{"doc_id": "04d286da8bcba3c6dea64963d72661ed", "text": "CBN Monetary Policy Review \n \n \n1 \nCHAPTER ONE \n \n1.0 \nOVERVIEW \nhis \nchapter \nsummarises \nkey \neconomic \nand \nfinancial \ndevelopments and the attendant \npolicy responses by the Bank that \nshaped monetary policy during the \nsecond half of 2021. These include \ndevelopments in output, prices, financial \nmarket, \nliquidity \nmanagement \nand \nmonetary policy in the global and \ndomestic economies. \n \nOn the global front, while progress has \nbeen made in subduing the COVID-19 \npandemic, \nincluding \nlowering \nof \nrestrictions and reopening of several \neconomies, the rapid mutation into new \nand deadlier strains of the virus continue \nto pose downside risks to the recovery of \nthe global economy. Also, the uneven \naccess to vaccines across several \ncountries was a significant risk to the \nattainment of global herd immunity. The \nrise in inflation above the long run \nobjectives \nin \nsome \nadvanced \neconomies, although expected to be \ntransient, re-enforces the fear that \ncentral banks in this bloc may soon \ncommence \nmonetary \npolicy \nnormalization. The Emerging Market and \nDeveloping Economies recorded mixed \ninflationary \noutcomes \nwith \nsome \nrecording higher rates, owing largely to \ncapital flow reversals, supply chains \ndisruptions, exchange rate pressures, \nhigh energy costs and poor response to \npolicy \nstimulus \nto \ncombat \nthe \nmacroeconomic slowdown associated \nwith the pandemic. \nIn the domestic economy, uncertainties \nsurrounding the containment of the \npandemic \ncontinued \nto \npose \nchallenges to the recovery of output \ngrowth. In addition, the slow pace of \nvaccination \nacross \nthe \ncountry \nremained a source of concern for \nmonetary policy. Other factors were: \nlingering security challenges; legacy \nissues of infrastructural deficits; rising cost \nof energy; oil theft and exchange rate \npressure with passthrough to domestic \nprices. Nevertheless, headline inflation \n(year-on-year) decreased from 17.38 \nper cent in July to 15.63 per cent in \nDecember 2021. \n \nIn the second half of 2021, the Nigerian \neconomy sustained its growth recovery \ntowards the pre-pandemic level. The \nrecovery was largely due to the steady \nstimulus provided by both the Federal \nGovernment \nand \nCentral \nBank \nof \nNigeria. \nKey \npolicies \nsustained \nto \nrevitalize businesses and households \ndeeply affected by the COVID-19 \npandemic \nwere \nthe \nFederal \nGovernment’s Economic Sustainability \nPlan, \nand \ndevelopment \nfinance \ninterventions by the Bank in the critical \nsectors, \nparticularly \nagriculture, \nmanufacturing and health. \n \nData from the National Bureau of \nStatistics (NBS) showed that real Gross \nDomestic Product (GDP) grew by 4.03 \nper cent (year-on-year) in the third \nquarter of 2021 in contrast to the \ncontraction of 3.63 per cent in the \ncorresponding period of 2020 and the \ngrowth of 5.01 per cent in the preceding \nquarter. The growth was driven largely \nT \nCBN Monetary Policy Review \n \n \n2 \nby 5.44 per cent growth of the non-oil \nsector, in contrast to the contraction of \n2.51 per cent in the corresponding \nperiod of 2020 and growth of 6.74 per \ncent in the preceding quarter. The oil \nsector, however, contracted by 10.73 \nper cent (year-on-year) in the third \nquarter, \nwhich \nwas \na \nmoderation \ncompared with the deeper contractions \nof 13.89 and 12.65 per cent in the \ncorresponding period of 2020 and the \npreceding quarter of 2021, respectively. \n \nDuring the fourth quarter of 2021, the \ndomestic economy sustained its growth \ntrajectory, \nowing \nto \ncontinued \nimplementation of various economic \nand development finance interventions \nof the Government and the Bank. \nAccordingly, \nreal \nGross \nDomestic \nProduct (year-on-year) grew by 3.98 per \ncent in the fourth quarter compared \nwith the growth of 0.11 and 4.03 per cent \nin the corresponding period of 2020 and \nthe preceding quarter, respectively. The \ngrowth was mainly driven by the 4.73 per \ncent expansion in the non-oil sector, \ncompared with the respective growth \nrates of 1.69 and 5.44 per cent in the \ncorresponding period of 2020 and the \npreceding quarter. The contraction in \nthe oil sector, however, moderated \nduring the fourth quarter to 8.06 per cent \ncompared with contractions of 19.76 \nand 10.73 per cent (year-on-year) in the \ncorresponding period of 2020 and the \npreceding quarter of 2021, respectively. \n \nInflationary pressure subsided during the \nreview \nperiod, \ndue \nlargely \nto \nmoderating impact of the COVID-19 \npandemic. Headline and food measures \nof inflation maintained a downward \ntrend, \nwhile \ncore \ninflation \nrose \nmoderately. Food inflation (year-on-\nyear) decreased by 3.66 percentage \npoints to 17.37 per cent in December \n2021 from 21.03 per cent in July. Core \ninflation, however, rose moderately by \n0.15 percentage point to 13.87 per cent \nin December 2021 from 13.72 per cent in \nJuly. Consequently, headline inflation \ndecreased by 1.75 percentage point to \n15.63 per cent in December 2021 from \n17.38 per cent in July. Thus, the food \nmeasure was the major driver of the \noverall moderation in headline inflation \nduring the period. \n \nThe exchange rate was relatively stable \nas oil earnings increased due to the \nimprovement in global demand. The \ndevelopment was attributed to the \nresumption of economic activities as \nmost countries further eased restrictions \nassociated \nwith \nthe \nCOVID-19 \npandemic. \nNonetheless, \nthe \npass-\nthrough of the exchange rate to \ndomestic prices has been significant, \ncausing core inflation to accelerate. \nThus, the naira remained under pressure \nprompting the decision by the Bank to \nadjust \nthe \nexchange \nrate \nfrom \nN410.88/US$ to N412.99/US$ in late 2021. \nIn addition, the adjustment also aimed \nat aligning the exchange rate with \nmarket realities. The Bank continued its \nforeign \nexchange \ndemand \nmanagement \ncoupled \nwith \nother \nmeasures which included the Naira-4-\nDollar scheme to attract diaspora \nremittances, continued restriction of \naccess to foreign exchange for 43 items, \nCBN Monetary Policy Review \n \n \n3 \nand the suspension of foreign exchange \nsales to BDCs. \n \nThe tension in the Nigerian financial \nmarket persisted during the second half \nof 2021, due to the impact of lingering \nshocks from the COVID-19 pandemic as \nthe mutation of the virus into new strains \nsuch as the Omicron variant continued. \nAccordingly, the Bank sustained the use \nof the following instruments to achieve its \nobjectives of price and macroeconomic \nstability in the \nreview period: the \nMonetary Policy Rate (MPR); the Cash \nReserve Requirement (CRR); Liquidity \nRatio; Open Market Operations (OMO); \nand Discount Window Operations in \naddition to periodic interventions in the \nforeign exchange market. The Monetary \nPolicy Rate (MPR) remained the Bank’s \nkey instrument for signalling monetary \npolicy stance. The MPR was unchanged \nat 11.5 per cent along with the \nasymmetric corridor of +100/-700 basis \npoints, showing the Bank’s commitment \nto an accommodative policy stance. \n \nOpen \nMarket \nOperations \n(OMO) \nremained \nthe \nmain \ninstrument \nfor \nliquidity management. Total sale of \nOMO bills increased marginally by 2.95 \nper cent to N6,319.47 billion in the \nsecond half of 2021 from N6,138.58 billion \nin the corresponding period of 2020. The \ndevelopment \nalso \nrepresented \na \nsignificant increase in sales of 252.40 per \ncent from N1,793.25 billion in the first half \nof 2021. The increased operations were \nattributed to liquidity surfeit in the \nbanking system. \n \nThe money market witnessed increased \nactivities with slight fluctuations in the \nsecond half of 2021, reflecting liquidity \nconditions in the banking system. This \nwas informed by statutory monthly \ndisbursements to both the States and \nLocal governments by the Federation \nAccount Allocation Committee (FAAC), \nmaturing government securities, sale of \nCBN bills and various CBN interventions. \nThe interbank call segment of the market \nrecorded less trading days in the period \nunder \nreview, \nresulting \nin \nlower \ntransaction volumes compared with the \nOBB \nsegment. \nFor \ninstance, \nno \ntransaction \nwas \nrecorded \nin \nthe \ninterbank segment in December 2021. \nThe \ncollateralized \nOBB \ninstrument \ncontinued to be preferred by market \nparticipants due to the perception of \ncounter-party \nrisks \namong \nmarket \nparticipants. \n \nThe performance of the Nigerian capital \nmarket in the second half of 2021 was \nbullish, driven primarily by improved \nactivities \nin \nthe \nequities \nsegment, \nreflecting strong investor confidence. \nThe increased attraction to the market \nwas largely attributed to improved \ncorporate \nearnings \nand \nforeign \nexchange liquidity. In the bonds market, \nreal yields declined progressively with \nrising inflation. Consequently, the All-\nShare Index (ASI) increased by 12.69 per \ncent from 37,907.28 at end-June 2021 to \n42,716.44 \nat \nend-December \n2021. \nMarket \ncapitalization \n(MC) \nalso \nincreased by 12.85 per cent from N19.76 \ntrillion at end-June 2021 to N22.30 trillion \nat \nend-December \n2021 \nwhich \nCBN Monetary Policy Review \n \n \n4 \nrepresented an increase of 5.89 per \ncent, year-on-year. \n \nFederal Government of Nigeria (FGN) \nsecurities largely dominated activities in \nthe bond market, accounting for 44.75 \nper cent in the second half of 2021. \nCorporate and State/Local Government \nbonds followed, with the latter recording \nthe least share by market volume. \n \nIn terms of the outlook, the domestic \neconomy is expected to maintain its \noutput recovery trajectory through the \nfirst half of 2022. This is premised on \nimplementation of the 2021 - 2025 \nNational \nDevelopment \nPlan, \nimprovement in aggregate demand, \nrecovery in global commodity prices, \nand positive impact of CBN interventions \nin \ngrowth-enhancing \nsectors. \nThe \ndownside risks to this outlook include the \ncontinuing COVID-19 infections across \nthe globe and possibility of the spread of \nnew variants which could lead to \nrenewed \nlockdowns \nand \nother \nrestrictive measures that may affect \neconomic activities. These would be in \naddition, \nto \nthe \npersisting \nsecurity \nchallenges, legacy infrastructural issues, \nforeign exchange demand pressures, \ncontinuing capital reversals, high public \ndebt, and constrained fiscal space. \nConsequently, the Federal Government \nforecasts real GDP to grow by 4.20 per \ncent in 2022. \n \nIn terms of price outlook, staff projections \nindicate that headline inflation would \nmoderate to 14.48 per cent at end-June \n2022, which is above the upper limit of \nthe Bank’s indicative range of 6–9 per \ncent. Upside risks to inflation in the near-\nterm, \nremain \nthe \ncombination \nof \nmonetary and structural factors which \ninclude \nthe \ncontinuing \nimpact \nof \nCOVID-19 \non \nthe \neconomy, \nexpectations of the removal of fuel \nsubsidy, lingering security challenges, \nespecially in major food producing \nareas of the country, liquidity impact of \nthe implementation of the 2022 budget \nand preparation for the 2023 general \nelections. With this outlook in mind, \nmonetary \npolicy \nformulation \nand \nimplementation will aim at containing \nthe emerging challenges to achieve the \nBank’s objective of price and financial \nsystem stability conducive to inclusive \ngrowth. \n \n \n \n \n \n \nCBN Monetary Policy Review \n \n \n5 \nCHAPTER TWO \nTHE GLOBAL ECONOMY DEVELOPMENTS \n \n2.1 \nGlobal Output \nhe International Monetary Fund \n(IMF) estimated global growth at 5.9 \nper cent in 2021 from a contraction \nof 3.1 per cent in 2020. This was due to \nimproved \nbut \ndivergent \nrecoveries \nacross the advanced and the emerging \nmarket \neconomies \nas \na \nresult \nof \ndifferences in vaccine rollouts to contain \nthe pandemic and associated fiscal \nsupport. \n \nA combination of factors, however, \nconstituted headwinds to global output \ngrowth in the review period. These \nincluded supply chain disruptions, the re-\nintroduction of movement restrictions in \nsome countries due to a resurgence in \nCOVID-19 cases from the Omicron \nVariant; and elevated inflation across \ncountries which dampened aggregate \ndemand. \n \nIn the advanced economies, output was \nestimated at 5.0 per cent in 2021 \ncompared with a contraction of 4.5 per \ncent in 2020. The development was \npartly attributable to the realization that \nmany of the advanced economies \nmade good progress in vaccinations, \nthough \nhesitancy \nto \nreceive \nthe \nvaccines in some areas constrained \nfurther gains. In the United States (US), \noutput growth was estimated at 5.6 per \ncent in 2021, from -3.4 per cent in 2020. \nIn the euro area, growth was estimated \nat 5.2 per cent in 2021, from -6.4 per cent \nin 2020. In Japan, output growth was \nestimated at 1.6 per cent in 2021 from a \ncontraction of 4.5 per cent in 2020. In \nCanada, growth was estimated at 4.7 \nper cent in 2021 from -5.2 per cent in \n2020. The United Kingdom (UK) recorded \nthe highest growth rate in the group at \n7.2 per cent in 2021 from a contraction \nof 9.4 per cent in 2020 due largely to the \neffectiveness \nof \nits \nwidespread \nvaccination campaign. \n \nIn the Emerging Market and Developing \nEconomies (EMDE), output growth was \nestimated at 6.5 per cent in 2021 from -\n2.0 \nper \ncent \nin \n2020. \nImproved \nconditions for commodity exporters and \nstronger \ndomestic \ndemand \nin \nkey \nregional \neconomies, \nparticularly \nemerging and developing Europe, were \nthe strong drivers of the outcome. \nHowever, uneven access to vaccines, \nslow employment growth and supply \nside bottlenecks continued to constrain \noutput growth in some other economies. \nOutput \ngrowth \nin \nEmerging \nand \nDeveloping Asia was estimated at 7.2 \npercent in 2021 from a contraction of 0.9 \nper cent in 2020. India's economy grew \nby 9.0 per cent in 2021 from a \ncontraction of 7.3 per cent in 2020. \nChina recorded higher growth of 8.1 per \ncent in 2021 from 2.3 per cent in 2020, \ndespite \ndisruptions \nto \nindustrial \nproduction as a result of power outages; \nweak recovery of private consumption; \nand plummeting real estate investment. \nIn Emerging and Developing Europe, \nRussia grew by 4.5 per cent in 2021 from \n-2.7 per cent in 2020. In Latin America \nand the Caribbeans, Brazil grew by 4.7 \npercent in 2021 from -3.9 per cent in \nT \nCBN Monetary Policy Review \n \n \n6 \n2020, while Mexico expanded by 5.3 per \ncent in 2021 from -8.2 per cent in 2020. \n \nIn Sub-Saharan Africa, growth was \nestimated at 4.0 per cent in 2021, from -\n1.7 per cent in 2020, reflecting higher oil \nand metal prices, stronger domestic \nagricultural and industrial production, \npositive spillovers from improved global \nactivity, and some progress in the \ncontrol of the pandemic. The recovery, \nhowever, remains fragile given the \nresurgence of the virus, slow pace of \nvaccination, increased food insecurity, \nreduced capital inflows and conflict in \nsome low-income countries. Output \ngrowth in Nigeria was estimated at 3.4 \nper cent in 2021 from a contraction of \n1.92 per cent in 2020. South Africa grew \nby 4.6 per cent in 2021 from -6.4 per cent \nin 2020. \n \n2.2 \nGLOBAL INFLATION \nGlobal inflation remained high in the \nreview period due to a combination of \ndemand and supply side factors. As \ncountries relaxed lockdown measures, \nrising \ndemand \nfor \nagricultural \ncommodities, production inputs, and \ncrude oil exerted upward pressure on \nprices. On the supply side, persisting \nbottlenecks associated with restrictions \nto contain the spread of the coronavirus \nhampered production and distribution, \nresulting in disruptions to the smooth \ndelivery of goods and services. Inflation \nremained elevated throughout 2021, \naveraging 3.1 per cent in the advanced \neconomies and 5.9 per cent in the \nemerging \nmarket \nand \ndeveloping \neconomies. \nIn the advanced economies, inflation in \nthe United States (US) averaged 4.69 per \ncent in 2021 compared with 1.25 per \ncent in 2020, reflecting rising cost of \nenergy, transportation, food and shelter. \nIn the Eurozone, it averaged 2.59 per \ncent in 2021 from 0.25 per cent in 2020 \ndriven largely by surging energy and \nbeverage prices, amongst others. In the \nUnited Kingdom, average inflation rose \nto 2.59 per cent in 2021 from 0.85 per \ncent in 2020, largely reflecting the surge \nin global energy prices as well as rising \ncost \nof \nhousing \nand \nutilities. \nThe \nJapanese \neconomy, \nhowever, \nremained in deflation at -0.26 per cent in \n2021 compared with -0.03 per cent in \n2020. \n \nIn the Emerging Markets and Developing \nEconomies, consumer price inflation in \nChina declined to 0.85 per cent in 2021 \nfrom 2.39 per cent in 2020. In India, \ninflation averaged 5.52 per cent in 2021 \ncompared with 6.18 per cent in 2020, \nwhile in Russia, it averaged 6.69 per cent \nin 2021 from 3.38 per cent in 2020, as the \ncost of food, non-food products and \nservices rose sharply. \n \nIn Latin America and the Caribbeans, \ninflation in Brazil averaged 8.3 per cent \nin 2021 compared with 3.2 per cent in \n2020, reflecting increased demand as \nthe economy reopened as well as \ninflation \npass-through \nfrom \nthe \nweakening currency. In Sub-Saharan \nAfrica, inflation in South Africa averaged \n4.55 per cent in 2021 from 3.28 per cent \nin 2020, driven by high energy prices and \nlegacy labour market issues. In Nigeria, \ninflation rose to 16.95 per cent in 2021 \nCBN Monetary Policy Review \n \n \n7 \nfrom 13.25 per cent in 2020. The \ndevelopment was the result of persisting \nstructural \nfactors \nhampering \nfood \nsupply; the impact of the pass-through \nfrom \nseveral \nadjustments \nto \nthe \nexchange rate; and rise in domestic \nenergy prices. In Ghana, consumer price \ninflation averaged 9.98 per cent in 2021 \ncompared with 9.89 per cent in 2020, \ndriven by the cost of transportation, \nhousing & utilities. \n \n2.3 \nGlobal \nFinancial \nMarket \nDevelopments \n \n2.3.1 Money Market and Central Bank \nPolicy Rates \nDuring the review period, most central \nbanks across the globe indicated desire \nto \ncommence \nmonetary \npolicy \nnormalisation in the face of build-up of \ninflationary pressure. In the advanced \neconomies, \nmost \ncentral \nbanks \ncontinued in the accommodative mode \nwith strong guidance of the likely \ncommencement of monetary policy \nnormalisation in the first half of 2022. \nSeveral emerging market central banks, \nhowever, have moved towards interest \nrate \nlift-off \nto \ncounter \nthe \nlikely \nhaemorrhage of capital associated with \npolicy normalisation in the advanced \neconomies. \n \nOf the fourteen (14) central banks \nsurveyed between July and December \n2021, five raised their policy rates, one \nlowered, while the rest maintained. Four \nemerging market central banks, the \nCentral bank of Brazil, Central Bank of \nRussia, Reserve Bank of South Africa and \nBank of Ghana, raised their policy rates \nby between 25 to 125 basis points. These \nactions were targeted at forestalling \ncapital \noutflows \nto \nUS \ndollar \ndenominated assets when the US Fed \ncommences interest rate lift-off. The \nBank of England was the only advanced \ncentral bank to commence interest rate \nlift-off, while maintaining its current stock \nof asset purchases. It raised its policy rate \nby a moderate 15 basis points, the first \nhike since August 2018. Other advanced \neconomy central banks – the US Fed, the \nECB and the Bank of Japan, maintained \ntheir policy rates in the review period. \nThe People’s Bank of China was the only \nemerging \nmarket \neconomy \nthat \nlowered its rate in the review period to \nsupport its ongoing recovery from the \nCOVID-19 pandemic. Even though the \nUS Federal Reserve Bank retained its \npolicy rate, it was amongst the first of the \nadvanced economy central banks to \ncommence tapering of its bond buying \nprogramme with guidance of an early \nreturn to interest rate hike. The European \nCentral Bank and the Bank of Japan \nboth retained their policy rates and \ncontinued \ntheir \nbond \nbuying \nprogrammes, thus maintaining a broad \naccommodative policy stance. Several \nother emerging market central banks \nsuch as the Reserve Bank of India, Bank \nIndonesia, Central Bank of Kenya and \nthe Central Bank of Nigeria kept their \npolicy rates unchanged. \n \nThe US Fed is expected to completely \ntaper \nits \nUS$120bn \nmonthly \nasset \npurchase programme during the first \nquarter of 2022 and announce its first \npolicy rate hike thereafter. This may \nCBN Monetary Policy Review \n \n \n8 \nresult in a sharp rise in capital outflow \nfrom Emerging Market Economies to \nsafer \ndollar \ndenominated \nsecurities \nunless their central banks respond with a \nsizeable rate hike. The impending era of \ntighter financial conditions would thus \nportend a portfolio shift from emerging \nmarket economies to the advanced \neconomies as investors seek higher and \nless risky returns. Given the trend towards \nrate hike in the advanced economies \nand with Nigeria moving towards an \nelection \nyear \nin \n2023, \nnaira \ndenominated \nsecurities \nface \nan \nincreased risk of a price slump due to the \nusual rise in sovereign risk preceding \nelection periods. The Central Bank of \nNigeria \nshould \nfactor \nthese \ndevelopments into its monetary policy \nprocess \nto \naddress \nthe \nlikely \nhaemorrhage \nof \ncapital \nfrom \nthe \neconomy towards the end of 2022 and \ninto 2023. \n \nTable 2.1: Policy Rates of Selected Central Banks \nJan. 2021 – Dec. 2021 \nCountry \nJuly \n2021 \nAugust \n2021 \nSep-\n2021 \n \nOct-\n2021 \nNov-\n2021 \nDec-\n2021 \nEgypt \n8.25 \n8.25 \n8.25 \n8.25 \n8.25 \n8.25 \nKenya \n7.00 \n7.00 \n7.00 \n7.00 \n7.00 \n7.00 \nS. Africa \n3.50 \n3.50 \n3.50 \n3.50 \n3.75 \n3.75 \nGhana \n13.5 \n13.5 \n13.5 \n13.5 \n14.5 \n14.5 \nNigeria \n11.5 \n11.5 \n11.5 \n11.5 \n11.5 \n11.5 \nBrazil \n3.5 \n5.25 \n7.75 \n7.75 \n7.75 \n9.25 \nUSA \n0.00-\n0.25 \n0.00-\n0.25 \n0.00-\n0.25 \n0.00-\n0.25 \n0.00-\n0.25 \n0.00-\n0.25 \nJapan \n-0.10 \n-0.10 \n-0.10 \n-0.10 \n-0.10 \n-0.10 \nEuro \nArea \n0.00 \n0.00 \n0.00 \n0.00 \n0.00 \n0.00 \nIndia \n4.00 \n4.00 \n4.00 \n4.00 \n4.00 \n4.00 \nRussia \n6.5 \n6.50 \n7.50 \n7.50 \n7.50 \n8.50 \nChina \n3.85 \n3.85 \n3.85 \n3.85 \n3.85 \n3.80 \nUK \n0.10 \n0.10 \n0.10 \n0.10 \n0.10 \n0.25 \nIndonesia \n3.50 \n3.50 \n3.50 \n3.50 \n3.50 \n3.50 \n \n \n \n \n \n \n \nSource: www.cbrates.com \n2.3.2 Global Capital Market \nThe performance of major global stock \nmarkets was generally positive in the \nreview \nperiod \nreflecting \nimproved \nrecovery from the COVID-19 challenges. \nThus, despite the emergence of various \nCOVID-19 variants, economic activities \ncontinued to improve, occasioned by \nwidespread rollout and administration of \nvaccines. \n \nIn Europe, the UK FTSE 100, French CAC \n40 and the German DAX indices \nincreased by 3.8, 9.1 and 1.9 per cent, \nrespectively in the second half of 2021. \nIn North America, the United States S&P \n500, Canadian S&P/TSX Composite and \nMexican Bolsa indices increased by 10.7, \n5.1 and 5.7 per cent, respectively. In \nSouth America, Argentine Merval and \nColombian COLCAP indices increased \nby 33.9 and 12.2 per cent, respectively. \nConversely, the Brazilian Bovespa stock \nindex decreased by 17.3 per cent, \nduring the review period. In Asia, the \nJapanese Nikkei 225, Chinese Shanghai \nSE and Indian BSE Sensex indices \nincreased by 0.3 per cent, 1.4 per cent, \nand 11.3 per cent, respectively. In Africa, \nthe \nNigerian \nNGX \nAll-Share, \nSouth \nAfrican JSE All-Share, Egyptian EGX CASE \n30 and Ghanaian GSE All Share indices \nincreased by 12.7, 10.6, 16.5 and 5.3 per \ncent, \nrespectively. \nConversely, \nthe \nKenyan Nairobi NSE 20 index decreased \nby 1.3 per cent, during the review \nperiod.\nCBN Monetary Policy Review \n \n \n9 \nTable 2.2: Selected International Stock Market Indices as at December 31, 2021 \nCountry\nIndex\n31-Dec-20\n30-Jun-21\n31-Dec-21\nDec 31, 2020 - Dec 31, \n2021 % Change\nJune 30, 2021 - Decembe\n31, 2021 % Change\nAFRICA\nNigeria\nNSE All-Share Index\n40,270.72\n37,907.28\n42,716.44\n6.1\n12.7\nSouth Africa\nJSE All-Share Index\n59,408.68\n66,634.38\n73,709.39\n24.1\n10.6\nKenya\nNairobi NSE 20 Share index\n1,868.39\n1,927.53\n1,902.57\n1.8\n-1.3\nEgypt\nEGX CASE 30\n10,845.26\n10,256.62\n11,949.18\n10.2\n16.5\nGhana\nGSE All-Share Index\n1,939.14\n2,652.21\n2,793.24\n44.0\n5.3\n \nNORTH AMERICA\nUS\nS&P 500\n3,756.07\n4,310.47\n4,772.14\n27.1\n10.7\nCanada\nS&P/TSX Composite\n17,433.36\n20,165.58\n21,198.03\n21.6\n5.1\nMexico\nBolsa\n44,066.88\n50,289.75\n53,150.36\n20.6\n5.7\nSOUTH AMERICA\nBrazil\nBovespa Stock \n119,017.20\n126,801.70\n104,822.00\n-11.9\n-17.3\nArgentina\nMerval \n51,226.49\n62,371.95\n83,500.11\n63.0\n33.9\nColumbia\nCOLCAP \n1,437.89\n1,257.73\n1,410.97\n-1.9\n12.2\nEUROPE\nUK\nFTSE 100\n6,460.52\n7,114.22\n7,384.54\n14.3\n3.8\nFrance\nCAC 40\n5,551.41\n6,555.14\n7,153.03\n28.9\n9.1\nGermany\nDAX \n13,718.78\n15,583.24\n15,884.86\n15.8\n1.9\nASIA\nJapan\nNIKKEI 225 \n27,444.17\n28,707.04\n28,791.71\n4.9\n0.3\nChina\nShanghai SE A \n3,640.46\n3,761.68\n3,814.30\n4.8\n1.4\nIndia\nBSE Sensex\n47,905.84\n52,318.60\n58,253.82\n21.6\n11.3\nSelected International Stock Market Indices as at December 31, 2021\n \nSource: Bloomberg \n \n2.3.3 Bond Market and Sovereign Yields \nUsing the 10-year U.S. Treasury bond as \na \nbenchmark \nto \ngauge \nthe \nperformance of similar bonds in other \ncountries as follows: Ghana, Brazil, \nNigeria, Mexico and China with yield \nspreads of 960, 295, 247, 140 and 125 \nbasis \npoints \nrespectively, \nwere \nconsidered higher credit risk countries \nthan the US. \n \nIn contrast, Germany, France, Japan, \nPortugal, Spain, UK, Italy, Greece and \nCanada with yields of minus 171, 146, \n133, 106, 96, 56, 35, 23 and 6 basis points \nrespectively, suggest stronger credit \nworthiness than the US. \nThe yield spreads on Nigerian sovereign \nbonds of 247 basis points, higher than \nthe yield on the U.S 10-year benchmark \nbond indicates a high-risk premium and \ntherefore attracts a high return for \ninvestors. However, Ghana with a yield \nspread of 960 basis points higher than \nthe yield on the U.S. 10-year benchmark \nbond suggests a higher risk premium \nthan the Nigerian sovereign bond. \nCBN Monetary Policy Review \n \n \n10 \nTable 2.3: Sovereign Yields Spreads (Benchmark 10-Year Government Bonds) as at December 31, 2021 \nCountry\nJune 30, \n2021 \nYield (%)\nAugust 31, \n2021 \nYield (%)\nSeptember \n1, 2021 \nYield (%)\nOctober 29, \n2021 Yield \n(%)\nDecember \n31, 2021 \nYield (%)\nChange in \nYield \n(Basis \nPoints)\nDecember 30, \n2021 Spread \nover the U.S. \n(Basis points)\nNigeria \n6.68\n5.36\n5.36\n3.67\n3.99\n-2.69\n247\nGhana \n6.1\n7\n7\n9.95\n11.12\n5.02\n960\nCanada\n1.39\n1.21\n1.21\n1.66\n1.46\n0.07\n-6\nMexico\n2.87\n2.7\n2.7\n3.03\n2.92\n0.05\n140\nUS\n1.47\n1.3\n1.3\n1.57\n1.52\n0.05\n0\nBrazil\n3.7\n3.76\n3.76\n4.72\n4.47\n0.77\n295\nFrance\n0.12\n-0.03\n-0.03\n0.27\n0.19\n0.07\n-133\nGermany\n-0.21\n-0.39\n-0.39\n-0.11\n-0.19\n0.02\n-171\nGreece\n0.8\n0.74\n0.74\n1.3\n1.29\n0.49\n-23\nItaly\n0.82\n0.71\n0.71\n1.17\n1.17\n0.35\n-35\nPortugal\n0.39\n0.21\n0.21\n0.51\n0.46\n0.07\n-106\nSpain\n0.41\n0.34\n0.34\n0.61\n0.56\n0.15\n-96\nUK\n0.71\n0.71\n0.71\n1.03\n0.96\n0.25\n-56\nChina\n3.08\n2.84\n3.08\n2.97\n2.77\n-0.31\n125\nJapan\n0.05\n0.02\n0.05\n0.09\n0.06\n0.01\n-146\nAFRICA\nNORTH AMERICA\nSOUTH AMERICA\nEUROPE\nASIA\nSource: Bloomberg \n \n2.3.4 Global Commodity Prices \nDuring the second half of 2021, global \ncommodity prices increased due to \nstrong global demand as economies re-\nopened fully following the sustained roll-\nout \nof \nCOVID-19 \nvaccines. \nConsequently, \nthe \nIMF \nprimary \ncommodity price index rose by 15.40 per \ncent to 186.9 points at end-December \n2021 compared with 161.7 points at end-\nJune \n2021. \nNevertheless, \nthe \nperformance of the sub-indices under \nthe primary commodity index were \nmixed. While the sub-indices of energy \nand edibles rose by 40.54 and 4.18 per \ncent to 241.3 points and 134.7 points at \nend-December 2021 from 171.7 points \nand 129.3 points at end-June 2021, \nrespectively, the sub-indices of non-fuel, \nindustrial inputs and metals decreased \nby 3.62, 17.27 and 19.88 per cent, \nrespectively, to 149.3, 168.6 and 190.2 \npoints at end-December 2021 from \n154.9, 203.8 and 237.4 points at end-\nJune 2021. \n \nCBN Monetary Policy Review \n \n \n11 \nIn the oil sector, actual prices per barrel \nof the OPEC Reference Basket rose by \n5.94 per cent to US$77.97 per barrel at \nend-December 2021 from US$73.6 per \nbarrel at end-June 2021. \n \nThe Food and Agriculture Organization \n(FAO) Food Price Index rose by 6.7 per \ncent to 133.7 points at end-December \n2021 from 125.3 points at end-June 2021. \nThe sub-indices of vegetable oils, sugar, \ncereals, dairy and meat all increased, by \n13.19, 8.08, 7.83, 7.59 and 0.27 per cent, \nrespectively, to 178.5, 116.4, 140.5, 129.0 \nand 111.0 points at end-December 2021 \nfrom 157.7, 107.7, 130.3, 119.9 and 110.7 \npoints at end-June 2021. \n \n2.3.5 Global Foreign Exchange Market \nIn the second half of 2021, most \ncurrencies continued to depreciate \nagainst the US dollar as in the first half of \nthe year. This was attributable to the \nstrengthening \nof \nthe \nUS \neconomy \nresulting from vaccine roll-out and \nfurther easing of restrictions imposed to \ncontain the spread of the coronavirus as \nwell as broad fiscal support. \n \nIn Africa, the Nigerian naira at the \nInvestors and Exporters (I&E) window \ndepreciated against the US dollar by \n12.41 per cent. Similarly, the South \nAfrican rand, Ghana cedi, Kenya shilling, \nand the Egyptian pound all depreciated \nby 10.71, 6.03, 3.47 and 0.45 per cent, \nrespectively. The low foreign exchange \nearnings \nfrom \nexport \nof \nprimary \ncommodities \ndue \nto \nweak \nglobal \nrecovery, coupled with capital reversals \nas a result of forward guidance by the \nFed to commence monetary policy \nnormalization, resulted in exchange rate \npressure and depreciation in the sub-\nregion. In North America, the Canadian \ndollar and Mexican peso depreciated \nby 3.94 and 1.33 per cent, respectively. \nIn South America, the Argentina peso, \nColombian peso and Brazilian peso all \ndepreciated by 8.71, 6.15 and 5.39 per \ncent, respectively. The prolong impact \nof COVID-19 pandemic and associated \nlockdowns as well as capital reversals in \npursuit of higher yields contributed to \ncurrency depreciation. In Europe, the \neuro \nand \nthe \nRussian \nruble \nall \ndepreciated against the dollar by 6.05 \nand 1.48 per cent, respectively, due to \nresurgence of COVID-19 infections and \nlow production activities, while the British \npound appreciated by 87.21 per cent. In \nAsia, the Japanese yen and the Indian \nrupee all depreciated by 5.15 and 1.01 \nper cent, respectively, while the Chinese \nrenminbi appreciated by 1.42 per cent.