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+{"doc_id": "26c751ffbbef18f3cf3148be72e076ba", "text": "1 \n \n \n \n \nCENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 138 OF THE 281ST MONETARY \nPOLICY COMMITTEE MEETING HELD ON THURSDAY, 16th AND FRIDAY, 17th \nSEPTEMBER 2021 \nThe Monetary Policy Committee (MPC) met on the 16th and 17th September, \n2021, on a relatively comforting note of a moderate global output growth \nrecovery and improved global trade. The performance of the global economy \nin the first two quarters of the year and into the third quarter, remained \nfavourable with positive outlook for the rest of the year. However, cautious \noptimism persists, driven primarily by mutating and more fatal strains of the \nCOVID-19 virus and disparities in the progress of vaccinations across several \ncountries. In the domestic economy, output growth performance continued to \nimprove, signposting the positive impact of the unwavering fiscal and monetary \nsupport by both the fiscal and monetary authorities to revive and sustain \neconomic growth, post pandemic. The Committee reviewed the developments \nin the global and domestic economic environments in the third quarter of 2021, \nas well as the outlook for the rest of the year. \nTen (10) members of the Committee attended this meeting. \nGlobal Economic Developments \nThe Committee noted the continuing rebound in the global recovery as several \nadvanced and emerging market economies posted promising second quarter \noutput growth figures, despite the uneven progress in vaccination coverage. \nThe MPC noted that the uncontained spread of the COVID-19 virus continues to \npose downside risks to global recovery in 2021 and into 2022. The MPC further \nnoted that despite the strong output growth identified in some Advanced \nEconomies, several developing economies were still lagging in vaccination \nprogress. Members, emphasized that the widespread availability of vaccines, \n \n2 \n \n \nremained vital to surmounting the Pandemic and attaining full and all-inclusive \nrecovery of the global economy. Despite the challenges posed by the ongoing \nmutation of the coronavirus, governments across the globe remain focused on \neasing business restrictions and resuscitating economic activities. Consequently, \nthe International Monetary Fund (IMF), maintained its aggregate projection for \nglobal growth in 2021 at 6.0 per cent, but increased its projection for the \nAdvanced Economies to 5.6 per cent from a previous 5.1 per cent, while that for \nthe Emerging Markets and Developing Economies (EMDEs) was downgraded to \n6.3 per cent from 6.7 per cent. \nPrice development across several Advanced Economies has remained on a \nsustained uptrend and exceeding their long run objectives. This is expected to \ncontinue in the short to medium term as against earlier forecasts that the upward \nshift was transient. Consequently, several central banks of advanced economies \nare \ncurrently \nconsidering \nearly \ncommencement \nof \nmonetary \npolicy \nnormalization, even though policy rate adjustments are not expected in the \nmedium term. Across several Emerging Market and Developing Economies, \ninflationary pressures remained mixed, as some economies had much higher \nrates than their peers, due to lingering exchange rate pressures, capital flow \nreversals, high energy costs, supply chain disruptions and poor response to policy \nstimulus resulting from structural bottlenecks. \nIn the global financial markets, the Committee noted that while demand for \nequities remained strong, an indication of renewed market confidence, gold \nprice still maintained its post-Pandemic high, reflecting the hedging by investors \nagainst a possible rebound of the Pandemic. Long-term sovereign bond yields \nare expected to improve with the commencement of monetary policy \nnormalization by central banks of advanced economy. Committee members, \nhowever, expressed cautious optimism for a gradual normalization of monetary \npolicy by these central banks, as a sharp retreat of policy stimulus may plunge \nthe global economy into a financial crisis again. This may also increase the \nuncertainty around the full recovery of several Emerging Market and Developing \nEconomies. The MPC, therefore, called on the Bank to put in place measures to \n \n3 \n \n \nmoderate the likely impact of the normalization of monetary policy on the \ndomestic economy. \nDomestic Economic Developments \nIn the second quarter of 2021, there was a significant improvement in the real \nGross Domestic Product (GDP), which grew by 5.01 per cent compared with 0.51 \nand -6.10 per cent in the previous quarter and corresponding quarter of 2020, \nrespectively. This recovery was attributed to the non-oil sector, driven by a \nrebound in services sector and continued growth in agriculture sector. The oil \nsector contracted further by -12.65 per cent (year-on year) in the second quarter \nof 2021, compared with -2.21 per cent in the previous quarter. This deeper \ncontraction, was attributed to several factors: including declining crude oil \nproduction at two crude streams in the country, associated with leakages in two \nmajor pipelines; deteriorating oil production infrastructure; poor pipeline \nmaintenance; and the need to comply with OPEC+ production ceiling. \nThe Committee noted the moderate improvement in both the Manufacturing \nand Non-Manufacturing Purchasing Manager’s Indices (PMIs), though still below \nthe 50-index point benchmark, showed a marked improvement over time. In \nAugust 2021, the Manufacturing and non-Manufacturing PMIs improved to 46.9 \nindex points apiece, compared with 46.6 and 44.8 index points, respectively, in \nJuly 2021. This was attributed to an increase in new orders, driven largely by rising \ndemand, uptrend in business activity and further normalization of economic \nactivities. \nSimilarly, \nthe \nemployment \nlevel \nindex \ncomponent \nof \nthe \nManufacturing and non-Manufacturing PMIs in August 2021 improved to 49.4 \nand 48.8 index points, respectively, compared with 46.5 and 47.0 index points in \nJuly 2021. The Committee expressed optimism that with the current level of \nmonetary and fiscal stimuli, as well as efforts to increase vaccination and \ncontain the Pandemic, the economy will continue to improve in the short-to \nmedium term. \nThe Committee reviewed the performance of the Bank’s interventions to sustain \nthe recovery of output growth and address the downside risks to other external \n \n4 \n \n \nand domestic shocks to the economy. Interventions continued largely in \nManufacturing, Agriculture, Energy/infrastructure and Micro, Small, and Medium \nEnterprises (MSMEs). \nThe Bank under its Anchor Borrowers Programme (ABP) has cumulatively \nreleased the sum of N798.09 billion to 3.9 million smallholder farmers cultivating \n4.9 million hectares of land across the country. Out of this for the 2021 wet season \nfarming, the Bank released the sum of ₦161.18 billion to 770,000 small-holder \nfarmers cultivating seven (7) commodities on 1.10 million hectares across the \ncountry. While harvesting for the 2020 dry season under the Programme is \nrounding up, harvesting activities have commenced for the 2021 wet season \ncultivation. The Strategic Maize Reserve Programme of the CBN has been useful \nin moderating maize prices by directly targeting large feed mill producers. Under \nits Commercial Agriculture Credit Scheme (CACS), the CBN has supported 657 \nlarge-scale agricultural projects, to the tune of N708.39 billion. \nTo support MSMEs across the country, the Bank disbursed N134.57 billion to 38,140 \nbeneficiaries under the Agribusiness/Small and Medium Enterprise Investment \nScheme (AGSMEIS), and for the Targeted Credit Facility (TCF), the sum of N343.21 \nbillion has been released to 726,198 beneficiaries, comprising 602,730 \nhouseholds and 123,468 Small and Medium Enterprises. \nUnder the Real Sector Facility, the Bank released the sum of N1.00 trillion to 269 \nreal sector projects, of which 140 are in light manufacturing, 71 in agro-based \nindustry, 47 in services and 11 in mining. Under the Healthcare Sector Intervention \nFacility (HSIF), N103.02 billion has been disbursed for 110 healthcare projects, of \nwhich 27 are pharmaceutical, 77 hospitals and 6 other healthcare service \nprojects. The Bank has also disbursed a total of N145.99 billion under its Non-Oil \nExport Stimulation Facility (NESF). The CBN has revised the guidelines, working \nwith Nigerian Export-Import Bank to improve access to the intervention and \nstimulate non-oil export growth in Nigeria. \nUnder the National Mass Metering Programme (NMMP), N41.06 billion has been \ndisbursed to ten (10) DisCos, for the procurement and installation of 759,748 \n \n5 \n \n \nelectricity meters. Under the Nigerian Electricity Market Stabilization Facility - 2 \n(NEMSF-2), the Bank has released the sum of N145.66 billion to 11 DisCos as loans \nto provide liquidity support and stimulate critical infrastructure investment to \nimprove service delivery and collection efficiency. \nIn furtherance of its intervention in the energy sector, the Bank has disbursed \nN39.20 billion to six (6) beneficiaries to improve gas-based infrastructure to \nsupport the Federal Government’s Auto-Gas Conversion Programme. The Bank \nhas also encouraged Deposit Money Banks (DMBs) to participate in the Solar \nConnection Facility (SCF) to improve energy access in the rural areas. \nTo promote entrepreneurship development among Nigerian youth, the Bank \nrecently \napproved \nthe \nimplementation \nof \nthe \nTertiary \nInstitutions \nEntrepreneurship Scheme (TIES). The Scheme is designed to promote \nentrepreneurial activities and foster job creation among Nigerian youths. \nThe Committee applauded the continued moderation in headline inflation for \nthe fifth consecutive month to 17.01 per cent (year-on-year) in August 2021 from \n17.38 per cent in July 2021. The continued decrease was attributed to a marginal \ndecline in the food component to 20.30 per cent in August 2021 from 21.03 per \ncent in July 2021. The core component, also, declined to 13.41 per cent in August \n2021 from 13.72 per cent in July 2021. The MPC noted that headline inflation \nremained well above the Bank’s benchmark corridor of 6 – 9 per cent, but \nexpressed optimism that with sustained interventions by the Bank, food \nproduction will continue to improve, thus moderating headline inflation further. \nThe Committee, thus, urged the fiscal authority to build on earlier efforts to \narticulate a clear strategy to attract private sector investment while resuscitating \ncritical infrastructure to improve the ease of doing business in the country. \nMembers observed that broad money supply (M3) rose to 5.83 per cent in \nAugust 2021, compared with 2.91 per cent in July 2021. This was largely driven by \nthe growth of Net Foreign Assets and Net Domestic Assets by 12.35 and 4.30 per \ncent in August 2021, compared with 1.84 and 3.17 per cent in July 2021, \nrespectively. The growth in Net Foreign Assets was largely driven by increase in \n \n6 \n \n \nforeign asset holdings of commercial and merchant banks. The increase in Net \nDomestic Assets reflects the boost to aggregate credit net, which increased to \n8.14 per cent in August 2021, from 5.71 per cent in July 2021. \nIn the money market, the monthly weighted average Inter-Bank Call and Open \nBuyback (OBB) rates increased to 13.45 and 12.97 per cent in August 2021 from \n10.72 and 11.60 per cent in July 2021, respectively. This increase reflected the \ntight liquidity conditions in the banking system during the review period as the \nBank curtailed excess system liquidity. \nThe MPC noted the moderate improvement in the equities market in the review \nperiod, as the All-Share Index (ASI) increased by 2.67 per cent from 37,907.28 on \nJune 30, 2021, to 38,920.50 on September 14, 2021. Market Capitalization (MC) \nalso increased by 2.63 per cent from N19.76 trillion to N20.28 trillion over the same \nperiod, \nreflecting \nimprovement \nin \ninvestor \nconfidence \nfollowing \nthe \nstrengthening of output growth. \nThe MPC noted that the Capital Adequacy Ratio (CAR) and the Liquidity Ratio \n(LR) both remained above the prudential limits at 15.2 and 41.7 per cent, \nrespectively at end-July 2021. The Committee, also, welcomed the improvement \nin the Non-Performing Loans (NPLs) ratio at 5.4 per cent in July 2021, compared \nwith 5.7 per cent in June 2021. The Committee thus, urged the Bank to sustain \ncurrent efforts to bring NPLs below the 5.0 per cent prudential benchmark. \nThe Committee noted the improvement in lending to the real sector following \nthe introduction of the Loans-to-Deposit Ratio (LDR) in 2019. Industry gross credit \nincreased by N6.63 trillion from N15.57 trillion at end-May, 2019 to N22.20 trillion \nat end-July, 2021. The credit growth was largely recorded in manufacturing, oil \nand gas and agriculture sectors. \nThe Committee noted the significant increase in the external reserves which rose \nto US$35.97 billion at end-August 2021 from US$33.49 billion at end-July 2021, \nrepresenting an increase of 7.41per cent. It also welcomed the further increase \nto US$36.03 billion on September 13, 2021. \n \n7 \n \n \nOutlook \nThe outlook for both the global and domestic economies appears mixed. This is \ndue to lingering uncertainties over the end of the COVID-19 pandemic as well \nas continued mutation of the virus. The slow and uneven pace of vaccination in \ndeveloping economies is also compromising the achievement of global herd \nimmunity, thus imposing a considerable headwind to the attainment of the \nglobal growth forecast. \nSome central banks in advanced economies have given guidance of intended \ncommencement of monetary policy normalization as monetary and fiscal policy \nacross major advanced and emerging market economies have remained \nrobust. This would constitute a further headwind to the full and inclusive recovery \nof the global economy due to the likely rise in cost of capital. The global \neconomy is confronted with more headwinds than tailwinds, evidenced by the \nmultitude of conflicting signals emerging from various major economies. \nAvailable data and forecasts for key macroeconomic variables for the Nigerian \neconomy, suggest further rebound in output growth for the rest of the year. This \nwill however be hinged on the continued stability in oil price and robust \nvaccination in Nigeria and across other countries. Foreign exchange market \nstability, further reduction in inflationary pressure in the economy and continued \ninterventions by the monetary and fiscal authorities are very important factors to \nsustain the recovery momentum. Consequently, the Nigerian economy is \nforecast to grow in 2021 by 2.86 per cent (CBN), 3.0 per cent (FGN) and 2.5 per \ncent (IMF). \n \nThe Committee’s Considerations \nThe Committee noted the recovery in output growth and improving PMIs in the \nsecond quarter and urged the Bank to maintain the momentum of its current \npolicy measures to sustain positive and inclusive real GDP growth. \nThe increasing level of insecurity in parts of the country remained a crucial point \nof concern for the MPC as its persistence could adversely impact business \n \n8 \n \n \nconfidence and derail the recovery. It continued to call on the Federal \nGovernment to prioritize security surveillance in farming communities as the \nincreased supply of food would play a significant role in stabilizing \nmacroeconomic fundamentals. \nThe Committee applauded the steady but moderate decline in domestic prices \nas inflation decelerated for the fifth consecutive month with forecast indicating \na continued downward trend. The Committee also welcomed ongoing efforts \ntowards revitalising the Nigeria Commodity Exchange (NCX) to improve the \nsupply value chain, curtail the speculative activities of middlemen in the \nagricultural sector, and consequently drive down prices of key commodities \nsuch as paddy rice, maize, wheat and sorghum, amongst others. \nMembers applauded the relentless effort by the Bank and other collaborators in \nensuring the eventual take off of the Nigerian Infrastructure Corporation \n(INFRACORP), as this will improve the business environment, attract new \ninvestment and create new jobs in the Nigerian economy. The MPC further \nemphasised the importance of investment in transportation networks, power \nsupply and telecommunication as these have a multiplier effect on other sectors \nof the economy. In addition to the INFRACORP initiative, Members urged the \nfiscal authority not to relent on other complementary infrastructure initiatives \nsuch as Public-Private-Partnerships and engagement of Nigeria’s huge diaspora \nthrough the issuance of diaspora bonds to fund specific projects. \nThe MPC noted the moderate improvement in the equities market and \ncommended the sustained investor confidence in the Nigerian economy. The \nCommittee however called on the Federal Government to continue to improve \nthe ease of doing business in Nigeria to retain the current patronage of the \nNigerian economy by foreign investors. \nMembers applauded the continued resilience of the banking system, noting the \nprogressive decline in the non-performing loans ratio, and broad improvement \nin all banking system parameters, despite the downside risks posed by the \nPandemic to the smooth running of businesses. While the Committee was \n \n9 \n \n \ncognizant of the credit risks associated with lending in the current economic \nclimate, it urged Nigerian banks to extend more credit to businesses and \nconsumers to facilitate a seamless recovery of output growth, reduce \nunemployment and stabilize prices. \nOn the management of the exchange rate, the Committee applauded the \nBank for improving foreign exchange supply in the economy to meet legitimate \nbusiness and consumer demand. Members thus, urged the Bank to take further \nsteps to restrict the activities of unauthorised and illegal dealers in the foreign \nexchange market, stating that all foreign exchange transactions must be \nconducted at the I&E window to ensure transparency and stability. The \nCommittee, thus, called on the Bank to intensify surveillance over foreign \nexchange sales and utilisation by commercial banks and customers, to ensure \nthat operators adhere to stipulated guidelines set by the CBN. The Bank thus, \nmaintains its resolve to continue to restructure the foreign exchange market and \nwill pursue all recent policies targeted at sanitizing the market to improve \ntransparency and proper functioning to eliminate illegal foreign exchange \ndealers in the economy. \nOn Government revenues, members urged the Federal Government to improve \nits tax collection in order to reduce its dependence on oil revenues and reduce \nits exposure to counter-cyclical shocks. \nThe Committee emphasised the growing need to improve the agricultural value \nchain, particularly in key commodity products like cocoa, palm oil and cashew \nto diversify the country’s export receipts. It, therefore, called on the Bank to \nsupport manufacturing initiatives that could achieve this objective. \nThe Committee applauded the Bank for its resilience and robust efforts in \nmanaging the downside risks to growth and the upside risks to inflation since the \noutbreak of the Pandemic, while charting a stable path for the economy to \ncontinue to expand its potential capacity through investment in infrastructure. \n \n10 \n \n \nOverall, the MPC assessed the headwinds and tailwinds to growth, as well as, \nthe upside risks to inflation, noting the immense effort by both the monetary and \nfiscal authorities to achieve a substantial recovery in output growth and \ndecrease in inflation. The Committee urged the Presidential Task Force on \nCOVID-19 to intensify efforts toward procurement of more vaccines and the \nvaccination of more people to ensure that herd immunity is achieved. \nThe Committee’s Decision \nThe MPC expressed delight at the robust recovery of output growth during the \nsecond quarter and the continued decline in inflation. Members, however, re-\niterated the need to put in place further measures to drive down inflation and \nimprove real returns on investment. The MPC noted the unequivocal importance \nof credit growth to the sustained recovery of output and the moderation in price \ndevelopment as supply improves. It thus, called on the Bank to maintain \nadequate surveillance on banks to ensure compliance with its extant credit \npolicy, while ensuring that they are not unduly exposed to credit risks. \nThe Committee also noted the relevance of the Bank’s suite of interventions to \nthe overall system credit, urging its continued use to fund sectors with high \nemployment-generating capacity. \nMPC weighed the pros and cons of tightening, holding or loosening the stance \nof policy, noting the impact on output growth, price development, \nunemployment and exchange rate. \nMembers felt that tightening will contract the current level of system liquidity, \nand thus reduce demand pressure in the foreign exchange market, given that \nthe current MPR at 11.5 per cent, CRR at 27.5 per cent and liquidity ratio at 30.0 \nper cent is already a tightening stance. This will, however, raise the cost of credit \nand reduce the volume of credit to the private sector. \nOn loosening, the Committee felt that this would lower retail interest rates and \nimprove the ability of obligors to repay their obligations, with a complementary \nreduction in NPLs. The gradual downward movement of inflation may, however, \n \n11 \n \n \nbe compromised if policy accommodation is increased, leading to a further \nwidening of the negative real interest rate and thus exacerbating capital \noutflows as investment in naira denominated assets become less attractive. \nMembers considered that a hold stance would allow the current recovery of \noutput growth and decline in inflation to continue smoothly, thus gradually \nmoving the economy to a sustainable path before adjustments are made to the \nstance of policy. \nBased on the above considerations, the MPC made the decision to hold all \npolicy parameters constant; believing that a hold stance will enable the \ncontinued permeation of current policy measures in supporting the recorded \ngrowth recovery and macro-economic stability. \nThe Committee thus decided by a unanimous vote to retain the Monetary Policy \nRate (MPR) at 11.5 per cent. \nIn summary, the MPC voted to: \ni. \nRetain the MPR at 11.5 per cent; \nii. \nRetain the Asymmetric Corridor of +100/-700 basis points around the MPR; \niii. \nRetain the CRR at 27.5 per cent; \niv. \nRetain the Liquidity Ratio at 30 per cent. \nThank you. \nGodwin I. Emefiele \nGovernor, Central Bank of Nigeria \n17th September, 2021 \n \n \n \n \n \n12 \n \n \n \nPERSONAL STATEMENTS BY THE MONETARY POLICY COMMITTEE MEMBERS \n1. ADAMU, EDWARD LAMETEK \nGlobal economic recovery remains on course despite uncertainties including \nnew variants of the coronavirus driving infection resurgence in parts of the world, \nuneven access to vaccines, inflation spikes and high public debt levels. In July \n2021, the International Monetary Fund (IMF) retained its global growth forecast of \n6.0 per cent for 2021. This was broadly indicative of good economic recovery \nprospects in the rest of the year. However, across country clusters, recovery \nprospects continued to diverge. Whereas the growth outlook for the advanced \neconomies continued to improve, prospects for emerging markets and \ndeveloping economies (EMDEs) had moderated since April 2021, offsetting the \ngains from the advanced economies. \nDeveloping countries generally need to take a hard look at the sources of the \ndivergence with a view to shoving up their growth prospects. Two major factors \ndeserve immediate attention. They are COVID-19 vaccination and policy \nsupport. The recent surge in COVID-19 infections around the world is having a \ngreater impact in developing countries owing to the slower pace of vaccine \nrollout in most of those countries. Advanced economies have been able to bring \ndown caseloads more quickly because of speedy vaccine rollout. Among other \nimperatives, Nigeria needs to sustain focus on vaccination – vaccine availability \nand hesitancy. Whereas, the former appears to be ameliorating, the latter \ncontinues to be a challenge even among health professionals. I believe that this \nshould pre-occupy not only the Federal Government (FG) but the other tiers of \ngovernment as well. Civil society can also play a key role in mobilizing the public \nto embrace vaccination. \nOn policy support, the quality and intensity of support continue to be important \nfor recovery. We have seen this play out in the advanced economies. Fiscal \nsupport and related measures have been more robust in some regions, Europe, \nand the US especially, with correspondingly good recovery prospects. By \ncontrast, many EMDEs are struggling with fiscal space and trying to build buffers \nduring this challenging time. Some of them are further constrained by upward \npressures on prices (consumer and exchange rate) to slow down liquidity \ninjections or even commence normalization. This move could prove to be \npremature and inefficient given the fragility of output recovery in those climes, \nand the rather unclear path of monetary policy in the advanced economies. \nFor Nigeria, I do not think the time is rife to look in that direction despite the \n \n13 \n \n \nconstraints emanating from prices. This is primarily because the current pressures \non domestic prices appear firmly rooted in supply shocks related to the COVID-\n19 pandemic and insecurity. Increasing domestic production of goods and \nservices and easing distribution bottlenecks appeal to me as the proximate \nsolution to the inflation pressures. \n \nI am convinced that the ongoing interventions by the Federal Government and \nthe CBN, aimed at boosting domestic production and easing circulation of \ngoods around the country are yielding expected results in terms of both \neconomic growth and consumer prices. What’s needed at this point is to ramp-\nup fiscal support in key sectors as well as the development finance interventions \nof the Bank, while strengthening targeting mechanisms. To this end, greater \ncollaboration between institutions of the FG and those of the states will afford \npolicy support greater traction. \n \nMy overall judgement is that the extant monetary policy configuration has \ncontinued to serve its purpose of moving the economy out of stagflation, which \npartly explains my decision to retain all the parameters at the September 2021 \nmeeting of the Monetary Policy Committee (MPC). Further elaborations on the \nconsiderations that informed that policy choice and my inclination towards \ndeepening development finance and fiscal support to the real sector are \npresented in the rest of this statement. \n \nFirst, global inflation has trended upwards lately, prompting concerns about \npolicy normalization in the advanced economies. A sudden monetary policy \nnormalization by the advanced economies, should inflation persist in those \ncountries, could tighten financial conditions and complicate recovery in EMDEs \nbecause of the consequential tightening of external financing. Policy makers in \nthese economies (including Nigeria) need to be mindful of this risk to domestic \noutput recovery. To prepare for this eventuality, the Bank and the FG need to \ndeepen current interventions in the real sector to firm up economic recovery as \nquickly as possible. \nSecond, domestic economic growth prospects have improved slowly since the \nthird quarter of 2020. In fact, the Q2 2021 national accounts posted a real GDP \ngrowth of about 5.0 per cent, reflecting impressive outturns in Services and \nAgriculture. However, some subsectors are still struggling and might require extra \npolicy support. In the Industry cluster, Mining and Quarrying has continued to \ndecline, offsetting the expansion in Manufacturing, Construction, and others. \nLikewise, Finance and Insurance further declined in Q2 2021 owing to a \nsubstantial contraction in Financial Institutions. Clearly, these sub-sectors need \n \n14 \n \n \ntargeted support to re-invigorate activity and restore them to growth. In general, \nit is safe to say that the economy is not fully out of the woods. This is further \namplified by the purchasing managers indices (PMIs) – both have remained \nbelow 50 points, suggesting weak output recovery prospects despite the \nimpressive Q2 outturns. Current staff forecasts indicate a real GDP growth of \nabout 2.86 per cent for 2021. The IMF and World Bank are slightly less optimistic \nwith projections of 2.5 and 1.80 per cent, respectively. These forecasts place \nNigeria among countries looking to post the least growth rates in the EMDEs \ncluster. I believe that the Nigerian economy could achieve more with extra \npolicy support. \nThird, headline inflation slowed for the fifth straight month to 17.01 per cent in \nAugust 2021. It was the lowest rate since February 2021, driven by a further \nslowdown in food inflation especially. It is instructive that core inflation also \nslowed in August, suggesting a firmer downward path for headline inflation. \nHopefully, as harvests begin, further deceleration in food prices should bear \npositively on overall inflation. Against this consideration, staff forecasts of \nheadline inflation suggest continued deceleration to year-end. This gives the \nBank some room to continue to push economic activity with targeted \ninterventions. \nFourth, the strategy of maintaining banking system liquidity close to its optimal \nlevel is an integral part of the current monetary policy orientation aimed primarily \nat addressing inflation. In August 2021 both the interbank call and open-buy-\nback (OBB) rates (weighted averages) rose in line with the intensity of the \nsterilization actions of the Bank during the period. I believe that the Bank should \nsustain this element of the current monetary policy mix to further rein-in inflation \nand exchange rate pressures. \n \nFinally, despite some risks and challenges, the last couple of months have \nwitnessed a broad improvement in the macro-fundamentals. Inflation is slowing, \nand I expect seasonal factors like commencement of harvests to complement \nthe extant measures to bring about speedier deceleration in the months ahead. \nThe sterilisation actions of the Bank continue to have the desired effect of \nkeeping banking system liquidity close to optimum as shown by the relative \nstability in the interbank interest rates. Those actions need to be sustained \nthrough the rest of the year given that inflation and exchange pressures remain \nimportant policy concerns. Output has continued to recover as shown by the \nQ2 real GDP numbers. There are downside risks which may be ameliorated by \nsustained policy support and improvement in security. The current measures \naimed at boosting credit to the economy like the innovations around the CRR, \nthe loan-to-deposit ratio (LDR) and the global standing instruction (GSI) are \n \n15 \n \n \nworking and deserve to be retained. The scope for