Central Bank of Nigeria Communique No. 140 of the Monetary Policy Committee Meeting held on Monday 24th and Tuesday 25th January 2022

CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO. 140 OF THE MONETARY POLICY

COMMITTEE MEETING HELD ON MONDAY 24th AND TUESDAY 25th JANUARY,

2022

The Monetary Policy Committee (MPC) held its first meeting for the year 2022 on the 24th and 25th of January 2022 in the light of waning optimism for a robust rebound in global recovery in 2021. This resulted from the persistence of the COVID-19 pandemic and emergence of new variants of the virus; persisting supply bottlenecks; global inflationary pressures; and the imminent commencement of monetary policy normalization by some major central banks. In the domestic economy, output growth recovery was relatively strong in 2021. It is however, expected to continue reasonably in 2022, following considerable improvement in the third quarter of 2021 and a positive outlook for the fourth quarter. This was hinged on the continued support of the monetary and fiscal authorities to sustain the current momentum. The Committee reviewed the developments in the global and domestic economic and financial environments in 2021, as well as the outlook and risks for 2022.

Ten (10) members of the Committee attended this meeting.

Global Economic Developments

The Committee noted that while the recovery of the global economy in 2021 fell below the initial forecast, final estimates showed considerable improvements over the 2020 outcome, evidence that the global economy was pulling out of the doldrum associated with the pandemic. Consequently, the recovery is gaining momentum with increasing consumer spending, upswing in investments and soaring world merchandise trade, above pre-pandemic levels. This reflects the resilience of economic agents in the face of new strains of the

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virus and rising infection rates. The Committee, however, took cognizance of significant headwinds confronting the global economy in 2022, largely associated with the persisting threats of new variants of the coronavirus. The Advanced Economies are however, in a strong position to offset the impact of these headwinds with stronger policy support and better access to COVID-19 vaccines. Consequently, this group of economies have shown better resilience towards disruptions to the recovery. In the medium term however, the rising inflationary pressures and the gradual withdrawal of both monetary and fiscal stimuli may dampen the recovery in 2022.

In the Emerging Market and Developing Economies (EMDEs), poor access to vaccines and limited policy support meant that this group of economies have been harder hit by the Covid-19 health crisis and its associated macroeconomic downturn. In China, one of the few countries that stayed out of recession in 2020, output weakened in the third quarter of 2021 and has continued to weaken as the Covid infections continue to rage amid power supply shortages and a turbulent property market. Following the containment of the infections in India, the economy has commenced a sharp recovery and is set to continue on an upward trajectory. Overall, growth in the EMDEs is expected to slow in 2022 due to the low level of vaccination and limited policy support in several economies in this group.

On price development, the MPC observed that inflation, in most Advanced Economies remained high and unlikely to abate in the short to medium term. This is driven by the persistence of supply side disruptions and pent-up demand associated with economic recovery. In the EMDEs, inflation has remained high due to a combination of persisting exchange rate pressures and supply bottlenecks associated with the lockdown restrictions. With the US Fed and central banks of other advanced economies now moving towards monetary policy normalization, the eventual interest rate hike may likely trigger huge capital outflow from the EMDEs which will further aggravate exchange rate pressures with a pass-through to domestic prices.

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Global financial markets data show significant sell-off, as investors continued to rebalance their portfolios with the shift from assets such as gold and emerging market securities to securities of Advanced Economies suggesting market response to the impending interest rate hike. Thus, global financial conditions are expected to tighten as risk averse portfolio investors reassign their portfolios from perceived riskier emerging market securities, to less risky advanced economy securities with the expectation of improved yields.

Domestic Economic Developments

Staff projections showed that the economy is expected to remain on a path of positive growth, given the impressive performance in the third quarter of 2021 and continuing rebound in economic activities. The Committee noted with satisfaction, the significant improvement in the Manufacturing Purchasing Managers' Index (PMI), which rose to 52.0 index points in December 2021, compared with 50.8 index points in November reflecting the continuing economic recovery. This expansion was driven largely by increasing business activities in the economy, leading to increase in new orders and uptrend in employment and production levels. The Non-Manufacturing PMI, however, declined marginally to 48.0 index points in December 2021 from 48.6 points in November, largely reflecting a decline in services.

