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+{"doc_id": "284ec25622ea2cd118c0f1b78d0d8402", "text": "1 \n \n \nClassified as Confidential \n \n \n \nCENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 124 OF THE MONETARY POLICY \nCOMMITTEE MEETING OF MONDAY 20TH AND TUESDAY 21ST MAY, 2019, WITH \nPERSONAL STATEMENTS OF MEMBERS \nBackground \n \nThe Monetary Policy Committee (MPC) met on the 20th and 21st of May 2019, \namidst uncertainties in the global financial, economic and political \nenvironments. All Eleven (11) members of the Committee were present. \nGlobal Economic Developments \n \nThe Committee reviewed developments in the global economy, noting with \nconcern, the declining trend in global output growth, which commenced in \nthe second half of 2018. Accordingly, the International Monetary Fund \ndowngraded global output growth from 3.7 per cent in 2018 to 3.6 per cent in \n2019 and further revised it downwards to 3.3 per cent in 2019. The decrease in \nthe global composite Purchasing Managers’ Index (PMI) in the last three \nmonths provides further fillip to this downgrade. The Committee noted that the \nweakening global output growth continued amidst prevailing uncertainties \nfrom familiar headwinds including: the further escalation of trade tensions \nbetween the US and China; imposition of new rounds of \n2 \n \n \nClassified as Confidential \nsanctions on Iran; breakdown of BREXIT negotiations; a new wave of tension \non the Korean Peninsula; vulnerabilities in major financial markets and rising \npublic and private debt in some Emerging Market and Developing Economies \n(EMDEs). \nDespite these uncertainties, inflation in the advanced economies remained \nmuted and largely below their 2.0 per cent long-run targets. As a result, most \ncentral banks in the advanced economies, including the US Fed, Bank of \nEngland and the European Central Bank, adopted a dovish monetary policy \nstance, which is expected to remain in place in the near to medium term, as \nsigns of weakness in the global economy re-emerged. In the Emerging Market \nDeveloping Economies, however, developments were mixed, with inflation \nrising in some, but moderating in others. In response, the financial markets \nwitnessed the rebalancing of portfolios from equities to fixed income securities, \nand some stock markets posting losses. In the main, the Emerging Market \nDeveloping Economies are expected to continue to benefit from the \naccommodative monetary policy stance of the advanced economies \nthrough increased capital inflows. \nDomestic Output Developments \n \nAvailable output data from the National Bureau of Statistics (NBS) showed that \nreal Gross Domestic Product (GDP) grew by 2.01 per cent in the first quarter of \n2019 compared with 2.38 and 1.89 per cent in the previous and corresponding \nquarters of 2018, respectively. This was largely driven by the non-oil sector, \nwhich grew by 2.47 per cent in the first quarter of 2019 while \n3 \n \n \nClassified as Confidential \nthe oil sector contracted by 2.40 per cent. Staff projections indicate real GDP \ngrowth of 2.34 and 2.36 per cent in Q2 2019 and Q3 2019, respectively, \nincluding a reduction in the unemployment rate. The Monetary Policy \nCommittee observed that actual output remains below potential, implying \nthat the economy still had sufficient headroom for non-inflationary growth. This \nis expected to be driven largely by sustained stability in the financial system; \ncontinued special interventions in Agriculture, manufacturing and SMEs \nsectors, by the Bank; sustained effort in improving transport infrastructure to \naddress distribution challenges; continued expansion of business activities as \nindicated by the PMI and increased supply of foreign exchange to growth-\nstimulating sectors of the economy, among others. \nThe Committee noted the continued expansion of the Manufacturing and \nNon-Manufacturing Purchasing Managers’ Indices (PMI) for the 25th and 24th \nconsecutive months in April 2019 and broadly welcomed this positive \ndevelopment in economic activities in Nigeria. The manufacturing PMI grew \nby 57.7 index points compared with 57.4 index points in the previous month. \nSimilarly, the non-manufacturing PMI grew by 58.7 index points compared with \n58.5 index points in March 2019. The growth in both measures of PMI were \nanchored by marginal increases in production, employment level and new \norders. \nDevelopments in Money and Prices \n \nThe Committee noted the growth in broad money supply (M3) by 5.42 per cent \nin April 2019 from the level at end-December 2018, annualized to 16.36 \n4 \n \n \nClassified as Confidential \nper cent, above the indicative benchmark rate of 14.47 per cent for 2019. This \nwas largely driven by the growth of 19.62 per cent in Net Domestic Assets \n(NDA). In contrast, Net Foreign Assets (NFA) contracted by 5.83 per cent in April \n2019 relative to the level at end-December 2018. In spite of the significant \nunderperformance of M1 at -4.26 per cent annualised to -12.77 per cent, M2 \ngrew by 1.85 per cent in April 2019, annualized to 5.54 per cent, which was \nsignificantly below the benchmark rate of 12.99 per cent for 2019. This \ndevelopment was largely due to the growth in time and savings deposits by \n6.53 per cent. The Net Domestic Credit (NDC) grew by 19.31 per cent in April \n2019 from the level at end-December 2018, annualized to 57.92 per cent, \nabove its indicative benchmark of 11.82 per cent. The growth in NDC was \nattributed to the significant increase in credit to both government and the \nprivate sector by 64.44 and 9.64 per cent, respectively, in April 2019, compared \nwith end-December 2018. The Committee noted the developments in the \nmonetary aggregates and enjoined the Bank to initiate moves towards \nimproving lending to the private sector and urged other intermediary \ninstitutions in the financial sector to support these initiatives by improving their \ncredit delivery to boost output growth. \nThe Committee noted the uptick in inflation as headline inflation (year-on- \nyear) rose slightly to 11.37 per cent in April 2019 from 11.25 per cent in March \n2019. The increase in headline inflation was driven mainly by food inflation \nwhich rose by 13.70 per cent in April 2019 from 13.45 per cent in March 2019. \nCore inflation, however, declined marginally to 9.28 per cent in April from 9.46 \n5 \n \n \nClassified as Confidential \nper cent in March 2019. In April 2019, month-on-month headline, food and core \ninflation increased to 0.94, 1.14 and 0.70 per cent from 0.79, 0.88 and 0.53 per \ncent in March 2019, respectively. The MPC noted that the recent uptick in \ninflationary pressure was seasonally driven and anticipated. \nLiquidity conditions in the banking system reflected the net impact of Open \nMarket Operations (OMO) auctions, maturing CBN Bills, statutory allocations to \nstates and local governments as well as interventions by the CBN in the foreign \nexchange market. Consequently, the monthly weighted average Inter-bank \ncall and Open Buy Back (OBB) rates increased to 13.98 and 16.15 per cent in \nApril 2019 from 10.80 and 12.17 per cent in March 2019, respectively. The daily \nunsecured interbank and the OBB rate, fluctuated within the standing facilities \ncorridor, closing at 6.57 per cent and 5.55 per cent on May 10 and May 16, \n2019, respectively, reflecting the reaction of the money market to the 50 basis \npoint reduction in the policy rate at the meeting of the MPC in March 2019. \nThe Committee observed the continued bearish trend in the equities market in \nspite of the sustained capital inflows into the economy during the period under \nreview. The All-Share Index declined by 8.14 per cent to 28,871.83 index points \non May 17, 2019 from 31,430.50 index points as at end-December 2018, while \nmarket capitalization grew by 8.53 per cent to N12.72 trillion on May 17, 2019 \nfrom N11.72 trillion at end-December 2018. The recent growth in market \ncapitalization reflected new listings in the market, prominent amongst which \n6 \n \n \nClassified as Confidential \nis: MTN and Skyway Aviation Handling Company Plc and additional listing from \nthe merger between Access Bank and Diamond Bank. \nThe Committee welcomed the continued stability at both the Bureau-de- \nchange (BDC) and the Investors’ and Exporters’ (I&E) windows of the foreign \nexchange market, expressing optimism in the recovery of crude oil prices due \nto the OPEC production ceiling and other geo-political issues affecting oil \nexports. \nThe MPC also noted the steady accretion to external reserves, which stood at \nUS$45.42 billion as at May 16, 2019, an increase of 2.20 per cent from US$44.44 \nbillion at end-April 2019. \nThe Overall Outlook and Risks \n \nThe overall medium term outlook for the global economy remains mixed and \nuncertain \nwith \ngrowing \nindications \nof \npersistent \nmacroeconomic \nvulnerabilities, global financial market fragilities, accommodative monetary \npolicy, policy uncertainties and weakening global output. \nData on the domestic economy suggests some fragility in output growth during \nthe second quarter of 2019 with improved outlook for the rest of the year. \nAccordingly, revised output projections indicate that the economy would \ngrow by 2.1 per cent according to the International Monetary Fund (IMF), 2.2 \nper cent by the World Bank and 2.38 per cent by the CBN in 2019. This outlook \nis hinged on the following key factors: the effective implementation of the \nEconomic Recovery and Growth Plan (ERGP); \n7 \n \n \nClassified as Confidential \nsupportive monetary policy; enhanced flow of credit to the real sector; \nsustained stability of the exchange rate; and improved fiscal buffers; amongst \nothers. The Committee, thus, expects that monetary policy would focus on \nimproving access to credit, reducing unemployment and stimulating \neconomic growth. \nCommittee’s Considerations \n \nThe Committee took into consideration the continued slowdown in the global \neconomy and the persisting uncertainties, including the ongoing trade wars \nbetween the US and its major trade partners, financial fragilities in a number of \ncountries, the debt-constrained fiscal operations of most EMDEs, including \nNigeria, and the volatility in the oil market. The Committee, therefore, enjoined \nthe Federal government to urgently build fiscal buffers through a more realistic \nbenchmark oil price for the Federal Budget. \n \nThe MPC noted the 2.01 per cent growth in real GDP during the first quarter of \n2019 compared with 1.89 per cent in the corresponding quarter of 2018. \nAlthough output growth in the first quarter was slower than 2.38 per cent \nrecorded in the preceding quarter, it emphasized that actual output remains \nwell below the economy’s long-run potential, indicating the existence of spare \ncapacity for non-inflationary growth in the economy, an opportunity which \nshould be explored through increased credit delivery to the private sector. Not \nimpressed by the flow of credit from the Deposit Money Banks (DMBs) to the \nprivate sector, the MPC called on the CBN management to urgently put in \n8 \n \n \nClassified as Confidential \nplace modalities to promote Consumer, and Mortgage lending in the Nigerian \neconomy, noting that doing this will greatly and positively impact on the flow \nof credit and ultimately result in output growth. \n \nThe MPC called for a close monitoring of the uptick in inflationary pressures in \nApril 2019, driven largely by food shortages during the Easter season, the \ncommencement of the planting season as well as persisting security \nchallenges in some of the food producing regions of the country. The \nCommittee, urged the relevant authorities to strengthen efforts to address the \nsecurity challenges and improve food production. It encouraged financial \nintermediating institutions to ensure that loans to the agricultural sector were \nchannelled effectively to end users. \n \nThe MPC welcomed the improvement in financial soundness indicators (FSIs), \nbut noted that although the Non-Performing Loan (NPL) ratio moderated, it \nremained above the prudential benchmark. Consequently, the Committee \nconsidered and recommended to the CBN, a proposal to develop a \ncomprehensive administrative, legal and regulatory framework to speed up \nthe recovery of delinquent loan facilities of the banking system; involving \nstructured engagement with relevant stakeholders and authorities, in order to \nmitigate credit risk and ultimately open up the credit delivery space in the \nNigerian economy. \n9 \n \n \nClassified as Confidential \nThe Committee extended warm felicitations in an expression of gratitude to \nthe President and Commander in Chief of the Armed Forces of the Federal \nRepublic of Nigeria, President Muhammadu Buhari, and the Senate of the \nFederal \nRepublic, \nrespectively, \nfor \nthe \nreappointment \nand \nprompt \nconfirmation of the Governor of the Central Bank of Nigeria, Godwin I. \nEmefiele, for a second 5-year term in office. In particular, the Committee noted \nthat the reappointment was in recognition of the contributions of the CBN to \nmaintaining macroeconomic stability and it would engender confidence and \nbuild policy credibility and deliver stability to the Nigerian financial markets. \n \nIn view of the abundant opportunities available to banks for unfettered access \nto government securities, which tends to crowd out private sector lending, the \nCommittee called on the Bank to provide a mechanism for limiting DMBs \naccess to government securities so as to redirect bank’s lending focus to the \nprivate sector, noting that this would spur the much needed growth in the \neconomy. It called on the Government to use all machinery at its disposal to \nincrease tax revenue to enable the government fund its budget adequately. \nThe Committee’s Decision \nThe global and domestic developments have conditioned an environment of \nlow optimism in the macroeconomic and financial sector space, forcing \ncentral banks to return to accommodative monetary policy. \nAs in the past, the Committee considered the options of whether to be more \naccommodative, tighten or hold it position. The Committee felt that although \n10 \n \n \nClassified as Confidential \nthe slight inflation uptick should result in tightening, it nevertheless felt that \ndoing this will limit the ability of DMBs to increase credit at this time, given the \nneed to support or redirect the focus of DMBs to new