sustaining credit flow to the \nreal economy appears large given that the banking system remains sound and \nresilient with major financial soundness indicators (FSIs) showing robustness – \ngrowing ratio of Tier-1 capital, declining non-performing loans ratio, rising liquidity \nratio and a relatively high capital adequacy ratio (CAR). \nOver the short- to medium-term, I believe, the policy priority continues to be how \nto firm up economic recovery. The PMIs are still below 50 points, pointing to a \nfragile growth outlook. Economy managers need to maintain focus on the \ndominant risks to recovery - COVID-19 virus mutations and insecurity. The Bank \nhas no direct control over both but could influence government response by \nremaining engaged with the relevant authorities on the subjects. Everything \nconsidered, I felt persuaded to retain the major monetary policy parameters at \ntheir levels prior to the September 2021 meeting of the MPC. In effect, I voted to: \n1. Retain the MPR at 11.5 per cent. \n2. Retain the asymmetric corridor at +100/-700 basis points around the MPR. \n3. Retain the CRR at 27.5 per cent. \n4. Retain the Liquidity Ratio at 30 per cent. \n \n \n \n \n \n \n \n \n \n \n \n \n16 \n \n \n \n \n2. ADENIKINJU, ADEOLA FESTUS \nInternational Economic Development \nDevelopment in the global economy provides mixed opportunities for Nigeria in \nthe near and medium term. The global economic recovery is on pace to deliver \nthe IMF 2021 GDP growth projections of 6.0%, though with a widening gap \nbetween advanced economies and emerging and developing economies. The \nUS and China, two of the most important Nigeria trading partners are expected \nto deliver respectable GDP growth results in 2021. Commodity prices, including \noil, are doing very well. Bonny Light is over US$72.17/b as of September 14, 2021. \nGlobal oil demand is expected to outpace oil production in 2021. Global trade \nis projected to sustain its recovery in Q4 2021. On the other hand, headwinds \ninclude rising global inflation expectation, especially in advanced economies, \nthe possibility of monetary policy normalisations in the advanced economies, \nthe uncertainty surrounding COVID-19 and its variants, and the possibility of \ncapital reversals from developing economies. Digital currencies are receiving \nthe attention of central banks across the world. Global debt also showed slight \ndecline in Q1, 2021, for the first time in ten quarters. Nigeria, like other IMF \nmember countries benefitted from single largest allocation of SDR by the IMF on \nAugust 23, 2021. Advanced and emerging economies received US$375 billion \nand US$275 billion, respectively. \n \nDomestic Economic Development \nThe Economic Report presented by Bank Staff showed a V-shaped recovery of \nthe economy. Real GDP grew by 0.51% in Q1 2021 and accelerated to 5.01% in \nQ2.2020 y-o-y, up from -6.10% in Q2, 2020. Oil GDP contracted by 12.65%, fueled \nby decline in oil production, implying that the growth in Q2, 2021 was due to the \nperformance of non-oil GDP. Both Manufacturing and Non-manufacturing PMIs \nimproved in August 2021 relative to July 2021, but remained below the threshold \nof 50.0 points. \nHeadline inflation also moderated to 17.01% in August 2021 down from 17.38% in \nJuly 2021, driven primarily by decrease in food inflation. Monetary base \nexpanded slightly in August 2021 relative to the previous month. M3 grew by \n5.83% in August 2021 compared to 2.91% in July 2021, due to rise in both Net \n \n17 \n \n \nForeign Assets and Net Domestic Assets. The Nigerian Stock Market was \nparticularly bullish in August as All Share Index rose from 38,547.08 points in July \n2021 to 39,485.65 points in August 2021. This was due to positive movements in \nthe banking, and oil and gas sectoral indices. \nThere was increase in money market rates to reflect the market fundamentals. \nOBB rate rose from 10.72% in July 2021 to 13.45% in August 2021. Lending rates \ndeclined marginally from 29.8% in June 2021 to 27.19% in July 2021. Savings rate \nrose marginally to 1.82% in July 2021 from 1.81% in June 2021. Concurrently, \ninterest rate spread also reduced marginally. \nThere was also mixed performance in the external trade sector. Balance of trade \nand current account balances, though in deficits, showed improvement in \nAugust 2021, relative to previous month, owing to higher export proceeds and \nlower imports of non-oil products. Similarly, remittances inflow increased. Both \nFDI and FPI increased month-on- month due to improved yields on fixed income \nsecurities. However, the exchange rate markets experienced significant \npressures leading to depreciation of the naira against the US dollar. The external \nreserves rose because of increase in the SDR allocation by the IMF and rise in \nthird party receipts. \nThe fiscal sector is significantly challenged. FG retained revenue declined from \nN420.2 billion in July 2021 to N376.33 billion in August 2021. The corresponding fall \nin government expenditure from N962.05 billion in July 2021 to N781.61 billion in \nAugust 2021 is due to compression in capital spending relative to their budget. \nThe excess crude oil account was further depleted in the month to augment \ngovernment balances. \nThe Banking System Stability Report presented by the Bank Staff showed that all \nthe financial soundness indicators remained very good, although there is a slight \ndeterioration, in Capital Adequacy Ratio, Return on Equity and Return on Assets, \nrelative to the last MPC meeting. Nevertheless, overall, they showed that the \nbanking sector is strong, resilient, and safe. Aggregate credit remains in upward \ntrajectory rising to N22.2 trillion in July 2021, up from N19.29 trillion in \ncorresponding period in 2020. Aggregate credit by the OFIs also increased \nrelative to the last MPC meeting. Most sectors of the economy, and households, \nbenefitted from the increased credit. The various interventions by the Bank is \nproviding a boost to personal consumptions and economic growth. \n \n \n \n \n18 \n \n \nMy Concern \nNigeria is going through turbulent times economically. Some economic \nindicators are moving in the right direction, others are moving in the wrong \ndirection. The Q2.2021 GDP growth of 5.01% is a positive development, albeit \nreflecting base effect. Inflation, though receding, is still at unacceptably high \nlevel. Interest rates margin is narrowing, though still unacceptably wide. The CBN \nhas succeeded in expanding both aggregate credit in the economy, as well as \ndirecting single interest rate to MSMEs and households. \nHowever, the exchange rate movements remain worrisome. The demand \npressure in the formal market remains exceedingly high. The challenge is how to \nboost foreign exchange supply to the economy. Given the four major sources \nof expanding supply: oil exports, foreign capital flows, remittances and non-oil \nexports, foreign portfolio investments, while desirable, is however, very fungible. \nOil exports is similarly very volatile. The long-term interests of the country would \nbe served by encouraging remittances and non-traditional exports. Hence, \nsuggestions to nationalise remittances will be counterproductive to the \neconomy in the long term. Nigerians should be encouraged to bring in their \nfunds into the economy by removing any uncertainty around the ownership and \nmanagement of such funds. \nThe CBN should conduct study to better understand the working of the foreign \nexchange market in Nigeria, especially the microeconomic factors driving \neconomic agents’ behaviour in the market. \nIn the light of the above, I would like to make the following recommendations: \nFirst, given the limited options open to the Bank to expand foreign exchange \nsupply in the near term, there is a need to carry out a comprehensive study of \nforeign exchange market operations in Nigeria with a view to determining the \nfundamental drivers, and relative sizes of the segments of the foreign exchange \nmarket in Nigeria. \nIn addition, there must also be effective monitoring of the DMBs to close \nloopholes for shady practices, collusion, and round tripping. Continuous \ncommunication to market operators on the policy of the Bank and assurances \nthat customers will continue to have access to their domiciliary accounts is \nparticularly important to improve transparency and certainty. Furthermore, the \nBank should engage with the Government and the NNPC to find out the reasons \nfor the non-remittances of any foreign exchange from crude oil and gas exports \nfor two consecutive months. \n \n19 \n \n \nGiven the fragile growth currently recorded in the economy, and the high \npoverty and unemployment rates, CBN must sustain its current intervention \nprogrammes to boost domestic supply and create jobs. The other initiatives of \nthe Bank in areas like creative industry and reactivation of the Commodity \nExchange are pivotal to increasing employment and reducing poverty, \nespecially among the youths. In similar vein, the Development Finance \nDepartment should prioritise credit support for exporters. \nMoreover, the implementation of the Petroleum Industry Act should help to drive \ninvestment into the petroleum sector. This has the effects of boosting the oil \nsector’s contributions to growth. Expanding oil reserves will provide a basis for \nOPEC to increase the quota allocated to the country. \nThe INFRACORP idea proposed by the Banking Committee is a very brilliant \ninitiative. It will provide alternative source of financing infrastructure \ndevelopment for the country. This will relieve pressure on government accounts. \nThere is a need to expedite action on its practical implementation. \nLastly, the insecurity issue must be urgently addressed. This is a major cause of \nfood price inflation in the country, and the high-risk premium that foreign \ninvestors priced into their investment in the country. \n \nMy Vote \nIn casting my vote in this meeting, I have tried to balance the various risks and \nvulnerabilities existing in the economy with a view to doing what is best for the \ncountry at this time. Further tightening of the economy would not be helpful to \ngrowth, employment, and poverty reduction at this time. Loosening would also \nnot be helpful to sustaining the gain in price stability. Hence, I cast my vote to \nmaintain all monetary parameters at their extant values: \n1) MPR at 14.5% \n2) CRR at 27.5% \n3) LR at 30% \n4) Asymmetry corridor around the MPR at +100/-700 basis points. \n \n \n \n \n \n \n \n \n20 \n \n \n \n3. AHMAD, AISHAH N. \nThe September MPC meeting opened with positive news on the trajectory of \ndomestic macroeconomic indicators such as output growth and inflation, \nvalidating the relatively dovish policy stance adopted by the committee in the \npast few meetings. Consolidating on these positive developments and driving \na faster post-covid recovery remains paramount – for this reason, I voted to hold \nall policy parameters finding no compelling reason in the immediate term to \nvary the stance. \nGlobal economic recovery prospects remain strong particularly in advanced \neconomies with a high rate of COVID-19 vaccination, which has mitigated \nfatalities despite rising cases of infections. The IMF in its July update of the World \nEconomic Outlook confirmed its earlier forecast of 6.0 per cent global growth for \n2021 and 4.9 per cent in 2022. Global economic indicators however showed an \nuneven recovery across advanced and emerging economies due to \nconstrained fiscal space, limited availability of vaccines and slow progress in \nvaccine administration in emerging markets and developing economies. \nAccordingly, 2021 growth projection for advanced economies was revised \nupwards to 5.6 per cent from 5.1 per cent, while that of EMDEs was revised \ndownwards from 6.7 per cent to 6.3 per cent. Concerted efforts at increasing \nthe availability of COVID-19 vaccines in countries facing resource constraints \nalongside substantial monetary and fiscal policy stimulus measures are critical \nfactors that will ensure more even, sustainable growth in global output. \nInflation rates in key advanced economies have surpassed long-term targets of \nmany central banks, while food and currency pressures are pushing up prices in \nseveral EMDEs. Whereas the current price developments appear to be transient, \nthese upward movements are expected to determine future monetary policy \nstance. Although US inflation slowed to 5.3 per cent in August 2021 from 5.4 per \ncent in July 2021, it is projected to remain high for a while due to persistent supply \nconstraints. Partly driven by this development, the Fed has given forward \nguidance of a likely tapering of its US$120 billion monthly bond purchase \nprogramme later this year. The European Central Bank has also commenced \ntapering of its pandemic bond purchase programme whilst the Bank of England \nis following suit. The ensuing tightened financial conditions in advanced \neconomies portends significant macro-economic risk for EMDEs due to their \nconstricted fiscal space and limited room for monetary maneuvers. Bold policy \ninitiatives will be crucial to drive strong and sustained recovery in the EMDEs. \n \n21 \n \n \nDomestic output recovery strengthened further, remaining on a positive \ntrajectory. NBS data shows that real GDP grew by 5.01 per cent in Q2 2021, \ncompared with 0.51 and -6.10 per cent in the previous quarter and \ncorresponding quarter of 2020, respectively. This recovery was attributed to the \nnon-oil sector, driven by a rebound in services and continued growth in \nagriculture sectors – an indication that CBN interventions in the real sector of the \neconomy are yielding some results. \nThe manufacturing and non-manufacturing purchasing managers’ indices, \nthough below 50.0 index points, continued on the upward trajectory both \nincreasing to 46.9 index points in August 2021, compared with 46.6 and 44.8 \nindex points, respectively, in July 2021. Output growth is expected to further \nstrengthen in the near term with sustained implementation of fiscal and \nmonetary stimuli, alongside efforts at increased vaccination to build herd \nimmunity, contain the pandemic and mitigate its disruptive economic impact. \nDomestic prices remained on the path of decline as headline inflation year-on-\nyear decelerated for the fifth consecutive month to 17.01 per cent in August \n2021 from 17.38 per cent in July 2021. The food component of inflation also \ndecelerated to 20.30 per cent in August 2021 from 21.03 per cent in July 2021, \nwhile core inflation declined to 13.41 per cent from 13.72 per cent over the same \nperiod. Staff forecasts indicate a continued downward trend in domestic prices \nas monetary and fiscal efforts move to increase output, whilst structural factors \ndriving domestic price developments such as security, infrastructure, and \nlogistics arrangements are addressed. \nExternal sector trends improved as reflected in the balance of trade position \nwhich narrowed by 52.56 per cent to a deficit of N1,870.77billion in Q2 2021, \ndown from a deficit of N3,943.45 billion in Q1 2021, driven by a 74.72 per cent rise \nin exports which outstripped increase in imports of 1.45 per cent. External \nreserves increased by 7.41 per cent to US$35.97billion at end-August 2021, up \nfrom US$33.49 billion at end-July 2021, whilst relative stability was maintained in \nthe I & E foreign exchange window following sustained implementation of \npolicies aimed at boosting liquidity and improving supply to meet legitimate \ndemands for eligible transactions (PTA/BTA, school