per
cent,
respectively,
at
endDecember 2019 (Figure 5.12).

Figure 5.10
NSE Market Capitalization by Activities/Sectors as
at End-Dec 2019

Source: Nigerian Stock Exchange (NSE)

Figure 5.11
NSE Market Capitalization by Activities/Sectors as
at End June 2019


Source: Nigerian Stock Exchange (NSE)

5.3.4
The Warren Buffett Valuation
Metric and Nigeria’s Equities Market
The Warren Buffett valuation metric
measures the ratio of the market value
of securities to GDP as an indicator of
market valuation. The metric showed
that the Nigerian equities market was
moderately undervalued in the review
period. The valuation metric was 73.0
per cent in Q3 2019 below the
threshold of 75.0 – 115.0 per cent of
normal valuation. In Q4 2019, the
valuation metric further declined to
66.0 per cent. The undervaluation in
the review period was attributed to
underlying
macroeconomic
vulnerabilities,
weak
corporate
earnings,
and
political
uncertainty
which led to incidences of capital
reversal. The current undervaluation is,
however, an attractive opportunity for
domestic and foreign investors.

Figure 5.12
Warren Buffett Valuation of Nigerian Equities
Market

Source: bloomberg

5.3.5
Bond Market
In the review period, activities in the
bond market were dominated by
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transactions in Federal Government of
Nigeria (FGN) securities, with some
activity also recorded in the Subnational government and corporate
bond segments.

5.3.5.1 FGN Eurobond
The 10-year dollar-denominated bond
yield for Nigeria decreased by 75 basis
points to 3.04 per cent at endDecember 2019, from 3.79 per cent at
end-June 2019. Compared with 6.11
per cent at end-December 2018, the
yield declined by 306 basis points
(Figure 5.14). This implies that investors
consider Nigerian sovereign instruments
as becoming less risky.

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

Source: bloomberg

The yield on FGN bonds declined by
248 basis points to 10.76 per cent in
December 2019 from 13.24 per cent at
end-June and by 444 basis points when
compared with 15.20 per cent at endDecember 2018. The declining trend
was due to increased liquidity in the
market, partly reflecting the impact of
the
Bank’s
policy
restricting
participation in the OMO auctions. In
addition, the development reflected
the restructuring of Government debt
portfolio in favour of foreign borrowing.

Figure 5.14
FGN Bonds Yield Curves: end-Dec. 2018 vs endJun 2019 vs. end-Dec. 2019
Source: bloomberg

5.3.5.2. State/Local Government Bonds
The
sub-national
bonds
market
continued to record low activity during
the
review
period.
The
value
of
outstanding
State/local government
bonds decreased by 37.28 per cent to
N354.90 billion at end-December 2019
from N565.82 billion at end-June. When
compared with N515.26 billion at endDecember 2018, it also decreased by
31.12 percent.

5.3.5.3 Corporate Bonds
Activities in the corporate bonds
segment increased in the review period
with
the
value
of
outstanding
corporate bonds at end-December
2019 increasing by 19.63 per cent to
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N355.82 billion in the second half of
2019, from N297.44 billion in the first half.
Compared with N256.56 billion in the
corresponding
period
of
2018,
it
increased by 38.69 per cent. This
development supports the observed
preference of investors for fixed income
securities.

5.3.5.4 Overall Analysis of the Nigerian
Capital Market
The value of FGN bonds increased by
31.75 per cent to N12.20 trillion at endDecember 2019 from N9.26 trillion at
end-June. Compared with the endDecember 2018 value of N9.38 trillion, it
increased by 30.06 per cent. At endDecember
2019,
FGN
bonds
accounted for 47.11 per cent of
aggregate market capitalization while
state/municipal
bonds,
corporate
bonds
and
supranational
bonds
accounted for 1.37, 1.34 and 0.03 per
cent valued at N354.90 billion, N355.82
billion and N8.09 billion, respectively.
Overall, the bonds market accounted
for 49.86 per cent of aggregate market
capitalization, while the equities market
represented 50.14 per cent in the
review period (Figure 5.16). When
compared with their shares of equities
(56.59 per cent) and bonds (43.41 per
cent) in the first half of 2019; there was
a
noticeable
shift
in
investment
portfolio towards bonds.


Figure 5.15
Structure of the Nigerian Capital Market
(December 2019)

Source: NSE

5.4
Global
Financial
Market
Developments
In the second half of 2019, some of
the vulnerabilities witnessed in the first
half continued while others appeared
to be easing off. Overall, global
financial markets continued to witness
reasonable measure of volatility due to
several legacy factors such as: the
increasing complexities around BREXIT
negotiations;
moderating
but
unabating trade tensions between the
US and China with implications for their
key trading partners; indications of a
broad slowdown of some advanced
economies such as the US and the Euro
Area; growing private and public
sector debt in the advanced and
emerging
market
economies;
and
intensified threats to central bank
independence in a number of key
economies.
The
weakening
global
output growth and the rising risk of near
to medium term recession in major
economies led several key central
banks to sustain their earlier dovish
stance. In the oil market, the OPEC
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reaffirmed commitment to sustain its
earlier production ceiling to support
market prices. This effort appeared to
be
undermined
by
the
increased
investment and production of Shale oil
by the US.

Accordingly, liquidity conditions in the
global
economy
remained
accommodative
as
major
central
banks
eased
monetary
policy
to
support recovery. Several currencies
maintained their parity against the US
dollar,
while
some
appreciated.
Capital flows to some emerging market
economies also improved as yields
increased
on
average,
with
the
performance of major global stock
markets remaining largely positive.

5.4.1
Money
Market
and
Central
Bank Policy Rates
Liquidity conditions in the global
economy during the review period
continued to be shaped by growth
concerns which underpinned the tacit
return to monetary accommodation in
the preceding half-year. As such, a
survey of fourteen (14) central banks
between
end-June
and
endDecember 2019 indicated a broad
trend
towards
monetary
accommodation
by
both
the
advanced
and
emerging
market
economies.

In the wake of a slowing global
economy with underlying threats to the
US economy, the U.S Fed sustained an
aggressive
cycle
of
monetary
accommodation, lowering its policy
rate by 25 basis points in the review
period
after
three
successive
adjustments in the previous half year.
The ECB while retaining its policy rate at
the zero-lower bound at its December
2019 meeting, also embarked on a
new
and
indefinite
monthly
asset
purchase programme of €20 billion. The
Bank of England held its policy rate
constant throughout the period as it
was
approaching
the
zero-lower
bound with minimal response in output
growth.
The
Bank
of
Japan
also
retained its policy rate in response to
prevailing uncertainties in the global
economy. Emerging market central
banks such as Egypt, Kenya, South
Africa, Brazil, China and Russia all
lowered their policy rates in the review
period in response to the broad
weakening of the global economy. The
Central Bank of Egypt cut its rate three
consecutive times in the review period
to address growth concerns as inflation
trended down sharply, leaving ample
headroom
for
further
monetary
accommodation. The Central Bank of
Brazil after a 50 basis point rate cut in
October 2019 also lowered further by
another 50 basis points in December
2019 to 4.50 per cent, to boost output
growth and support the economy’s
weak recovery. The successive rate
cuts
inadvertently
resulted
in
a
depreciation of its exchange rate with
consequences for capital inflow to the
Brazilian economy. In a similar manner,
the Central Bank of Russia cut its policy
rate three consecutive times in the
review
period
to
accommodate
growth
concerns.
Other
emerging
market central banks such as the
Reserve Bank of South Africa and the
Reserve Bank of India also cut their
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rates
in
the
review
period
to
consolidate the gains from earlier
downward adjustments. The Central
Bank of Nigeria, however, held its rate
constant throughout the review period
to allow the effect of the 50 basis points
rate cut in March 2019 to permeate the
economy.

Table 5:8
Policy Rates of Selected Central Banks June 2019
– December 2019
Country
Jun
e

July

Aug
.

Sept
.

Oct.

Nov
.

Dec
.

Egypt
15.7

15.7

14.2

13.2

13.2

12.2

12.2

Kenya

S. Africa

Ghana
16.0

16.0

16.0

16.0

16.0

16.0

16.0

Nigeria
13.5

13.5

13.5

13.5

13.5

13.5

13.5

Brazil

USA

Japan

Euro
Area

India

Russia

China

UK

Indonesi
a

Source: www.cbrates.com


5.4.2
Global Capital Market
The mixed signals from developments
in the global economy impacted
capital flows and stock market activity
in the review period. The performance
of major global stock markets was
largely positive. In Europe, the, UK FTSE
100, the French CAC 40 and German
DAX 30 indices increased by 1.60, 1.80
and 1.40 per cent, respectively. In
North America, the United States S&P
500 and the Mexican Bolsa indices
increased by 9.80 and 0.90 per cent,
respectively,
while
the
Canadian
S&P/TSX Composite index decreased
by 2.20 per cent. In South America, the
Brazilian Bovespa and the Columbian
COLCAP indices increased by 14.50
and 7.30 per cent, respectively, while,
the Argentine Merval decreased by
0.31 per cent. In Asia, the Japanese
Nikkei 225, the Chinese Shanghai SE
and the Indian BSE Sensex indices
increased by 11.20, 2.40, and 4.70 per
cent,
respectively.
In
Africa,
the
Kenyan Nairobi NSE 20 and the South
African JSE All-Share indices increased
by 2.70 and 0.80 per cent, respectively,
while the Nigerian NSE All-Share Index,
the Egyptian EGX CASE-30 and the
Ghanaian GSE All Share indices all
decreased by 9.10, 1.00 and 5.70 per
cent, respectively.