credit in support of \nconsumer, mortgage and other priority sectors of the economy, including, \nSMEs, agriculture and manufacturing. It also felt that given the fragile state of \nthe economy, increasing the cost of credit would further diminish investment \nflow and impact negatively on output growth. \nAs regards loosening, some members felt that it was desirable to aggressively \nstimulate growth, restart the capital market activities and increase lending at \nlower rates; which would ultimately stimulate domestic aggregate demand. \n \n \n \nThose against loosening felt that given that there was a marginal increase in \nheadline inflation for April 2019, there is need to restrain from loosening in order \nnot to exacerbate inflationary pressures. They also felt the economy would \nexperience liquidity surfeit and without corresponding increase in real sector \noutput, inflationary pressures could be elevated; resulting in likely exchange \nrate pressures. \nAs for members who favoured a hold position, maintaining monetary policy \nrate at its present level was essential for better understanding of the \nmomentum of growth before determining any possible modifications. They \nalso felt that retaining the current policy stance provides an avenue for \nevaluating the impact of the Bank’s intervention policies to support lending to \nthe priority sectors of the economy. \n11 \n \n \nClassified as Confidential \nConsequently, the MPC decided against the backdrop of these developments \nby a vote of 9 members out of 11, to hold all parameters of monetary policy \nconstant. Two members voted, however, to reduce the monetary policy rate \nby 25 basis points. \n \n \n \nIn summary, the MPC voted to: \n \nI. Retain the MPR at 13.50 per cent; \n \nII. Retain the asymmetric corridor of +200/-500 basis points around the MPR; \n \nIII. Retain the CRR at 22.5 per cent; and \n \nIV. Retain the Liquidity Ratio at 30 per cent. \n \n \n \n \nThank you. \n \nGodwin I. Emefiele \n \nGovernor, Central Bank of Nigeria \n21st May, 2019 \n \n \n \n \n \n \n \nPERSONAL STATEMENTS BY THE MONETARY POLICY COMMITTEE MEMBERS \n \n1. ADAMU, EDWARD LAMETEK \n12 \n \n \nClassified as Confidential \n \nThe 267th meeting of the Monetary Policy Committee (MPC) held against the \nbackdrop of sustained global economic and financial uncertainties. Drivers of \nrising risks in the world economy include BREXIT, Iran sanctions, volatile \ncommodity (oil) prices as well as the trade war between the United States of \nAmerica (USA) and China. Financial markets have remained on the edge in \nthe face of multiple vulnerabilities connected especially to the dangling US \nsanctions, weak growth prospects and absence of a clear pathway to non- \ndisruptive exit of the United Kingdom from the European Union (EU). Mindful of \nthese setbacks, the International Monetary Fund (IMF) has further reviewed \ndownwards its projection of global growth for 2019 to 3.3 per cent on the heels \nof lower growth expectations across developed, emerging markets and even \ndeveloping economies. On average, growth in the advanced economies is \nexpected to slow to 1.8 per cent in 2019 from 2.2 per cent in 2018. Similarly, \ngrowth in Emerging Markets and Developing Economies (EMDEs) is expected \nto moderate to 4.4 per cent from 4.5 per cent in 2018, owing mainly to low \ncommodity prices and likely spillovers from weakening global trade and geo-\npolitics. \nAmid concerns about global growth, trade and financial markets’ unease, \nmost central banks (CBs) are holding back on policy tightening. From the \nadvanced economies, the indications are much clearer. In Europe, neither the \nEuropean Central Bank (ECB) nor the Bank of England (BoE) is currently looking \nto increase policy interest rate. In April, the Bank of Japan clarified its intension \n13 \n \n \nClassified as Confidential \nto maintain the extremely low rates into 2020. Similarly, the US Fed had offered \nguidance to the market suggesting that any future rate hikes would be \ngradual. With global inflation remaining benign, central banks’ appetite for \ntightening should moderate across board with those in EMDEs moving \ngradually towards synchronizing their monetary policy postures with their \ncounterparts in the advanced economies. \nThe generally cautious approach to monetary policy underlines the fact the \nCBs have not forgotten the unwholesome lessons of the last global economic \nand financial crisis and are therefore quite mindful of current risks to growth \nand financial stability. Aligning this global trend with the domestic context \nincreases my persuasion about the merit of protecting growth over the \nmedium-term. There is no doubt, the lingering external vulnerabilities would \npressure growth in many developing economies especially through their \nimpact on commodity prices and export demand generally. Nigeria’s oil \nexport already faces both price and demand uncertainties, adding to the \npressures on aggregate domestic output. \nIn Q1, 2019, real GDP grew by about 2.0 per cent, representing moderation \nwhen compared with the last quarter of 2018. Key indicators suggest \nexpanding economic activity in the second quarter of 2019, albeit slowly. Both \nmanufacturing and non-manufacturing PMIs stood at 57.8 and 58.9 points, \nrespectively, in May 2019. Nevertheless, the overall outlook for economic \ngrowth remains fragile as shown by the CBN’s Composite Index of Economic \nActivity (CBN-CIEA), owing largely to external risks, domestic insecurity and \n14 \n \n \nClassified as Confidential \nslowing credit to the private sector. Against this background, the current \nprojection of 3.01 per cent real GDP growth for 2019 could prove too optimistic \nunless growth-promoting policies are vigorously pursued. Clearly, economic \ngrowth needs to be much better to be able to positively impact \nunemployment significantly, in view of the growing number of new entrants \ninto the labour market. Given the protracted slack contribution of the oil sector, \nthe impetus for speedier economic growth could only be expected to come \nfrom the non-oil sector. In particular, agriculture and services will continue to \nrequire considerable support to move the economy out of the apparent low \ngrowth trap. \nMeanwhile, traditional pressures on prices appear to be ameliorating \nnotwithstanding the slight uptick in inflation in April. Banking system liquidity \ncontinued to be moderate on account of the Bank’s sterilization actions (OMO \nauctions and foreign exchange sales by the CBN). These actions have \ncontinued to offset injections from FAAC, repayment of maturing bills and \nrediscounting of bills. Consequently, broad money supply (M3) rose only \nmoderately in March 2019, driven mainly by claims on the Federal \nGovernment. In line with the decision of the MPC in March, interbank rates \n(OBB and IBR) moderated (on average) in April (11.50 and 12.32%) relative to \nMarch 2019 (16.71 and 18.09%). However, transmission to the entire term \nstructure of interest rates remains a key policy challenge. Relatedly, the foreign \nexchange (FX) market continues to be relatively stable on account of \nsustained supply of FX by the CBN and from autonomous sources. \nConsequently, the naira exchange rate has remained stable with a positive \n15 \n \n \nClassified as Confidential \nmedium-term outlook deriving mainly from the relatively good level of external \nreserves and prospects of sustained inflow of capital. Threats to capital inflow \nare moderate especially as advanced economies tilt monetary policy towards \naccommodation owing to uncertainties around trade and economic growth. \nGiven the foregoing background, it is not surprising that core inflation has \nmaintained a downward path even as headline inflation rose to 11.37 per cent \nin April 2019 from 11.25 per cent in March. On the month-on-month basis, the \nheadline index increased by 0.94 percent in April 2019, up from 0.79 percent in \nMarch. The increase in headline inflation came primarily from food inflation \nwhich rose to 13.7 per cent in April from 13.45 per cent in March. The outlook \nfor inflation up to October 2019 shows relative stability, with the headline \nmeasure expected to be around 11.0 per cent, barring any major shock. This \noutlook is predicated largely on sustained sterilization, naira exchange rate \nstability and early commencement of food harvest. In this regard, the Bank’s \ninterventions in agricultural production will continue to be particularly relevant \nin addressing high food prices in the short- to medium- term. \nIn the banking system, major financial soundness indicators (FSIs) further \nimproved in April 2019 due mainly to recoveries, loan disposals and write-offs. \nIndustry capital adequacy ratio (CAR) increased marginally to 15.60 per cent \nin April 2019 from 15.14 per cent in February 2019, while Non-Performing Loans \n(NPLs) decreased to 10.95 per cent from 11.28 per cent. However, the NPLs \nratio is still higher than the prudential limit of 5.0 per cent. Other vulnerabilities \nin the industry include high concentration and contagion risks as well as \n16 \n \n \nClassified as Confidential \nsignificant FX exposure. These conditions have tended to increase averseness \nto risk in the industry leading to some form of asset substitution. It is especially \nconcerning that credit to the private sector is declining and this needs to be \nhalted and possibly reversed to strengthen economic activity and job \ncreation. \nIn arriving at a decision at the May MPC meeting, I reckoned that the effects \nof the downward adjustment of the MPR in March had not fully manifested and \nthat downside risks to growth were quite strong. Although, interbank rates \nslightly eased in response to the adjustment in the policy rate, retail rates \nremained sticky downwards. More importantly, credit to the real economy \ndeclined. In my statements following the immediate past 2 MPC meetings, I \nunderscored the need to support growth given the weak outlook for economic \nactivity based on indications from the oil sector, external vulnerabilities and \nsluggish consumption demand. I am persuaded to sound a similar tone in this \nstatement given that the outlook for growth and employment continues to be \nhazy and largely uncertain in view of multiple risks at home and abroad. \nMuch as openness offers numerous benefits, it certainly increases exposure to \nexternal risks and vulnerabilities, which economic policy must continuously take \nonboard. I perceive, at the moment, that the external threats to medium-term \neconomic stability of Nigeria are quite strong, meriting a coordinated policy \nshield in the form of building buffers (fiscal and monetary) and clear signals to \nthe markets. \nI voted to retain all the policy parameters at their levels prior to the May \n17 \n \n \nClassified as Confidential \nmeeting of the MPC principally to allow some more time for the policy \nadjustment in March 2019 to fully unleash its effects. Finally, it is important to \nnote that the challenge posed by rising food prices demands action beyond \nmonetary policy and CBN’s intervention in the sector. As I have stated in the \npast, insecurity and distribution bottlenecks need to be addressed holistically \nto ease food supply across the country. \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n2. ADENIKINJU, ADEOLA FESTUS \nInternational Economic Developments \nInternational economic environment has not changed significantly from the \nlast meeting of the MPC in March. Global economy remains fluid with \nsignificant vulnerabilities and uncertainties. Global growth is projected to slow \n18 \n \n \nClassified as Confidential \nfrom 3.6 per cent in 2018 to 3.3 per cent in 2019. Given that global economic \ngrowth is the most important determinant of evolution of international \ncommodity prices, the uncertainties surrounding the health of the global \neconomy is a potential threat to the Nigerian economy that depend so much \non oil prices and financial flows. However, in the short term, the geopolitical \ntensions in the Middle East, the accommodating monetary policy of the Feds \nand in many other western economies, and moderation in inflation rates in the \nadvanced economies, may positively impact on oil prices and private capital \nflows to emerging and developing economies. Hence, there is a strong \nprobability that oil price will stay above the budget benchmark price. \n \nDomestic Economic Developments \n \nOn the domestic front, output growth retains its fragile but positive trajectory in \nQ1 of 2019. The real GDP grew by 2.01 per cent in Q1 2019 compared with \n1.89 per cent in Q1 2018, fueled mainly by the non-oil sector. The oil sector \ncontracted by 2.4 per cent. Purchasing Manager’s Index (PMI) continues its \npositive trajectory. Exchange rate across the various windows remain stable, \nwith the naira appreciating slightly in the Investors’ and Exporters’ (I&E) \nsegment of the market. Foreign reserves which stood at US$45.42 billion by mid-\nMay still provides respectable import coverage. Measures of both the output \ngap and unemployment gap suggest underutilization of domestic \nresources and spare capacity in the economy. \nHeadline Inflation (year-on-year) increased from 11.25 per cent in March 2019 \nto 11.37 per cent in April 2019, driven largely by food inflation. Core inflation \n19 \n \n \nClassified as Confidential \nhowever fell to 9.30 per cent in April 2019 from 9.46 per cent in March, 2019. \nThe rising food price is partly due to seasonal effects and rising insecurity across \nthe country. \nBroad money aggregates, M3, and M2 performed significantly below their \ntargeted benchmarks in April 2019. Reserve money grew by 9.69 per cent \nmonth on month in April, 2019. This was 13.87 per cent above the Q2 2019 \nprovisional benchmark. The Nigerian stock market underperformed Emerging \nMarkets stocks on the average in Q1 2019. \nThe financial system indicators (FSI) since the last MPR meeting continue to \ntrend in the right direction. The NPLs ratio is trending downward but is still \nsignificantly above prudential benchmark, requiring more actions by the \nCentral Bank and by the DMBs. The preference shown by the DMBs for fixed \nincome government assets over credit to the real sector of the economy is \nworrisome. Credit to real sector is not only low but decreasing in relative terms \nin asset portfolio of DMBs, and is concentrated on low employment generating \nsectors. Banks seems to have