fees, medical, etc.). The Bank \nis encouraged to sustain the implementation of measures focused on demand/ \nsupply side management and sanitizing the foreign exchange market in order \nto improve FX supply and drive further external sector improvements. \nThe banking sector remained sound and resilient. Capital adequacy stayed \nstrong at 15.2 per cent, whilst increase in credit was sustained with a growth of \nN3 trillion (15.63 per cent) year on year with increased credit being channeled \n \n22 \n \n \nto growth enhancing sectors. DMBs’ liquidity profile marginally improved, \nincreasing from 41.3 per cent to 41.7 per cent, which is above the 30 per cent \nregulatory benchmark, whilst the Bank continued to use Cash Reserve \nRequirement balances to provide liquidity backstops to banks as the need \narose. Non-performing loans ratio declined further to 5.4 per cent in July 2021 \nfrom 5.7 per cent in the previous month reflecting strong industry risk \nmanagement practices. The Nigerian payment system also retained its \noperational resilience effectively accommodating increased volume and value \nof transactions as more customers migrate to digital banking channels. The CBN \nmust, however, remain vigilant and proactively manage risks to financial system \nstability from global and domestic macroeconomic developments. \nOverall, the macro-economic outlook is positive while financial stability risks are \nwell managed. The following additional policy measures soon to be launched \nby the Bank will further improve macro-economic prospects: \n• The revitalization of Nigeria Commodity Exchange (NCX), Nigeria’s \npremier commodity exchange, will enhance price discovery, boost \ntrade in agricultural commodities and promote overall investment into \nthe agriculture sector. \n• The development of the Lagos Creative and Entertainment Center and \nrenovation of the National Art Theatre will boost Nigeria’s burgeoning IT \nand creative sectors and position it to increase its contribution to GDP. \n• Nigeria’s Central Bank Digital Currency, e-Naira will improve monetary \npolicy effectiveness, improve payment system resilience, and drive \nfinancial inclusion, a key enabler for overall economic growth. \n• The establishment of Infracorp. Plc with will assist in closing the \ninfrastructure gap and catalyze growth in key sectors of the economy \n• The Nigerian International Financial Centre, (NIFC) will act as an \ninternational gateway for capital and investments inflow into the country \nto complement all other initiatives aimed at ramping up economic \ngrowth. \n \nPolicy Decision \nWhilst acknowledging the improvements in monetary and financial stability \nindicators, there is a compelling need to adopt a policy stance that builds on \nthe current growth momentum. \nThe reduction in inflation and improvement in domestic output validates the \nstrategy to maintain the policy stance taken at previous MPC meetings to \nsupport output growth whilst structural and supply side bottlenecks are \n \n23 \n \n \naddressed Whereas it is important that the Committee keeps an eye on \ndomestic price developments in line with its primary price stability mandate, \nsustaining the post-Covid recovery – particularly as prices continue to abate - \nremains a pressing consideration for the Committee. \nAdjusting policy parameters now may truncate the positive trajectory of key \nmacroeconomic indicators. Reducing the MPR may exert inflationary pressures \nand reverse the downward trend of prices expected in the short to medium \nterm. On the other hand, increasing the policy rate to rein in inflation may stall \noutput growth with significant adverse economic consequences. Sustained \nimplementation of the CBN’s interventions in the agriculture and manufacturing \nsectors aimed at boosting output will further address supply side constraints and \nput downward pressure on inflation. Ongoing efforts of the fiscal authorities to \naddress security and other structural issues (transport, logistics and infrastructure) \nwill complement these efforts. \n \nIn view of the above, I vote to retain all parameters at existing levels; \n• MPR at 11.5 per cent \n• The Asymmetric corridor of +100/-700 basis points around the MPR \n• Liquidity ratio at 30.0 per cent, and \n• CRR at 27.5 per cent \n \n \n \n \n \n \n \n \n \n \n \n \n24 \n \n \n \n4. ALIYU, AHMED \nINTERNATIONAL AND DOMESTIC ECONOMIC DEVELOPMENTS \nThe global economy is steadily recovering from the effects of the COVID-19 \npandemic, driven by sustained policy support, significant progress in \nvaccinations, and rapid reopening of economies and international trade. The \nrecovery remains two-track though and continues to rely on the progression in \nvaccine distribution and vaccinations. While the Advanced Economies are \napproaching full recovery and beginning to prepare for economic \nnormalization, the Emerging Markets and Developing Economies (EMDEs) still \nface macroeconomic challenges. As a result, the IMF in its July 2021 World \nEconomic Outlook (WEO), retained its global growth projection at 6.0 percent, \nrevised growth forecasts upward for the Advanced Economies to 5.6 percent \nfrom 5.1 percent, and downgraded its predictions for EMDEs to 6.3 percent from \n6.7 percent. This reflects the uneven pace of global recovery. Overall, global \ngrowth is expected to moderate to 4.9 percent in 2022. \nInflation in Advanced Economies earlier thought to be transitory is now persisting. \nFor most of the countries, inflation remain elevated on account of steady \nrecovery in demand amid supply bottlenecks. Following increasing pace of \nprice development and closure of the output gap, central banks of Advanced \nEconomies are cautiously observing the trend and may have to delay or opt for \na gradual tapering process with the moderation of prices to their long-run \nobjective. In some EMDEs, food prices and exchange rate pressure are exerting \nupward pressure on prices. \nAs Advanced Economies approach full-scale recovery and begin to consider \nthe normalization of monetary policy, there is the risk of a possible redirection of \ninternational capital flows away from EMDEs. The likely impact on economic \ngrowth and macroeconomic stability, requires deliberate policies by EMDEs to \nmitigate their adverse effects. \nRelatedly, global trade, currently buoyed by merchandise trade, is recovering \nfaster than expected, after a dismal performance in the second half of 2020. The \nIMF projects global trade to rise to 9.7 percent in 2021, moderating to 7.0 percent \nin 2022. This optimistic scenario is, however, contingent on the success of extant \npolicies and multilateral efforts at containing the pandemic, and practical \nsolutions to the supply chain chaos occasioned by ports congestion, particularly \nin the US. \n \n25 \n \n \nCrude oil prices, propelled by increasing demand as a result of the recovery in \nworld output and trade have remained upbeat, at about US$70/barrel. Based \non the near to medium term expectation of a robust recovery, oil prices are \nprojected to increase further. For an oil exporting country like Nigeria, the high \nprices, coupled with stable production, would improve the trade balance and \nsupport growth in external reserves, as well as the implementation of the 2021 \nFederal Government Budget, premised on an oil benchmark of US$40/barrel. \nThe accumulation of both private and public debt is giving way to growing \nconcerns about debt sustainability and financial crisis in the event of a default. \nThe Special Drawing Rights (SDR) allocations to countries by the IMF in an effort \nto help member countries recover from the pandemic is expected to provide \nadditional liquidity support to them, improve their external reserves and reduce \ntheir reliance on debt. \nTHE DOMESTIC ECONOMY \nReal Gross Domestic Product grew by 5.01 percent (year-on-year) in Q2 2021, \nfrom 0.51 percent in Q1 2021, indicating three consecutive quarters of positive \ngrowth rates. The development reflects the considerable return of business and \neconomic activities, supported by monetary and fiscal stimulus to contain the \nadverse effects of the COVID-19 pandemic on the economy. However, quarter-\non-quarter, real GDP grew by -0.79 percent, reflecting slightly slower economic \nactivity. The non-oil sector at 92.58 percent, contributed the most to real GDP, \ncompared to the oil sector which contributed a moderate 7.42 percent. \nNotable, is the slowdown in the growth rate of the agricultural sector. Agriculture \ngrew by 1.30 percent in Q2 2021 from 2.28 percent in Q1 2021 and 3.42 percent \nin Q4 2020. The sustained decline is worrisome, considering its huge impact on \ninflation and employment generation. Ongoing efforts at addressing insecurity \nin the country, increasing monetary and fiscal interventions in agriculture, as well \nas developing critical infrastructure to support farming i.e., irrigation, drainage, \nstorage and transportation; are expected to boost the productivity of the sector \nin the near to medium term. \nThe Manufacturing and non-Manufacturing Purchasing Manager’s Indexes \n(PMIs), which gauges the level of business activity, at 46.9 index points apiece in \nAugust 2021, improved over the 46.6 and 44.8 index points in July 2021, \nrespectively, and points to a strong and sustainable recovery. \nOn price development, headline inflation year-on-year, slowed further to 17.01 \npercent in August 2021, from 17.38 percent in July 2021. The moderation in \ninflation was largely due to a deceleration in the food and core components, \n \n26 \n \n \nfrom 21.03 and 13.72 percent, respectively, in July 2021 to 20.30 and 13.41 \npercent, respectively, in August 2021, owing to improvement in the supply chain. \nHowever, on a month-on-month basis, headline and food inflation rose to 1.02 \nand 1.06 percent in August 2021 from 0.93 and 0.86 percent in July 2021, \nrespectively, while core inflation slowed to 0.77 percent in August 2021 from 1.06 \npercent in July 2021. With the rapid return of economic activities, buoyed by \ntargeted interventions in the real sector to increase output, and the gradual \nrecovery from the Covid-19 pandemic, I believe that inflation will sustain its \ncurrent downward momentum. \nOn monetary aggregates, Broad Money Supply M3 increased by 5.83 percent \nin August 2021, compared to 2.91 percent in July 2021, owing primarily to a 12.35 \nand 4.30 percent increase in Net Foreign Assets (NFA) and Net Domestic Assets \n(NDA), respectively. The growth in Net Domestic Assets reflects the improvement \nin aggregate credit net, which grew to 8.14 percent in August 2021, from 5.71 \npercent in July 2021. \nOverall, the Financial Soundness Indicators (FSIs) remain robust. Staff report \nshows that Capital Adequacy Ratio (CAR) remained within the regulatory \nthreshold of 10-15 percent, while Non-Performing Loans (NPLs) are gradually \nmoderating to the regulatory maximum of 5 percent. Total credit increased by \nN3.0 trillion or 15.63 precent, between end-July 2020 and end-July 2021, due \nlargely to the increase in industry funding base, as well as the CBN’s directive on \nLoans to Deposit Ratio (LDR). Also, the declining lending rates, although \nmarginally, provides some assurance of improvement in lending to the private \nsector in the near term. \nCapital market performance as measured by the All-Share Index (ASI) and \nMarket Capitalization (MC) increased by 2.67 and 2.63 percent, respectively, on \nSeptember 14, 2021, from their levels on June 30, 2021, reflecting improved \ninvestor sentiments and confidence in the economy. Likewise, gross external \nreserves, shored by SDR allocation of US$3.35 billion by the IMF and increase in \nthird party receipts, rose to US$35.97 billion at end-August 2021. \nOn fiscal development, the rapid automation and visibility of FGN fiscal \noperations would bolster the revenue collection process and translate to \npositive revenue generation for the government. \nCONSIDERATION FOR VOTING \nIt is pleasing to note that the V-shape recovery predicted in 2020 crystalised in \nQ2 2021 following the significant increase in real GDP to 5.01 percent, year-on-\nyear. The economy has also sustained the growth momentum which \n \n27 \n \n \ncommenced in Q4 2020. It is noteworthy, that quarter-on-quarter real GDP in Q2 \n2021 performed lower than it did in the previous quarter, indicating that base \neffects could have contributed to the leap in the year-on-year growth rate. This \ndoes not however dampen optimism about the future direction of growth in \nview of the lag effect of current policies. \nThe sustained moderation in headline inflation for the fifth consecutive month to \n17.01 percent (year-on-year) in August 2021 is commendable. Nevertheless, \ninflation remains high at that level and above the central bank’s benchmark \ncorridor of 6-9 percent. It is salutary that food inflation is declining, including the \ncore component, which is indicative that the downward price movement may \nsoon gather strength. \nOn exchange rate development, I believe the Bank would continue to support \ngenuine legitimate transactions, as it intensifies effort on demand management, \nwhile continuing its supply management drive to improve the current account \nbalance, boost foreign exchange supplies and stabilize the foreign exchange \nmarket. \nGiven the pace of output recovery and inflation deceleration, as well as the \ncontending needs in the economy, it is appropriate to hold all policy parameters \nat their extant levels, as well as place an eye on exogenous factors that may \npresent upside risks to inflation, such as a possible pass-through from exchange \nrate, and insecurity that distorts the supply chain. In the meantime, monetary \nand fiscal stimulus should continue to support the growth recovery, more-so, as \nthe action reinforces the price stability objective. \nI, therefore, vote to maintain the status quo by retaining all policy parameters at \ntheir current levels: \n• MPR at 11.5 percent \n• The asymmetric corridor at +100/-700 basis points around the MPR \n• Liquidity ratio at 30.0 percent \n• CRR at 27.5 percent \n \n \n \n \n \n \n \n28 \n \n \n5. ASOGWA, ROBERT CHIKWENDU \nBackground: \nThe overall outlook at the time of this September MPC’s meeting seemed in a \nmuch better position than at the MPC meeting in July 2021. Global economic \nconditions have really strengthened as more people are now vaccinated with \nrestrictions largely eased. Eventhough for many poorer countries with little \naccess to vaccines, the pandemic trajectory remains troublesome, but with \nvaccine manufacturing steadily rising, the expectation is that economic \nactivities will likely gather pace in the remaining parts of 2021 in almost all \ncountries. Although global growth is improving, it remains uneven as recovery is \nat different speeds for different countries. In developed economies, recovery \nseems faster with household consumption growing quickly and even some \ncompanies finding it difficult to meet the rapidly rising demand, but for some \ndeveloping countries, growth is still fragile. While some central banks have \ncommenced tightening of monetary policy in response to the emerging \ninflationary trends, some are signalling a possible tightening of monetary policy \nin the period ahead, yet other countries have continued with an expansionary \nmonetary policy, essentially prioritising growth. \nOn the domestic front, recent indicators show a robust economic recovery \nduring the second quarter of 2021, but the external sector continues to face \nsome challenges, especially as foreign inflows remain weak, with huge \nconsequences for government fiscal operations and exchange rate \nmanagement. At this MPC September meeting, the focus as before remains on \nensuring that the domestic economy reverts to its pre-pandemic potentials, thus \nthe consideration of the current and expected macroeconomic developments \nat both the global and domestic contexts will be key to policy choices. \nAssessment of the Global Economy: \nRecovery in global growth continued to gain momentum in the second quarter \nof 2021, but the strength still diverges across regions and countries with access \nto COVID-19 vaccines, relaxation of containment measures and the degree of \npolicy support emerging as principal factors driving the speed of recovery. CBN \nstaff report show strong 2021 second quarter output growth in many advanced \nand emerging market economies. In USA for instance, GDP expanded by 6.6 \npercent in the second quarter of 2021, while in the Euro area, it grew by 2.0 \npercent in the second quarter of 2021 as compared with the contraction of -0.3 \npercent in the first quarter. In the UK, output grew by 4.8 percent in the second \nquarter of 2021 as compared with the contraction of -1.6 percent in the first \nquarter. Similarly. 