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Table 5.9
Selected International Stock Market Indices as at December 31, 2019
Country
Index
31-Dec-18
30-Jun-19
31-Dec-19
Dec 31, 2018 - Dec
31, 2019 % Change
June 30 - December
31, 2019 % Change
AFRICA
Nigeria
NSE All-Share Index

South Africa
JSE All-Share Index

Kenya
Nairobi NSE 20 Share index

Egypt
EGX CASE 30

Ghana
GSE All-Share Index


NORTH AMERICA
US
S&P 500

Canada
S&P/TSX Composite

Mexico
Bolsa

SOUTH AMERICA
Brazil
Bovespa Stock

Argentina
Merval

Columbia
COLCAP

EUROPE
UK
FTSE 100

France
CAC 40

Germany
DAX

ASIA
Japan
NIKKEI 225

China
Shanghai SE A

India
BSE Sensex

Table 2d: Selected International Stock Market Indices as at December 31, 2019
Source: bloomberg


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5.4.3
Commodities
The lull in commodity prices persisted
during the review period due to the
broad
slowdown
in
the
global
economy and the ongoing trade war
between the US and some of her key
trading partners. As a result, the IMF
primary
commodity
price
index
decreased by 2.67 per cent to 116.6
points at end-December from 119.8
points
at
end-June
2019.
The
commodity
sub-indices
of
energy,
metals,
and
industrial
inputs
all
decreased by 6.12, 7.08 and 6.92 per
cent, respectively, over the same
period. The edibles sub-index, however,
increased by 0.61 per cent to 99.2
points at end-December 2019 from 98.6
points at end-June. The non-fuel price
index increased slightly from 108.20
points at end-June 2019 to 109.20
points at end-December 2019. In the
petroleum sector, actual prices per
barrel based on the OPEC Reference
Basket rose by 3.60 per cent to
US$67.96 at end-December 2019 from
US$65.60 at end-June 2019.

The Food and Agriculture Organization
(FAO) Food Price Index increased by
4.62 per cent to 181.2 points in
December 2019 from 173.2 points in
June 2019. The sub-indices of meat,
vegetable oils and sugar all rose while
those of dairy and cereals fell. The
supply of sugar continued to lag its
demand due to production shortfalls in
India, Brazil and Mexico thus pushing
up its price substantially. Vegetable oil
prices rose sharply as the supply of
palm oil remained well behind the
demand due to a substantial increase
in demand from the biodiesel sector.
Cereals and diary supply, however,
improved reasonably during the review
period thus shoring up their prices.

5.4.4 Global Foreign Exchange Market
During the second half of 2019, most
currencies depreciated against the US
dollar despite the return to monetary
accommodation by the US Fed. On a
broad basis, a number of countries also
returned to some form of monetary
accommodation thus neutralizing the
anticipated impact of a weakening US
dollar
on
capital
flows.
In
South
America,
the
Brazilian
real,
the
Argentine peso and Colombian peso
all depreciated by 4.23, 29.11 and 2.28
per cent, respectively, while in North
America, the Canadian dollar and the
Mexican peso appreciated by 0.77
and 1.48 per cent, respectively.

In Europe, the Euro depreciated by
1.12 per cent against the US dollar,
while the British pound sterling and the
Russian ruble both appreciated by 4.52
and 1.98 per cent, respectively.

In Asia, the Chinese yuan, Indian rupee
and Japanese yen all depreciated by
0.66,
1.29
and
2.31
per
cent,
respectively. In Africa, the Nigerian
naira
and
Ghanaian
cedi
both
depreciated by 0.03 and 4.87 per cent,
respectively, while the South African
rand, Egyptian pound and the Kenyan
shilling appreciated against the U.S.
dollar by 0.57, 4.05 and 0.93 per cent,
respectively.
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Table 5.10
Exchange Rates of Selected Countries (value in currency units to US$)

Currency
28-Jun-19
31-Dec-19
Jun 19 - Dec 19
(% App/Dep)
AFRICA
Nigeria
Naira
306.90
307.00
-0.03
South Africa
Rand
14.08
14.00
0.57
Kenya
Shilling
102.30
101.36
0.93
Egypt
Pound
16.69
16.04
4.05
Ghana
Cedi
5.47
5.75
-4.87
NORTH
AMERICA
Canada
Dollar
1.31
1.30
0.77
Mexico
Peso
19.22
18.94
1.48
SOUTH
AMERICA
Brazil
Real
3.85
4.02
-4.23
Argentina
Peso
42.44
59.87
-29.11
Colombia
Peso
3211.86
3286.84
-2.28
EUROPE
UK
Pound
0.78
0.75
4.52
Euro Area
Euro
0.88
0.89
-1.12
Russia
Ruble
63.23
62.00
1.98
ASIA
Japan
Yen
107.93
108.65
-0.66
China
Yuan
6.87
6.96
-1.29
India
Rupee
69.70
71.35
-2.31
Source: bloomberg
Exchange Rates of Selected Countries (Value in currency units to US$)


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BOX 4
THE GLOBAL STANDING INSTRUCTION AND FINANCIAL STABILITY IN NIGERIA
In the aftermath of the global financial crisis, the banking sector was confronted
with rising credit risk which worsened after the 2016 recession in Nigeria. To address
this issue, the CBN introduced several initiatives to enhance credit administration
within the Nigerian Banking sector such as: the introduction of the Bank Verification
Number (BVN); the Credit scoring system under the auspices of the CRC Credit
Bureau limited; as well as CBN’s Credit Risk Management System (CRMS) initiative
which is used to keep records of creditors in the banking system.

Despite these efforts, credit risk remained high and unabating, particularly amongst
the sub class of other financial institutions in the Nigerian financial landscape. The
problem of rising credit risk is highlighted by weakening Financial Soundness
Indicators (FSIs) which show the deteriorating condition of the credit market as
some borrowers simply take a loan from one bank and move on to another bank
to open a fresh account and continue their business.

The percentage of Non-Performing Loans reflects the overall health of the banking
system as it shows the volume and value of loans in default. In 2016, the NPL ratio
was 12.8 per cent up from 4.9 per cent in 2015 and was above the prudential
benchmark of 5.0 per cent. A rising trend of high NPLs thus reflects the difficulty
banks are having in recovering principal and interest payments on their credit
portfolios.

With the rising trend in credit growth and associated rise in the NPL ratio of the
banking system, the Central Bank was at crossroads as to the best approach to derisk the banking system within the limits of its financial system stability toolkit. Various
system inefficiencies were identified as contributory to the growing credit risk such
as the inability of DMBs to access a database which tracks the address and other
records of their customers in a bid to monitor their locations and activities. The
development of such a system will require a broader level of coordination
anchored by the Federal Government and various agencies to develop a
computerized database of addresses across the country. In the absence of such a
system, the Central Bank came up with the innovation of the BVN which ultimately
tracks individuals and Corporates as soon as they engage with the financial
system. The Global Standing Instruction (GSI) was introduced as an initiative of the
Central Bank of Nigeria and the Bankers Committee on August 26, 2019. The policy
was designed to weed out serial defaulters from the Banking System by giving
Deposit Money Banks (DMBs) the right of offset to access the deposits of such
defaulters in other banks to net off borrowings using their Bank Verification Numbers
(BVN). The initiative came to be in the wake of deteriorating performance of credit
in the banking sector increasing problem of predatory serial defaulters in the
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financial sector. The GSI thus leverages on the power of the BVN to de-risk the
banking system through the ability of the BVN to track the activities of persons of
interest and net out their liabilities.

In the microfinance sector where the CBN is focusing a high volume of intervention
capital, the effectiveness of the GSI initiative would resolve the high and rising
incidence of loan default that has been prevalent in the sector. This would also
translate to an increased supply of micro-credit to the Micro Small and Medium
Enterprises (MSMEs) sector through Microfinance Banks (MFBs).

The GSI initiative has so far been successful, going by the declining ratio of NPLs
which decreased from 14.1 per cent at October 2018 to 6.6 per cent as at October
2019. While this is still higher than the prudential benchmark of 5.0 per cent, the
implementation of the policy will eventually eradicate the incidence of predatory
serial borrowers in the banking system, and thus further reduce the ratio of NonPerforming Loans.
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CHAPTER SIX
ECONOMIC OUTLOOK

6.1
OVERVIEW

lobal growth in 2019, after two
(2)
successive
downgrades,
was estimated at 2.9 per cent
down from 3.6 per cent in 2018 (IMF
WEO, January 2020). The moderation in
growth
was
traceable
to
several
headwinds
which
included:
the
escalating trade war between the US
and
China;
persisting
uncertainties
around
BREXIT;
increasing
political
tensions between the US and Iran;
sustained volatility in oil prices; and
growing political uncertainties across
several regions. Other factors were:
rising levels of public debt in some
Advanced Economies and Emerging
Markets and Developing Economies
(EMDEs);
downturn
in
global
manufacturing,
particularly
pronounced in Germany; and rising
corporate debt levels with heightened
fragilities
in
the
financial
markets.
Notwithstanding
these
challenges,
growth was supported by the following
factors: the continued expansion of the
US
economy;
coordinated
and
supportive
monetary
policy
environment; progress towards trade
agreement between US and China;
waning effect of temporary factors
affecting the manufacturing industry in
Europe towards the end of the year;
and a gradual return to some stability
in stressed EMDEs.