abandoned their primary role of intermediation. \nThis unhealthy trend should be strongly discouraged. Banks continue to focus \non easy ways of making money, including through its various charges on \ncustomers and government securities, at a time when the economy is in dire \nneeds of banks’ credit. \nThe Nigerian economy needs a vibrant consumer credit system in order to drive \nprivate consumption and expand domestic supply. Consumer credit is a \nmajor driver of growth in a capitalist economy. However, the ecosystem and \ninstitutions needed for a successful consumer credit system must be \n20 \n \n \nClassified as Confidential \nestablished. \nIt is also disappointing that the decrease in the MPR in March has not impacted \nin expected way on rates at the retail end of the credit market, although rates \non intermediate financial assets decrease. Maximum and prime lending rates \nrose in April, while rates on consolidated demand, savings and terms deposit \ndeclined, further worsening the gap between the average lending and \ndeposit rates. \nCoordination between monetary policy and fiscal policy is important to ensure \nthat current policy interventions have the desired impacts on the economy. \nFiscal deficit is high and worrisome, government debt is rising in the face of \nunderperforming revenue, and security is a major challenge, posing significant \nthreat to investment and economic growth. One viable way to address \nrevenue under performance is for the government to explore alternative \nfunding sources for infrastructure projects. \nDecision \n \nThere is need to allow the previous cut in the MPR to work itself through the \nsystem. Staff report shows that current MPR is consistent with Taylor rule \nestimates, suggesting that the present monetary policy stance appears to be \nappropriate. \nShort- and medium term inflationary outlook suggests \nthat inflationary build up is moderate. Protecting and deepening economic \ngrowth rate to reduce high unemployment and poverty in Nigeria is quite \nimportant. I am interested on how the policy direction of the new \nadministration and the implementation of the national minimum wage would \nimpact on the future trajectory of the economy. \n21 \n \n \nClassified as Confidential \nHence, I cast my vote to hold the existing monetary policy parameters. \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n3. \nAHMAD, AISHAH N. \nBackground \n \nAt the March 2019 meeting, the monetary policy committee (MPC) cut the \nmonetary policy rate by 50 bps to 13.5 per cent, following several meeting \ncycles of a hold in the policy rate. This decision was predicated on the need to \nstrengthen the fragile economic recovery and spur stronger output growth in \n22 \n \n \nClassified as Confidential \nview of the relative price and monetary stability achieved in recent months. \nAccelerating domestic output expansion is further supported given worsening \nglobal growth prospects and heightened fears of some advanced economies \n(AEs) slipping into recession in the near future; this portends significant \nheadwinds for emerging market and developing economies (EMDEs) like \nNigeria. \nThus, in the first MPC meeting since the rate cut, my primary considerations \nwere to review developments in key macroeconomic variables - particularly \ninflation, exchange rate, the factors that support these, and examine \nimprovements, if any, in economic expansion and growth prospects. \nSlight uptick in Inflation attributed to seasonal effects \n \nAs the committee focuses on growth, it is important to closely monitor any \npotential negative effects of its monetary policy decisions aimed at stimulating \naggregate demand on price and monetary stability, its primary remit. \nAccording to the National Bureau of Statistics (NBS), headline inflation (year-\non-year) inched up 0.12 per cent points in April 2019 to 11.37 per cent due to \nincrease in food inflation from 13.45 per cent to 13.70 per cent over the same \nperiod, while core inflation declined to 9.30 per cent from 9.46 per cent. The \nNBS attributes increases in food inflation to seasonal factors; whilst current \nincreases in the price level was anticipated by Bank staff in their inflation \noutlook issued at the January meeting. These submissions indicate that the \nslight growth in inflation is not a result of the recent rate cut. \nIt appears safe to conclude that downside risks to consumer price stability \nremain low in the medium-term. NBS maintains that structural (not necessarily \n23 \n \n \nClassified as Confidential \nmonetary) factors currently hold sway. Furthermore, results of research \nconducted by Bank staff provided at the May meeting indicate positive \nimpact for growth with minimal effects on inflation in the current range of rate \ncut. Finally, whilst the new minimum wage is a potential headwind for inflation, \nits effects are expected to be benign, given persistently low aggregate \ndemand. \nExchange rate stability persists amidst volatile oil prices and portfolio flows \n \nA key consideration at the March meeting was the potential effect of a policy \nrate cut on portfolio flows which have helped buoy the exchange rate and \naccretion to reserves; i.e. if a lower rate would reduce Nigeria’s \ncompetitiveness relative to other emerging markets, spurring flow reversals \nthereby creating a headwind for the exchange rate stability. \nWhilst foreign exchange inflows dipped noticeably in April 2019, net flows \nremained positive at US$4.7billion reflecting strong investor confidence, \nsupported by accommodative policy stance in AEs. These factors, combined \nwith crude oil price levels which have remained above US$60p/b over the last \nsix months, have supported stability and fueled further accretion to reserves - \nUS$45.42 billion as at May 16th, 2019. Although there is some volatility in crude \noil prices, along with uncertainty in global growth prospects, \nthe naira exchange rate is expected to remain relatively stable in the \nmedium-term even in the face of slight easing in domestic monetary \nconditions. \nDomestic output growth positive but weak \n \nAlthough real GDP grew by 2.01 per cent in Q1 2019, compared with 1.89 per \n24 \n \n \nClassified as Confidential \ncent in Q1 2018, growth remains weak and far below the pre-2016 recession \nlevels of 6.34 per cent (Q1 2012); suggesting the economy is still at the recovery \nstage of the business cycle which requires significant stimulus to forestall any \nreversals. Similarly, the Purchasing Managers’ Index, a leading indicator of GDP \nperformance showed expansion of economic activities, but at a slower pace \nfrom 58.5 points to 57.7 points in January and April 2019 respectively. More \nimportantly, unemployment remains high at 23.1 per cent (Q3 2018) and most \nprojections for Nigeria’s real GDP growth for 2019 hover around 2.0-3.0 per cent \nwhich remain below the levels required to reduce vulnerabilities and improve \ndevelopment outcomes. This underscores the importance of significantly \nstimulating the domestic economy, in view of the limited fiscal space, whilst \nsupporting growth in the non-oil sector which remains the key driver of output \ngrowth. \nBanks as a catalyst for economic growth \n \nThis sluggish domestic output growth environment underscores an urgency to \ndramatically enhance investment and expansion in the real sector via new \ncredit. Positive financial soundness indicators suggest that the banking industry \nis well-positioned to play a bigger role in this respect. Industry capital \nadequacy, liquidity and profitability continue to improve whilst non - \nperforming loans (NPLs) reduced between February and April 2019. This \npicture of financial resilience is at odds with the current low levels of real sector \nlending, especially in the light of burgeoning lending to government observed \nin banks’ outsized subscriptions to risk-free treasury securities. For instance, \ninformation from Bank staff reveals contraction in credit to the private sector \n25 \n \n \nClassified as Confidential \nbetween February and March 2019, even as income from trading activities \nincreased vis a vis a reduction in non-interest income from credit activities. \nWhilst factors such as residual low risk appetite in the light of recent high levels \nof NPLs and significant asset portfolio write-offs are duly noted, the industry \nmust dramatically increase lending to the real sector to strengthen the \neconomic recovery, bolster domestic productivity and create jobs. In addition, \nbanks are encouraged to ramp up investments in technology to facilitate \nefficient retail loan distribution and explore using behavioral analysis and \nartificial intelligence to enhance credit decisions, particularly for loans to the \ninformal sector. \n \nThese must be supported by other institutions and initiatives designed to de- risk \nlending to SMEs such as micro finance banks, (including the new national micro \nfinance bank), collateral registry (to expand small and micro credit collateral \noptions) and the CBN’s interventions in employment elastic sectors like \nagriculture and more recently textile and creative industries which will help \nbridge the credit gap and lower lending rates in the long run. \nPolicy Decision \nNotwithstanding relative stability in key macroeconomic indicators, we must \nremain mindful of risks from an increasingly vulnerable global economy. The \nescalating trade war between the United States and China has created \nstronger headwinds, while other familiar headwinds continue to threaten \nglobal growth prospects. In consideration of these developments, the IMF has \nfurther revised downward global growth projections for 2019 from 3.6 per cent \n26 \n \n \nClassified as Confidential \nto 3.3 per cent. Although a 3.3 percent global expansion is relatively \nreasonable, the outlook for many countries remains challenging, with \nconsiderable uncertainties in the short term especially for oil dependent \nEMDEs, like Nigeria operating within a volatile international crude oil market \nand constricted fiscal space. \n \nThe foregoing implies a balance of risks tilted against output growth. My March \n2019 statement emphasized the need to urgently ramp up investments to \nsupport growth given the fragile recovery and persistent vulnerabilities. \nHowever, pursuit of stronger growth must be balanced with the imperatives of \nprice and monetary stability, the primary mandate of the committee. Whilst \nthe medium-term path of inflation suggests a downward trajectory, its current \nlevel remains above the target band and thus calls for vigilance. Furthermore, \nto support the relative FX stability, it is critical to maintain an appropriate \ninterest rate that sustains capital inflows in the short term, alongside \nimplementing long-term initiatives designed to grow fiscal revenues and \nimprove fiscal consolidation. \nAs further impact of the rate cut is allowed to manifest, the present policy rate \nmaintains stability and creates conditions that support growth and overall \neconomic resilience. Therefore, I vote to retain the current monetary policy \nstance, by keeping MPR at 13.50%; Cash Reserve Ratio at 22.5%; Liquidity Ratio \nat 30% and Asymmetric corridor at +200 and -500 basis points around the MPR. \n \n \n27 \n \n \nClassified as Confidential \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n4. ASOGWA, ROBERT CHIKWENDU \n \nMy Decision: \n \nAt the March 2019 Monetary Policy Committee meeting, the MPR was cut to \nsupport economic activity and the decision was largely underpinned by the \nlower inflationary risks, long periods of exchange rate stability and higher levels \nof external reserves. Eventhough inflation rates increased marginally in April \n2019 due to rising food prices, the general expectations as well as CBN staff \nprojection is that lower inflationary pressures are likely to re-emerge in the near \nfuture. Amidst this recent marginal inflation uptick and with the increased \n28 \n \n \nClassified as Confidential \nuncertainty in the external economic environment, there may be genuine \nreasons for moderate monetary tightening. These considerations may however \nnot be ideal at this time given that the anticipated gains from the March 2019 \nMPR cut are yet to fully materialize, especially in the credit market. In a real \nsense, the Monetary Policy Committee and indeed other policy makers in \nNigeria at this time still face an increasingly challenging task of supporting \ngrowth while reining in possible price increases and moderating any domestic \nfinancial market imbalance. \nMy opinion is that policy parameters should remain largely unchanged at this \nMay 2019 MPC meeting. I will thus vote to: \n• Retain the MPR at 13.5 % \n• Retain the CRR at 22.5% \n• Retain the Asymmetric Corridor at +200/-500 basis points \n• Retain the Liquidity Ratio at 30.0%. \n29 \n \n \nClassified as Confidential \nThe Considerations: \n \nThe key considerations for monetary policy choice at this meeting follows an \nassessment of two underlying trends: \n• Global Macroeconomic Situation, \n \n• Domestic Economic Prospects including the Financial Market Conditions \nGlobal Macroeconomic Situation: On the global issues, trade tensions and \npolicy uncertainties continue to diminish global growth prospects. As such, \ngrowth projections for many developed and developing economies have \nonce again been downgraded for 2019 and 2020. Similar to the \nmacroeconomic situation in the last MPC meeting, trade tensions have \nescalated, Brexit uncertainty has persisted longer than expected, geopolitical \ntensions and domestic political uncertainties have intensified in several regions \nand there have also been some localized natural and weather-related shocks. \nAs a result, trade and investment have moderated drastically especially in \nEurope and China and the manufacturing sector where global vale chains \nprevail is expected to remain in this low gear for some time in future. In specific \nterms, for 2019, subdued growth is expected in most advanced economies, \nespecially those where trade and manufacturing play important roles, such as \nin Germany where GDP growth is now projected to remain below 1 percent \nand Japan projected to grow by \n1.0 per cent. Similarly, GDP growth for 2019 is expected to moderate in the \n30 \n \n \nClassified as Confidential \nother Euro Area countries as well as in China, while the forecasts for Australia \nand New Zealand have also been revised down slightly. In