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CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 128 OF THE
MONETARY POLICY COMMITTEE MEETING HELD ON THURSDAY 23rd
AND FRIDAY 24th JANUARY, 2020
The Monetary Policy Committee (MPC) held its 271st meeting, the first
in fiscal 2020, on the 23rd and 24th of January, 2020. The Meeting held
in an environment of sluggish global economic recovery and
financial market vulnerabilities, and tepid domestic growth. The
Committee appraised these developments and the outlook for the
first quarter of 2020, as well as the rest of the year. All the Eleven (11)
members of the Committee were in attendance.
Global Economic Developments
The headwinds that characterized the global economy in 2019
showed signs of moderation, giving way to improved prospects for
economic recovery in 2020. Consequently, global output is
projected to grow by 3.3 per cent in 2020 from 2.9 per cent in 2019.
The downside risks to the global outlook, include: broad slowdown in
the advanced economies; resurgence of financial stress in the

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Emerging Markets and Developing Economies (EMDEs); rising geopolitical tensions in the Middle-East; and extreme weather conditions
in some regions. Output growth across major advanced economies,
remains fragile, due to weak recovery in manufacturing activities
and sluggish rise in global trade. Consequently, growth in the
Advanced Economies is projected to slow to 1.6 per cent in 2020,
from 1.7 per cent in 2019. With most EMDEs facing brighter prospects,
output growth is expected to recover to 4.4 per cent in 2020 from 3.7
per cent in 2019. The major impetus for this recovery is expected to
come from India, Brazil and Russia.
In most advanced economies, inflation remained below their longrun targets, reflecting weak aggregate demand in the Euro Area
and Japan, as well as moderating wage growth in the US, despite
the robust job performance. Central Banks in the advanced
economies are thus, expected to continue with monetary
accommodation into the medium term. In the EMDEs, however,
inflation prospects remain mixed, with some economies facing
stronger upside risks than others.
Domestic Economic Developments
Real Gross Domestic Product (GDP) continued to improve, although
slowly. It grew to 2.28 per cent in the third quarter of 2019, compared
with 2.12 and 1.81 per cent in the preceding and corresponding
quarters of 2018, respectively. The improvement in growth was
driven, largely, by the performance of the oil sector, which grew by

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6.49 per cent, while the non-oil sector grew by 1.85 per cent. Staff
projections estimate real GDP in Q4 2019 and Q1 2020 at 2.20 and
2.35
per
cent,
respectively.
The
Manufacturing
and
NonManufacturing Purchasing Managers’ Indices (PMI) grew further in
December 2019, for the 33rd and 32nd consecutive months, to 60.8
and 62.1 index points, respectively. The optimism in growth prospects
in Q1 2020, and the rest of the year, is anchored on the enhanced
flow of credit to the private sector, to improve manufacturing
activities, and financial and exchange rate stability. In addition, the
Bank’s continued intervention in Agriculture, and Small & Medium
Scale Enterprises (SMEs) is expected to boost growth. Identified
headwinds to growth, however, include; uncertainty in the oil
market, high unemployment, rising public debt and security
challenges across the country.
The Committee noted the continued uptick in headline inflation
(year-on-year) in December 2019 to 11.98 per cent, from 11.85 per
cent in the previous month. The increase in inflation, which was
anticipated, was largely attributable to increase in both the food
and core components, by 14.67 and 9.33 per cent in December
2019 from 14.48 and 8.99 per cent in November, respectively.
The increase in the food component reflects largely seasonality
effect and the impact of the continued insurgency in some food
producing areas of the country. Although, Staff forecasts suggest a
short-term upward trend in prices, the Committee believes that the

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Bank’s continued intervention in the real sector is expected to
increase domestic production and lower prices in the medium-term.
The Committee observed that broad money supply (M3) grew by
6.22 per cent (year-to-date) in December 2019. Aggregate Credit
(Net) similarly grew to 27.33 per cent in December 2019, from 23.12
per cent in the previous month. This was largely attributed to an
increase in Credit to Government, which grew to 92.95 per cent in
December 2019, from 72.36 per cent in the previous month. Credit to
the Private Sector also grew to 13.61 per cent in December 2019,
from 12.82 per cent in the previous month. Consequently, sectoral
distribution of credit between end-May 2019 and end-December
2019 was as follows: manufacturing (N446.44 billion); General Retail
and Consumer Loans (N419.02 billion); General Commerce (N248.48
billion); Agriculture, Forestry and Fishing (N160.94 billion); Information
and Communications (N156.47 billion); Finance and Insurance
(N129.87 billion); Construction (N86.54 billion); and Transportation
and Storage (N68.61 billion), amongst others. The Committee
observed with delight that, over the last six months, aggregate credit
grew by N2.0 trillion and urged the Management of the Bank to
sustain the current momentum of improved flow of credit to the
Private Sector, while exploring other options with the fiscal authorities
to strengthen the legal framework for the enforcement of credit
recovery.

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Lower money market interest rates, in the review period, reflected
the liquidity overhang in the banking system, resulting from the
restriction of individuals and non-bank corporates in the domestic
economy from participating in OMO bill auctions. Consequently, the
monthly weighted average Inter-bank call and Open Buy Back
(OBB) rates fell sharply to 3.82 and 3.24 per cent, in December 2019,
from 11.42 and 10.73 per cent, respectively, in the previous month.
The Committee noted the improved performance in the equities
market, as the All-Share Index (ASI) and Market Capitalization grew
by 11.61 and 18.27 per cent, respectively, between end-October
2019 and 10th January, 2020. This was indicative of the shift by
domestic investors from the money market to the equities market in
response to the Bank’s policy to restrict their investments in the OMO
bills auction.
The MPC also noted the improved performance and sustained
resilience of the banking system, evidenced by the continued
moderation of the Non-Performing Loans (NPLs) ratio from 6.6 per
cent in October to 6.1 per cent in December 2019. The Committee
noted that the improvement reflected the Bank’s continued
deployment of heterodox policies to ensure that NPLs fell below the
prudential benchmark of 5.0 per cent.

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Outlook
Although global output is projected to expand moderately in 2020,
compared with the previous year, the overall medium-term outlook
for the global economy remains uncertain, due to the persistence of
several headwinds. These include: the lingering trade tensions
between the US and its major trading partners; rising levels of both
corporate and public debts; continued geopolitical tensions in the
Middle-East; fragile recovery of manufacturing activities; and the
narrowing policy space by which central banks in the advanced
economies can respond to future macroeconomic shocks. In
addition, predicted weather-related disasters could pose further
threats to global output recovery.
On the domestic side, available data on key macroeconomic
indicators show prospects of improved output growth for the
economy in 2020. Revised projections for 2020, show that the
economy is expected to grow by 2.50 per cent (IMF), 2.10 per cent
(World Bank) and 2.35 per cent (CBN). The underlying projection is
anchored on the following conditions: enhanced flow of credit to
the real sector of the economy; sustained stability in the exchange
rate; continued CBN interventions in agriculture and non-agricultural
Small
and
Medium
Enterprises
(SMEs);
and
the
effective
implementation of the Economic Recovery and Growth Plan (ERGP).
The downside risks to this projection are primarily the rising stock of
public debt and lack of fiscal buffers. Others include the persistent

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

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The Committee noted the improvement in the financial soundness
indicators, growth in assets of the banking system and the gradual
switch in the composition of DMB assets from investments in
government securities to growth in credit portfolio. It, however,
noted that lending rates at the retail segment of the market had
remained fairly sticky downwards as deposit rates had declined
substantially. It also noted that in some cases, DMBs were not
encouraging term deposits in their portfolios and therefore,
emphasized the Bank’s commitment towards the implementation of
the Loan-to-Deposit ratio (LDR) policy.
On fiscal operations, the Committee applauded the Government for
the recent signing of the 2020 Finance Bill which opens a new vista of
opportunities in public financial management. The MPC, however,
cautioned that public debt was rising faster than both domestic and
external revenue, noting the need to tread cautiously in interpreting
the debt to GDP ratio. The Committee also noted the rising burden
of debt services and urged the Fiscal Authorities to strongly consider
building buffers by not sharing all the proceeds from the Federation
Account at the monthly FAAC meetings to avert a macroeconomic
downturn, in the event of an oil price shock.
It urged Government to gradually reduce reliance on oil receipts
and focus on revenue diversification through reforms of the tax
system. The Committee also called on Government to rationalize

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fiscal expenditure towards reducing the current excessively high cost
of governance.
The MPC expressed concern about the rising inflation, which
increased consecutively in the last 4 months as at December 2019 to
11.98 per cent and higher than its target range of 6-9%. This rising
price level is attributable to a combination of structural and supply
side factors, expansionary fiscal policy; and growth in money supply
arising from rising liquidity surfeit in the industry due to changes in the
Bank’s OMO policy. In furtherance of its primary mandate to
maintain price and monetary stability and in view of the anticipated
medium-term liquidity surfeit from maturing OMO bills held by local
private and institutional investors, which would not be rolled over, the
Committee considered it prudent to raise the CRR to curtail liquidity
surfeit in the banking system.
The Committee is confident that increasing the CRR at this time is
fortuitous as it will help address monetary-induced inflation whilst
retaining the benefits from the Bank’s LDR policy, which has been
successful in significantly increasing credit to the private sector as
well as pushing market interest rates downwards. The Committee
further encouraged the Management of the Bank to be more
vigorous in its drive to improve access to credit through its pursuit of
the Loan-to-deposit ratio policy as doing this would help, not only in
creating job opportunities but also help in boosting output growth
and in moderating prices. It is noteworthy that Gross credit in the

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industry grew by N2 Trillion between May 2019 and December 2019;
channeled primarily to the employment-stimulating sectors such as
agriculture and manufacturing, in addition to increased lending to
the retail and SME segments, which is expected to help boost
domestic output growth in the short to medium term. To retain the
gains from credit expansion and current industry focus on lending,
the Committee advised the Bank to sustain its LDR Policy and in
addition continue to deploy its DCRR policy which directs new
funding for greenfield projects and expansion to critical sectors of
the economy.
The Committee’s Decision
On the arguments to tighten, the Committee noted that given that
inflation rate inched up in December 2019 and that the rate is still
above the upper band of the 6-9 per cent threshold, tightening may
be necessary to tame the rising trend in inflation. In addition, the
relatively bearish outlook of the equities market indices points to
waning investor confidence in equity in preference for coupon rate
on bonds. Raising the policy rate, could be a policy choice to
reverse the tendency and attract more foreign portfolio investments.
Also, the risks to the level of reserves persist as prices of oil futures
remain uncertain. Policy tightening would enhance the accretion to
foreign reserves and attain relative stability in the foreign exchange
market. Moreover, raising rates would reinforce the stability of the

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foreign exchange market as an upswing in the rate will inhibit
demand pressures in the market through a decline in money supply.
Although tightening would limit the ability of DMBs to create money,
ultimately leading to a reduction in money supply and curtail their
credit creation capabilities, which would eventually lead to rising
cost of credit and credit risk as DMBs re-price their risk assets, the
MPC believes that the aggressive pursuit of the current loan-todeposit ratio policy thrust would continue to help to catalyze credit
growth and positively impact growth and prices.
On the decision to loosen, members noted that the relative stability
in the foreign exchange market provides confidence to foreign
investors. There is, therefore, no immediate concern that loosening
would exert pressures on the foreign exchange market in the near
term. In addition, an accommodative monetary policy stance would
motivate banks to lend to maintain their profit performance and
would result in decline of the overall cost of production. This would
further affirm the Bank’s support for stimulating output growth.
The Committee also feels that the downside to loosening is that it
could amplify inflationary pressures as the economy experiences
increased liquidity surfeit, particularly if loosening drives growth in
consumer credit, without corresponding adjustment in output, thus
escalating inflationary pressures. An interest rate reduction would
increase money supply and exert pressure on the exchange rate.
Moreover, an accommodating monetary policy stance may not

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necessarily lower the retail lending rate, as interest rates are
generally sticky downwards.

