| {"doc_id": "00585b4a6279c6701be35b3e1400c185", "text": "1 \n \n \nCENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 126 OF THE \nMONETARY POLICY COMMITTEE MEETING OF THURSDAY 19th AND \nFRIDAY 20th SEPTEMBER 2019 \nThe Monetary Policy Committee (MPC) met on the 19th and 20th of \nSeptember 2019, in the light of softening global growth and weaker-\nthan-anticipated domestic output recovery. The Committee \nevaluated developments in the global and domestic economies \nand examined the outlook for the rest of the year. It noted the build-\nup of vulnerabilities in major Advanced Economies and its spill-over \nto the Emerging Markets and Developing Economies (EMDEs). Nine \n(9) out of the eleven (11) members of the Committee were present \nat the meeting. \nGlobal Economic Developments \nOutput growth across major advanced economies remained \nsubdued, confronted by legacy headwinds, including the \nsubsisting trade war between the US and China, regional hostilities \nin the Middle-East, rising debt levels, growing uncertainties around \nBREXIT and increasing political tensions between the US and Iran, \nincluding fragilities in the financial markets. In the EMDEs, output \ngrowth remained broadly mixed with some economies performing \nstronger than others. \n \n2 \n \nConsequently, the International Monetary Fund (IMF) revised its \nprojected global growth forecast to 3.2 per cent in 2019 from 3.6 \nper cent. \nPrice developments continued to soften across the major \nadvanced and EMDEs as aggregate demand continually weaken, \nresulting in softening monetary policy by major central banks to \naddress downward trending prices and to strengthen aggregate \ndemand. \nDomestic Economic Developments \nData from the National Bureau of Statistics (NBS) showed that real \nGross Domestic Product (GDP) grew by 1.94 per cent in the second \nquarter of 2019, compared with 2.10 and 1.50 per cent in the \npreceding and corresponding quarters, respectively. This mediocre \ngrowth, we believe, is consistent with global trends of dampening \noutput growth and was driven mainly by the oil sector, which grew \nby 5.15 per cent while the non-oil sector grew by 1.64 per cent. At \n57.7 and 58.0 index points, the Manufacturing and Non-\nManufacturing \nPurchasing \nManagers’ \nIndices \n(PMI) \ngrew \nmoderately for the 30th and 29th consecutive months, respectively, \nin September 2019. Staff projections indicate that real GDP in Q3 \nand Q4 2019 would average 2.11 and 2.34 per cent, respectively, \ndriven primarily by the non-oil sector. This optimism in growth \nprospects is anchored on the new momentum of rising credit to the \nprivate sector. However, the headwinds to the growth prospects \n \n3 \n \nremain high unemployment, rising public debt and heightening \ninsecurity across the country. \nThe Committee noted the continued moderation in headline \ninflation (year-on-year) to 11.02 per cent in August 2019 from 11.08 \nper cent in July 2019, driven by decline in the food and core \ncomponents to 13.17 and 8.68 per cent in August 2019 from 13.39 \nand 8.80 per cent in July 2019, respectively. The development in the \nfood and core components of inflation was partly due to improved \nagricultural production in the current harvest season, supported by \nthe Bank’s sustained intervention in the agricultural sector as well as \nthe continued stability in the foreign exchange market. The \nCommittee, however, noted the upward pressure imposed on \nprices due to rising insecurity in the food producing areas of the \ncountry, increased liquidity injection from FAAC disbursements and \nlate budget cycles. It also highlighted the imperative to address \nthe economy’s infrastructural deficits, such as power supply, \nupgrade of transport and production infrastructure as a means of \nreducing cost-push inflation. \n \nThe Committee observed that broad money supply (M3) grew by \n5.65 per cent in August 2019, compared with the level at end-\nDecember 2018, annualized to 8.48 per cent, but remaining below \nthe 2019 indicative benchmark of 16.08 per cent. The growth was \nlargely driven by the increase in Net Domestic Credit (NDC), which \ngrew by 24.36 per cent in August 2019 from the level at end-\nDecember 2018. The growth in NDC was accounted for by the \n \n4 \n \nsignificant increase in credit to Government, which grew by 94.33 \nper cent while credit to the private sector grew by 9.36 per cent in \nAugust 2019. The Committee urged the Management of the Bank \nto explore new initiatives to further improve lending