the United States, \neventhough the momentum of growth was high in the early parts of this year, \nit has since started to moderate as the fiscal policy support earlier introduced \nbegins to wane. For the emerging market economies there are diverging \ntrends of growth prospects for 2019. For instance, the short term outlook for \nArgentina, Mexico, Turkey is expected to be sluggish and subdued as a result \nof poor investment and industrial production while some moderate growth \nstrengthening is projected for India, Brazil, Republic of Korea and Malaysia. \nThe inflationary pressures in many economies appears to have been \ndampened and generally below central bank targets and in several of these \ncases caused largely by the weak domestic demand. In the US, despite the \nrising wage growth, headline inflation still hovers below the 2 per cent target, \nwhich is similar to Europe where inflation remains subdued and it is expected \nto remain steady in 2019 even with the increasing upward wage pressure. In \nJapan, inflation has been projected to stay well below the 2 percent target in \n2019 and 2020 while across South Asia, inflation rates are forecast to remain \nlargely similar to the levels in 2018. \nThe monetary policy stances of major central banks across the globe have \nshifted slightly towards an easier approach reflecting these lower inflationary \ntrend and the slowing levels of economic activity. In March 2019, US Federal \nReserve lowered general expectations from two interest rate hikes to none in \n2019 while the European Central Bank has also delayed any possible increase \n31 \n \n \nClassified as Confidential \nin interest rates until at least 2020. The Bank of Japan has recently provided \nstrong indications to continue with its quantitative and qualitative monetary \neasing programme while in China, the easing of credit conditions has \ncontinued with a further lowering of reserve requirement ratios for banks in \nearly 2019 so as to improve domestic liquidity conditions. India has also cut \ninterest rates in February and April of 2019, while in the Republic of Korea, the \ncentral bank has removed any reference to a possible monetary policy \ntightening in the near term. Similarly, few countries in Africa (Angola, Nigeria, \nEgypt, Gambia, Ghana, Malawi) have opened monetary policy space by \ncutting interest rate since the beginning of 2019 so as to support economic \nactivity. Interestingly, the pausing of monetary policy normalization process in \nthe developing economies seems to have also reduced the threats and \npressures of capital outflow from these African countries that recently reduced \npolicy rates, but many of the countries including Nigeria still face the challenge \nof translating the capital inflows into productive domestic investments. \nDomestic Economic Prospects and Financial Market Imbalances: \n \nAs at May 2019, the macroeconomics dynamics in Nigeria remained weak \ndespite moderate GDP upticks in the 2019 Q1, thus casting a shadow over the \nprospects of achieving the Economic Recovery and Growth Plan (ERGP) \ntargets as well as the Sustainable Development Goals (SDGs). More worrisome \nis the seemingly unpredictable financial market (banking, debt \n32 \n \n \nClassified as Confidential \nand stock market) conditions even in the midst of rebounding portfolio capital \nflows to Nigeria. \nRecent output estimates show that although there was an improvement in real \nGDP growth in Q1 2019 at 2.01 percent when compared to the corresponding \nperiod of Q1 2018 at 1.89 percent, but it fell short of the 2.38 percent growth \nrecorded in Q4 2018. While the non-oil growth rate declined from 2.70 percent \nin Q4 of 2018 to 2.47 percent in Q1 of 2019, the oil growth rate contracted \nfurther from -1.62 percent in Q4 2018 to -2.40 in Q1 of 2019. Except for the \nagricultural and construction sectors which performed better in Q1 of 2019 \nwhen compared to Q4 of 2018, all other sectors including Industry, Trade and \nServices had a sluggish start in 2019 when compared to the last quarter of 2018. \nThe growing output divergence between sectors in Nigeria at a time of high \nunemployment rates and low domestic demand is worrisome and will require \nfiscal and quasi-fiscal government support to complement monetary policy \nefforts. Such a combination can address the current output weakness, \nespecially the sector divergence and boost long term growth in a sustainable \nway. \nInflation also remains a crucial macroeconomic challenge in Nigeria \neventhough there have been relatively subdued pressures in recent times. An \nupward trend emerged in April 2019 as the headline inflation (y-o-y) rose to \n11.37 percent from 11.25 percent in March 2019 and this was largely due to \nincreases in food prices. Recent trend show that core inflation has been \nmoderating consistently since April 2018, while food inflation has been largely \n33 \n \n \nClassified as Confidential \nunpredictable. Given that the expenditure share of food items in the \nconsumption basket underpinning the consumer price index is high in Nigeria, \nthen achieving price stability and curbing inflationary pressures in the near \nterm will depend heavily on food price inflation which may sometimes be less \nsensitive to prevailing market interest rate. \nFurthermore, financial market conditions have remained poor and sluggish \nsince the start of 2019 and the recent easing of monetary policy at the March \n2019 MPC meeting seems not to have stabilized these conditions. The All Share \nIndex and equity market capitalization have maintained continued declines \nin 2019 similar to 2018 due to poor activity at the primary segment of the \nmarket. Even though there was a temporary rebound of market capitalization- \nby early May, the upwards daily movements have not been sustained. The \nexpected impact of the MPR cut on other market rates are yet to materialize. \nWhile maximum lending rate rose by 0.05 percent between March and April \n2019, the prime lending rate grew by 3.30 percent. The spread between the \nmaximum lending rate and the consolidated deposit rates according to CBN \nstaff report stood at 26.56 percent in April 2019, which is huge while the \ncontinued daily volatility in the interbank and OBB interest rates also does not \nyet depict any correlation with the monetary policy rate (MPR). Of importance \nis the current trend in total bank credit which also seems not to have \nresponded to the March monetary policy shifts as staff report show a decline \nbetween March and April 2019. In addition, the bank profitability indicators \nresponded poorly to the easing of monetary policy and \n34 \n \n \nClassified as Confidential \nhave remained volatile eventhough such soundness indicators as capital \nadequacy ratio and non-performing loans ratio are on the positive trajectory. \nWhile it may appear too early for the monetary policy rate cut in March 2019 \nto have reduced some short term risks on the financial market so as to \nguarantee improved credit supply, additional monetary policy rates cut now \nare unlikely to reverse credit trend or even boost domestic demand. Rather, \nthere is a short term likelihood that it could spur additional financial market \nimbalances, which may further raise the risks to financial stability. Given this \nlimited monetary policy space, a moderate fiscal stimulus but with less \nelevated public debt levels would be very useful for further bolstering growth \nin critical underperforming sectors of the economy. \n \n \n35 \n \n \nClassified as Confidential \n5. \nBALAMI, DAHIRU HASSAN \n \nThe global economy is being challenged by familiar headwinds which include \nthe following: trade tensions between the United States of America (US) and \nkey allies such as the China and the European Union (EU); unsuccessful \nnegotiation between the US and North Korea; secondary sanction against Iran; \nheightened uncertainty around BREXIT negotiations; diminishing pace of \nnormalisation in the US monetary policy; European Central Bank (ECB) \nreturning to monetary accommodation, and UK refraining from monetary \nnormalisation. The above headwinds have implications on the Nigerian \neconomy. \nGrowth \n \nGlobal output growth in 2019 is expected to moderate to 3.3 percent, down \nfrom 3.6 and 3.8 percent in 2018 and 2017, respectively. In the advanced \neconomies growth is projected at 1.8 percent, for Emerging Markets and \nDeveloping Economies (EMDEs), it is projected at 4.4 percent, while for Sub- \nSaharan Africa, output growth is estimated at 3.5 percent in 2019 against 3.0 \npercent in the previous year. It should be noted that the potential output \ngrowth is driven partly by strong total factor productivity (TFP) and capital \naccumulation in China and other emerging market economies such as India \ndue to technological growth and economic efficiency. The output growth in \nQ1 2019 by country showed that the US economy slowed to 3.2 percent in Q1 \n2019. In China output continued to slow down due to the effects of US trade \ntariffs and the rebalancing programme. The expectation on the Nigerian and \n36 \n \n \nClassified as Confidential \nthe South African economies is that they may continue on the path of recovery \nbut at a slow pace due to volatility in price of crude oil. For South Africa \nproblem of power supply and labour issues may weigh on growth. It is worth \nnoting that the Gross Domestic Product (GDP) in 2018 in selected advanced \neconomies; the Euro area, United Kingdom (UK), and Japan slowed down. The \ndirection of world trade continues to be characterised by heightened trade \ntension, thus depressing global trade volume by 1.7 percent month- on- month \nin February from 2.1 percent in January 2019. \nInflation \n \nIn terms of inflation, the advanced economies are locked up in low inflation \ntrap, while the EMDEs are in high inflation trap, each responding appropriately \nto their economic environment. In Euro area, inflation inched up moderately \nto 1.7 per cent in April 2019 from 1.4 percent in the previous month. The \nEuropean \nCentral \nBank’s \n(ECB’s) \nnew \nrequirement \nof \nmonetary \naccommodation kicked in following indication of weakening macroeconomic \nfundamentals. In Japan, inflation remained low in spite of continued \ngovernment stimulation, inching up marginally to 0.5 percent in March 2018 \nfrom 0.2 percent in the previous month as food, transport and housing prices \nincreased moderately. \nSimilarly, inflation in the UK continued to trend below Bank of England (BoE) \nlong run target of 2.0 percent remaining flat at 1.9 percent in March 2019. While \nthere were mixed price development in Emerging Market and \nDeveloping Economies, inflation rates in most countries reviewed moved \n37 \n \n \nClassified as Confidential \nupwards with the exception of Egypt. In India, inflation was projected at 3.9 \npercent in 2019 up from 3.5 percent in 2018. In China, inflation forecast for 2019 \nindicate a 2.3 percent rise in consumer prices from the 2.1 percent figures in \n2018 due to expected rise in food prices. Inflation in Ghana rose to \n9.5 percent in April 2019 from 9.3 percent in the prior month. In Egypt, inflation \nrate fell to 13 percent in April 2019 from 14.2 percent in the prior month, \nreaching its lowest level since January, 2019. In Brazil inflation rose further to \n4.94 percent in April 2019 from 4.54 per cent in the previous month and slightly \nbelow market expectations of 5.0 per cent. Across advanced economies, \ngiven the fall in commodity prices inflation is likely to remain muted. It is \nexpected that currency depreciation in some EMDEs could pass through to \nhigher domestic prices and partially offset downward pressure on low \ncommodity prices. \nExchange Rates \n \nGenerally, most currencies depreciated against the US dollar as shown by data \non the global financial markets. In Europe, the British pound, and the Euro \ndepreciated against the US dollar by 0.92 and 0.60 percent respectively \nbetween March 29 and April 26 2019. In Asia, the Japanese yen, the Chinese \nyuan and the Indian rupee all depreciated marginally against the US dollar by \n0.68, 0.25 and 1.24 percent respectively, over the same period. In North \nAmerica, the Canadian dollar depreciated by 0.79 percent, while the Mexican \npeso appreciated 2.59 percent. In South America, the Brazilian real, Argentine \npeso and Colombian peso all depreciated against the US dollar by \n38 \n \n \nClassified as Confidential \n0.28, 5.62, and 1.61 percent. In Africa, the naira remained relatively flat against \nthe dollar in the review period. South Africa’s rand and Egyptian pound and \nGhanaian cedi appreciated by 0.76, 0.86 and 0.05 percent. Kenyan shilling \nhowever depreciated against dollar by 0.68 percent. The pass through effect \nof depreciation can be inflationary if not properly handled. \nPolicy Rates \n \nFrom March 2019 and May 2019, central banks survey revealed that only \nNigeria reduced her policy rates, while others held their policy rate constant. \nThese included the Fed, Bank of England, ECB, Reserve Bank of India, Bank of \nJapan and Peoples Bank of China, all of which retained their policy rate in \nresponse to the prevailing uncertainties in the global economy. \nThe global development have implications for the domestic economy. For \nexample the weakening signal from the oil future market will affect the CBN \nability to support the naira if oil spot prices follow the direction of the futures \nmarket. This shows the need to build buffers to enable the CBN respond to \nanticipated changes in the global economy. Capital flows to emerging market \neconomies, such as Nigeria, may likely increase, particularly if the post-election \nsecurity situation in the country improves. CBN should work closely with the \nfiscal authority to improve the investment climate. There is need to monitor \ncurrent portfolio investment inflows into Nigeria which are being lumped up at \nshort end of the yield curve. \n39 \n \n \nClassified as Confidential \nDomestic Level \n \nAt the domestic level, factors such as volatility in crude oil prices, high NPLs, \ninfrastructure deficit, low capacity for revenue generation, and insecurity such \nas boko haram, herders/farmer conflicts, kidnaping and cybercrime \nhampered economic activities. The growth in the economy is driven by the \nnon-oil sector, which grew from 2.87 percent in first quarter of 2018 to 2.4 \npercent in the first quarter of 2019. The economy registered a positive