| {"doc_id": "000e466327b2685b875dfdcfa7b7ff80", "text": "1 \n \n \n \nCENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 140 OF THE MONETARY POLICY \nCOMMITTEE MEETING HELD ON MONDAY 24th AND TUESDAY 25th JANUARY, \n2022 \n \nThe Monetary Policy Committee (MPC) held its first meeting for the year 2022 on \nthe 24th and 25th of January 2022 in the light of waning optimism for a robust \nrebound in global recovery in 2021. This resulted from the persistence of the \nCOVID-19 pandemic and emergence of new variants of the virus; persisting \nsupply \nbottlenecks; \nglobal \ninflationary \npressures; \nand \nthe \nimminent \ncommencement of monetary policy normalization by some major central \nbanks. In the domestic economy, output growth recovery was relatively strong \nin 2021. It is however, expected to continue reasonably in 2022, following \nconsiderable improvement in the third quarter of 2021 and a positive outlook \nfor the fourth quarter. This was hinged on the continued support of the monetary \nand fiscal authorities to sustain the current momentum. The Committee \nreviewed the developments in the global and domestic economic and \nfinancial environments in 2021, as well as the outlook and risks for 2022. \nTen (10) members of the Committee attended this meeting. \nGlobal Economic Developments \nThe Committee noted that while the recovery of the global economy in 2021 \nfell \nbelow \nthe \ninitial \nforecast, \nfinal \nestimates \nshowed \nconsiderable \nimprovements over the 2020 outcome, evidence that the global economy was \npulling out of the doldrum associated with the pandemic. Consequently, the \nrecovery is gaining momentum with increasing consumer spending, upswing in \ninvestments and soaring world merchandise trade, above pre-pandemic levels. \nThis reflects the resilience of economic agents in the face of new strains of the \n2 \n \n \nvirus and rising infection rates. The Committee, however, took cognizance of \nsignificant headwinds confronting the global economy in 2022, largely \nassociated with the persisting threats of new variants of the coronavirus. The \nAdvanced Economies are however, in a strong position to offset the impact of \nthese headwinds with stronger policy support and better access to COVID-19 \nvaccines. Consequently, this group of economies have shown better resilience \ntowards disruptions to the recovery. In the medium term however, the rising \ninflationary pressures and the gradual withdrawal of both monetary and fiscal \nstimuli may dampen the recovery in 2022. \nIn the Emerging Market and Developing Economies (EMDEs), poor access to \nvaccines and limited policy support meant that this group of economies have \nbeen harder hit by the Covid-19 health crisis and its associated \nmacroeconomic downturn. In China, one of the few countries that stayed out \nof recession in 2020, output weakened in the third quarter of 2021 and has \ncontinued to weaken as the Covid infections continue to rage amid power \nsupply shortages and a turbulent property market. Following the containment \nof the infections in India, the economy has commenced a sharp recovery and \nis set to continue on an upward trajectory. Overall, growth in the EMDEs is \nexpected to slow in 2022 due to the low level of vaccination and limited policy \nsupport in several economies in this group. \nOn price development, the MPC observed that inflation, in most Advanced \nEconomies remained high and unlikely to abate in the short to medium term. \nThis is driven by the persistence of supply side disruptions and pent-up demand \nassociated with economic recovery. In the EMDEs, inflation has remained high \ndue to a combination of persisting exchange rate pressures and supply \nbottlenecks associated with the lockdown restrictions. With the US Fed and \ncentral banks of other advanced economies now moving towards monetary \npolicy normalization, the eventual interest rate hike may likely trigger huge \ncapital outflow from the EMDEs which will further aggravate exchange rate \npressures with a pass-through to domestic prices. \n3 \n \n \nGlobal financial markets data show significant sell-off, as investors continued to \nrebalance their portfolios with the shift from assets such as gold and emerging \nmarket securities to securities of Advanced Economies suggesting market \nresponse to the impending interest rate hike. Thus, global financial conditions \nare expected to tighten as risk averse portfolio investors reassign their portfolios \nfrom perceived riskier emerging market securities, to less risky advanced \neconomy securities with the expectation of improved yields. \nDomestic Economic Developments \nStaff projections showed that the economy is expected to remain on a path of \npositive growth, given the impressive performance in the third quarter of 2021 \nand continuing rebound in economic activities. The Committee noted with \nsatisfaction, the significant improvement in the Manufacturing Purchasing \nManagers’ Index (PMI), which rose to 52.0 index points in December 