On the argument for a Hold, the MPC acknowledged that a mix of
heterodox monetary and financial policy measures have recently
been deployed by the Bank. Noting the existence of a lag between
the policy pronouncement and its impact on the economy, a hold in
the rate would ensure its efficient impact on the economy. The
Committee noted the slow pace and low rate of economic growth
as real GDP growth of 2.10, 2.12 and 2.38 per cent in Q1, Q2 and Q3
2019, respectively, being below the population growth rate, still
needs sustained policy support. Maintaining monetary policy rate at
its present level is essential for sustainable support to growth before
any possible adjustments. This will enable policy to react suitably to
developments as they occur in the near term. In addition, retaining
the current policy position provides avenues to evaluating the
impact of the heterodox monetary and financial policies to support
lending by the banking industry without altering the policy rate.
On the downsides to holding, the Committee noted that it would
reduce the speed of economic recovery relative to loosening, exert
a drag on output growth, as DMBs continue to utilize bonds sales
instead of engaging in financial intermediation to the private sector.

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In view of the foregoing, the Committee by a decision of 9 members,
voted to alter the Cash Reserve Requirement (CRR) by 500 basis
points from 22.5 to 27.5 per cent, while leaving all other policy
parameters constant. Two members voted to leave all parameters
constant.
In summary, the MPC voted to:
1. Change the CRR from 22.5 to 27.5 per cent;
2. Retain the MPR at 13.5 per cent;
3. Retain the asymmetric corridor of +200/-500 basis points around
the MPR;
4. Retain the Liquidity Ratio at 30 per cent.

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

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PERSONAL STATEMENTS BY THE MONETARY POLICY COMMITTEE
MEMBERS
1. ADAMU, EDWARD LAMETEK
Economic recovery continued in 2019 albeit slowly. In Q3 2019, real
output grew by about 2.28 per cent, up from 2.1 and 2.2 per cent,
respectively in Q1 and Q2, 2019. Relative to 2018, economic growth
strengthened in the first three quarters of 2019. Based on available
forecasts, the overall growth for 2019 is expected to be better than
recorded in 2018 and 2017. To that extent, it is reasonable to say
that output recovery has remained on a firm path despite several
headwinds including security challenges and uncertainties in the
global economic environment. The improvement in economic
activity in recent quarters has been underpinned by relative stability
in prices and improved credit to the real sector.

The naira exchange rate remained stable in 2019 just as interest rates
moderated especially following the implementation of a minimum
loan-to-deposit (LDR) for deposit money banks (DMBs) in the second
half of the year. Headline inflation remained lower than the end2018 level of 11.44 per cent until October 2019 when it rose to 11.61
per cent. Bolstered by increased liquidity and a variety of structural
constraints, consumer price pressures continued to build in the rest of
the fourth quarter of 2019. At 11.98 per cent in December, headline
inflation was almost at the upper limit (12.0%) of its (optimal)

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threshold for the economy, and if not addressed, could soon begin
to undermine economic growth. Considering this and some other
risks to overall stability, I voted to raise the cash reserve ratio (CRR)
primarily to rein-in excess liquidity in the system and stem inflationary
expectations.
The last quarter of 2019 witnessed significant liquidity build-up which
resonated in very low short-term (interbank) rates. The open-buyback (OBB) rate for the period averaged 3.26 per cent between
November and December 2019. Likewise, the unsecured (overnight)
interbank rate averaged 3.95 per cent. Both rates persisted at levels
far below the policy corridor defined by the Bank’s Standing Lending
Facility (SLF) and the Standing Deposit Facility (SDF). In like manner,
the Nigeria Treasury Bills (NTBs) rate trended downwards significantly
in the second half of 2019. The sources of the excess liquidity that
accounted for the slide in short-term interest rates included
improved Federation Account allocations to the three (3) tiers of
government, open market operations (OMO) maturities and Federal
Government of Nigeria (FGN) domestic debt maturities. More
importantly, perhaps, the restriction of access to OMO securities
which came into effect in 2019 had left the DMBs with extra liquidity.
Meanwhile, the outlook for system liquidity in 2020 remains inclement
on account of these same factors in addition to the high prospects
of an expansive fiscal stance. In effect, I see the need for monetary
policy to brace for a relatively stronger excess liquidity challenge in
2020.

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Directly related to the problem of liquidity surfeit is the creeping
pressure in the economy’s external accounts. In Q3 2019, the
country’s current account balance (CAB) recorded the third
consecutive deficit, not because exports slacked; rather, imports
and net invisibles (negative) increased. This trend constituted, in my
view, an important pressure point, and therefore required a policy
response. Persistent excess liquidity would no doubt exacerbate
pressure on the country’s external sector, which outlook is currently
not very strong in view of the protracted low prices of oil (the
country’s most important export) and unstable capital inflows. Given
the strong connection between Nigeria’s external sector and the
real sector, a pressure in the former rapidly transmits to the latter
through the exchange rate. Typically, both domestic output and
consumer prices are pressured by vulnerabilities in the external
sector, and could easily degenerate into a self-propelling process of
economic instability.

Of course, in deciding to raise the CRR, I was not unmindful of the
need to support the fragile output recovery, which consideration
had greatly influenced my thought and judgment during the last
couple of meetings. However, as I evaluated available statistics
including the massive expansion in credit to the real sector over the
past few months owing to the implementation of a minimum LoanDeposit-Ratio (LDR) policy for DMBs, the level of progress made by

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the Bank with the implementation of the differentiated CRR and the
growth-enhancing developments on the fiscal side, I viewed that the
balance of risks was tilting towards price stability which remains the
primary goal of monetary policy.

Notwithstanding the headwinds I hold a broadly optimistic view of
the economy. In particular, the timely conclusion of the 2020 budget
process and the ongoing payment of contractors’ arrears should
reinvigorate business confidence and spur economic activity. This is
already showing in the capital market with the All Share Index (ASI)
rising by about 10% between end-December 2019 and January 22,
2020. Equally encouraging is the significant improvement in the
banking industry’s resilience (with the non-performing loans ratio
falling to about 6.0% at end-2019 from 11% in April) and the
considerable growth in new credit to key sectors like agriculture and
manufacturing. I should emphasize that these developments would
only have the desired maximum effect on output and employment
in an environment of stable prices, which underscores the need for
adjusting monetary policy at this time to restore liquidity to its optimal
path. As I have argued previously, preserving the stability of the
exchange rate of the naira continues to be essential for both
consumer price stability and output recovery. Excess liquidity in the
banking system is a real threat to the stability of the naira exchange
rate just as it is to inflation. And so, I voted specifically to raise the
CRR from 22.5% to 27.5% in order to address this risk.

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2. ADENIKINJU, ADEOLA FESTUS
International Economic Developments
2019 was a challenging year for the global economy. The prolonged
US-China trade war and the uncertainty around the BREXIT
negotiations affected global economic growth. Outlook for 2020
global economy is on the balance better than in 2019 with the
partial resolution of the US-China trade war, and the resolution of
BREXIT. Global growth is projected to expand to 3.3% in 2020 from
2.9% in 2019. However, global economic growth will continue to be
challenged by soft economic growth, rising corporate debt and
accommodating monetary policies in advanced economies. Global
trade growth will also be impacted by continuous rise of nationalism,
trade protectionism, coronavirus disease and slow growth in China.
Global oil market will remain volatile, but for flashes of geopolitical
tensions, the price of oil per barrel will trend around a projected
long-term rate of low $60s. While this is above the $57/barrel, oil price
benchmark used in the 2020 budget, however, given the challenges
with other non-oil income sources, and nature of government
expenditure in Nigeria, the scope for creating fiscal buffers is low.

Domestic Economic Developments
As at the time of this MPC meeting, the NBS is yet to release its figure
for Q4, 2019 GDP growth. However, figure for 3rd quarter, 2019 shows

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that real GDP grew by 2.28% compared with 2.12% in the preceding
quarter. Thus, the economy continues its progressive recovery from
the 2016 economic recession. Nevertheless, GDP growth remains
fragile and below the population growth rate.
Headline inflation rate in December rose to 11.98%. This represents 4
months of successive rise in inflation rate. Forecast by Bank Staff
shows inflation in the short to medium term rising above 12%. This is
above
the
tolerance
level
for
economic
growth.
Inflation
expectations in the near time remains high. Inflation inducing factors
in 2020 include, 50% increase in VAT rate, likely increase in electricity
tariffs, effect of the increase in national minimum wage, insecurity
and the border closure.
The financial Soundness Indicators are quite robust. Non-performing
loans (NPLs) ratio fell from 6.6% in October 2019 to 6.1% in December
2019. Capital adequacy ratio, and Liquidity ratio fall within
prudential requirements. Returns on equity and assets were better in
December 2019 compared to October 2019.
The increase in lending by over N2 trillion between May and
December 2019 is a positive outcome of CBN monetary policies. The
new lending went to critical sectors like manufacturing, agriculture
and trade. This is in addition to the major lending activities by the
other financial institutions like the microfinance and development
banks. The new lending will drive up supply and exert downward

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pressure on domestic prices. It should also drive down lending rates
at the retail end of the financial sector if it is sustained.
Rates on financial assets fell across the financial markets. OBB rates
declined to 3.24% in December 2019 from 6.64% in October 2019,
outside the lower band of the MPR corridor of 8.5% and 15.5%. Yields
in treasury bills also dropped to a decade low. These are not
unconnected with the liquidity surfeit in the economy. Net banking
system liquidity position rose from N160.03 billion in December 31,
2018 to N587.21 billion in December 31, 2019.
The equity market reverses its negative growth trajectory. Between
December 31, 2019 and January 22, 2020, the All-Share Index (ASI)
rose by 9.75%. This was a major departure from the -14.6% decline in
the ASI between December 31, 2018 and December 31, 2019.
On the external sector, the foreign exchange markets were
generally stable aided by the foreign exchange interventions of the
CBN. Foreign reserves fell from $41.54billion in December 2018 to
$38.07billion in December 2019. The current account balance by Q3,
2019 was -2.24% of GDP. This was better than -3.27% in Q2, 2019.
However, capital importation in December 2019, went largely into
the purchase of shares, finance, banking and trading. The nonfinancial sectors of the economy attracted only insignificant share of
total capital imports. The fiscal side continues to pose significant
challenge in my view. The rising debt level and high fiscal deficit
pose significant challenge to effective economic management.

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Between January and September 2019, actual revenue stood at 52%
below budgeted revenue, whereas actual expenditure exceeded
planned expenditure over same period. Capital expenditure, which
is
expected
to
drive
economic
growth,
as
expected
underperformed.
My concerns
I have considered carefully the excellent reports presented by the
Bank’s staff at this meeting. However, I have some concerns. These
include inflation persistence, the continuous decline in foreign
reserves, the liquidity surfeit in the economy, the negative current
account balance, the poor state of the fiscal sector, fall in prices of
financial assets, and the bearish outlook for the oil sector.
The MPC should not ignore the inflation threat. The primary
responsibility of the CBN remains price stability. The fall in interest
rates across financial market instruments is suggestive of liquidity
surfeit in the system. The CBN policy to increase lending to the real
sector is a good policy to boost the supply side of the economy and
relax constraints to domestic food and agricultural supply. This policy
is in order and CBN should maintain it. Several analyses have shown
that among the policies available to control liquidity in the Nigerian
economy, the CRR is the most potent.