growth \nrate of 2.01 per cent in the first quarter of 2019, which was far below the \npotential productive base of the economy. The growth rate is weak as it is \nbelow the population growth rate of 2.82 percent, thus reflecting a fall in per \ncapita output. Increase in output growth is extremely critical for the growth of \nthe economy. \nFurther on domestic developments, the current inflation rate of 11.37 percent \nis above the CBN target of 6 – 9 per cent. Unemployment in the economy is \nabove the Natural Rate of Unemployment (NAIRU). To promote growth and \nreduce inflation, there is need for demand side and supply side management \npolicies to be formulated and implemented. It has been identified that there is \ndemand gap in the economy and therefore, banks should embrace consumer \ncredit. This would impact on consumption, production and growth in the \neconomy. Private credit bureau or system be created, engage stakeholders \nto contribute their quota and how to honour their obligations, and alternative \ndispute resolution system be established. The \n40 \n \n \nClassified as Confidential \ncredit channel for monetary policy will aid growth and will have high impact \nin housing, mining, and transportation value chain. \nBanking Industry Financial Soundness \n \nThe capital adequacy ratio (CAR) improved from a low of 15.14 percent in \nFebruary 2019 to 15.60 percent in April 2019. This is remarkable because it is \nslightly above the prudential requirement by 0.60 percentage point. On the \nnon-performing loans (NPLs) ratio, there was improvement as the ratio \ndeclined from 11.28 percent in February 2019 to 10.95 percent in April 2019. The \nreduction in the NPLs was driven by write offs and recoveries. There was also \nincrease in provisioning by banks for NPLs in the review period. Similarly, the \nindustry liquidity ratio (LR) rose further from 51.05 percent in February, 2019 to \n52.61 percent in April 2019. This performance was 4.81 percentage points \nhigher when compared with of the ratio at end-April 2018. Overall, the Nigerian \nbanking sector remains sound and resilient. \nPolicy Decision \n \nThe decision taken was based on developments in the global and domestic \neconomic and financial environment. Given the above, I am of the opinion \nthat we hold, but advised that consumer credit should be pursued vigorously \nto promote growth. There is need for sustained policy support because GDP \ngrowth is still fragile. \n41 \n \n \nClassified as Confidential \nI therefore, vote to: \n \ni. Retain MPR at 13.5 percent; \n \nii. Retain the CRR at 22.5 percent; \n \niii. Retain the LR at 30 percent; and, \n \niv. Retain the Asymmetric Corridor of +200/-500 basis points. \n42 \n \n \nClassified as Confidential \n \n6. \nISA-DUTSE, MAHMOUD \n \nA. INTRODUCTION \n \nThe waning momentum in the global economy which became evident in the \nsecond half of 2018 is expected to intensify in 2019. This scenario is directly \nattributable to a confluence of factors plaguing key advanced and emerging \neconomies, such as, the escalating trade tensions between the US and China \nthat saw tariffs jump from 10% to 25%; the enforcement of Iranian sanctions; the \nuncertainty of a no-deal Brexit; the underperformance of some key economies \nin Europe; and the continuing effort at re-balancing the Chinese economy \naway from external demand and credit-driven investment to higher domestic \ndemand. On the domestic front, the economy is still confronted with \nheadwinds that threaten sustainable growth. \nB. EXTERNAL ECONOMIC CONDITIONS \n \nThe seemingly unending whirlwinds buffeting the global economy led the IMF \nto cut its global growth estimate for 2019 from 3.6% to 3.3% which represents \nthe third time the IMF has downgraded its growth forecast within a period of six \nmonths. In tandem with the slowing global economy, global trade in goods \nand services will increase at a weaker rate of 3.4% in 2019 as compared with \nthe 3.8% growth achieved in 2018. \nGrowth in the advanced economies is expected to decline from 2.2% in 2018 \n \nto 1.8% in 2019. The key economic blocs accounting for the slide include: the \n43 \n \n \nClassified as Confidential \nUS, where growth will plummet to 2.3% in 2019, down from 2.9% in 2018; the Euro \nArea that will see output nose-dive to 1.3% in 2019 compared with 1.8% in the \nprevious year. In line with the global pattern, economic growth in Emerging \nMarket and Developing Economies (EMDEs) is to witness marginal deceleration \nfrom 4.5% in 2018 to 4.4% in 2019 which is a reflection of the continuing \nslowdown in the Chinese economy. It is worth noting that the softening \nindustrial production in the world’s major economies and the weakening \nglobal demand lead to reduced international trade with broad implications \nfor primary commodity exporting countries like Nigeria where potential decline \nin exports may result in falling aggregate demand, output and employment. \nMoreover, the expansionary policy response to the growth conundrum by the \nadvanced economies range from monetary accommodation in the Euro Area \nto ‘no rate hike’ in the US and UK, and outright lowering of rate in New Zealand \nwith implications for financial market development in EMDEs. Given that policy \nnormalization is no longer on the front burner, the moderation in the speed of \nfinancial flows into US dollar-denominated assets is expected to remain while \ncorrespondingly, inflows into EMDEs are expected to rise. The increasing \nportfolio flows into the Nigerian economy will continue to support and further \nsustain the relative stability in the foreign exchange market. Consequently, \nimport-induced inflationary pressures will remain subdued in the foreseeable \nfuture in Nigeria. \n44 \n \n \nClassified as Confidential \nThe international price of crude oil is projected to remain above $60/barrel in \n2019 and is now hovering around $70/barrel. With this favourable swing, there \nis re-kindled hope that Nigeria can build fiscal buffers, increase foreign reserves \nand facilitate stability in the foreign exchange market. \nC. DOMESTIC ECONOMIC CONDITIONS \n \nThe recent data from the National Bureau of Statistics (NBS) underscores the \nfragility in domestic economy with a real GDP growth of 2.01% in Q1 2019 which \nwas 0.37 percentage point less than the 2.38% recorded in Q4 2018. The same \ntrend is evident on a disaggregated basis as the contraction in the oil sector \ngrowth rate worsen from 1.62% in Q4 2018 to 2.40% in Q1 2019 while the non-oil \nsector growth declined by 0.23 percentage point from 2.7% in Q4 2018 to 2.47% \nin Q1 2019. These are pointers to the existence of spare productive resources \nin the economy. Thus, the unemployment rate remains high as CBN in-house \nresearch reveals the yawning gap between the unemployment rate and the \nNon-Accelerating Inflation Rate of Unemployment (NAIRU). Therefore, there is \nneed for a multi-pronged approach to address the binding constraints to rapid \nand inclusive growth. \nThe data from NBS indicates that there is a gradual build-up in inflationary \npressures as headline, core and food inflation (month-on-month) rose to 0.94%, \n0.70% and 1.14% in April 2019 from 0.79%, 0.53% and 0.88% in March 2019, \nrespectively. On a year-on-year basis, the outcome is mixed as headline \ninflation stood at 11.37% in April 2019 compared with 11.25% in the \nprevious month while core inflation fell by 0.16 percentage point and food \n45 \n \n \nClassified as Confidential \ninflation rose by 0.25 percentage point between March and April 2019, \nrespectively. The annual headline inflation rate for April 2019 is not particularly \nalarming when compared with the 11.37% and 11.44% of January 2019 and \nDecember 2018, respectively. Nevertheless, an appropriate policy mix should \nbe put in place to nip this developing inflationary pressure in the bud against \nthe backdrop of the numerous upside risks to inflation, which include: upward \nadjustments in wages and salaries; high liquidity injections arising from the \ncontinuing implementation of the 2018 FGN budget; and increased liquidity \nprompted by massive interventions, high inflow of capital and home \nremittances. On a salutary note, the current level of external reserves of over \n$44 billion and the moderately high price of crude oil in the international \nmarket, provides the platform for sustainable foreign exchange rate stability (in \nthe near term) and mechanisms to rein-in imported inflation. \nBroad monetary aggregates, M3 and M2 increased during the reporting \nperiod even though, they exhibited significant negative deviations \n(underperformed) from their indicative benchmarks in April 2019. M3 and M2, \nat 5.42% and 1.85%, were 9.05 and 11.14 percentage points below the 2019 \nbenchmarks of 14.47% and 12.99%, respectively. Maximum and prime lending \nrates however increased from 30.83% and 14.92% in March 2019 to 30.89% and \n18.23% in April 2019, respectively. These developments have negative \nimplications for credit extension to the real sector. \nThe banking system development is mixed as the industry performed well in the \nareas of good capital adequacy, cost effective operations, high liquidity \n46 \n \n \nClassified as Confidential \nand robust returns on investments. However, while the deposits and liquidity \ntrends increased progressively, the total credit growth remained negative and \nnew credits fell in terms of value against the background of declining non-\nperforming loans (NPLs), even though these still remain high. The falling trend in \nnew credits in Q1 2019 correlates well with the increase in real GDP at a \ndecreasing rate during the first quarter of 2019. At this time, the poor credit \ndelivery to the private sector by banks cannot be attributed to low system \nliquidity because the converse is the case. It is thus inappropriate to \ncontemplate a further policy rate cut as this will add fuel to the liquidity \noverhang and jeopardize the price stability mandate of the Bank, especially in \nthe light of the uptick in the general price level in April 2019. It is more \nappropriate to decisively deal with the numerous factors which account for \nthe high level of NPLs in the system to create a conducive environment for \nbanks to lend for both production and consumption. \nC. VOTING DECISION \n \nA loosening policy option will appear time inconsistent – there is need to allow \na reasonable time lag to judge the impact of the recent policy rate cut. \nMoreover, any further rate cut will aggravate liquidity problems and will be out \nof tune with the buildup of inflationary pressures. On the other hand, a rate \nincrease is likely to undercut the nascent growth in output and exacerbate the \nhigh level of unemployment and underemployment in the economy. \nTherefore, I voted to retain all existing policy parameters as follows: \n• MPR at 13.50% per annum \n• The asymmetric corridor at +200/-500 basis points around the MPR \n \n• Liquidity ratio at 30.0% per annum \n \n• CRR at 22.5% per annum \n47 \n \n \nClassified as Confidential \n7. \nNNANNA, OKWU JOSEPH \n \nGrowth remains muted amidst sub-optimal credit to the private sector and \ncommercial banks’ preference for public sector lending. Aggregate demand \nwas relatively weak and the financial conditions reveal a banking industry \noverwhelmed by adverse selection and risk aversion. Data from the NBS reveal \nthat Real GDP grew by 2.01 per cent in 2019Q1, relative to 2.38 per cent in \n2018Q4 and 1.89 per cent in the corresponding quarter of 2018. Against this \nbackdrop, the need to diversify the productive base by channeling more \nresources to the agricultural sector cannot be overstated. \nDespite the reduction in Non-Performing Loans (NPLs), credit to growth- \nenhancing sectors continued to be weak. At 5.42 per cent growth in April 2019, \ncompared to end-December 2018, broad money (M3) was below target and \ninadequate to significantly drive growth. Though banking industry data reveal \nthat non-performing loans (NPLs) remain elevated, its downward trend \nindicates that the industry remains resilient. Despite the soundness of the \nsector, growth in credit to the core private sector was tepid at 9.79 per cent in \nApril relative to end-December 2018. At 64.4 per cent growth, credit to \ngovernment was significantly crowding out the private sector. Money market \nrates were relatively stable, with modest oscillations in line with liquidity \nconditions. \n48 \n \n \nClassified as Confidential \nIncipient inflationary pressures persist on account of structural and food supply \nshocks. Headline inflation (year-on-year) increased marginally, after three \nconsecutive months of decline to 11.37 in April 2019 from 11.25 per cent in \nMarch 2019. Similarly, food inflation rose to 13.70 per cent (year-on-year), from \n13.45 per cent in the same period. However, core inflation declined to \n9.30 per cent from 9.50 per cent in March 2019. With this development, I see \nstrong merit in pursuing tight monetary policy in the short-run, while ensuring \nthat farmers and operators in the agricultural value chain space are \nadequately funded. \n \n \nThe fiscal space to scale up well-targeted capital expenditure was further \nconstrained by rapidly growing public sector debt, rising debt service \nobligations and low revenue collections. These developments represent \nheadwinds to the implementation of the N8.92 trillion 2019 Budget and \nachievement of inclusive growth. Accordingly, the urgent need to enhance \nthe fiscal buffer cannot be overemphasized. \nThe balance of payments continued to be viable, supporting external reserves \naccretion and exchange rate stability. A balance of payment surplus of \nUS$0.002 billion was recorded in 2018Q4, while external reserves of US$45.42 \nbillion was achieved. This performance revealed resilience which will sustain \ninvestors’ confidence and bolster exchange rate stability. \nDespite the overwhelming need to grow the economy, pursuing an \n \nexpansionary monetary policy at this juncture, is contemporaneously time \n49 \n \n \nClassified as Confidential \ninconsistent. What is needed is a combination of fiscal and structural policies \nto improve the infrastructure deficits and diversify the productive base of the \neconomy. Thus, I vote to retain the current policy metrics. \n50 \n \n \nClassified as Confidential \n8. \nOBADAN, MIKE IDIAHI \n \nAs at the last Monetary Policy Committee meeting held in March, 2019, there \nwere indications