\nCBN Monetary Policy Review \n \n \n12 \nTable 2.4: Exchange Rates of Selected Countries (value in currency units to US$) \n \nSource: Bloomberg \n \n \n \n \n \n \nCBN Monetary Policy Review \n \n \n13 \nCHAPTER THREE \nTHE DOMESTIC ECONOMY \n \n3.1 \nOutput in the Domestic Economy \nn the second half of 2021, the Nigerian \neconomy remained on a positive \nrecovery path towards attaining its \npre-pandemic output growth level. The \nsustained recovery was largely due to \nthe combination of monetary and fiscal \nsupport, targeted at easing growth \nchallenges imposed by the pandemic. \nIn addition to the provision of vaccines, \nthe \nGovernment \nsustained \nthe \nimplementation \nof \nthe \nEconomic \nSustainability Plan to revitalize businesses \nand households affected by the COVID-\n19 pandemic. The Central Bank also \ninitiated various development finance \ninterventions \nin \nthe \nreal \nsector, \nparticularly \nin \nagriculture, \nmanufacturing and Small and Medium \nScale Enterprises (SMEs), to complement \nfiscal efforts to revamp the economy. \n \nAs \na \nconsequence \nof \nthese \ndevelopments, data from the National \nBureau of Statistics (NBS) showed that \nreal Gross Domestic Product grew by \n4.03 per cent (year-on-year) in the third \nquarter of 2021 compared with a \ncontraction of 3.63 per cent in the \ncorresponding period of 2020 and \ngrowth of 5.01 per cent in the preceding \nquarter. The development was largely \ndriven by a 5.44 per cent growth in the \nnon-oil sector, compared with -2.51 per \ncent in the corresponding period of 2020 \nand growth of 6.74 per cent in the \npreceding quarter. The key drivers of the \nnon-oil \nsector \nperformance \nwere: \nServices (8.41%); Industry (4.55%); and \nAgriculture \n(1.22%). \nThe \nsector’s \ncontribution to real GDP rose to 92.51 per \ncent in the third quarter from 91.27 per \ncent in the corresponding period of 2020 \nbut declined marginally compared with \n92.58 per cent in the preceding quarter \nof 2021. \n \nThe oil sector, however, contracted by \n10.73 per cent (year-on-year) in the third \nquarter \nof \n2021, \na \nmoderation \ncompared with deeper contractions of \n13.89 and 12.65 per cent in the \ncorresponding period of 2020 and \npreceding quarter of 2021, respectively. \nAccordingly, \naverage \ndaily \noil \nproduction fell to 1.57 million barrels per \nday (mbpd) in the third quarter of 2021 \ncompared with 1.67 and 1.61 mbpd \nrecorded in the corresponding period of \n2020 \nand \nthe \npreceding \nquarter, \nrespectively. The development was due \nmainly \nto \nproduction \nshut-ins \nand \ndivestment by major international oil \ncompanies occasioned by oil theft, \npipeline sabotage as well as agitations \nby local communities over oil spills. \n \nDuring the fourth quarter of 2021, the \ndomestic economy sustained its growth \ntrajectory, \nowing \nto \ncontinued \nimplementation of various economic \nand development finance intervention \nprogrammes of the Federal Government \nand the Central Bank of Nigeria. \nAccordingly, \nreal \nGross \nDomestic \nProduct grew by 3.98 per cent in the \nfourth quarter of 2021 compared with \n0.11 and 4.03 per cent (year-on-year) in \nthe corresponding period of 2020 and \nthe preceding quarter, respectively. The \nI \nCBN Monetary Policy Review \n \n \n14 \nperformance was mainly driven by the \n4.73 per cent growth in the non-oil \nsector, compared with the respective \ngrowth rates of 1.69 and 5.44 per cent in \nthe corresponding period of 2020 and \nthe preceding quarter. The key drivers of \nthe non-oil sector growth were Services \n(5.58%), Industry (3.60%) and Agriculture \n(3.58%). Its share in real GDP rose further \nto 94.81 per cent in the fourth quarter \nfrom 94.13 and 92.51 per cent in the \ncorresponding period of 2020 and the \npreceding quarter of 2021, respectively. \n \nThe \ncontraction \nin \nthe \noil \nsector \nmoderated to -8.06 per cent (year-on-\nyear) in the fourth quarter compared \nwith -19.76 and –10.73 per cent in the \ncorresponding period of 2020 and the \npreceding quarter of 2021, respectively. \nAverage daily oil production fell further \nto 1.50 million barrels per day (mbpd) in \nthe fourth quarter of 2021 from 1.56 and \n1.57 \nmbpd \nrecorded \nin \nthe \ncorresponding period of 2020 and the \npreceding quarter, respectively. \n \nFigure 3.1: Gross Domestic Product Growth Rate \n(2020Q1 – 2021Q4) \n \nSource: National Bureau of Statistics \n(NBS) \n3.1.1 DOMESTIC ECONOMIC ACTIVITIES \nIn the second half of 2021, real GDP \nwas driven by activities in both the non-\noil and oil sectors. The non-oil sector \ngrew by 5.44 per cent in the third quarter \nof 2021 compared with -2.51 and 6.74 \nper cent in the corresponding period of \n2020 \nand \nthe \npreceding \nquarter, \nrespectively. The sub-sectors that drove \nthe overall growth were: financial & \ninsurance (23.23%); transportation & \nstorage (20.61%); electricity, gas steam \n& air conditioner (14.36%); water supply, \nsewage & waste management (12.97%); \nand trade (11.90%). These compare \nunfavourably \nwith \ntheir \nrespective \ngrowth rates of 6.80, -42.98, -3.66, 7.10 \nand -12.12 per cent in the corresponding \nperiod of 2020. Oil \nsector output \ncontracted by 10.73 per cent in the third \nquarter \nof \n2021 \ncompared \nwith \ncontractions of 13.89 and 12.65 per cent \nin the corresponding quarter of 2020 and \nthe \npreceding \nperiod \nof \n2021, \nrespectively. \nAverage \ndaily \noil \nproduction in the third quarter of 2021 \nfell to 1.57 mbpd from 1.67 mbpd in the \ncorresponding period of 2020 and 1.61 \nmbpd in the preceding quarter of 2021. \nThe development was due to the \ndecrease in production as a result of \nleakages, \nfire \nincidents, \nand \na \ndeclaration of a force majeure arising \nfrom the collapse in infrastructure on the \nForcados, Qua Iboe, and Agbami oil \nfacilities along with emergency halts in \noperation due to maintenance. \n \nDuring the fourth quarter of 2021, the \nnon-oil sector grew by 4.73 per cent \ncompared with 1.69 per cent in the \n-8.00\n-6.00\n-4.00\n-2.00\n0.00\n2.00\n4.00\n6.00\nQ1-2020\nQ4-2020\nQ3-2021\nPer cent\nCBN Monetary Policy Review \n \n \n15 \ncorresponding period of 2020 and 5.44 \nper cent in the preceding quarter of \n2021, respectively. The performance of \nthe non-oil sector activities were driven \nmainly by Mining & Quarrying (43.50%), \nTransport & Storage (29.72%), Water \nSupply, Sewage & Waste Management \n(28.84%), Finance & Insurance (24.14%); \nHuman Health & Social Services (5.14%), \nInformation & Communication (5.03%), \nArts, \nEntertainment \n& \nRecreation \n(4.31%), \nCrop \nProduction \n(3.87%), \nConstruction (3.46%), Administrative & \nSupport \nServices \n(2.70%), \nand \nManufacturing (2.28%). These compare \nwith their respective growth rates of \n43.42, -5.95, 1.92, -3.63, 3.05, 14.95, -1.52, \n3.68, 1.21, -5.31 and -1.51 per cent in the \ncorresponding period of 2020. During the \nquarter, the contraction in the oil sector \nmoderated to -8.06 per cent (year-on-\nyear) compared with -19.76 and –10.73 \nper cent in the corresponding period of \n2020 and the preceding quarter of 2021, \nrespectively. \nAverage \ndaily \noil \nproduction fell further to 1.50 mbpd in \nthe fourth quarter of 2021 compared \nwith 1.56 and 1.57 mbpd in the \ncorresponding period of 2020 and the \npreceding quarter, respectively. \n \nFigure 3.2: Non-oil Sector Performance (2020Q1 – \n2021Q4) \n \nSource: NBS \nFigure 3.3: Performance of oil Sector (2020Q1 – \n2021Q4) \n \nSource: NBS \n \n3.1.2 Sectoral Analysis \nThe key factors that contributed to \noutput growth in major sectors in the \nreview period are analysed in this \nsection. \n \n3.1.2.1 Agriculture \nDuring the third quarter of 2021, growth \nin real agricultural output moderated to \n1.22 per cent compared with 1.39 and \n1.30 per cent in the corresponding \nperiod of 2020 and the preceding \nquarter of 2021, respectively. Growth in \nthe sector was driven by forestry which \ngrew by 1.98 per cent compared with \n2.55 \nand \n1.08 \nper \ncent \nin \nthe \ncorresponding period of 2020 and the \npreceding quarter, respectively. This was \nfollowed by crop production which grew \nby 1.36 per cent in the third quarter 2021 \ncompared with 1.38 per cent apiece in \nthe corresponding period of 2020 and \nthe preceding quarter. Livestock also \ngrew moderately by 0.12 per cent in the \nthird quarter of 2021 compared with 2.29 \n -\n 20.00\n 40.00\n 60.00\n 80.00\n2020Q1\n2020Q2\n2020Q3\n2020Q4\n2021Q1\n2021Q2\n2021Q3\n2021Q4\nPer cent\nAgriculture\n-25.00\n-20.00\n-15.00\n-10.00\n-5.00\n0.00\n5.00\n10.00\nQ1-2020\nQ4-2020\nQ3-2021\nPer cent\nCBN Monetary Policy Review \n \n \n16 \nand 0.13 per cent in the corresponding \nperiod of 2020 and the preceding \nquarter, respectively. Growth of the \nsector was, however, moderated by \ncontraction in the fishing sub-sector of \n3.97 per cent compared with -2.07 and \n2.27 per cent in the corresponding \nperiod of 2020 and the preceding \nquarter of 2021, respectively. The share \nof the agriculture sector in overall GDP \nfell to 29.94 per cent in the third quarter \nof 2021 from 30.77 in the corresponding \nperiod of 2020, but was an improvement \ncompared with 23.78 per cent in the \npreceding quarter, respectively. \n \nIn the fourth quarter of 2021, real \nagricultural output growth improved to \n3.58 per cent compared with 3.42 and \n1.22 per cent in the corresponding \nperiod of 2020 and the preceding \nquarter of 2021, respectively. Growth in \nthe sector was driven mainly by Crop \nproduction which grew by 3.87 per cent \nin the fourth quarter of 2021 from 3.68 \nand 1.36 per cent in the corresponding \nperiod of 2020 and the preceding \nquarter, respectively. This was followed \nby Fishing which grew by 1.69 per cent in \nthe fourth quarter compared with \ncontractions of -3.60 and -3.97 per cent \nin the corresponding period of 2020 and \nthe \npreceding \nquarter \nof \n2021, \nrespectively. Forestry also grew by 1.41 \nper cent in the review period from 1.24 \nand 1.98 per cent in the corresponding \nperiod of 2020 and the preceding \nquarter, respectively. Livestock grew by \n0.41 per cent compared with 2.38 and \n0.12 per cent in the corresponding \nperiod of 2020 and the preceding \nquarter, respectively. \nThe share of \nagriculture sector in overall GDP stood at \n26.84 per cent in the fourth quarter from \n26.21 and 29.94 per cent in the \ncorresponding period of 2020 and the \npreceding quarter, respectively. \n \nFigure 3.4: Contribution to Agricultural Sector \nGrowth (2020Q1 – 2021Q4) \n \nSource: NBS \n \n3.1.2.2 Agricultural \nPolicies \nand \nInstitutional Support \nIn the review period, the agricultural \nsector continued to enjoy a number of \nexisting \ninitiatives \nand \ninstitutional \nsupport, as highlighted below: \n \n3.1.2.2.1 Commercial Agriculture Credit \nScheme (CACS) \nUnder the Scheme, ₦13.27 billion was \ndisbursed in the second half of 2021, \nrepresenting a decrease of 18.24 per \ncent compared with ₦16.25 billion in the \nfirst half of 2021. A total of ₦47.79 billion \nwas repaid in the review period, which \nrepresented an increase of 138.83 per \n0.00\n5.00\n10.00\n15.00\n20.00\n25.00\n30.00\n35.00\nPer cent\nCrop Production\nLivestock\nCBN Monetary Policy Review \n \n \n17 \ncent over the repayment of ₦20.01 \nbillion in the first half of 2021. \n \n3.1.2.2.2 Micro, Small and Medium \nEnterprises Development Fund (MSMEDF) \nIn view of the contribution of the MSME \nto job creation, financial inclusion and \npoverty reduction, the threshold for the \nMSMEDF was increased from ₦200.00 \nbillion to ₦1.00 trillion in 2020. A total of \n₦10.85 billion was disbursed during the \nsecond half of 2021. Repayments during \nthe review period stood at ₦11.72 billion, \ncompared with ₦2.91 billion in the first \nhalf of 2021, reflecting an increase of \n302.75 per cent. \n \n3.1.2.2.3 Anchor Borrowers’ Programme \n(ABP) \nIn the second half of 2021, the sum of \n₦246.67 billion was disbursed to 986,716 \nsmallholder farmers across the country \nfor the production of rice, maize, \ncassava, cotton, ginger, fish, onion, \ncocoa, soya beans and sesame. This \nrepresents \na \nsignificant \nincrease \ncompared with ₦176.30 billion disbursed \nto 1,008,457 smallholder farmers in the \npreceding period. Also, repayments \nunder \nthe \nProgramme \nincreased \nsignificantly by 343.19 per cent to \n₦210.47 billion compared with ₦47.49 \nbillion in the preceding period. \n \n3.1.2.2.4 \nAccelerated \nAgriculture \nDevelopment Scheme (AADS) \nThe Scheme disbursed ₦36.12 million in \nthe second half of 2021 compared with \n₦1.50 billion in the first half of 2021. The \nsum of ₦5.19 billion was repaid in the \nperiod under review as the projects’ \nmoratorium expired. \n \n3.1.2.2.5 \nAgribusiness/ \nSmall \nand \nMedium Enterprises Investment Scheme \n(AGSMEIS) \nIn the review period, ₦22.92 billion was \ndisbursed to 8,538 projects, compared \nwith ₦9.79 billion to 1,067 projects in the \nfirst half of 2021. This represents 134.12 \nand 700.19 per cent increase in value \nand numbers of projects, respectively, \ncompared with the first half of 2021. \nRepayment in the review period was \n₦1.16 billion, compared with ₦135.47 \nmillion \nin \nthe \nfirst \nhalf \nof \n2021, \nrepresenting an increase of 759.26 per \ncent. \n \n3.1.2.2.6 Paddy Aggregation Scheme \n(PAS) \nThere was no disbursement in the \nreview period, compared with ₦4.17 \nbillion released to one (1) project in the \nfirst half of 2021. There was a repayment \nof ₦4.67 billion during the review period, \ncompared with no repayment in the first \nhalf of 2021 due to the extension of \nmoratorium granted to beneficiaries. \n \n3.1.2.2.7 \nNational \nFood \nSecurity \nProgramme (NFSP) \nThere was no disbursement in the \nreview and preceding periods under this \nscheme. Repayment at end-December \n2021 was ₦2.47 billion compared with \n₦8.31 billion at end-June 2021. \n \nCBN Monetary Policy Review \n \n \n18 \n3.1.2.2 Industry \n \n3.1.2.2.1 Industrial Production \nThe industrial sector contracted by 1.63 \npercent in the third quarter of 2021, \ncompared with -6.12 percent in the \ncorresponding period of 2020 and -1.23 \nper cent in the preceding quarter of \n2021. The development in the sector was \ndriven mainly by Mining & Quarrying \nwhich contracted by 10.56 per cent in \nthe third quarter of 2021 compared with \n-13.22 and -12.29 per cent in the \ncorresponding period of 2020 and the \npreceding quarter, respectively. Crude \nPetroleum and Natural Gas was the \nmain driver of contraction in the Mining \nand Quarrying sub-sector, contracting \nsignificantly by 10.73 per cent in the third \nquarter compared with -13.89 and -12.65 \nper cent in the corresponding period of \n2020 \nand \nthe \npreceding \nquarter, \nrespectively. \n \nOther sub-sectors in the industrial sector \ngrew during the review period. The \nElectricity, Gas, Steam & Air Conditioner \ngrew by 14.36 per cent in the third \nquarter of 2021 compared with -3.66 per \ncent in the corresponding period of 2020 \nand 78.16 per cent in the preceding \nquarter of 2021. Water supply, sewage & \nwaste management also grew by 12.97 \nper cent in the third quarter compared \nwith 7.10 and 18.48 per cent in the \ncorresponding period of 2020 and the \npreceding quarter of 2021, respectively. \nManufacturing grew by 4.29 per cent in \nthe review period compared with -1.51 \nper cent in the corresponding period of \n2020 and 3.49 per cent in the preceding \nquarter of 2021. Construction expanded \nby 4.10 per cent compared with 2.84 \nand 3.70 per cent in the corresponding \nperiod of 2020 and the preceding \nquarter of 2021, respectively. The share \nof the industrial sector in overall GDP \ndeclined to 20.41 per cent from 21.59 \nand 20.57 per cent in the corresponding \nperiod of 2020 and the preceding \nquarter of 2021, respectively. \n \nIn the fourth quarter of 2021, the \ncontraction of the industrial sector \nmoderated to -0.05 per cent compared \nwith -7.30 and -1.63 per cent in the \ncorresponding period of 2020 and the \npreceding quarter, respectively. The \nmain driver of contraction in the sector \nwas \nMining \n& \nQuarrying \nwhich \ncontracted by -6.16 per cent in the \nfourth quarter of 2021 compared with -\n18.44 and -10.56 per cent in the \ncorresponding period of 2020 and the \npreceding quarter, respectively. Crude \nPetroleum and Natural Gas drove the \ncontraction \nin \nthe \nsub-sector, \ncontracting by -8.06 per cent in the \nfourth quarter compared with -19.76 and \n-10.73 per cent in the corresponding \nperiod of 2020 and the preceding \nquarter, respectively. Other sub-sectors \ngrew \nduring \nthe \nreview \nperiod. \nAccordingly, Water supply, sewage & \nwaste management expanded by 28.84 \nper cent in the fourth quarter compared \nwith 1.92 and 12.97 per cent in the \ncorresponding period of 2020 and the \npreceding quarter of 2021, respectively. \nConstruction grew by 3.46 per cent \ncompared with 1.21 and 4.10 per cent in \nthe corresponding period of 2020 and \nthe \npreceding \nquarter \nof \n2021, \nCBN Monetary Policy Review \n \n \n19 \nrespectively. Electricity, Gas, Steam & Air \nConditioner also grew by 2.78 per cent \nin the review period compared with -\n2.51 per cent in the corresponding \nperiod of 2020 and 14.36 per cent in the \npreceding quarter of 2021. This was \nfollowed by Manufacturing which grew \nby 2.28 per cent in the review period \ncompared with -1.51 per cent in the \ncorresponding period of 2020 and 4.29 \nper cent in the preceding quarter of \n2021. Accordingly, the share of the \nindustrial sector in overall GDP declined \nto 18.05 per cent from 18.77 and 20.41 \nper cent in the corresponding period of \n2020 and the preceding quarter of 2021, \nrespectively. \n \nFigure 3.5: Industrial Sector Contribution by Activity \n(2020Q1-2021Q4) \n \nSource: NBS \n \n3.1.2.2.2 Industrial Policy and Institutional \nSupport \nDuring the second half of 2021, the \nindustrial sector benefited from existing \npolicy initiatives and incentives some of \nwhich are highlighted below: \n \n3.1.2.2.2.1 \nReal \nSector \nSupport \nFacility (RSSF) Using Differentiated Cash \nReserve Ratio (RSSF-DCRR) \nThe Facility disbursed the sum of \n₦420.19 billion to 39 projects in the \nsecond half of 2021, compared with \n₦199.69 billion to 32 projects in the first \nhalf of 2021, representing increases of \n110.42 and 21.88 per cent in value and \nnumber of projects, respectively. A total \nof ₦80.72 million was repaid in the \nsecond half of 2021, compared with \n₦1.97 billion in the preceding period. \n \n3.1.2.2.2.2 \nNon-Oil \nExport \nStimulation Facility (NESF) \nThe Facility disbursed ₦1.76 billion in the \nperiod under review. A total of ₦3.79 \nbillion was repaid, compared with ₦0.58 \nbillion in the preceding period. \n \n3.1.2.2.2.3 \nCreative \nIndustry \nFinancing Initiative (CIFI) \nIn the second half of 2021, a total of \n₦214 million was disbursed to 31 projects, \ncompared with ₦70 million to 21 projects \nin the first half of 2021. The sum of ₦190.07 \nmillion was repaid in the second half of \n2021 compared with ₦12.91 million in the \nprevious half-year. \n \n3.1.2.2.2.4 Targeted Credit Facility (TCF) \nDuring the period under review, ₦82.37 \nbillion was disbursed to 136,532 projects \ncompared with ₦144.93 billion to 323,654 \nprojects \nat \nend-June \n2021. \nThis \nrepresented 43.17 and 57.82 per cent \ndecrease in the value and number of \n-40.00\n-20.00\n0.00\n20.00\n40.00\n60.00\n80.00\n100.00\nQ1-2020 Q3-2020 Q1-2021 Q3-2021\nPer cent\nMining and Quarrying\nCBN Monetary Policy Review \n \n \n20 \nprojects, respectively. No repayments \nwere made during the period as all the \nfacilities were under moratorium. \n \n3.1.2.2.2.5 Health Sector Intervention \nFund (HSIF) \nThe Fund disbursed ₦10.41 billion to 23 \nprojects in the second half of 2021, \ncompared with ₦25.16 billion disbursed \nto 23 projects in the first half of the year. \nThere were no repayments in the review \nperiod, compared with ₦12.50 million \nrepaid by 3 projects in the first half of \n2021. A significant proportion of the \nfacilities were under moratorium. \n \n3.1.2.2.2.6 \nCOVID-19 \nIntervention \nFacility for the Manufacturing Sector \n(CIFMS) \nIn the review period, the sum of ₦140.73 \nbillion was disbursed to 44 projects, \ncompared with ₦35.99 billion to 16 \nprojects in the first half of 2021, an \nincrease of 291.03 per cent and 175 per \ncent in value and number of projects \nfunded, respectively. There were no \nrepayments as all the facilities were still \nunder moratorium. \n \n3.1.2.2.2.7 \nNigeria Youth Investment \nFund (NYIF) \nIn the review period of the Fund \ndisbursed ₦936.10 million, compared \nwith ₦2.81 billion in the first half of 2021. \nCompared with the preceding period \nwhen the fund was under moratorium, \nthe sum of ₦2.62 billion was repaid in the \nperiod under review. \n \n3.1.2.2.2.8 Healthcare Sector Research \nand Development Intervention Scheme \n(HSRDIS) \nUnder the scheme, ₦27.50 million was \ndisbursed as additional tranche to the \nfive (5) projects/grant recipients in the \nsecond half of 2021 to the ₦145.40 million \ndisbursed in the first half of 2021. \n \n3.1.2.2.2.9 Textile Sector Intervention \nFacility (TSIF) \nIn the review period, the sum of ₦450 \nmillion was disbursed to two (2) projects, \ncompared with ₦390 million to one (1) \nproject in the first half of 2021. \n \n3.1.2.2.2.10 \nPower \nand \nAirline \nIntervention Fund (PAIF) \nIn the period under review, the sum of \n₦991.84 million was disbursed compared \nwith ₦890.27 million in the preceding \nperiod. A cumulative sum of ₦313.76 \nbillion has so far been disbursed under \nthe Scheme to 73 projects. A total of \n₦6.57 billion was repaid in the second \nhalf of 2021 compared with ₦20.20 billion \nin the first half of 2021. \n \n3.1.2.2.2.11 \nNigerian \nBulk \nElectricity \nTrading \n- \nPayment \nAssurance \nProgramme (NBET-PAF) \nIn the review period, the sum of ₦301.36 \nbillion was disbursed to the Programme \nthrough the Bank of Industry (BOI) \ncompared with ₦88.99 billion in the first \nhalf of 2021. There was no repayment in \nthe current and preceding periods. \n \nCBN Monetary Policy Review \n \n \n21 \n3.1.2.2.2.12 \nNigerian \nElectricity \nMarket Stabilization Facility (NEMSF 1 & \n2) \nIn the second half of 2021, ₦99.99 billion \nwas disbursed compared with ₦21.69 \nbillion in the first half of 2021. A total of \n₦10.44 billion was repaid during the \nperiod as the moratorium on the Facility \nhas ended. \n \n3.1.2.2.2.13 \nNational Mass Metering \nProgramme (NMMP) \nIn the second half of 2021, the sum of \n₦11.79 billion was disbursed, compared \nwith ₦21.69 billion in the first half of 2021, \nrepresenting a decrease of 45.64 per \ncent. There was no repayment as the \nprogramme was under moratorium. \n \n3.1.2.2.2.14 \nIntervention Facility for \nNational Gas Expansion Programme \n(IFNGP) \nA total of ₦39.00 billion was disbursed in \nthe second half of 2021 to four (4) \nprojects. \n \n3.1.2.2.2.15 \nShared Agent Network \nExpansion Facility \nThere was no disbursement in the \nreview period, compared with the sum \nof ₦500 million disbursed to one (1) \nproject in the first half of 2021. The sum of \n₦65.71 million was repaid in the second \nhalf of 2021, compared with ₦401.28 \nmillion in the first half of 2021. \n \n \n3.1.2.2.2.16 \nPresidential \nFertilizer \nInitiative (PFI) \nThe \ninitiative \nwas \ndesigned \nto \nresuscitate Nigeria’s moribund fertilizer \nplants to boost food production towards \nachieving food security. Although there \nwas no disbursement in the review \nperiod, a total of ₦5.75 billion was repaid \ncompared with ₦2.5 billion in the \npreceding period. \n \n3.1.2.3 Services Sector \nThe services sector grew by 8.41 per \ncent in the third quarter of 2021 \ncompared with -5.49 per cent in the \ncorresponding period of 2020 and 9.27 \npercent in the preceding quarter. The \ngrowth in the sector was driven by \nFinancial \n& \ninsurance \n(23.23%); \nTransportation & Storage (20.61%); Trade \n(11.90%); ICT (9.66%); Human Health & \nSocial \nServices \n(4.99%); \nArt, \nEntertainment & Recreation (3.68%); \nAdministration \n& \nSupport \nServices \n(3.36%); \nReal \nEstate \n(2.32%); \nAccommodation \n& \nFood \nServices \n(2.09%); Education (1.37%); Professional, \nScientific & Technical Services (1.11%); \nand \nOther \nServices \n(0.73%). \nThese \ncompare with their respective growth \nrates of 3.21, -42.98, -12.12, 14.56, 2.82, -\n4.69, -1.21, -13.4, -22.61, -20.74, -10.31 \nand -7.53 per cent in the corresponding \nquarter. Public Administration was the \nonly sub-sector that contracted by 0.15 \nper cent compared with a growth of \n3.58 per cent in the corresponding \nperiod of 2020. \n \nCBN Monetary Policy Review \n \n \n22 \nIn the fourth quarter of 2021, the sector \nsustained \nits \ngrowth \ntrajectory, \nexpanding by 5.58 per cent compared \nwith 1.31 and 8.41 per cent in the \ncorresponding period of 2020 and the \npreceding quarter, respectively. The \ngrowth in the sector was driven by \nTransportation \n& \nStorage \n(29.72%), \nFinancial & Insurance (24.14%), Trade \n(5.34%), Human Health & Social Services \n(5.14%), Information & Communication \n(5.03%), \nArts, \nEntertainment \n& \nRecreation (4.31%), and Administrative & \nSupport \nServices \n(2.70%). \nThese \ncompare with their respective growth \nrates of -5.95, -3.63, -3.20, -3.05, 14.95, -\n1.52 \nand \n-5.31 \nper \ncent \nin \nthe \ncorresponding quarter. The Sector’s \nshare in overall GDP rose to 55.11 per \ncent in the review period from 54.28 and \n49.65 per cent in the corresponding \nperiod of 2020 and the preceding \nquarter, respectively. \n \nFigure 3.6: Services Sub-Sector Contribution, \n2020Q1-2021Q4 \nSource: NBS \n \n \n \n \n3.1.2.4 Oil Sector \nDuring the second half of 2021, oil \nsector \nperformance \nreflected \ndevelopments in prices and domestic \nproduction. \nWhile \nprices \nimproved \nsignificantly in response to measures to \nease the impact of the COVID-19 \npandemic, production was constrained \nby existing domestic challenges in the \nsector \nincluding \ndivestment \nby \noil \nmajors, oil theft and vandalism. \n \nConsequently, average domestic crude \noil production fell to 1.57 mbpd in the \nthird quarter of 2021 from 1.67 and 1.61 \nmbpd in the corresponding period of \n2020 \nand \nthe \npreceding \nquarter, \nrespectively. \n \nIn the fourth quarter, the recurring \nincidences of oil theft and vandalism of \noil facilities continued to affect oil \nproduction, \nas \naverage \ndaily \noil \nproduction fell further to 1.50 million \nbarrels per day (mbpd). This compares \nwith 1.56 mbpd and 1.57 mbpd in the \ncorresponding period of 2020 and the \npreceding quarter, respectively. \n \nOn the other hand, crude oil prices \ntrended upwards during the review \nperiod, as global demand continued to \nstrengthen in the face of constrained \nsupply. The price of Nigeria’s reference \ncrude, the Bonny Light 370API, stood at \nUS$74.81 per barrel (pb) in December \n2021 compared with US$50.32 pb in the \ncorresponding period of 2020 and \nUS$73.40 at end-June 2021. Overall, the \naverage price of Bonny Light in the \nsecond half of 2021 of US$76.57 pb was \n-60.00\n-40.00\n-20.00\n0.00\n20.00\n40.00\n60.00\n80.00\n100.00\nQ1-2020\nQ3-2020\nQ1-2021\nQ3-2021\n Trade\n Accommodation and Food Services\n Transportation and Storage\n Information and Communications\n Arts, Entertainment & Recreation\n Financial and Insurance\nCBN Monetary Policy Review \n \n \n23 \nsignificantly \nabove \nthe \nFederal \nGovernment of Nigeria’s 2021 budget \nbenchmark of US$40 pb. \n \nFigure 3.7: Quarterly Domestic Oil Production and \nExport (2020Q1-2021Q4) \n \nSource: NBS \n \n \n \nFigure 3.8: Monthly Bonny Light Oil Price, January \n2021 - December 2021 \n \nSource: Statistics Department \n \n \n \n \n \nTable 3.1: Growth Rates of Real GDP by Expenditure (%), 2020-2021 \n \nQ1-\n2020 \nQ2-\n2020 \nQ3-\n2020 \nQ4-\n2020 \nQ1-\n2021 \nQ2-\n2021 \nQ3-\n2021 \nQ4-\n2021 \nGDP (Basic Price) \n1.87 \n-6.10 \n-3.62 \n0.11 \n0.51 \n5.01 \n4.03 \n3.98 \nGDP (Market Price) \n1.95 \n-6.04 \n-3.14 \n0.01 \n0.41 \n5.36 \n4.07 \n4.64 \nHousehold Consumption \n-10.04 \n-18.67 \n2.99 \n15.15 \n47.16 \n42.40 \n19.36 \n7.30 \nGov. Consumption Expenditures \n6.80 \n148.29 \n99.18 \n12.13 \n-4.57 \n-53.56 \n-39.51 \n-16.76 \nGross Fixed Capital Formation \n-3.05 \n-32.52 \n-11.99 \n-9.44 \n-0.03 \n6.11 \n7.52 \n5.86 \nNet Exports \n43.70 \n14.06 \n-40.84 \n-52.16 \n-91.74 \n-49.30 \n-38.27 \n1.35 \nNational Disposable Income \n3.57 \n2.12 \n0.32 \n-1.28 \n-6.46 \n-5.66 \n-1.48 \n2.84 \nCompensation of Employees \n6.70 \n-6.47 \n-2.32 \n6.36 \n9.26 \n19.44 \n14.54 \n11.79 \nOperating Surplus \n0.25 \n-5.93 \n-4.17 \n-2.34 \n-3.15 \n-4.45 \n-1.01 \n0.79 \nOther Current Transfers from RoW \nNet \n10.24 \n53.45 \n11.07 \n-44.62 \n-63.70 \n-59.80 \n-46.12 \n-6.38 \nSource: NBS \n \n \n2.07\n1.811.671.561.721.611.57 1.5\n0.2\n0.7\n1.2\n1.7\n2.2\n2.7\nQ1-2020\nQ4-2020\nQ3-2021\nMillion Barrels Per Day\nCBN Monetary Policy Review \n \n \n24 \n3.2 Domestic Price Developments \nIn \nthe \nreview \nperiod, \ninflationary \npressure subsided, due largely to the \nmoderating impact of the COVID-19 \npandemic. While all three measures of \ninflation: headline, food, and core \ntrended downwards in the second half \nof 2021, headline inflation, remained \nsubstantially above the upper band of \nthe Bank’s indicative corridor of 6-9 per \ncent. The upward pressure on prices in \nthe review period was largely driven by \nsupply-side \nfactors, \nreflecting \nthe \nconstraints imposed on production and \ndistribution activities associated with the \nCOVID-19 pandemic. \n \nThe supply-side factors that influenced \nprice development in the review period \ninclude the disruptions to production \nand distribution activities associated \nprimarily with the COVID-19 lockdown \nand its lag effect. Others were the \npersisting security challenges which \nimpacted food supply; uncertainties \nsurrounding the deregulation of energy \nprices; as well as the dearth of transport \ninfrastructure. The deregulated price of \nAutomotive Gas Oil (AGO) also had a \ndirect impact on cost of production and \nlogistics. There was also significant \nreduction \nin \naccretion \nto \nexternal \nreserves \nowing \nto \nlower \nforeign \nexchange receipt from crude oil thereby \nconstraining \nthe \nBank’s \nability \nto \nintervene in the foreign exchange \nmarket to moderate exchange rate \npressure. \nForeign \nexchange \nsupply \nthrough \nautonomous \nsources \n(I&E \nwindow) declined by 42.53 per cent on \na \nyear-on-year \nbasis \nthereby \naggravating \ndemand \npressures. \nTo \naddress this, the Bank introduced various \nschemes and policy measures such as \nthe Naira4Dollar scheme targeted at \nimproving \ndiaspora \nremittances, \nsustained its policy on restriction of \naccess to foreign exchange to 43 items, \nas well as the suspension of sales of \nforeign exchange to BDCs. \n \nOn the demand side, the provision of \nstimulus \nby \nboth \nthe \nFederal \nGovernment and the Central Bank to \nease the impact of the Pandemic \naffected liquidity conditions in the \nmoney market. Accordingly, the Inter-\nBank Call and Open Buy Back (OBB) \nrates remained relatively low, reflecting \nliquidity surfeit in the banking system. \nMaturing \nsecurities \nand \nFederation \nAccount Allocation Committee (FAAC) \ndisbursements also influenced system \nliquidity. \n \n3.2.1 Trends in Inflation \nHeadline, food and core measures of \ninflation maintained a downward trend \nin the review period. The consumer price \nindices (CPI) of these three measures \nstood at 411.5, 477.0 and 355.9 in \nDecember 2021 compared with 387.5, \n447.2 and 338.0 in July 2021, respectively. \nFood inflation (year-on-year) decreased \nby 3.66 percentage points to 17.37 per \ncent in December 2021 from 21.03 per \ncent in July. Core inflation, however, rose \nmoderately by 0.15 percentage point to \n13.87 per cent in December 2021 from \n13.72 per cent in July. Consequently, \nheadline inflation decreased by 1.75 \npercentage point to 15.63 per cent in \nCBN Monetary Policy Review \n \n \n25 \nDecember 2021 from 17.38 per cent in \nJuly (Figure 3.9 and Table 3.1). Thus, the \nfood measure was the major driver of \nthe overall moderation in headline \ninflation during the period (Table 3.1). \n \nTable 3.2: Inflation Rates, July – December 2021 \nCPI\nY-on-Y 12MMA CPI\nY-on-Y 12MMA CPI\nY-on-Y 12MMA\nJul 2021 387.51\n17.38\n16.30 338.00\n13.72\n12.05 447.18\n21.03\n20.16\nAug 2021 391.48\n17.01\n16.60 340.61\n13.41\n12.29 451.93\n20.30\n20.50\nSep 2021 395.98\n16.63\n16.83 344.84\n13.74\n12.55 457.61\n19.57\n20.71\nOct 2021 399.87\n15.99\n16.96 347.59\n13.24\n12.73 461.77\n18.34\n20.75\nNov 2021 404.18\n15.40\n16.98 351.96\n13.85\n12.96 466.71\n17.21\n20.62\nDec 2021 411.52\n15.63\n16.95 355.91\n13.87\n13.16 476.95\n17.37\n20.40\nHeadline Inflation\nCore Inflation\nFood Inflation\n \nSource: NBS \n \nFigure 3.9: Headline, Core and Food Inflation Rates \n(July – December 2021) \nCPI\nY-on-Y\n12MMA CPI\nY-on-Y\n12MMA\nJan 2019 276.60\n11.37\n11.80 258.75\n9.91\n10.34\nFeb 2019 278.62\n11.31\n11.56 260.44\n9.80\n10.19\nMar 2019 280.81\n11.25\n11.40 261.82\n9.46\n10.04\nApr 2019 283.46\n11.37\n11.31 263.65\n9.28\n9.91\nMay 2019 286.61\n11.40\n11.30 265.62\n9.03\n9.77\nJun 2019 289.69\n11.22\n11.30 267.88\n8.84\n9.64\nHeadline Inflation\nCore Inflation\n0.00\n5.00\n10.00\n15.00\n20.00\n25.00\nJul\n2021\nAug\n2021\nSep\n2021\nOct\n2021\nNov\n2021\nDec\n2021\nPer cent\nHeadline (Y-\nCore (Y-on-Y\nFood (Y-on-Y\n \nSource: NBS \n \n3.2.1.1 Headline Inflation \nThe major components of headline \ninflation continued to decrease during \nthe review period. The main driver of \nmoderation in headline inflation was \nFood & Non-Alcoholic Beverages which \ndecreased by 2.63 percentage points \nfrom 12.81 per cent in July to 10.17 per \ncent \nin \nDecember \n2021. \nOther \ncomponents that also moderated in the \nreview \nperiod \nare \nHealth \n(0.77 \npercentage point), Recreation and \nCulture \n(0.75 \npercentage \npoint), \nRestaurant & Hotel (0.74 percentage \npoint), \nand \nFurnishing, \nHousehold \nEquipment & Household Maintenance \n(0.73 \npercentage \npoint). \nTransport, \nhowever, rose by 5.98 percentage \npoints to 0.87 per cent in December 2021 \nfrom -5.11 per cent in July (Table 3.2 and \nFigure \n3.10). \nIn \ngeneral, \nheadline \ninflation decreased to 15.63 per cent in \nDecember 2021 from 17.38 per cent in \nJuly. \n \nIn the review period, the continued \nimplementation \nof \nthe \nEconomic \nSustainability \nPlan \nby \nthe \nFederal \nGovernment and the interventions of the \nCentral \nBank \nof \nNigeria \nin \nthe \nagricultural sector led to increase in food \nproduction, \nthus, \nmoderating \nfood \nprices. The stability in the exchange rate \ndue to demand management measures \nof the Bank, also contributed to the \nmoderation of prices. Headline inflation, \nhowever, remained above the Bank’s \nthreshold of 6-9 per cent as the \neconomy was still confronted with \nlegacy challenges which include the \nhigh \nstate \nof \ninsecurity, \npoor \ninfrastructure, \nrising \nenergy \ncosts, \namongst others, which continued to \nconstrain economic activities. \n \nTable 3.3a Major Components of Headline Inflation \n(Y-on-Y), July - December 2021 \n \nSource: NBS \n \n \nheaadline\nFood & \nNon-\nAlcoholic \nBev.\nFurnishing\ns, \nHousehold \nEquip &HH \nMaint.\nHealth\nTransport\nCommunic\nation\nRecreation \n& culture\nEducation\nRestaurant \n& Hotels\nMiscell\naneous \nGoods \n& \nServic\nes\nJul-21\n17.38\n12.81\n1.32\n1.13\n-5.11\n0.04\n0.81\n0.39\n0.86\n0.19\nAug-21\n17.01\n11.68\n0.57\n0.37\n0.88\n0.04\n0.06\n0.39\n0.11\n0.19\nSep-21\n16.63\n11.30\n0.57\n0.37\n0.87\n0.04\n0.06\n0.39\n0.11\n0.19\nOct-21\n15.99\n10.64\n0.58\n0.36\n0.87\n0.04\n0.06\n0.40\n0.11\n0.19\nNov-21\n15.40\n10.04\n0.58\n0.36\n0.87\n0.04\n0.06\n0.40\n0.11\n0.19\nDec-21\n15.63\n10.17\n0.59\n0.36\n0.87\n0.04\n0.06\n0.41\n0.11\n0.19\nDifferenc\ne btwn \nJuly &Dec \n2021\n-1.75\n-2.63\n-0.73\n-0.77\n5.98\n0.00\n-0.75\n0.02\n-0.74\n0.00\nCBN Monetary Policy Review \n \n \n26 \nFigure 3.10: Major Components of Headline \nInflation (Y-on-Y), July – December 2021 \n \nSource: NBS \n \nOn a month-on-month basis, headline \ninflation increased to 1.82 per cent in \nDecember 2021 from 0.93 per cent in \nJuly. The major drivers of month-on-\nmonth headline inflation were the prices \nof \ntransport \nwhich \nrose \nby \n5.16 \npercentage points to 0.07 per cent in \nDecember 2021 from -5.09 per cent in \nJuly \n2021. \nFood \n& \nnon-alcoholic \nbeverages also rose by 0.14 percentage \npoint to 1.30 per cent in December 2021 \nfrom 1.16 per cent in July 2021. \nFurnishing, \nHousehold \nEquipment \n& \nHousehold Maintenance, Health, and \nRestaurant \n& \nHotels, \nhowever, \ndecreased by 0.64 percentage points \napiece (Table 3.3 and Figure 3.11). \n \n \n \n \n \n \n \n \n \n \n \nTable 3.3b: Major Components of Headline \nInflation (M-on-M), July - Dec 2021 \n \nSource: NBS \n \nFigure 3.11: Major Components of Headline \nInflation (M-on-M July – December 2021 \n \nSource: NBS \n \n3.2.1.2 Food Inflation \nFood inflation (year-on-year) decrease \nby 3.66 percentage points to 17.37 per \ncent in December 2021 from 21.03 per \ncent in July. The main driver of the \ndecrease was the price of processed \nfood which fell by 1.66 percentage \n-10.00\n-5.00\n0.00\n5.00\n10.00\n15.00\n20.00\nJul '21\nAug '21\nSept '21\nOct '21\nNov '21\nDec '21\nHeadline\nFood &\nNon-\nAlcoholic\nBev.\nFurnishin\ngs,\nHousehol\nd Equip\n&HH\nMaint.\nHeadline\nFood & \nNon-\nAlcoholic \nBev.\nFurnishing\ns, \nHousehol\nd Equip \n&HH \nMaint.\nHealth\nTransport\nCommuni\ncation\nRecreatio\nn & \nculture\nEducation\nRestaura\nnt & \nHotels\nMiscellan\neous \nGoods & \nServices\nJul '21\n0.93\n1.16\n0.69\n0.67\n-5.09\n0.00\n0.00\n0.03\n0.65\n0.01\nAug '21\n1.02\n0.63\n0.04\n0.02\n0.06\n0.00\n0.00\n0.03\n0.01\n0.01\nSept \n'21\n1.15\n0.74\n0.04\n0.02\n0.06\n0.00\n0.00\n0.03\n0.01\n0.01\nOct '21\n0.98\n0.54\n0.05\n0.03\n0.07\n0.00\n0.00\n0.03\n0.01\n0.01\nNov '21\n1.08\n0.64\n0.05\n0.03\n0.07\n0.00\n0.00\n0.03\n0.01\n0.02\nDec '21\n1.82\n1.30\n0.05\n0.03\n0.07\n0.00\n0.01\n0.04\n0.01\n0.02\n%Chang\ne (Jul - \nDec \n2021)\n0.89\n0.14\n-0.64\n-0.64\n5.16\n0.00\n0.00\n0.00\n-0.64\n0.00\n-10.00\n0.00\n10.00\nJul\n'21\nAug\n'21\nSept\n'21\nOct\n'21\nNov\n'21\nDec\n'21\nHeadli\nne\nFood &\nNon-\nAlcoho\nlic Bev.\nCBN Monetary Policy Review \n \n \n27 \npoints to 8.88 per cent in December 2021 \nfrom 10.54 per cent in July. Farm \nproduce also fell by 2.00 percentage \npoint to 8.49 per cent in December 2021 \nfrom 10.49 per cent in July. This was the \nresult of bumper harvests across key \nfood producing areas. Components \nresponsible for this were meat, sugar, \nJam, Honey, etc. \n \nTable 3.4: Major Components of Food Inflation (Y-\non-Y), July - December 2021 \nFOOD\nProcessed \nFood\nMeat\nFish & Sea \nFood\nMilk, Cheese \n& Eggs\nOil & Fats\nSugar, Jam, \nHoney, etc.\nFarm \nProduce\nFruits\nVegatab\nles\nYam, \nPotatoes & \nother tubers\nJul 2021\n21.03\n10.54\n1.59\n1.55\n0.29\n0.95\n0.29\n10.49\n0.56\n1.57\n2.59\nAug 2021\n20.30\n9.87\n1.53\n1.49\n0.29\n0.92\n0.28\n10.44\n0.54\n1.53\n2.47\nSep 2021\n19.57\n9.86\n1.48\n1.46\n0.28\n0.93\n0.28\n9.71\n0.52\n1.47\n2.35\nOct 2021\n18.34\n8.58\n1.39\n1.38\n0.28\n0.89\n0.27\n9.75\n0.49\n1.41\n2.19\nNov 2021\n17.21\n8.57\n1.31\n1.33\n0.27\n0.87\n0.26\n8.64\n0.46\n1.35\n2.04\nDec 2021\n17.37\n8.88\n1.33\n1.37\n0.28\n0.88\n0.27\n8.49\n0.46\n1.34\n2.00\nChange btw \nJul &Dec. \n2021\n-3.66\n-1.66\n-0.27\n-0.18\n-0.02\n-0.07\n-0.02\n-2.00\n-0.09\n-0.23\n-0.60\nSource: NBS \n \nFigure 3.12: Major Components of Food Inflation \n(Y-on-Y), July - December 2021 \n \nSource: NBS \n \nMonth-on-month \nfood \ninflation, \nhowever, increased by 1.33 percentage \npoint to 2.19 per cent in December 2021 \nfrom 0.86 per cent in July driven by \nincreases in the prices of both processed \nfood and farm produce. The price of \nprocessed food rose by 0.68 percentage \npoint from 0.53 per cent in July 2021 to \n1.21 per cent in December 2021. \nSimilarly, the price of farm produce rose \nby 0.66 percentage point to 0.99 per \ncent in December 2021 from 0.33 per \ncent in July. All other sub-components of \nfood inflation maintained an upward \ntrend in the review period. \n \nTable 3.5: Major Components of Food Inflation (M-\non-M), July - December 2021 \nFood\nProcessed \nFood\nMeat\nFish & Sea \nFood\nMilk, Cheese \n& Eggs\nOil & Fats\nSugar, Jam, \nHoney, etc.\nFarm \nProduce\nFruits\nVegatab\nles\nYam, \nPotatoes & \nother tubers\nJul 2021\n0.86\n0.53\n0.07\n0.07\n0.02\n0.04\n0.01\n0.33\n0.03\n0.09\n0.09\nAug 2021\n1.06\n0.29\n0.08\n0.08\n0.02\n0.06\n0.02\n0.77\n0.03\n0.08\n0.11\nSep 2021\n1.26\n0.76\n0.09\n0.11\n0.02\n0.09\n0.02\n0.50\n0.03\n0.08\n0.13\nOct 2021\n0.91\n0.09\n0.07\n0.08\n0.02\n0.05\n0.02\n0.82\n0.03\n0.09\n0.11\nNov 2021\n1.07\n0.89\n0.08\n0.10\n0.02\n0.06\n0.02\n0.18\n0.03\n0.08\n0.13\nDec 2021\n2.19\n1.21\n0.17\n0.17\n0.03\n0.09\n0.04\n0.99\n0.05\n0.14\n0.22\nChange btw \nJul & Dec. \n2021\n1.33\n0.68\n0.09\n0.10\n0.01\n0.05\n0.03\n0.65\n0.03\n0.05\n0.14\nSource: NBS \n \nFigure 3.13: Major Components of Food Inflation \nJuly - December 2021 \n \nSource: NBS \n \n \n0\n5\n10\n15\n20\n25\nJul 2021 Aug 2021Sep 2021 Oct 2021Nov 2021Dec 2021\nFOOD\nProcessed Food\nMeat\nFish & Sea Food\nMilk, Cheese &\nEggs\nOil & Fats\nSugar, Jam, Honey,\netc.\nFarm Produce\nFruits\nVegatables\nYam, Potatoes &\nother tubers\n0.00\n0.50\n1.00\n1.50\n2.00\n2.50\nJul 2021\nAug 2021\nSep 2021\nOct 2021\nNov 2021\nDec 2021\nFood\nProcessed Food\nMeat\nFish & Sea Food\nMilk, Cheese & Eggs\nOil & Fats\nSugar, Jam, Honey,\netc.\nFarm Produce\nFruits\nVegatables\nYam, Potatoes &\nother tubers\nCBN Monetary Policy Review \n \n \n28 \n3.2.1.3 Core Inflation \nCore inflation (year-on-year) rose by \n0.15 percentage point to 13.87 per cent \nin December 2021 from 13.72 per cent in \nJuly. The development was driven by \nincreases in Housing, water, electricity & \nother fuel (0.11 percentage point), \ntransport \n(0.09 \npercentage \npoint), \nfurnishings, household equipment & \nhousehold maintenance (0.06), and \nhealth \n(0.03 \npercentage \npoint). \nProcessed food, however, decreased by \n0.28 percentage point to 5.12 per cent in \nDecember 2021 from 5.40 per cent in \nJuly (Table 3.6 and Figure 3.14). The rise \nin core inflation could be attributed to \nsupply-side challenges, rising cost of \nenergy \nand \nexchange \nrate \ndepreciation. \n \nTable 3.6: Major Components of Core Inflation (Y-\non-Y) July - December 2021 \nCore\nProcessed \nFood\nNon-\nAlcoholic \nBeverages\nAlcoholi\nc Bev. \nTobacco \n& Kola \nClothing \n& \nfootwear\nHousing,\nWater, \nElect.Gas \n& Other \nFuel\nFurnishi\nngs, \nHouseho\nld Equip \n&HH \nMaint.\nHealth Transport\nCommu\nnication\nRecreatio\nn & \nculture\nEducation\nRestaurant \n& Hotels\nMiscellan\neous \nGoods & \nServices\nJul-21\n13.72\n5.40\n0.19\n0.16\n1.37\n2.83\n0.61\n0.45\n1.28\n0.13\n0.15\n0.76\n0.21\n0.18\nAug-21\n13.41\n5.20\n0.18\n0.16\n1.34\n2.80\n0.60\n0.44\n1.28\n0.14\n0.15\n0.75\n0.20\n0.17\nSep-21\n13.74\n5.30\n0.18\n0.16\n1.36\n2.83\n0.63\n0.47\n1.32\n0.14\n0.15\n0.78\n0.23\n0.19\nOct-21\n13.24\n4.96\n0.18\n0.16\n1.33\n2.82\n0.61\n0.44\n1.31\n0.14\n0.15\n0.77\n0.20\n0.17\nNov-21\n13.85\n5.14\n0.18\n0.17\n1.38\n2.88\n0.66\n0.50\n1.37\n0.14\n0.16\n0.83\n0.24\n0.21\nDec-21\n13.87\n5.12\n0.18\n0.17\n1.39\n2.94\n0.67\n0.49\n1.37\n0.14\n0.16\n0.82\n0.22\n0.19\nchange \nbtwn Jul& \nDec 2021\n0.15 -0.28\n0.00 0.01\n0.03\n0.11 0.06 0.03\n0.09 0.00\n0.01\n0.07\n0.01\n0.01\nSource: NBS \n \n \n \n \n \n \n \nFigure 3.14: Major Components of Core Inflation (Y-\non-Y) July - December 2021 \n \nSource: NBS \n \nOn a month-on-month basis, core \ninflation, however, decreased by 0.18 \nper centage point to 1.22 per cent in \nDecember 2021 from 1.31 per cent in \nJuly. The major drivers of the decline \nwere \nrestaurant \n& \nhotel \n(-0.05 \npercentage \npoint), \nmiscellaneous \ngoods & services (-0.05 percentage \npoint), education (-0.04 percentage \npoint), and housing, water, electricity, \ngas & other fuel (0.04 percentage point) \n(Table 3.7 and Figure 3.15). \n \nTable 3.7: Major Components of Core Inflation \n(M-on-M) July – December 2021 \nCore\nProcesse\nd Food\nNon\nAlcoholic \nBeverage\ns\nAlcoholi\nc Bev. \nTobacco \n& Kola\nClothing \n& \nfootwea\nr\nHousin\ng,Wate\nr, \nElect G\nFurnish\nings, \nHouse\nhold\nHealth\nTransp\nort\nCom\nmunic\nation\nRecreat\nion & \nculture\nEduca\ntion\nRestau\nrant & \nHotels\nMiscell\naneous \nGoods \n&\nJul-21\n1.31\n0.45\n0.01\n0.01\n0.13\n0.25\n0.07\n0.06\n0.14\n0.01\n0.01\n0.09\n0.04\n0.04\nAug-21\n0.77\n0.26\n0.01\n0.01\n0.07\n0.17\n0.04\n0.02\n0.09\n0.01\n0.01\n0.05\n0.01\n0.01\nSep-21\n1.24\n0.48\n0.01\n0.01\n0.11\n0.24\n0.07\n0.05\n0.12\n0.01\n0.01\n0.07\n0.03\n0.03\nOct-21\n0.80\n0.22\n0.01\n0.01\n0.09\n0.23\n0.04\n0.02\n0.09\n0.01\n0.01\n0.05\n0.00\n0.00\nNov-21\n1.26\n0.46\n0.01\n0.01\n0.12\n0.25\n0.07\n0.05\n0.12\n0.01\n0.01\n0.08\n0.03\n0.03\nDec-21\n1.12\n0.44\n0.02\n0.02\n0.12\n0.29\n0.05\n0.02\n0.10\n0.01\n0.01\n0.05 -0.01\n-0.01\nchange btwn Jul \nand Dec. 2021\n-0.18\n-0.01\n0.00\n0.01\n0.00 0.04 -0.03 -0.03 -0.03 0.00\n0.00 -0.04 -0.05 -0.05 \nSource: NBS \n \n \n \n0.00\n2.00\n4.00\n6.00\n8.00\n10.00\n12.00\n14.00\n16.00\nCore\nProcessed\nFood\nCBN Monetary Policy Review \n \n \n29 \nFigure 3.15: Major Components of Core Inflation \n(M-on-M) July – December 2021\n-0.20\n0.00\n0.20\n0.40\n0.60\n0.80\n1.00\n1.20\n1.40\nJul-21\nAug-21\nSep-21\nOct-21\nNov-21\nDec-21\nCore\nProcessed Food\nNon-Alcoholic Beverages\nAlcoholic Bev. Tobacco & Kola\nClothing & footwear\nHousing,Water, Elect.Gas & Other Fuel\nFurnishings, Household Equip &HH Maint.\nHealth\nTransport\nCommunication\nRecreation & culture\nEducation\nRestaurant & Hotels\nMiscellaneous Goods & Services\nSource: NBS \n \n3.2.2 \nSeasonally Adjusted Inflation \nActual \nheadline \ninflation \ntrended \ndownwards \nbetween \nJuly \nand \nNovember 2021. This trend, however, \nreversed in December 2021 as a result of \nincreased spending associated with the \nfestive period and end of year activities. \nIn contrast, the seasonally adjusted \nmeasure \nmaintained \nan \nupward \ntrajectory between July and November \n2021 before declining marginally in \nDecember (Table 3.8 and Figure 3.16). \nActual headline inflation reflected the \ngeneral price level in the economy, \ntrending below the seasonally adjusted \nmeasure \nbetween \nSeptember \nand \nDecember 2021. The overall downward \ntrend in actual headline inflation was \noccasioned \nby \nthe \ncontinued \nimplementation of the Government’s \nEconomic Sustainability Plan, supported \nby various interventions in agriculture \nand manufacturing by the Central Bank \nof Nigeria. These helped to create jobs \nand simultaneously improve the supply \nof goods and services. The upward trend \nin the seasonally adjusted measure was \nmainly attributed to the demand shock \nassociated \nwith \nthe \npost-lockdown \nrecovery as well as festive and end-of-\nyear activities. \n \nTable 3.8: \nActual \nand \nSeasonally Adjusted \nHeadline Inflation (July – December 2021) \nYear \nInflation \nSA Inflation \nJul-21 \n17.38 \n16.30 \nAug-21 \n17.01 \n16.60 \nSep-21 \n16.63 \n16.83 \nOct-21 \n15.99 \n16.96 \nNov-21 \n15.40 \n16.98 \nDec-21 \n15.63 \n16.95 \nSource: NBS \n \nFigure 3.16: Actual and Seasonally Adjusted \nHeadline Inflation (July – December 2021) \n \nSource: NBS \n \n3.2.3 \nKey \nFactors \nthat \nInfluenced \nDomestic Prices \nThe decline in inflationary pressure \nduring the review period was primarily \ninfluenced by some moderating factors, \nalthough cost-push and demand-pull \nforces were also at play. The key \nmoderating factors were: the easing of \nCOVID-19 \nrelated \nrestrictions; \nfiscal \n14.00\n14.50\n15.00\n15.50\n16.00\n16.50\n17.00\n17.50\n18.00\nJul-21\nAug-21\nSep-21\nOct-21\nNov-21\nDec-21\nInflation\nSA Inflation\nCBN Monetary Policy Review \n \n \n30 \npolicy support through the continued \nimplementation \nof \nthe \nEconomic \nSustainability Plan and initiatives by the \nCentral Bank of Nigeria to support \nrecovery through interventions in the \nagricultural and manufacturing sectors. \nExchange \nrate \nstability \nwas \nalso \nachieved \nthrough \ndemand \nmanagement measures by the Bank. \n \n3.2.3.1 Demand-side Factors \nThe \ndemand-side \nfactors \nthat \ninfluenced headline inflation in the \nreview period included capital releases \nfor infrastructural projects, real sector \nintervention \nprogrammes, \nand \nthe \nBank’s \naccommodative \nmonetary \npolicy stance to support the recovery of \naggregate demand all boosted naira \nliquidity in the system. In addition, foreign \nexchange demand pressure, despite \nthe \nBank’s \ndemand \nmanagement \nmeasures resulted in pass-through on \ndomestic prices. \n \n3.2.3.2. Supply-side Factors \nSupply-side factors that influenced \ninflationary developments in the review \nperiod include the persisting security \nchallenges, \nparticularly \nin \nfarming \ncommunities, and lagged impact of \ndisruptions to production and distribution \nactivities associated with the COVID-19 \nlockdown. \nOthers \nwere: \nthe \npoor \nconditions of transport infrastructure \nwhich impacted upward pressure on the \ncost of cross-country logistics; rising cost \nof AGO and inflation expectations from \nthe proposed deregulation of energy \nprices; and the declining supply of \nforeign exchange through autonomous \nsources, which heightened the pressure \non the naira. \n \n3.2.3.3 Moderating Factors \nThe \nkey \nfactors \nthat \nmoderated \ninflationary pressure in the review period \nwere: the Federal Government’s support \nthrough the Economic Sustainability Plan \nand the easing of COVID-19 related \nrestrictions as well as interventions by the \nCentral \nBank \nof \nNigeria \nin \nthe \nagricultural and manufacturing sectors. \nThe \nBank’s \nrigorous \ndemand \nmanagement policy was also central to \nthe moderation of demand pressure in \nthe foreign exchange market. This \nhelped in sustaining relative stability in \nthe foreign exchange market. \n \n3.3 \nMonetary \nPolicy \nand \nLiquidity \nManagement \nThe design and implementation of \nMonetary policy in the second half of \n2021 was guided by emerging issues and \ndevelopments \nin \nthe \nglobal \nand \ndomestic \neconomic \nand \nfinancial \nenvironments. \n \nOn the global front, while relative \nprogress had been made in easing the \nimpact of the COVID-19 pandemic, the \nrecovery \nof \nthe \nglobal \neconomy \nprogressed moderately as new strains of \nthe virus such as delta and omicron \ncontinued to cast a shadow on the full \nrecovery. This resulted in an uneven \nrecovery across the globe, with the \nadvanced \neconomies \nmaking \nsubstantially more progress than other \nCBN Monetary Policy Review \n \n \n31 \ndeveloping economies, largely due to \nmore fiscal and monetary support at \ntheir disposal. Following the progressive \nlifting of restrictions earlier imposed to \ncurb the spread of the pandemic, the \nglobal economy experienced a surge in \ndemand initially thought to be transient \nas global supply gradually recovered to \noffset the demand-supply gap which \nexisted post-lockdown. In this light, \ninflation in the advanced economies \nrose substantially above their long run \nobjectives over a period of time as \ncentral \nbanks \nin \nthese \neconomies \nbelieved that the rise was transient. As \ninflation \npersisted, \nhowever, \nthese \ncentral banks began talks of tapering, \nwithdrawal of stimulus and interest rate \nlift-off, with the US Federal Reserve Bank \nat the forefront of the discourse. In the \nEmerging \nMarkets \nand \nDeveloping \nEconomies, however, there was a mixed \ninflationary outcome with some of the \neconomies \nfacing \nhigher \npressures \ncompared with their peers, as exchange \nrate pressures, capital flow reversals, \nrising energy cost, weak supply chains \nand varying access to stimulus impacted \nmacroeconomic performance in these \neconomies differently. \n \nOn the domestic front, uncertainties \naround the path of containment of the \npandemic \ncontinued \nto \npose \nchallenges \nto \noutput \nrecovery. \nIn \naddition, the slow pace of vaccination \nacross the country \namongst other \nlegacy issues remained a source of \nconcern for monetary policy. \n \n \n3.3.1 Monetary Policy Response to \nEvolving Economic Conditions \nIn the review period, monetary policy \nformulation and implementation was \ntargeted at addressing the downside \nrisks to growth and upside risks to \ninflation. \nThe \nuneven \naccess \nto \nvaccines, unwillingness in some quarters \nto be vaccinated, and the continued \nmutation of the virus into deadlier strains \nimposed a drag on the full recovery of \nthe global economy. The rising level of \nglobal inflation associated with the \nrecovery from the COVID-19 pandemic \nand high energy cost led major central \nbanks in the advanced economies to \ngive \nforward \nguidance \nof \ncommencement of monetary policy \nnormalisation. This prompted concern \nfor capital flow reversals from emerging \nmarkets and developing economies \nwith \nattendant \nconsequence \non \nexchange rate pressure and external \nreserves. Accordingly, the International \nMonetary Fund (IMF) revised global \noutput growth for 2021 downwards to 5.9 \nfrom 6.0 per cent. \n \nIn the third and fourth quarters of 2021, \nthe domestic economy grew by 4.03 \nand \n3.98 \nper \ncent \nrespectively, \ncompared with -3.62 and 0.11 per cent \nin Q3 and Q4 2020, respectively. \nHeadline \ninflation \n(year-on-year) \nmoderated \nto \n15.63 \nper \ncent \nin \nDecember 2021 from 17.38 per cent in \nJuly, but still remained above the Bank’s \nupper band of 9.00 per cent. These \ndevelopments shaped monetary policy \nin the second half of 2021. \n \nCBN Monetary Policy Review \n \n \n32 \nThe broad money supply (M3) grew \nduring the period driven by growth in Net \nDomestic Assets (NDA), while net Foreign \nAssets (NFA), contracted. The continued \ngrowth in Net Domestic Assets (NDA) \nwas largely driven by increased claims \non the Federal Government and other \npublic nonfinancial corporations, private \nsector and state and local governments. \nIn the equities market, both the All-Share \nIndex (ASI) and Market Capitalization \n(MC) increased depicting improved \ninvestor sentiment, following impressive \ncorporate earnings of listed companies \non the Exchange. This led to a new \nbargain hunting drive by investors. In the \nbanking system, the Capital Adequacy \nRatio (CAR) and Liquidity Ratio (LR) both \nremained above their prudential limits. \nThe Non-Performing Loan ratio (NPL) \nimproved, reflecting tight prudential \nregime by the Bank. \n \nThe money market rates oscillated within \nthe standing facilities corridor, reflecting \nthe prevailing liquidity conditions in the \nbanking system. The monthly weighted \naverage Open Buyback (OBB) and Inter-\nbank Call rates both increased during \nthe period, reflecting the tight liquidity \ncondition in the banking system. The \ngross external reserves stood at US$41.41 \nbillion \nas \nat \nNovember \n18, \n2021, \ncompared \nwith \nUS$41.34 \nbillion \nin \nOctober 2021, a moderate increase of \n0.17 per cent. \n \n1 Details of the interventions in the review \nperiod are contain in sections 3.1.2.2 and \n3.1.2.2.2 \nIn the second half of 2021, the policy \ndecisions were to retain the MPR at 11.5 \nper cent; retain the asymmetric corridor \nof +100/-700 basis points around the \nMPR; retain the CRR at 27.5 per cent and \nretain the Liquidity Ratio at 30 per cent. \nAlso, the Bank continued its interventions \nto boost aggregate demand and \ninvestments, as well as diversifying the \neconomy through foreign exchange \nrestrictions for the importation of goods \nand \nfood \nproducts \nthat \ncan \nbe \nproduced in Nigeria. \n \nIn order to complement the monetary \npolicy decisions, the Bank sustained its \nintervention \nprogrammes \nto \nensure \nsustainable growth, ease supply chain \nchallenges and drive down prices. These \ninterventions \nwere \nin \nmanufacturing/industries, \nagriculture, \nenergy/infrastructure, healthcare and \nMicro, Small & Medium Enterprises \n(MSMEs)1. \n \n3.3.2 \nMonetary \nPolicy \nCommittee \nMeetings \nIn the second half of 2021, the \nMonetary Policy Committee (MPC) met \nin July, September, and November. At \nthe July meeting, the Committee noted \nthe gradual