In the advanced economies, output
growth was estimated at 1.7 per cent in
2019 down from 2.2 per cent in 2018.
This was attributed to the policy
uncertainty
surrounding
BREXIT
negotiations, the knock-on effect of unabating trade war between the US and
China and weak recovery in the Euro
area, UK and Japan. The United States
economy slowed to 2.3 per cent in
2019 from 2.9 per cent in 2018 as a
result of sustained trade war with key
trading partners, increasing corporate
debt
levels
and
financial
market
fragilities. In the Euro area, weakening
manufacturing
industry
and
poor
response to monetary stimulus resulted
in the economy slowing to 1.2 per cent
in 2019 from 1.9 per cent in 2018, while
in the UK, growth remained flat at 1.3
per cent in 2019 compared with 2018,
due
primarily
to
difficult
BREXIT
negotiations.
In
Japan,
growth
increased to 1.0 per cent in 2019
compared with 0.3 per cent in 2018
owing to continued fiscal stimulus and
improved business spending.

In
the
Emerging
Market
and
Developing
Economies,
growth
moderated to 3.7 per cent in 2019 from
4.5 per cent in 2018. The development
was
attributable
to
elevated
uncertainties surrounding trade and
other country-specific structural factors.
Growth in China was estimated at 6.1
per cent in 2019, compared with 6.6
per cent in 2018, owing to slowing
domestic demand and the effect of
escalating
tariffs.
In
India,
growth
slowed sharply to 4.8 per cent in 2019,
from 6.8 per cent in 2018 due to the
effect
of
rising
corporate
and
environmental
uncertainties
on
G
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demand.
Output
growth
in
Brazil
moderated slightly to 1.2 per cent in
2019 compared with 1.3 per cent in
2018. Also, growth in Russia moderated
to 1.1 per cent in 2019 from 2.3 per
cent in 2018 due to softening oil prices.
In sub-Saharan Africa, growth was
estimated at 3.3 per cent in 2019 up
from 3.2 per cent in 2018, as inflationary
and exchange rate pressures eased.
This was driven largely by higher
commodity
prices
and
improved
access to international markets. In
Nigeria, growth was estimated at 2.3
per cent in 2019, up from 1.9 per cent
in 2018 on the backdrop of a clearer
direction for fiscal policy, reduced
political tension and recovery of oil
prices. Output growth in South Africa
was estimated at 0.4 per cent in 2019,
down from 0.8 per cent in 2018, as the
economy
continued
to
deal
with
labour market and power generation
challenges.

6.2
Outlook for Global Output
The slowdown in global output growth
in 2019 notwithstanding, the outlook
indicates a build-up of positive growth
sentiments.
These
sentiments
are
reflected
in:
the
effect
of
the
substantial monetary easing in 2019
expected
to
continue
into
2020;
recovery in trade and manufacturing
as the US and China work towards
some agreement; and the substantial
resolution of the BREXIT conundrum. In
addition,
there
is
the
reasonable
prospect of relatively healthy EMDEs
maintaining their robust performance
even as the advanced economies and
China continue to slow. Consequently,
global growth is expected to improve
to 3.3 and 3.4 per cent in 2020 and
2021, respectively, from 2.9 per cent in
2019.

Growth in the advanced economies is
projected to slow to 1.6 per cent
apiece in 2020 and 2021, from 1.7 per
cent in 2019, on account of expected
slowdown in growth in the United States
and Japan. In the US, growth is forecast
to moderate from 2.3 per cent in 2019
to 2.0 and 1.7 per cent in 2020 and
2021, respectively, reflecting the return
to a neutral fiscal stance. In the Euro
area, growth is expected to strengthen
to 1.3 and 1.4 per cent in 2020 and
2021 from 1.2 per cent in 2019, owing to
expected improvement in external
demand. In the UK, output growth is
expected to rise moderately from 1.3
per cent in 2019 to 1.4 and 1.5 per cent
in 2020 and 2021, respectively, on the
back of expectations of an orderly
transition
to
a
new
economic
relationship with the European Union. In
Japan, output growth is forecast to
decline to 0.7 and 0.5 per cent in 2020
and 2021, respectively, from 1.0 per
cent in 2019, as the impact of fiscal
stimulus wanes.

In
the
Emerging
Market
and
Developing
Economies,
growth
is
projected to improve from 3.7 per cent
in 2019 to 4.4 and 4.6 per cent in 2020
and 2021, respectively. This will be due
largely to the expected recovery of
underperforming
economies
in
the
group. Growth in China is forecast to
decline to 6.0 and 5.8 per cent in 2020
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and 2021, respectively, from 6.1 per
cent in 2019, on the back of continuing
slowdown
from
her
economic
rebalancing
programme.
In
India,
growth in 2020 and 2021 is expected to
rise
to
5.8
and
6.5 per
cent,
respectively, up from 4.8 per cent in
2019, supported by the lagged effect
of monetary policy easing, corporate
income tax reforms and recent policies
to address regulatory uncertainties.
Growth in Brazil is forecast to rise from
1.2 per cent in 2019 to 2.2 and 2.3 per
cent in 2020 and 2021, respectively, on
the back of accommodative monetary
policy.

In the Middle East and Central Asia
region
(inclusive
of
former
MENA
countries), growth is forecast at 2.8 and
3.2 per cent in 2020 and 2021 from 0.8
per cent in 2019, as a result of relatively
stable oil market.

In
Sub-Saharan
Africa,
growth
is
expected to rise to 3.5 per cent apiece
in 2020 and 2021, from 3.3 per cent in
2019. In Nigeria, growth is forecast to
rise to 2.5 per cent apiece in 2020 and
2021, from 2.3 per cent in 2019,
anchored on expected recovery in oil
prices.
In
South
Africa,
growth
is
projected to rise from 0.4 per cent in
2019 to 0.8 and 1.0 per cent in 2020
and
2021,
respectively,
due
to
expected
improvements
in
public
finances
to
anchor
business
confidence and private investments.


6.3
Downside
Risks
to
Global
Outlook
In
the
present
environment
of
elevated policy uncertainty, the risks to
global growth remain skewed to the
downside. These include: the possibility
of disruptions in global oil supplies as
geo-political tension between the US
and Iran could resurface; the financial
vulnerabilities built up over years of low
interest rate regime could unravel if
financial conditions tighten; the delay
in
the
resolution
of
trade
and
technology tensions between the US
and China could further dampen
growth prospects; as well as weatherrelated factors such as tropical storms,
flood,
heat
waves,
droughts
and
wildfires which could impose severe
humanitarian cost and livelihood losses
across many regions.

In the
advanced
economies,
the
downside risks would emanate from the
trend towards a neutral fiscal policy
stance particularly in the US, slowdown
in investment and lower productivity
from an aging labour force. Additional
risks
could
arise
from
continued
protectionist policies and weakened
support
for
multilateralism
in
the
advanced economies as evident in the
ongoing
BREXIT
negotiations
and
political
developments
towards
nationalism. Furthermore, the disruption
to
global
supply
chains
due
to
potential increases in tariff and nontariff barriers by the US and China
could adversely affect output forecasts
in the medium term. In the emerging
market
and
developing
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economies, downside risks include the
effect of escalating trade tariff and
weakening external demand; declining
fiscal buffers and weak revenue growth
which exposes these economies to
tighter external financing conditions
and low growth prospects; and the
negative spillover effects of continued
hostilities in the oil-rich Middle East.

In Sub-Saharan Africa, the nature of
fiscal adjustments has been such that
underlying vulnerabilities, in both the
near and medium-term, are yet to be
addressed to shield current recovery
efforts against risks from both domestic
and external shocks. In particular,
inadequate revenue mobilization to
create the fiscal space for investment
and development spending continues
to impose a drag on countries in the
region. Countries with weak financial
stability indicators risk capital reversals,
as a result of further financial sector
vulnerabilities.


Table 6.1
Global Output and Inflation Outlook

2020*
2021*
A. World
Output


World
Output

Advanced
Economies

USA

Euro Area

Japan

UK

Canada

ced Economies

Emerging &
Developing
Economies

Latin
America and
the
Caribbean

Middle East
and North
Africa

SubSaharan
Africa

B. Commodity
Prices (US'
Dollars)


Oil

Non-fuel

C. Consumer
Prices


Advanced
Economies

Emerging &
Developing
Economies

Source: IMF WEO Update, January 2020
*Forecast


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6.4
Global Inflation Outlook
Global
inflation
is
projected
to
moderate to 3.4 per cent in 2020 from
3.5 per cent in 2019. Inflation in the
advanced economies is expected to
stabilize around 1.7 per cent in 2020,
same as in 2019, due to softening
energy prices and growth slowdown. In
the US, inflation is projected to rise to
2.3 per cent in 2020 from1.8 per cent in
2019. Headline inflation in the euro
area is expected to rise gradually to 1.4
per cent in 2020 from 1.2 per cent in
2019. Similarly, inflation in the UK is
projected to increase slightly to 1.9 per
cent in 2020 from 1.8 per cent in 2019.
In Japan, inflation is expected to gain
momentum to 1.3 per cent in 2020 from
1.0 per cent in 2019, largely attributable
to the increase in the consumption tax
rate in October 2019.