2021 second quarter output expansions were recorded in \n \n29 \n \n \nseveral emerging and developing economies including Korea, India, China, \nBrazil, South Africa and Egypt, but recovery seems to be weaker in some of these \neconomies than expected. The global output growth is now forecast at 6.0 \npercent for 2021 reflecting the strengthening of economic activity, especially \nrecovery in global trade which has increased rapidly since 2021 up to a level \nthat is about 5.0 percent higher than the period prior to the pandemic. Overall, \nthe balance of risks to the global outlook is still tilted to the upside mainly due to \nthe uncertainty over the path of the Pandemic and the potential risk of \nheightened financial market volatility. \nThe global pro-inflationary risks seem to have persisted with many countries \nexperiencing price pressures due to supply-demand mismatches, high global \ncommodity prices and in some cases domestic energy price increases. In the \nUK, twelve-month CPI inflation rose from 2.0 percent in July to 3.2 percent in \nAugust 2021. In the euro area, headline inflation also rose to 3.0 percent in \nAugust 2021 from 2.2 percent in July, while core inflation rose to 1.6 percent from \n0.7 percent during the same period. The US CPI inflation also remains elevated \nin August at 5.3 percent easing slightly from a 13-year high of 5.4 percent in June \nand July 2021. Eventhough the increasing global inflationary pressures are \nevoking key concerns, there are still strong beliefs that these pressures may \nsimply be transitory and largely driven by adverse supply side factors. \nWith the inflation outlook assessed to be skewed to the upside, many central \nbanks have taken pre-emptive actions in order to ensure stability in the period \nahead. On the basis of this, some central banks have commenced the \ntightening of monetary policy. Brazil, Korea, Norway, Sri Lanka all adjusted policy \nrates upwards in order to address possible upside pressures on inflation, but in \nsome other emerging economies as India and Malaysia, policy rates have \nremained unchanged despite the slight inflation upticks. The central banks of \nmajor advanced economies have however continued to pursue an \nexpansionary monetary policy. The Bank of England voted in September to \nmaintain the policy rate at 0.1 percent with a commitment to continue with its \nprogramme of government bond purchases. Similarly, the European Central \nBank expects to maintain policy rates unchanged in September with the asset \npurchase programme continuing at the rate of EUR 20 billion per month. The US \nFederal Reserve also at the end of July 2021 meeting held its monetary policy \nunchanged, whilst maintaining the net purchases of government securities at \nUSD 8.0 billion per month. The Bank of Japan also in September kept both its \npolicy rate and government bond buying commitments unchanged. Other \ncentral banks like Canada, Australia and New Zealand have signalled the \ntapering of asset purchase commitments and in some cases have commenced \nthe reduction or complete discontinuation of such purchases. \n \n30 \n \n \nDomestic Economic Assessment. \nTurning to the Nigerian economy, some key indicators continue to evolve \nsatisfactorily reflecting modest recovery from the pandemic. GDP increased by \n5.01 percent in 2021 quarter 2, compared with 0.51 and 0.11 percent in quarter \none of 2021 and quarter four of 2020 respectively. Growth was primarily driven \nby the non-oil sector especially a rebound of the services sector. The agriculture \nsector also recovered during the second quarter as compared with the first \nquarter. Growth is expected to pick up further in quarter three going by recent \nhigh-frequency data such as the Manufacturing and non-Manufacturing PMIs \nand the Index of Industrial Production. In August 2021, both the manufacturing \nand non-manufacturing PMIs stood at 46.9 points compared with 46.6 and 44.8 \npoints, respectively in July 2021. This rise indicates sustained demand and a pick-\nup in investment against the backdrop of improved business performance. \nHeadline inflation (year-on-year) moderated further in August 2021 to 17.01 \npercent from 17.38 percent in July 2021, with food inflation falling while core \ninflation edged up slightly. On a month-on-month basis however, both headline \nand food inflation rose to 1.02 and 1.06 percent in August 2021 from 0.93 and \n0.86 percent, respectively in July 2021. It is expected that price levels will \ncontinue to fall in the coming months especially as the harvest season starts and \nwith positive developments around insecurity in the food producing regions. \nIn the domestic financial market, prices and indicators have also moved in the \nright direction since the last MPC meeting in July. The All-Share equity market \nindex increased by 3.46 percent between end-June 2021 and end-August 2021, \nwhile the market capitalization also increased by 3.41 percent during the same \nperiod. System liquidity remains strong buoyed by the Central Bank’s \nconventional and unconventional market operations. Broad money supply (M3) \nhas continued to expand, growing by 5.83 percent in August 2021 as compared \nwith 2.91 percent in July 2021, while overall banking system credit to the \neconomy increased month-on-month by 2.2 percent in August 2021, while on a \nyear-on-year basis, it increased by 8.62 percent. Interestingly, the interest rate \nspread (between maximum lending rate and the weighted average savings \nand term deposit rate) declined marginally for the first time in several months, \nmoving from 25.45 percent in July 2021 to 25.41 percent in August 2021. The \nbanking sector itself remains stable and resilient, just like the position at the last \nMPC meeting despite marginal drops in the profitability indicators. The non-\nperforming loans ratio for the banking sector decreased further from 5.7 percent \nin June 2021 to 5.4 percent in July 2021 with the size of the total banking industry \nassets increasing by 15.38 percent, year-on-year between July 2020 and July \n2021. \n \n31 \n \n \nThe external and fiscal sectors remain two key risks that confront the domestic \neconomic outlook. For the external sector which continued to face a multitude \nof challenges in recent times, a broad based response is key and may require \nsome coordinated demand and supply sides management measures. With the \nincrease in import expenditure outweighing the improvements observed in \nearnings from exports, the trade deficit has remained significant in the first half \nof 2021, eventhough on a quarter-to-quarter bases, there was some moderation \nin the size of the trade deficits in the second quarter of 2021. The limited export \nactivities and the advancing of post-COVID imports together with some \nspeculative activities continued to exert undue pressure on the exchange rate \nin the domestic market. There is some sort of naira exchange rate stability at the \nofficially recognised NAFEX or I&E window with a marginal depreciation of 0.22 \npercent between end-July 2021 and end-August 2021. The path of the Naira \nexchange rate remains highly uncertain eventhough the gross external reserves \nincreased by 8.23 percent between end-August 2021 and end-July 2021. Oil \nfutures prices now indicate somewhat lower prices ahead, implying a possible \nweaker naira in isolation. While the Government continues with measures to \nsecure foreign financing from several sources in order to reinforce the level of \nexternal reserves in the near future, efforts at containing the anomalies created \nby the unrecognised foreign exchange market especially by the BDCs need to \nbe ramped up. The government should however continue to aggressively \nexplore options to enhance non debt-creating foreign inflows by strengthening \ndomestic production and export capacity. \nThe upside fiscal pressures remain unabated, similar to the position in the \nprevious MPC meeting. CBN staff report show that the revenue-expenditure gap \nwidened between January and June 2021. The persisting context of increasing \nfiscal deficits amid weak revenue performance and soaring debt levels presents \nconsiderable uncertainty around the future domestic economic outlook. The \npressure on the available government revenue is now much greater than was \nassumed in the July MPC meeting and urgent expenditure related reforms, \nespecially on the non-salary recurrent side will help to minimise the borrowing \nneeds. Such fiscal adjustment measures premised on fiscal discipline will help \nachieve a sustainable budget balance. \nMonetary Policy Decision: \nIn consideration of the current and expected macroeconomic developments \nas highlighted above, it is necessary that the ongoing accommodation stance \nwith significant monetary stimulus should be continued. The trade-offs facing \nmonetary policy in terms of a possible inflationary spike are not yet diluted, but \nspeeding up the return to more normal output levels should remain a key focus. \n \n32 \n \n \nGenerally, domestic economic conditions are starting to normalise, but there is \nstill a need for an expansionary monetary policy stance whilst the Central Bank \nstands ready to respond appropriately as conditions dictate. \nI thus voted to: \n• Retain the MPR at 11.5 % \n• Retain the CRR at 27.5% \n• Retain the Asymmetric Corridor at +100/-700 basis points around the MPR \n• Retain the Liquidity Ratio at 30.0% \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n33 \n \n \n6. OBADAN, MIKE IDIAHI \nUncertainties have continued to pervade the global economy arising from the \nmercurial nature of the coronavirus which has been mutating into more virulent \nvariants. This has caused serious concerns even in countries that have achieved \na high rate of vaccination, for example, Israel, the United States, and some \nEuropean countries. In African countries which have experienced low rates of \nvaccination, the concerns are even more, especially in those countries, for \nexample, Nigeria, where the third wave of the virus, in the form of the Delta \nvariant, among others, is currently raging with notable fatalities in some parts of \nthe country. There seems to be a global divide in economic recovery and global \ngrowth prospects along the lines of the Advanced Countries which have high \nvaccination rates and optimistic recovery prospects, and the Emerging Markets \nand Developing Economies (EMDEs) which have low vaccination rates and \nweaker recovery and growth prospects. Sharp geographical imbalances in \nvaccination have been quite visible. The danger is that slow vaccination rate in \nthe EMDEs would not only prolong the pandemic, but also enable the evolution \nof coronavirus mutants which would eventually spread to countries that are \nhighly vaccinated, with significant economic and public-health consequences. \nTherefore, more policy/financial support is required to help the Emerging Markets \nand Developing Economies to increase vaccination and recover from the \nnegative economic consequences of the pandemic. It is even in the \nenlightened self-interest of the advanced countries to support even distribution \nof vaccines across the globe. Global economic recovery could be threatened \nby uneven distribution of vaccines and the spread of new and more \ntransmissible variants of the virus. Such a downside scenario could significantly \ndepress growth in 2021 and in 2022 \nKEY GLOBAL DEVELOPMENTS \nSince the last MPC meeting, developments in the global economy have not \nchanged much, especially in the spheres of growth prospects, trade, \ncommodity, financial markets, and policy responses to the effects of the \ncoronavirus pandemic. \nSteady, but uneven, economic recovery across the globe \nThe global economy is charting a rather robust path of recovery. The recovery \nof economic activities has been going on steadily, though unevenly, in different \nparts of the world even in the face of resurgence of new variants of the \ncoronavirus. Inequality in access to vaccines is causing divergence in economic \nrecovery across the globe. The uneven distribution of vaccines entails risks which \nare building up, aggravated by mutating strains of the Covid-19 virus which are \n \n34 \n \n \ncausing concerns to even the vaccinated and preventing herd immunity. \nNevertheless, it seems that many countries have decided to live with the virus \nwithout re-imposing lockdowns while seeking ways to boost vaccination of the \npopulace and encouraging compliance with the non-pharmaceutical \nprotocols against the virus. \nConsequently, the IMF’s earlier growth projection for the global economy of 6.0 \nper cent through its World Economic Outlook (WEO) (April, 2021) was upheld in \nthe July update of the Outlook. But it is expected to moderate to 4.9 percent in \n2022. On the other hand, in the Advanced Economies, the 2021 growth \nprojection was revised upwards to 5.6 percent while it is expected to moderate \nto 4.4 percent in 2022. But because of the limited availability of the Covid-19 \nvaccines in most of the Emerging Market and Developing Economies that are \nfacing \nresource \nconstraints \nand \nconsiderable \npublic \nhealth \nand \nmacroeconomic challenges, the growth projection of EMDEs was downgraded \nto 6.3 percent in 2021 and expected to moderate to 5.2 percent in 2022. \nGlobal trade is rebounding than expected \nGlobal trade in 2021 is rebounding faster than anticipated after falling sharply \nduring the second half of 2020. Global trade volumes are projected to expand \nto 9.0 percent in 2021 and moderate to 7.0 percent in 2022. The recovery in \nglobal trade is being supported by strong monetary and fiscal policy packages \nfrom governments as well as the effective Covid-19 vaccination coverage in the \nadvanced countries. But the downside risk to global trade is the mutation of new \nstrains of the coronavirus which, if not effectively checked, could lead to fresh \nrounds of international trade and travel restrictions. \nCrude oil prices remain strong in the region of US$ 70.00 per barrel \nCrude oil markets weakened earlier in August 2021 as the resurgent pandemic \nthreatened demand in China and the US, prompting the US government to call \non OPEC and its oil producing allies to boost production in an effort to combat \nrising gasoline prices. But prices have since recovered as demand remained \nstrong in the face