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My Vote
Based on the balanced of probabilities facing the economy in the
near term, I cast my vote at this meeting to tighten the liquidity in the
system. Hence, I vote as follow:
1. Retain MPR at 13.5%
2. Increase CRR by 500 basis points to 27.5%
3. Retain LR at 30%
4. Maintain Asymmetric corridor around the MPR at -500% and
+200% respectively.

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3. AHMAD, AISHAH N.
The January 2020 MPC meeting held against a backdrop of a
somewhat positive global economic outlook as expectations of an
economic slowdown which strengthened in Q4 2019 appeared to
abate. The implications of this and other domestic macroeconomic
developments for Nigeria’s continued economic stability shaped
discussions.
Global growth momentum expected to be resilient in 2020.
Risks to global output growth, which intensified over the course of
2019, are expected to taper as the year progresses. This reflects
improved investor sentiment around monetary policy, trade and
geopolitical tensions and the impending resolution of Brexit
negotiations. This positive view is supported by the IMF’s global
output growth projections of 3.3 and 3.4 percent in 2020 and 2021,
respectively, 0.4 and 0.5 percentage points above 2.9 percent
growth reported for 2019.
Renewed confidence notwithstanding, crude oil price volatility
remains a key headwind for Nigeria, given its disproportionate
impact on fiscal revenues, reserves accretion, price and monetary
stability. Bonny light rose from US$66.11/barrel in November to
US$70.37/barrel in December 2019, and dropped to US$69.87/barrel
in January 2020, due to geopolitical tensions (US, Iran, China, Middle
East, etc) which appear to be prevalent in the short to medium term.

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Thus, the fiscal and monetary authorities must be vigilant for any
sudden shocks that may set off a weakening of the external sector,
given its impact on external reserves and exchange rate stability.
Fiscal consolidation remains paramount and the passage of the
Finance Bill is a step in the right direction.
Whilst the Q4 2019 GDP growth number is being awaited, it is
important to acknowledge the positive trajectory of output growth
since the country’s exit from recession in Q2 2017. Performance in
the first three quarters of 2019 (2.10, 2.12 and 2.28 percent,
respectively) inspire confidence for a strong finish in Q4, in view of
the Bank’s supportive policies sustained through the year. The
importance of ramping up domestic output growth and productivity
is further underscored by the high unemployment and population
growth rate which continues to depress GDP per capita. Focused
implementation of the ERGP by the fiscal authorities, particularly
aspects that seek to strengthen the business environment,
deployment of technology and quality of human capital, will be
critical to improve productivity, and position Nigeria for sustained
growth over the long term.
The Committee thereafter focused its discussions on evaluating the
impact of the Bank’s policies, especially the Loan to Deposit Ratio
(LDR) policy, developments in price and monetary stability, the path
of domestic prices, monetary expansion and financial stability.

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Financial system stability emerged strong into 2020 as data provided
by Bank staff indicated sustained improvement in soundness
indicators in 2019, even as credit to the private sector continued to
grow. Capital adequacy, liquidity and other prudential ratios remain
within desired levels, whilst the NPLs ratio in particular, reduced
further to 6.1 percent as at end December 2019, from 6.6 percent at
end-October 2019. The key challenge for the Bank will be to sustain
this positive industry risk profile, notwithstanding continued growth in
credit driven by the LDR policy.
The LDR Policy retained its efficacy, stimulating substantial increases
in private sector loans, lowering market lending rates and has
progressively diversified industry credit portfolio. Gross credit in the
industry grew by N1,997.72 billion between end-May 2019 and end
December 2019; channeled primarily to employment-generating
sectors such as agriculture and manufacturing. This is in addition to
increased lending to the retail and SME segments, expected to help
boost domestic output growth in the short to medium term in support
of the economic diversification agenda of government.
The significant growth had positive impact on industry LDR ratio,
which grew by 319 basis points from 57.45 per cent at end May 2019
to 60.64 per cent at end-December 2019. The industry also recorded
growth in average customer deposit and aggregate funding, which
grew 6.9 percent over the same period - a positive indication of

Classified as
expanded capacity of the financial sector to sustain further lending
to the real sector.
In view of its relative success, the Committee advised the Bank to
retain the LDR Policy and in addition, continue to deploy its
Differentiated Cash Reserve Requirement (DCRR) policy which
directs targeted funding to critical sectors of the economy. It further
encouraged the Bank to hasten implementation of its risk mitigation
measures such as the Global Standing Instruction (GSI) to proactively
preserve asset quality.
Price and monetary stability objectives are being achieved, with
relative stability in the exchange rate, albeit with decreased yet
healthy
external
reserve
levels.
However,
domestic
prices,
particularly inflation was a key area of focus, given its recent upward
trend. The general price level increased for the sixth consecutive
month to 11.98 percent (y-o-y) in December 2019, higher than the 69 percent benchmark. The rising price level is attributable to a
combination of structural supply side factors, expansionary fiscal
activities and growth in monetary aggregates, caused by rising
liquidity surfeit partly as a consequence of the Bank’s recent OMO
policy. This rising price level is a key concern in view of the Bank’s
primary mandate of price and monetary stability, particularly as
additional liquidity is expected from upcoming maturities of OMO
bills previously held by local private and institutional investors.

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Policy options are limited in this scenario and tradeoffs must be
made. Whilst increasing the MPR at this time would be harmful for
growth which remains fragile, raising the CRR may reduce banks’
capacity to lend. Fortunately, the potentially restrictive impact of a
higher CRR will be counterbalanced by continued implementation
of the LDR policy to sustain credit expansion. Therefore, raising the
CRR will be an effective tool in the short to medium term that will
absorb the anticipated excess liquidity and curb monetary induced
inflation whilst supply of treasury securities improves over the long
term.
I therefore vote to retain the MPR at 13.5 per cent; increase CRR by
500 basis points from 22.5 per cent to 27.5 percent; retain liquidity
ratio at 30.0 per cent and also retain the asymmetric corridor at
+200/–500 basis points around the MPR.

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4. ASOGWA, ROBERT CHIKWENDU
Decision:
Both domestic and global macroeconomic conditions have been a
bit strong at the time of the January 2020 Monetary Policy
Committee (MPC) meeting which reflects positive surprises to
economic activity in 2020 as compared to the major uncertainties in
trade that retarded growth in 2019. Key indicators suggest that
global growth has somewhat stabilized in early 2020 and the
significant loosening of monetary policy by many central banks over
the past few months is currently being sustained. On the domestic
front, there are early indications of positive progress with recent
policies of the Central Bank of Nigeria such as the Loan to Deposit
Ratio (LDR) which has improved the credit outlook, while overall
banks’ financial soundness conditions appear to have strengthened
further in the past two months. The uptick in inflation in the third and
fourth quarters of 2019 remain a huge concern, but part of it was
related to non-monetary factors especially food supply constraints.
In determining the future part of monetary policy rate (MPR), it is
therefore important for the Monetary Policy Committee to first watch
closely (with incoming data), if the recent increases in the levels of
banks’ credit is sufficient to boost output whilst paying particular
attention to any response of domestic prices to the potential supply
growth.

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My opinion therefore, is that policy parameters should remain largely
unchanged at this January 2020 MPC meeting. I thus vote to:
• Retain the MPR at 13.5 %
• Retain the CRR at 22.5%
• Retain the Asymmetric Corridor at +200/-500 basis points
• Retain the Liquidity Ratio at 30.0%
The Global Economic Outlook:
The global economy is expected to recover in 2020 as some of the
major uncertainties impacting the world economy appear in recent
months to be resolving themselves. For instance, the risks of an
escalation in the US-China trade tensions seems to have partly
eased with the announced ‘phase one’ trade deal between U.S
and China and a document aimed at de-escalating the ongoing
trade dispute was signed on 15th January, 2020. Also in the UK, the
fears of a no-deal Brexit has diminished recently ending a near-term
political uncertainty. Further, the renegotiated US, Canada and
Mexico trade deal, which is to replace NAFTA received approval of
the US Congress by late December 2019. However, despite these
positive outcomes, geo-political tensions have re-emerged lately
including the events between the USA and Iran, as well as further
worsening of relations between USA and such other trading partners
as the European Union. These new threats including a possible
Chinese crackdown in Hong Kong remain potential downside risks to
the global growth outlook in 2020.

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Overall, CBN staff report, suggest that global growth is projected to
increase to 3.3 percent in 2020 which is a marginal rise from the 2.9
percent estimated at the end of 2019. This expected uptick remains
uneven across countries as accelerations are expected in the Euro
Area, Latin America and Sub-Sahara Africa, while moderations are
expected in the USA, Japan and China. In the Euro area, growth is
expected to pick up from 1.2 percent in 2019 to 1.3 percent in 2020,
fuelled by projected improvements in external demand. In UK,
following an orderly exit from the European Union, growth is
expected to recover to 1.4 percent in 2020 from the level of 1.2
percent in 2019 and even projected to firm up to 1.5 percent in 2021.
In the USA, growth is expected even lower further in 2020 from 2.3
percent in 2019 to 2.00 percent in 2020 largely reflecting the toll
caused by prolonged trade policy uncertainty as well as the impact
of tariffs on some key sectors. Similarly, the Chinese economy growth
is projected to contract from an estimated 6.1 percent in 2019 to 6.0
percent in 2020 and even further down to 5.8 percent in 2021 as a
result of partial rollback of past tariffs. Japan’s economy is also
projected to remain weak in 2020, slowing to 0.5 percent from 0.9
percent in 2019.
The early signs of stabilization and positive growth outlook in 2020
appears to reinforce the monetary policy sentiments demonstrated
in 2019 by central banks rate cuts and easing posture that
characterised the broadest shift in monetary policy of several
advanced and emerging economies. The US shift to ‘hold’ position

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after three rate cuts in the second half of 2019 remains the position
of the Federal Reserve, which has indicated that ‘the current stance
of monetary policy is appropriate and no further rate cuts are
expected in 2020’. In the Eurozone, the central bank continued its
monetary accommodation mode during the final quarter of 2019 by
restarting the asset purchase programme in November and has
indicated that both the marginal lending facility and the deposit
facility will remain unchanged even in the near future. The Bank of
England has also indicated interest to hold onto the current
accommodative monetary policy stance in 2020 especially given
the fact that global business confidence and other manufacturing
indications are generally picking up in the early days of 2020, partly
reinforcing the expected recovery in UK GDP. The People’s Bank of
China in an attempt to stimulate the Chinese economy has also
continued on the part of monetary easing by cutting the reserve
requirement ratio for major banks by 50bps, effective January 6, 2020
and this policy is expected to release nearly 1 trillion Yuan into the
real economy. The Bank of Canada have also maintained the
overnight rate target in early January 2020 citing the positive trade
developments and the recent resilience of the Canadian economy.
There are also early signs of strengthening in the equities markets of
many advanced economies given the backdrop of positive news on
US-China economic relations and reduced fears of a hard Brexit
which perhaps have stimulated the risk appetite of global investors.
The US equities market has generated strong gains from the last

Classified as
quarter of 2019 up to the early weeks of January 2020 driven by an
improved economic picture and the reduced trade tensions.
European equities also gained nearly 9 percent while China’ index
rose at about 15 percent during the same period. Portfolio flows to
emerging market economies have also strengthened as there have
been recent equity market gains in such emerging markets as Brazil,
Russia and India. Similarly, currency movements in the last quarter of
2019 and early January 2020 reflect an improvement in the risk
sentiment and reduced tensions as US dollar and Japanese yen
weakened by about 2 percent while the Chinese currency gained
very marginally.
The Domestic Economic Outlook:
The outlook for the domestic economy prior to the January 2020
MPC meeting looks positive eventhough the trend of key variables
has been a bit mixed. Output figure for the fourth quarter of 2019 is
yet to be released officially, but recent CBN staff projections point to
a firmer GDP growth in Q4 2019 of about 2.34 percent resulting in a
2019-year end growth of about 2.12 percent which is a little above
earlier estimates of potential output growth. The positive year end
outlook is informed by the relative expansion of the Purchasing
Managers Index for both the manufacturing and non-manufacturing
sectors. In addition, the stable oil prices and exchange rate as well
as an expanding credit growth in the economy especially to the
agricultural sector were key to the 2019-year end growth estimates.