In
the
emerging
market
and
developing
economies,
inflation
is
projected to remain almost flat at 4.6
per cent in 2020 compared with 4.7 per
cent
in
2019,
due
to
mixed
developments in the region. In Russia,
inflation is expected to decline to 3.5
per cent in 2020 from 4.7 per cent in
2019. In Brazil, inflation is also forecast to
decline to 3.5 per cent in 2020 from 3.8
per cent in 2019. Inflation in China is,
however, projected to rise moderately
from 2.3 per cent in 2019 to 2.4 per
cent in 2020. Similarly, inflation in India is
projected to rise to 4.1 per cent in 2020
from 3.4 per cent in 2019. In SubSaharan Africa, inflation is expected to
decline to 7.4 per cent in 2020 from 8.9
per cent in 2019, due to declining
energy prices and easing exchange
rate pressure. In Angola, inflation is
projected to decline to 15.0 per cent in
2020 from17.2 per cent in 2019. Inflation
in Nigeria is, however, forecast to rise to
11.7 per cent in 2020 from 11.3 per cent
in 2019, due to rising food prices and
security challenges. Inflation is also
forecast to rise in South Africa to 5.2 per
cent in 2020 from 4.4 per cent in 2019.

6.5 Outlook for Domestic Output Growth
The recovery of Real Gross Domestic
Product (GDP) has continued at a
moderate pace, and the economy is
expected to continue to improve into
2020. Data from the National Bureau of
Statistics (NBS) showed that real GDP
grew by 2.55 in the fourth quarter of
2019 compared with 2.38 and 2.28 per
cent in the corresponding quarter of
2018 and the preceding quarter of
2019, respectively. The improvement in
growth was driven, largely, by the
performance of the oil sector, which
grew by 2.26 per cent in the fourth
quarter of 2019 compared with 2.70
and 1.85 per cent in the corresponding
quarter of 2018 and the preceding
quarter of 2019, respectively. Overall,
the economy grew by 2.27 per cent in
2019 compared with 1.91 per cent in
2018.

The outlook for 2020 is positive, as the
recovery is expected to continue. The
IMF projection for output growth for
Nigeria in 2020, at 2.5 per cent is an
improvement over 2019. The CBN has
also
projected
a
positive
growth
outlook
at
2.39
per
cent.
The
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projections are expected to be driven
by improved oil production and prices,
continued
investment
in
the
agricultural and manufacturing sectors,
continued
implementation
of
the
Economic Recovery and Growth Plan
(ERGP) and sustained stability in the
foreign exchange market.

Key headwinds to the growth outlook
are
however:
persisting
power
generation
and
transmission
challenges; dearth of infrastructure;
continued security challenges across
the
country;
continued
clashes
between herders and farmers; and the
still low but improving credit to the
private sector.

6.6
Outlook for Domestic Inflation
The upward pressure on price levels
which commenced in the second half
of 2019 is expected to continue into
2020, driven mainly by food prices as
the combined impact of the security
challenges in food producing areas
and
the
impact
of
the
border
protection policy has led to an uptick
in food prices. The anticipated increase
in electricity tariffs in 2020 may also
contribute to a shock in prices during
the year. Staff projections indicate that
headline
inflation
(year-on-year)
is
projected to increase to 12.09, 12.18,
12.21 and 12.04 per cent in January,
February
March
and
April
before
commencing a descent to 11.83 and
11.68 per cent in May and June
respectively. These estimates suggest
upward price trend, arising from a
combination
of
monetary
and
structural impediments, including poor
transport infrastructure, food shortage
due mainly to insecurity in the food
producing areas of the country and
the
rising
public
debt
profile
of
government.
Others
include
the
upward pressure on imported food
prices due to the land border closure
and
increased
liquidity
due
to
concurrent implementation of the 2019
and 2020 budgets. The Bank will
continue to deploy its instruments to
ensure that liquidity in the banking
system is effectively managed and
channelled to the real economy to
drive non-inflationary growth.


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Table 6.2: Inflation Forecast
YEAR-ON-YEAR INFLATION RATE
12-MMA INFLATION RATE
Status
Month
Headline
inflation
Food
inflation
Core
inflation
Status
Month
Headline
inflation
Food
inflation
Core
inflation
Actual
Jul-19
11.08
13.39
8.80
Actual
Jul-19
1.01
1.26
0.77
Aug-19
11.02
13.17
8.68
Aug-19
0.99
1.22
0.67
Sep-19
11.24
13.51
8.94
Sep-19
1.04
1.30
0.89
Oct-19
11.61
14.09
8.88
Oct-19
1.07
1.33
0.74
Nov-19
11.85
14.48
8.99
Nov-19
1.02
1.25
0.79
Dec-19
11.98
14.67
9.33
Dec-19
0.85
0.97
0.81
Forecast
Jan-20
12.09


Forecast
Jan-20


Feb-20
12.18


Feb-20


Mar-20
12.21


Mar-20


Apr-20
12.04


Apr-20


May-20
11.83


May-20


Jun-20
11.68


Jun-20


Source: NBS/CBN

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Figure 6.1: Fan Chart of Inflation Forecast

Central path
Actual
Forecast
Source: CBN Staff Estimates


6.7
The Outlook for Monetary Policy
in 2020
The Bank will continue its surveillance of
macroeconomic conditions in 2020 to
enable it deploy effective policies to
anchor inflation expectations in the
Nigerian economy. With a broadly
fragile but positive outlook for the
macroeconomy
in
2020,
monetary
policy is faced with the task of
minimizing shocks to the economy
using its tool kit of heterodox policies.
The likely risks to monetary policy in
2020 from the global environment
include: the likelihood of a continued
decline
in
oil
prices,
leading
to
exchange rate pressures; continued
capital
outflows
due
to
slowing
accretion to reserves; rising public debt
levels; and possible shock spillovers
from the US-China trade war which,
even though being contained, has the
possibility
that
negotiations
may
become inconclusive. On the domestic
front, monetary policy is confronted
with the following risks: weak credit
growth; continued downturn in the
stock
market;
fragile
economic
recovery; rising inflation; high cost of
liquidity
management;
and
high
unemployment.

Tailwinds to the implementation of
monetary policy include: the CBN’s
sustained
intervention
in
the
agricultural sector to improve on food
supply; improved security across the
country
to
facilitate
economic
activities; the effective implementation
of the Economic Growth Recovery Plan
by the Federal Government; continued
support for Small and Medium Size
Enterprises to reduce unemployment
and improve aggregate demand; and
continued enforcement of the Bank’s
policy on Loan-To-Deposit Ratio (LDR).
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As the Bank continues to manage
liquidity conditions in the banking
system,
price
developments
will
continue to be monitored, analyzed,
and
addressed
to
ensure
the
moderation in the upside risks to
inflation and the downside risks to
output
growth
in
the
Nigerian
economy.


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Appendices

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO.

OF
THE
MONETARY
POLICY
COMMITTEE
MEETING
OF
MONDAY
22nd
AND
TUESDAY 23rd July, 2019

1.0
Background
The Monetary Policy Committee (MPC)
met on the 22nd and 23rd of July, 2019,
in an environment of subdued global
growth and fragile domestic economic
recovery. The Committee reviewed
developments
in
the
global
and
domestic macro-economy. It noted
that
the
global
environment
is
overwhelmed with vulnerabilities and
financial
fragilities.
Inflation
in
the
advanced
economies
is
trending
downwards and significantly below the
long-run objective, necessitating the
adoption
of
accommodative
monetary policy, the global economy
is poised to see another round of loose
monetary
policy.
All
Eleven
(11)
members of the Committee were at
the meeting.

Global Economic Developments
Global output growth remained weak
with persistent headwinds expected to
continue for the rest of the year. Key
amongst these headwinds is the rising
trade tensions, particularly between
the US and its key trading partners in
Europe, Canada, China and India,
rising debt levels in some Advanced
Economies and Emerging Markets and
Developing Economies (EMDEs) as well
as
growing
political
uncertainties
across several regions. Consequently,
the International Monetary Fund (IMF)
downgraded its 2019 global growth
forecast from 3.6 per cent to 3.3 per
cent.

Price developments across the major
advanced
economies
remained
muted
alongside
softening
output
growth. In the Emerging Markets and
Developing
Economies
(EMDEs),
however,
inflationary
developments
were mixed in response to challenging
macroeconomic
conditions.
The
Committee noted, that the return to
monetary
accommodation
by
the
advanced economies could see a
new wave of capital flows to the
EMDEs as investors continue to search
for higher yields.