of downside risks from threats around the resurgence of covid-\n19 infections. Thus, crude oil prices continued an upward trajectory, in the region \nof US$70 per barrel in August 2021. For the Bonny Light brand of crude oil, which \nis of interest to Nigeria, after hitting a peak of US$75.09 on 25th June, 2021, the \nprice declined moderately to US$70.02 per barrel on 27th August, 2021. This \ncompares with US$50.43 per barrel on 4th January, 2021 and a low of US$14.67 \nper barrel recorded on 27th April 2020. The price of the commodity is currently \nabove the pre-pandemic level of US$67.20 per barrel recorded on 1st January, \n2020. \n \n35 \n \n \nWhat has fuelled oil prices is the continued optimism that the current global \nvaccination will surmount the Covid-19 pandemic and return economies to \nsome form of normalcy. Hence, the increasing demand and recovery in the real \neconomy as economic agents gradually return to their businesses post-\nlockdown. The rising oil prices have broadened the fiscal space of OPEC \nmember countries. It is not clear the impact that this has had on Nigeria’s \nfinances and external reserves. \nAgainst the backdrop of uncertainties in the oil market, indications in the oil \nfutures market are that the price of crude oil will lie between US$69.64 per barrel \nand US$68.97 per barrel between October and December 2021, but moderate \nto about US$63.77 per barrel at end 2022. \nGlobal debt is at historically high level \nThis was near record levels and steadily increasing well before the covid-19 \npandemic broke out. The sharp fall in economic activities triggered by the \nPandemic and the virus’ containment measures, led to a further rise in global \ndebt to historic highs across both the advanced and major emerging \neconomies. Debt as a ratio of world economic output surged by 35 percentage \npoints to over 355 per cent of GDP. The current upswing is well beyond the rise \nseen during the global financial crisis in 2008. This may weigh on growth and raise \nsustainability \nconcerns \nacross \ncountries \ndepending \non \nthe \nstructure, \ncomposition and use of debt proceeds. \nFiscal policy support to economic recovery continues along with monetary \naccommodation \nFinancial conditions remain broadly accommodative. Monetary and fiscal \npolicies continue to support economic recovery and create jobs required to \npush the global economy over the brink to full recovery. In the face of recurring \nwaves of the coronavirus, the advanced countries have implemented \nadditional stimulus packages. In the US, a US$1.0 trillion infrastructure bill was \npassed by the Senate in August 2021 while the European Union is taking further \nsteps to support the economies of member states with a EUR 750 billion Next \ngeneration EU Recovery package. Also, a look at the policy rates of the central \nbanks of both the advanced and emerging market economies indicate a \ncontinuing strong trend towards monetary accommodation. However, central \nbanks across the globe have continued to maintain the delicate balance \nbetween supporting the recovery and mitigating the persistence of increases in \nprice to avert the upside risks from high inflation. \n \n36 \n \n \nAs the advanced economies move closer to full recovery, discussions on the \nnormalization of monetary policy are increasingly being held as their central \nbanks put in place finishing touches to tapering of their bond purchase \nprogrammes. The European Central Bank has commenced tapering of its \ncoronavirus pandemic bond purchase programme while the US Federal reserve \nis likely to taper its US$120.0 billion monthly bond purchase programme at its \nNovember 2021 meeting. Should the Advanced Economy central banks \ncommence the much-anticipated normalization of monetary policy before the \nend of 2021, capital flows to major emerging market economies, may suffer \nreversal. Indeed, if the anticipated redirection of global capital flows away from \nthe EMDEs towards the Advanced Economies takes place, it would increase the \ndivergence between these groups of economies and consequently, slow down \ntheir recovery. \nKEY DEVELOPMENTS IN THE DOMESTIC ECONOMY \nThe Nigerian economy is no doubt on the path of steady recovery after exiting \na short-lived covid-19-induced recession in the fourth quarter of 2020. However, \nstrong concerns remain arising from the fact that although the monetary and \nfiscal \npolicy \nresponses \nof \nthe \ngovernment \nhave \nachieved \nresults, \nmacroeconomic challenges remain. Hence, complacency cannot be an \noption. Rather, it is important to intensify efforts to achieve respectable \neconomic growth, quarter-on-quarter, tame inflation, which is decelerating \nrather sluggishly, and stabilise the exchange rate, among others. Some leading \nissues considered are as follows: \ni. \nGrowth has improved year-on year, but it has not reached the level \nwhich indicates steady upward trend, quarter-on-quarter. No doubt, \nthe quarter 2 growth rate of 5.01 percent is impressive in relation to \nthe -6.1 percent growth achieved one year earlier, that is in quarter 2, \n2020. The improved growth reflects base effect, that is the very low \noutput heralding recession in that quarter. Considered on quarter-on-\nquarter basis, the growth performance in the two quarters of 2021 is \nnot impressive. Q2 growth in 2021 actually declined by 0.79 percent in \nrelation to Q1. Indeed, total real output in Q2 is lower than that in Q1, \nwhile the Q1 output is lower than Q4 2020 output while this growth is \nhigher than Q2 2020 output. Thus, growth needs to be further \nstimulated through accommodating monetary and fiscal measures so \nthat the CBN projected output growth of 3.93 percent in Q3 and 2.86 \npercent at the end of 2021 could be realised. \n \nii. \nHeadline inflation (year-on-year) has been on the path of \ndeceleration since April 2021 (5 months), having first declined from \n \n37 \n \n \n18.17 percent in March to 18.12 percent in April. It moderated further \nto 17.01 percent in August, 2021 compared to 17.38 per cent in July \nand 17.75 per cent in June. Food inflation, which is a major driver of \nthe headline inflation, also moderated to 20.30 percent in August, \n2021. But both are still uncomfortably high. The headline inflation has \nremained significantly above the ceiling of the Central Bank of \nNigeria’s single-digit inflation corridor of 6.0 - 9.0 per cent and the \nBank’s policy rate of 11.5 per cent. Notwithstanding the deceleration, \nthe rate still provides cause for concern by citizens. Consequently, \neasing monetary policy would exacerbate inflation. \n \niii. \nHigh exchange rate. The I & E rate, year-to-date, depreciated by 4.5 \npercent to N412.75 as at September 14, 2021 from N394.03 to one US \ndollar in January. This has contributed to headline inflation through its \npass-through effects from prices of imported goods and services to \ndomestic prices. The upward trend of the exchange rate has been a \nkey driver of the rising inflation. On the other hand, the depreciating \nexchange rate reflects low foreign exchange inflows, unsustainable \ndemand for imports, and uncomfortable external reserves position. \n \niv. \nFiscal operations of the government, by resulting in escalating fiscal \ndeficits, have tended to worsen macroeconomic instability. As at \nJune 2021, the Federal Government’s fiscal operations resulted in an \noverall deficit of N4.328 trillion, 61.8 percent higher than the \nbudgeted amount. The deficit reflects low inflow of government \nrevenues compared to the expansion in government expenditure. As \nat June 2021, Federal Government revenue was about 35 percent \nbelow the budget benchmark for 2021, financed by money and new \nborrowings. \n \nv. \nEscalating Public Debt. Associated with the fiscal deficits is rising \npublic debt which absorbs a large proportion of government \nrevenue. The latest reports indicate that Nigeria’s public debt stock \nhas shot up to N35.5 trillion, 7.75 percent higher than N32.9 trillion \nrecorded at the close of 2020. External debt accounted for N13.7 \ntrillion or 38.7 percent. The escalating debt stock has continued to \nraise debt sustainability issues, especially in terms of revenue. While \nthe public debt is sustainable in terms of GDP, it is not sustainable in \nterms of revenue which is a much better indicator of burden for now. \nOverall debt sustainability is threatened by continued narrow fiscal \nspace and weak fiscal buffers. \n \n \n \n38 \n \n \nOPINION \nThe growth rate of the economy is still very low and fragile while the threat to it \nfrom the third wave of coronavirus and insecurity in the country is real. The \neconomy does not compare with the Advanced Economies which are planning \nto normalise their monetary policies. Those economies have achieved near-full \nrecoveries even with the threat of recurrent waves of coronavirus. The Nigerian \neconomy is still on the path to full recovery. Therefore, fiscal and monetary policy \nsupport is still very much desired. Specifically: \n• CBN should continue to support efforts to vaccinate a sizable proportion \nof the Nigerian populace. \n• Development finance interventions should be continued with improved \naccess for those who need the funding ensured. \n• Government should be encouraged to undertake a thorough review of \nits public expenditure profile to reduce the cost of governance and \nminimise fiscal deficits. \n• Government should avoid spending all the revenue received from the \ncurrent high oil prices. In other words, it should muster the will to save a \npart of the earnings. \n• Efforts to tame inflation should not be limited to tackling the known \nfactors – monetary and non-monetary factors including the legacy \nstructural factors and insecurity. The search light should also be beamed \non the arbitrariness of some manufacturers, middlemen and retailers in \nfixing prices. Most of the price increases do not reflect economic \nfundamentals. The nefarious role of market associations/unions in \nescalating inflation was recently acknowledged by the Ondo State \nGovernment which promptly banned such associations/unions in Ondo \nState. Other State Governments should take a cue from that \nGovernment. \n• The CBN should continue with administrative measures to taper/control \nthe effects of monetary expansion on inflation. \n• Against the backdrop of relatively improved foreign exchange reserves, \nthe Bank should consider augmenting supply to the foreign exchange \nmarket while also considering further demand management measures. \n• On the exchange rate, the Bank should ignore the call by some \nstakeholders that the parallel market rate should guide the appropriate \nexchange rate in Nigeria. This suggestion has no basis. That market \nconstitutes a negligible proportion of the foreign exchange market in \nNigeria. Consequently, it cannot provide guidance on the appropriate \nexchange rate in the country. Rather, it is the equilibrium rate, as \nempirically determined, that should provide guidance on the \nappropriate level of the exchange rate. \n \n39 \n \n \n• In light of the recent foreign exchange policy measures, effective \nmonitoring of the foreign exchange activities of the deposit money \nbanks is of the essence. It will be tragic if the sharp practices of the BDCs \nare relocated in the commercial banks. \nIn sum, the economy is positively, but gradually, responding to government \npolicies including monetary policies. In view of the subsisting twin problem of \nweak growth and high inflation and the policy dilemma posed, neither further \ntightening nor loosening of monetary policy is desirable at this time. And so, I \nvoted to hold the policy parameters at their extant levels below, while the Bank \ncontinues with the implementation of the development finance interventions to \nstimulate output and employment, and administrative measures to control \nexcess liquidity: \nMonetary Policy Rate: \n \n \n11.5 percent \nCash Reserve Requirement: \n \n27.5 percent \nLiquidity Ratio: \n \n \n \n30.0 percent \nAsymmetric Corridor: \n \n \n+100/-700 percent around the MPR \n \n \n \n \n \n \n \n \n \n \n \n \n \n40 \n \n \n \n7. OBIORA, KINGSLEY ISITUA \nIn light of a modest recovery in economic activity and \nmoderating inflation and given the monetary policy \nactions that we have already taken, I voted to: retain \nthe Monetary Policy Rate (MPR) at 11.5 per cent, the \nCash Reserve Ratio (CRR) at 27.5 per cent, the Liquidity \nRatio (LR) at 30 per cent and the asymmetric corridor \nof +100/-700 basis points around the MPR. I believe this \nstance will complement the Bank’s policy measures \naimed at supporting economic activity, ensure \nbanking system stability and containing inflationary \npressures. \nThe severe macroeconomic fallouts of the Coronavirus Disease (COVID-19) \ncontinued amid global vaccination. Although there has been a decline in the \nglobal confirmed cases and deaths in recent weeks, the Delta variant continues \nto devastate many economies, especially regions with low vaccination \ncoverage. Since the July MPC meetings, the number of confirmed cases in the \nworld has increased by 16.4 percent from 195 million to 227 million in September \n2021. Similarly, the number of deaths increased by 15.0 percent from 4 million to \n4.6 million. Whilst the COVID-19 pandemic continues to spread, the distribution \nof vaccines to contain the virus has been frustratingly uneven between \ndeveloped and developing countries. Out of 5.86 billion doses of vaccines \nadministered globally as of 17 September 2021, Africa received only 2 percent. \nThis slow pace of vaccination would make it extremely difficult for Africa to \nachieve the target of 10 percent vaccination coverage set for September and \n40 per cent by December 2021, let alone the African Union’s target of 70 percent \nin 2022. Therefore, there is a need to urgently address this gap to avoid the \ncontinued spread and mutation of the COVID-19 pandemic. \nThe crisis of vaccine inequality notwithstanding, the global economy is \nprojected to remain strong in 2021. Whilst the Global Purchasing Manger’s Index \neased to 54.1 in August from 55.4 points in July 2021, it continued to trend above \nthe 50 points neutral mark for the fourteenth (14th) consecutive month. The \nimproved performance was driven by consumer spending, intermediate and \ninvestment goods, manufacturing production, as well as new orders. \nConsequently, for the July 2021 World Economic Outlook, the IMF retained its \nApril 2021 growth forecast of 6.0 per cent for 2021 but with some revisions. Whilst, \n \n41 \n \n \nthe Advanced economies’ projection was revised upwards from 5.3 per cent to \n5.6 per cent, the Emerging Markets and Developing Economies (EMDEs) was \nrevised downwards from 6.7 per cent to 6.3 per cent. These revisions were \nbecause of the differences in the monetary and fiscal policy support and the \nvaccination coverage. Overall, the projections are susceptible to the dynamic \npath of the COVID-19 pandemic and the different economic challenges \nconfronting each region. \n \nFollowing the global trend, the domestic economy sustained its recovery in the \nsecond quarter of 2021, driven by base effects and policy support. Official data \nfrom the National Bureau of Statistics (NBS) showed that Nigeria’s real Gross \nDomestic Product (GDP) increased (year-on-year) by 5.01 per cent in the \nsecond quarter of 2021 from 0.51 per cent in the preceding quarter. It is the \nstrongest growth since the fourth quarter of 2014. The growth performance was \ndriven by the non-oil sector, which