2021, \ncompared with 50.8 index points in November reflecting the continuing \neconomic recovery. This expansion was driven largely by increasing business \nactivities in the economy, leading to increase in new orders and uptrend in \nemployment and production levels. The Non-Manufacturing PMI, however, \ndeclined marginally to 48.0 index points in December 2021 from 48.6 points in \nNovember, largely reflecting a decline in services. \nThe Committee noted with concern, the slight increase in headline inflation \n(year-on-year) to 15.63 per cent in December 2021 from 15.40 per cent in \nNovember following seven consecutive months of decline. The unexpected \nincrease was attributed to both the food and core components, which rose to \n17.37 and 13.87 per cent in December 2021 from 17.21 and 13.85 per cent in \nNovember, respectively. The Committee, however, expressed confidence in \nthe Bank’s sustained intervention programmes, noting that inflation will continue \nto abate as food supply improves. Members also noted that the seasonal drive \nin price development associated with the December festive period was largely \ncontributory to the marginal increase in price levels, and as such, believe that \nthis episode of increase may be temporary. \n4 \n \n \nReviewing the developments in monetary aggregates, the Committee noted \nthat broad money supply (M3) rose further to 13.77 per cent in December 2021, \ncompared with 10.10 per cent in November 2021. This upthrust was largely \ndriven by the growth in Net Domestic Assets (NDA) of 15.58 per cent in \nDecember 2021, compared with 9.40 per cent in November 2021. Net Foreign \nAssets (NFA), however decreased to 6.06 per cent in December 2021, \ncompared with 14.98 per cent in November 2021. The sharp growth in Net \nDomestic Assets (NDA) was largely attributed to an increase in claims on the \nFederal government and other sectors. The slowdown in growth of Net Foreign \nAssets (NFA) resulted from a decrease in foreign assets holdings of the banking \nsystem in favour of more domestic investments. \nThe Committee reviewed the performance of the Bank’s intervention \nprogrammes aimed at stimulating productivity in manufacturing/industries, \nagriculture, energy/infrastructure, healthcare and Micro, Small and Medium \nEnterprises (MSMEs). Between November and December 2021, under the \nAnchor Borrowers’ Programme (ABP), the Bank disbursed N75.99 billion to \nsupport the cultivation of over 383,000 hectares of maize, rice and wheat during \nthe 2022 dry season, bringing the cumulative disbursements under the \nProgramme to ₦927.94 billion to over 4.5 million smallholder farmers cultivating \n21 commodities across the country. All excess output aggregated from the \nfinanced farmers will be released to the Nigeria Commodity Exchange (NCX) \nto help moderate the prices of food in the market. The Bank also released N1.76 \nbillion to finance two (2) large-scale agricultural projects under the Commercial \nAgriculture Credit Scheme (CACS). \nIn addition, the Bank disbursed the sum of ₦151.23 billion under the Real Sector \nFacility to 15 additional projects in agriculture, manufacturing, mining, and \nservices. The funds were utilized for both greenfield and brownfield (expansion) \nprojects under the Covid-19 Intervention for the Manufacturing Sector (CIMS) \nand the Real Sector Support Facility from Differentiated Cash Reserve \nRequirement (RSSF-DCRR). Cumulative disbursements under the Real Sector \n5 \n \n \nFacility currently stood at ₦1.40 trillion disbursed to 331 projects across the \ncountry. As part of its effort to support the resilience of the healthcare sector, \nthe Bank also disbursed ₦498.00 million to two (2) healthcare projects under the \nHealthcare Sector Intervention Facility (HSIF), bringing the cumulative \ndisbursements to ₦108.85 billion for 118 projects, comprising of 31 \npharmaceuticals, 82 hospital and 4 other services. \nTo support households and businesses affected by Covid-19, the Bank disbursed \nN20.29 billion to 40,521 beneficiaries, comprising 35,340 households and 5,181 \nsmall businesses under the Targeted Credit Facility (TCF) within the period. The \ncumulative disbursements under the TCF stood at N369.78 billion to 777,666 \nbeneficiaries, comprising 648,052 households and 129,614 small businesses. To \nfurther promote entrepreneurship development among Nigerian youths, the \nBank disbursed N293 million to 59 beneficiaries under the recently introduced \nTertiary Institutions Entrepreneurship Scheme (TIES). \nUnder the National Mass Metering Programme (NMMP), the sum of ₦47.83 billion \nwas disbursed for the procurement and installation of 858,026 electricity meters \nacross the country under the Scheme’s Phase-0. The Committee also noted the \nimproved collections by DisCos as a result of increased meter installations. The \nBank released ₦274.33 billion to power sector players, as part of its effort to \nsupport the sector under the Nigeria Bulk Electricity Trading Payment Assurance \nFacility (NBET-PAF). This was in addition to the ₦20.58 billion released to \nDistribution Companies (DisCos) under the Nigeria Electricity Market \nStabilisation Facility – Phase 2 (NEMSF-2). To further support the development of \nenabling infrastructure in the gas industry, the Bank released additional ₦3.00 \nbillion for the augmentation of an existing infrastructure, bringing the \ncumulative disbursements under the Intervention Facility for National Gas \nExpansion Programme (IFNGEP) to ₦42.20 billion for six (6) projects. \n Furthermore, under the 100 for 100 Policy on Production and Productivity (PPP), \nwhich was introduced to stimulate the flow of finance and investments to \nenterprises and projects with potential to kick-start a sustainable economic \n6 \n \n \ngrowth trajectory, accelerate structural transformation, promote diversification, \nand improve productivity, the Bank has received 224 applications, valued at \n₦294.91 billion for real sector projects in agriculture, energy, healthcare, \nmanufacturing and services. The applications are currently being processed \nand the first batch of beneficiaries under the intervention will be announced on \n31st January 2022, with their names published in national dailies. These projects \nhave been carefully selected in line with the approved selection criteria as \ncontained in the guidelinesq \nMoney market rates fluctuated within and above the asymmetric corridor, \nreflecting prevailing liquidity conditions in the banking system. The monthly \nweighted average Open Buyback (OBB) rate increased to 12.75 per cent in \nDecember 2021 from 10.61 per cent in November 2021. The increase in the Open \nBuyback (OBB) rate reflected the tight liquidity conditions in the banking system. \nThe MPC noted the continuing positive performance in the equities market in \nthe review period, with the All-Share Index (ASI) and Market Capitalization (MC) \nincreasing by 1.61 and 1.63 per cent to 42,716.44 and N22.30 trillion on \nDecember 31, 2021, from 42,038.60 and N21.94 trillion on October 29, 2021, \nrespectively. This positive performance reflected improved corporate earnings \nas investors participation increased in the market. \n \nThe MPC also noted the sustained resilience of the banking system, following the \nprogressive improvement in the Non-Performing Loans (NPLs) ratio from 5.10 per \ncent in November 2021 to 4.85 per cent in December 2021- a first in a long time. \nThe Committee also noted that the liquidity ratio remained well above its \nprudential limit at 41.3 per cent, though Capital Adequacy Ratio (CAR) declined \nmarginally to 14.53 per cent in December 2021 from 14.90 per cent in the \nprevious month. The Committee thus, urged the Bank to sustain its firm regulatory \nsurveillance. \n7 \n \n \nMembers also noted the continued improvement in the external reserves despite \nongoing foreign exchange market pressures. The reserves stood at US$40.20 \nbillion as at December 2021. \nOutlook \nThe broad outlook for the recovery in both the global and domestic economies \nis clouded with uncertainty such as the resurgence of the COVID-19 pandemic, \ndriven by new and mutating strains of the coronavirus; persisting supply \nbottlenecks; high and rising inflationary pressures; and dwindling monetary and \nfiscal stimuli. \nThe Emerging Markets and Developing Economies are likely to experience a \nsharp downturn as a result of the identified headwinds confronting the outlook. \nThis is hinged on the back of the ongoing two-speed recovery of the global \neconomy, driven by continued disparities in the administration of vaccines \nbetween the Advanced Economies and the Emerging Markets and Developing \nEconomies. While the Advanced Economies will also experience a downturn in \n2022, this group of economies are expected to take a less severe hit as most of \nthem have achieved significant high levels of vaccination. \nStaff forecast project output growth at 3.10 per cent in 2021 with an expected \nbetter \noutcome \nin \n2022, \nconsistent \nwith \nthe \nexpected \nimproved \nmacroeconomic performance. The economic recovery is therefore expected \nto progress gradually with the ongoing support by the monetary and fiscal \nauthorities, progress in COVID-19 vaccinations and continued high crude oil \nprices. \nAfter a moderate increase in December 2021, headline inflation is expected to \ntrend marginally upwards in the short-term before moderating towards the end \nof the first quarter of 2022. This is expected as food harvests progress towards \nthe end of the first quarter of 2022 and improve food supply. In general, with \nthe Bank sustaining its intervention programmes through the year, food inflation \nis expected to trend downwards in 2022. \n8 \n \n \nAvailable forecasts for key macroeconomic variables for the Nigerian \neconomy, indicated expected rebound in output growth for most of 2022, \nsustained by ongoing broad monetary and fiscal stimuli. Accordingly, the \nNigerian economy is forecast to grow in 2022 by 2.86 per cent (CBN), 4.20 per \ncent (FGN) and 2.76 per cent (IMF). \n \nThe Committee’s Considerations \nThe Committee accessed the balance of risks confronting the domestic \neconomy in the near term as they impact output growth and price stability. \nMembers noted the unrelenting effort by the monetary and fiscal authorities in \nmitigating the impact of the virus on the economy. It observed the continued \nmoderate recovery of the domestic economy but requires further concerted \npolicy effort by both the monetary and fiscal authorities to improve the \nmomentum and strengthen the recovery. Members were thus of the view that, \nbuilding on the improved growth in the third quarter and the positive PMIs in the \nfourth quarter of 2021, output growth is expected to strengthen into 2022. \nOn the Pandemic, the MPC reviewed its continued impact on the domestic \neconomy as Members collectively agreed that the downside risks were still \nhindering the recovery. In this light, it commended the efforts of the Presidential \nTask Force on COVID-19 for procuring vaccines and continuing the drive to \nensure that most Nigerians are fully vaccinated. \nOn price development, Members continued to express concerns about the \nimpact of insecurity in farming communities on food inflation. Whereas headline \ninflation had been moderating for several months, the committee believed that \nits recent uptick was associated with increased demand during the festive \nseason and was thus of the view that prices will return to the downward \ntrajectory given the Bank’s ongoing interventions in the agriculture sector. On \nthis note, Members applauded the efforts of the Bank with the recent launch of \nthe rice pyramids, noting that these efforts to increase food supply and stem \nfood inflation were in the right direction. Members, however, reiterated the key \n9 \n \n \nrole of the Federal Government in providing the necessary security around the \ncountry, and particularly in the farming communities, to ensure that farmers and \ntheir produce remain safe, and food supply is both boosted and uninterrupted. \nThe Committee noted that the ongoing dry season farming would further \nimprove food supply and dampen prices. \nMembers noted the ongoing debate around the removal of fuel subsidy and \nsuggested a robust engagement with relevant groups in the country, and \nafterward follow a stepwise and gradual approach, to ensure its moderate \nimpact on cost of transportation and energy for individual, households and \nfirms. The Committee also noted the need to encourage the take-off of private \nrefineries across the country to provide alternative competitive local supply \nsource and reduce the need for government intervention to manage fuel \nprices for domestic consumption. In addition to this, the Committee called for \nthe speedy conclusion of the government gas-powered vehicle conversion \nscheme and other alternative sources of fuel. \nOn the exchange rate, the Committee applauded the Management’s efforts \nat maintaining stability over the short term with increasing demand as the \neconomy continues to reopen. Members noted the dwindling proceeds from \noil sale, despite rising crude oil prices. They further noted the need to address \nthe persistent reduction in remittance of oil revenue to the Consolidated \nRevenue Fund and urged the NNPC to urgently address this anomaly. The \nimproved foreign exchange supply will thus support the Bank’s demand \nmanagement strategy in the foreign exchange market and consolidate \nmacroeconomic performance, especially those that promote export, reduce \ndependence on import and reduce foreign exchange demand pressure. The \nMPC welcomed the improvement in foreign capital inflow through diaspora \nremittances and urged the Bank to further extend the incentive scope to \nattract more remittances to official channels. \nThe Committee noted the rising government debt profile and the concentration \nof the funding sources and its implications for fiscal sustainability and \n10 \n \n \nmacroeconomic stability, including its impact on financial system performance \nand growth. The MPC continued to urge the Government on the need to \nharness other sources of revenue to reduce its dependence on oil as a single \nrevenue source. In addition, it reiterated the need for government to seek \nalternative, more viable, and efficient infrastructure financing sources, in order \nto ease its expenditure burden. To this end, Members called on the fiscal \nauthorities to take advantage of InfraCorp, the private sector driven \ninfrastructural \nvehicle \nand \ntransfer \nviable \ninfrastructure \nprojects \nfor \nconsideration by the Corporation as this would ease pressure on Government. \nthat would otherwise have to raise revenue through taxes from an already \nburdened private and household sector. \nThe improved performance of the equities market in the review period, \nsignposted continued investor confidence in the Nigerian economy. This in the \nview of Members was a positive sign that