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The outlook for 2020 is also positive, but CBN staff estimates remain
cautious as it forecasts that growth will moderate at 2.1 percent in
2020 and 2021, driven largely by the non-oil sector. Should oil prices
remain at current levels for a sustained period, or even increase
further, it is expected that GDP growth in 2020 may even be stronger.
While the baseline growth projections are titled on the upside,
inflationary developments since June 2019 point to a set of downside
risks to domestic economic activity. Latest inflation data (headline,
food and core) for December 2019 show an increase for the fifth
consecutive month since August 2019 and the marginal increases
have been attributed mainly to food inflation, but prices of nonalcoholic beverages are also on the rise since December 2019. CBN
staff estimate suggests that headline inflation will stay above 12
percent between January and March 2020.
On a positive side, recent bank stability data reflects the general
strengthening of banking system and a more supportive financial
market. The decline of non-performing loans from 9.4 percent in
August 2019 to 6.6 percent in October 2019 and further to 6.1
percent in December 2019 and the improvements in the both
profitability indicators (ROE and ROA) are indications of an
increasingly robust banking system and the build-up of a more
resilient financial system. Also, the growth in total banking assets after
the last MPC meeting, largely driven by growth in new credit
suggests a positive response to the CBN’s loan to deposit ratio (LDR)

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guideline for deposit money banks eventhough the effectiveness of
the new credit in stimulating growth are yet to be fully ascertained.
The domestic equity market has also generated strong gains in the
fourth quarter of 2019 as both the All Share Index (ASI) and Market
Capitalization increased between October and December 2019 by
1.85 and 1.00 percent, respectively. This late rally in the stock market
has been driven largely by the improving domestic economic
performance as well as the declining rates in the money market
which perhaps may have induced local portfolio shifts.
A prime vulnerability remains the high and rising public debt burden
and the risks they pose for future growth. The concerns about rising
debt accumulation, which are not being matched by rising output
growth have been raised at previous MPC meetings and the
suggestions for a coherent fiscal coordination strategy that will
reduce the levels of fiscal deficit have also been adequately
canvassed in the past. With the continued elevation of the
proportion of debt denominated in foreign currency, any sharp
dollar appreciations will only add to the existing debt sustainability
concerns and magnify the negative feedback loop.

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5. BALAMI, DAHIRU HASSAN
GLOBAL ECONOMIC AND FINANCIAL ENVIRONMENT
Global Growth
This personal statement spotlight growth, inflation and financial
soundness of the banking sector. The year 2019 was a year of
uncertainty and slow growth. The global landscape headwinds
which had adversely affected, and still affecting growth output are;
the lingering trade war between the United States of America (US)
and China, and the US and Iran geopolitical crisis in the Middle-East.
The difficultly in negotiations around Brexit and the inversion of the
yield curve in the US are resolving. Business confidence continued to
wane in the year 2019, which reflected signs of weakness and
waning fiscal stimulus in Europe.
Global trade remained weak during 2019. Amongst the
developments in this regard was that the US economy is susceptible
to global headwind, and the Germany economy slowed, although
domestic fundamentals remain strong, uninspiring export growth
remains a key drag to growth of the economy. Export which
accounts for half of Germany’s GDP slumped by 1.3% year-on-year
in the period under review.
Heightened socio-political tensions equally weaken global growth. A
review of developments showed that the French economy suffered
from socio-political and economic challenges, which led to

Classified as
incessant demonstrations that almost crippled the economy. In Italy,
there was a problem of budget crisis. However, the Italian economy
emerged from a third recession in 10 year as the economy grew
marginally at 0.1% quarter on quarter for 9 months even though the
high debt overhang became a problem.
Central banks across the globe have been under pressure as they
struggle to limit the impact of the mounting economic downturns. As
a consequence, the adoption of dovish monetary policy by central
banks and increased government fiscal stimulus packages were
wide-spread.
The UK’s economy sustained its expansionary trend in the Q1 2019
due to improved household consumption and higher government
expenditure but slowed down in Q2 2019 and Q3 2019 to 1.3% and
1.0% year-on-year, respectively, due to the impact of uncertainties
of Brexit on economic activities. In the Q1 2019, the Japanese
economy grew by 2% due to improvement in private and public
investment. However, the momentum waned in Q3 2019 when
economy growth was at an historic low at 0.2%. Its Purchaser
Manager’s Index (PMI) had remained in contractionary zone since
august 2019.

Emerging Markets and Developing Economies (EMDEs)
Growth in China ranged from a high of 6.4% in Q1 2019 to a low 6.0%
in Q3 2019 due to the negative impact of the rising trade protection.

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To reflate the economy, China undertook a government stimulus
package inclusive of a massive tax cut worth USD290 billion and
bond-buying of USD300 billion to boost infrastructure construction.
In India, growth slowed 5.8% in Q1 2019 to a low of 5% in Q2 2019.
Manufacturing PMI in October 2019 was 50.6% compared to a high
of 51.40 % in August 2019. To arrest this situation, the Reserve Bank of
India adopted an accommodative monetary policy and cut the
repurchase rate in July by 35 bps to 5.4%. Turkey slipped into a
technical recession after reporting a second consecutive Gross
Domestic Product (GDP) contraction in 2019. The economy
contracted by 2.4% year on year in Q1 2019 and 1.5% year on year in
Q2 2019 on account of weaker business spending.
Growth performance across African countries were mixed, some
benefiting from stable commodity prices and favourable weather
conditions e.g. Egypt and Nigeria, while others were negatively
affected by weak global growth. South Africa for instance recorded
unimpressive outturns driven by mining, agriculture and the
manufacturing sectors.

Expected Growth in 2020
The momentum of global growth would be driven by the position of
the first US and China trade pact signed early 2020. The escalation of
crisis between US and Iran had since dissipated, while Brexit is
showing signs of moving forward. Growth in the US is expected to

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moderate, driven by the adoption of a dovish monetary policy and
strong domestic consumption. In Europe, weakness in industrial
output, sluggish monetary activities and deteriorating domestic
demand pose a drag to growth. Further accommodative monetary
stance and fiscal stimulus packages are expected to be put in place
to support growth.
Dovish monetary policy stance was adopted in advanced and
emerging market economies in order to spur growth. In Europe, a
number of unconventional monetary policies were introduced by
the European Central Banks (ECB), for example, longer term
refinancing operation (LTROs) which encourages Deposit Money
Banks (DMB) to lend to the private sector of the economy. Growth in
the less developing countries would drive overall global growth. In
India, growth is expected to increase to 7% in 2020, driven by three
factors namely: dovish monetary policy, strong domestic demand
and fiscal spending.

Inflation
At the global level, inflation in advanced economies rose from 1.5%
in 2014 to 1.8% in 2020, but mostly below 2.0% except in the US where
inflation rose to 2.3% in December 2019. In the UK, inflation slowed to
1.3%, while in the Euro area it rose to 1.3% in December 2019. The less
developing countries are equally experiencing moderation in price
developments.

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DOMESTIC ECONOMIC AND FINANCIAL ENVIRONMENT
Growth of Output
Throughout 2019, economic growth had been sluggish, hovering
around 2.0% in the last few quarters and trailing the pre-recession
historical average of 4.80%. The primary drivers of growth in the
economy is the non-oil sector, but more of the rebound in oil sector.
Oil GDP in Q2 2019 was 5.2% year-on-year; supported by the
improvement in crude production (2.02m bpd). In Q3 2019, the
impressive growth in oil GDP mainly stemmed from higher
condensate production, with new volumes from Edina deep-water
oil field project.
Growth in the economy has been fragile since exiting from recession
in 2017. To promote growth in the economy, Central Bank of Nigeria
(CBN) heterodox polices should be sustained such as expanding the
Anchor Borrowers programme. The Loan-to-Deposit-Ratio (LDR) for
the Deposit Money Banks (DMBs) should equally be encouraged. The
LDR has led to more than N2 trillion credit to the real sector. It is
expected that this should generate a positive effect on the level of
growth in months ahead due to lag effect.

Inflation
Inflation has been persistent in trending upward. Headline inflation,
food inflation and core inflation, year-on-year rose from 11.85%,
14.48%, and 8.99% in November 2019 to 11.98%, 14.67%, and 9.33%

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respectively, above the CBN target of 6-9 per cent range, in
December 2019. This was due to increase in the price of processed
food and supply constraint. It is my opinion that both growth and
inflation can be tamed by increasing domestic output in the
medium and long term; resolving insecurity challenges which,
currently is country wide inclusive of the farmers/herders’ clash;
improving poor infrastructure facilities, reducing high level of
unemployment and the twin deficit in the current account and fiscal
budget.
Soundness of the Banking Sector
Available data on the trend of financial soundness indicators
showed that the banking industry remained sound with good
performance
of
the
Capital
Adequate
Ratio
(CAR),
NonPerformance Loan (NPL), Liquidity Ratio (LR), and, Return on Equity
(ROE). The Central Bank of Nigeria (CBN), however should continue
to monitor and regulate the performance of the financial sector.
Of the three policy options which were to tighten, lose or to hold,
given the current macroeconomic fundamental of the economy, I
vote to tighten by raising the cash reserve ratio (CRR) by 500 basis
point to 27.5% because of the expected liquidity surfeit in the
economy due to the maturity of OMO bills and Government treasury
bills. It should be noted that the LDR of 65% will not be hampered by
the increase in CRR because the economy will be awash with
liquidity.

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Hence in summary, I voted to:
i.
Retain Monetary Policy Rate (MPR) at 13.5 Percent;
ii.
Retain the asymmetric corridor of +200/-500 basis point around
the MPR;
iii.
Raise the CRR by 500 basis point to 27.5 percent; and
iv.
Retain the liquidity ratio at 30 percent.