recovery of output growth \nand \nexpressed \nconfidence \nin \nthe \nrecovery. The MPC, however, carefully \nreviewed the downside risks to growth \nand upside risks to inflation in the short- \nto medium-term. While the economy \nCBN Monetary Policy Review \n \n \n33 \nhas \nbeen \ngradually \nreopening, \nMembers noted that the Pandemic was \nfar from over and therefore may \nmoderate the pace of the recovery. The \nMPC was concerned about the broad \nlevel of insecurity across the country, \nnoting its impact in key commodity \nproducing areas and urged the Federal \nGovernment \nto \nintensify \nsecurity \nsurveillance in farming communities. On \ninflation, the Committee noted the \ncontribution of poor infrastructure to \nrising domestic prices and re-iterated \nthe \nimportance \nfor \nthe \nFederal \nGovernment to prioritize investment in \npublic \ninfrastructure \nsuch \nas \ntransportation networks, power supply \nand \ntelecommunication \nfacilities \nthrough Public-Private-Partnerships. \n \nCommittee members also noted the \npersistent reduction in remittance of oil \nrevenue to the Consolidated Revenue \nFund and urged the Government to \ncontinue to explore additional sources \nof non-oil revenue, as this would reduce \nthe over dependence on a single \nrevenue source. \n \nIn the financial market, the Committee \nnoted the continued improvement in \nthe equities market, indicating sustained \ninvestor confidence in the Nigerian \neconomy. \nIt \nalso \napplauded \nthe \ncontinued resilience of the banking \nsystem in the face of severe shocks to \nboth \nthe \ndomestic \nand \nglobal \neconomies. \n \nOverall, Members were confident that \nthe Bank was taking the right steps \ntoward \nthe \nrestoration \nof \nmacroeconomic stability, while noting \nthe downside risks to growth and the \nupside risks to price developments. On \nthe basis of foregoing, the Committee \ndecided by a unanimous voted to \nmaintain the monetary policy rate (MPR) \nat 11.5 per cent, the Asymmetric \nCorridor at +100/-700 basis points around \nthe MPR, the CRR at 27.5 per cent, and \nthe Liquidity Ratio at 30 per cent. \n \nDuring the September 2021 MPC, the \nCommittee \nnoted \nthe \ncontinued \nrecovery in output growth and urged \nthe Bank to maintain its current policy \nmeasures. \nIt, \nhowever, \nnoted \nthe \ndownside risk posed by the increasing \nlevel of insecurity in parts of the country \nand urged the Federal Government to \nprioritize security surveillance particularly \nin farming communities. \n \nThe Committee noted that inflation had \ndecelerated for the fifth consecutive \nmonth and commended the Bank’s \neffort \nat \nrevitalising \nthe \nNigeria \nCommodity Exchange (NCX) to improve \nthe supply value chain. In addition, \nmembers \ncommended \nthe \ncomplementary benefit of the take-off \nof \nthe \nNigerian \nInfrastructure \nCorporation \n(INFRACORP) \nwhich \nis \nexpected to markedly improve the \nbusiness environment. \n \nOn the financial market, the MPC noted \nthe moderate improvement in the \nequities \nsegment, \nthe \nprogressive \ndecline in the non-performing loans, and \nfurther commended the management \non the stability of the exchange rate. The \nCommittee thus, urged the Bank to take \nCBN Monetary Policy Review \n \n \n34 \nfurther steps to restrict the activities of \nunauthorised and illegal dealers in the \nforeign exchange market, and ensure \nthat operators adhere to stipulated \nguidelines set by the Bank. \n \nOverall, \nthe \nMPC \nassessed \nthe \nheadwinds and tailwinds to growth, as \nwell as the upside risks to inflation, and \nconsequently, decided by a unanimous \nvote to hold all policy parameters at \ntheir extant position. \n \nThe MPC at its November 2021 meeting, \nnoted the key downside risks to growth \nand \nupside \nrisks \nto \ninflation, \ncommending the continued recovery in \noutput growth in the third quarter of \n2021. \n \nThe \nCommittee \nhowever, \nremained cautious of the need to \nmonitor \nprice \ndevelopments \nwhile \nurging \nthe \nBank \nto \nmaintain \nits \ninterventions as the pandemic was yet \nto be over. Members also reiterated the \nimpact of poor infrastructure on rising \ndomestic price levels as well as the \npersistence of insecurity in major food-\nproducing areas, noting the downside \nrisk to the recovery. \n \nThe Committee also commended the \ngradual diversification of the economy \nwith the increased contribution of the \nnon-oil sector to Government revenues \nand called for more support to increase \nnon-oil exports as a source of foreign \nexchange earnings into the economy. \nThe \nCommittee \nfurther \nurged \nthe \nGovernment \nto \nseek \nequitable \npartnerships with foreign investors and \nNigerians in diaspora to fund capital \nprojects. \nThe Committee also noted the growing \ninvestor confidence in the Nigerian \neconomy \nreflected \nby \nthe \nstrong \nposition of the equities market and the \ncontinued resilience of the banking \nsystem. \n \nMembers \nnoted \nthe \nlikely \ncommencement of monetary policy \nnormalization by the US Fed and called \non the Federal Government to intensify \nits drive towards a counter-cyclical fiscal \npolicy in view of the imminent tightening \nof external financial conditions. \n \nIn \ngeneral, \nthe \nMPC \nexpressed \nconfidence in the ongoing policies of \nboth the monetary and fiscal authorities \nwhich was the hallmark of the current \nrecovery \nand \nrestoration \nof \nmacroeconomic stability in Nigeria. The \nCommittee \nthus, \ndecided \nby \na \nunanimous vote to retain the Monetary \nPolicy Rate (MPR) at 11.5 per cent. In \nsummary, the MPC voted to retain: the \nMPR at 11.5 per cent; the asymmetric \ncorridor of +100/-700 basis points around \nthe MPR; the CRR at 27.5 per cent; and \nthe Liquidity Ratio at 30 per cent. \n \nThe communiques of the MPC meetings \nare contained in the appendix. \n \n3.3.3 \nInstruments \nof \nLiquidity \nManagement \nIn the review period, the Bank sustained \nthe use of its monetary policy instruments \nto achieve the objectives of price and \nmacroeconomic \nstability. \nThe \ninstruments were: the Monetary Policy \nRate (MPR); the Cash Reserve Ratio \nCBN Monetary Policy Review \n \n \n35 \n(CRR); Liquidity Ratio; Open Market \nOperations \n(OMO) \nand \nDiscount \nWindow Operations. Furthermore, there \nwere periodic interventions in the foreign \nexchange market. \n \n3.3.3.1 Monetary Policy Rate (MPR) \nThe \nMonetary \nPolicy \nRate \n(MPR) \nremained the Bank’s key instrument for \nsignalling monetary policy stance and \nmanagement in the second half of 2021. \nThe MPR was kept unchanged at 11.5 \nper cent and the asymmetric corridor \nmaintained at +100/-700 basis points, \nreflecting the Bank’s commitment to an \naccommodative \npolicy \nstance \nto \nsupport output growth. \n \n3.3.3.2 Open Market Operations (OMO) \nIn the second half of 2021, Open \nMarket Operations (OMO) was the main \ninstrument of Liquidity Management. \nTotal OMO sales increased marginally by \n2.95 per cent to N6,319.47 billion in the \nsecond half of 2021 from N6,138.58 billion \nin the corresponding period of 2020, but \nwas a significant increase of 252.40 per \ncent when compared with N1,793.25 \nbillion in the first half of 2021 (Table 3.9). \nThe \nincreased \noperations \nwere \nattributed to excess liquidity in the \nBanking System. \n \n \n \n \n \n \n \n \n \nTable 3.9: OMO Bills Auction (July – December, \n2021) (N’billion) \n \nSource: Financial Market Department \n \nFigure 3.17: OMO Bills Auction (July - December, \n2021) \n \nSource: Financial Market Department \n \n3.3.3.3 Reserve Requirements \nIn \nthe \nreview \nperiod, \nReserve \nRequirements, \nnamely: \nthe \nCash \nReserves Ratio (CRR) and Liquidity Ratio \n(LR) were deployed to complement the \nMPR and OMO auctions as macro-\nprudential and liquidity management \nDate\n2020\n2021\n% Change \n Jan \n 2,193.52 452.67 \n-79%\n Feb\n 1,575.64 763.23 \n-52%\nMar\n 673.38 381.92 \n-43%\nApr\n 676.19 63.19 \n-91%\nMay\n 114.00 66.64 \n-42%\nJun\n 1,259.57 65.60 \n-95%\n 1st Half\n6,492.30\n1,793.25\n-72%\nJul\n392.76\n151.26\n-61%\nAug\n1,037.67\n1,411.89\n36%\nSep\n1,171.79\n1,398.60\n19%\nOct\n988.67\n772.66\n-22%\nNov\n1,022.11\n884.22\n-13%\nDec\n1,525.58\n1,700.83\n11%\n2nd Half\n6,138.58\n6,319.47\n3%\nCumulative Figure\n12,630.88\n8,112.72\n-36%\n0.00\n500.00\n1,000.00\n1,500.00\n2,000.00\nJul-21\nAug-21\nSep-21\nOct-21\nNov-21\nDec-21\nN'Billions\nOMO Sales\nCBN Monetary Policy Review \n \n \n36 \ninstruments. The CRR and LR were \nmaintained at 27.5 and 30.0 per cent, \nrespectively. This was due to the liquidity \nsurfeit in the banking system. \n \n3.3.3.4 Standing Facilities \nThe Standing Facilities window was \nused by the Bank to meet the daily \nliquidity \nrequirements \nof \nOther \nDepository Corporations (ODCs) in the \nsecond half of 2021. The asymmetric \ncorridor was maintained at +100/-700 \nbasis points around the MPR. \n \nThe \nrequests \nfor \nStanding \nLending \nFacility (SLF) decreased by 65.03 per \ncent to N3,406.45 billion in the second \nhalf of 2021 from N9,741.84 billion in the \npreceding period of 2021. This, however, \nreflected an increase of 86.44 per cent \nfrom \nN1,827.09 \nbillion \nin \nthe \ncorresponding period of 2020 (Table \n3.10). \n \nSimilarly, the volume of deposits under \nthe Standing Deposit Facility (SDF), \ndeclined by 32.22 per cent to N1,221.95 \nbillion in the second half of 2021 from \nN1,829.90 billion in the preceding period \nof \n2021. \nThis \nalso \nrepresented \na \ndecrease of 70.66 per cent when \ncompared with N4,164.78 billion in the \ncorresponding period of 2020 (Table \n3.11). \n \nTransactions at the Standing Facility \nwindow resulted in a net lending of \nN2,184.50 billion in the second half of \n2021 compared with a net lending of \nN7,911.94 billion in the preceding half \nyear and a net deposit of N2,337.69 \nbillion in the corresponding half year. This \ndevelopment signalled a trend towards \nmoderation of banking system liquidity \nsurfeit. \n \nTable 3.10: CBN Standing Lending Facility (January \n2020 – December 2021) (N’billion) \nDate \n2020 \n2021 \n% \nChange \nJan \n580.77 \n 395.77 \n \nFeb \n510.27 \n 552.66 \n \nMar \n957.34 \n 886.51 \n \nApr \n277.93 \n 2,498.55 \n \nMay \n398.84 \n 4,818.91 \n \nJun \n592.25 \n 589.44 \n \n1st Half \n3,317.40 \n9,741.84 \n193.66% \nJul \n1,570.18 \n302.54 \n \nAug \n112.72 \n472.57 \n \nSep \n14.39 \n737.72 \n \nOct \n37.11 \n513.22 \n \nNov \n22.94 \n668.87 \n \nDec \n69.75 \n711.54 \n \n2nd \nHalf \n1,827.09 \n3,406.45 \n86.44% \nTotal \n5,144.49 \n13,148.29 \n \nSource: Financial Market Department \n \nFigure 3.18: Standing Lending Facility (July – \nDecember 2021) \n \nSource: Financial Market Department \n \n \n \n0.00\n200.00\n400.00\n600.00\n800.00\nJul Aug Sep Oct Nov Dec\nN'Billions\nSLF\nCBN Monetary Policy Review \n \n \n37 \nTable 3.11: CBN Standing Deposit Facility (January \n2020 – December 2021) (N’billion) \nDate \n2020 \n2021 \n % \nChange \nJan \n618.49 \n528.33 \n \nFeb \n523.41 \n441.51 \n \nMar \n356.80 \n420.36 \n \nApr \n601.53 \n145.52 \n \nMay \n549.50 \n123.89 \n \nJun \n442.05 \n170.29 \n \n1st \nHalf \n3,091.78 1,829.90 \n-40.81% \nJul \n459.49 \n218.06 \n \nAug \n593.42 \n207.58 \n \nSep \n838.22 \n200.35 \n \nOct \n734.51 \n128.10 \n \nNov \n794.31 \n237.64 \n \nDec \n744.83 \n230.22 \n \n2nd \nHalf \n4,164.78 1,221.95 \n-\n70.66% \nTotal \n7,256.56 3,051.85 \n \nSource: Financial Market Department \n \nFigure 3.19: Standing Deposit Facility (July - \nDecember 2021) \n \nSource: Financial Market Department \n \n3.3.3.5 Foreign Exchange Intervention \nIn the review period, pressure in the \nforeign exchange market persisted due \nto the lingering challenges posed by the \nCOVID-19 pandemic, which affected \nthe global commodity and oil markets. \nThe Bank in response; continued the \nNaira-4-Dollar \nScheme \nto \nfurther \nencourage \ndiaspora \nremittances; \ndirected licensed International Money \nTransfer \nOperators \n(IMTOs) \nto \npay \nbeneficiaries of diaspora remittances \nonly in foreign currency to improve \nforeign exchange inflows into Nigeria; \nrestricted importation of Sugar to three \ncompanies \ninvolved \nin \nBackward \nIntegration Programmes (BIP) on sugar \nproduction; and operationalised the \nPan African Payments and Settlements \nSystem \n(PAPSS) \nto \nsafeguard \nthe \nexternal reserves. \n \nAccordingly, total foreign exchange \nsupply increased by 51.55 per cent to \nUS$10,543.51 million in the second half of \n2021 from US$6,957.28 million in the \ncorresponding half of 2020, and by 88.80 \nper \ncent \nwhen \ncompared \nwith \nUS$5,831.59 million in the first half of 2021 \n(Table 3.12). The increased supply was \nlargely due to interventions in the foreign \nexchange market to ensure exchange \nrate stability. \n \n \n \n \n \n \n \n \n0.00\n50.00\n100.00\n150.00\n200.00\n250.00\nJul Aug Sep Oct Nov Dec\nN'Billion\nSDF\nCBN Monetary Policy Review \n \n \n38 \nTable 3.12: Foreign Exchange Supply by the CBN \n(US$ Million) \n2020 \n2021 \n% Change \nTotal FX \nSupply \n(including \nForward \nSales) \nTotal FX \nSupply \n(including \nForward \nSales) \n \n1,604.27 \n717.05 \n \n3,364.39 \n714.55 \n \n3,344.29 \n770.08 \n \n674.87 \n962.80 \n \n639.76 \n1,283.74 \n \n680.43 \n1,383.37 \n \n10,308.01 \n5,831.59 \n-43.43% \n593.33 \n1,764.80 \n \n699.92 \n1,641.32 \n \n1,229.16 \n1,405.29 \n \n1,492.34 \n2,133.54 \n \n1,119.27 \n1,717.77 \n \n1,823.26 \n1,880.79 \n \n6,957.28 \n10,543.51 \n51.55% \nSource: Financial Market Department \n \nFigure 3.20: Total FX Supply (including Forward \nSales) July – December, 2021 \n \nSource: Financial Market Department \n \n \n3.3.4 \nDevelopments \nin \nMonetary \nAggregates \nIn the second half of 2021, monetary \naggregates grew significantly, with the \nbroad \nmeasures \nof \nmoney \nsupply \nperforming \nabove \ntheir \nindicative \nbenchmarks for the year, reflecting the \ngrowth in the components - currency in \ncirculation \nand \ndeposits. \nThe \nperformance was driven by the largely \naccommodative \nmonetary \npolicy \nstance of the Central Bank of Nigeria \ngeared towards strengthening recovery \nfrom the COVID-19-induced recession \nthat the country experienced in 2020. \n \nNet Domestic Assets (NDA) performed \nabove its benchmark in the review \nperiod. \nIts \nkey \ncomponent, \nNet \nDomestic \nCredit \n(NDC) \ngrew \nmoderately, driven by growth in both \nprivate sector and government credit. \nNet Foreign Asset (NFA) grew but was \nbelow the benchmark in the review \nperiod, driven primarily by the monetary \nauthority’s foreign assets, mostly the \nCOVID-19 \nloans \nand \ngrants \nfrom \nabroad. \n \n3.3.4.1 Broad Money (M3, M2) \nThe broad measures of money supply \n(M3 & M2) grew in the review period. M3 \ngrew by 10.90 per cent to N43,818.47 \nbillion at end-December 2021 from \nN39,510.56 billion at end-June 2021. \nWhen \ncompared \nwith \nthe \nend-\nDecember 2020 level of N38,904.92 \nbillion, it increased by 12.63 per cent. \nThe growth of M3 (year-on-year) was \nhigher than the 2021 indicative growth \n0.00\n500.00\n1,000.00\n1,500.00\n2,000.00\n2,500.00\nJul\nAug Sep\nOct Nov Dec\nUS$'Million\nTotal FX Supply (including\nForward Sales)\nCBN Monetary Policy Review \n \n \n39 \ntarget of 9.64 per cent. Similarly, M2 grew \nby 12.75 per cent to N43,817.57 billion at \nend-December 2021 from N38,863.05 \nbillion at end-June 2021. Compared with \nthe \nend-December \n2020 \nlevel \nof \nN37,828.88 billion, it increased by 15.83 \nper cent which was significantly higher \nthan the indicative growth benchmark \nof 10.26 per cent for 2021. During the \nperiod under review, there was no \nsignificant difference between M2 and \nM3 measures of money supply owing to \nthe gradual withdrawal of the CBN bills, \nwhich was the major driver of M3. \n \nThe increase in M2 was primarily driven \nby the increase in Narrow Money (M1) \nby 13.67 per cent and quasi money by \n18.67 per cent in 2021 owing to the \nprohibition of the non-bank public from \ninvesting in CBN bills. Thus, the proceeds \nof matured CBN bills were not rolled over \nbut became part of M1 deposits or \nreinvested \nin \nother \nnear-money \ninstruments. \n \nFigure 3.21: Money Supply (M1), (M2) and (M3) \n(July – December 2021) \n \nSource: Statistics Department \n \n \nFigure 3.22: Growth in Money Supply (M1), (M2) \nand (M3) (July - December 2021) \n \nSource: Statistics Department \n \n3.3.4.2 Narrow Money (M1) \nNarrow Money (M1) increased by 13.39 \nper cent to N18,169.30 billion at end-\nDecember 2021 from N16,024.39 billion \nat end-June 2021. It also increased by \n14.72 per cent when compared with its \nlevel of N15,838.40 billion at end-\nDecember 2020. The year -on -year \ngrowth in narrow money, was lower than \nthe 2021 indicative growth benchmark \nof 15.71 per cent (Figures 3.21 and 3.22). \nThe growth in M1, though relatively lower \nthan the indicative benchmark, was \nattributed to the gradual pick-up of \neconomic activities which translated to \ngrowth in the banking sector credit. \n \n3.3.4.3 Net Foreign Assets (NFA) \nNet Foreign Assets (NFA) increased by \n20.87 per cent to N8,814.45 billion at \nend-December 2021 from N7,292.25 \nbillion as at end-June 2021. When \ncompared with N8,973.31 billion at end-\nJul\n-\n21\nAu\ng-\n21\nSe\np-\n21\nOc\nt-\n21\nNo\nv-\n21\nDe\nc-\n21\nM3 39, 40, 40, 41, 42, 43,\nM2 39, 40, 40, 41, 42, 43,\nM1 16, 16, 15, 16, 17, 18,\n0.0\n10,000,000.0\n20,000,000.0\n30,000,000.0\n40,000,000.0\n50,000,000.0\nNaira\n0.00\n2.00\n4.00\n6.00\n8.00\n10.00\n12.00\n14.00\n16.00\n18.00\nJul-21 Aug-21Sep-21 Oct-21 Nov-21Dec-21\nM3 Growth\nM2 Growth\nM1 Growth\nCBN Monetary Policy Review \n \n \n40 \nDecember 2020, NFA contracted by 1.77 \nper cent in contrast to the 2021 \nprovisional indicative growth target of \n32.79 per cent. The below benchmark \nperformance of the NFA in the review \nperiod was due to the decline in foreign \nasset holdings of the central bank, \nespecially in the fourth quarter of 2021, \nas well as those of non-interest, primary \nmortgage, and microfinance banks. \n \n3.3.4.4 \nNet \nDomestic \nAssets \n(NDA) \nNet Domestic Assets (NDA) increased \nby 8.65 per cent to N35,004.03 billion at \nend-December 2021 from N32,218.32 \nbillion \nat \nend-June \n2021. \nWhen \ncompared with N29,931.62 billion at \nend-December 2020, NDA grew by 16.95 \nper cent year-on-year, which was \nsignificantly higher than the indicative \ngrowth benchmark of 4.21 per cent for \n2021. \nThe \ngrowth \nin \nNDA \nwas \nattributable to the growth in Other Items \nNet (OIN) by 10.05 per cent in the review \nperiod. \n \nNet Domestic Credit (NDC) increased \nyear-on-year by 17.25 per cent, driven \nlargely by the growth in net credit to \ngovernment (NCg) and credit to private \nsector (CPs) of 15.96 and 17.75 per cent, \nrespectively. The continuous increase in \nCPs \nreflects \nthe \nBank’s \nregulatory \nmeasures to improve lending to the real \nsector \nas \nwell \nas \nits \nsustained \ndevelopment \nfinance \ninterventions. \nThese interventions were targeted at \nimproving the flow of credit to critical \nsectors to support the fragile recovery of \nthe \neconomy \npost-COVID-19. \nThe \ngrowth in CPs is an indication of \nimproved financing of the economy by \nthe banking system. \n \nFigure 3.23: Net Domestic Asset (NDA) (July - \nDecember 2021) \n \nSource: Statistics Department \n \nFigure 3.24: NDA, NDC and Other Assets (Net) (July \n– December 2021) \n \nSource: Statistics Department \n \n3.3.4.5 Credit to the Government (Cg) \nCredit to Government (Cg) increased \nby 14.95 per cent to N13,326.80 billion at \nend-December 2021 from N11,593.88 \nbillion at end-June 2021. Compared with \nN10,449.16 billion at end-December \n2020, it grew by 15.96 per cent, which \n 30,000.00\n 32,000.00\n 34,000.00\n 36,000.00\nJul-21\nAug-21\nSep-21\nOct-21\nNov-21\nDec-21\nN'Billion\nJul-\n21\nAug-\n21\nSep-\n21\nOct-\n21\nNov\n-21\nDec-\n21\nNet\nDomestic\nAsset\n32,2832,7434,6434,3134,1635,00\nCBN Monetary Policy Review \n \n \n41 \nwas significantly higher than the 2021 \nindicative growth target of 5.20 per cent. \nDevelopments during the period drove \nthis \noutcome \nas \nthe \nFederal \nGovernment borrowed to fund the \ndeficit \nin \nthe \n2021 \nbudget. \nThis \ndevelopment poses a challenge as \nexcessive and continuous borrowing by \ngovernment raises concerns about fiscal \nsustainability and the crowding out of \nthe private sector. \n \n3.3.4.6 Credit to the Private Sector (Cp) \nCredit to the private sector (Cp) \nincreased by 7.87 per cent to N35,194.60 \nbillion at end-December 2021 from \nN32,625.54 billion at end-June 2021. The \ndevelopment represented a growth of \n17.75 per cent when compared with \nN29,890.46 billion at end-December \n2020, which is marginally higher than the \n2021 indicative growth target of 16.79 \nper cent. The marginal increase in \nprivate sector credit further stimulates \ndemand and promote growth in the \neconomy. \nThe \nsustained \nimplementation of the Loan to Deposit \nRatio \n(LDR) \nalso \nsupported \nthe \nenhanced performance of the CPs. \n \nFigure 3.25: Domestic Credit to Private Sector (July \n– December, 2021) \n \nSource: Statistics Department \n3.3.4.7 Reserve Money (RM) \nReserve Money (RM) increased by 7.79 \nper cent to N13,295.15 billion at end-\nDecember 2021 from N12,333.85 billion \nat end-June 2021. Year-on-year, RM \nincreased by 1.43 per cent from its end-\nDecember 2020 level of N13,107.92 \nbillion. The RM at end-December 2021 \nwas \nbelow \nthe \n2021 \nindicative \nbenchmark of N13,538.85 billion by \nN243.70 billion. The performance of RM \nwas largely due to the decline in the \ntotal deposit liability, and the weakening \nimplicit cost of cash holding which \nreflected in the movement of Reserve \nRequirement. A summary of the major \nmonetary \naggregates \nand \ntheir \nprovisional \noutcomes \nas \nat \nend-\nDecember 2021 is presented in Table \n3.13a and b. \n \n30,000,000.00\n35,000,000.00\n40,000,000.00\nN'Billion\nJul-21 Aug-\n21\nSep-\n21\nOct-\n21\nNov-\n21\nDec-\n21\nCredit to\nPrivate\nSector\n32,860,633,441,733,936,534,619,935,379,135,726,9\nCBN Monetary Policy Review \n \n \n42 \nTable 3.13a: The Performance of Monetary Aggregates and their Implications \nVariables \nActual \nActual \nActual \nBenchmark \nH2:2021 \nDeviation \nfrom \nBenchmark \nChange \nin H2, \n2021 over \nH1, 2020 \nH2 \nH1 \nH2 \n2021 \n2020 \n2021 \n2021 \n \nM3 (N'b) \n38,904.92 \n39,510.56 \n43,818.47 \n42,349.10 \n1,469.37 \n4,307.91 \nM3 (%) \n11.63% \n1.56% \n12.63% \n9.64% \n2.99% \n11% \nM2 (N'b) \n37,828.88 \n38,863.05 \n43,817.57 \n41,573.51 \n2,244.06 \n4,954.52 \nM2 (%) \n30.99% \n2.73% \n15.83% \n10.26% \n5.57% \n13% \nM1 (N'b) \n15,838.40 \n16,024.39 \n18,169.30 \n18,487.33 \n-318.03 \n2,144.91 \nM1 (%) \n48.74% \n1.17% \n14.72% \n15.71% \n-0.99% \n14% \nRM (N'b) \n13,107.92 \n12,333.85 \n13,295.15 \n13,538.85 \n-243.70 \n961.30 \nRM (%) \n50.99% \n-5.91% \n1.43% \n3.33% \n-1.90% \n7% \nNDC (N'b) \n41,383.17 \n44,219.42 \n48,521.40 \n48,260.60 \n260.80 \n4,301.98 \nNDC (%) \n12.71% \n6.85% \n17.25% \n13.41% \n3.84% \n10% \nCg (N'b) \n11,492.71 \n11,593.88 \n13,326.80 \n13,049.45 \n277.35 \n1,732.92 \nCg (%) \n13.81% \n0.88% \n14.95% \n5.20% \n9.75% \n14% \nCp (N'b) \n29,890.46 \n32,625.54 \n35,194.60 \n35,211.15 \n-16.55 \n2,569.06 \nCp (%) \n12.30% \n9.15% \n17.75% \n16.79% \n0.96% \n9% \nNFA (N'b) \n8,973.31 \n7,292.25 \n8,814.45 \n9,743.43 \n-928.98 \n1,522.20 \nNFA (%) \n50.95% \n-18.73% \n-1.77% \n32.79% \n-34.56% \n17% \nNDA (N'b) \n29,931.62 \n32,218.32 \n35,004.02 \n32,605.67 \n2,398.35 \n2,785.70 \nNDA (%) \n3.55 \n7.64% \n16.95% \n4.21% \n12.74% \n9% \nSource: Statistics Department \n \n \n \n \n \n \nCBN Monetary Policy Review \n \n \n43 \nTable 3.13b: The Performance of Monetary Aggregates and their Implications \nS/N \nMonetary \nAggregates \nPerformance \nImplication \n1 \nOverall \nMonetary \nAggregates \nMixed \nEvidence indicates fragile recovery after the \npandemic driven recession. In the external \nsector, there is continued pressure on the naira \nleading to the depletion of reserves. \n2 \nBroad Money \n(M3, M2) \nAbove \ntarget \nBoth M3 and M2 performed above their \nbenchmarks. The growth signifies liquidity \nsurfeit, mainly arising from the prohibition of \nthe non-bank public from investing in CBN bills. \n3 \nNarrow \nMoney (M1) \nMarginally \nbelow \ntarget \nThe weak performance is due to the fragile \nrecovery post-COVID-19. Economic activities \nare slow and yet to pick-up to pre-pandemic \nlevels. There are also increased use of e-\npayments platforms as well as the introduction \nof e-naira. \n4 \nNet \nForeign \nAssets (NFA) \nbelow \ntarget \nThe poor growth performance of NFA has \nbeen persistent. This is mainly driven by the \ncontraction of foreign asset holdings of the \nMonetary Authority especially in the fourth \nquarter of 2021 as it struggles to stabilize the \nexchange \nrate \nand \nprevent \nfurther \ndepreciation of the naira. \n5 \nNet Domestic \nAssets (NDA) \nAbove \ntarget \nThe performance in NDA is driven by growth in \nboth private sector credit and credit to \ngovernment. Credit to the government, if not \nchecked, could crowd out credit to the core \nprivate sector. \n6 \nCredit to the \nGovt (Cg) \nAbove \ntarget \nThe performance of credit to government \nindicates that government met its funding \nneeds \nthrough \nthe \nissuance \nof \ndebt \ninstruments due to the growing budget deficit. \n7 \nCredit to the \nPrivate \nSector (Cp) \nClose \nto \ntarget \nThe performance demonstrates the increasing \nrole of the private sector in driving economic \nactivities. Growth in output and employment \nis as a result of credit made available to the \nreal sector. \nSource: Statistics Department \n \n \n \nCBN Monetary Policy Review \n \n \n44 \n3.4 \nDomestic \nFinancial \nMarkets \nDevelopments \nIn the second half of 2021, the Nigerian \nfinancial market witnessed slight volatility \nowing to lingering shocks from the \nCOVID-19 pandemic. Although some \nprogress has been made in subduing the \nCOVID-19 pandemic, including lowering \nof restrictions and reopening of several \neconomies, the fast pace of mutation of \nnew and deadlier strains of the virus \ncontinued to pose risks to the financial \nmarkets. The development resulted in \nstock market volatility, exchange rate \nshocks among the emerging markets \nand developing economies, and capital \nflow reversals. Global inflation continued \nto mount forcing some central banks in \nadvanced economies to change their \nstance about its transitory nature and \nbegan to provide forward guidance of \nmonetary policy normalisation, which \ncontinue to cause volatility in the \nfinancial market. \n \nForeign exchange market stability was \naccentuated by the Bank’s intervention \nto stabilize the naira amid increased \nforeign exchange demand pressures. In \nthe capital market, the All-Share Index \n(ASI) and Market Capitalization (MC) \nincreased during the second half of \n2021; \nlargely \ndue \nto \nenhanced \neconomic \nactivities \nand \nimproved \ninvestors’ \nconfidence. \nThe \nmoney \nmarket remained active in the review \nperiod, with market rates reflecting \nliquidity \nconditions \nin \nthe \nbanking \nsystem. Also, the net liquidity position \nand interest rates in the money market \nreflected the impact of the Bank’s \nliquidity \nmanagement \noperations. \nAccordingly, \nthe \nmonthly \naverage \nOpen Buy Back (OBB) rates rose to 12.59 \nper cent in December 2021 from 10.10 \nper cent in November 2021. \n \n3.4.1 \nThe Money Market \nDespite the ravaging impact of COVID-\n19 pandemic money market activities \nwitnessed significant increase. However, \nthe rates recorded slight fluctuations in \nthe second half of 2021, reflecting \nliquidity levels in the banking system. The \ndevelopment was the result of statutory \nmonthly disbursement to the three tiers \nof \ngovernment \nby \nthe \nFederation \nAccount Allocation Committee (FAAC); \ngovernment securities maturities, sale of \nOMO \nbills \nand \nthe \nvarious \nCBN \ninterventions. \n \nThe interbank call segment of the market \nrecorded less trading days in the period \nunder \nreview, \nresulting \nto \nlower \ntransaction volumes compared with the \nOBB \nsegment. \nFor \ninstance, \nzero \ntransaction \nwas \nrecorded \nin \nthe \ninterbank call segment for December \n2021. The development reflected the \ncontinuing high-risk perception and \naversion of money market participants \nto \nopen \nmarket \nlending \ndue \nto \ncounterparty risk. \n \nFrom July to December 2021, the \nMonetary Policy Committee (MPC), held \nmost of its policy instruments constant. \nThe Bank thus retained the Monetary \nPolicy Rate (MPR) at 11.50 percent with \nits asymmetric corridor at +100/-700 basis \npoints around the MPR. Furthermore, the \nCBN Monetary Policy Review \n \n \n45 \nCash Reserve Ratio (CRR) and Liquidity \nRatio (LR) were retained at 27.5 and 30.0 \nper cent, respectively during the period. \n \n3.4.1.1 Short-term Interest Rate \nDevelopments \nThe liquidity conditions in the banking \nsystem were indicative of the money \nmarket activities. In addition to the \nvarious Monetary Policy Committee \ndecisions, the CBN’s intervention aimed \nat \nmoderating \nforeign \nexchange \ndemand pressures also played a vital \nrole in money market liquidity and the \nshort-term interest rates. \n \nDuring the period under review, the \ninterbank call segment recorded lower \naverage rate compared with the Open \nBuy Back (OBB) segment. The rate in the \nOBB segment increased marginally from \n11.92 per cent in July 2021 to 12.59 per \ncent in December 2021, while the \ninterbank call rate dropped from 12.38 \nper cent in July 2021 to 10.50 per cent in \nNovember, with no rate recorded in \nDecember 2021 as there were no \ntransactions in the month. The 30-day \nNIBOR rate which reflects the Nigerian \ninterbank short-term lending rates for \nsome selected banks decreased from \n12.30 per cent in July 2021 to 10.03 per \ncent in December 2021. \n \n \n \n \n \n \n \n \n \nTable 3.14: Weighted Average Monthly Money \nMarket Interest Rates (Jul.