of strong concerns about the effects of uncertainties and \nvulnerabilities in the global economy on global economic activity, financial \nflows and economic policies. The uncertainties related to the likelihood of the \nUS economy going into recession in 2020, non-resolution of issues surrounding \nBREXIT, weakening growth in Europe as major economies like Germany, Italy \nand France are confronted with internal weaknesses, slowing growth in China \ndue to the impact of its trade war with the US and tighter financial regulations, \namongst others. These developments conditioned domestic policy measures, \nin particular, monetary measures across the globe. \n \nGlobal Economic Developments \n \nThe above uncertainties across the global economy, arising from various \neconomic and political developments, had not abated by the time of the \nMPC meeting on 20th and 21st May, 2019; indeed, they had intensified in some \ncases. The concerns about them derive from their implications for growth and \ntrade volumes both for the global economy and individual economies as well \nas monetary policy directions. Examples are the following: \n• Downgrading of global output growth. In light of the uncertainties and \nvulnerabilities, global growth in 2019 has been further revised downward \nby the International Monetary Fund (IMF) to 3.3 per cent from the earlier \n3.5 compared to 3.6 percent in 2018. This is against the \nbackdrop of the advanced economies that are expected to lead \n51 \n \n \nClassified as Confidential \ngrowth in 2019 continuing to contend with uncertainties looming around \nthem. Output growth in this group of economies has been further \ndowngraded by the IMF from 2.2 percent in 2018 to 1.8 percent in 2019 \nfrom an earlier 2.0 percent projection. The speculation that the US \neconomy may dip into recession sometime in 2020 remains relatively \nstrong while the European Central Bank (ECB) has revised its growth \nforecasts for 2019 and gave indications of some recovery as it returned \nto monetary accommodation in the wake of macroeconomic \nweaknesses observed in the first quarter of the year. Growth in the \nEmerging Market and Developing Economies (EMDEs) is projected to \nslow moderately to 4.4 percent in 2019 from 4.5 percent in 2018. Other \nmajor world economies are projected to have mixed growth \nperformance: China is expected to continue to weaken to 6.3 percent \nin 2019 from a peak of 6.6 percent in 2018 while India is projected to \nhave a robust growth of 7.3 percent in 2019, up from 7.1 percent in 2018. \nGhana is projected to have moderate growth in 2019 while Kenya’s \ngrowth is projected to decline to 5.8 percent in 2019 from the growth of \n6.0 percent in 2018. \n• Continued trade war between the US and China. Recently, following the \napparent breakdown of trade negotiations, the US raised tariffs from 10 \npercent to 25 percent on US$ 200.0 billion goods imported from China. \nIn retaliation, China has announced plans to impose 25 percent tariffs \non US$ 60.0 billion imports from the US. Even though President \nDonald Trump has indicated readiness to enter into trade negotiations \n52 \n \n \nClassified as Confidential \nwith China, it appears the stage is set for a tariff/trade war which may \nultimately benefit no one as prices shoot up in both countries, volumes \nof trade fall and consumer welfare is sharply eroded. In contrast, the US \nhas eliminated high tariffs on steel and aluminum from Mexico and \nCanada to pave the way for a new trade deal. This, notwithstanding, \nthe direction of world trade continues to be characterized by \nheightened trade tensions which depress global trade. \n• Phenomenon of slowly rising inflationary pressures. Price development in \nthe advanced economies has remained muted and, indeed, trending \nbelow 2.0 percent in some key advanced economies while in the EMDEs, \nit averaged 4.9 percent. With prices receding faster in some of the \neconomies and much slower in some others, many central banks have \nreceded into a dovish stance with respect to a possible return to \nmonetary accommodation in the face of signs of weakness in the global \neconomy. \n• Uncertainties around BREXIT. In the United Kingdom, uncertainties \nsurrounding BREXIT have persisted with the increasing likelihood of a no- \ndeal BREXIT and a second referendum. The prospects of a second \nreferendum has become higher on the agenda even though the \nEuropean Union has further extended the exit date to October 2019. \nMeanwhile, investors appear to have adopted a wait-and-see posture \nwith British and European assets as developments around BREXIT unfold \ngradually. \n53 \n \n \nClassified as Confidential \n• Volatility of oil prices remain. The price of Bonny light on May 7, 2019, \nstood at US$ 61.85 per barrel compared with US$ 67.48 per barrel on \nMarch 13, 2019 and the opening price of US$ 45.41 per barrel on January \n1, 2019. Even though, the reduction in production of oil by both OPEC \nand non-OPEC members by 1.2 million barrels per day, effective from \nJanuary 2019, has contributed to the recent uptick in oil prices, the \nincreasing investment in shale oil production by the US remains a \nsignificant threat to future oil price increases. US crude oil production is \nreported to have averaged 12.1 million barrels per day in March, 2019. \nIt is forecast to average 12.4 and 13.1 million barrels per day in 2019 and \n2020, respectively. Futures market data suggest that the price of crude \noil will fall to just over US$ 60.0 in 2021. And if Russia declines to back an \nextension of the production cut agreement at the end of June, as has \nbeen indicated, oil prices may become much lower in line with the \nexpectations of the US oil production strategy and to the detriment of \nthe oil exporting countries. \n \nAll the above point to a global economy that is grappling with challenging \ntimes. The developments have several implications, some of which are sources \nof concern generally. \n \no Weak growth leads to a slowdown in global aggregate demand and \nweak export revenue. \n54 \n \n \nClassified as Confidential \no The growth concerns have led many central banks to adopt dovish \nstances on monetary policy such that policy rates are being maintained \nor reduced. The US Federal Reserve Bank (Fed) has abandoned its initial \nforward guidance of at least two policy rates hikes in 2019. The Fed no \nlonger sees any compelling need to adjust the policy rate in either \ndirection. While it is jealous of its independence vis- \na.vis President Trumps attempted interference, the Fed is not unmindful \nof indications of the likelihood of the economy going into recession in \n2020 and the consequent need for monetary accommodation. \nGenerally, because of the weak growth projections and the need to \navert recession and generate employment, most central banks have \ngone into accommodation mode by keeping the policy rates constant \nor reducing it. Out of 14 central banks surveyed by the CBN between \nMarch and April, 2019, two of them (Central Bank of Nigeria and Reserve \nBank of India) reduced policy rates while the others held the rates \nconstant. \no With the return of ECB to monetary accommodation and the US and UK \nmoving away from normalization of monetary policy in the short- term, \ncapital flows to EMDEs such as Nigeria may likely increase. This requires \ncreating the necessary conditions for this to materialize. \no The uncertainty associated with BREXIT negotiations and the US’ \nmercantilist trade policy towards its trading partners, particularly, China, \nEurope, Mexico and Canada, has a significant negative impact \n55 \n \n \nClassified as Confidential \non trade and investment flows resulting in the slowdown of the global \neconomy. \nThus, at a time of increasing vulnerabilities in the global economy, with possible \nnegative implications for domestic economies, Nigeria’s monetary policy \ndirection would have to take cognizance of the economy’s slow recovery from \nrecession and the need to improve growth performance as well as \nemployment \ngeneration, \npoverty \nreduction \nand \noverall \neconomic \ndiversification. Specific developments in the domestic economy are also \nimportant in determining policy direction. \n \nDomestic Economic developments \n \nGDP growth performance. Well-thought-out fiscal, monetary, trade and other \npolicies as well as recovery of the world oil market, moved the economy out \nof recession since the second quarter of 2017. But the growth attained remains \nlow and fragile, very much below the economy’s potential and below the \ncountry’s worrisome high population growth rate. The growth rate has also \ntended to fluctuate, standing at 1.81, 2.38 and 2.01 percent in quarters 3 and \n4, 2018 and quarter 1 in 2019, respectively. The baseline growth projections for \nthe economy in 2019 are also below 3.0 percent although the annual budget \nputs the average at 3.01 percent. However, the output gap suggests room to \nexpand the economy and make it to grow fast. The gap can be closed when \nthe economy is stimulated with appropriate policy measures including \nmonetary accommodation. In this regard, the \nmajor focus would be the non-oil sector which has continued to drive growth. \n56 \n \n \nClassified as Confidential \nInflation rate. The headline inflation rate increased marginally in April, 2019 \nafter three months (January, February and March) of successive moderation. \nThe year-on-year headline inflation rate stood at 11.37 percent in April \ncompared to 11.25 percent in March. The month-on-month headline inflation \nrate also inched up from 0.79 percent in March to 0.94 percent in April. But, the \nyear-on-year core inflation rate reduced while the month-on-month core \ninflation rate inched up. The price of food and non-alcoholic beverages was \nthe primary source of the uptick in headline inflation as the prices of most other \nitems remained constant. The uptick in headline inflation at this time is not \nunexpected considering that the harvest season has gradually been replaced \nby planting/farming season. Supply challenges have begun to surface \ncompounded by farmers-herders conflict which has impacted food supply \nnegatively. This factor, along with other structural impediments to agricultural \nproduction would need to be effectively addressed. The Central Bank of \nNigeria’s heterodox policy interventions in agriculture, manufacturing and \nSMEs development would need to be sustained to boost domestic production, \nfood security, dampen inflation expectations, raise employment, reduce \npoverty and advance the economic diversification objective. \n \nBanking System Performance. The available data indicate that improvements \nhave continued to be recorded in capital/asset based financial soundness \nindicators – Capital Adequacy Ratio, Liquidity Ratio and Non-Performing \nLoans Ratio (NPL). Nevertheless, the NPL ratio is still high and above the \n57 \n \n \nClassified as Confidential \nprudential limit. And even though the return on equity and return on asset \nshowed decline between February and April, 2019, they are still high \ncompared to comparator countries where efficiency and management levels \nare much higher. The assets of the banking industry have continued to trend \nupwards driven by increased investment in government securities. This leads us \nto the issue of concern in the industry’s asset structure. The proportion of \ngovernment securities in the banking industry’s asset structure is growing while \nthat of loans and advances is declining; loans and advances are being \ndisplaced by banks’ investment in government securities which have become \nseductive to them because of their high yields and risk-free nature. This cannot \nbe allowed to continue as it implies abandonment of their primary mandate \nof intermediation to the detriment of production, distribution and exchange \nthat are yearning for loans financing. Even though the number of new credits \nincreased strongly in April, 2019 compared to December, 2018, the value of \nsuch credits is much lower while the credit is highly concentrated in a few \nobligors. Therefore, a way must be found to limit banks’ purchase of \ngovernment securities so that they can focus on their primary functions of \ndeposit mobilization and lending. At the same time, the Central Bank would \nneed to expedite the implementation of its planned measures aimed at \nassisting the banks to minimize non-performing loans and boosting loans \nrepayments. This will further encourage the banks to focus on delivering on their \nprimary mandate of intermediation and hence avoid crowding out the non-\nbank public in the government securities market. \n58 \n \n \nClassified as Confidential \nGovernment’s fiscal operations. These have been characterized by weak \nrevenue mobilization, unstable and inadequate oil revenue receipts, and fiscal \ndeficits. Year-in-year-out, government revenue projections are not realized \nwhile expenditures are large, resulting in huge fiscal deficits, public debt \naccumulation and pressure on the monetary authority. The fiscal deficit in 2018 \nwas N3.6 trillion, financed by domestic borrowing, external borrowing, and the \nmonetary authority (net deficit). Consequently, the country’s public debt has \ngrown and become highly worrisome with debt servicing accounting for a very \nsignificant proportion of revenue and the annual budget. The total public debt \nas at December 31st, 2018 stood at N24.387 trillion with external debt \naccounting for 32 percent. As the country would not like to return to the pre-\n2005 era of external debt crisis, control must be exercised on future foreign \nborrowing while efforts are further intensified to grow the economy, diversify \nthe revenue base and mobilise significant non- oil revenue. Greater stability will \nbe achieved when the country begins to rely more on taxation rather than \nunstable oil receipts to finance development. \nOpinion \n \nThis opinion takes cognizance of the foregoing, especially the need to \nstrengthen growth and economic diversification. It also takes cognizance of \nthe Staff quantitative assessments of the impacts of the various monetary \npolicy options relating to loosening, tightening and maintenance of the status \nquo. Even though the inflation rate inched up in April, the assessments show \nthat a reduction in the Monetary Policy Rate (MPR) would accelerate GDP \ngrowth, moderate inflation rate while the monetary aggregates would not \n59 \n \n \nClassified as Confidential \nexceed their provisional benchmarks for 2019. The Interbank Call Rates for the \nentire 2019 would be lower than what prevailed in the second quarter. \nConsequently, I vote to reduce the MPR by 25 basis points while holding the \nother monetary policy indicators – Cash Reserve Requirements, Liquidity Ratio \nand Asymmetric Corridor - at their extant levels. \n60 \n \n \nClassified as Confidential \n9. \nSANUSI, ALIYU RAFINDADI \n \n1. Decision: \n \nMy decision to vote for a hold, in today’s meeting, was informed by the need \nfor monetary policy stance to rein in inflation, sustain the relative exchange \nstability and support output recovery. Although the increase in the headline \ninflation (year-on-year), in April 2019, driven mainly by food prices may appear \nto suggest that the inflationary process was driven by supply side and structural \nfactors, available data and as well as staff estimates of the NAIRU and Output \ngap suggest that monetary policy (demand side measure) can be efficacious \nin taming the sticky inflation. Further analysis of the available data and \nempirical evidence from the staff estimates, therefore, shows to further reduce \ninflation from its current low double-digit level and boost output growth without \ncompromising the relative stability of the exchange rate or reduce reserve \naccretion, a delicate mix of supply-side and demand- side policies are \nrequired. My vote to hold the rate at 13.5% was informed by the conviction \nthat aggressive pursuit of the heterodox policy measures could boost the short-\nrun aggregate supply (through interventions that increase low-cost credit) \nsupported by increased effective demand (through interventions that increase \nconsumer credit). \n61 \n \n \nClassified as Confidential \n2. Background and Justification \n \n2.1. \nGlobal Economic Developments \n \nGlobal output is expected to slow down in 2019 while inflation would decline \nin Advanced Economies, but marginally rise in Emerging Markets and \nDeveloping Economies (EMDEs). Consequently, the dovish monetary stance in \nthe key Advanced Economies could, in the short to medium-term, raise capital \nflows to the Emerging and Developing Economies. \n \nThe global economic environment continued to face uncertainties resulting \nfrom escalation of the trade war between US and China, breakdown of BREXIT \nnegotiations, new US sanctions on Iran, tensions on the Korean Peninsular, rising \npublic & corporate debt in some EMDEs as well as rising vulnerabilities in major \nfinancial markets. These have has resulted in the downgrade of global output \ngrowth, by the IMF, to the 3.3 percent in 2019 compared with the 3.3 percent \nachieved in 2018. The downgrade resulted from the expected slowdown in \nAdvanced Economies, which were projected to grow by 1.8 percent in 2019 \ncompared with the 2.2 per cent achieved in 2018. This is mainly because of the \nprojected slowdown of growth in the Euro Area (to 1.3% in 2019 from 1.8% in \n2018) and the US (to 2.3% in 2019 from 2.9% in 2018). Growth in EMDEs is also \nprojected to slow down to 4.4 percent in 2019 compared with the 4.5 percent \nachieved in 2018 mainly due to the expected slowdown of the Chinese \neconomy as a result of the trade war (from 1.5% q-on-q in Q1 2019 to 1.4% in \nQ1 2018). \n62 \n \n \nClassified as Confidential \nInflation in the key advanced economies is trending below the 2% target in \nEuro Zone (at 1.7% in April 2019), the UK (1.9% in March, 2019), Japan (0.5% in \nMarch 2019), and is on target in the US (at 2% in April, 2019). Inflation is \nforecasted to moderate to 1.6 percent in 2019 from the 2.0 percent achieved \nin 2018. These price development, coupled with the projected slowdown in \noutput growth, have prompted many central banks in advanced economies \nto adopt a dovish monetary policy stance, with the possibility of return to \nmonetary accommodation in the near to medium term. The recent cut in \npolicy rate by the Reserve Bank of New Zealand could be marking the \nbeginning of a coordinated response to the expected slowdown of the global \neconomy. The Bloomberg’s Global Financial Conditions Index shows that \nglobal financial conditions are easing, thereby threating to raise global \nfinancial market vulnerabilities. The rise of Merrill Lynch Global Financial Stress \nIndex, also suggests an increased global financial market stress due to \nvolatilities in the futures markets arising from the heightened US-China trade \nwar tensions. \nCrude oil price volatility is expected to continue on the account of the unrests \nin Libya, tensions in the Middle East, threats on military action on Iran, rising \nstock piles of US Shale Oil as well as fears of depressed global output growth. \nAs the future direction of oil price is unclear, the likelihood of rising exchange \nrate pressures in oil exporting economies also remain uncertain. These \ndevelopments have a number of clear implications for Nigeria. First, the \npossibility of a return to monetary in major advanced economies suggests \n63 \n \n \nClassified as Confidential \nthat capital flows from the advanced economies to EMDEs may increase. This \nunderscores the need for the real yields on the naira denominated assets need \nto remain positive. Secondly, the uncertainties in directions of the oil market \nremains a source of concern, especially for exchange pressures, should the \ndownside risks to global output heighten. Thirdly, these developments are clear \nsignals for Nigeria to intensify efforts aimed at diversifying the economy and \ngovernment revenue away from the oil sector. \n \n \n2.2. \nImplications of the Domestic Economic Developments \n \nThe available data, forecasts and Staff estimates reveal that domestic output \nhas risen and is expected to continue to rise; real output remains below its \npotential level; unemployment lies below the NAIRU; and, inflation has risen \nand is expected to rise amidst tightening monetary condition. The combination \nof these developments suggests that the economy may be stuck in a short-run \nequilibrium that requires both demand and supply side policies to \nsimultaneously reduce inflation and unemployment as well as increase output \nin the near-term. \n \nData shows that domestic real output has sustained a positive trend since the \nfourth quarter of 2017. Real output grew by 1.98 percent in 2018 compared \nwith 0.82 percent in 2017. Quarterly output has also significantly increased, \ngrowing by 2.01 percent the first quarter of 2019 compared to 1.89 percent in \nQ1 2018. The growth was driven by the non-oil sector, which grew by 2.47 \n64 \n \n \nClassified as Confidential \npercent, while the oil sector actually contracted by 2.4 percent. Forecasts \nshow that output growth is expected to rise throughout 2019, culminating into \nan annual growth rate of 2.3 percent for the year. Inflation (y-on-y), which has \nincreased from 11.25 percent in March 2019 to 11.37 percent in April 2019, is \nexpected to moderate until August 2019. The rise in inflation was driven by food \nprices, which grew by 13.7 percent in April from 13.45 percent in March 2019 \nwhile Core Inflation moderated. On a month-on-month basis, however, both \nCore and Food Inflation increased during the period. This underscores the \nimportance of supply-side and structural factors in the inflationary process. In \naddition, Staff estimates show that the real output has been below its potential \nlevel since the second quarter of 2016, while the unemployment rate lies above \nthe Non-Accelerating Inflation Rate of Unemployment (NAIRU). Amidst rising \ninflation and rising output, these estimates of potential output and NAIRU \nsuggest that the dynamics of output and inflation can be approximated by \nthe comparative statics depicted in the simplified AD-AS framework in figure 1 \nfor the purpose of evaluating policy options. As indicated in the figure, the \ncurrent inflation rate (πt) and real output (Yt) are determined by the short-run \nequilibrium (E1) at which the short-run Aggregate Supply curve (AS0) intersects \nthe Aggregate Demand (AD0). This short-run equilibrium, located to the right of \nthe long-run equilibrium (E0), determine the current real output (Yt) that is \nbelow its long- run potential, and current inflation rate (πt) that is above its long-\nrun target (π*). The unemployment rate associated with the current output will \nbe below \nthe NAIRU (obtainable when Yt = Yp). As can be seen, therefore, to \n65 \n \n \nClassified as Confidential \nsimultaneously reduce the current inflation and raise real output (or reduce \nunemployment), a combination of demand management and supply side \npolicies are required. Tightening alone, for instance, will shift the AD to the left \nthereby reducing inflation, but will also reduce output. Easing would shift the \nAD to the right and raise output and reduce unemployment, but will also raise \ninflation. An effective policy strategy could be to use a targeted monetary \npolicy intervention that increases lending to the real sector at the prevailing \ninterest rate to support production, which will shift the short-run AS to the right, \nwhile holding the AD. This could be achieved if quantity of lending can be \nsignificantly increased at the current interest rates. \n3. The Basis for My Policy Choice \n \nIn the light of above analysis, I voted to hold the rate because a loosening to \nsupport output would raise the inflation rate in the process while tightening to \nreduce inflation would reduce output and raise unemployment. I therefore \nvoted for a hold with the conviction that, the Central Bank would intensify its \ndevelopment finance interventions and other heterodox policies that support \nthe supply side so that both lower inflation and faster output growth can be \nachieved simultaneously. \nConsequently, I voted to: \n \n• Retain the MPR at 13.50 percent; \n• Retain the CRR at 22.5 percent; \n• Retain the asymmetric corridor at +200/–500 basis points; and \n• Retain liquidity ratio at 30.0 percent. \n66 \n \n \nClassified as Confidential \nFigure 1: The AD-AS Framework \n \n \nLAS \nAS0 \nPrices \nAS1 \nE1 \nπt \nπ* \nE0 \nAD1 \nAD0 \nYt \nYP \nOutput gap \n67 \n \n \nClassified as Confidential \n10. \nSHONUBI, FOLASHODUN A. \nGlobal Economic Developments \nEconomic fundamentals in some advanced economies developed more \npositively than expected in the first quarter of 2019. Growth in the United States, \nUnited Kingdom and the euro area were higher in 2019Q1, compared with the \nlevels in 2018Q4. Germany and Japan recorded positive growth, against zero \ngrowth and contraction in 2018Q4, respectively. However, a number of \ndownside risks may constitute drag to global growth going forward. Re-ignition \nof trade war between the US and China, breakdown of negotiation on Brexit \nand subdued international trade flows have dimmed the horizon on global \ngrowth. With the exception of India which had marginally higher growth, \nChina, Brazil, Russia and South Africa slowed in 2019Q1. Thus, the International \nMonetary Fund projected global growth at 3.3 per cent in 2019 (WEO, April \n2019). Inflation trended below the 2.0 per cent target in the advanced \neconomies and generally averaged 4.9 per cent in emerging and developing \neconomies, highlighting potential for higher growth to push inflation to target \nlevels. These developments have implications for capital and investment flows, \nas well as, demand for EMDEs, including Nigeria. \nDomestic Economic Environment \n \n \nRecent uptick in inflation in April 2019 after the downward trend in 2019Q1 \nreflected, mainly, the effect of seasonal factor rather than a resurgence of \n68 \n \n \nClassified as Confidential \nfundamental inflationary pressure. Headline inflation, on year-on-year basis, \ninched up to 11.37 per cent in April 2019, from 11.25 per cent in March 2019. \nThis was due wholly to the rise in food inflation to 13.70 per cent, from 13.45 per \ncent \nin \nMarch \n2019, \non \naccount \nof \nseasonal \nfactors, \nincluding \ncommencement of the planting season and insecurity in some parts of the \nfood producing states which had disrupted production and distribution of food \nitems. Sustained decline in core inflation so far in 2019 highlighted the muted \neffect of exchange rate pass through, as a result of generally stable exchange \nrate. \nDriven by expansion in the non-oil sector, output growth remained weak and \nfragile with potentials for further non-inflationary growth through both \nexpansionary fiscal and accommodative monetary policy. Real Gross \nDomestic Product (GDP) growth, at 2.01 per cent in 2019Q1, compared with \n2.38 per cent in 2018Q4, reflected the 2.47 per cent expansion in the non-oil \nsector. With the major growth drivers being agriculture and services sectors, \ncontraction in the oil sector was the major drag on output growth, as a result \nof below target production, amidst positive development in international oil \nprice. Continued expansion of composite Purchasing Managers’ Indices (PMI) \nfor manufacturing and non-manufacturing sectors underscores the impact of \nsustained exchange rate stability on business planning and intermediate \ngoods pricing. Overall, real output was well below the potential level, \nhighlighting the need for greater aggressiveness of fiscal and monetary \n69 \n \n \nClassified as Confidential \npolicy measures that promote expansion of economic activities, in the face of \nincreasing population and unemployment. \nGrowth in the monetary aggregates was characterised by mixed trends, with \nthe narrow measures of money supply generally underperforming, while \nsustained increase in securitized money pushed growth of the broader \nmeasure of money beyond the benchmark. Growth in broad money supply \n(M3), relative to the level at end-December 2018, was 5.42 per cent at end- \nApril 2019, annualised to 16.26 per cent, against the benchmark of 14.47 per \ncent. Though net domestic credit (NDC) and time and savings deposits grew \nby 19.31 and 6.53 per cent, respectively, in April 2019, narrow money supply \n(M1) contracted by 4.26 per cent, while M2 underperformed at 1.85 per cent, \nannualised to 5.54 per cent, compared with the benchmark of 12.99 per cent. \nThe less than target growth in M2 and contraction of M1, despite the significant \ngrowth in NDC, highlights the persistent disconnect between the dynamics of \nmoney supply components and flow of credit to the private sector in particular \nand the real economy in general. This continues to be a concern. \nOverall activities in the money market and movements in the rates reflected \ngenerally positive reaction to the 50 basis points reduction in policy rate at the \npreceding MPC meeting. Initial volatility that characterised movements in the \nInter-bank and Open-Buy-Back rates, eventually culminated in a decline as at \nMay 16, 2019. Also, low activity at the deposit and lending facility windows \nshowed the relative vibrancy of the inter-bank segment in the \n70 \n \n \nClassified as Confidential \nreview period. This was also reflected in the downward trend in Nigerian \nTreasury and CBN Bills rates, with implications for lower cost of liquidity \nmanagement and positive balance sheet effect for participating entities in the \nmoney market. It, however, remained worrisome that trends in the money \nmarket rates did not transmit to lower lending rates, highlighting the weakness \nof transmission mechanism. \n \nSustained stability in the banking industry is reflected in improvement of banks’ \nprudential measures, though conditions highlighted the need for the Bank to \nintensify current regulatory and supervisory measures to ensure further \nprogress. Apart from the improvement in asset quality, indicated by the steady \ndecline in industry non-performing loans (NPL) ratio from December 2018, \nprovision coverage remained high and sufficient. Similarly, industry capital \nadequacy and liquidity ratios, were above the levels in March 2019 and the \nprudential thresholds. Recurring challenges of the banking sector, however, \nremained the lack of credit creation to support real sector activities and \ngrowth, excessive investment in government securities, as well as, high interest \nrate, which must be decisively addressed, along with prompt resolution of \noutlier institutions. These will further strengthen the resilience of the industry. \nDespite the decline in foreign portfolio and direct investments, viability of the \nexternal sector was generally strengthened. Sustained stability at the Investors \nand Exporters, as well as, at the Bureaux-de-Change (BDC) windows, aided \n71 \n \n \nClassified as Confidential \nby the steady accretion to reserve, continued to boost business planning and \ninvestors’ confidence. Also, declining import bill, narrowing income account \ndeficit and increasing export of merchandise goods have combined to sustain \noverall balance of payment surplus. Whereas recent decline in capital flow \nmay portend worrisome trend, a quick reversal is expected and already \nmanifesting, as competitiveness remain unchanged. \nOverall Considerations and Decision \n \nFactors within both the global and domestic economic environment \ncontinued to condition the direction of monetary policy. On the global scene, \nbeyond the implications of deterioration in Brexit negotiation and the fact that \nthe bar for a near-term cut by the Fed is higher than most policy makers realise, \npolicy direction must position against the spillover effect of further slowdown in \nglobal growth. Though recent trends in the international price of oil provides \nopportunity for some respite, sufficient caution must be taken, including \nbuilding of fiscal buffers to manage likely impact of sudden reversal that may \ncome with resolution of the temporary impasses fueling the upbeat in oil prices. \nOn the domestic front, the major challenges for monetary policy remained low \ncredit flow to the real sector, sub-optimal output level and high \nunemployment, to which the increasing insecurity has been attributed. Recent \nuptick in inflation, mainly, on account of food inflation was expected, however \nthe prognosis over the next months is a gradual decline inflation. Moreover, as \nthe insecurity challenges are resolved, improved food \n72 \n \n \nClassified as Confidential \ndistribution is expected to reduce pressure on food prices. Implementation of \nthe new minimum wage is not expected to have any long term impact on \ngeneral prices, just as declining core inflation, provides respite from \nheightening of inflationary pressures. \nAddressing the sub-optimal output level will halt rising unemployment. Growing \ndomestic output, however, requires a combination of fiscal and monetary \npolicies. Within the gradual expansion of agriculture, a quick win will be \naggressive investment along the entire value chain to harvest the gains of high \ncapital-output ratio. The value chain, with numerous points for value added \nactivities, \nprovides \nenormous \nemployment \nand \nincome \nenhancing \nopportunities. \nTo reduce the shortfall in aggregate demand and take advantage of current \nnegative output gap, focus of policy must include stimulating consumer \nspending. Banks must expeditiously grow consumer credit for households to \ntake up accumulated stocks, which invariably lead to increased production \nand aggregate supply, thereby dousing inflationary pressure. In addition, to \nincrease credit accessibility and uptake, deliberate effort must be made to \ndrive down interest rate, especially considering the weakness of the \ntransmission mechanism from the monetary policy and money market rates to \ndeposit and lending rates. CBN’s supply of low price credit is only to \ncomplement what banks do. \nAs CBN continues its supportive and intervention activities to facilitate \n \nexpansion in the real economy, the fiscal authority must aggressively take \n73 \n \n \nClassified as Confidential \nactions that provide the necessary stimulus for economic growth. Specifically, \nIt is imperative for the authority to enhance the tax net and compliance, so as \nto, grow the abysmally low tax to GDP ratio, reduce the seeming over \nborrowing trend to prevent crowding out of the private sector and avoid debt \nservicing pressure. Unnecessary subsidies must be discontinued, so as to \nprovide resources for infrastructure, improved social services and reduced cost \nof doing business. \nOverall, stable exchange rate and favourable returns continued to make the \nNigerian market competitive and attractive for foreign flows. Output remained \nweak and fragile, but steady on an upward trajectory with potential for \nsignificant non-inflationary growth. I believe that our policy path is forward \nlooking and that the CBN must intensify its activities to reduce the risk premium, \nas well as, other measures to drive down lending rates and promote credit \ngrowth. \nI therefore vote to: \n \n• Reduce the MPR by 25 basis points to 13.25 per cent; \n \n• Retain the asymmetric corridor of +200/-500 basis points around the \nMPR \n• Retain Cash Reserve Ratio (CRR) at 22.5 per cent; and \n \n• Retain Liquidity Ratio at 30.0 per cent. \n74 \n \n \nClassified as Confidential \n11. \nEMEFIELE, GODWIN I. \n \nGOVERNOR OF THE CENTRAL BANK OF NIGERIA AND CHAIRMAN, MONETARY \nPOLICY COMMITTEE \nGlobal economic growth, which slowed to 3.6 percent in 2018, is projected to \ndecline to 3.3 percent in 2019. For many countries, short term outlook remains \nweak due to pervasive uncertainties. These are underlain by the lingering \ntrade tensions between US and China, macroeconomic challenges in some \nEmerging Market Economies (including, Brazil, Argentina, Turkey, and \nIndonesia) leading to a considerable exchange market pressures, the auto \nindustry disruptions in Germany, as well as the normalization of monetary \npolicy in most advanced economies. Although 2019 started on a low \npedestal, the global economy is expected to strengthen in the second half of \nthe year. This pickup will be driven by accommodative monetary policy in \nmajor economies, supported by retreating inflationary pressures and tapering \noutput gaps. The US Federal Reserve paused interest rate hikes and signalled \nno increases for the rest of the year. The European Central Bank, the Bank of \nEngland and the Bank of Japan, have all shifted to a more accommodative \nstance. China has increased its fiscal and monetary stimulus to counter the \nnegative effect of trade tariffs. \nDomestic Economic Developments \n \nEconomic activity in Nigeria moderated in the first quarter of 2019 to 2.01 \npercent from 2.38 per cent in the Q4 2018. The non-oil sector continue to drive \ngrowth, contributing about 90.86 per cent to the nation’s GDP. The \n75 \n \n \nClassified as Confidential \ngrowth performance is marginally above the IMF (WEO, April 2019) projection \nof 2.1 per cent growth for Nigerian economy in 2019, but lower than CBN staff \nestimate of 2.38 per cent for the same period. Despite the moderation, the \nNigeria economy still enjoys favourable sentiments supported by positive PMI, \nboth in the manufacturing and non- manufacturing indices. The favourable \nsentiment is also boosted by the continued stability in the foreign exchange \nmarket and the drive for increased credits to the real sector of the economy. \nUnemployment rate stands at an abysmal 23.1 per cent as at third quarter of \n2018 with youth unemployment reaching 55.4 per cent. \nReport on domestic prices indicate a slight uptick in the year-on-year headline \ninflation to 11.37 per cent in April 2019 from 11.25 per cent in March. The \nincrease was driven by the composite food price index, which rose by 13.70 \nper cent as against 13.45 per cent in March 2019 even as core inflation fell to \n9.30 per cent from 9.46 per cent. On a month-on-month basis, the three \ncomponents of inflation recorded upticks, indicating existence of current \npressures on inflation. However, the relative stability in the FX market continues \nto anchor expectations about future prices. \nThe current stock of FX reserves at US$45.4 billion covering more than 13 \nmonths of imports compares favourably with the international standard of 3- \nmonth import cover. Exchange rate has not only stabilized but has also \nsignificantly converged across different segments of the market. The Balance \nof Payments (BOP) estimates for Q4 2018 shows a substantial \n76 \n \n \nClassified as Confidential \nimprovement in the BOP outcome. The overall balance of payments recorded \na surplus of US$2.80 million as against a huge deficit of US$4,542.08 million \nrecorded in the preceding quarter. The current account balance (CAB) also \nimproved significantly from a deficit of US$1,544.41 million in Q3 2018 to a \nsurplus of US$1,104.57 million in Q4 2018. These were made possible by the \nsignificant decline in import bills due largely to our various policy initiatives, \nincluding intervention policies and the restriction of FX supply for the \nimportation of 41 non-essential items. \nI noted that although aggregate credit to the economy and credit to the \nprivate sectors grew faster than their 2019 indicative benchmark, the Broad \nmoney supply fell short of their benchmark. M3 grew by 5.42 per cent over the \npreceding December 2018 relative to the benchmark of 14.47 per cent. \nSimilarly, M2 grew by 1.85 per cent in April as against the provisional \nbenchmark of 12.99 per cent. \nAnalysis of the overall liquidity condition of the financial system indicate that \ngovernment securities plus OMO Bills account for more than 70 percent of \ntotal specified liquid assets of banks while interbank placements account for \na meagre 4.75 per cent, suggesting that banks have shirked their \nintermediation role. Consequently, total industry credits declined by 0.58 per \ncent between April 2018 and April 2019, a trend that has persisted since 2017. \nThis is a worrisome development given the slow and fragile economic activity \nin the country. \n77 \n \n \nClassified as Confidential \nKey Considerations \n \nThe slowdown in global economic activity and the subdued inflationary \npressures, has prompted a shift towards easier monetary policy stances across \nmany developed and developing economies. Accordingly, the imperative is \nto take actions that boost potential output, improve inclusiveness, and \nstrengthen resilience. In my March 2019 statement, I underscored the need to \nsupport growth and create jobs to bolster our economic prosperity. The same \neconomic conditions that existed at that time continues to prevail even at the \ncurrent period as the outlook for economy continues to be fragile. Our \nrecovery process has remained slower than desired and worriedly lower than \nthe rate of population growth. Thus, per- capita income remains low while \nunemployment rate continues to trend at a dangerously, unacceptable \nregion accompanied by persistent poverty which undermine productivity. \nI noted with concern the ongoing asset substitution by banks as they shift their \nbalance sheet from loans and advances to risk free government securities. This \nis a classic case of disintermediation. We need incentive structures that would \nmake banks lend to the real sectors of the economy. All these developments \nmake case for continued support for growth and job creation. \nI remain mindful of the fact that inflation rate which had been trending down \nfor the past three months inflexed in April. However, the current level of inflation \nis still below the threshold of 12.0 percent above which inflation becomes \ninimical to growth. We should, therefore, utilize the small policy \n78 \n \n \nClassified as Confidential \nspace created by this gap to pursue policies that would boost economic \nactivity. Policies must, at this point, address critical issues such as access to \ncredit, job creation and the diversification of the economy. \nPolicy Preference \n \nI am, therefore, of the opinion that monetary policy should accommodate \nthese critical issues as we continue to search for measures that would ensure \nsustainable economic growth in the long-term. My inclination today is to hold \nall parameters at their current levels while stepping up our intervention \nactivities in critical sectors of the economy and using our OMO operations to \ncontrol liquidity in the banking system. Therefore, I vote to: \n1. Retain the MPR at 13.5 percent; \n \n2. Retain the CRR at 22.5 percent; \n \n3. Retain the asymmetric corridor at +200/–500 basis points; and \nRetain liquidity ratio at 30.0 percent \n \nGODWIN I. EMEFIELE, CON \n \nGovernor \nMay 2019", "source": "CBN", "stratum": "cb_requests", "fetch_date": "2026-05-11", "url": "file:///CBN/MPC_Communiques/Central Bank of Nigeria Communique No  124 of the Monetary Policy Committee Meeting of Monday 20th and Tuesday 21st May 2019 WITH PERSONAL STATEMENTS OF MEMBERS.pdf"}
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