CBN Battles Recession, Raises COVID-19 Facility to N300bn

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Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, yesterday said the bank would raise its COVID-19-targeted facility from N150 billion to N300 billion in order to accommodate more Nigerians in a bid to cushion the impact of the pandemic that has pushed the nation’s economy into its second recession in five years.

Emefiele added that the parallel market cannot be used to determine the true value of the country’s currency, as the value of the naira can only be determined by forces of demand and supply, explaining that the parallel market rate is high mainly because of the illicit activities of people using the dollar for bribery.

He told reporters in Abuja after the Monetary Policy Committee (MPC) meeting that the doubling of the CBN’s COVID-19-targeted facility to N300 billion seeks to spur consumer spending and accelerate recovery from the COVID-19- induced recession.

The apex bank, arising from its two-day meeting of the MPC, the last in 2020, resolved to leave all monetary policy parameters unchanged in continued efforts to stimulate economic growth.

The CBN retained the Monetary Policy Rate (MPR) otherwise known as interest rate at 11.5 per cent with the asymmetric corridor of +100/-700 basis points around the MPR. It further retained the Cash Reserve Ratio (CRR) at 27.5 per cent as well as the Liquidity Ratio at 30 per cent.

The MPR is the rate which the apex bank lends to commercial banks and often determines the cost of funds.

Emefiele said increasing the targeted credit facility will, by boosting consumer spending, stimulate output and ensure that all the six geopolitical zones benefitted from the palliative.
He said: “We have been advised or nudged on by the MPC that given that this had been very impactful positively, that the CBN should do more.

“We have been told that we have to increase it not just from the N140 billion to N150 billion that it is now, but increase it to about N250 billion to N300 billion to accommodate more people that have not accessed this facility.

“But we do insist that this must be done in a way that it goes round because we found out that some zones are more represented in the country than others.

“But understand that a zone like North-central, where we have predominantly Abuja, or South-west, where you have predominantly Lagos, would certainly have a larger share.

“The important thing is that we want to use this as an opportunity to see what can be done to boost consumer spending for our people and also see to it that output is stimulated positively for the good of our people.”

He, however, reinforced his call for diversifying the economy to end reliance on crude oil and save the country from exogenous shocks often arising from volatility in oil prices.

He said it was high time the country went back into agriculture for economic sustainability amidst current efforts to steer it out of the second recession.

The CBN governor also expressed optimism that the country will exit the recession as early as the first quarter of 2021 as well as begin to witness improved output by the fourth quarter of 2020.

He said: “Base on data available to the MPC from the CBN, we are somewhat cautiously optimistic that indeed, if we continue doing what we are doing, that there is a likelihood that we would see some little positive output numbers during the fourth quarter of 2020.

“But I can say with some level of certainty as well that during the first quarter of 2021, we would exit the recession.”

According to him, the bank will continue to boost support for agriculture, industry and manufacturing to stimulate job creation as well as moderate inflationary pressures.

He added that despite the economic contraction in Q3, Nigeria’s performance was better than some other economies which recorded double-digit contraction in growth compared to the country’s 3.62 per cent.

Emefiele, who read the MPC communiqué, said the committee noted that inflation continued to be driven by supply side disruptions arising from the COVID-19 pandemic and other legacy factors, particularly the security challenges in parts of the country; increase in food prices and the recent hike in pump price of petrol and electricity tariff.

The committee emphasised the need to address structural supply side issues putting upward pressure on the costs of production and unemployment.

The CBN called on the federal government to make efforts to procure COVID-19 vaccines to surmount the public health crisis and pave the way for a broader macroeconomic recovery.

The MPC noted that the economic contraction had bottomed out, since it moderated significantly from -6.10 to -3.62 per cent in the third quarter of 2020.

It said: “This was so because both the monetary and fiscal authorities had anticipated the impending recession and had put measures in place for its quick reversion.

“Some of these measures include the Economic Sustainability Programme by the federal government and other CBN facilities targeted at households, small and medium enterprises (SMEs), youth empowerment, and reduction of unemployment.”

The committee also urged the federal government to maintain its initiatives targeted at reducing unemployment, particularly among the youths, citing the recent #EndSARS protests and ensuing agitation by hoodlums as potentially disruptive to output growth in the country.

The MPC, however, reiterated its support for the various development finance initiatives of the CBN to stimulate production and reduce unemployment and “further encouraged the bank to intensify its efforts by increasing funding to more beneficiaries so as to boost consumer spending and accelerate recovery from recession.”

Meanwhile, in arriving at its decision to hold monetary policy rates at current levels, Emefiele said the committee focused not only on price stability, but also on the need to speedily take actions to exit the recession.

He said the MPC was faced with options around whether to tighten the stance of policy to address rising price levels recognising its primary mandate of price stability; to ease to support output recovery; or to hold to allow existing policy initiatives to permeate the economy.

He said: “The committee noted that although the appropriate response to rising inflationary pressure would be to tighten the stance of policy in order to moderate upward pressure on prices, it nevertheless, felt that doing this would exert downward pressure on the recovery of output growth.

“The committee also felt that tightening would negate the bank’s desire to expand credit to the real sector at affordable terms, not only to boost production but also to increase consumer spending. To the committee, tightening was, therefore, not the appropriate response at this time.

“With the economy, whereas MPC felt that government spending and bank’s expansionary stance would be desirable to support recovery and guide the economy out of recession, it felt loosening would trigger excess liquidity and worsen the inflationary pressure. MPC also felt that excess liquidity may impact demand pressure and fuel further depreciation of the naira.

“On balance, the MPC was of the view that although all three options offer some benefits to the economy, the hold option was desirable at this meeting. Based on these factors, members voted in line with the most pressing need towards reversing the recession and achieving medium-term macroeconomic stability.
“In view of the foregoing, the committee decided by a unanimous vote to retain all parameters.”

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