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6. ISA-DUTSE, MAHMOUD
A. INTRODUCTION
Several unresolved and persistent headwinds confronted the global
economy in 2019 which render the prospects for 2020 largely
uncertain. The unfolding outcome is mixed – the abating trade war
between the US and China and the certainty of Brexit present an
upside to global growth but geo-political tensions, trade and
technology conflicts, heightening social unrest and extremism
constitute veritable downside risks.
As a largely open economy, Nigeria cannot be shielded from
external influences such as shocks to oil price, investment, portfolio
and trade flows. Thus, it becomes imperative to address the issue of
declining external reserves, inadequate fiscal buffers, security and
other macroeconomic challenges to withstand unforeseen global
developments.
B. EXTERNAL ECONOMIC CONDITIONS
The easing monetary conditions across the advanced and emerging
economies in 2019 and the lessening of trade tension between
Washington and Beijing following the recent signing of “phase one”
trade agreement signpost an upbeat in the global economy in 2020.
The IMF projection for global growth is 3.3% in 2020, up from 2.9%
recorded in 2019 as global manufacturing picks up. In the emerging
market and developing economies (EMDEs), output growth is

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expected to rise to 4.4% in 2020 from 3.7% in the preceding year,
while the forecast for advanced economies indicate that growth will
decline marginally to 1.6% in 2020 from 1.7% in 2019. In tandem with
the envisaged upturn in global output, global trade is expected to
rise to 1.9% in 2020 from 1.4% in 2019. Moreover, given the global
growth conundrum witnessed in 2019, there has been a general
policy convergence across both the advanced economies and
EMDEs in switching over to monetary accommodation to spur
growth. A survey of key central banks across both divides since the
last MPC meeting in November 2019 shows that several central
banks lowered their policy rates, while others retained existing rates.
The US Energy Information Administration (EIA) forecast that crude oil
prices would average US$65/barrel in 2020. The more benign global
economic environment anticipated in 2020 is expected to promote
the implementation of the 2020 budget in Nigeria with an oil price
benchmark of US$57/barrel. The continuing pursuit of monetary
accommodation by the US Fed which has given a forward guidance
of one or two rate cuts in 2020 should douse the concern of a further
appreciation of the dollar against the naira. However, the effect of
the uptrend in the US yield curve which reached its highest level on
December 30 2019 (if sustained) may threaten portfolio shifts to
Nigeria.

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C. DOMESTIC ECONOMIC CONDITIONS
Growth remains weak in Nigeria and the slow recovery trend is
expected to continue in 2020. Although the real GDP figure for Q4
2019 is yet to be released by the National Bureau of Statistics (NBS), a
growth proxy – the Purchasing Manager Index (PMI) - grew faster in
the review period. The manufacturing and non-manufacturing PMI
stood at 60.8 and 62.1 index points in December 2019 compared
with 59.3 and 60.1 index points in November 2019, respectively.
Against the background of real GDP growth of 2.1%, 2.12% and
2.28% in Q1, Q2 and Q3 2019, respectively, CBN estimates show that
output will grow by 2.38% and 2.35% in Q4 2019 and Q1 2020,
respectively. In order to address the numerous downside risks to
growth and restore confidence amongst economic agents, there is
need for renewed, effective and sustained policy coordination
between the fiscal and monetary authorities.
On a year-on-year basis, inflationary pressures in Nigeria persisted as
headline inflation rose to 11.98% in December 2019 from 11.85% in
the preceding month. Headline inflation has maintained a consistent
upward trajectory since September 2019 with food and nonalcoholic beverages representing the key factor underlying the price
uptick. Food inflation, on year-on year basis, also increased to 14.67%
in December from 14.48% in November 2019 with processed food
accounting for the highest relative contribution, while imported food
inflation inched up to 16.04% in December 2019 from 15.99% in the

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previous month. Moreover, on a year-on-year basis, core inflation
peaked at 9.33% in December 2019 compared with 8.99% in
November 2019. However, on a month-on-month basis, both
headline and food inflation declined during the period under review,
but core inflation sustained its upward trend in line with the rising
aggregate price level. The problem of inflation is expected to
exacerbate in the near term as forecasts (CBN) indicate an upward
path of 12.09%, 12.18% and 12.21% in January, February and March
2020, respectively. Consequently, it becomes germane to employ
appropriate policy tools to curtail liquidity surfeits arising/expected to
arise from the redemption of maturing OMO bills, increased
financing needs of Government and injections from FAAC, among
others. To enhance agricultural production in Nigeria and thereby
lessen inflationary pressures, ongoing efforts aimed at overcoming
the country’s security challenges should be sustained and further
strengthened.
The decrease in the nation’s external reserves position to US$38.07
billion at end-December 2019 from US$42.54 at end-December 2018
is also linked to excessive liquidity in the banking system. The average
monthly weighted interbank and open buy-back (OBB) rates
fluctuated well below the lower band of the monetary policy rate
(MPR) throughout Q4 2019. Therefore, the need to rein-in liquidity
pressures at this time cannot be over-emphasized taking into
cognizance the objective of ensuring price and foreign exchange
market stability.

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The recent policies of the Bank aimed at channeling credit to the
productive sectors of the economy is yielding desired results as
absolute gross credit from the banking system rose by almost N2.0
trillion between June and December 2019. A salutary fall-out is the
lowering of lending rates in various strata of the credit market
spectrum. Moreover, on the back of the crash in the Treasury bill
rate, the capital market witnessed a notable rebound as the AllShare Index and market capitalization grew by 9.75% and 17.08%
between end-December 2019 and January 22, 2020.
C. VOTING DECISION
The challenge of fragile growth and a high unemployment rate calls
for caution in tweaking policy parameters to avoid truncating the
recent policies aimed at promoting growth. However, the uptick in
inflation which is close to the empirical growth-deterring threshold
raises serious concerns in a banking system awash with liquidity.
Therefore, I am of the view that adjusting the cash reserve ratio
(CRR) to the extent of absorbing the excess liquidity and curtailing
inflationary pressures is a step in the right direction, while maintaining
the existing policy rate. Consequently, I voted to increase the CRR
by 500 basis points (from 22.5% to 27.5%) and retain all other policy
parameters as follows:
• MPR at 13.50% per annum
• The asymmetric corridor at +200/-500 basis points around the
MPR

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• Liquidity ratio at 30.0% per annum
• CRR at 27.5% per annum

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7. NNANNA, OKWU JOSEPH
Output and Prices
Despite the uncertain global macroeconomic developments, the
Nigerian economy showed signs of resilience and recovery. Growth
continued to be recorded in all sectors – albeit tepid.
Available
data
on
manufacturing
and
non-manufacturing
Purchasing Managers Indices (PMIs) stood at 60.8 and 62.1 index
points, respectively, in December 2019. In November 2019, the
manufacturing and non-manufacturing Index was 59.3 and 60.1
respectively;
vis-à-vis
the
benchmark
of
50.0
index
points.
Specifically, the real GDP grew by 2.28 per cent in 2019 Q3
averaging 2.2 per cent in the last four quarters. Services and Industry
grew by 3.24 per cent apiece, while agriculture grew by 2.28 per
cent in Q3 2019. The oil sector grew by 6.49 per cent, lower than 7.17
per cent recorded in the previous quarter, reflecting the decline in
volume and crude oil prices. The oil sector averaged 2.65 per cent
growth in the last four quarters. However, the output growth was
inadequate to address the massive unemployment challenge facing
the economy.
Inflationary pressures remain high arising from banking system
liquidity surfeit and structural shocks which triggered temporary food
supply shortages. Consequently, headline inflation rose to 11.98 per
cent (y-o-y) at end-December 2019, compared with 11.85 at endNovember 2019. Food inflation rose to 14.67 per cent (y-o-y) at end–

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December 2019, compared with 14.48 (y-o-y) at end of the
preceding month while core inflation rose to 9.33 per cent (y-o-y) at
end–December 2019, compared with 8.99 (y-o-y) in the preceding
month.
Fiscal and Monetary Policy Coordination
Public expenditure was constrained by weak tax administration and
concomitant inadequate revenue buffers. Security related spending
and higher wage bill due to the implementation of the minimum
wage are the major factors driving the non-debt recurrent
expenditure.
With
the
debt-service-to-revenue
ratio
rising
precipitously, the debt level is on the trajectory which is not
sustainable given the slow pace of revenue generation and output
growth. Debt service obligations remain precariously high as the
2020 budget reveals. At N2.45trn or 23.2 per cent of the total
expenditure, the obligation is 14.5 per cent higher than the previous
year and could be exacerbated if fiscal revenues and oil exports
decline lower than the benchmarks.
Financial System
The financial system is resilient and stable, but threatened with
significant liquidity overhang due largely to the lack of coordination
between monetary and fiscal policy. I noted that the liquidity surfeit
in the banking system arising from the financing of maturing OMO
bills and the fiscal operations of Government represent clear upside

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risks to inflation and volatility in the exchange rate of the naira.
Emerging CBN policies particularly, the Loan-to-Deposit Ratio (LDR)
which is pegged at 65.0 per cent have led to the expansion of credit
to the private sector. Also, the introduction of the Global Standing
Instruction (GSI) mandate, have aided the de-risking of the financial
market. Nevertheless, we caution that action must be taken to lower
the cost of liquidity management, moderate the uptick in inflation
and sustain stability in the foreign exchange market.
External Sector
The gross external reserves is sufficient in the short-to-medium term.
However, the level of import is weighing on the current account.
Nonetheless, it is noteworthy that the composition of visible imports is
changing predominantly to capital goods, raw material and durable
consumer goods. While strong diaspora remittances are expected to
be a tailwind to mitigating a potentially higher current account
deficits in the short-to-medium term.
Rising insecurity nation-wide and the tepid recovery following the
general decline in global oil prices have slowed investor appetite in
the equity market. Thus, foreign direct investment which have been
on the slide in recent memory, fell further to US$498.62 million in Q3
2019 from US$906.90 million in Q2. Similarly, portfolio inflow declined
to US$2.59 billion in Q3, from US$4.46 billion in Q2 2019. “Hot” money
is volatile and is subject to sudden reversal at the slightest swing in
sentiment.

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The gross external reserves at approximately US$38 billion, as at
January 27, 2020 is adequate to meet 12 months of import
obligations. This, I believe, should allay the concerns of foreign
investors. With the price of crude oil hovering around $60 per barrel
and above the budget benchmark, the resilience of the overall
balance of payments is assured.

The risk to macroeconomic stability remain the twin deficits which
the economy is belabouring under and the persistent inflationary
pressures arising from expansionary fiscal and accommodating
monetary policies. The combination of Ways and Means financing
and weak fiscal buffers have resulted to a fiscal deficit of about
N3.68 trillion (3.5% of GDP) and a current account deficit of $2.79
billion (2.24% of GDP), in Q3 2019, respectively. Overall, I note that
socio-political stability is heavily anchored on massive job creation –
nation-wide. Unemployment remains the ticking time-bomb.
In view of these developments, I vote to raise the CRR by 500 basis
points and to hold other policy metrics constant.