-Dec., 2021) \nPERIOD \nInterban\nk \nOBB SDF MPR \nSLF \nNIBOR- \n30 \n \n(%) \n(%) (%) \n(%) \n(%) \n(%) \nJul-21 \n12.38 \n11.9\n2\n 4.5\n0\n11.5\n0\n12.5\n0\n12.30 \nAug-21 \n13.45 \n12.9\n 4.5\n11.5\n12.5\n11.86 \nSep-21 \n13.21 \n11.1\n 4.5\n11.5\n12.5\n10.92 \nOct-21 \n10.00 \n12.1\n 4.5\n11.5\n12.5\n11.38 \nNov-21 \n10.50 \n10.1\n 4.5\n11.5\n12.5\n9.49 \nDec-21* \n0.00 \n12.5\n 4.5\n11.5\n12.5\n10.03 \nAverag\n9.92 \n11.8\n 4.5\n11.5\n12.5\n11.00 \nSource: Statistics Department \nNote: *December figures are monthly \naverages \n \nFigure 3.26: Average Weighted Monthly Money \nMarket Interest Rates (Jul.-Dec., 2021) \n \nSource: Statistics Department \n \n3.4.1.1.1 \nThe Interbank Call Rate \nThe \ninterbank \ncall \nsegment \nwas \nrelatively inactive, reflecting market \nparticipants’ strong preference for the \ncollateralised OBB instrument. During the \nperiod under review, the interbank call \nsegment was characterised by scanty \ntrade volumes as well as several days \nwithout trading activities as compared \nwith the OBB segment. No transactions \nwere recorded throughout December \n2021. \n0\n20\nInterbank (%)\nOBB (%)\nSDF (%)\nMPR (%)\nSLF (%)\nNIBOR- 30 DAYS (%)\nCBN Monetary Policy Review \n \n \n46 \nThe weighted average interbank call \nrate stood at 12.38 per cent in July 2021 \nwhile \nno \nrate \nwas \nrecorded \nin \nDecember \n2021. \nSpecifically, \nthe \nmonthly weighted average interbank \ncall rate rose from 12.38 per cent in July \n2021 to 13.45 per cent in August 2021 \nrepresenting a 1.07 percentage points \nincrease. However, the rate slightly \ndropped to 13.21 per cent in September \n2021. In November 2021, it witnessed a \nslight up-tick to 10.50 per cent following \na \ndrop \nbetween \nSeptember \nand \nOctober 2021. No rate was recorded in \nDecember \n2021, \nas \nthere \nwas \ntransactions \nin \nthe \ninterbank \ncall \nsegment, \nduring \nthe \nmonth. \nNevertheless, the net flows from activities \naffecting banking system liquidity (i.e., \nOMO \nsales \nand \nmaturity, \nforeign \nexchange interventions, CRR debits, the \nBank’s intervention facilities to stimulate \ngrowth \nand \nfiscal \ndisbursement) \ncontribute to the rates recorded in the \nperiod. \n \nThe analysis of the daily interbank call \nrate showed that for days where trading \nactivities took place, the call rate \nranged from 4.00 per cent recorded on \ntrading \ndays \nin \nSeptember \nand \nNovember 2021 to 25.00 per cent in \nOctober 2021. The peak of 25.0 per cent \nin October was largely due to the Bank’s \nmopping up activities at the end of the \nmonth. The average interbank call rate \nfor the period July – December 2021 was \n9.92 \nper \ncent \nrepresenting \n7.09 \npercentage points increase from the \n2.83 per cent recorded in the second \nhalf of 2020 ,and 0.30 percentage points \nhigher than the 9.62 per cent recorded \nin the first half of 2021. \n \nFigure 3.27: Daily Interbank Call Rate (Jul – Dec \n2021) \n \nSource: Financial Markets Department \n \n3.4.1.1.2 The Open Buy Back (OBB) Rate \nThe OBB segment of the market \nexperienced higher trading activities \ncompared \nwith \nthe \ninterbank \ncall \nsegment. The OBB rate and interbank \ncall rate varied slightly in terms of their \ntrends in the period under review. The \nmonthly average OBB rates fluctuated \nwhich indicates an undulation between \na tightened and an improved banking \nsystem liquidity. Within a spread of 10.10 \nper cent and 12.97 per cent, the monthly \naverage OBB rate rose from 11.92 per \ncent in July 2021 to 12.97 per cent in \nAugust 2021. After a drop to 11.11 per \ncent in September, the rate further \ndecreased by 2.08 percentage points \nfrom 12.18 per cent in October 2021 to \n10.10 per cent in November 2021. Amidst \ninvestors’ skepticism associated with the \n0\n10\n20\n30\nPer cent (%)\nCBN Monetary Policy Review \n \n \n47 \nnew variant of the COVID-19 (Omicron) \nand funding pressures from the increase \nin OMO, bonds and the Nigerian \nTreasury Bills auctions, the OBB rate \nwitnessed \nan \nincrease \nof \n2.49 \npercentage points to close at 12.59 per \ncent at the end of second half of 2021. \nIn terms of the daily transactions, the \nOBB rate ranged from 3.52 per cent to \n21.34 per cent between July and \nDecember 2021. Similar to the interbank \ncall rate, the observed spike of 21.34 per \ncent at the third week of August 2021 is \nassociated with increase in OMO sales, \nin \nspite \nof \nmaturities \nas \nwell \nas \noversubscribed bond auctions during \nthe period. The low rate recorded in \nNovember 2021 was largely due to the \ninflow of liquidity to the system through \nOMO maturities worth N123.6 billion \nwithin the third week of November 2021. \nThe average OBB rate in the second half \nof 2021 stood at 11.81 per cent, which is \nsignificantly higher than the 4.35 per \ncent recorded in the corresponding \nperiod of 2020, but lower than the 12.19 \nper cent recorded in the preceding half \nyear of 2021 (i.e., January – June 2021). \nThe \naverage \nmonthly \nOBB \nrates \nrecorded in the period under review \ntrended towards the upper band of the \nMPR. \n \n \n \n \n \n \n \n \n \nFigure 3.28: Daily Open Buy Back Rate (Jul–Dec \n2021) \n \nSource: Financial Markets Department \n \n3.4.1.1.3 \nThe \nNigeria \nInterbank \nOffered Rate (NIBOR) \nThe Nigerian money market reference \nrate (NIBOR) also fluctuated over the \nperiod under review. It consistently \ndropped in the first three months of the \nperiod but later fluctuated till the end of \nDecember 2021. The 30-day weighted \naverage NIBOR traded from 12.30 per \ncent in July 2021 to 11.86 per cent in \nAugust 2021 and dropped further to \n10.92 per cent in September 2021. \nFollowing a slight increase of 0.46 \npercentage points to 11.38 per cent in \nOctober 2021, the average monthly rate \ndecreased further in November 2021 to \n9.49 per cent. This represents a 1.89 \npercentage points decrease. However, \nthe rate stood at 10.03 per cent by the \nend of second half of 2021. The 30-day \nweighted average NIBOR rate for the \nsecond \nhalf \nof \n2021 \n(i.e., \nJuly \n– \nDecember 2021) stood at 11.00 per \ncent. \n0\n5\n10\n15\n20\n25\nPer cent (%)\nCBN Monetary Policy Review \n \n \n48 \n3.4.2 \nForeign Exchange Market \nThe Continued spread of the COVID-19 \npandemic remains a key contributing \nfactor imposing a drag on global \neconomic \nactivities. \nAs \neconomies \nmoved towards full lifting of associated \nrestrictions, the new variants of the \ncoronavirus emerged, leading some \neconomies \nto \nre-introduce \nvarious \nmeasures \nof \nrestrictions. \nThis \ndevelopment imposed severe global \nsupply-side \nconstraints, \nand \nthus \nwidened \nthe \nsupply-demand \ngap, \nresulting in a sharp rise in inflation across \nseveral economies. To curb the demand \npressure \nand \nmoderate \ninflationary \npressure, most advanced economy \ncentral banks provided guidance to \ncommence \nmonetary \npolicy \nnormalization which may inadvertently \ntighten financial conditions and squeeze \non economic activities, causing \na \nslowdown in the recovery of the global \neconomy. \n \nWith the tightening of external financial \nconditions, \naccretion \nto \nexternal \nreserves has dwindled progressively, \nespecially as foreign investors began \ntheir exit from the economy in pursuit of \nhigher yields thus increasing foreign \nexchange \noutflow, \nresulting \nin \nexchange \nrate \npressure \nand \ndepreciation of the naira. To curb the \ntrend and safeguard the value of the \nnaira, \nthe \nBank \nadopted \nvarious \nmeasures such as: the ban of FOREX \nsales to Bureau de Changes (BDCs), \nintroduction of the Naira for Dollar \npolicy, and deployment of strategic \ninterventions in the FOREX market to \nprovide \nforeign \nexchange \nliquidity. \nOverall, the FOREX market experienced \nsome level of moderation in the second \nhalf of 2021, compared with the previous \nperiods, \nthus \ndemonstrating \nsome \nrelative stability. \n \nDespite \nthe \nthreat \nposed \nby \nthe \nOmicron variant, the global economy \nhas remained relatively open compared \nwith the first phase of the pandemic \nwhen the economy went into complete \nlock-down. In addition, the downward \ntrend in COVID-19 mortality rates has \ngiven additional support for global \neconomic \nrecovery \nthus \nensuring \ncontinued \neconomic \nactivities \nand \nsustained \ndemand \nfor \ncrude \noil, \nNigeria’s major FOREX earner. Nigeria’s \nhigh import bill, however, remains a \ncause for concern for the stability of the \nexchange rate of the naira in the near \nterm. \n \nFigure 3.29: Daily Naira/US Dollar Exchange Rate \nJan –Dec 21 \n \nSource: Statistics Department \n \nIn the period under review, the CBN \nmaintained its development finance \n200.00\n300.00\n400.00\n500.00\n600.00\nI&E End-Month\nI&E Monthly Average\nCBN Monetary Policy Review \n \n \n49 \nintervention programs to boost domestic \nproduction \nand \npromote \nimport \nsubstitution to curb the high demand for \nforeign \nexchange \nfor \nimportation. \nFollowing the ban of FOREX sales to \nBDCs, the Bank increased FOREX sales at \nits official I&E window, thus providing \nmore liquidity to meet genuine market \ndemand. The Bank, in June 2021, \nadopted the Investors and Exporters \nwindow (I&E) as the default reference \nexchange rate for official transactions in \nthe country. \n \n3.4.2.1 Average Exchange Rates \nThe foreign exchange at the I&E \nsegment significantly appreciated by an \naverage of 12.27 per cent from an \naverage of N468.99/US$ in the first half of \n2021 to an average of N411.44/US$ in the \nsecond half of 2021. \n \nTable 3.15: Average Monthly Spot Exchange Rate \n(N/US$), Jan 2021 – Dec 2021 \nMONTH \nI&E \nJanuary (2021) \n 472.40 \nFebruary \n 476.05 \nMarch \n 481.22 \nApril \n 481.60 \nMay \n 482.72 \nJune \n 419.94 \nAverage \n 468.99 \nJuly \n 410.12 \nAugust \n 410.39 \nSeptember \n 410.80 \nOctober \n 411.25 \nNovember \n 411.74 \nDecember \n 414.34 \nAverage \n 411.44 \nSource: Statistics Department \n \n3.4.2.2 End-Period (Month) Exchange \nRates \nIn the second half of 2021, the \nexchange rate at the I&E segment was \nstable at N411/ US$ but spiked to \nN435/US$ in December. The sharp \nincrease was attributed to seasonal \ndemand associated with the yuletide \nperiod. Compared with the average of \nN407.76/US$ in the first half of 2021, the \nexchange rate at the I&E segment \ndepreciated slightly in the second half of \nthe year by 1.77 percent to $414.97/US$. \nThe depreciation was due to the spike \nexperienced in end-December. \n \nTable 3.16: End-Month Exchange Rate (N/US$), \nJan – Dec 2021 \nMONTH \nI&E \nJanuary (2021) \n394.13 \nFebruary \n410.25 \nMarch \n408.67 \nApril \n410.00 \nMay \n412.00 \nJune \n411.50 \nAverage \n407.76 \nJuly \n410.68 \nAugust \n411.63 \nSeptember \n411.00 \nOctober \n411.50 \nNovember \n410.00 \nDecember \n435.00 \nAverage \n414.97 \nSource: Statistics Department \n \nCBN Monetary Policy Review \n \n \n50 \n3.4.2.3 Nominal \nand \nReal \nEffective \nExchange Rates \nThe Nominal Effective Exchange Rate \n(NEER) appreciated by 0.77 per cent to \nan average of 199.41 points in the \nsecond half of 2021 from an average of \n200.92 points recorded in the preceding \nhalf of 2021, It however, depreciated by \n6.81 per cent compared with the \naverage of 187.24 percent recorded in \nthe second half of 2020. Similarly, the \nReal Effective Exchange Rate (REER), \nappreciated by 5.99 per cent to an \naverage of 69.68 in the second half of \n2021 from an average of 73.86 in the first \nhalf of 2021. It also appreciated by 6.93 \nper cent from an average of 74.51 in the \nsecond half of 2020 (Table 3.17). The \nmodest appreciation of the NEER implies \nstrengthening of the domestic currency \nin recent times against the currencies of \nour \ntrading \npartners, \nwhile \nthe \nappreciation of the REER implies a trend \ntowards \nimprovement \nin \ntrade \ncompetitiveness with Nigeria’s trading \npartners and the narrowing of the \ninflation differentials (Table 3.17 and \nfigure 3.30). \n \n \n \n \n \n \n \n \n \n \n \n \n \nTable 3.17: Average Nominal and Real Effective \nExchange Rates Indices (July 2020 – Dec 2021) \nPERIOD \nNEER \nREER \n20-Jul \n183.31 \n75.43 \n20-Aug \n184.74 \n75.2 \n20-Sep \n185.61 \n74.53 \n20-Oct \n185.68 \n73.49 \n20-Nov \n188.21 \n73.2 \n20-Dec \n195.86 \n75.23 \n2020: H2 \nAverage \n187.24 \n74.51 \n21-Jan \n195.41 \n74.13 \n21-Feb \n200.06 \n75.05 \n21-Mar \n200.49 \n74.29 \n21-Apr \n201.12 \n74.05 \n21-May \n204.31 \n73.12 \n21-Jun \n204.13 \n72.52 \n2021: H1 \nAverage \n200.92 \n73.86 \n21-Jul \n201.09 \n71.08 \n21-Aug \n200.55 \n70.4 \n21-Sep \n201.03 \n69.93 \n21-Oct \n198.88 \n70.69 \n21-Nov \n197.59 \n68.29 \n21-Dec \n197.32 \n67.69 \n2021: H2 \nAverage \n199.41 \n69.68 \nSource: Statistics Department \n \nFigure: 3.30: Nominal and Real Effective Exchange \nRates Indices (Jan 2021 – Dec 2021) \n \nSource: Statistics Department \n0\n50\n100\n150\n200\n250\nNEER\nREER\nCBN Monetary Policy Review \n \n \n51 \n3.4.2.4 Foreign Exchange Flows through \nthe CBN \nForeign exchange inflow through the \nCBN stood at a total of US$26,007.93 \nmillion at the end of the second half of \n2021. The inflow increased significantly \nby 71.67 per cent compared with \nUS$15,149.77 million recorded in the \nsecond half of 2020. Compared with the \nUS$14,060.38 million recorded in the first \nhalf of 2021, it also increased by \nUS$11,947.55 million. Outflows through \nthe CBN also increased by 30.15 per \ncent to $19,414.50 million in second half \nof 2021 from $14,917.55 million in the \nsecond half of 2020. It increased further \nby 10.02 per cent compared with the \n$17,646.13 million recorded during the \nfirst half of 2021. The development \nindicated a net inflow of US$14,659.25 \nmillion in the current period compared \nwith a lower net inflow of US$232.22 \nmillion in the corresponding period of \n2020 and net outflow of $-2,285.24 million \nin the first half of 2020. The increase in \nFOREX inflows through the CBN in the \nreview period is primarily linked to the \nrelative stability at the I&E window. \n \n \n \n \n \n \n \n \n \n \n \n \n \nTable 3.18: Monthly Foreign Exchange Flows \nthrough the CBN (Jan 2020 – Dec 2021) \n \nSource: Statistics Department \n \nFigure 3.31: Monthly Foreign Exchange Flows \nthrough the CBN (Jan 2020 – Dec 2021) \n \nSource: Statistics Department \n \nPeriod\nInflow CBN\nOutflow CBN \nNetflow CBN \nJan-20\n5,271.65\n6,652.58\n-1,380.93\nFeb-20\n5,594.29\n5,722.81\n-128.52\nMar-20\n4,121.73\n6,997.01\n-2,875.28\nApr-20\n5,940.18\n3,164.66\n2,775.52\nMay-20\n2,006.29\n2,187.25\n-180.96\nJun-20\n2,105.41\n2,600.48\n-495.06\n 2020H1 TOTAL\n25,039.55\n27,324.79\n-2,285.24\nJul-20\n1,977.68\n2,371.01\n-393.33\nAug-20\n2,576.38\n2,671.52\n-95.14\nSep-20\n2,423.87\n1,956.65\n467.22\nOct-20\n1,885.82\n2,346.49\n-460.67\nNov-20\n1,148.11\n1,874.29\n-726.17\nDec-20\n5,137.91\n3,697.60\n1,440.31\n2020H2 TOTAL\n15,149.77\n14,917.55\n232.22\nJan-21\n1,739.28\n2,832.54\n-1,093.26\nFeb-21\n2,049.31\n3,006.55\n-957.24\nMar-21\n3,758.90\n2,882.18\n876.72\nApr-21\n1,686.73\n2,586.14\n-899.41\nMay-21\n2,418.38\n2,614.58\n-196.19\nJun-21\n2,407.78\n3,724.15\n-1,316.37\n2021H1 TOTAL\n14,060.38\n17,646.13\n-3,585.74\nJul-21\n3,314.48\n2,655.78\n658.70\nAug-21\n5,427.65\n2,888.68\n2,538.97\nSep-21\n8,089.20\n2,436.94\n5,652.26\nOct-21\n3,247.73\n3,547.67\n-299.93\nNov-21\n3,048.99\n3,852.52\n-803.53\nDec-21\n2,879.88\n4,032.91\n6,912.79\n2021H2 TOTAL\n26,007.93\n19,414.50\n14,659.25\n-10,000.00\n-5,000.00\n0.00\n5,000.00\n10,000.00\n15,000.00\n20,000.00\n25,000.00\n30,000.00\nJan-20\nApr-20\n 2020H1 TOTAL\nSep-20\nDec-20\nFeb-21\nMay-21\nJul-21\nOct-21\n Inflow CBN\n Outflow CBN\nCBN Monetary Policy Review \n \n \n52 \n3.4.2.5 Foreign Exchange Flow through \nthe Economy \nGross foreign exchange inflow to the \neconomy dropped sharply by 8.19 per \ncent to US$47,048.34 million in the \nsecond half of 2021 from US$51,243.94 \nmillion in the corresponding second half \nof 2020. It however, increased by 8.01 \nper cent compared with US$43,559.02 \nmillion in the first half of 2021. On the \nother hand, total outflow stood at \nUS$19,404.28 million, compared with \nUS$15,828.80 \nrecorded \nin \nthe \ncorresponding period of 2020, rose by \n22.59 \npercent. \nSimilarly, \nit \nslightly \nincreased \nby \n1.90 \npercent \nfrom \nUS$19,041.59 million when compared \nwith the first half of 2021. The moderate \nrise in the gross foreign exchange flows \nin the economy in the review period \nsignposts the restoration of investor \nconfidence \nas \nconstrained \nmacroeconomic condition began to \nease. \nCBN Monetary Policy Review \n \n53 \nTable 3.19: Monthly Foreign Exchange Flows through the Economy (Jan 2020 – Dec 2021) (US$ Million) \nPeriod\n Inflow \nCBN \n Outflow \nCBN \n Netflow \nCBN \n Total \nInflow \n Total \nOutflow \n Total \nnetflow \n Inflow \nAutonomous \nOutflow \nAutonomous\nnetflow \nAutonomous\nJan-20\n5,271.65\n6,652.58\n-1,380.93\n17,035.14\n6,920.80 10,114.34\n11,763.49\n268.22\n11,495.27\nFeb-20\n5,594.29\n5,722.81\n-128.52\n13,395.60\n6,196.06\n7,199.53\n7,801.30\n473.25\n7,328.05\nMar-20\n4,121.73\n6,997.01\n-2,875.28\n12,096.05\n7,333.72\n4,762.33\n7,974.32\n336.71\n7,637.61\nApr-20\n5,940.18\n3,164.66\n2,775.52\n9,550.81\n3,290.00\n6,260.81\n3,610.63\n125.34\n3,485.30\nMay-20\n2,006.29\n2,187.25\n-180.96\n5,564.05\n2,503.34\n3,060.72\n3,557.77\n316.09\n3,241.68\nJun-20\n2,105.41\n2,600.48\n-495.06\n6,707.86\n2,861.21\n3,846.65\n4,602.44\n260.73\n4,341.72\n 2020H1 TOTAL 25,039.55\n27,324.79\n-2,285.24 64,349.51\n29,105.12 35,244.39\n39,309.96\n1,780.33\n37,529.63\nJul-20\n1,977.68\n2,371.01\n-393.33\n6,684.89\n2,461.50\n4,223.39\n4,707.21\n90.49\n4,616.72\nAug-20\n2,576.38\n2,671.52\n-95.14\n7,395.38\n2,831.65\n4,563.74\n4,819.01\n160.13\n4,658.88\nSep-20\n2,423.87\n1,956.65\n467.22\n12,393.08\n2,158.20 10,234.88\n9,969.21\n201.55\n9,767.65\nOct-20\n1,885.82\n2,346.49\n-460.67\n7,132.53\n2,602.91\n4,529.63\n5,246.72\n256.42\n4,990.30\nNov-20\n1,148.11\n1,874.29\n-726.17\n5,697.34\n1,963.09\n3,734.25\n4,549.23\n88.80\n4,460.42\nDec-20\n5,137.91\n3,697.60\n1,440.31\n11,940.72\n3,811.45\n8,129.26\n6,802.81\n113.86\n6,688.95\n2020H2 TOTAL 15,149.77\n14,917.55\n232.22 51,243.94\n15,828.80 35,415.14\n36,094.17\n911.25\n35,182.92\nJan-21\n1,739.28\n2,832.54\n-1,093.26\n5,477.94\n2,970.63\n2,507.31\n3,738.67\n138.09\n3,600.57\nFeb-21\n2,049.31\n3,006.55\n-957.24\n7,518.68\n3,134.56\n4,384.13\n5,469.37\n128.01\n5,341.36\nMar-21\n3,758.90\n2,882.18\n876.72\n12,161.33\n3,175.42\n8,985.91\n8,402.43\n293.24\n8,109.18\nApr-21\n1,686.73\n2,586.14\n-899.41\n5,569.94\n2,744.48\n2,825.46\n3,883.21\n158.34\n3,724.87\nMay-21\n2,418.38\n2,614.58\n-196.19\n6,140.01\n2,701.34\n3,438.67\n3,721.62\n86.76\n3,634.86\nJun-21\n2,407.78\n3,724.15\n-1,316.37\n6,691.12\n4,315.16\n2,375.96\n4,283.34\n591.01\n3,692.33\n2021H1 TOTAL 14,060.38\n17,646.13\n-3,585.74 43,559.02\n19,041.59 24,517.43\n29,498.63\n1,395.46\n28,103.17\nJul-21\n3,314.48\n2,655.78\n658.70\n6,977.90\n3,428.63\n3,549.26\n3,663.42\n772.86\n2,890.56\nAug-21\n5,427.65\n2,888.68\n2,538.97\n9,849.59\n3,540.76\n6,308.82\n4,421.94\n652.08\n3,769.86\nSep-21\n8,089.20\n2,436.94\n5,652.26\n13,355.89\n3,255.21 10,100.69\n5,266.70\n818.26\n4,448.43\nOct-21\n3,247.73\n3,547.67\n-299.93\n7,053.92\n4,307.99\n2,745.93\n3,806.18\n760.32\n3,045.86\nNov-21\n3,048.99\n3,852.52\n-803.53\n6,633.89\n4,454.75\n2,179.14\n3,584.90\n602.23\n2,982.67\nDec-21\n2,879.88\n4,032.91\n6,912.79\n3,177.15\n416.94\n3,594.09\n3,318.70\n-297.27\n3,615.97\n2021H2 TOTAL 26,007.93\n19,414.50\n14,659.25 47,048.34\n19,404.28 28,477.93\n24,061.85\n3,308.49\n20,753.36\nForeign Exchange Flows Through the Nigerian Economy (US$' Million)\nSource: Statistics Department \n \nFigure 3.32: Monthly Foreign Exchange Flows through the Economy (Jan 2020 – Dec 2021) (US$ Million) \n \nSource: Statistics Department\n0.00\n5,000.00\n10,000.00\n15,000.00\n20,000.00\nUS$ Million\n Total Inflow\n Total Outflow\n Total netflow\nCBN Monetary Policy Review \n \n54 \n3.4.3 \nCapital Market \nThe performance of the Nigerian \ncapital market in the second half of 2021 \nwas bullish, primarily due to improved \nactivities in the equities segment of the \nmarket, reflecting improved investor \nconfidence \nas \ncorporate \nearnings \nimproved. The attraction to foreign \ninvestors was further facilitated by \nimproved foreign exchange liquidity \nfollowing the CBN’s interventions in the \nFOREX market. Real yields, however, \ndeclined significantly in the bonds \nmarket, as inflation inched up. \n \n3.4.3.1 Equities Market \nThe All-Share Index (ASI) increased by \n12.69 per cent to 42,716.44 at end-\nDecember 2021 from 37,907.28 at end-\nJune 2021. Market capitalisation (MC) \nalso increased by 12.85 per cent to \nN22.30 trillion at end-December 2021 \nfrom N19.76 trillion at end-June 2021. \nCompared \nwith \nthe \ncorresponding \nperiod of 2020, it increased by 5.89 per \ncent \nfrom \nN21.06 \ntrillion \nat \nend-\nDecember 2020. \n \nFigure 3.33: NSE All Share Index (ASI) and Market \nCapitalization (MC) (December 2020 - December \n2021) \n \n Source: Nigerian Exchange Group (NGX) \nFigure 3.34: NSE ASI and MC (June 2021 – \nDecember 2021) \n \nSource: Nigerian Exchange Group \n \n3.4.3.1.2 Market Turnover \nAggregate stock market turnover in the \nsecond half of 2021 stood at 42.70 billion \nshares, valued at N428.74 billion in \n500,858 deals. This represents an 11.72 \nper cent decrease compared with 48.37 \nbillion shares, valued at N483.57 billion in \n553,828 deals in the first half of 2021. \nAggregate stock market turnover also \ndecreased by 22.36 per cent compared \nwith 55.00 billion shares, valued at \nN534.07 billion in 586,534 deals as at end \nDecember 2020. \n \n3.4.3.1.3 \nSectoral Contribution to \nEquity Market Capitalisation \nIn \nthe \nreview \nperiod, \nmarket \ncapitalisation was dominated by ‘Other \nSectors’, which comprises just a few \nparticipants trading on the Nigerian \nStock \nExchange. \nThe \nsector’s \ncontribution increased to 30.04 per cent \nat end-December 2021 from 26.47 per \ncent of market capitalisation at end-\nJune 2021. The dominance of ‘Other \nCBN Monetary Policy Review \n \n55 \nSectors’ \nwas \nlargely \ndue \nto \nthe \nintroduction \nof \ntelecommunication \ncompanies on the Exchange which \nwere categorised in this sector. Some \nother \nsectors \nthat \ncontributed \nsignificantly \nto \noverall \nmarket \ncapitalisation were Food & Beverages \nand Banking, with market shares of 6.28 \nand 5.68 per cent respectively, as at \nend-December 2021. \n \nFigure 3.35: NSE Market Capitalisation by Sector as \nat End-December 2021 \n \nSource: Nigerian Exchange Group \n \nFigure 3.36: NSE Market Capitalization by Sector as \nat End-June 2021 \n \nSource: Nigerian Exchange Group \n3.4.3.1.4 \nThe \nWarren \nBuffett \nValuation Metric and Nigeria’s Equities \nMarket \nIn the second half of 2021, the Warren \nBuffet valuation metric indicated that \nNigeria’s \nequities \nmarket \nwas \novervalued. The valuation metric was \n1.18 in the third quarter of 2021 \nindicating that current stock prices do \nnot fairly reflect the intrinsic values of the \nstocks. In other words, Nigerian stocks \ntraded higher than their real or intrinsic \nvalues. This is contrary to the forecast \nvaluation metric for the second quarter \nof 2022 \nof 0.90, which predicted \nundervaluation of the Nigerian stock \nmarket. The rise in stock prices was \nattributed to investor buying behaviour \nrather than by genuine improvements in \nmarket fundamentals. \n \nFigure 3.37: Warren Buffett Valuation of Nigerian \nEquities Market \n \n< 50% = significantly undervalued; < 75% = \nmoderately undervalued; < 90% = fairly \nundervalued; < 115% = modestly overvalued; \n> 115% = significantly overvalued. \nSource: NGX, NBS \n \n6.97\n0.35\n6.55\n0.83\n3.56\n0.34\n0.72\n1.90\n19.06\n1.15\n0.19\n12.35\n0.66\n1.36\n0.64\n16.89\n26.47\nNSE Market Capitalization by Sector as at June 30, 2021\nRest of Food and Beverages\nConstruction\nBanking\nInsurance\nBreweries\nConglomerates\nOil and Gas\nindustrial goods\nDangote Cement\nDangote Sugar\nNASCON (Dangote Salt)\nRest of Building Materials\nAgriculture\nPersonal Household products\nServices\nMTN Nigeria\nOther Sectors\nCBN Monetary Policy Review \n \n56 \n3.4.3.2 Bond Market \nThe Federal Government of Nigeria \n(FGN) securities largely dominated the \nactivities \nin \nthe \nbond \nmarket, \naccounting for 44.75 per cent of the \nmarket in the second half of 2021. \nCorporate and State/Local Government \nbonds followed, with the latter recording \nthe least share by market volume. \n \n3.4.3.2.1 FGN Bonds \nThe 10-year dollar-denominated bond \nyield for Nigeria increased by 119 basis \npoints \nto \n6.50 \nper \ncent \nat \nend-\nDecember 2021, from 5.31 per cent at \nend-June 2021. Compared with -0.2 per \ncent at end-December 2020, the yield \nrose by 670 basis points (Figure 3.38). \n \nFigure 3.38: 10-Year U.S. Dollar-denominated Bond \nYield for Nigeria (December 2020 – December \n2021) \n \nSource: Bloomberg \n \nIn the review period, the yield curve \nincreased at both the short and long \nends, signposting a normal shaped \ncurve. The shape of the yield curve \nreflects a higher rate of interest for the \nlonger-term bonds compared with short-\nterm bonds, indicating a broad level of \ninvestor confidence in the recovery of \nmacroeconomic fundamentals. In other \nwords, the upward sloping yield curve \nindicates a positive outlook for the \nNigerian economy. \n \nFigure 3.39: FGN Bond Yield Curves: September \n30th, 2021 VS. November 30th, 2021 and December \n31st, 2021 \n \nSource: FMDQ \n \n3.4.3.2.2 State/Local Government Bonds \nThe \nsub-national \nbonds \nmarket \nmaintained \na \nsteady \nperformance \nduring the review period. The total value \nof outstanding state/local governments \nbonds at end December 2021 was \nN207.55 billion, unchanged from its \nposition at end-June 2021. It was \nhowever lower, compared with N270.80 \nbillion recorded at end-December 2020. \nThe reduced borrowing by states/local \ngovernments \nmay \nsignpost \nslowing \neconomic activities amongst these sub-\nnationals following the broad slowdown \nin the global economy. \n0.00\n1.00\n2.00\n3.00\n4.00\n5.00\n6.00\n7.00\n8.00\n04/01/2021\n29/01/2021\n25/02/2021\n24/03/2021\n22/04/2021\n21/05/2021\n21/06/2021\n07/19/2021\n08/13/2021\n09/13/2021\n10/08/2021\n11/05/2021\n12/06/2021\n10-Year U.S. Dollar-denominated \nBond Yield for Nigeria \nCBN Monetary Policy Review \n \n57 \n3.4.3.2.3 Corporate Bonds \nActivities \nin \nthe \ncorporate \nbonds \nsegment improved during the review \nperiod. \nThe \nvalue \nof \noutstanding \ncorporate bonds as at end-December \n2021 increased by 0.17 per cent to \n718.30 at end-December 2021 from \nN717.08 billion in the first half of 2021. This \ndevelopment may be associated with \nincreased attractiveness of fixed income \nsecurities as the rise in inflation depresses \nbond prices to adjust for higher yields. \n \n3.4.3.3 Overall Analysis of the Nigerian \nCapital Market \nThe value of FGN bonds increased by \n14.28 per cent to N18.81N trillion at end-\nDecember 2021 from N16.46 trillion at \nend-June 2021 and higher than N13.78 \ntrillion recorded at end-Dec 2020. FGN \nbonds accounted for 44.75 per cent of \naggregate market capitalisation at end-\nDecember 2021. \n \nThe value of state/municipal bonds and \ncorporate bonds were N207.55 billion \nand N718.30 billion, accounting for 0.49 \nand 1.71 per cent of aggregate market \ncapitalisation, respectively. \n \nThe value of Supranational bonds was \nnot reported in the review period. \n \nThe equities market contributed 53.03 \nper \ncent \nof \naggregate \nmarket \ncapitalisation at end-December 2021, \nwhile the bond market comprising FGN \nbonds, \nstate/municipal \nbonds, \ncorporate bonds and supranational \nbonds accounted for the balance of \n46.97 per cent (Figure 3.40). \n \nFigure 3.40: Structure of the Nigerian Capital \nMarket (December, 2021) \n45%\n0%\n2%\n53%\nMARKET CAPITALISATION (N' MILLIONS)\nFGN Bonds\nState/Municipal bonds\nCorporate bonds\nEquities\n \nSource: Nigerian Exchange Group \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nCBN Monetary Policy Review \n \n59 \nCHAPTER FOUR \nECONOMIC OUTLOOK AND RISKS \n \n4.1 \nOutlook for Global Output \nlobal \noutput \ngrowth \nwas \nprojected to moderate to 4.4 \nper cent in 2022, from 3.8 per \ncent in 2023. The projected