Domestic Economic Developments
Available
data
from
the
National
Bureau of Statistics (NBS) showed that
real Gross Domestic Product (GDP)
grew by 2.01 per cent in the first
quarter of 2019, driven by the non-oil
sector, compared with 2.38 and 1.89
per
cent
in
the
preceding
and
corresponding
quarters
of
2018,
respectively. The Committee noted the
continued but moderate expansion in
the economy as indicated by the
Manufacturing
and
NonManufacturing Purchasing Managers’
Indices (PMI), which grew for the 27th
and 26th consecutive months in June
2019. The indices stood at 57.4 and 58.6
index points, respectively, in June 2019.
Staff forecast indicate a 2.11, 2.39 and
2.56 per cent growth in GDP in Q2, Q3
and Q4 2019, respectively, expected to
be driven largely by the non-oil sector.
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The Committee, however, noted that
the downside risks to the growth
projections to include low credit to the
private sector; high unemployment;
delayed intervention of fiscal policy as
well as low revenue and fiscal buffers,
amongst
others.
The
continued
intervention by the Bank in the real
sector is, however, expected to partly
ameliorate the downside risks only in
the short-run, while sound fiscal policy is
expected to drive growth in the
medium to the long-run.

The Committee observed that broad
money supply (M3) grew by 4.97 per
cent in June 2019 from the level at
end-December 2018, at an annualized
rate of 9.95 per cent. It was also below
the indicative benchmark of 16.08 per
cent for 2019. The growth in M3 was
largely driven by the increase in Net
Domestic Credit (NDC), which grew by
17.26 per cent in June 2019 from the
level at end-December 2018. The
growth in Net Domestic Credit (NDC)
was accounted for by the significant
increase in credit to Government,
which grew by 55.80 per cent, while
credit to the private sector grew by 9.0
per cent in June 2019. The Committee,
however, noted that the constrained
growth in the monetary aggregates as
an
indication
of
weak
financial
intermediation in the banking system
and called on the Management of the
CBN, to sustain the various initiatives of
the Bank to improve lending to the
private sector in Nigeria.

The
Committee
welcomed
the
moderation in headline inflation (yearon-year) to 11.22 per cent in June 2019
from 11.40 per cent in May 2019. This
was attributed to the decline in the
Food and Core components to 13.56
and 8.80 per cent in June 2019 from
13.70 and 9.03 per cent in May 2019,
respectively. It noted the development
as being partly due to the CBN’s
support to the agricultural sector and
the prevailing stability in the Nigerian
foreign exchange market. The MPC
further noted that although inflation
moderated
in
June
2019,
the
continued pressure on prices continues
to be associated with structural factors
such as the high cost of electricity,
transport and production inputs. The
MPC, however, expects that with the
commencement of the harvest season,
food
prices
will
taper
further
downwards. It thus, however, advised
that the security challenges in some
parts
of
the
country
should
be
addressed
urgently
to
increase
agricultural produce in order to sustain
the downward trend in inflation. The
MPC reiterated its commitment to
ensure
the
maintenance
of
price
stability.

The net liquidity position and interest
rates in the economy reflected the
impact of liquidity injections and the
Bank’s
liquidity
management
operations
associated
with
fiscal
federalism, transformation of maturing
CBN Bills, Open Market Operations
(OMO) auctions and foreign exchange
interventions. Accordingly, the monthly
weighted average Inter-bank call and
Open Buyback (OBB) rates, oscillated
within the MPR corridor, increasing to
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8.38 and 8.71per cent in June 2019
from 5.14 and 8.34 per cent in May
2019, respectively.

The Committee noted with concern
the continued bearish trend in the
equities segment of the capital market
in spite of the sustained capital inflow
to the economy, reflecting continued
portfolio reallocation from equities to
fixed income securities. Consequently,
the All-Share Index (ASI) declined by
9.11 per cent to 28,566.79 index points
on July 12, 2019, from 31,430.50 index
points at end-December 2018. Market
Capitalization, however, grew by 18.77
per cent to N13.92 trillion on July 12,
2019, from N11.72 trillion at endDecember 2018. This was due largely to
the additional listing of new firms during
the review period.

The
Committee
welcomed
the
continued
stability
in
the
foreign
exchange market and the steady
accretion to external reserves, which
stood at US$44.88 billion as at July 19,
2019, representing a 0.38 per cent
increase from US$44.71 billion at the
end-June 2019. The MPC also noted
the steady moderation in the NonPerforming Loans (NPLs) ratio of the
banking industry to 9.36 per cent in
June from 10.95 per cent in May 2019.
While
this
remained
above
the
prudential benchmark of 5.0 per cent,
its continued moderation indicates the
improved resilience of the banking
system.
The
Committee
thus
emphasised its resolve to further drive
down the Non-Performing Loans (NPLs)
in the industry so as to strengthen the
strategic
health
of
banks
in
the
Country.

Outlook
The overall medium-term outlook for
the global economy remains mixed
with indications of continued softening
of global output due to persisting
policy
uncertainties
and
sustained
macroeconomic vulnerabilities. These
are likely to be accentuated by the
increasing trade tensions between the
US and its major trading partners, rising
debt levels and geo-political tensions.
On the domestic economy, output
growth in 2019 is expected to remain
weak, peaking at 2.27 per cent, while
inflation is projected at 11.37 per cent
by the CBN staff projections by end2019. The underlying arguments in
favour
of
this
forecast
include:
favourable oil prices; stable exchange
rate; moderate inflationary pressures;
enhanced flow of credit to the private
sector; sustained CBN interventions in
the
real
sector;
effective
implementation
of
the
Economic
Recovery and Growth Plan (ERGP);
building fiscal buffers; and improved
security in the food producing areas of
the country.

Committee’s Considerations
In its considerations, the Committee
noted the need to boost output growth
through sustained increase in consumer
credit
and
mortgage
loans
and
granting
loans
to
our
Small
and
Medium Enterprises companies. It also
observed that the Management of the
Bank had started the prescription of
using benchmark loan-to-deposit ratios
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to redirect the banks focus to lending.
To mitigate credit risk, the Committee
enjoined the Management of the Bank
to de-risk the financial markets, via the
development
of
a
reliable
credit
scoring system, similar to what applies
in the advanced countries as this will
encourage
Deposit
Money
Banks
(DMBs) to safely grow their credit
portfolios.

The MPC called on the fiscal authorities
to expedite action on expanding the
tax base of the economy to improve
government revenue and stem the
growth in public borrowing. It further
urged the fiscal authorities to build
fiscal buffers to avert macroeconomic
downturn in the event of a decline in
oil prices.

The Committee also called on the Bank
to
intensify
efforts
to
encourage
Nigerians in the diaspora to use official
sources for home remittances, noting
that the effort will complement other
measures geared towards improving
Nigeria’s current account balance. It
enjoined
the
Bank
to
consider
introducing incentives such as the
reduction of charges on diaspora
home remittances into Nigeria.

On the African Continental Free Trade
Agreement (AfCFTA), the Committee
urged the Federal Government to put
in place measures to aid the economy
in
realising
the
benefits
and
full
potentials
of
that
Agreement.
In
particular,
it
noted
the
need
to
resuscitate
moribund
industries
in
Nigeria and improve key infrastructure
in order to strengthen the productive
base of the economy, create job
opportunities as well as boost exports.
The Committee noted the positive
developments towards the creation of
a common currency in the West
African Zone by January 2020 and
commended Government and the
Central Bank for pushing forward the
initiative. The Committee, however,
enjoined the Bank to ensure that
Nigeria
is
properly
positioned
to
maximise the benefits of monetary
integration.

In consideration of the specific policy
options to adopt; to hold, loosen or
tighten, the MPC made the following
observations:

(i)
Whilst the focus on growth was
imperative, the mandate of
price
stability
remains
sacrosanct;
(ii)
Given the happenings in the
external sector and the fact
that inflation is moderating,
tightening of monetary policy
should not be an option at this
time,
as
restriction
of
the
capacity of the DMBs to create
money could curtail their credit
creation capabilities.

On the contrary, the Monetary Policy
Committee (MPC) was of the view that,
whilst loosening could increase money
supply, stimulate aggregate demand
and strengthen domestic production,
the economy could be awash with
liquidity especially if loosening drives
growth in
consumer credit without
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commensurate
adjustment
in
aggregate output.

On holding the current monetary policy
position,
the
Monetary
Policy
Committee (MPC) observed that given
the recent actions of the Bank’s
management involving the prescription
of minimum lending thresholds by the
deposit money banks to our Deposit
Money Banks (DMBs), it is safe to
assume that this action, targeted at
stimulating credit growth to the real
sector would increase credit delivery to
the
real
sector
and
accelerate
investment and economic growth. It
also observed that since interest rates
were currently trending downwards, it is
safer to await the full impact of these
policy actions on the economy before
a review of the position of monetary
policy.

The Committee’s Decision
In consideration of the foregoing, the
Committee decided unanimously by a
vote of all members present to retain
the Monetary Policy Rate (MPR) at 13.5
per cent and to hold all other policy
parameters constant. The decision was
informed by the conviction of members
that key macroeconomic indicators
are trending in the right direction.

Consequently, the MPC unanimously
voted to:
I.
Retain the MPR at 13.5 per cent;
II.
Retain the asymmetric corridor
at +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
23rd July, 2019


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CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO.