Classified as
8. OBADAN, MIKE IDIAHI
No doubt, global economic growth weakened significantly in 2019
against the backdrop of the US-China trade wars and declining
growth in China, and declining manufacturing sectors in some
advanced economies. These were either in recession or close to
recession territory. The declining growth in China from 6.6 percent in
2018 to 6.1 percent in 2019 negatively impacted world economic
growth. However, in quarter four (Q4) 2019, there was a rebound in
the global economy supported by increased consumer spending,
low oil prices, inflation, and interest rates. The rebound was also not
unconnected
with
the
introduction
of
another
round
of
accommodative monetary policy aimed at providing additional
incentives to support growth and employment. In addition, global
financial conditions improved across the world, although rising debt
levels posed a future threat.
2020 GLOBAL ECONOMIC PROSPECTS
Considering various developments, the initial fears about global
economic outlook in 2020 relating to economies moving into
recession, financial market conditions and oil prices, among others,
may appear to be overly pessimistic. Global growth projections are
generally better in 2020 than 2019, 3.3 per cent compared with 2.9
percent. With the conclusion of the first phase of the Trade
Agreement between the US and China in January 2020, trade
tensions have eased, and global trade volume is expected to

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improve in 2020 to 1.9 percent compared with 1.4 percent in 2019. If
the Agreement is taken to a second level or sustained, trade growth
could be close to the 4.0 percent achieved in 2018. The
uncertainties surrounding BREXIT appear to be moving towards
elimination as the Brexit Bill was endorsed by the House of Commons
on January 9, 2020 and the UK is set to leave the European Union
(EU) on January 31 2020, following which the second phase of
negotiations for a trade deal with the EU will commence.
Thus, global economic outlook may be better in 2020 following likely
cessation of trade hostilities between China and the United States,
the diminished risk of a no-deal Brexit, an ease in financial conditions,
and continuing stimulus provided by central banks. Indeed, a key
feature of the current global policy environment is the continuation
of monetary accommodation by some advanced and emerging
market
economies.
Many
central
banks
have
sustained
implementation of accommodative monetary policy including both
orthodox and unconventional policy instruments in view of the need
for one or a combination of the following:
- Respond to slowing global economy
- Address underlying threats to the economy
- Boost output growth and support economy’s weak recovery
- Accommodate growth concerns
- Stem prevailing uncertainties in the global economy; and

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- Achieve lower unemployment and sway economies from
recession

Although geopolitical tensions, particularly between the US and Iran,
were heightened in January 2020, following the assassination of a
top Iranian General by the US, the tensions may not rise to a level as
to destabilise the Middle-East region and the global economy.
Following the Iranian response which resulted in the shooting down
of a Ukrainian airliner and death of about 176 passengers, a
doubling down on both sides is likely.
Oil market outlook in 2020 may not be as bad as predicted in 2019.
Oil prices averaged mid-US$60s as at January 2020. The price of
Bonny light on January 8, 2020 stood at US$67.58 per barrel
compared with US$63.12 per barrel on November 19, 2019 and the
opening price of US$67.2 per barrel on January 1, 2020. However,
according to the futures market, the price of oil is expected at
US$63.89 per barrel in February 2020 and could be lower at US$58.35
per barrel in December 2020. This implies that oil price (dollars) will
hover around the top-50s to low 60s for the foreseeable future due to
significant uncertainties clouding both the demand and supply sides
of the market. These are still better than the 2019 projections which
put the price at mid-fifties dollars. But a number of factors could
influence the prices in an upward direction in prices among which
are: optimism around the new trade deal between the US and

Classified as
China; production cuts by OPEC; and shut down of Libyan oil fields.
However, the threat to oil price by the US policy on shale oil supply
cannot be overemphasised. Information from the U.S. Energy
Information Administration (EIA), show that US crude oil production
for 2019 was estimated at 12.3 million b/d, 1.3 million barrels per day
higher than in 2018 and is expected to rise by 0.9 barrels per day to
13.2 million barrels per day in 2020 – targeted at Donald Trump’s reelection agenda.
High oil prices would be good news for Nigeria which has no fiscal
buffers. But the Government must worry about the continuing loss of
the country’s oil markets. The US which used to be the largest
importer of crude oil from Nigeria ceased importation years ago.
Following the trade agreement between the US and China, the
latter now has to import oil from the US which is likely to adversely
affect China’s oil imports from Nigeria. With the US having a similar
trade deal with India, then that market is also being lost. And so,
Nigeria has to go out aggressively to search for markets for its oil
exports.
DOMESTIC DEVELOPMENTS
The major developments in the domestic economy which have
implications for the direction of monetary policy are in the following
areas: financial sector, price stability and fiscal operations of the
government.

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Excess liquidity build-up
Generally, the financial sector has continued to show good
performance as portrayed by various financial soundness indicators.
The Non-performing Loans (NPL) ratio has maintained its downward
trend, standing at 6.1 percent in December, 2019 compared to 11.3
percent in February, 2019. The liquidity ratio stood at 45.6 percent
last December compared to the minimum requirement of 30.0
percent. The capital adequacy ratio of 14.5 percent is good in
relation to the prudential requirement of 10 – 15 percent. The rates of
return on equity (25.8%) and assets (2.3%) are robust and indicate
high profitability of the banking industry. The rates are higher than
those of comparator countries: Turkey, South Africa and Malaysia. In
addition, for the banking industry, total assets, deposits, and
aggregate credit have grown substantially. The growth in assets has
been steady and impressive, rising by 15.36 percent (or by N5.36
trillion) between December 2018 and end-December 2019. The
structure of total assets has also changed in favour of more loans
and advances, and less of government securities. It shows that the
impact of the loans to deposit ratio (LDR) policy has been positive.
The growth in total deposits has also been steady; total deposits
recorded an increase of N2.34 trillion or 10.73 percent between
December 2018 and December 2019. Besides, aggregate credit
growth has also been impressive; total credit increased by N2.23
trillion or by 14.54 percent between December 2018 and December
2019, largely due to the Central Bank of Nigeria’s (CBN) policy on

Classified as
LDR. This has encouraged banks to increase lending to the
economy. The impact of the policy on agriculture has been positive.
Since the policy was issued, lending to agriculture has been on the
increase. Lending to the sector accounted for 4.67 percent of the
total credit at end-December 2019. Thus, unorthodox monetary
policy has achieved significant success in credit delivery compared
to orthodox policy.
However, the implementation of the LDR policy along with the policy
restricting individuals and domestic corporates from participating in
the Open Market Operations (OMO) market (CBN Bills), has resulted
in excess liquidity in the system with implications for price and
monetary stability as well as stabilisation costs. The liquidity build-up
continues as long as the OMO bills held by these agents mature.
Monetary policy stance would need to take cognisance of this
factor. The above policies have led to the crash of deposit rates,
particularly, term or fixed deposit rates which are now even less than
the savings rates in most cases. But the data do not show the lending
rates as crashing in a similar manner, thus leaving the spread
between the lending and savings rates even wider than before.
Commercial banks have no reason to maintain very high lending
rates in the face of exploitative low savings rates. They would need
to be compelled to do the needful, otherwise they are undermining
the essence of the policies. In other words, the very high rates have
adverse implications for financial intermediation and effectiveness of
monetary policy transmission channels. Finally, the Nigerian Treasury

Classified as
Bills (NTBs) rate has also crashed like the deposit rates. This is good for
government borrowing. But the NTBs rate should not be used as a
benchmark by the Deposit Money Banks (DMBs) for their deposit
rates. Rather, their benchmark is the Monetary Policy Rate (MPR)
which is currently 13.5 percent.
The challenge posed by the current liquidity surfeit would need to be
addressed. This may involve the use of both orthodox and
unconventional monetary policy instruments.
Upward Trend of Inflation
Rather uncomfortably, the headline year-on-year rate of inflation
has trended upwards each month in the period, September -
December, 2019, after the low level of 11.02 percent attained in
August 2019. All the measures of inflation – headline, food, core -
increased steadily standing at 11.98, 14.67 and 9.33 percent,
respectively in December, 2019. The increase in headline inflation is
due largely to increase in food (including imported food) and core
inflation, invariably the highest increase in food inflation since May
2018. The increase in inflation rate coincides with the period of
border closure aimed at checking unwholesome smuggling of
goods into and out of the country, dumping of goods and illegal
importation of arms and ammunition. No doubt, it is a much desired
policy. But it has created temporary supply constraints along with
subsisting structural factors to heighten food inflation. Thus, the
inflation in the country may be largely attributed to policy and

Classified as
structural factors, although monetary factors relating to excess
liquidity may not be ruled out. The implications are very clear. While
the CBN will continue to implement measures to address the
monetary elements of inflation, the structural and policy induced
factors cannot respond to monetary policy tools directly. However,
through the unconventional monetary policy measures which ensure
delivery of a high volume of credit to priority sectors of the economy,
monetary policy could stimulate a high volume of output which
would lower food prices and inflation. CBN would therefore need to
sustain the unconventional monetary policy measures. Agricultural
producers need to be encouraged to take advantage of the border
protection measures to increase investment and boost supply of
food and other agricultural products. The structural factors of
inflation in the country are not unconnected with the infrastructural
deficits – power and transport - insecurity and crimes, insurgency in
the North-East, supply constraints arising from farmers-herders
conflicts, among others. These adversely affect GDP growth and
food supply. It is not likely the case that the negative impact of the
war against the Boko Haram group and the herders’ menace in the
food producing areas of the country is deeply appreciated. For
quite sometime now, huge financial resources have been expended
on the war against insurgents. The opportunity cost is very high in
terms of infrastructure and social development programmes and
other development initiatives. There is thus the need to win the war
and bring it to a closure to free resources for development and

Classified as
make government business of improving the lives of the citizens
much easier. More public and private investment will improve the
current weak growth rates and ease supply constraints. A
permanent solution is also needed to the protracted farmers-herders
conflicts.
Persistent and Large Fiscal Deficits
The Federal Government’s persistent fiscal deficits and the
corresponding debt accumulation have continued to be worrisome
in view of the implications for monetary policy effectiveness and
debt sustainability. The Federal Government fiscal operations from
January to September 2019 resulted in a deficit of N3,466.83 billion.
The Government borrowed from the domestic markets through the
issuance of FGN bonds amounting to N670 billion in order to finance
the budget deficit. This left a net overall deficit of N2,796.83 billion
which may have been largely financed from non-budgetary sources
in which event it contributes not only to excess liquidity and
monetary inflation in the economy, but also to public debt
accumulation and crowding out of private investments in the
financial markets. To the extent that the widening fiscal deficits have
been driven by revenue underperformance and bludgeoning public
expenditure whose quality is on the low side, it is crucial for the
government to do three things: aggressively pursue domestic
revenue mobilisation through tax reforms and enforcement of
compliance; progressively build fiscal buffers; and drastically reduce

Classified as
the cost of governance by ensuring expenditure efficiency and
effectiveness which is low at present.
OPINION
This takes cognisance of the above developments, in particular, the
banking system liquidity challenge, the increasing inflation rate
beyond the target range of 6.0 – 9.0 percent and moving towards
the zone that can endanger growth, and the need to improve the
positive growth rates which trended upwards in the quarters of 2019.
Monetary policy stance, reflected by the Monetary Policy Rate of
13.5 percent, is tight. Any increase in this rate to fight inflation and
excess liquidity would be interpreted by the commercial banks as a
signal to further increase their already high lending rates, thus
jeopardising the desired improvements in the economic growth
rates. The banks have for some time now related with the MPR in an
asymmetric way by raising lending rates when MPR is increased. But
the cash reserve requirements (CRR) can be adjusted upwards
and/or stabilisation securities issued at minimal or no interest cost to
address the liquidity problem. The possible negative effect on
lending can be addressed by the discriminatory cash reserve
requirements (DCRR) through which the banks can still access their
reserves to provide lending to priority sectors at single digit interest
rates. Of course, the CBN will have to vigorously promote the DCRR
as well as continue with the unconventional monetary policy

Classified as
measures which have turned to be very effective. They can be
refined/strengthened as may be desired.
In light of the foregoing, I vote to increase the CRR to 27.5 percent
and maintain the other parameters at their extant levels. In other
words, my opinion is reflected as follows:
MPR:


13.5 percent
CRR:


27.5 percent
Liquidity Ratio:
30.0 percent
Asymmetric Corridor: +200 / - 500 basis points.