to the private \nsector, while calling on Government to adopt other ways of funding \nits operations outside the banking sector. \nIn the review period, money market rates oscillated within the \nstanding facilities corridor due to prevailing liquidity conditions in \nthe banking system. The monthly weighted average Inter-bank Call \nand Open Buyback (OBB) rates increased to 8.00 and 13.37 per \ncent in August 2019 from 6.52 and 11.01 per cent in July 2019, \nrespectively. \nThe Committee observed the continued bearish trend in the \nequities market, while noting the increased activity in the sovereign \nbonds market, reflecting global trends and investor preference for \nfixed income securities. In the light of this development, the All-\nShare Index (ASI) declined by 11.62 per cent to 27,779.00 index \npoints on September 13, 2019, from 31,430.50 index points at end-\nDecember 2018. Market Capitalization (MC), however, grew by \n15.37 per cent to N13.62 trillion on September 13, 2019, from N11.72 \ntrillion at end-December 2018. This increase in market capitalisation \nwas attributed to the listing of 2.75 billion ordinary shares by Airtel \nAfrica in July 2019. \nThe MPC noted the improved performance and resilience of the \nbanking sector, evidenced by the continued moderation in the \nratio of Non-Performing Loans (NPLs) from 11.2 to 9.4 per cent in \n \n5 \n \nMay and August 2019, respectively. While noting that this was still \nabove the prudential benchmark of 5.0 per cent, the Committee \ncalled on the Management of the Bank to drive this ratio below the \nprudential benchmark. \nOutlook \nThe persistence of policy uncertainties, financial vulnerabilities and \nrising geo-political tensions continued to cloud the medium-term \noutlook. This is evidenced by the sustained weakening of global \ngrowth across regions, amplified by the persisting trade tensions \nbetween the US and its major trading partners, rising corporate and \npublic debt levels. \nOn the domestic economy, output growth in 2019 is expected to \npeak at 2.1 per cent (IMF), 2.2 per cent (World Bank) and 2.27 per \ncent (CBN). These forecasts remain underpinned by expectations \nof favourable oil prices which would lead to higher external \nreserves, stable exchange rate, moderate inflationary pressure as \ngovernment increases capital expenditure, including enhanced \nflow of credit to the private sector to stimulate investment, \nsustained \nCBN \ninterventions \nin \nthe \nreal \nsector, \neffective \nimplementation of the Economic Recovery Growth Plan (ERGP), \nbuild-up of fiscal buffers, as well as improved security in the country. \n \n \n \n \n6 \n \nCommittee’s Considerations \nThe Committee noted the decline in output growth in the second \nquarter of 2019, partly attributable to the delay in implementation \nof the 2019 budget. It however, observed that this was an \nimprovement over the corresponding quarter of 2018. In addition, \nit noted the broad slowdown across key economies and the \nresponse of major central banks to revise their policy rates \ndownwards. \n \nOn price developments, the Committee commended the \nprogressive moderation in consumer prices and urged the Bank to \nsustain its intervention in the real sector of the economy to reduce \nthe output gap. \n \nThe MPC noted the improvements in the financial soundness \nindicators and urged the Management of the Bank to sustain its \nregulatory surveillance to ensure continued financial system \nstability. The Committee, particularly noted the growth in the size of \nindustry loans from N15.4 trillion in June to N16.23 trillion in \nSeptember 2019. On the recent directives to deposit money banks \nto increase their Loan-to-Deposit Ratio (LDR), the Committee \nunderscored the need to grow consumer, mortgage and \ncorporate credit to drive aggregate demand and ensure a \nreduction in unemployment and increase in output growth. \nConsequently, the Committee urged the Management of the Bank \nto fast-track the development of the credit scoring system, to \n \n7 \n \npromote increased intermediation. In addition, the Committee \ncommended the introduction of the Global Standing Instruction \n(GSI) initiative aimed at de-risking credit in the industry by \ncommitting bank customers to repay their loans to banks. The MPC \nfurther noted the increased supply of micro credit to key Micro \nSmall and Medium Enterprises (MSMEs) and efforts through the \nNigeria Incentive-Based Risk Sharing System for Agricultural Lending \n(NIRSAL) Microfinance Bank to extend