OF
THE
MONETARY
POLICY
COMMITTEE
MEETING OF THURSDAY 19th AND FRIDAY
20th SEPTEMBER 2019

1.0
Background
The Monetary Policy Committee (MPC)
met on the 19th and 20th of September
2019, in the light of softening global
growth and weaker-than-anticipated
domestic
output
recovery.
The
Committee evaluated developments
in the global and domestic economies
and examined the outlook for the rest
of the year. It noted the buildup of
vulnerabilities
in
major
Advanced
Economies and its spill-over to the
Emerging
Markets
and
Developing
Economies (EMDEs). Nine (9) out of the
eleven (11) members of the Committee
were present at the meeting.

Global Economic Developments
Output growth across major advanced
economies
remained
subdued,
confronted
by
legacy
headwinds,
including the subsisting trade war
between the US and China, regional
hostilities in the Middle-East, rising debt
levels, growing uncertainties around
BREXIT and increasing political tensions
between the US and Iran, including
fragilities in the financial markets. In the
EMDEs,
output
growth
remained
broadly mixed with some economies
performing stronger than others.
Consequently,
the
International
Monetary
Fund
(IMF)
revised
its
projected global growth forecast to 3.2
per cent in 2019 from 3.6 per cent.
Price
developments
continued
to
soften across the major advanced and
EMDEs
as
aggregate
demand
continually
weaken,
resulting
in
softening monetary policy by major
central banks to address downward
trending prices and to strengthen
aggregate demand.

Domestic Economic Developments
Data from the National Bureau of
Statistics (NBS) showed that real Gross
Domestic Product (GDP) grew by 1.94
per cent in the second quarter of 2019,
compared with 2.10 and 1.50 per cent
in the preceding and corresponding
quarters, respectively. This mediocre
growth, we believe, is consistent with
global trends of dampening output
growth and was driven mainly by the
oil sector, which grew by 5.15 per cent
while the non-oil sector grew by 1.64
per cent. At 57.7 and 58.0 index points,
the
Manufacturing
and
NonManufacturing Purchasing Managers’
Indices (PMI) grew moderately for the
30th and 29th consecutive months,
respectively, in September 2019. Staff
projections indicate that real GDP in
Q3 and Q4 2019 would average 2.11
and 2.34 per cent, respectively, driven
primarily by the non-oil sector. This
optimism
in
growth
prospects
is
anchored on the new momentum of
rising credit to the private sector.
However, the headwinds to the growth
prospects remain high unemployment,
rising public debt and heightening
insecurity across the country.

The Committee noted the continued
moderation in headline inflation (yearPublic
CBN Monetary Policy Review

on-year) to 11.02 per cent in August
2019 from 11.08 per cent in July 2019,
driven by decline in the food and core
components to 13.17 and 8.68 per cent
in August 2019 from 13.39 and 8.80 per
cent in July 2019, respectively. The
development in the food and core
components of inflation was partly due
to improved agricultural production in
the current harvest season, supported
by the Bank’s sustained intervention in
the agricultural sector as well as the
continued
stability
in
the
foreign
exchange market. The Committee,
however, noted the upward pressure
imposed
on
prices
due
to
rising
insecurity in the food producing areas
of the country, increased liquidity
injection from FAAC disbursements and
late budget cycles. It also highlighted
the
imperative
to
address
the
economy’s infrastructural deficits, such
as power supply, upgrade of transport
and production infrastructure as a
means of reducing cost-push inflation.
The Committee observed that broad
money supply (M3) grew by 5.65 per
cent in August 2019, compared with
the level at end-December 2018,
annualized to 8.48 per cent, but
remaining below the 2019 indicative
benchmark of 16.08 per cent. The
growth was largely driven by the
increase in Net Domestic Credit (NDC),
which grew by 24.36 per cent in August
2019 from the level at end-December
2018.
The
growth
in
NDC
was
accounted
for
by
the
significant
increase in credit to Government,
which grew by 94.33 per cent while
credit to the private sector grew by
9.36 per cent in August 2019. The
Committee urged the Management of
the Bank to explore new initiatives to
further improve lending to the private
sector, while calling on Government to
adopt
other
ways
of
funding
its
operations outside the banking sector.

In the review period, money market
rates oscillated within the standing
facilities corridor due to prevailing
liquidity conditions in the banking
system.

The
monthly
weighted
average Inter-bank Call and Open
Buyback (OBB) rates increased to 8.00
and 13.37 per cent in August 2019 from
6.52 and 11.01 per cent in July 2019,
respectively.

The
Committee
observed
the
continued bearish trend in the equities
market, while noting the increased
activity in the sovereign bonds market,
reflecting global trends and investor
preference for fixed income securities.
In the light of this development, the AllShare Index (ASI) declined by 11.62 per
cent to 27,779.00 index points on
September 13, 2019, from 31,430.50
index points at end-December 2018.
Market Capitalization (MC), however,
grew by 15.37 per cent to N13.62 trillion
on September 13, 2019, from N11.72
trillion at end-December 2018. This
increase in market capitalisation was
attributed to the listing of 2.75 billion
ordinary shares by Airtel Africa in July
2019.

The
MPC
noted
the
improved
performance and resilience of the
banking sector, evidenced by the
continued moderation in the ratio of
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CBN Monetary Policy Review

Non-Performing Loans (NPLs) from 11.2
to 9.4 per cent in May and August
2019, respectively. While noting that this
was
still
above
the
prudential
benchmark
of
5.0
per
cent,
the
Committee
called
on
the
Management of the Bank to drive this
ratio below the prudential benchmark.

Outlooks
The persistence of policy uncertainties,
financial vulnerabilities and rising geopolitical tensions continued to cloud
the
medium-term
outlook.
This
is
evidenced
by
the
sustained
weakening of global growth across
regions, amplified by the persisting
trade tensions between the US and its
major trading partners, rising corporate
and public debt levels.

On the domestic economy, output
growth in 2019 is expected to peak at
2.1 per cent (IMF), 2.2 per cent (World
Bank) and 2.27 per cent (CBN). These
forecasts
remain
underpinned
by
expectations of favourable oil prices
which would lead to higher external
reserves,
stable
exchange
rate,
moderate
inflationary
pressure
as
government
increases
capital
expenditure, including enhanced flow
of credit to the private sector to
stimulate investment, sustained CBN
interventions
in
the
real
sector,
effective
implementation
of
the
Economic
Recovery
Growth
Plan
(ERGP), build-up of fiscal buffers, as well
as improved security in the country.


Committee’s Considerations
The Committee noted the decline in
output growth in the second quarter of
2019, partly attributable to the delay in
implementation of the 2019 budget. It
however, observed that this was an
improvement over the corresponding
quarter of 2018. In addition, it noted
the
broad
slowdown
across
key
economies and the response of major
central banks to revise their policy rates
downwards.

On
price
developments,
the
Committee
commended
the
progressive moderation in consumer
prices and urged the Bank to sustain its
intervention in the real sector of the
economy to reduce the output gap.

The MPC noted the improvements in
the financial soundness indicators and
urged the Management of the Bank to
sustain its regulatory surveillance to
ensure
continued
financial
system
stability. The Committee, particularly
noted the growth in the size of industry
loans from N15.4 trillion in June to
N16.23 trillion in September 2019. On
the recent directives to deposit money
banks to increase their Loan-to-Deposit
Ratio
(LDR),
the
Committee
underscored
the
need
to
grow
consumer, mortgage and corporate
credit to drive aggregate demand and
ensure a reduction in unemployment
and
increase
in
output
growth.
Consequently, the Committee urged
the Management of the Bank to fasttrack the development of the credit
scoring system, to promote increased
intermediation.
In
addition,
the
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CBN Monetary Policy Review

Committee
commended
the
introduction of the Global Standing
Instruction (GSI) initiative aimed at derisking
credit
in
the
industry
by
committing bank customers to repay
their loans to banks. The MPC further
noted the increased supply of micro
credit to key Micro Small and Medium
Enterprises (MSMEs) and efforts through
the
Nigeria
Incentive-Based
Risk
Sharing System for Agricultural Lending
(NIRSAL) Microfinance Bank to extend
the reach of its credit facilities across
the
country.
The
MPC
however,
observed that the growth in credit to
the
private
sector
remained
significantly
low,
relative
to
the
absorptive capacity of the economy.

The MPC further
underscored the
linkage between high unemployment
and
heightened
insecurity,
emphasizing
the
critical
need
for
urgent steps towards more jobs and
wealth creation in the country. As an
interim solution, the Committee called
on Government at all levels to ratchet
up public works programmes aimed at
easing
the
threat
of
rising
unemployment in the country. This, the
Committee
argued,
would
be
achieved through efficiency in public
spending. The MPC also noted the
Government’s current drive to increase
Value Added Tax (VAT), adding that
this will improve fiscal revenue to
support expenditure and reduce the
budget deficit as well as Government
borrowing when implemented. The
Committee, however, noted that this
was too little to close the gap in
Government finances. Consequently,
the MPC called on the Government to,
as a matter of urgency, adopt what it
termed a BIG BANG approach towards
building fiscal buffers by purposefully
freeing-up redundant public assets
through an efficient, effective and
transparent privatization process. This
would raise significant revenue for
Government
and
resuscitate
the
redundant
assets
to
generate
employment and contribute effectively
to national economic growth. The MPC
noted the unstable oil prices, its
implications on accretion to external
reserves and its persistent call on the
Government to build fiscal buffers.
Consequently, the Committee called
on the National Assembly to exercise
restraint from increasing the oil price
budget
benchmark
to
avoid
budgetary
overruns
at
the
implementation stage of the budget.
Projections from the oil futures market,
indicate that oil prices will remain tight
around
the
budget
oil
price
benchmark in the medium term.