grew by 6.74 per cent as against the Oil-\nsector that contracted by 12.65 per cent. The key sub-sectors that recorded \nsignificant growth in activity include Road transport, Electricity, Gas, Steam and \nAir Conditioning Supply, and Rail Transport and Pipelines by 92.38, 78.16 and \n53.28 per cent, respectively. Coal Mining, Trade, Metal Ores, and Insurance also \ngrew by 34.14, 22.49, 21.12 and 15.68 per cent, respectively. However, activity in \nOil Refining, Quarrying and Other Minerals, and Financial Insurance contracted \nby 46.78, 12.29 and 4.54 per cent, respectively. \n \nThe significant recovery was driven by sustained fiscal stimulus, accommodative \nmonetary policy of the Central Bank of Nigeria (CBN), and base effects. \nAccordingly, the IMF projected economic growth of 2.5 per cent in 2021 from a \ncontraction of 1.8 per cent in 2020. Also, inflationary pressures continue to \ndecelerate for the fifth consecutive month. Headline inflation (year-on-year) \nmoderated further to 17.01 per cent in August from 17.38 per cent in July 2021. \nThe moderation was due to the decline in food and core components of \ninflation. Both decreased to 2.30 and 13.41 per cent in August from 21.03 and \n13.72 per cent in July 2021, respectively. Furthermore, external reserves grew by \n7.41 per cent (month-on-month) to US$35.97 billion at end-August from US$33.49 \nbillion at end-July 2021. This was largely driven by the Special Drawing Rights \n(SDR) allocation of US$3.35 billion by the IMF – a development that will further \nsustain the current exchange rate stability at the Investors and Exporters (I&E) \nwindow. In addition, I am convinced the CBN’s digital currency (the e-Naira) \nthat will be launched in October 2021 will not only accelerate financial inclusion \nin the country but also improve foreign exchange availability and accretion to \nexternal reserves by providing Nigerians in diaspora a new and easier option to \nsend money home. Besides, it will allow the CBN to effectively gain real-time \n \n42 \n \n \nmonetary system information that would assist in monetary policy management \nand foster economic growth through digital innovations. \n \nThe financial soundness indicators showed that the banking system remain \nsound, stable and resilient. The total assets of the industry increased by 15.38 per \ncent from N47.58 trillion in July 2020 to N54.90 trillion in July 2021. Consequently, \nthe gross banking sector credit increased by N6.63 trillion from N15.57 trillion at \nthe end of December 2020 to N22.20 trillion at the end of July 2021. The \nincreased credit was recorded in manufacturing, consumer credit, general \ncommerce, information and communication and agriculture. The credit growth \nwas driven by the loan-to-deposit ratio (LDR) policy, the extension of regulatory \nforbearance and other macroprudential measures. The Capital Adequacy \nRatio (CAR) and the Liquidity Ratio(LR) both stood at 15.2 and 41.7 per cent in \nJuly 2021, above their prudential benchmarks of 15.0 and 30.0 per cent, \nrespectively. Although the Non-Performing Loans (NPLs) ratio was above the \nregulatory benchmark of 5.0 per cent, it has significantly improved from 6.42 per \ncent in July 2020 to 5.38 per cent in July 2021, reflecting the case by case review \nof regulatory forbearance, the impact of Global Standing Instruction (GSI) \npolicy, and strengthening of risk management practices in banks. However, the \nmonthly weighted average for Inter-bank Call and Open Buy Back (OBB) rates \nincreased from 10.72 and 11.60 per cent in July to 13.45 and 12.97 per cent in \nAugust 2021. This implies a tight banking liquidity condition as part of efforts in \nmoderating inflationary pressures and safeguarding the banking system stability. \n \n \nDespite the year-on-year growth rate of 5.01 per cent in Q2 2021, we must remain \nvigilant because the recovery is still fragile. While both manufacturing and non-\nmanufacturing Purchasing Manager’s Indexes (PMIs) appear to be improving, \nthey are still below the 50 index points at 46.9 apiece. Similarly, headline inflation \nhas decelerated for the fifth consecutive month, but is still above the implicit \ntarget of 6-9 per cent. With the commencement of the harvest season and the \nvarious interventions by the CBN, I believe the inflation rate will decelerate \ntowards the Bank’s implicit target in the near term. Furthermore, the CBN in \nconjunction with the Federal Government continues to support the critical \nsectors of the economy through the various targeted interventions in \nhouseholds, SMEs, health, agricultural, manufacturing, and ICT. I believe the \nimpact of these interventions in promoting economic growth and resuscitating \nlives and livelihoods are undeniable. \n \nHowever, given the modest recovery and the long-standing infrastructural \nchallenges, more action is required to return the economy to a sustained \n \n43 \n \n \nrecovery. That is why I support the current effort by the Central Bank of Nigeria \n(CBN), in collaboration with the Africa Finance Corporation (AFC) and the \nNigeria Sovereign Investment Authority (NSIA), to launch the establishment of \nInfrastructure Corporation of Nigeria Limited (InfraCorp) during the fourth quarter \nof 2021. It is a Public-Private Partnership (PPP) with a seed capital of N1 trillion \nfrom the Promoters, and expected to rise to N15 trillion from local and \ninternational investors. InfraCorp is expected to promote infrastructural \ndevelopment in transport and logistics, power, telecommunications and \ntechnology, industrial and agricultural infrastructure as well as Social \nInfrastructure. This will further support the growth of the non-oil sector, create \nmore jobs, and accelerate poverty reduction in the country. \n \nWe must, therefore, aggressively support these efforts and sustain those policies \nalready put in place by the Bank targeted at the key sectors of the economy; \nwhilst also ensuring that inflationary pressures are contained. On this basis, I \nvoted to: \n• Retain the Monetary Policy Rate (MPR) at 11.5 per cent; \n• Retain the Cash Reserve Ratio (CRR) at 27.5 per cent; \n• Retain the Liquidity Ratio (LR) at 30.0 per cent; and \n• Retain the asymmetric corridor at +100/–700 basis points around the \nMPR. \n \n \n \n \n \n \n \n \n \n \n \n44 \n \n \n8. SANUSI, ALIYU RAFINDADI \n1.0 \nDecision \nIn today’s meeting, I voted for a hold on all the policy parameters because, as \nthe data and staff projections show, inflation would continue to decline, while \noutput recovers in the medium-term. Although the output recovery continues to \nbe fragile and further easing would support the process, the risk of reversing the \ndisinflationary process amidst rising exchange market pressure is considerable. \nAs the global economy continues to recover from the pandemic-induced \neconomic recession, and as the impact of the domestic monetary and fiscal \nstimuli continue to permeate the economy, a hold on all the policy parameters \nappears to be the optimal choice. \n2.0 \nBackground and Justification \n2.1 \nGlobal Economic Developments \nThe growth rebound in Advanced Economies (AEs) is accompanied by rising \ninflation, which remain above their long-term target of 2%. World trade, \ncommodity prices and international oil prices also continued to recover despite \nthe increasing cases of COVID-19 infection in some countries. These \ndevelopments raise the possibility of policy normalization in the Advanced \nEconomies, thereby threatening capital flow to Emerging Market and \nDeveloping Economies (EMDEs). \nThe global economy has continued to recover in line with earlier projections, \nand is expected to grow at 6% in 2021. The regional growth projections by the \nIMF were, however, revised in July 2021 reflecting the higher growth in AEs, which \nare now moving towards policy normalization. The forecasts for EMDEs were, \nhowever, revised downwards reflecting the associated impact of their limited \nmacroeconomic policy responses and access to vaccines due to resource \nconstraints. Consequently, output in Advanced Economies is now projected to \ngrow by 5.6% and 4.4% in 2021 and 2022, respectively, on account of the \nsubstantial fiscal and monetary support as well as widespread vaccine \ncoverage. The EMDEs are expected to grow by 6.3% and 5.2% in 2021 and 2022, \nrespectively. Output in the US economy has grown (q-on-q) by 6.6% in Q2 2021 \nand is projected to grow at 5.1% in Q3 2021 and 4% in Q4 2021. In the Eurozone, \noutput has expanded by 2% (q-on-q) in Q2 2021 compared with 0.3% achieved \nin Q1 2021. Similarly, the UK Economy grew by 4.8% in Q2 2021 and is projected \nto grow at 2.5% in Q3 2021. In the EMDEs, output in India expanded by 20.1% (q-\non-q) in Q2 2021. China grew by 1.3% (q-on-q) due to improved market \nexpectations and rise in production, employment and demand. Output in Brazil \n \n45 \n \n \nis expected to decline by -0.2% (q-on-q) in Q2 2021 due to resurgence of new \nvariants of COVID-19. Russia is expected to grow by 1.8% (q-on-q) in Q2 2021. \nThe strong recovery in global trade is expected to be sustained in 2021 (at 9.7%) \ndespite the rising cost of shipping. Although the crude oil prices continue to be \non the upward trend on account of strong demand as the global economy \nrecovers, the market remains uncertain given the gradual rise in the green \neconomy initiatives, especially as the calls for reduced financing of investments \nin fossil fuel grow louder. As at September 14, 2021, the price of OPEC basket \nstood at US$ 71.98 per barrel compared with US$65.29 per barrel on May 22, 2021 \nor US$54.38 per barrel in January 2021. \nAs a result of the growth rebound, inflation in the Advanced Economies has risen \nabove its long-term target of 2%, especially in the US and UK. In the US, inflation \nwas 5.3% in August 2021 compared with 5.4% in July 2021 and is expected to \npersist. In the UK, inflation increased from 2.0% in July 2021 to 3.2% in August 2021. \nIn the Euro area, inflation is expected to rise to 3% from 2.2% in July 2021. In the \nEMDEs, price developments during the period were mixed. Between July and \nAugust 2021, inflation decreased in China (1.0% to 0.8%) and Nigeria (17.38% to \n17.01%), but increased in Kenya (6.55% to 6.57%), Egypt (5.4% to 5.7%) and \nGhana (9.0% to 9.7%). The rising inflation in the Advanced Economies amidst \noutput recovery has increased the likelihood of policy normalization in the major \neconomies. Indeed, the EU has started the tapering of its bond purchase \nprogramme while the Fed is expected to announce the start of normalization \nwith the tapering of its US$120 billion monthly bond purchase programme in its \nNovember meeting. Interest rate hikes are, however, not expected before the \nend of 2022. The impending tightening in the AEs will have significant effects on \ncapital flows to the EMDEs, including Nigeria, and adversely affect their external \nreserves and exchange rates. \n2.2 \nDomestic Economic Developments and their Implications \nDomestic output recovery continued to improve in the second quarter of 2021 \nsince exiting the COVID-19 induced recession in the fourth quarter of 2021. The \nV-shaped output recovery, however, continued to be fragile. Although the \neconomy grew (y-o-y) by 5.01% in the second quarter of 2021 according to the \nNational Bureau of Statistics (NBS), a closer look shows that the high positive \ngrowth rate reflects the based effect of the Q2 2020 output. Indeed, the N16.7 \ntrillion real output recorded in Q2 2021was actually slightly lower than the N16.8 \ntrillion produced in Q2 2021. Although the -0.79% decline in q-on-q real GDP may \nlargely reflect seasonality, it also highlights the fragility of the recovery. The \npositive year-on-year real output growth during the Q2 2021 was driven by the \nnon-oil sector, which grew by 6.7%, largely due to growth of services (9.27%) and \n \n46 \n \n \nAgriculture (1.3%), while the Industrial sector contracted by -1.23%, due to \ncontraction in Mining and Quarrying. The Oil Sector contracted by -12.65% due \nto declines in crude production level of Forcados and Escravos crude steams \ncaused by leaks on the Trans Ramos and Bonga pipelines. Both the \nManufacturing and Non-manufacturing Purchasing Manager’s Indices (PMIs) \nmarginally improved in August 2021, but were below the 50-point benchmark. \nStaff forecasts show that output growth would be 3.33% for the Q3 2021 and \n2.86% for the year 2021 if the oil price remains at US$70 per barrel. \nAs expected, the headline inflation continued to moderate (y-o-y) from 17.8% in \nJuly 2021 to 17.01% in August 2021, driven by the moderation in food inflation, \nwhich declined to 20.3% in August 2021 from 21.03% in July 2021. The decline in \nfood inflation was driven by food and non-alcoholic beverages. The core \ncomponent also decelerated (y-o-y) to 13.41% in August 2021 from 13.72% in July \n2021. The deceleration of the Core inflation was driven by moderation in \nTransport and Health. Staff forecasts suggest that inflation would moderate to \n16.4% in September 2021 and further to 15.3% in October 2021. The upside risks \nare the persistent insecurity across the country and high cost of transport driven \nby higher PMS and Diesel costs, electricity tariff, and exchange rate pass-\nthrough. \nAvailable data showed that in August 2021, broad money, M3, increased by \n5.83%, 3.81% below its provisional benchmark of 9.64% for Q3 2021, but higher \nthan the 2.91% achieved in July 2021. The higher monetary growth relative to the \npreceding month was driven by the rise in the Net Foreign Assets (NFA) by \n12.35%. Gross credit by the banking system has continued to grow since the \nimplementation of the LDR policy. Total credit increased by N3 trillion between \nend-July 2020 and end-July 2021. Total credit disbursed to the economy, which \nstood at N22.2 trillion as at end-July 2021, as a percentage of the GDP grew from \n52.05% in Q4 2020 to 62.04% in July 2021. A review of the financial soundness \nindicators of the Banking System revealed that the banking industry has \ncontinued to remain resilient. The Non-performing loans (NPLs) ratio further \ndeclined to 5.4% in July 2021 compared with 5.7% in June 2021 and 6.1% in \nDecember 2020 due to the implementation of the GSI policy. Available data \nshowed that weighted average lending rates continued to decline since \nJanuary 2021. Both the maximum lending rates and prime lending rates have \ndeclined to 27.77% and 11.59% in July 2021, respectively, from 29.05% and 11.67% \nin June 2021. \n \n \n \n47 \n \n \n3.0 \nThe Basis for My Policy Choice \nIn today’s meeting, I voted for a hold on all the policy parameters because, as \nthe data and staff projections showed, inflation would continue to decline, while \noutput would recover in the medium-term. In choosing a policy stance, I \nconsidered loosening as an optimal option so as to further support the fragile \noutput recovery, and disinflationary process which could be at the risk of \nreversing amidst rising exchange market pressure. I also considered that the \noption of tightening to further support the disinflationary process (encourage \ncapital inflows and ease the foreign exchange market pressure) would risk \nhurting the fragile output recovery. A hold on the current policy stance would, \nhowever, allow for the evolution of both inflation and output on their projected \ntrajectories as the global economy continues to recover, and the impact of the \ndomestic monetary and fiscal interventions continue to patriate the economy. \n \nConsequently, I voted to: \nRetain the MPR at 