the reach of its credit \nfacilities across the country. The MPC however, observed that the \ngrowth in credit to the private sector remained significantly low, \nrelative to the absorptive capacity of the economy. \n \nThe MPC further underscored the linkage between high \nunemployment and heightened insecurity, emphasizing the critical \nneed for urgent steps towards more jobs and wealth creation in the \ncountry. As an interim solution, the Committee called on \nGovernment at all levels to ratchet up public works programmes \naimed at easing the threat of rising unemployment in the country. \nThis, the Committee argued, would be achieved through efficiency \nin public spending. The MPC also noted the Government’s current \ndrive to increase Value Added Tax (VAT), adding that this will \nimprove fiscal revenue to support expenditure and reduce the \nbudget \ndeficit \nas \nwell \nas \nGovernment \nborrowing \nwhen \nimplemented. The Committee, however, noted that this was too \nlittle to close the gap in Government finances. Consequently, the \nMPC called on the Government to, as a matter of urgency, adopt \n \n8 \n \nwhat it termed a BIG BANG approach towards building fiscal \nbuffers by purposefully freeing-up redundant public assets through \nan efficient, effective and transperent privatization process. This \nwould raise significant revenue for Government and resuscitate the \nredundant assets to generate employment and contribute \neffectively to national economic growth. The MPC noted the \nunstable oil prices, its implications on accretion to external reserves \nand its persistent call on the Government to build fiscal buffers. \nConsequently, the Committee called on the National Assembly to \nexercise restraint from increasing the oil price budget benchmark \nto avoid budgetary overruns at the implementation stage of the \nbudget. Projections from the oil futures market, indicate that oil \nprices will remain tight around the budget oil price benchmark in \nthe medium term. \n \nThe Committee’s Decision \nIn its considerations regarding the policy options to adopt, the MPC \nas usual, felt compelled to review the options of whether to tighten, \nhold or loosen. \nThe Committee noted the positive moderation in inflation, though \nslowly from 11.08 per cent in July to 11.02 per cent in August 2019. \nGiven that this was still above the target range of 6-9 per cent, and \nconsidering the pressure on reserve accretion caused by the \nrelatively weak crude oil price, the MPC felt the imperative to \ntighten. On the contrary, the Committee was of the view that doing \nso in the midst of a fragile growth outlook would increase the cost \n \n9 \n \nof credit, and further contract investment and constrain output \ngrowth. \nOn loosening, the Committee felt that this would result in increased \nsystem liquidity and hence, heighten inflationary tendencies in the \neconomy. In particular, the MPC was of the view that loosening \nwould drive growth in consumer credit but without a corresponding \nadjustment in real sector output. The Committee was also \nconvinced that increased liquidity and interest rate moderation \nwould result in exchange rate pressures as money supply rises. \nAs regards the option to hold, the MPC opined that the option \nrequires a clear understanding of the quantum and timing of \nliquidity injections into the economy, before deciding on possible \nadjustments to the stance of monetary policy. The Committee was \nalso of the opinion that retaining the current position of policy offers \npathways to appraising the effects of the suit of heterodox \nmonetary policy to encourage credit delivery to the real sector, \nespecially in the light of the subsisting implementation of the Loan-\nto-Deposit Ratio policy. \n \nIn view of the foregoing, the Committee decided by a unanimous \nvote to retain the Monetary Policy Rate (MPR) at 13.5 per cent and \nto hold all other policy parameters constant. \n \n \n \n \n \n \n10 \n \nIn summary, the MPC voted to: \nI. Retain the MPR at 13.5 per cent; \nII. Retain the asymmetric corridor of +200/-500 basis points around \nthe MPR; \nIII. Retain the CRR at 22.5 per cent; and \nIV. Retain the Liquidity Ratio at 30 per cent. \n \nThank you. \n \nGodwin I. Emefiele \nGovernor, Central Bank of Nigeria \n20th September, 2019", "source": "CBN", "stratum": "cb_requests", "fetch_date": "2026-05-11", "url": "file:///CBN/MPC_Communiques/Central Bank of Nigeria Communique No. 126 of the Monetary Policy Committee Meeting of September 19 and 20, 2019.pdf"} |