The Committee’s Decision
In its considerations regarding the
policy options to adopt, the MPC as
usual, felt compelled to review the
options of whether to tighten, hold or
loosen.

The Committee noted the positive
moderation in inflation, though slowly
from 11.08 per cent in July to 11.02 per
cent in August 2019. Given that this was
still above the target range of 6-9 per
cent, and considering the pressure on
reserve
accretion
caused
by
the
relatively weak crude oil price, the
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CBN Monetary Policy Review

MPC felt the imperative to tighten. On
the contrary, the Committee was of
the view that doing so in the midst of a
fragile growth outlook would increase
the cost of credit, and further contract
investment
and
constrain
output
growth.

On loosening, the Committee felt that
this would result in increased system
liquidity
and
hence,
heighten
inflationary
tendencies
in
the
economy. In particular, the MPC was of
the view that loosening would drive
growth in consumer credit but without
a corresponding adjustment in real
sector output. The Committee was also
convinced that increased liquidity and
interest rate moderation would result in
exchange rate pressures as money
supply rises. As regards the option to
hold, the MPC opined that the option
requires a clear understanding of the
quantum
and
timing
of
liquidity
injections into the economy, before
deciding on possible adjustments to
the stance of monetary policy. The
Committee was also of the opinion that
retaining the current position of policy
offers pathways to appraising the
effects
of
the
suit
of
heterodox
monetary policy to encourage credit
delivery to the real sector, especially in
the
light
of
the
subsisting
implementation of the Loan-to-Deposit
Ratio policy.

In
view
of
the
foregoing,
the
Committee decided by a unanimous
vote to retain the Monetary Policy Rate
(MPR) at 13.5 per cent and to hold all
other policy parameters constant.

In summary, the MPC voted to:
I.
Retain the MPR at 13.5 per cent;
II.
Retain the asymmetric corridor
of +200/-500 basis points around
the MPR;
III.
Retain the CRR at 22.5 per cent;
and
IV.
Retain the Liquidity Ratio at 30
per cent.

Thank you.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
20th September, 2019


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CBN Monetary Policy Review

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO.

OF
THE
MONETARY
POLICY
COMMITTEE
MEETING
OF
MONDAY
25th
AND
TUESDAY 26th NOVEMBER 2019

1.0
Background
The Monetary Policy Committee (MPC)
met on the 25th and 26th of November
2019 in an environment of continued
global macroeconomic uncertainty,
but
gradual
improvements
in
the
domestic economy. The Committee
appraised the developments in both
the global and domestic economies,
as well as the outlook for the rest of the
year and the first quarter of 2020. All
the eleven
(11) members of the
Committee were in attendance.

The Committee reviewed the effect of
monetary policy on developments in
the economy in 2019, particularly, price
stability, improved credit delivery, low
interest rate regime, exchange rate
stability,
financial
system
stability,
reduction
in
non-performing
loans
(NPLs), job creation and output growth.
The Committee noted the use of homegrown heterodox policies used by the
Bank to successfully achieve substantial
macroeconomic
stability
in
2019.
Amongst the policies were the use of
the Global Standing Instruction (GSI) to
address the predatory impact of serial
borrowers in the banking system, a
phenomenon that reduced the level of
NPLs over time, the Loan to Deposit
Ratio (LDR) to boost credit delivery by
the deposit money banks (DMBs) to the
real sector, Differentiated Cash Reserve
Requirement
(DCRR),
Development
Finance Initiatives in agriculture, micro,
small and medium enterprises (MSMEs)
and
other
real
sector
activities,
including restriction of patronage by
local corporate and individual investors
in CBN OMO bills.

Global Economic Developments
Global output growth remained weak
due to the impact of the trade war
between the US and China; growing
vulnerabilities in the financial markets,
downturn in global manufacturing,
sustained downward pressure on oi
prices, lingering uncertainty around
BREXIT,
which
has
continued
to
dampen investment growth in the
United Kingdom, subdued growth in
the European Union and Japan, and
dampening output growth in China.
These headwinds resulted in slowing
global trade, weakening aggregate
demand
and
contraction
in
the
aggregate
supply
chain.
Major
Emerging
Market
and
Developing
Economies (EMDEs) particularly China
and India also slowed, while South
Africa, Russia and Brazil, recorded
slower-than-expected
growth.
Consequently, there was a broad
slowdown in global output. In the light
of these developments, the IMF revised
global growth forecast downwards to
3.0 per cent in October 2019 from its
previous projection of 3.2 per cent in
July 2019.

Inflation in most Advanced Economies
remained well below their long-run
objectives, with price development
staying subdued and unemployment
trending
mostly
below
the
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Accelerating
Inflation
Rate
of
Unemployment (NAIRU). In the US,
wage growth and aggregate demand
continued to perform below the long
run
average
even
though
unemployment remained below the
NAIRU. Consequently, the recent trend
towards monetary accommodation by
key central banks is expected to
continue into the foreseeable future. In
key EMDEs, however, prices trended
upwards
with
the
output
gaps
widening
and
unemployment
remaining relatively high.

Domestic Economic Developments
Data from the National Bureau of
Statistics (NBS) showed that real Gross
Domestic Product (GDP) grew by 2.28
per cent in the third quarter of 2019,
compared with 2.12 and 1.81 per cent
in the preceding and corresponding
quarters, respectively. The improved
growth was driven largely by the
performance of the oil sector, which
grew by 6.49 per cent, while the non-oil
sector grew by 1.85 per cent. The
Manufacturing
and
NonManufacturing Purchasing Managers’
Indices (PMI) also expanded for the 31st
and 30th consecutive months at 58.2
index points, apiece, in October 2019.
Staff projections indicate that real GDP
in Q4 2019 is expected to grow by 2.38
per cent, driven by the non-oil sector.
Headwinds to this projection, include:
continued high level of unemployment,
mild
resurgence
of
anticipated
inflationary
pressures
towards
the
December festive season, rising public
debt, high level of insecurity, and slow
pace of oil price recovery. Despite
these headwinds, growth is expected
to pick on the back of recent actions
to boost credit to the private sector
through the recent Loan-to-Deposit
Ratio
(LDR)
and
Global
Standing
Instruction (GSI) initiatives, sustained
interventions by the Bank in selected
employment and growth-enhancing
sectors,
as
well
as
fiscal
policy
measures to support growth.

The Committee noted the uptick in
headline inflation (year-on-year) from
11.24 in September to 11.61 per cent in
October 2019. This was anticipated as
part of the seasonal end-of-the year
uptick
in
prices;
but
was
further
accentuated by the border closure, an
expected temporary food supply shock
which will adjust over the medium-tolong term as the economy increase
investments
in
food
production.
Consequently, food inflation rose from
13.51 to 14.09 per cent in September
and October 2019, respectively. Core
inflation, the underlying inflation in the
economy,
however,
declined
marginally from 8.94 to 8.88 per cent in
September and October, respectively.
The decline observed in core inflation
was attributed to the relative stability in
the foreign exchange market. The
Nigerian land borders were closed to
address the incidence of increased
cross-border banditry, smuggling and
dumping, insurgency and the illegal
trade
practices
of
neighbouring
countries
whose
economies
had
become
dependent
on
Nigeria
through smuggling through the borders.
The Bank’s continued intervention in
the agricultural sector is expected to
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improve medium-term food supply.
Indeed, there has been reports of
bumper harvest in some staples like
rice, maize, etc.

The Committee observed that broad
money supply (M3) grew by 5.72 per
cent (year-to-date) in October 2019,
compared with the 2019 indicative
benchmark of 16.08 per cent. Growth
in
Net
Domestic
Credit
(NDC)
moderated
to
26.38
per
cent
in
October 2019 from 30.33 per cent in
the previous month. This was attributed
to a significant reduction in credit to
Government in October 2019 to 85.99
per cent from 114.79 per cent in the
previous month. Growth in credit to the
private sector, however, improved to
13.08 per cent in October 2019 from
12.49 per cent in the previous month,
reflecting the impact of the Bank’s
recent policy on loan-to-deposit ratio.
An increase in absolute gross credit,
amounting to N1,169.70 billion, was
recorded between end-May and endOctober
2019.
Consequently,
the
manufacturing sector received N459.69
billion, the highest in two decades. This
was followed by consumer loans of
N356.65 billion, General Commerce
(N142.98
billion),
Information
and
Communications
(N82.07
billion),
Construction
(N74.52
billion),
Agriculture, Forestry and Fishing (N73.20
billion), Mining and Quarrying (N3.64
billion) and Transportation and Storage
(N3.09 billion), amongst others. The
Committee,
therefore,
urged
the
Management of the Bank to sustain its
current efforts to improve lending to
the private sector and to explore other
initiatives to provide funding to other
critical
sectors
of
the
Nigerian
economy.