growth \ndecline \nwas \npredicated \non \nthe \ncontinuing disruptive effects of the \npersisting COVID 19 pandemic on supply \nchains, coupled with the tapering of \nmonetary accommodation by major \nadvanced economies’ central banks. \nThe scenario is expected to persist in the \nmedium term as output is expected to \ndecline further to 3.8 per cent in 2023. \n(IMF WEO Update of January 2022). \n \nOutput in advanced economies was \nprojected to moderate to 3.9 per cent in \n2022, and 2.6 per cent in 2023. The \nmoderation of growth in the group is \nunderpin \nby \nprolonged \nsupply \ndisruptions in the US, the euro area and \nthe \nUnited \nKingdom \n(UK), \nearlier \nwithdrawal \nof \nmonetary \naccommodation \nin \nthe \nUS, \nsofter \nexternal demand in Canada, and \nCOVID disruptions in the euro area and \nthe UK. Consequently, output growth in \nthe US was revised downwards to 4.0 per \ncent in 2022, and 2.6 per cent in 2023. In \nCanada, \ngrowth \nwas \nrevised \ndownwards by 0.8 percentage points to \n4.1 per cent in 2022, and 2.0 per cent in \n2023. There was also a 0.4 percentage-\npoint downgrade of projected output \ngrowth in the euro area to 3.9 per cent \nin 2022, and 2.5 per cent in 2023. \nProjected output growth in the UK was \ndowngraded by 0.3 percentage point to \n4.7 per cent in 2022, and 2.3 per cent in \n2023. \n \nIn the emerging market and developing \neconomies, output was projected at 4.8 \nper cent in 2022, and would remain \nsteady at 4.7 per cent in 2023. However, \nin the Emerging and Developing Asia, \nprojections \nhad \nbeen \nrevised \ndownwards by 0.4 percentage points to \n5.9 per cent in 2022 and 5.8 per cent in \n2023. China’s output growth is projected \nat 4.8 per cent in 2022, and 5.2 per cent \nin \n2023, \nbacked \nby \ndeteriorating \nconditions in the housing sector, lower \nprospects \nfor \nemployment \nin \nthe \nconstruction \nsector, \nand \nmobility \nrestrictions to achieve a strict zero-\nCOVID strategy. \n \nOutput was projected to grow at 2.4 per \ncent in the Latin America and the \nCaribbean Group in 2022 and 2.6 per \ncent in 2023. A stronger monetary policy \nresponse to curtail inflation is expected \nto negatively affect domestic demand \nin Brazil and Mexico. Also, lower output \ngrowth in the US is expected to dampen \nthe \nprospects \nof \nstronger \nexternal \ndemand in Mexico. Thus, output growth \nin Brazil is projected at 0.3 per cent in \n2022, and 1.6 per cent in 2023. Similarly, \noutput growth in Mexico is projected at \n2.8 per cent in 2022, and 2.7 per cent in \n2023. \n \nIn Emerging and Developing Europe, \noutput growth is estimated at 3.5 per \ncent in 2022, and 2.9 per cent in 2023. \nOutput in Russia is anticipated to grow at \n2.8 per cent in 2022, and 2.1 per cent in \n2023. The marginal downgrade from \nG \nCBN Monetary Policy Review \n \n60 \nOctober 2021 WEO reflects an expected \nweak harvest and a possible third wave \nof the COVID pandemic in the country. \nIn Sub-Saharan Africa, output growth \nwas projected at 3.7 per cent in 2022, \nand 4.0 per cent in 2023. Business \nsentiment in South Africa remained \nsubdued and is expected to negatively \nimpact investment. Thus, output growth \nin South Africa is estimated at 1.9 per \ncent in 2022, and 1.4 per cent in 2023. \nOutput growth in Nigeria is projected to \nremain steady at 2.7 per cent in 2022 \nand 2023. \n \n \n \n \n \nTable 4.1 Global Output and Inflation Outlook \n \n2017 \n2018 \n2019 \n2020 \n2021 \n2022* \n2023* \nA. World Output \n \n \n \n \n \n \n \nWorld Output \n3.7 \n3.6 \n2.8 \n-3.1 \n5.9 \n4.4 \n3.8 \nAdvanced Economies \n2.3 \n2.2 \n1.6 \n-4.5 \n5.0 \n3.9 \n2.6 \nUSA \n2.2 \n2.9 \n2.2 \n-3.4 \n5.6 \n4.0 \n2.6 \nEuro Area \n2.4 \n1.9 \n1.3 \n-6.4 \n5.2 \n3.9 \n2.5 \nJapan \n1.7 \n0.3 \n0.3 \n-4.5 \n1.6 \n3.3 \n1.8 \nUK \n1.7 \n1.3 \n1.4 \n-9.4 \n7.2 \n4.7 \n2.3 \nCanada \n3 \n2 \n1.9 \n-5.2 \n4.7 \n4.1 \n2.8 \nOther Advanced Economies \n2.6 \n2.7 \n1.8 \n-1.9 \n4.7 \n3.6 \n2.9 \nEmerging & Developing Economies \n4.7 \n4.5 \n3.6 \n-2.0 \n6.5 \n4.8 \n4.7 \nLatin America and the Caribbean \n1.3 \n1.1 \n0.2 \n-6.9 \n6.8 \n2.4 \n2.6 \nThe Middle East and Central Asia Africa \n2.2 \n2.4 \n0.8 \n-2.8 \n4.2 \n4.3 \n3.6 \nSub-Saharan Africa \n2.7 \n3.2 \n3.2 \n-1.7 \n4.0 \n3.7 \n4.0 \nB. Commodity Prices (US Dollars) \n \n \n \n \n \n \n \nOil \n23.3 \n29.4 \n-10.2 \n-32.7 \n67.3 \n11.9 \n-7.8 \nNon-fuel \n6.8 \n1.3 \n0.8 \n6.7 \n26.7 \n3.1 \n-1.9 \nC. Consumer Prices \n \n \n \n \n \n \n \nAdvanced Economies \n1.4 \n2 \n1.4 \n0.7 \n3.1 \n3.9 \n2.1 \nEmerging & Developing Economies \n4.3 \n4.8 \n5.1 \n5.1 \n5.7 \n5.9 \n4.7 \nSource: IMF WEO, January 2022 \n*Forecast \n \n \n \nCBN Monetary Policy Review \n \n61 \n4.2 \nOutlook for Global Inflation \nOutlook for global inflation remained \nelevated in the near-to-medium term as \ncommodity prices continue to recover \non the back of increased demand \nassociated with the sustained recovery \nof global output growth. \n \nWith the continued easing of COVID-19 \nrestrictions, resumption of airline services, \nand leisure & entertainment industries, \naggregate demand will likely receive \nboost which may increase the pace of \nprice development in the short to \nmedium term. Inflation is, thus, expected \nto \nrise \nsubstantially \nabove \npre-\npandemic levels, thus necessitating a \nresponse from central banks in the short \nterm. \n \nThe various indicators discussed thus far, \npoint to a highly uncertain outlook for \ninflation. \nThe \nbaseline \nprojections \nindicate that inflation is expected to \nmoderate to its pre-pandemic range in \n2022, as supply-demand mismatches \nare resolved. This is motivated by three \npieces of evidence: Firstly, labour market \nslack remains large, even as job postings \nhave increased, with employment rates \ntypically below their pre-shock levels. \nSecondly, \nin \nlarge, \nadvanced \neconomies, inflation expectations are \nstill \nwell \nanchored, \naccording \nto \nbenchmark market-based measures. \nFinally, structural factors that have \nlowered the sensitivity of prices to \nshrinking labour market slack such as \nincreasing \nautomation \ncontinue \nto \noperate \nor \nare \neven \nintensifying. \nHowever, the lagged pass-through to \nbroader inflation from higher food and \noil prices for importers means that price \npressures \nare \nanticipated \nto \nstay \nelevated into 2022 in some emerging \nmarkets and developing economies. In \neconomies where the stock of vacant \ndwellings is low, the pandemic shock \nand low borrowing costs have also \nspurred an increase in house prices. \n \nTable 4.2 Global Inflation Outlook \n \n2020 \n2021* \n2022* \nGlobal Outlook \n3.2 \n3.1 \n3.5 \nAdvanced \nEconomies \n0.4 \n2.0 \n1.8 \nUSA \n1.2 \n4.3 \n3.5 \nEuro Area \n0.3 \n2.2 \n1.7 \nJapan \n0.0 \n-0.2 \n0.5 \nEmerging & \nDeveloping \nEconomies \n3.1 \n5.7 \n2.3 \nChina \n2.4 \n1.1 \n1.8 \nRussia \n3.4 \n5.9 \n4.8 \nIndia \n6.2 \n5.6 \n4.9 \nSub-Saharan Africa \n10.3 \n10.7 \n8.6 \nNigeria \n13.2 \n16.9 \n13.3 \nGhana \n9.9 \n9.3 \n8.8 \nAngola \n22.3 \n24.4 \n14.9 \nLIC \n13.1 \n10.6 \n8.3 \nEthiopia \n20.4 \n25.2 \n. \nSource: IMF WEO, October 2021 \n*Forecast \n \n4.3 Outlook for Domestic Output Growth \nThe domestic economy is projected to \nsustain its growth trajectory in the first half \nof 2022. This is predicated on the \nimplementation \nof \nthe \n2021 \n-2025 \nnational \ndevelopment \nplan, \nimprovement in aggregate demand, \nrecovery in global commodities prices, \nand positive impact of CBN interventions \nCBN Monetary Policy Review \n \n62 \nin \ngrowth-enhancing \nsectors. \nThe \ndownside risk to the growth prospects \nremained \nthe \nintractable \nsecurity \nchallenges; including banditry, farmers \nand pastoralists clashes, kidnapping and \nother terrorist activities that constitute \ndisruptions to the production chain, \nparticularly in the northern part of the \ncountry. Furthermore, the rising cases of \nCOVID-19 infections across the globe \nand the emergence of more infectious \nvariants could precipitate restrictive \nmeasures which would severely affect \nincome \nand \ncompress \naggregate \ndemand. Other downside risks include \nforeign exchange pressures; capital flow \nreversals; \na \ndeficit \nin \ncritical \ninfrastructure; rising public debt; and \nnarrow fiscal space. \n \nConsequently, \nthe \nInternational \nMonetary Fund (IMF) projected Nigeria’s \noutput growth for 2022 at 2.7 per cent, \nwhile the World Bank estimated the \ngrowth at 2.8 percent. Staff projections \nat the Central Bank of Nigeria (CBN) \nforecasts real GDP growth at 2.72 per \ncent in 2022. The projection for real GDP \ngrowth was based on assumption of \ncrude oil prices of US$80 per barrel. \n \n \n \n \n \nTable 4.3: Possible Variations in Nigeria’s GDP growth outlook \nPESSIMISTIC \nBASELINE \nOPTIMISTIC \n Scenario 1\nScenario 1 COP-$60/b\nCOP-$60/b Scenario 2 \nScenario 2 COP-$65/b\nCOP-$65/b Scenario 3\nScenario 3 COP-$70/b\nCOP-$70/b Scenario 4\nScenario 4 COP-$75/b\nCOP-$75/b Scenario 5\nScenario 5 COP-$80/b\nCOP-$80/b Scenario 6\nScenario 6 COP-$85/b\nCOP-$85/b Scenario 7\nScenario 7 COP-$90/b\nCOP-$90/b \n2020Q4 \n0.11 \n0.11 \n0.11 \n0.11 \n0.11 \n0.11 \n0.11 \n2021Q1 \n0.51 \n0.51 \n0.51 \n0.51 \n0.51 \n0.51 \n0.51 \n2021Q2 \n5.01 \n5.01 \n5.01 \n5.01 \n5.01 \n5.01 \n5.01 \n2021Q3 \n4.03 \n4.03 \n4.03 \n4.03 \n4.03 \n4.03 \n4.03 \n2021Q4f \n2.38 \n2.50 \n2.62 \n2.74 \n2.86 \n2.98 \n3.10 \n2021f \n2.98 \n3.01 \n3.04 \n3.07 \n3.10 \n3.13 \n3.16 \n2022Q1f \n1.94 \n2.22 \n2.48 \n2.71 \n2.94 \n3.14 \n3.34 \n2022f \n1.39 \n1.76 \n2.10 \n2.42 \n2.72 \n2.99 \n3.26 \nSource: CBN Staff Estimates \n \nCBN Monetary Policy Review \n \n63 \n4.4 Outlook for Domestic Inflation \nHeadline inflation is projected to \nreverse \nthe \nupward \nmovement \nexperienced since December 2021. The \nyear-on-year \nheadline \ninflation \nis \nexpected to decline to 15.52, 15.15, and \n14.73 per cent in January, March, and \nMay 2022, respectively from 15.63 per \ncent in December 2021. Staff projections \nindicate that inflation is expected at \n14.48 per cent by end-June 2022, above \nthe \nupper \nlimit \nof \nthe \nindicative \nbenchmark of 6–9 per cent. Upside risk to \ninflation in the near-term remains a \ncombination of monetary and structural \nfactors, including the continuing impact \nof \nCOVID-19 \non \nthe \neconomy, \n(especially with the new wave of the \nOmicron \nvariant) \nwhich \nfurther \nheightens macroeconomic uncertainty. \nOthers include expectations of fuel \nsubsidy \nremoval, \nlingering \ninsecurity/banditry \nin \nagricultural \nproducing areas of the country thereby \ncausing food shortages, implementation \nof the 2022 budget, and electioneering \nexpenses \nin \npreparation \nfor \n2023 \nelections. Other factors which could \npotentially induce inflationary pressure \ninclude \nincreased \nfiscal/quasi-fiscal \ninterventions, \nrising \nfiscal \ndeficits, \nexchange rate pressures due to a ban \non the sale of forex to BDCs, and capital \nflow reversals. Some attenuating factors, \nhowever, include the broadly loose \nstance \nof \nmonetary \npolicy \nand \nincreased intervention in the agricultural \nsector to support growth recovery. As \nthe Bank continues to manage liquidity \nconditions \nthrough \na \nmix \nof \nconventional and heterodox policies in \nthe domestic economy, inflationary \ndevelopments will be monitored to \nensure that the risks of inflation to growth \nand financial stability are minimized. \n \n \n \n \n \n \n \n \n \n \n \n \nCBN Monetary Policy Review \n \n64 \nTable 4.4: Inflation Forecast \n YEAR-ON-YEAR INFLATION RATE \n \n12-MMA INFLATION RATE \nStatus \nMonth \nHeadline \ninflation \nFood \ninflation \nCore \ninflation \nStatus \nMonth \nHeadline \ninflation \nFood \ninflation \nCore \ninflation \nActual \nJul-21 \n17.38 \n21.03 \n13.72 \nActual \nJul-21 \n0.93 \n0.86 \n1.31 \nAug-\n21 \n17.01 \n20.35 \n13.41 \nAug-\n21 \n1.02 \n1.06 \n0.77 \nSep-\n21 \n16.63 \n19.57 \n13.74 \nSep-\n21 \n1.15 \n1.26 \n1.24 \nOct-\n21 \n15.99 \n18.34 \n13.24 \nOct-\n21 \n0.98 \n0.91 \n0.80 \nNov-\n21 \n15.40 \n17.21 \n13.85 \nNov-\n21 \n1.08 \n1.07 \n1.26 \nDec-\n21 \n15.63 \n17.37 \n13.87 \nDec-\n21 \n1.82 \n2.19 \n1.12 \nForecast \nJan-\n22 \n15.52 \n16.92 \n13.72 \nForecast \nJan-\n22 \n1.40 \n1.44 \n1.12 \nFeb-\n22 \n15.40 \n16.66 \n13.42 \nFeb-\n22 \n1.43 \n1.66 \n0.94 \nMar-\n22 \n15.15 \n16.39 \n13.22 \nMar-\n22 \n1.34 \n1.67 \n0.89 \nApr-\n22 \n14.98 \n16.12 \n12.96 \nApr-\n22 \n0.82 \n0.76 \n0.76 \nMay-\n22 \n14.73 \n15.92 \n12.69 \nMay-\n22 \n0.79 \n0.88 \n0.99 \nJun-\n22 \n14.48 \n15.70 \n12.42 \nJun-\n22 \n0.84 \n0.93 \n0.58 \nSource: NBS, and CBN Staff Estimates \n \nFigure 4.1: Fan Chart of Inflation Forecast \n \nSource: CBN Staff Estimates \n \n10.00\n12.00\n14.00\n16.00\n18.00\n20.00\n22.00\nCBN Monetary Policy Review \n \n65 \n4.5 \nThe Outlook for Monetary Policy \nin The First Half of 2022 \nThe \nMedium-Term \nExpenditure \nFramework \n(MTEF) \nof \nthe \nFederal \nGovernment of Nigeria will continue to \nprovide the anchor for the Bank’s \nmonetary \npolicy \nformulation \nand \nimplementation in the first half of 2022. \nThe objective of monetary policy during \nthe period remains the achievement of \nprice and financial system stability with \ninclusive growth. In line with the MTEF, \nthe CBN would manage expectations, \nprovide time-consistent policies and \nreact to temporary shocks to strengthen \nthe ongoing recovery and maintain the \nexternal and internal balance of the \neconomy. \n \n The Bank will continue to observe global \ndevelopments \nas \nthey \naffect \nthe \nNigerian economy. The risks to global \noutput \nmay \ninclude \nuncertainties \nsurrounding \nthe \nevolution \nof \nnew \nvariants of the COVID-19 virus, as well as \nthe pace of vaccine uptake; rising \nconsumer \nprices \nin \nadvanced \neconomies and consequent monetary \npolicy normalization. The IMF World \nEconomic \nOutlook \n(WEO) \nprojects \nglobal growth to moderate from 5.9 in \n2021 to 4.4 per cent in 2022 (WEO, \nJanuary 2022). The growth prospects \nwere limited due to the spread of the \nnew Omicron COVID-19 variant, forcing \ncountries \nto \nreimpose \nmobility \nrestrictions; coupled with rising energy \nprices \nand \nsupply \ndisruptions \nthat \nresulted in higher and more broad-\nbased inflation, notably in the United \nStates and many emerging markets and \ndeveloping economies. There is also the \nongoing retrenchment of China’s real \nestate \nsector; \nand \nslower-than-\nexpected \nrecovery \nof \nprivate \nconsumption. \n \nWith regards to the domestic economy, \nmonetary policy may face challenges \nincluding \nunabating \ninflationary \npressures; security challenges which \ncontinue to pose significant risks to \nmedium-term growth with the potential \neffect on other key macroeconomic \nindicators. These include rising level of \ndomestic debt which could dampen \ninvestor confidence in the domestic \nfinancial markets, uncertainty around \nfuel subsidy removal with implications on \nprices, and uncertainty around crude oil \nprices given the complex interplay of \npolitical and economic factors at the \nglobal level, with implication for external \nreserves accretion and exchange rates. \nMonetary \npolicy \nformulation \nand \nimplementation will therefore aim at \ncontaining these challenges to achieve \nprice and financial system stability \nsupportive of inclusive growth. \n \n4.6 The Risks to the Outlook \n \n4.6.1 Risks to the Global Output \nThe \nevolution \nof \nthe \npandemic \nremained the principal downside risk to \nglobal output growth, given the slow \nglobal suppression of the disease. The risk \nstems from the emergence of more \ninfectious, deadly, and vaccine-resistant \nvariants. All regions thus remained \nexposed to renewed outbreaks of the \npandemic. This uncertainty coupled with \nCBN Monetary Policy Review \n \n66 \nunequal vaccine access and high \nvaccine hesitancy had hampered the \nability of some countries to fully reopen \nand further increased the divergence in \neconomic prospects across regions. \nAccording to the IMF (Oct 2021 WEO), \nnearly 60 per cent of the population in \nadvanced \neconomies \nwere \nfully \nvaccinated while 96 per cent of the \npopulation \nin \nlow-income \ncountries \nremained unvaccinated. Moreover, the \nresurgence of the pandemic through \nthe highly transmissible Delta variant had \nalso increased socio-economic risks and \nvulnerabilities in many countries, further \nheightening \nthe \ndownside \nrisks \nto \ngrowth. Although the economic impact \nof the Delta variant has been relatively \nmild in countries with high vaccination \nrates, \nparticularly \nmost \nadvanced \neconomies, growth prospects have \nbeen significantly lowered in other \nregions, \nparticularly \nlow-income \ncountries and some emerging market \neconomies. \n \nIn terms of production, the effect of the \nrenewed pandemic outbreaks on the \nglobal supply chain have fuelled supply-\ndemand mismatches and accentuated \ninflationary pressures in many advanced \neconomies. \nThis \nhad \nbeen \ncompounded by labour shortages in \nsome service sectors, higher energy \nprices, as well as higher shipping and \ncommodity prices. Other downside risks \nto \nglobal \noutput \ngrowth \ninclude: \ntightening financial conditions amplified \nby elevated debt levels, rising food \nprices as well as rising conflict and social \nunrest. In addition, the growing adverse \nsocial and economic effects of climate \nchange, particularly the rise in global \ntemperatures and other natural disasters \nhave constituted further constraints on \ngrowth in the near to medium term. \n \n4.6.2 Risks to Domestic Output \nAccording to the IMF January 2022 \nWEO Update, the Nigerian economy is \nforecast to grow by 2.7 per cent in 2022 \nand 2023, following an improvement of \n3.0 per cent in 2021. The projection is \nanchored on improved performance of \nboth oil and non-oil sectors. The oil sector \nis \nexpected \nto \nimprove \ndue \nto \nanticipation of growing global demand, \nand increased oil production quota as \nthe economies continue to remain open \nand production activities continue to rise \nin the advanced economies. The non-oil \nsector is expected to sustain its recovery \ndue to the sustained interventions by \nboth fiscal and monetary authorities to \nstimulate the economy. However, the \nrisk \nto \nthe \noutlook \nremains \nrising \ninflationary \npressure \nin \nadvanced \neconomies, re-emergence of a new \nand more deadly strain of COVID-19, \nand legacy structural and security \nchallenges which continued to hinder \nthe full recovery of the output growth. \n \n4.6.3 Risks to Domestic Inflation Outlook \nThe headline inflation has remained \nabove the upper band of the Central \nBank of Nigeria's inflation benchmark \nrange of 6.0-9.0 per cent despite the \ngradual rise in economic activities, \nfollowing CBN and Federal Government \nincentives in the real sector. However, \ninflation is expected to moderate in the \nCBN Monetary Policy Review \n \n67 \nmedium-term during 2022 owing to the \nincreased output of some agricultural \nproducts \nand \nthe \neffective \nimplementation \nand \nmonitoring \nof \nvarious CBN intervention schemes in the \nreal sector. The depreciation of the \nnaira, insecurity in major food-producing \nareas, large fiscal deficits and debt \noverhang, upward pressure on the price \nof diesel, and high cost of electricity \ncould, however, dampen the rate of \nmoderation in prices in the medium \nterm. \n \nSupply chain disruptions in farming \ncommunities owing to banditry and \nkidnapping; \nlingering \nsupply \nchain \ninterruptions as a result of insecurity \nalong major logistic channels and poor \nroad \nnetworks \nconnecting \nfarming \ncommunities to major towns and cities; \nthe general increase in insecurity in both \nurban and rural areas; and seasonal \nshocks could also impact on prices. The \nanticipation of a further increase in the \npump prices of premium motor spirit \n(PMS), as well as the exchange rate \npass-through effect could also exert \npressure on the overall price level. \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 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nCBN Monetary Policy Review \n \n68 \nAPPENDICES \n \nCENTRAL \nBANK \nOF \nNIGERIA \nCOMMUNIQUÉ \nNO. \n137 \nOF \nTHE \nMONETARY POLICY COMMITTEE MEETING \nHELD ON MONDAY 26th AND TUESDAY \n27th JULY, 2021 \n \n1.0 \nBackground \nThe Monetary Policy Committee (MPC) \nmet on the 26th and 27th July, 2021 faced \nwith cautious optimism for the recovery \nof both the global and domestic \neconomies. The performance of the \nglobal economy in the first two quarters \nof the year had been favourable and is \nexpected to continue for the rest of the \nyear. \nThere \nis, \nhowever, \nrenewed \ndownside risk to this optimism associated \nwith the fast spread of new and deadlier \nstrains of the COVID-19 virus. The high \nrate of vaccination across the globe \nseems promising to drive herd immunity \nto \nreduce \nmortality \nrates. \nIn \nthe \ndomestic \neconomy, \nthe \ncontinued \nsupport by both the monetary and fiscal \nauthorities, \nis \nexpected \nto \nyield \nfavourable outcomes and hopefully \nreturn the economy to a strong recovery \npath in the next few quarters. The \nCommittee reviewed the developments \nin the global and domestic economic \nand financial environments over the \nsecond quarter of 2021 and the outlook \nfor the rest of the year. \n \nNine (9) members of the Committee \nwere in attendance at this meeting. \n \n \n \nGlobal Economic Developments \nThe Committee noted that while there \nhas been reasonable gains in subduing \nthe Pandemic, lowering of restrictions \nand reopening of several economies, \nthe fast pace of mutation of new and \ndeadlier strains of the virus is posing a \ndownside risk to the full recovery of the \nglobal \neconomy. \nIn \naddition, \nthe \nuneven access of vaccines across \nseveral countries is a significant risk to the \nattainment of global herd immunity. \nDespite \nthe \nabove \nchallenges, \ngovernments all over the world have \ncontinued to ease restrictions to enable \nthe recovery of supply chain networks \nand enhance aggregate demand. The \nexpected rebound in global output \ngrowth is dependent, therefore, on the \nefficient \ndeployment \nof \nCOVID-19 \nvaccines with the expectations that the \nevolving deadlier strains would be \nsubdued. Even with the current outlook, \nthe International Monetary Fund (IMF) \nprojects global growth at 6.0 per cent in \n2021, compared with the last projection \nof 5.5 per cent. In line with this, the \nAdvanced Economies are projected to \ngrow at 5.1 per cent while the Emerging \nMarkets and Developing Economies are \nprojected to grow at 6.7 per cent. \n \nPrice \ndevelopment \nacross \nseveral \neconomies \nis \nexpected \nto \nremain \nmoderate in the short to medium term \nwith some prospects of a mild uptick. The \nCommittee further noted the rise in \ninflation above the long run objectives of \nsome \nkey \nAdvanced \nEconomies, \nalthough reported as transient and \ntherefore not expected to lead to an \nCBN Monetary Policy Review \n \n69 \nadjustment of the stance of monetary \npolicy. There however, remains the \nlingering risk of an early return to \nmonetary policy normalization, should \nprice development continue to trend \nupwards. \nAcross \nseveral \nEmerging \nMarket and Developing Economies, \ninflationary trend was on average \nmixed, with some of the economies \nrecording higher rates, compared with \ntheir peers. This was largely due to \nexchange rate pressures, capital flow \nreversals, high energy costs, weak supply \nchains and poor response to policy \nstimulus to combat the macroeconomic \nslowdown \nassociated \nwith \nthe \nPandemic. \n \nIn the global financial markets, the \nCommittee \nnoted \nthe \nincreased \ndemand \nfor \nequity \nsecurities, \nan \nindication \nof \nimproved \ninvestor \nconfidence in the global recovery. In \naddition, it observed the progressive \nweakening of long-term sovereign bond \nyields, as the demand for equities pick \nup. \nThe \nMPC \nfurther \nnoted \nthe \nmoderation \nin \nthe \nprice \nof \ngold, \nsignaling reduced demand, as investors \nreturn to the financial markets. The \nunprecedented stimulus provided by \nmonetary and fiscal authorities to ease \nthe impact of the Pandemic has, \nhowever, heightened the risks of global \nfinancial crisis post-Pandemic and calls \nfor central banks across the globe to \nremain vigilant, should the need for \nsudden policy adjustments arise. \n \n \n \n \nDomestic Economic Developments \nReal Gross Domestic Product (GDP) \ngrew by 0.51 per cent in the first quarter \nof 2021, compared with 0.11 per cent in \nthe preceding quarter. In the non-oil \nsector, Agriculture and Industry sub-\nsectors, were the major drivers of growth, \nwith growth rates of 2.28 and 0.94 per \ncent, respectively. The oil sector, year-on \nyear, contracted by -2.21 per cent in first \nquarter of 2021, compared with -19.76 \nper cent in the previous quarter. The \nweak performance in the oil sector was \nattributed to several factors, including \nthe declining quality of oil infrastructure, \nlack of new investment in the sector and \nthe need to comply with the OPEC+ \nproduction quota. \n \nThe \nCommittee \nnoted \nthat \nthe \nManufacturing Purchasing Managers’ \nIndex (PMI), improved to 46.6 index \npoints in July 2021, compared with 45.5 \nindex points in June 2021. Though it \nremained below the 50-index point \nmark, the improvement is an indication \nof gradual recovery of output growth in \nthe economy. The Non-Manufacturing \nPurchasing Managers’ Index (PMI) also \nincreased to 44.8 index points in July \n2021, compared with 43.0 index points in \nJune 2021. \n \nThe employment level index for July 2021 \nstood at 46.5 index points, relative to the \npreceding month’s figure of 45.0, but, \nremained below the 50.0-index point \nthreshold. The Committee welcomed \nthe sustained monetary and fiscal \nstimulus \nto \nrevamp \nthe \ndomestic \neconomy \nand \nhoped \nthat \nthe \nCBN Monetary Policy Review \n \n70 \ndistribution of vaccines to subdue the \nPandemic will continue unabated. \n \nThe Committee noted the continued \nmoderation in headline inflation (year-\nonyear) to 17.75 per cent in June 2021 \nfrom 17.93 per cent in May 2021, the third \nconsecutive month of decline. The \ndecrease was attributed to a marginal \ndecline in both the food and core \ncomponents to 21.72 and 13.09 per cent \nin June 2021 from 22.28 and 13.15 per \ncent in May 2021, respectively. The MPC \nnoted that, though, headline inflation \nremained well above the ceiling of the \nCentral Bank’s 6-9 per cent corridor, it \nexpressed optimism that the current \ninterventions by the Bank in various \nsectors of the economy will further \ndepress inflationary pressure as output \ngrowth improves and the negative \noutput gap closes. \n \nOn the performance of \nmonetary \naggregates, the Committee noted that \nbroad money supply (M3) declined to \n2.02 per cent in June 2021, compared \nwith 2.99 per cent in May 2021. This \ndevelopment was largely driven by a \nslowdown in the growth rate of Net \nDomestic Assets (NDA) and Net Foreign \nAssets \n(NFA). \nNet \nForeign \nAssets \ncontracted by 3.65 per cent due to the \ncontraction of foreign asset holdings of \nthe central bank, as well as non-interest, \nprimary mortgage, and microfinance \nbanks. The marginal decline in Net \nDomestic Assets reflected the slowdown \nin \naggregate \ncredit \nnet, \nwhich \ndecreased to 4.30 per cent in June 2021, \nfrom 4.79 per cent in May 2021. \n \nAccordingly, aggregate credit at end-\nMay 2021 stood at N24.23 trillion, \ncompared with N22.68 trillion at end-\nDecember 2020. This represents a year-\ntodate increase of N1.55 trillion. \n \nUnder the Bank’s development finance \ninitiatives, the Bank granted N756.51 \nbillion to 3,734,938 small holder farmers \ncultivating 4.6 million hectares of land, of \nwhich N120.24 billion was extended for \nthe 2021 Wet Season to 627,051 farmers \nfor 847,484 hectares of land, under the \nAnchor Borrowers’ Programme (ABP); for \nthe Agribusiness/Small and Medium \nEnterprise \nInvestment \nScheme \n(AGSMEIS), the sum of N121.57 billion \nwas disbursed to 32,617 beneficiaries; \nand for the Targeted Credit Facility \n(TCF), N318.17 billion was released to \n679,422 \nbeneficiaries, \ncomprising \n572,189 households and 107,233 Small \nand Medium Scale Enterprises (SMEs). \n \nUnder the National Youth Investment \nFund (NYIF), the Bank released N3.0 \nbillion to 7,057 beneficiaries, of which \n4,411 were individuals and 2,646 SMEs. \nUnder the Creative Industry Financing \nInitiative \n(CIFI), \nN3.22 \nbillion \nwas \ndisbursed to 356 beneficiaries across \nmovie production, movie distribution, \nsoftware development, fashion, and IT \nverticals. \n \nUnder the N1.0 trillion Real Sector Facility, \nthe Bank released N923.41 billion to 251 \nreal sector projects, of which 87 were in \nlight manufacturing, 40 in agrobased \nindustry, 32 in services and 11 in mining. \nOn the N100 billion Healthcare Sector \nIntervention Facility (HSIF), N98.41 billion \nCBN Monetary Policy Review \n \n71 \nwas disbursed for 103 health care \nprojects, \nof \nwhich, \n26 \nare \npharmaceuticals and 77 are in the \nhospital services. Similarly, the sum of \nN232.54 million was disbursed to 5 \nbeneficiaries under the CBN Healthcare \nSector Research and Development \nIntervention (Grant) Scheme (HSRDIS) for \nthe development of testing kits and \ndevices for Covid-19 and Lassa Fever. \n \nOn \nthe \nNational \nMass \nMetering \nProgramme (NMMP), N36.04 billion was \ndisbursed to 17 Meter Asset Providers, to \nnine (9) DisCos, for the procurement and \ninstallation of 657,562 electricity meters. \nOn \nthe \nNigerian \nElectricity \nMarket \nStabilization Facility - 2 (NEMSF-2), the \nCBN released N120.29 billion to 11 \nDisCos, to provide liquidity support and \nstimulate \ncritical \ninfrastructure \ninvestment needed to improve service \ndelivery and collection efficiency. \n \nOn money market development, the net \nliquidity position and interest rates in the \neconomy reflected the impact of the \nBank’s \nliquidity \nmanagement \noperations. Accordingly, the monthly \nweighted average Inter-bank Call and \nOpen Buy Back (OBB) rates rose to 16.87 \nand 16.39 per cent in June 2021 from \n15.95 and 16.18 per cent in May 2021, \nrespectively. \n \nThe \nCommittee \nnoted \nthe \nweak \nperformance of the equities market \ndespite the recent increasing patronage \nby domestic investors. The All-Share \nIndex (ASI) decreased by 1.28 per cent \nto 37,947.18 on July 16, 2021, from \n38,437.88 on May 31, 2021. Similarly, \nMarket Capitalization (MC) decreased \nby 1.30 per cent to N19.77 trillion on July \n16, 2021, from N20.03 trillion on May 31, \n2021. \n \nThe MPC noted that the Capital \nAdequacy Ratio (CAR) and the Liquidity \nRatio (LR) both remained above their \nprudential limits at 15.5 and 41.3 per \ncent, respectively. The Non-Performing \nLoans ratio (NPLs) at 5.70 per cent in \nJune \n2021 \nshowed \nprogressive \nimprovement, compared with 6.4 per \ncent in June 2020. The Committee, \nhowever, urged the Bank to sustain its \ntight prudential regime to bring Non-\nPerforming Loans (NPLs) below the 5.0 \nper cent prudential benchmark. \n \nThe Committee noted the marginal \nincrease in the external reserves which \nrose to $33.83 billion on 22nd July 2021 \nfrom US$32.78 billion as at 30th June 2021. \n \nOutlook \nThe overall outlook for both the global \nand \ndomestic \neconomies, \nremain \nclouded with downside risks despite the \nupbeat forecast for a speedy recovery. \nThese risks include lingering uncertainties \nsurrounding the path to the termination \nof the Pandemic, as new and deadlier \nstrains of the virus continue to pose a \nsignificant threat to the efficacy of the \nCOVID-19 vaccines. In addition, the \nuneven access to the vaccines across \nthe globe is undermining the realization \nof the current forecast. \n \nCapital \nflows \nto \nemerging \nmarket \neconomies, remain uncertain as the \nCBN Monetary Policy Review \n \n72 \npace of price development in the \nadvanced economies pick up. While the \nUS Federal Reserve Bank and other \nmajor \ncentral \nbanks \nhave \ngiven \nindications that the current rise in \ninflation is transitory, and may not require \npolicy adjustment, inflation is confronted \nwith a significant upside risk. This may \nresult in an early return to monetary \npolicy \nnormalization, \nwith \nadverse \nconsequences \nfor \nfinancial \nsystem \nstability. \n \nAvailable data and forecasts for key \nmacroeconomic \nvariables \nfor \nthe \nNigerian economy suggest a broad \nimprovement for the rest of the year. This \nis hinged on continued progress with the \ncontainment of the Pandemic, as well as \nongoing monetary and fiscal support. As \na result, the Nigerian economy is \nforecast to grow in 2021 by 3.15 per cent \n(CBN), 3.0 per cent (FGN) and 2.5 per \ncent (IMF). \n \nThe Committee’s Considerations \nThe Committee noted the gradual \nrecovery in output growth following \npositive growth in the first quarter and \nimproving PMI in subsequent months, \nexpressing confidence that the second \nquarter output result will show further \nimprovement. \n \nThe MPC carefully accessed the options \nconfronting it in the short to medium \nterm, analysing the downside risks to \ngrowth and upside risks to inflation. It \ncommended the continued effort by \nboth the monetary and fiscal authorities \nas well as public health agencies in \nstemming the Pandemic and its impact, \nthus, returning the economy to a path of \nrecovery. While the economy has been \ngradually reopening, Members noted \nthat the Pandemic was far from over \nand therefore continued to hinder the \nrecovery. It thus, urged the Presidential \nTask Force on COVID-19 to intensify \nefforts towards procurement of more \nvaccines to ensure that herd immunity is \nachieved in Nigeria. \n \nThe MPC was concerned about the \nbroad level of insecurity across the \ncountry, noting its impact on business \nconfidence \nand \noverall \neconomic \nactivities. \nIt \nnoted \nthe \npersisting \ninsecurity in key commodity producing \nareas \nand \nurged \nthe \nFederal \nGovernment \nto \nintensify \nsecurity \nsurveillance in farming communities to \nensure uninterrupted farming activities. \nCommittee \nmembers \nexpressed \noptimism about the likely moderating \nimpact of the forthcoming harvests on \nfood prices, as this would contribute to \nthe \nongoing \nbroad \nreduction \nin \nheadline inflation. The CBN will continue \nto release maize from its strategic maize \nreserve directly to feed-millers as part of \nits strategic response to address rising \nfood prices and moderate the price of \nmaize across the country. \n \nMembers further noted the contribution \nof poor infrastructure to rising domestic \nprice levels, re-iterating their call to the \nFederal \nGovernment \nto \nprioritize \ninvestment in public infrastructure such \nas improved transportation networks, \npower supply and telecommunication \nfacilities. Funding for such projects, the \nCBN Monetary Policy Review \n \n73 \nCommittee noted, could be sourced \nthrough Public-Private-Partnerships, as \nwell as the issuance of diaspora bonds. It \nemphasized the complementary role \nthese bonds would play to boost foreign \nexchange supply, improving accretion \nto reserves and easing the exchange \nrate pressure. \n \nNotwithstanding, the moderate decline \nin market indices, the Committee noted \nthat the equities market remained in a \ngood \nplace, \nindicating \nsustained \ninvestor confidence in the Nigerian \neconomy. \n \nThe MPC applauded the continued \nresilience of the banking system in the \nface of severe shocks to both the \ndomestic \nand \nglobal \neconomies. \nMembers noted Management’s effort in \nmaintaining a reasonably low level of \nnon-performing loans ratio, even though \naggregate credit moderated slightly. \nThe Committee encourages Nigerian \nbanks \nto \nextend \nmore \ncredit \nto \nconsumers \nand \nfirms \nto \nenhance \nconsumption and production activities \nnecessary to strengthen the recovery. \n \nCommittee \nmembers \nnoted \nthe \npersistent reduction in remittance of oil \nrevenue to the Consolidated Revenue \nFund, stemming largely from rising levels \nof \ncost \nunder-recovery \nand \nother \nobligations, particularly to Joint Venture \nContracts. The Committee thus, urged \nthe Government to continue to explore \nadditional sources of non-oil revenue, as \nthis would reduce the over dependence \non a single revenue source. \n \nMembers applauded the efforts by the \nFederal Government to encourage the \nuse of gas in motor vehicles and the \npayment for conversion of 1 million \nPremium \nMotor \nSpirit \n(PMS)-driven \nvehicles to gas-driven, to reduce overall \ncost \nof \nPMS \nconsumption. \nThe \nCommittee \nencouraged \nthe \nparticipation of private sector initiatives \nto \ndevelop \nand \nexpand \nmodular \nrefineries while it frowns at cross-border \nsmuggling of PMS. \n \nThe \nCommittee \nalso \nnoted \nthe \nincreased contribution of the non-oil \nsector to Government revenue in recent \ntimes which reflected the gradual \ndiversification of the economy and \nreduce reliance on crude oil export \nproceeds and called for increased \nsupport for the non-oil sector in the \ncountry. \n \nOverall, Members were confident that \nthe Bank was taking the right steps \ntoward \nthe \nrestoration \nof \nmacroeconomic stability, while noting \nthe downside risks to growth and the \nupside risks to price developments. \n \nThe Committee’s Decision \nAt this meeting, the MPC was delighted \nthat inflation had begun to trend \ndownwards, while output growth had \nremained \npositive. \nCommittee, \nhowever, was of the opinion that there \nwas a need to continue to put in place \npolicy measures that will further and \nfaster drive down inflation, while at the \nsame time accelerate output growth to \nlevels above population growth rate. \nCBN Monetary Policy Review \n \n74 \nWhereas, the arsenal at its disposal had \nalmost become fully exhausted, MPC \nbelieve that there is the need to \ncontinue to use those tools that had \nbeen adopted so far, even in a more \naggressive manner. MPC, therefore, \nencourage the Bank to continue using its \nexisting administrative methods to rein-in \ninflation by the use of its discretionary \nCRR policy to mop-up liquidity from the \nbanking system as the need arises. \n \nThe Committee also encouraged the \nBank \nto \ncontinue \nthe \nuse \nof \nits \nintervention mechanism to deploy funds \nto output-stimulating and employment-\ngenerating sectors of the economy, \nsuch as, the Targeted Credit Facility, \nAGSMEIS, \nAgriculture \nand \nManufacturing. \n \nIn the Committee’s view, the current \nsituation, \nneither \ngives \nroom \nfor \ntightening, as this will hurt output growth, \nnor, loosening, as this will exacerbate \ninflationary pressures. \n \nOn tightening, MPC feels that whereas \nthis will limit excess liquidity available to \nattack the foreign exchange market, it \nnevertheless feels that tightening will \nreduce money supply and thus, inhibits \nthe ability of Deposit Money Banks \n(DMBs) to create credit that is needed to \nstimulate manufacturing output which \ncould also help to moderate prices. \n \nOn loosening, whereas MPC feels this \nshould transmit into lower market interest \nrates which could improve the ability of \nobligors to repay their loans and reduce \nNPLs, it nevertheless feels loosening \nwould not only exacerbate inflationary \npressure, \nbut \nthis \nwould \nincrease \nnegative \nreal \nrate \nof \nreturn \nand \ndiscourage investments in the domestic \neconomy. \n \nBased on the above considerations, the \nMPC made the decision to hold all \npolicy parameters constant; believing \nthat a hold stance will enable the \ncontinued permeation of current policy \nmeasures in supporting the recorded \ngrowth recovery and macro-economic \nstability. \n \nThe Committee thus decided by a \nunanimous vote to retain the Monetary \nPolicy Rate (MPR) at 11.5 per cent. \nIn summary, the MPC voted to: \n \ni \nRetain the MPR at 11.5 per cent; \nii \nRetain the asymmetric corridor of \n+100/-700 basis points around the \nMPR; \niii \nRetain the CRR at 27.5 per cent; and \niv Retain the Liquidity Ratio at 30 per \ncent. \n \nThank you. \n \nGodwin I. Emefiele \nGovernor, Central Bank of Nigeria \n27th July 2021 \n \n \n \n \n \n \n \n \n \nCBN Monetary Policy Review \n \n75 \nCENTRAL \nBANK \nOF \nNIGERIA \nCOMMUNIQUÉ NO. 138 OF THE 281ST \nMONETARY POLICY COMMITTEE MEETING \nHELD ON THURSDAY, 16th AND FRIDAY, \n17th SEPTEMBER 2021 \n \n1.0 \nBackground \nThe Monetary Policy Committee (MPC) \nmet on the 16th and 17th September, \n2021, on a relatively comforting note of \na moderate global output growth \nrecovery and improved global trade. \nThe \nperformance \nof \nthe \nglobal \neconomy in the first two quarters of the \nyear \nand \ninto \nthe \nthird \nquarter, \nremained \nfavourable \nwith \npositive \noutlook for the rest of the year. However, \ncautious \noptimism \npersists, \ndriven \nprimarily by mutating and more fatal \nstrains of the COVID-19 virus and \ndisparities in the progress of vaccinations \nacross several countries. In the domestic \neconomy, output growth performance \ncontinued to improve, signposting the \npositive impact of the unwavering fiscal \nand monetary support by both the fiscal \nand monetary authorities to revive and \nsustain \neconomic \ngrowth, \npost \npandemic. The Committee reviewed \nthe developments in the global and \ndomestic economic environments in the \nthird quarter of 2021, as well as the \noutlook for the rest of the year. \n \nTen (10) members of the Committee \nattended this meeting. \n \nGlobal Economic Developments \nThe Committee noted the continuing \nrebound in the global recovery as \nseveral \nadvanced \nand \nemerging \nmarket economies posted promising \nsecond quarter output growth figures, \ndespite \nthe \nuneven \nprogress \nin \nvaccination coverage. The MPC noted \nthat the uncontained spread of the \nCOVID-19 \nvirus \ncontinues \nto \npose \ndownside risks to global recovery in 2021 \nand into 2022. The MPC further noted \nthat despite the strong output growth \nidentified \nin \nsome \nAdvanced \nEconomies, \nseveral \ndeveloping \neconomies \nwere \nstill \nlagging \nin \nvaccination \nprogress. \nMembers, \nemphasized \nthat \nthe \nwidespread \navailability of vaccines, remained vital \nto surmounting the Pandemic and \nattaining full and all-inclusive recovery of \nthe \nglobal \neconomy. \nDespite \nthe \nchallenges posed by the ongoing \nmutation \nof \nthe \ncoronavirus, \ngovernments across the globe remain \nfocused on easing business restrictions \nand resuscitating economic activities. \nConsequently, \nthe \nInternational \nMonetary Fund (IMF), maintained its \naggregate projection for global growth \nin 2021 at 6.0 per cent, but increased its \nprojection for the Advanced Economies \nto 5.6 per cent from a previous 5.1 per \ncent, while that for the Emerging \nMarkets and Developing Economies \n(EMDEs) was downgraded to 6.3 per \ncent from 6.7 per cent. \n \nPrice \ndevelopment \nacross \nseveral \nAdvanced Economies has remained on \na sustained uptrend and exceeding \ntheir long run objectives. This is expected \nto continue in the short to medium term \nas against earlier forecasts that the \nupward \nshift \nwas \ntransient. \nCBN Monetary Policy Review \n \n76 \nConsequently, several central banks of \nadvanced economies are currently \nconsidering early commencement of \nmonetary policy normalization, even \nthough policy rate adjustments are not \nexpected in the medium term. Across \nseveral \nEmerging \nMarket \nand \nDeveloping \nEconomies, \ninflationary \npressures remained mixed, as some \neconomies had much higher rates than \ntheir peers, due to lingering exchange \nrate pressures, capital flow reversals, \nhigh \nenergy \ncosts, \nsupply \nchain \ndisruptions and poor response to policy \nstimulus \nresulting \nfrom \nstructural \nbottlenecks. \n \nIn the global financial markets, the \nCommittee noted that while demand \nfor \nequities \nremained \nstrong, \nan \nindication \nof \nrenewed \nmarket \nconfidence, gold price still maintained \nits post-Pandemic high, reflecting the \nhedging by investors against a possible \nrebound of the Pandemic. Long-term \nsovereign bond yields are expected to \nimprove with the commencement of \nmonetary \npolicy \nnormalization \nby \ncentral banks of advanced economy. \nCommittee \nmembers, \nhowever, \nexpressed cautious optimism for a \ngradual \nnormalization \nof \nmonetary \npolicy by these central banks, as a sharp \nretreat of policy stimulus may plunge the \nglobal economy into a financial crisis \nagain. This may also increase the \nuncertainty around the full recovery of \nseveral \nEmerging \nMarket \nand \nDeveloping \nEconomies. \nThe \nMPC, \ntherefore, called on the Bank to put in \nplace measures to moderate the likely \nimpact of the normalization of monetary \npolicy on the domestic economy. \n \nDomestic Economic Developments \nIn the second quarter of 2021, there \nwas a significant improvement in the \nreal Gross Domestic Product (GDP), \nwhich grew by 5.01 per cent compared \nwith 0.51 and -6.10 per cent in the \nprevious quarter and corresponding \nquarter \nof \n2020, \nrespectively. \nThis \nrecovery was attributed to the non-oil \nsector, driven by a rebound in services \nsector \nand \ncontinued \ngrowth \nin \nagriculture \nsector. \nThe \noil \nsector \ncontracted further by -12.65 per cent \n(year-on year) in the second quarter of \n2021, compared with -2.21 per cent in \nthe \nprevious \nquarter. \nThis \ndeeper \ncontraction, was attributed to several \nfactors: including declining crude oil \nproduction at two crude streams in the \ncountry, associated with leakages in two \nmajor \npipelines; \ndeteriorating \noil \nproduction infrastructure; poor pipeline \nmaintenance; and the need to comply \nwith OPEC+ production ceiling. \n \nThe Committee noted the moderate \nimprovement in both the Manufacturing \nand \nNon-Manufacturing \nPurchasing \nManager’s Indices (PMIs), though still \nbelow the 50-index point benchmark, \nshowed a marked improvement over \ntime. In August 2021, the Manufacturing \nand non-Manufacturing PMIs improved \nto 46.9 index points apiece, compared \nwith \n46.6 \nand \n44.8 \nindex \npoints, \nrespectively, in July 2021. This was \nattributed to an increase in new orders, \ndriven largely by rising demand, uptrend \nCBN Monetary Policy Review \n \n77 \nin \nbusiness \nactivity \nand \nfurther \nnormalization of economic activities. \nSimilarly, the employment level index \ncomponent of the Manufacturing and \nnon-Manufacturing PMIs in August 2021 \nimproved to 49.4 and 48.8 index points, \nrespectively, compared with 46.5 and \n47.0 index points in July 2021. The \nCommittee expressed optimism that \nwith the current level of monetary and \nfiscal stimuli, as well as efforts to increase \nvaccination and contain the Pandemic, \nthe economy will continue to improve in \nthe short-to medium term. \n \nThe \nCommittee \nreviewed \nthe \nperformance of the Bank’s interventions \nto sustain the recovery of output growth \nand address the downside risks to other \nexternal and domestic shocks to the \neconomy. \nInterventions \ncontinued \nlargely in Manufacturing, Agriculture, \nEnergy/infrastructure and Micro, Small, \nand Medium Enterprises (MSMEs). \n \nThe Bank under its Anchor Borrowers \nProgramme \n(ABP) has cumulatively \nreleased the sum of N798.09 billion to 3.9 \nmillion smallholder farmers cultivating 4.9 \nmillion hectares of land across the \ncountry. Out of this for the 2021 wet \nseason farming, the Bank released the \nsum of ₦161.18 billion to 770,000 small-\nholder farmers cultivating seven (7) \ncommodities on 1.10 million hectares \nacross the country. While harvesting for \nthe \n2020 \ndry \nseason \nunder \nthe \nProgramme is rounding up, harvesting \nactivities have commenced for the 2021 \nwet season cultivation. The Strategic \nMaize Reserve Programme of the CBN \nhas been useful in moderating maize \nprices by directly targeting large feed \nmill producers. Under its Commercial \nAgriculture Credit Scheme (CACS), the \nCBN has supported 657 large-scale \nagricultural projects, to the tune of \nN708.39 billion. \n \nTo support MSMEs across the country, \nthe Bank disbursed N134.57 billion to \n38,140 \nbeneficiaries \nunder \nthe \nAgribusiness/Small \nand \nMedium \nEnterprise \nInvestment \nScheme \n(AGSMEIS), and for the Targeted Credit \nFacility (TCF), the sum of N343.21 billion \nhas \nbeen \nreleased \nto \n726,198 \nbeneficiaries, \ncomprising \n602,730 \nhouseholds and 123,468 Small and \nMedium Enterprises. \n \nUnder the Real Sector Facility, the Bank \nreleased the sum of N1.00 trillion to 269 \nreal sector projects, of which 140 are in \nlight manufacturing, 71 in agro-based \nindustry, 47 in services and 11 in mining. \nUnder \nthe \nHealthcare \nSector \nIntervention Facility (HSIF), N103.02 billion \nhas been disbursed for 110 healthcare \nprojects, \nof \nwhich \n27 \nare \npharmaceutical, 77 hospitals and 6 \nother healthcare service projects. The \nBank has also disbursed a total of \nN145.99 billion under its Non-Oil Export \nStimulation Facility (NESF). The CBN has \nrevised the guidelines, working with \nNigerian Export-Import Bank to improve \naccess to the intervention and stimulate \nnon-oil export growth in Nigeria. \n \nUnder the National Mass Metering \nProgramme (NMMP), N41.06 billion has \nbeen disbursed to ten (10) DisCos, for the \nprocurement and installation of 759,748 \nCBN Monetary Policy Review \n \n78 \nelectricity meters. Under the Nigerian \nElectricity Market Stabilization Facility - 2 \n(NEMSF-2), the Bank has released the \nsum of N145.66 billion to 11 DisCos as \nloans to provide liquidity support and \nstimulate \ncritical \ninfrastructure \ninvestment to improve service delivery \nand collection efficiency. \n \nIn furtherance of its intervention in the \nenergy sector, the Bank has disbursed \nN39.20 billion to six (6) beneficiaries to \nimprove gas-based infrastructure to \nsupport the Federal Government’s Auto-\nGas Conversion Programme. The Bank \nhas also encouraged Deposit Money \nBanks (DMBs) to participate in the Solar \nConnection Facility (SCF) to improve \nenergy access in the rural areas. \n \nTo \npromote \nentrepreneurship \ndevelopment among Nigerian youth, \nthe \nBank \nrecently \napproved \nthe \nimplementation of the Tertiary Institutions \nEntrepreneurship Scheme (TIES). The \nScheme \nis \ndesigned \nto \npromote \nentrepreneurial activities and foster job \ncreation among Nigerian youths. \n \nThe \nCommittee \napplauded \nthe \ncontinued \nmoderation \nin \nheadline \ninflation for the fifth consecutive month \nto 17.01 per cent (year-on-year) in \nAugust 2021 from 17.38 per cent in July \n2021. The continued decrease was \nattributed to a marginal decline in the \nfood component to 20.30 per cent in \nAugust 2021 from 21.03 per cent in July \n2021. \nThe \ncore \ncomponent, \nalso, \ndeclined to 13.41 per cent in August \n2021 from 13.72 per cent in July 2021. The \nMPC noted that headline inflation \nremained \nwell \nabove \nthe \nBank’s \nbenchmark corridor of 6 – 9 per cent, but \nexpressed optimism that with sustained \ninterventions \nby \nthe \nBank, \nfood \nproduction will continue to improve, thus \nmoderating headline inflation further. \nThe Committee, thus, urged the fiscal \nauthority to build on earlier efforts to \narticulate a clear strategy to attract \nprivate \nsector \ninvestment \nwhile \nresuscitating critical infrastructure to \nimprove the ease of doing business in \nthe country. \n \nMembers observed that broad money \nsupply (M3) rose to 5.83 per cent in \nAugust 2021, compared with 2.91 per \ncent in July 2021. This was largely driven \nby the growth of Net Foreign Assets and \nNet Domestic Assets by 12.35 and 4.30 \nper cent in August 2021, compared with \n1.84 and 3.17 per cent in July 2021, \nrespectively. The growth in Net Foreign \nAssets was largely driven by increase in \nforeign asset holdings of commercial \nand merchant banks. The increase in \nNet Domestic Assets reflects the boost to \naggregate credit net, which increased \nto 8.14 per cent in August 2021, from 5.71 \nper cent in July 2021. \n \nIn the money market, the monthly \nweighted average Inter-Bank Call and \nOpen Buyback (OBB) rates increased to \n13.45 and 12.97 per cent in August 2021 \nfrom 10.72 and 11.60 per cent in July \n2021, \nrespectively. \nThis \nincrease \nreflected the tight liquidity conditions in \nthe banking system during the review \nperiod as the Bank curtailed excess \nsystem liquidity. \nCBN Monetary Policy Review \n \n79 \nThe \nMPC \nnoted \nthe \nmoderate \nimprovement in the equities market in \nthe review period, as the All-Share Index \n(ASI) increased by 2.67 per cent from \n37,907.28 on June 30, 2021, to 38,920.50 \non \nSeptember \n14, \n2021. \nMarket \nCapitalization (MC) also increased by \n2.63 per cent from N19.76 trillion to \nN20.28 trillion over the same period, \nreflecting \nimprovement \nin \ninvestor \nconfidence following the strengthening \nof output growth. \n \nThe MPC noted that the Capital \nAdequacy Ratio (CAR) and the Liquidity \nRatio (LR) both remained above the \nprudential limits at 15.2 and 41.7 per \ncent, respectively at end-July 2021. The \nCommittee, \nalso, \nwelcomed \nthe \nimprovement in the Non-Performing \nLoans (NPLs) ratio at 5.4 per cent in July \n2021, compared with 5.7 per cent in \nJune 2021. The Committee thus, urged \nthe Bank to sustain current efforts to \nbring NPLs below the 5.0 per cent \nprudential benchmark. \n \nThe Committee noted the improvement \nin lending to the real sector following the \nintroduction of the Loans-to-Deposit \nRatio (LDR) in 2019. Industry gross credit \nincreased by N6.63 trillion from N15.57 \ntrillion at end-May, 2019 to N22.20 trillion \nat end-July, 2021. The credit growth was \nlargely recorded in manufacturing, oil \nand gas and agriculture sectors. \n \nThe Committee noted the significant \nincrease in the external reserves which \nrose to US$35.97 billion at end-August \n2021 from US$33.49 billion at end-July \n2021, \nrepresenting \nan \nincrease \nof \n7.41per cent. It also welcomed the \nfurther increase to US$36.03 billion on \nSeptember 13, 2021. \n \nOutlook \nThe outlook for both the global and \ndomestic economies appears mixed. \nThis is due to lingering uncertainties over \nthe end of the COVID-19 pandemic as \nwell as continued mutation of the virus. \nThe \nslow \nand \nuneven \npace \nof \nvaccination in developing economies is \nalso compromising the achievement of \nglobal herd immunity, thus imposing a \nconsiderable \nheadwind \nto \nthe \nattainment \nof \nthe \nglobal \ngrowth \nforecast. \n \nSome \ncentral \nbanks \nin \nadvanced \neconomies have given guidance of \nintended commencement of monetary \npolicy normalization as monetary and \nfiscal policy across major advanced and \nemerging \nmarket \neconomies \nhave \nremained robust. This would constitute a \nfurther headwind to the full and inclusive \nrecovery of the global economy due to \nthe likely rise in cost of capital. The global \neconomy is confronted with more \nheadwinds than tailwinds, evidenced by \nthe multitude of conflicting signals \nemerging \nfrom \nvarious \nmajor \neconomies. \n \nAvailable data and forecasts for key \nmacroeconomic \nvariables \nfor \nthe \nNigerian \neconomy, \nsuggest \nfurther \nrebound in output growth for the rest of \nthe year. This will however be hinged on \nthe continued stability in oil price and \nrobust vaccination in Nigeria and across \nCBN Monetary Policy Review \n \n80 \nother \ncountries. \nForeign \nexchange \nmarket stability, further reduction in \ninflationary pressure in the economy and \ncontinued \ninterventions \nby \nthe \nmonetary and fiscal authorities are very \nimportant factors to sustain the recovery \nmomentum. Consequently, the Nigerian \neconomy is forecast to grow in 2021 by \n2.86 per cent (CBN), 3.0 per cent (FGN) \nand 2.5 per cent (IMF). \n \nThe Committee’s Considerations \nThe Committee noted the recovery in \noutput growth and improving PMIs in the \nsecond quarter and urged the Bank to \nmaintain the momentum of its current \npolicy measures to sustain positive and \ninclusive real GDP growth. \n \nThe increasing level of insecurity in parts \nof the country remained a crucial point \nof concern for the MPC as its persistence \ncould \nadversely \nimpact \nbusiness \nconfidence and derail the recovery. It \ncontinued to call on the Federal \nGovernment \nto \nprioritize \nsecurity \nsurveillance in farming communities as \nthe increased supply of food would play \na \nsignificant \nrole \nin \nstabilizing \nmacroeconomic fundamentals. \n \nThe Committee applauded the steady \nbut moderate decline in domestic prices \nas inflation decelerated for the fifth \nconsecutive \nmonth \nwith \nforecast \nindicating \na \ncontinued \ndownward \ntrend. The Committee also welcomed \nongoing efforts towards revitalising the \nNigeria Commodity Exchange (NCX) to \nimprove the supply value chain, curtail \nthe speculative activities of middlemen \nin \nthe \nagricultural \nsector, \nand \nconsequently drive down prices of key \ncommodities such as paddy rice, maize, \nwheat and sorghum, amongst others. \n \nMembers \napplauded \nthe \nrelentless \neffort \nby \nthe \nBank \nand \nother \ncollaborators in ensuring the eventual \ntake off of the Nigerian Infrastructure \nCorporation (INFRACORP), as this will \nimprove \nthe \nbusiness \nenvironment, \nattract new investment and create new \njobs in the Nigerian economy. The MPC \nfurther emphasised the importance of \ninvestment in transportation networks, \npower supply and telecommunication \nas these have a multiplier effect on other \nsectors of the economy. In addition to \nthe \nINFRACORP \ninitiative, \nMembers \nurged the fiscal authority not to relent on \nother \ncomplementary \ninfrastructure \ninitiatives \nsuch \nas \nPublic-Private-\nPartnerships \nand \nengagement \nof \nNigeria’s huge diaspora through the \nissuance of diaspora bonds to fund \nspecific projects. \n \nThe \nMPC \nnoted \nthe \nmoderate \nimprovement in the equities market and \ncommended the sustained investor \nconfidence in