11.50 per cent; \nRetain the CRR at 27.5 per cent; \nRetain the Asymmetric corridor at +100/–700 basis points around the MPR; and \nRetain Liquidity Ratio at 30.0 per cent. \n \n \n \n \n \n \n \n \n \n \n48 \n \n \n9. SHONUBI, FOLASHODUN A. \nThe pressure for policy makers around the world to improve the current sluggish \nglobal economic recovery is at its highest. Even as the mutating virus continues \nto pose new challenges, persisting gap in access to vaccines and vaccination \nrate between advanced and developing economies, amidst uncontained \nspread of the virus in some nations constitute a threat to global growth. The \noverwhelming inclination is to continue to focus on measures that leverage the \ninternal potentials and strength of the domestic economic environment to \nachieve sustainable growth. \n \nGlobal and Domestic Economic Developments \nAs many nations struggle to ease restrictions imposed to curb spread of Covid-\n19 virus, rising momentum in global trade, amidst sustained monetary and fiscal \nstimuli have been the major driver of global growth. Strong output growth in \nadvanced economies has also been, largely aided by increasing vaccination \ncoverage and substantial fiscal support, even as inflation continues to rise. In the \nemerging and developing economies, sluggish vaccination rate, high trade cost \nand rising probability of policy normalization in the advanced economies have \nbeen a drag on growth, leading to downward revision of the region’s growth \nprojections to 6.3 per cent in 2021. Despite upward revision of growth in \nadvanced economies to 5.6 per cent, the International Monetary Fund forecast \nglobal growth to remain at 6.0 per cent in 2021. \n \nDomestic economic growth delightfully strengthened further in the second \nquarter of 2021 making three consecutive quarters of expansion, post-recession. \nThe National Bureau of Statistics (NBS) reported GDP growth at 5.01 per cent in \nQ2:2021, driven mainly by 6.74 per cent growth in the non-oil sector, against \n12.65 per cent contraction in the oil sector. Growth in the service sector was 9.27 \nper cent, up from 0.39 per cent contraction in the preceding quarter, while \ngrowth in the agricultural sector slowed to 1.30 per cent. The Industry sector also \ncontracted by 1.23 per cent, due mainly to the dismal performance of the oil \nsector. \nHeadline inflation remained high at 17.01 per cent in August 2021, though \ndeceleration in inflationary pressure from April 2021 continued for the fifth \nconsecutive month, as inflation reached its lowest since January 2021. Similarly, \nfood inflation decelerated further but remained high at 20.30 per cent, on \naccount of widespread insecurity induced disruptions to food production and \ndistribution. Exchange rate pass through and rising cost of trade due to persisting \ndisruptions to global supply chain have also kept prices of imported necessities \n \n49 \n \n \nand core inflation high at 13.41 per cent in August 2021, slightly down from its \nlevel in the preceding month. \nIn addition to continually serving as the veritable channel for the Bank’s \nintervention, the banking system has remained generally resilient and stable, \nwith major prudential ratios generally hovering around regulatory benchmarks. \nIndustry deposit and asset grew further in the review period. Similarly, even as \naggregate credit continues to grow, aided by the LDR policy, industry non-\nperforming loans improved further to 5.4 per cent, inching closer to the \nregulatory minimum of 5.0 per cent. Industry capital adequacy ratio, at 15.2 per \ncent, was above the 15.0 per cent threshold. \nGrowth in major monetary aggregates generally trailed provisional benchmarks \nfor the fiscal year, except for the net domestic assets which significantly \nsurpassed the target. Liquidity conditions in the banking system continued to \ndrive trends in major money market rates. Amidst easing financial condition, the \ngradual return of confidence witnessed in recent months in the capital market \nwas sustained, as the all share index and market capitalization improved further. \nThough external reserves increased in August 2021, net-outflow, and reduced \nproceeds from petroleum related sources, continued to heighten pressure in the \nexternal sector. In the fiscal sector, revenue remained significantly below the \nbudget benchmark, despite pressure for increased expenditure to address \nwidespread insecurity, rising need for social safety net and infrastructural deficit. \nOverall Considerations and Decision \nProspect of global growth remains largely dependent on attainment of \nincreased vaccination, as well as, the ability to sustain the monetary and fiscal \nstimuli support. However, widening gap in vaccination rate between advanced \nand other economies constitute major headwind, even as increasing mutation \nworsened uncertainties around the pandemic, with implications for further \nreopening of economies and global trade. This stalling outlook of global growth \nand probability of commencement of policy normalization by some advanced \neconomies are further motivations for refocusing of the domestic policy \ntrajectory \n \nDespite the positive outcomes so far, the current environment of high inflation, \nfragile growth, limited fiscal space and pressured external sector presents a \nchallenging scenario for policy. However, given the progress in the recent \nperiod, the outlook, though mixed, portends good omen. Continued \ndeceleration in inflation is a welcome development and testament to the \nefficacy of CBN’s measures, especially those directed at enhancing food \n \n50 \n \n \nproduction and distribution, easing the supply chain and preserving aggregate \ndemand. Despite consistent month-on-month expansion in the broad money \nsupply, its overall sub-benchmark growth diminishes the monetary phenomenon \nrisk to inflation. \n \nThe signs in the real sector are encouraging, especially considering the need to \nfurther strengthen growth across all sectors. With increasing contribution of the \nnon-oil sector to growth, aided by the Banks’s interventions, the prospects of \nfurther expansion in output remain bright. Third consecutive months of increase \nin the Purchasing Mangers’ Index, on account of, higher employment level and \nraw material inventory is also a signpost of positive outlook, though higher input \nand output prices underscores inflationary expectations. I therefore encourage \nthe Bank to sustain its interventions for improving credit flow to the productive \nsectors, so as to keep output expansion, while also intensifying its effective \ndemand enhancing stimulus to preserve aggregate demand. \nAmidst combination of measures to maintain stability in the foreign exchange \nmarket and mitigate risks to the external sector, improved accretion to external \nreserves is a testament that the Bank’s actions are in the right direction. As the \nfiscal authority grapple with high debt profile, due to falling revenue and rising \nexpenditure, I want to restate my earlier calls for the Government to strongly \nleverage the public-private partnership model to efficiently close the financing \ngap for addressing the infrastructure needs in the economy, while also resolving \nwidespread insecurity. Hopefully implementation of the Petroleum Industry Act \nwill facilitate enhancement of the value adding opportunities in the oil sector. \nIn the light of recent progress from our effort to restore the economy to path of \nsustainable growth, the key task is to preserve and, where possible, reinforce the \npolicies that have delivered the current growth and deceleration in inflationary \npressure. \nI therefore voted to retain the: \n• MPR at 11.50 per cent; \n• Asymmetric corridor of +100/-700 basis points around the MPR \n• Cash Reserve Ratio (CRR) at 27.5 per cent; and \n• Liquidity Ratio at 30.0 per cent. \n \n \n \n \n \n \n51 \n \n \n10. EMEFIELE, GODWIN I. \nGOVERNOR OF THE CENTRAL BANK OF NIGERIA AND CHAIRMAN, MONETARY \nPOLICY COMMITTEE \nWith robust recovery in the first two quarters of 2021, global economic outlook \nremains strong; yet, uneven across regions. Further dismantling of covid-19 \nrestrictions in many countries, boosted by the progress in vaccine administration \nand increased cross-country trade, continued to rebound economic activities \ntowards pre-pandemic trends. In addition, growth momentum was ubiquitously \nreinforced by sizeable fiscal and monetary stimuli. Global growth for 2021 is \nprojected, by the IMF, at 6.0 percent, even as the race between vaccine rollout \nand new variants of the virus persists. With growth projections upgraded to 5.6 \npercent from a previous 5.1 percent, GDP in some advanced economies could \nsurpass pre-pandemic levels by end-2021. However, sluggish vaccine \ndistribution debilitated growth projection for emerging markets and developing \neconomies to 6.3 percent from 6.7 percent. \nOutlook of the domestic economy continued to brighten amidst favourable \nyear-to-date outcomes of key economic metrics. The upturn in domestic \neconomic activities derived from the coordinated fiscal and monetary support \nfor households and businesses, to curtail the adverse shocks from covid-19. At \n5.01 per cent, GDP recorded a better-than-forecast growth rate in 2021q2 from \n0.51 percent in 2021q1. This was mainly driven by the non-oil sector which grew \nby 6.74 percent from 0.79 percent as services rebound from a contraction of -\n0.39 percent to a growth of 9.27 percent. The resilient 1.30 percent growth of \nthe agriculture sector reinforced the recovery. With this, the non-oil sector \ncontributed 6.09 percent to overall growth rate while the balance of -1.08 \npercent was derived from the oil sector which recorded a deeper contraction \nof -12.65 percent from -2.21 percent in 2021q1. The performance of the \ndomestic economy largely reflected the continued upside impact of the \nvarious real sector interventions of the CBN. \nNear-term outlook remained buoyant given the continued consolidation of \nmanufacturing and non-manufacturing PMIs in August 2021 to 46.9 index points \napiece, indicative of strengthening domestic conditions. For the entire 2021, the \nNigerian economy is projected to expand by 2.5–3.0 percent vis-à-vis the -1.92 \ncontraction in 2020. The upturn of domestic economic activities is progressive \ntowards pre-pandemic levels and historical average on the backdrop of \nresilient non-oil activities (especially agriculture sector). As business sentiments \nbrighten, following our various supply-side stimulus and orderly implementation \nof macroeconomic policies, l expect domestic fragility to continue to dissipate \n \n52 \n \n \nwith favourable knock-on effects on job creation and poverty alleviation. Our \nmedium-term goal is to fast-track growth rates above historical levels, raise per \ncapita income (as GDP outpaces population growth rate), and achieve single-\ndigit inflation rate as we actively collaborate with fiscal authorities to stimulate \nhigh-impact productive sectors. \nHeadline inflation slowed for the fifth consecutive month to 17.01 percent in \nAugust 2021 from 17.38 percent in July. This reflected the disinflation in both the \nfood and core components of inflation. Food inflation moderated by 0.73 \npercentage points to 20.30 percent while core inflation fell by 0.31 percentage \npoint during the month. Yet, inflation remained outside the CBN tolerance \nrange of 6–9 percent, due to supply-side constraints including infrastructure \ndeficits, energy prices, exchange market pressures and lingering insecurity. \nShort-term inflation expectations are traversing downward as our development \nfinancing gradually resolve supply rigidities. I note that the newly created \nInfraCorp, by rousing vital infrastructure investments, will narrow the existing \ninfrastructure gap and lower the long-run trend of inflation. \nMonetary condition was relatively tight during the review period, compared \nwith a bullish capital market. Weighted average inter-bank call and open-buy-\nback rates rose from 10.72 and 11.60 percent, respectively, in July 2021 to 13.45 \nand 12.97 percent in August. Though monetary aggregates expanded in \nAugust, they were largely below provisional benchmarks. The 5.83 percent \ngrowth in broad money supply was 3.81 percentage points below target. At \n12.35 percent, the growth in net foreign assets was below the targeted 32.79 \npercent while net domestic assets expanded by 4.30 percent, reflecting the \n17.45 percent growth in private sector credits. With the introduction of the LDR \npolicy, gross credit increased from N15.57 trillion in May 2019 to N22.20 trillion in \nJuly 2021. Amidst rising credits, the banking system remained pleasingly stable \nand resilient. Capital adequacy ratio and liquidity ratio, at 15.2 and 41.7 \npercent, respectively, stayed above the prudential limits, while Non-Performing \nLoans (NPL) ratio, at 5.4 percent, continued to fall towards target. \nIn my consideration, I noted that the domestic economy continues to recover \ntowards pre-pandemic levels. Output growth rebound in 2021q2 was satisfying, \nalthough GDP remained slightly below potential. Price developments is also \nunravelling favourably with five consecutive months of disinflation. These \npositive developments notwithstanding, economic dynamics remain fragile \nand threatened by covid-19 related drawbacks, especially in the race \nbetween vaccination and new virus strains. Uncertainty around crude oil \ndevelopments, frail investor sentiment and lingering security challenges \n \n53 \n \n \nincrease the vulnerability of the domestic economy to further shocks. Yet, I note \nthat whilst short-term domestic outlook is improving, it is imperative to sustain the \norderly and coordinated policy actions in order to strengthen economic \nfundamentals. Currently, inflation remains higher-than-desired and needs to be \ncurbed. But we also need to strengthen GDP (per capita) growth in order to \nboost the welfare of the Nigerian economy and reduce poverty and \nunemployment. I, again, recognise the underlying trade-off between GDP and \ninflation as I continue to favour measures to boost domestic supply capacity \nand dismantle immanent structural bottlenecks. \nThe growth and inflation considerations remain a policy dilemma. Today, I \nmaintain my cautious optimism and unwillingness to jolt the current trajectories \nof either growth or inflation. I adjudged that whereas accelerated disinflation \nand growth were desirable, the balance of evidence indicated that both were \ncurrently moving in the ideal direction and could attain the required levels in \ndue course. I emphasise that the mandate of price stability remains inviolable, \nbut not at the cost of adverse policy shocks to the real economy. A policy \nchange today may cause indeterminate outcomes and derail the nascent \nrecovery. I maintain my inclination towards a balanced and cautious decision \nto maintain the current policy stance and avoid policy-induced shocks. \nTherefore, I vote to: \n1. Retain the MPR at 11.5 percent; \n2. Retain the asymmetric corridor at +100/–700 basis points around the MPR; \n3. Retain the CRR at 27.5 percent; and \n4. Retain liquidity ratio at 30.0 percent \nGODWIN I. EMEFIELE, CON \nGovernor \n \nSeptember 2021", "source": "CBN", "stratum": "cb_requests", "fetch_date": "2026-05-11", "url": "file:///CBN/MPC_Communiques/Central Bank of Nigeria Communique No.138 of Monetary Policy Committee Meeting of September 16-17, 2021, with Personal Statements of Members.pdf"}
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