In the review period, money market
interest rates reflected the prevailing
liquidity conditions in the banking
system. Overall, the monthly weighted
average Inter-bank call and Open Buy
Back (OBB) rates fell to 7.87 and 7.22
per cent, respectively, in October 2019,
from
11.41
and
10.73
per
cent,
respectively, in September 2019.

The
Committee
noted
that
the
persisting bearish trend in the equities
market, had started to abate in
November 2019, and was pleased by
the
increased
patronage
in
the
sovereign bonds market. The All-Share
Index (ASI) grew by 2.41 per cent to
26,991.42 index points on November 22,
2019, from 26,355.35 index points at
end-October
2019.
Market
Capitalization (MC) also grew by 1.54
per cent to N13.03 trillion on November
22, 2019, from N12.83 trillion at endOctober 2018, due largely to portfolio
shift
from
short-term
Government
securities to the equities market.

The MPC also noted the improved
resilience of the banking system, as the
Non-Performing
Loans
(NPLs)
ratio
declined further to 6.56 per cent at
end-October 2019 from 6.67 per cent
at end-September 2019 and from 14.05
per
cent
in
October
2018.
The
Committee, however, noted that this
figure remained above the prudential
benchmark of 5.0 per cent, and urged
the Bank to sustain its current efforts,
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CBN Monetary Policy Review

which have created this exorable
prudential regime.

Outlook
Overall, the medium-term outlook for
the domestic and global economies
continue
to
be
clouded
with
uncertainties,
associated
with
the
persisting trade wars between the US
and its major trading partners, financial
vulnerabilities, rising levels of public and
corporate
debts,
pockets
of
geopolitical tensions and weakening
global output. However, the reforms
underway in the domestic economy;
aimed at diversification away from oil
over the last three years have provided
adequate shock absorber to withstand
the
headwinds.
However,
the
Committee urged the fiscal authorities
to invest massively in public works
programme and improve fiscal buffers
to complement these efforts.

Forecasts
of
key
macroeconomic
variables, however, indicate prospects
of improved output growth for the
economy. Based on recent revised
projections, the economy is expected
to grow in 2019 by 2.3 per cent (IMF
estimate), 2.1 per cent by the World
Bank, and 2.20 per cent by the CBN.
The Committee noted the tailwinds to
these
developments,
to
include:
sustained
stable
exchange
rate;
enhanced flow of credit from the
Deposit Money Banks (DMBs) to the
private sector; expected improvements
in tax revenue and efficiency in public
expenditure; continued improvement
in
the
business
environment
and
activities;
and
the
sustained
interventions by the Bank in the real
sector.

The Committee’s Considerations
The
Committee
welcomed
the
improvements in output growth in the
third quarter of 2019, noting that the
current direction of the Purchasing
Managers
Index
suggests
stronger
growth
in
the
fourth
quarter.
It
however, re-emphasized the need for
diversification
to
strengthen
the
productive base of the economy and
reduce
dependence
on
oil.
Diversification has become necessary
now that Nigeria has signed the African
Continental Free Trade Agreement
(AfCTA).
To
achieve
this,
the
Committee
urged
the
Federal
Government to continue to improve
the investment climate and ease of
doing business to attract Foreign Direct
Investment. Particularly, Government
should, as a priority, improve conditions
for
global
auto
manufacturers,
including for aviation and rail industries
to invest in the country.

The
Committee
commended
the
expansion in manufacturing output,
noting that it was a direct fallout of the
policy on loan-to-deposit ratio. The
Committee, called on Government to
urge
the
Pensions
Commission
to
improve the prudential requirements
for Pension Funds to refocus their
investment portfolio away from their
traditional
choice
of
Government
securities in favour of other viable longterm
investments
in
real
estate,
manufacturing and agriculture; and
indeed infrastructure. Moreover, the
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CBN Monetary Policy Review

Committee called for strong visibility of
fiscal and structural policies to improve
infrastructure
and
investment
conditions in the economy. It expressed
strong
optimism
that
the
current
policies of the Bank, in a regime of solid
fiscal and structural policy support,
would yield strong dividends in closing
the current negative output gap in the
medium to long term, and place the
economy on a sustainable and selfsufficient path of output growth.

As
a
key
pillar
of
economic
diversification, the MPC directed the
attention of the fiscal authorities to the
immense potentials of the gas subsector and the urgency to encourage
horizontal integration through private
sector
participation.
This,
the
Committee
argued
will
improve
domestic power supply and export
earnings.

On
price
developments,
the
Committee considered the moderate
uptick in headline inflation in October
2019,
attributing
it
partly
to
an
expected temporary shortfall in food
supply because of the recent land
border closure and rise in demand as
the
festive
season
approaches.
Although it noted that the price
increase was not unexpected, the
Committee believed that the medium
to long-term benefits far outweigh the
short-term cost. Consequently, it noted
the need to drive down food prices
through increased support for local
production of staples foods, including
rice, fish, poultry, palm oil, tomatoes
etc. It also urged the Government to
follow through with a sustainable policy
on backward integration in the milk
industry and other priority sectors of the
economy.

On the fiscal sector, the Committee
identified the need for institutional
reforms through policies that would
automate day to day processes of key
revenue
generating
and
security
agencies
such
as
the
Nigerian
Customs. This would provide additional
advantage of stemming smuggling,
kidnapping
and
the
migration
of
terrorists into the country. The MPC
reiterated the need for increased
efficiency in public expenditure and
the building of fiscal buffers.

On the impact of the recent closure of
Nigerian land borders on domestic
food prices, the Committee noted that
any upward price movement arising
from the closure was reactionary and
therefore
temporary.
Moreover,
significant investment has been made
over the last three years to sustainably
increase domestic food supply. It noted
some of the key initiatives in this
direction to include: the Commodity
Development Initiatives, designed to
finance the agricultural value chain of
ten
((10)
commodities
namely;
Cassava,
Cocoa,
Cotton,
Rice,
Tomato, Poultry, Livestock and Dairy,
Fish, Oil Palm and Maize, which has
received N171.66 billion in funding. Four
of these crops received over 140.12
billion naira or 81.6 per cent of total
disbursements (Cassava, 11.44 billion
naira; Cotton, 40.47 billion naira; Rice,
53.40 billion naira; Oil palm, 34.81 billion
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naira). It is, therefore, expected that
the outcome of these interventions will
close
the
supply
gaps
already
envisaged in the medium to long term,
including dampening domestic prices.
It thus, expressed support for the
temporal closure of Nigeria’s land
borders,
noting
that
securing
the
country’s
land
borders
should
be
further enhanced.

On crude oil price, the Committee
noted the lull in the futures market,
suggesting that prices would remain
relatively weak into the foreseeable
future.
The
Committee,
therefore,
urged the Federal Government to
reconsider its 2020 budget oil price
benchmark of US$57 per barrel, to build
fiscal buffers.

The Committee was confident that
despite
the
weaknesses
from
the
external sector, efforts to ramp-up
domestic production, through several
measures by both the monetary and
fiscal authorities, would douse the
adverse
effects
on
the
domestic
economy in the medium term, through
the reduction of importation of food
and other commodities.

The Committee’s Decision
The MPC reviewed the upsides and the
downsides of the options to tighten,
hold or loosen. It was conscious that,
while
tightening
may
encourage
capital inflows, it also has the downside
consequence
of
constraining
the
already nascent recovery in output
growth. The Committee also noted that
a reduction in the policy rate will
improve growth prospects, but in view
of the uptick in inflationary pressures, it
decided that the balance of risks was
in favour of protecting price stability.
Considering the recovery, decline in
market
interest
rates,
growth
in
domestic credit amongst other positive
developments, the Committee felt that
there would be more gains in the short
to medium term in holding policy at its
current position.

In its consideration to hold, the MPC
noted
with
pleasure,
the
positive
outcome of actions already taken by
the Bank. These actions include: current
policy on loan-to-deposit ratio, which
has resulted in loans and advances
rising by over N1.1trillion between June
to October 2019. It further noted that
these actions have assisted in boosting
credit
to
the
agricultural
and
manufacturing
sectors,
hence,
the
positive outcome on the GDP. The MPC
is hopeful that the LDR initiative must be
sustained as interest rates being paid
by borrowers have so far dropped by
up to 400 basis points between June
and
October
2019.
These
have
happened with corresponding decline
in NPLs to 6.5 per cent at end-October
2019. The MPC is, therefore, of the view
that sustaining the MPR at its current
level is crucial for better understanding
of the unfolding impetus of growth
before deciding on any probable
variations. The MPC also feels that
holding its current policy position offers
pathways for appraising the effect of
the heterodox policies to encourage
lending by the banking industry without
varying the policy rate as the downside
Public
CBN Monetary Policy Review

risk to growth and caution on inflation
looks stable. The MPC is also of the view
that
the
improvements
in
the
macroeconomic indicators such as the
GDP, NPLs, CAR, and the LDR, suggest
that current monetary policy stance is
yielding results. It therefore, feels that
maintaining the current stance would
be necessary in order to sustain the
improvements.

In
view
of
the
foregoing,
the
Committee decided by a unanimous
vote to retain the Monetary Policy Rate
(MPR) at 13.5 per cent and to hold all
other policy parameters constant.

In summary, the MPC voted to:
I.
Retain the MPR at 13.5 per cent;
II.
Retain the asymmetric corridor
at +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
26th November 2019.