The Committee noted with concern, the slight increase in headline inflation (year-on-year) to 15.63 per cent in December 2021 from 15.40 per cent in November following seven consecutive months of decline. The unexpected increase was attributed to both the food and core components, which rose to

17.37 and 13.87 per cent in December 2021 from 17.21 and 13.85 per cent in November, respectively. The Committee, however, expressed confidence in the Bank's sustained intervention programmes, noting that inflation will continue to abate as food supply improves. Members also noted that the seasonal drive in price development associated with the December festive period was largely contributory to the marginal increase in price levels, and as such, believe that this episode of increase may be temporary.

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Reviewing the developments in monetary aggregates, the Committee noted that broad money supply (M3) rose further to 13.77 per cent in December 2021, compared with 10.10 per cent in November 2021. This upthrust was largely driven by the growth in Net Domestic Assets (NDA) of 15.58 per cent in December 2021, compared with 9.40 per cent in November 2021. Net Foreign Assets (NFA), however decreased to 6.06 per cent in December 2021, compared with 14.98 per cent in November 2021. The sharp growth in Net Domestic Assets (NDA) was largely attributed to an increase in claims on the Federal government and other sectors. The slowdown in growth of Net Foreign Assets (NFA) resulted from a decrease in foreign assets holdings of the banking system in favour of more domestic investments.

The Committee reviewed the performance of the Bank's intervention programmes aimed at stimulating productivity in manufacturing/industries, agriculture, energy/infrastructure, healthcare and Micro, Small and Medium Enterprises (MSMEs). Between November and December 2021, under the Anchor Borrowers' Programme (ABP), the Bank disbursed N75.99 billion to support the cultivation of over 383,000 hectares of maize, rice and wheat during the 2022 dry season, bringing the cumulative disbursements under the Programme to ₦927.94 billion to over 4.5 million smallholder farmers cultivating 21 commodities across the country. All excess output aggregated from the financed farmers will be released to the Nigeria Commodity Exchange (NCX) to help moderate the prices of food in the market. The Bank also released N1.76 billion to finance two (2) large-scale agricultural projects under the Commercial Agriculture Credit Scheme (CACS).

In addition, the Bank disbursed the sum of ₦151.23 billion under the Real Sector Facility to 15 additional projects in agriculture, manufacturing, mining, and services. The funds were utilized for both greenfield and brownfield (expansion) projects under the Covid-19 Intervention for the Manufacturing Sector (CIMS) and the Real Sector Support Facility from Differentiated Cash Reserve Requirement (RSSF-DCRR). Cumulative disbursements under the Real Sector

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Facility currently stood at ₦1.40 trillion disbursed to 331 projects across the country. As part of its effort to support the resilience of the healthcare sector, the Bank also disbursed ₦498.00 million to two (2) healthcare projects under the Healthcare Sector Intervention Facility (HSIF), bringing the cumulative disbursements to ₦108.85 billion for 118 projects, comprising of 31 pharmaceuticals, 82 hospital and 4 other services.

To support households and businesses affected by Covid-19, the Bank disbursed N20.29 billion to 40,521 beneficiaries, comprising 35,340 households and 5,181 small businesses under the Targeted Credit Facility (TCF) within the period. The cumulative disbursements under the TCF stood at N369.78 billion to 777,666 beneficiaries, comprising 648,052 households and 129,614 small businesses. To further promote entrepreneurship development among Nigerian youths, the Bank disbursed N293 million to 59 beneficiaries under the recently introduced Tertiary Institutions Entrepreneurship Scheme (TIES).

Under the National Mass Metering Programme (NMMP), the sum of ₦47.83 billion was disbursed for the procurement and installation of 858,026 electricity meters across the country under the Scheme's Phase-0. The Committee also noted the improved collections by DisCos as a result of increased meter installations. The Bank released ₦274.33 billion to power sector players, as part of its effort to support the sector under the Nigeria Bulk Electricity Trading Payment Assurance Facility (NBET-PAF). This was in addition to the ₦20.58 billion released to Distribution Companies (DisCos) under the Nigeria Electricity Market Stabilisation Facility - Phase 2 (NEMSF-2). To further support the development of enabling infrastructure in the gas industry, the Bank released additional ₦3.00 billion for the augmentation of an existing infrastructure, bringing the cumulative disbursements under the Intervention Facility for National Gas Expansion Programme (IFNGEP) to ₦42.20 billion for six (6) projects.

Furthermore, under the 100 for 100 Policy on Production and Productivity (PPP), which was introduced to stimulate the flow of finance and investments to enterprises and projects with potential to kick-start a sustainable economic

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