Classified as
9. SANUSI, ALIYU RAFINDADI
1.0
Decision:
My conviction about the source of the current inflationary pressure
informed my vote to hold on all the policy parameters in today's
meeting. From the available data, I am convinced that, although
monetary factors do have some influence, the trigger and, to a
large extent, the key driver of the upward-trending inflation is the
supply-side pressure occasioned by the closure of land borders.
Given the evidence that banks have resumed lending to the real
sector, in response to the central bank’s heterodox policies to
support faster output recovery, a hold, rather than tightening is the
appropriate policy for now. Although I am concerned about the
possible rise in the cost of liquidity management especially as the
OMO bills mature, I believe policy action to address this must not be
at the risk of raising the costs of lending. This is because such a rise
may weaken the demand for credit, which needs to remain strong
as banks seek to lend in line with the Loan-to-Deposit Ratio (LDR)
policy.
2.0
Background and Justification
2.1
Global Economic Developments
Output growth in 2019 was weakened by the uncertainties
associated with the trade wars between China and the US,
geopolitical tensions, BREXIT as well as the resultant decline of growth

Classified as
in China. In 2020, global output growth is projected to be slower than
earlier projected due to risks of a re-escalation of trade tensions, the
slowdown in advanced economies and the resurgence of financial
stress in emerging and developing economies (EMDEs).

The lingering uncertainties surrounding BREXIT and the US-China
trade wars, which dominated 2019, significantly affected output
growth in China and pushed the global manufacturing sector into
near-recession.
This
prompted
central
banks
in
advanced
economies to start another round of accommodative monetary
policy to avert a recession. Growth projections for 2019 were
consequently revised downward, severally, to 2.9%. The monetary
accommodations in advanced economies are, however, expected
to support global output recovery in 2020. Accordingly, the IMF has
projected global growth to be at 3.3% in 2020, compared with 2.9%
in 2019. Growth in advanced economies, which was estimated by
IMF at 1.7% in 2019, is forecasted at a slower rate of 1.6% in 2020. The
World Bank has also revised its global output growth forecast for 2020
from 2.7% to 2.5% owing to a number of downside risks. These risks
include the possible re-escalation of tariff wars, EU's imposition of
new taxes on technology companies that are largely based in the
US, fragile growth in the advanced economies as well as weatherrelated disasters. Growth is, however, expected to pick up in the
EMDEs from the projected 3.7% to 4.4% (IMF). Global trade is

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expected to grow to 1.9% in 2020 compared with 1.4% in 2019 owing
to reduced trade uncertainties, improved industrial production in
China and other major Asian economies.

The global inflation forecast for advanced economies moderated to
1.8% in 2020 compared with 1.5% in 2019. In the US, inflation
increased from 2.1% in November 2019 to 2.3% in December 2019
due to the increase in energy costs. In most of the advanced
economies, inflation continued to trend below their long-term target,
albeit upward owing to the return to monetary accommodation. In
the UK, for instance, inflation continued to decline from 1.5% in
November 2019 to 1.3% in December 2019, which is the lowest rate
since November 2016. In the Euro area, inflation increased to 1.3%
in December 2019 compared to 1.0% in October 2019. In Japan,
inflation also increased from 0.2% in October 2019 to 0.5% in
December 2019, representing the highest rate since August 2019,
reflecting increases in food and housing prices. In the EMDEs,
however, price developments remained mixed, with the IMF inflation
forecast at 4.7% in 2019 and 4.8% in 2020.

In the international crude oil market, OPEC basket stood at US$65.58
per barrel; Bonny Light, US$64.84 per barrel; and West Texas
Intermediate (WTI), US$65.51 per barrel on January 20, 2020. Price

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developments in the oil market are influenced by the optimism
around the new trade deal between the US and China, Production
cuts by OPEC and shut down of the Libyan oil fields. US Energy
Information Administration (EIA) forecasts oil prices to average US$61
per barrel in 2020. World Bank expects the oil price to grow by 1.9%
in 2020 compared to -5.4% in 2019. World demand is projected to rise
to 101mb/d in 2020 from 99.77 mb/d in 2019.
2.2
Domestic Economic Developments and their Implications
Available data shows that, although still fragile, domestic output
growth continues to recover from the 2016 recession. Output growth
increased from 2.12% in Q2 2019 to 2.28% in Q3 2019, a rate that is
significantly higher than the 1.81% achieved in the corresponding
quarter of 2018. This performance was largely driven by the oil sector
(9.77% of the total real GDP), which grew by 6.49 % in the Q3 of 2019.
The non-oil sector, which contributed 90.23% of the real GDP, grew
by 1.85% in Q3 2019 compared with the 1.64% achieved in Q2 2019.
The growth in the real GDP was driven by services (1.09%), industries
(0.69%), agriculture (0.67%) and construction (0.07%). Trade output,
however, declined by 0.23% during the quarter. Manufacturing
output, which contributed 8.74% of the total real GDP, grew by 1.1%
in Q3 2019 compared with a decline of 0.13% in the previous quarter.

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Monthly Purchasing Managers’ Index (PMI) for manufacturing and
non-manufacturing sectors stood at 60.8 and 62.1 index points,
respectively in December 2019. This indicates expansion in the
economy for the 33rd and 32nd consecutive months, respectively.
These index points indicate faster rates of expansion in December’s
output compared to November 2019. The Manufacturing PMI is
driven by expansion in production level, suppliers’ delivery time, new
orders, raw materials inventory. The expansion of the nonManufacturing PMI was driven by expansion in business activity, new
order, inventory, average input price, and new export order. The
Industrial Production Index (IPI), which stood at 119.8 (2010 = 100) in
the fourth quarter of 2019 indicates a growth rate of 3.7% compared
with the preceding quarter. The increase was driven by growth in
manufacturing, mining, electricity, and consumption. The estimated
Index of Manufacturing Production also grew by 2.2% in the fourth
quarter of 2019 compared with the preceding quarter, owing to
festive season consumer demand and improved manufacturing
activities due to the closure of land borders. Staff forecasts suggest a
real output growth of 2.38% in 2029Q4 and 2.2% for the year 2019. In
the first quarter of 2020, the output is forecasted to grow by 2.34%.

Available data from the NBS indicated that in December 2019, the
headline inflation (year-on-year) has increased to 11.98%, compared
with 11.85% in November 2019 and 11.61% in October 2019. The

Classified as
increase was driven by increases in food prices and core inflation.
Food inflation (y-o-y) rose from 14.48% in November 2019 to 14.67%
in December 2019, representing the highest increase since May
2018. The key components that drive food price developments
include processed foods, meat, oil and fat, yam, potatoes, and
other tubers. Core inflation grew (year-on-year) from 8.99% in
November 2019 to 9.33% in December 2019, driven mostly by
processed foods, housing, water and gas, furnishing, household
equipment, and housing maintenance. According to staff forecasts,
inflation would continue to rise, in the medium term, mainly due to
shortages and higher costs of imported food caused by insecurity in
the food-producing areas and land border closure, implementation
of the new minimum wage, VAT increase and food shortages due to
insecurity in the agricultural area of the country.

Available data shows that the banking system continues to
remainstable and resilient. The Non-performing loan (NPLs) ratio
declined to 6.1% in December 2019 from 6.6% in October 2019 and
9.4% in August 2019. Total credit to the economy has also continued
to increase from about N15.44 trillion in June 2019 to N17.57 trillion in
December 2019, representing an increase of N2.13 trillion in 6
months, which is attributable to the CBN's policy on LDR.
Manufacturing and general (retail and consumer loans) continue to
receive the highest share of this increased lending. Between May-

Classified as
end 2019 and December-end 2019, the manufacturing sector
received the highest share (N446.44 billion), followed by Retail &
Consumer (N419.02 billion), General Commerce (N248.48 billion),
Agriculture & Forestry (N160.94 billion), ICT (N156.47 billion) and
Construction (N86.54 billion).

3.0
The Basis for My Policy Choice
In weighing my options for policy choices, the key issues in
consideration are the threat to inflation, which has been trending
away from its long-run target band and the fragile output recovery.
In addition, there are concerns about the rising cost of liquidity
management, which may be exacerbated by the maturing OMO
Bills. However, as I noted in my Personal Statement for the 270th
meeting, improved output recovery, especially amidst the current
Federal Government’s policy on the land border, is a necessary
means of subduing the current inflationary pressure. Tightening is,
therefore, not an attractive option for dealing with the current
upward inflationary pressure for now. In addition, if a policy option to
tackle the liquidity surfeit, such as raising the CRR, causes banks to
raise the lending rates, demand for loans may be affected and
consequently the LDR policy. Because there is evidence that the
heterodox monetary policies have started to re-direct credit to the
real sector, especially amidst the recent border closure, strong
output response is the preferred means of reducing the current

Classified as
inflationary pressure. In considering my options, therefore, I am
convinced that the best option is to hold all policy parameters.

Consequently, I voted to:
Retain the MPR at 13.50 percent;
Retain the CRR at 22.5 percent;
Retain the asymmetric corridor at +200/–500 basis points; and
Retain liquidity ratio at 30.0 percent.

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10.
SHONUBI, FOLASHODUN A.
Dragging global growth and tepid domestic economic recovery,
amidst recent uptick in inflation constitutes a conundrum for
monetary policy as we move into 2020. Slow global economic
growth has the tendency to weaken demand for Nigeria’s crude oil
and cause fiscal fragility, while crawling recovery is certain to worsen
unemployment and poverty. Though current inflationary pressure is
an expected outcome of current strategies to alter the structure of
domestic production, rising prices must be tamed. The Bank must
continue to take necessary actions to deliver on its primary mandate
of maintaining monetary and price stability that is conducive for
economic growth, even as benefits of recent measures manifest
gradually.

Global Economic Developments
Developments in the global economy continued to be influenced
by the dynamics of China-US trade dispute, changing vulnerabilities
in global financial markets, and geo-political tensions, amidst global
debt build up and generally sub-optimal inflation in developed
economies. Low-inflation, especially among the major developed
economies, further heightened the prospect for continued adoption
of accommodative policy by central banks in 2020 to tackle slowing
growth. Global growth in 2020 is therefore projected to be gradual

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and steady, at 3.3 per cent (IMF WEO, January 2020), as positives of
the largely accommodative policy environment in 2019 manifests.