the economy remained on a path to \na more robust medium-term recovery. \nThe banking sector indices, in the consideration of Members, showed no less \nresilience as other macroeconomic indicators reviewed; even as obvious \ndownside risks associated with the Pandemic continued to impact the business \nenvironment. Members thus applauded the Management’s efforts in ensuring \nthe continued downward trend of Non-Performing Loans (NPLs) ratio, signifying \nimproving conditions in the banking system. Nevertheless, Members \nemphasized the need for the Bank to closely monitor developments in the \nsector and swiftly respond to any emerging challenges. \nThe Committee’s Decision \nThe MPC observed with concern the moderate rise in inflation in December \n2021, noting that this was typical of increased aggregate demand associated \nwith the end of year festive activities. Members, however, expressed their \ncontinued commitment to drive down domestic prices by putting in place \n11 \n \n \nrelevant policy measures to curb the rise in inflationary pressures, while also \nsupporting the fragile growth recovery. \nIn its determination as to whether to hold or loosen or tighten its policy stance, \nthe MPC was mindful that, whereas the US and some Advanced Economies \nhave signaled their intention to commence policy normalisation which may \nresult in capital flow reversal for EMDEs, the major focus at these climes were \ntargeted mainly at reining in the high level of inflation which had been \nunprecedent in the last four decades in those climes. \nFor Nigeria, members were of the view that Nigeria is confronted with, not only \ninflation but also fragile output growth. As a result, MPC believes that its current \nstance of price and monetary stability conducive for growth remain desirable. \nThe MPC is convinced that various measures being implemented were helping, \nnot only in boosting output growth, but also in moderating inflation. The MPC \ntherefore, enjoyed Management to continue to use its development finance \ntools to accelerate output growth, which will also help in boosting \nmanufacturing output that would ultimately aid moderation in prices. It also \nrequested Management to continue its use of administrative measures, \nincluding discretionary tools at its disposal through CRR to control money supply \nin the economy. \nIn its final consideration, the Committee was clear that a loosening option was \nnot desirable because it would trigger liquidity surfeit and fuel inflationary \npressure as available funds may outstrip the economy absorptive capacity or \ndomestic capacity utilization. It also feels loosening could trigger foreign \nexchange demand pressure, as the excess liquidity would be channeled to \neither frivolous importations or speculative holding of foreign exchange as \nalternative investment channels narrow; leading to foreign exchange \ndepreciation and or inflation. \nThe MPC also dropped a tightening option at this meeting in view of the fragile \nstate of the current GDP growth rate and potential external and domestic \n12 \n \n \nheadwinds confronting the economy. The Committee opined that tightening \ncould truncate the steady improvement in credit performance, including other \nfinancial soundness indicators, and reverse the declining trend in NPLs. \nMoreover, tightening could counteract the CBN’s credit expansion motive as a \nnecessary condition for improved economic growth and employment \ngeneration. \nThe MPC, therefore, concluded that a HOLD stance remains desirable at this \ntime, as this would indicate a conservative but cautious and consistent policy \nchoice given the prevailing economic conditions and outlook, thus \nstrengthening policy credibility and focus. It also feels that a hold would signal \nMPCs realisation of the fragility of the growth recovery and its sensitivity to \nemerging global and domestic uncertainties. Hence the need to sustain the \ncurrent policy trajectory. \nAfter a careful balancing of the benefits and downsides of each policy option, \nthe MPC decided to hold all policy parameters constant; believing that a hold \nstance will enable the continued permeation of current policy measures in \nsupporting the recorded growth recovery and further boost production and \nproductivity, which would ultimately rein-in inflation in the short to medium term. \nThe Committee thus decided by a unanimous vote to retain the Monetary \nPolicy Rate (MPR) at 11.5 per cent. \nIn summary, the MPC voted to retain: \nI. The MPR at 11.5 per cent; \nII. The Asymmetric Corridor of +100/-700 basis points around the MPR; \nIII. The CRR at 27.5 per cent; and \nIV. The Liquidity Ratio at 30 per cent. \nThank you. \nGodwin I. Emefiele \n13 \n \n \nGovernor, Central Bank of Nigeria \n25th January 2022", "source": "CBN", "stratum": "cb_requests", "fetch_date": "2026-05-11", "url": "file:///CBN/MPC_Communiques/Central Bank of Nigeria Communique No. 140 of the Monetary Policy Committee Meeting held on Monday 24th and Tuesday 25th January 2021.pdf"} |