the Nigerian economy. \nThe Committee however called on the \nFederal Government to continue to \nimprove the ease of doing business in \nNigeria to retain the current patronage \nof the Nigerian economy by foreign \ninvestors. \n \nMembers applauded the continued \nresilience of the banking system, noting \nthe progressive decline in the non-\nperforming loans ratio, and broad \nCBN Monetary Policy Review \n \n81 \nimprovement in all banking system \nparameters, despite the downside risks \nposed by the Pandemic to the smooth \nrunning \nof \nbusinesses. \nWhile \nthe \nCommittee was cognizant of the credit \nrisks associated with lending in the \ncurrent economic climate, it urged \nNigerian banks to extend more credit to \nbusinesses and consumers to facilitate a \nseamless recovery of output growth, \nreduce unemployment and stabilize \nprices. \n \nOn the management of the exchange \nrate, the Committee applauded the \nBank for improving foreign exchange \nsupply \nin \nthe \neconomy \nto \nmeet \nlegitimate \nbusiness \nand \nconsumer \ndemand. Members thus, urged the Bank \nto take further steps to restrict the \nactivities of unauthorised and illegal \ndealers in the foreign exchange market, \nstating \nthat \nall \nforeign \nexchange \ntransactions must be conducted at the \nI&E window to ensure transparency and \nstability. The Committee, thus, called on \nthe Bank to intensify surveillance over \nforeign exchange sales and utilisation by \ncommercial banks and customers, to \nensure \nthat \noperators \nadhere \nto \nstipulated guidelines set by the CBN. The \nBank thus, maintains its resolve to \ncontinue to restructure the foreign \nexchange market and will pursue all \nrecent policies targeted at sanitizing the \nmarket to improve transparency and \nproper functioning to eliminate illegal \nforeign \nexchange \ndealers \nin \nthe \neconomy. \n \nOn Government revenues, members \nurged the Federal Government to \nimprove its tax collection in order to \nreduce its dependence on oil revenues \nand reduce its exposure to counter-\ncyclical shocks. \n \nThe \nCommittee \nemphasised \nthe \ngrowing \nneed \nto \nimprove \nthe \nagricultural value chain, particularly in \nkey commodity products like cocoa, \npalm oil and cashew to diversify the \ncountry’s export receipts. It, therefore, \ncalled \non \nthe \nBank \nto \nsupport \nmanufacturing initiatives that could \nachieve this objective. \n \nThe Committee applauded the Bank for \nits resilience and robust efforts in \nmanaging the downside risks to growth \nand the upside risks to inflation since the \noutbreak \nof \nthe \nPandemic, \nwhile \ncharting a stable path for the economy \nto continue to expand its potential \ncapacity \nthrough \ninvestment \nin \ninfrastructure. \n \nOverall, \nthe \nMPC \nassessed \nthe \nheadwinds and tailwinds to growth, as \nwell as, the upside risks to inflation, \nnoting the immense effort by both the \nmonetary \nand \nfiscal \nauthorities \nto \nachieve a substantial recovery in output \ngrowth and decrease in inflation. The \nCommittee urged the Presidential Task \nForce on COVID-19 to intensify efforts \ntoward procurement of more vaccines \nand the vaccination of more people to \nensure that herd immunity is achieved. \n \nThe Committee’s Decision \nThe MPC expressed delight at the \nrobust recovery of output growth during \nCBN Monetary Policy Review \n \n82 \nthe second quarter and the continued \ndecline in inflation. Members, however, \nreiterated the need to put in place \nfurther measures to drive down inflation \nand improve real returns on investment. \nThe \nMPC \nnoted \nthe \nunequivocal \nimportance of credit growth to the \nsustained recovery of output and the \nmoderation in price development as \nsupply improves. It thus, called on the \nBank to maintain adequate surveillance \non banks to ensure compliance with its \nextant credit policy, while ensuring that \nthey are not unduly exposed to credit \nrisks. \n \nThe \nCommittee \nalso \nnoted \nthe \nrelevance \nof \nthe \nBank’s \nsuite \nof \ninterventions to the overall system credit, \nurging its continued use to fund sectors \nwith \nhigh \nemployment-generating \ncapacity. \n \nMPC weighed the pros and cons of \ntightening, holding or loosening the \nstance of policy, noting the impact on \noutput growth, price development, \nunemployment and exchange rate. \n \nMembers \nfelt \nthat \ntightening \nwill \ncontract the current level of system \nliquidity, and thus reduce demand \npressure \nin \nthe \nforeign \nexchange \nmarket, given that the current MPR at \n11.5 per cent, CRR at 27.5 per cent and \nliquidity ratio at 30.0 per cent is already \na tightening stance. This will, however, \nraise the cost of credit and reduce the \nvolume of credit to the private sector. \nOn loosening, the Committee felt that \nthis would lower retail interest rates and \nimprove the ability of obligors to repay \ntheir obligations, with a complementary \nreduction \nin \nNPLs. \nThe \ngradual \ndownward movement of inflation may, \nhowever, be compromised if policy \naccommodation is increased, leading \nto a further widening of the negative \nreal interest rate and thus exacerbating \ncapital outflows as investment in naira \ndenominated \nassets \nbecome \nless \nattractive. Members considered that a \nhold stance would allow the current \nrecovery of output growth and decline \nin inflation to continue smoothly, thus \ngradually moving the economy to a \nsustainable path before adjustments are \nmade to the stance of policy. Based on \nthe above considerations, the MPC \nmade the decision to hold all policy \nparameters constant; believing that a \nhold stance will enable the continued \npermeation of current policy measures \nin supporting the recorded growth \nrecovery and macro-economic stability. \n \nThe Committee thus decided by a \nunanimous vote to retain the Monetary \nPolicy Rate (MPR) at 11.5 per cent. In \nsummary, the MPC voted to: \n \ni. \nRetain the MPR at 11.5 per cent; \nii. \nRetain the Asymmetric Corridor of \n+100/-700 basis points around the \nMPR; \niii. Retain the CRR at 27.5 per cent; \niv. Retain the Liquidity Ratio at 30 per \ncent. \n \nThank you. \n \nGodwin I. Emefiele \nGovernor, Central Bank of Nigeria \n17th September, 2021 \n \nCBN Monetary Policy Review \n \n83 \nCENTRAL \nBANK \nOF \nNIGERIA \nCOMMUNIQUÉ \nNO. \n139 \nOF \nTHE \nMONETARY POLICY COMMITTEE MEETING \nHELD ON MONDAY 22nd AND TUESDAY \n23rd NOVEMBER 2021 \n \n1.0 \nBackground \nThe Monetary Policy Committee (MPC) \nmet on 22nd and 23rd November 2021, \nin light of the continued recovery of the \nglobal economy and improving output \ngrowth in the domestic economy. \nThough, the growth outlook for the \nglobal economy for the rest of the year \nand into 2022 remains favourable, the \nuneven \npace \nof \nrecovery \nacross \ncountries has persisted. This was driven \nprimarily \nby \ncountry \nand \nregional \ndisparities in COVID-19 vaccination rate, \nsize of policy support and regional \neconomic conditions. On the domestic \nfront, the continued support by the \nmonetary \nand \nfiscal \nauthorities \nis \nsustaining \nthe \ngrowth \nrecovery, \nnotwithstanding \nthe \npersistence \nof \nsecurity \nchallenges \nand \nlegacy \ninfrastructural \nconstraints. \nThe \nCommittee \nappraised \nthe \ndevelopments in the global economy, \ninternational financial environment and \nthe domestic economy, as well as the \noutlook for the rest of the year and the \nfirst quarter of 2022. \n \nTen (10) members of the Committee \nattended this meeting. \n \nGlobal Economic Developments \nGlobal output growth has remained \nupbeat as economic agents defy the \ncontinued threat posed by the sharp rise \nin infection rates associated with new \nstrains of the COVID-19 virus. Despite the \nforecast for a robust recovery of the \nglobal economy in 2021, the uneven \npace of vaccination across the globe \nand the continued rise in infection rates \nby the more fatal and mutating strains of \nthe COVID-19 virus, suggest that the \ncurrent two-speed recovery of the \nglobal economy may persist longer than \nanticipated. This may, however, be \nremedied if governments across the \nglobe rally to improve coordination in \nthe distribution of vaccines to aid the \nearly \nattainment \nof \nglobal \nherd \nimmunity. The Committee noted that the \ndownside risks to the recovery may \npersist if the spread of these new variants \nis not addressed urgently. \n \nIn light of the above dynamics and \nassociated headwinds, the International \nMonetary Fund (IMF) downgraded its \n2021 growth forecast for the global \neconomy from 6.0 per cent to 5.9 per \ncent. It also revised the projection for the \nAdvanced Economies downwards from \n5.6 per cent to 5.2 per cent. The \ndowngrade was, however, offset by an \nupgrade of the growth forecast for \nEmerging \nMarkets \nand \nDeveloping \nEconomies (EMDEs) in 2021. Thus, the \nforecast for the Emerging Markets and \nDeveloping \nEconomies \nwas \nrevised \nupwards to 6.4 per cent from 6.3 per \ncent. \n \nInflation \nacross \nseveral \nAdvanced \nEconomies is expected to continue its \nupward trend into 2022, contrary to \nearlier expectations of transiency, as \nCBN Monetary Policy Review \n \n84 \ncommodity prices continue to recover \nand feeding into energy and goods \nprices. This is on the backdrop of rising \ndemand, associated with the sustained \nrebound in global output growth, amid \nlingering supply constraints. In response \nto the persistence of price development, \nthe US Federal Reserve Bank has \nannounced its intention to commence \ntapering \nits \nmonthly \nbond-buying \nprogramme by the end of November \n2021. Other advanced economy central \nbanks have also indicated the likelihood \nof following suit in the short to medium \nterm. In key Emerging Market and \nDeveloping \nEconomies, \ninflation \nremained relatively high compared with \nthe Advanced Economies. This is mostly \ndue \nto \nsupply-side \nconstraints \nassociated \nwith \nthe \nPandemic; \nexchange rate pressures; and other \nlegacy structural problems. The severity \nof inflationary pressures in this group of \neconomies, \nhowever, \nvaries \nacross \ncountries in relation to the specific \nstructure and dynamics of the individual \neconomies. \n \nIn the global financial markets, equity \nprices largely maintained a strong \npostlockdown recovery, while investors \ncontinued to maintain a sizeable hedge \nin gold, possibly to ease the impact of a \nrebound of the Pandemic as infection \nrates continue to rise. The financial \nmarkets remained moderately bullish, an \nindication that investors remain cautious \nin view of the unabating Pandemic. \n \nThis is reflected by the price of Gold, \nwhich \nhas \nremained \nwell \nabove \nprePandemic levels. \nDomestic Economic Developments \nAccording to the National Bureau of \nStatistics (NBS), real Gross Domestic \nProduct (GDP) grew by 4.03 per cent \n(year-on -year) in the third quarter of \n2021, compared with 5.01 and -3.62 per \ncent \nin \nQ2 \n2021 \nand \nQ3 \n2020, \nrespectively. The growth trajectory has \nthus, been positive in the last four \nquarters following the exit from the \nrecession in 2020. Quarter-on-quarter, \nreal GDP grew by 11.07 per cent in Q3 \n2021 compared with -0.79 per cent in the \npreceding quarter. This improvement in \nreal GDP was driven by growth in both \nthe oil and non-oil sectors by 12.05 and \n10.99 \nper \ncent, \nrespectively. \nThe \nCommittee also noted the continued \nimprovement \nin \nthe \nManufacturing \nPurchasing \nManagers’ \nIndex \n(PMI), \nwhich though, remained below the 50-\nindex point benchmark, rose to 47.3 \nindex points in October 2021 from 46.6 \nindex points in September 2021. This \nimprovement \nindicated \na \ngradual \nrecovery of output growth, driven largely \nby the increase in new orders associated \nwith rising aggregate demand and \nupswing in business activities. The Non-\nManufacturing PMI, however, declined \nto 47.5 index points in October 2021 from \n47.8 index points in September 2021 as \nuncertainties persisted around the poor \nsecurity situation. \n \nThe Committee noted the continued \nmoderation in headline inflation (year-\nonyear) to 15.99 per cent in October \n2021 from 16.63 per cent in the previous \nmonth, the seventh consecutive month \nof decline. The decrease was attributed \nCBN Monetary Policy Review \n \n85 \nto a marginal decline in both the food \nand core components to 18.34 and \n13.34 per cent in October 2021 from \n19.57 and 13.74 per cent, respectively in \nSeptember 2021. Inflation, however, \nremained above the Bank’s implicit \ntolerance corridor of 6 – 9 per cent and \nabove its benchmark policy rate of 11.5 \nper cent despite its progressive decline. \nObserving developments in monetary \naggregates, the Committee noted that \nbroad money supply (M3) grew by 7.10 \nper cent in October 2021, compared \nwith 4.72 per cent in September 2021. \nThis was driven by growth in Net \nDomestic Assets (NDA) by 9.12 per cent \nin October 2021, compared with 10.71 \nper cent recorded in September 2021. \nNet Foreign Assets (NFA), on the other \nhand, contracted moderately by -1.50 \nper cent in October, compared with -\n20.85 per cent in the preceding month. \nThe continued growth in Net Domestic \nAssets (NDA) was largely driven by \nincreased \nclaims \non \nthe \nFederal \nGovernment \nand \nother \npublic \nnonfinancial corporations, private sector \nand state and local governments. \n \nIn the financial markets, money market \nrates oscillated within the standing \nfacilities \ncorridor, \nreflecting \nthe \nprevailing liquidity conditions in the \nbanking system. The monthly weighted \naverage Open Buyback (OBB) rate \nincreased to 12.18 per cent in October \n2021 from 11.11 per cent in September \n2021, \nwhile \nthe \nmonthly \nweighted \naverage Inter-bank Call rate decreased \nfrom 13.21 per cent in September 2021, \nto 10.00 per cent in October 2021. The \nincrease in the Open \nBuyback (OBB) rate reflected the tight \nliquidity condition in the banking system. \nThe \nMPC \nnoted \nthe \npositive \nperformance of the equities market in \nthe review period, with the All-Share \nIndex \n(ASI) \nand \nMarket \nCapitalization(MC) \nincreasing \nto \n43,199.27 \nand \n₦22.55 \ntrillion \non \nNovember 19, 2021, from 39,219.61 and \n₦20.43 trillion on August 31, 2021. This \ndepicts improved investor sentiment, \nfollowing impressive corporate earnings \nof listed companies on the Exchange. \nThis has led to a new bargain hunting \ndrive by investors. \n \nThe MPC noted that the Capital \nAdequacy Ratio (CAR) and Liquidity \nRatio (LR) both remained above their \nprudential limits at 15.2 and 41.2 per \ncent, respectively. The Non-Performing \nLoan ratio (NPL) at 5.3 per cent in \nOctober 2021, reflected progressive \nimprovement, compared with 5.7 per \ncent in October 2020. The Committee, \nhowever, urged the Bank to sustain its \ntight prudential regime to bring the Non-\nPerforming Loan (NPL) ratio below the \n5.0 per cent prudential benchmark. \n \nThe gross external reserves stood at \nUS$41.41 billion as at November 18, 2021, \ncompared \nwith \nUS$41.34 \nbillion \nin \nOctober 2021, a moderate increase of \n0.17 per cent. \n \nOutlook \nThe overall outlook for both the global \nand \ndomestic \neconomies \nremain \nupbeat but for the significant downside \nrisks clouding the path to full recovery. \nCBN Monetary Policy Review \n \n86 \nThe key risks remain the unabating \nCOVID-19 \npandemic \nand \nuneven \nprogress in vaccination. As the US \nFederal \nReserve \nBank \ncommences \nscaling down of its monthly bond-buying \nprogramme, there is increased likelihood \nthat other advanced economy central \nbanks will follow in the same direction. \nWith \nthis \nimpending \ndevelopment, \nexternal financial conditions will likely \ntighten for most EMDEs, in view of huge \ncapital flow reversals to the Advanced \nEconomies as yields rise. This will no \ndoubt deepen the growth divergence \nbetween \nthese \ntwo \ngroups \nof \neconomies. \n \nForecasts \nfor \nkey \nmacroeconomic \nvariables for the Nigerian economy, \nindicate continuing rebound in growth \nrecovery for the rest of the year. This is \nexpected on the back of continued \nsupport by both monetary and fiscal \npolicy, sustained high crude oil prices \nand most importantly, availability of \nCOVID-19 vaccines as well as high \nturnout \nfor \nvaccination \nin \nNigeria. \nAccordingly, the Nigerian economy is \nforecast to grow in 2021 by 3.10 per cent \n(CBN), 3.0 per cent (FGN) and 2.6 per \ncent (IMF). Inflation is expected to \ncontinue its downward trajectory as the \nharvest \nseason \nsets \nin \nand \nthe \ngovernment works on improving the \nsecurity situation to ease the bottlenecks \nconstraining food supply. \n \nThe Committee’s Considerations \nThe \nCommittee \ncommended \nthe \ncontinued recovery in output growth \nfollowing a positive outcome in the third \nquarter of 2021. \n \nBased on the current outlook for price \ndevelopment and growth, Members \ncarefully \nreviewed \nthe \noptions \nconfronting the Committee in the short \nto \nmedium \nterm, \ntaking \ninto \nconsideration, key downside risks to \ngrowth and upside risks to inflation. \nMembers reiterated the need to remain \ncautious and urged both the monetary \nand fiscal authorities to sustain their \nsupport \nfor \nthe \nrecovery, \nas \nthe \nPandemic was yet to be over. The \nCommittee, however, noted that with \nthe sustained intervention by the Bank, \neconomic activities will normalize in the \nshort to medium term, leading to \nimproved output growth and lower \ninflationary pressure. The MPC also urged \nthe fiscal authorities to sustain the \ncurrent effort to revamp the economy \nthrough continued support to the critical \nsectors of the economy. \n \nThe continued security challenge across \nthe country remained a major source of \nconcern for Members, noting its impact \non \nbusiness \nconfidence, \nforeign \ninvestment \ninflows \nand \noverall \neconomic activities. The persistence of \ninsecurity in major food producing areas, \nremained a key downside risk to the \nrecovery. The Committee called on \nsecurity agencies in the country to \nincrease their presence in order to boost \npublic confidence and facilitate the \nmovement \nof \npeople, \ngoods \nand \nservices \nacross \nthe \ncountry. \nWith \nimproved security, especially in these \nfood \nproducing \nareas, \nMembers \nCBN Monetary Policy Review \n \n87 \nexpressed optimism that food inflation \nwill drop significantly following successful \nharvests and distribution. \n \nThe Committee also commended the \ngradual diversification of the economy \nwith the increased contribution of the \nnon-oil sector to Government revenues \nand called for more support to increase \nnon-oil exports as a source of foreign \nexchange earnings into the economy. \n \nMembers also reiterated the impact of \npoor infrastructure on rising domestic \nprice \nlevels, \nurging \nthe \nFederal \nGovernment to prioritize investment in \npublic utilities to improve the business \nenvironment. \nThese \ninclude \ntransportation networks, power supply, \neducation and health. Following the \nPresident’s recent international call to \ninvestors to channel investments to \nNigeria, Members were of the view that \nfunding for such projects could be \nsourced through equitable partnerships \nwith foreign investors and Nigerians in \ndiaspora. \n \nThe Committee noted that the equities \nmarket remained in a strong position, \nsignposting \ncontinued \ninvestor \nconfidence in the Nigerian economy. \nMembers thus urged the monetary and \nfiscal authorities to build on this sustained \nconfidence to attract more Foreign \nDirect Investment into Nigeria. \n \nThe MPC welcomed the continued \nresilience of the banking system in the \nface of severe shocks to both the \ndomestic \nand \nglobal \neconomies, \ncommending the Bank’s Management \nfor maintaining overall stability in the \nbanking system. The Committee thus, \ncalled on the Bank to continue to push \nfor increased intermediation as the way \nforward \nto \nreduce \nunemployment, \nenhance production, create wealth, \nand improve aggregate demand to \nstrengthen the recovery. On this note, \nMembers \napplauded \nthe \nsuccess \nachieved \nby \nthe \nBank’s \nvarious \nintervention \nschemes, \nwhich \nhave \ncontributed to both the demand and \nsupply sides of the economy. \n \nThe \nCommittee \nreviewed \nthe \nperformance of the Bank’s various \ninterventions \naimed \nat \nsustaining \nrecovery \nof \noutput \ngrowth \nand \naddressing the downside risks to other \nexternal and domestic shocks to the \neconomy. \nInterventions \ncontinued \nlargely \nin \nmanufacturing/industries, \nagriculture, \nenergy/infrastructure, \nhealthcare \nand \nMicro, \nSmall \nand \nMedium Enterprises (MSMEs). Under the \nTargeted Credit Facility, the Bank has \ndisbursed a total of ₦363.49 billion to \n766,719 \nbeneficiaries, \ncomprising \n638,070 households and 128, 649 small \nbusinesses. Under its Agribusiness Small \nand \nMedium \nEnterprise \nInvestment \nScheme \n(AgSMEIS), \nthe \nBank \nhas \nreleased \n₦134.63 \nbillion \nto \n37,571 \nentrepreneurs. \n \nBetween September and October 2021, \nunder \nthe \nAnchor \nBorrowers’ \nProgramme (ABP), the Bank disbursed \n₦43.19 billion to support the cultivation of \nover \n250,000 \nhectares \nof \nmaize, \nsorghum, soya beans and rice during the \n2021 dry season; and ₦5.88 billion to \nCBN Monetary Policy Review \n \n88 \nfinance six (6) large-scale agricultural \nprojects \nunder \nthe \nCommercial \nAgriculture Credit Scheme (CACS). \n \nCumulatively the Bank has disbursed the \ntotal sum of ₦864 billion to 4.1 million \nfarmers, cultivating 5.02 million hectares. \nThe bank also disbursed the sum of ₦41.2 \nbillion for the commencement of the \nbrown revolution, a large-scale wheat \nprogram to wean us off imports by 35 per \ncent in the first year. \n \nIn addition, the Bank disbursed the sum \nof ₦261.92 billion for 42 additional \nprojects \nunder \nthe \n₦1 \ntrillion \nmanufacturing \nintervention. \nCumulatively, the bank has disbursed \nthe sum of N1.08 trillion under this \nScheme. As part of its effort to support \nthe resilience of the healthcare sector, \nthe Bank disbursed ₦5.39 billion to Nine \n(9) \nhealthcare \nprojects \nunder \nthe \nHealthcare Sector Intervention Facility \n(HSIF). The Bank has also cumulatively \ndisbursed the sum of ₦108.65 billion to \nhospitals and pharmaceutical industry. \n54 of the 117 projects funded are for \nhospital services. Committee was \ngratified that the funding under Health \nsector has resulted in establishment of \ntwo(2) new Cancer Centers, over 59 MRI \nand more than 42 CT Scan Centers in \nNigeria, within the last 18 months. To \nfurther \npromote \nentrepreneurship \ndevelopment among Nigerian youth, \nthe \nBank \nrecently \napproved \nthe \nimplementation of the Tertiary Institutions \nEntrepreneurship Scheme (TIES). The \nScheme \nis \ndesigned \nto \ncreate \na \nparadigm shift among undergraduates \nand graduates of tertiary institutions in \nNigeria, from white-collar jobs towards \nentrepreneurship \ndevelopment. \nThe \nguidelines for the implementation of the \nScheme was recently published, as Bank \nof Industry (BOI) is presently partnering \nwith \nthe \nBank \nfor \nthe \npilot \nimplementation phase. \n \nUnder the National Mass Metering \nProgramme (NMMP), ₦8.69 billion was \ndisbursed \nto \nfour \n(4) \nDistribution \nCompanies (DisCos) under the scheme’s \nPhase-0. The sum of ₦47.66 billion has \nbeen disbursed so far for the acquisition \nof 858,026 meters. Also, in furtherance of \nits intervention in the energy sector, the \nBank released ₦27.03 billion to power \nsector players under the Nigeria Bulk \nElectricity Trading Payment Assurance \nFacility (NBET-PAF). This is in addition to \nthe ₦37.69 billion disbursed to eight (8) \nDistribution \nCompanies \n(DisCos) \nrecently, under the Nigeria Electricity \nMarket Stabilisation Facility (NEMSF-2). \n \nThe Bank has disbursed the sum of \n₦39.2bn \nunder \nthe \nNigerian \ngas \nexpansion program to promote the \nmigration to compressed natural gas \n(CNG) \nas \nthe \npreferred \nfuel \nfor \ntransportation and liquefied petroleum \ngas (LPG) as the preferred cooking fuel. \n Furthermore, \nthe \nBank \nrecently \nintroduced the 100 for 100 Policy on \nProduction \nand \nProductivity \n(PPP), \ndesigned to create the flow of finance \nand investments to enterprises with \npotential to kick-start a sustainable \neconomic growth trajectory, accelerate \nstructural \ntransformation, \npromote \ndiversification, and improve productivity \nin the country. It is geared to support \nCBN Monetary Policy Review \n \n89 \nprivate sector companies with the aim of \nreducing certain imports, increasing \nnon-oil exports and improving the FX-\ngenerating capacity of the economy. \nThe Bank will select and finance 100 of \nsuch companies at 100 day intervals, in \nline with detailed selection criteria as \ncontained in the guidelines, and roll this \nover for another 100 companies for the \nnext 100 days. \n \nThe Targeted Credit Facility (TCF) was \nparticularly \nhighlighted \nby \nthe \nCommittee \nfor \nits \ncontribution \nto \nalleviating poverty at the grassroot. The \nCommittee thus urged the Bank to \ncontinue its support through the TCF to \nensure that more people benefit from \nthis programme. \n \nWith the announcement to commence \nmonetary policy normalization by the US \nFed and impending interest rate liftoff by \ncentral \nbanks \nin \nsome \nadvanced \neconomies, the MPC called on the \nFederal Government to intensify its drive \ntowards a counter-cyclical fiscal policy \nin view of the imminent tightening of \nexternal financial conditions. Committee \nmembers, therefore, noted with concern \nthat \nthe \ngradual \nnormalization \nof \nmonetary policy by this group of \neconomies would dampen the recovery \nof \nseveral \nEmerging \nMarket \nand \nDeveloping Economies in the short to \nmedium term due to the sharp reversal \nof capital flows. \n \nThe Committee also evaluated the \ndevelopments in China relating to the \nreoccurring Pandemic, power outages \nand crisis in the property market, noting \nthe likely impact these could have on \nNigeria as a major trading partner. \nMembers thus called on the Bank to \nensure that the necessary buffers are put \nin place to shield the economy from the \ndownside risks associated with these \ndevelopments. \n \nIn \ngeneral, \nMembers \nexpressed \nconfidence in the ongoing policies of \nboth the monetary and fiscal authorities \nwhich in their view was the hallmark of \nthe current recovery and restoration of \nmacroeconomic stability in Nigeria. \nThey, \ntherefore, \ncalled \non \nboth \nauthorities to look beyond the current \nposition and plan towards attracting \nsustainable investment flows to Nigeria. \nThe Committee’s Decision. \n \nAt this meeting, MPC was gratified that \nits policy actions in the past had started \nto \nyield \npositive \nresults \ngiven the \nremarkable improvement in GDP which \nstood at 4.03 per cent during Q3 of 2021 \nand \nthe \n6th \nconsecutive \nmonth \nmoderation in inflation to 15.99 per cent \nin October 2021. \n \nGiven the level of its conviction about \nthe \nefficacy \nof \nits \nactions \non \nmacroeconomic variables, MPC felt that \nwhereas tightening would further help to \nrein \nin \ninflation \naggressively, \nit \nnevertheless feels that tightening will \nincrease cost of funds and constrain \noutput growth. \n \nOn the other hand, whereas loosening \nwill lower policy rates, ease liquidity \npressures, \nand \nstimulate \nadditional \ncredit creation which will boost output \nCBN Monetary Policy Review \n \n90 \ngrowth, MPC also thinks that loosening \nwill further widen the negative real \ninterest rate gap and compound the \nprice distortions in the money markets \nwhich could fuel inflationary pressures. \nAs for whether to hold its existing stance, \nMPC believes that the existing monetary \npolicy stance has supported the growth \nrecovery and should be allowed to \ncontinue \nfor \na \nlittle \nlonger \nfor \nconsolidation to achieve the MPC \nmandate of price stability that is \nconducive for sustainable growth. The \nCommittee also feels that a hold stance \nwill enable it to carefully appraise the \nimplications of the unfolding global \ndevelopment around policy tapering \nand \nnormalization \nby \nadvanced \neconomies. \n \nBased on the foregoing, the Committee \ndecided to hold all policy parameters \nconstant \nto \nsupport \nthe \nenabling \nenvironment for sustained recovery. \n \nThe Committee thus, decided by a \nunanimous vote to retain the Monetary \nPolicy Rate (MPR) at 11.5 per cent. In \nsummary, the MPC voted to: \ni \nRetain the MPR at 11.5 per cent; \nii \nRetain the asymmetric corridor of \n+100/-700 basis points around the \nMPR; \niii \nRetain the CRR at 27.5 per cent; and \niv Retain the Liquidity Ratio at 30 per \ncent. \n \nThank you. \n \nGodwin I. Emefiele \nGovernor, Central Bank of Nigeria \n23rd November 2021", "source": "BOG", "stratum": "cb_requests", "fetch_date": "2026-05-11", "url": "file:///CBN/Monetary_Policy_Review/MPR Feb 2022.pdf"}