Domestic Economic Developments
In the last quarter of 2019, the economy experienced persistent rise
in general prices. Headline inflation increased for the 4th consecutive
month to 11.98 per cent in December 2019, from 11.85 per cent in
November 2019, on account of the rise in both food and core
inflation. Food inflation reached 14.67 per cent at end-December
2019, from 14.48 per cent in the previous month. Importantly, on a
month-on-month basis, headline and food inflation trended
downward over the last three months, highlighting a gradual
dissipation of (food) inflationary pressure. Core inflation, at 9.33 per
cent in December 2019, trended upward, on month-on-month basis.
Similarly, imported food reached 16.04 per cent in December 2019
after five consecutive months increase.
Despite broad money supply and reserve money been generally
below target performance, developments in the financial market
underscored the preponderance of liquidity, with implications for
monetary pushed inflation. Monthly weighted average inter-bank
and Open-buy-back rates, fell to 3.82 and 3.24 per cent,
respectively, in December 2019. Increased volume at the standing
deposit facility window also further highlighted prevailing liquidity
condition. Recent rebound of the capital market was viewed as an

Classified as
encouraging outcome of the recent policy on local investors’
participation at OMO bills auction.
Latest released data by the National Bureau of Statistics (NBS) puts
output growth at 2.28 per cent in the third quarter of 2019, driven by
improvement in the non-oil sector and recovery in the oil sector. The
expansion rate, however, remained weak and fragile vis-à-vis the
desired and potential growth. Sustained rise in manufacturing and
non-manufacturing purchasing manager’s indices, also showed
continuous improvement in industrial activities.
Resilience of the banking system was preserved throughout 2019, as
indicated by the continuous improvement in prudential measures.
Industry Non-Performing Loan (NPLs) ratio was at 6.1 per cent in
December 2019, compared with 11.7 per cent in December 2018,
and represented a significant improvement in 2019. Similarly, industry
liquidity ratio, at 45.6 per cent in December 2019, was well above
the prudential requirement of 30.0 per cent. Marginal decline in
industry capital adequacy ratio to 14.5 per cent at end-December
2019, was attributed to, mainly, rise in risk weighted asset, on
account of increased credit and Basle (IFRS) provisions. Return on
asset and investment, at 2.3 and 25.8 per cent, respectively, showed
robust profitability throughout 2019, higher than the levels in
comparative jurisdictions.
The fiscal space remained tight in 2019. Government revenue
persistently fell short of budgeted levels, while expenditure was

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higher, thereby resulting in deficit throughout the fiscal year.
Government, therefore, consistently borrowed to fund its spending.
In the external sector, exchange rate stability was generally
sustained, though marginal depreciation was recorded at both the
Investors’ and Exporters’, and the BDC segments of the foreign
exchange market. The external sector was challenged by declining
external reserves, due to capital flow slowdown and lull in the
international oil market in the last quarter of 2019.
Overall Considerations and Decision
The global policy environment is expected to remain largely
accommodative in 2020, as central banks strive to address persistent
slowdown in growth. As the lagged impact of loose policy
environment in 2019 manifests, growth is projected to further stabilise
with implications for international oil markets. Accommodative policy
environment provides further room for domestic policy maneuver,
while better global growth is likely to guarantee stable commodity
and energy market.
Clearly, current domestic growth level is grossly inadequate to
address the critical challenges of high unemployment and poverty.
We must continue to take appropriate actions that promote growth
and facilitate employment generation. However, while weak growth
remains a major concern, we must not lose sight of the recent uptick
in inflation, attributed to both structural and monetary factors.

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We continue to see significant progress with the measures taken in
the banking sector. The combination of the Loan-to-Deposit Ratio
(LDR) based and de-risking measures by the Bank have led to the
ramping up of credit into employment generation sectors, thereby
enhancing prospect for improved growth. I am, however, obliged to
advocate for a review of capital requirement of banks to further
strengthen their resilience and boost their capacity to adequately
play their role as engine of growth.
As I have mentioned in my earlier statements, the fiscal authority
need to rise up to the occasion and effectively support the effort of
monetary policy to promote growth. Persistent shortfall in revenue
and increasing recurrent expenditure, has made the fiscal space
even tighter, while recent trends in the level of deficit and debt
accumulation have reached a worrisome state. Government must
urgently embark on an aggressive expenditure rationalisation to
significantly reduce recurrent expenditure, free resources to fund
expansion, ramp up fiscal stimulus and enhance fiscal buffers. Deficit
financing by the monetary authority must be addressed. The
Government must explore opportunities for financing by the banking
sector. In the external sector, we must sustain our actions, including
transparency, to further strengthen investor confidence. There has
been a gradual return of investors after the sudden reversal in the
last quarter of 2019.

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Even as we push for growth, our actions must be forward looking and
continuously leverage insights from available data. We must take
action to address structural and monetary factors to tame persisting
inflation and ensure it does not become inimical to growth. I believe
that food inflation will further dissipate, as domestic supply improves
from increased harvest activities. Also, the influence of imported
food inflation is expected to wane, through substitution with local
alternatives. Monetary influence, on account of excess liquidity has,
however, become the culprit that is fueling persisting inflation.
Excess liquidity, arising mostly from maturing OMO bills and fiscal
operations of government must be sterilised to address the monetary
influence on inflation. Today, the MPR is more of a signaling rather
than referencing parameter. The CRR appear to me as our most
potent and direct instrument to mop up liquidity. I am inclined to
recommend an increase of the current CRR and believe that as we
take these actions, we can maintain monetary and price stability, as
well as, continue to facilitate expansion and economic growth.
I therefore vote to:
• Retain the MPR at 13.50 per cent;
• Retain the asymmetric corridor of +200/-500 basis points around
the MPR
• Raise the Cash Reserve Ratio (CRR) from 22.5 per cent to 27.5
per cent; and
• Retain the Liquidity Ratio at 30.0 per cent.

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11.
EMEFIELE, GODWIN I.
GOVERNOR OF THE CENTRAL BANK OF NIGERIA AND CHAIRMAN,
MONETARY POLICY COMMITTEE
Following a tepid performance in 2019, global macroeconomic
condition is expected to stabilise in 2020 as growth momentum
inches up, albeit, sluggishly. According to the IMF, global growth for
2020 is projected at 3.3 percent from 2.9 percent in 2019. The
projection is buoyed by expected positive outcome of the US-China
trade talks, favourable execution of Brexit, and ample monetary
policy stimulus. Regardless, downside risks subsist, and market
sentiments remain fragile especially as heightening geopolitical
tensions between US and Iran amplified global uncertainties. With
growth in advanced economies projected to fall by 0.1 percentage
point to 1.6 percent in 2020, global recovery is expected to be
driven by the quickened impetus in Emerging Market and
Developing Economies (EMDEs) to 4.4 percent from 3.7 percent in
2019.
For the Nigerian economy, short-term outlook remains modest, as
output growth recovery is expected to progress. In-house analysis
projects growth at about 2.4 percent for 2020 from 2.2 percent
estimated for 2019. This could be accompanied by a gradual rise in
inflation over the short-term, driven largely by structural and
monetary factors in the domestic space. Data by the National
Bureau of Statistics (NBS) shows evidence of consolidation in

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economic recovery as real GDP growth increased to 2.3 percent in
2019q3 from 2.1 percent in 2019q2. Analyses indicate that the oil
sector grew by 6.5 percent, contributing 0.6 percentage point to
total growth, while non-oil sector, with a growth of 1.9 percent,
accounted for 1.7 percentage points with a robust prospect for
2019q4 outcome. The favourable growth sentiment is supported by
positive PMI –both in the manufacturing and non-manufacturing
indexes– buoyed by the continued foreign exchange (FX) market
stability and the enhanced credit flows to the real private sector of
the economy.
Regardless of this upswing, cautious policy is irrefutable as growth is
still low while per capita income and unemployment rate remained
outside tolerable levels. Besides, the modest short-term prospect is
threatened by a delicate oil price dynamics, weak aggregate
demand, persistent herder–farmer conflicts, and prevalent security
challenges. I am of the view that a favourable resolution of these
challenges, reinforced by sustained FX stability, as well as continued
implementation of the Loan-to-Deposit Ratio (LDR) policy will further
boost short-term outlook.
Data on domestic prices shows a displeasing and continued uptick
in year-on year headline inflation rate from 11.85 percent in
November 2019 to 11.98 percent in December, with near-term
outlook suggesting a gradual build-up of inflationary pressure up to
mid-2020. The observed rise reflects the 0.19 and 0.34 percentage

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points increases in both food and core inflations to 14.67 and 9.33
percent, respectively, over the preceding month. Analysis shows
that food inflation derived from the yuletide spending and was
exacerbated by the adverse effects of security challenges along
some food producing belts. Though near-term upside inflationary
risks subsist, the existing foreign exchange stability and ongoing
aggregate supply boosting policies of the CBN are expected to
continue to dampen emerging pressure.
Domestic liquidity conditions indicate an expansion in monetary
aggregates in 2019 as broader money stock (M3) recorded a yearon-year growth of 6.2 percent. Net domestic credit expanded by
27.3 percent, reflecting the 92.9 percent growth in government
credits and the 13.6 percent rise in private sector credits. I note the
robust and progressing outturn of domestic private sector credits.
While this reflects our recent inclination on LDR, I continue to
emphasise the importance of enhanced credit flows to strategic
private sector ventures through an effective collaboration of all
stakeholders. I reiterate that CBN will continue to propel credits to
the private sector, even as I remain mindful of the risk aversion of
banks to supposedly high-risk real sector ventures. I note the
improvements in banks’ Non-Performing Loans (NPLs) position and
our continuing efforts at de-risking the target sectors. Robust credits
will bolster domestic investment, household demand, and factor

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productivity, while accelerating economic diversification, and
ensuring strong and inclusive growth.
In my consideration, I affirm that the objective of price and
exchange rate stability remain sacrosanct. I note the welcome
stability at the FX market and near convergence of rates at different
segments of the market in 2019, and expect this to continue in 2020.
I also acknowledge the dissatisfying rise in inflationary pressure in the
short-term. With December 2019 inflation at 11.98 percent, the
scope for innocuous inflation rate is exhausted as rates above 12
percent
are
detrimental
to
domestic
output
growth.
This
underscores the need for effective action to tame inflationary
pressures and ensure the trend returns to long-run objectives. I note
as
well
that
even
as
inflation
trajectory
rises,
prevailing
macroeconomic stability and short-term prospects remain cautious
due to manifold global and domestic risks. On the global scene,
weak demand, structural slowdown, geopolitical tensions, and
fragilities in the crude oil market portend some downside risks. On
the domestic front, widespread security challenges, declining total
factor productivity, and rising sovereign debt profile dampen
medium-term outlook. I reiterate that even as economic recovery
stayed fragile, effective anchoring of inflation expectations remain
fundamental. Besides, potential fall in oil prices could debilitate the
economy
and
adversely
impact
the
exchange
rate
with
ramifications for inflations. It remains urgently imperative to diversify

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the economy and create institutional structures that will insulate the
economy from oil shocks.
My inclination today, given the near-term inflation expectations is to
tighten monetary policy stance. However, the dilemma of the
trade-off between inflation and output remains afoot, since a rate
hike could derail our modest recovery. I remain mindful of the need
to pursue a policy of price stability without losing sight of the
importance of economic growth. I note the recent upsurge in
Deposit Money Banks (DMBs) deposits following the OMO bills
prohibition of domestic non-bank investors and the attendant fall in
deposit rates. I equally recognise the need to ensure that the surfeit
is properly channelled to productive real sector. Accordingly, while
the LDR policy ensures that some of the maturing OMO bills increase
credit flows, it is imperative to sterilise the surplus and prevent a
destabilisation of the foreign exchange market.
Overall, I am of the view that the current levels of key policy
parameters are sufficiently tight. However, I acknowledge the need
to constrain DMBs ability to undermine the foreign exchange market
and debilitate the domestic economy. In my view, though the
current level of real policy rate remains appropriate, there is the
need to adjust the CRR in order to balance the objectives of
exchange rate stability, price stability and output stabilisation
without introducing disruptive policy shocks. Therefore, I vote to:

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• Raise the CRR from 22.5 percent to 27.5 percent;
• Retain the MPR at 13.5 percent;
• Retain liquidity ratio at 30.0 percent; and
• Retain the asymmetric corridor at +200/–500 basis points.

GODWIN I. EMEFIELE, CON
Governor

January 2020