CBN Warns Against Another COVID-19 Lockdown

CBN Governor Godwin Emefiele

By Tony Obiechina, Abuja

Despite the second wave of the Coronavirus pandemic ravaging the globe, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria CBN, has advised the Federal Government against imposing another lockdown on the country.

Speaking at the end of the Committee’s two day meeting in Abuja on Tuesday, the CBN Governor, Mr Godwin Emefiele said the MPC took the decision because “a wholesome lockdown of the economy will be catostrophic”

He said, “expressing understanding of the public health dilemma of the recent spike in infections, MPC encouraged Government not to consider a wholesome lockdown of the economy so as not to reverse the current gains of the stimulus earlier provided in 2020”.

The Governor pointed out that the COVID-19 pandemic and the necessary measures put in place by the Government to forestall its public health impact, such as the lockdown and other associated restrictions, contributed to the Nigerian economy going into recession, much like almost every other country in the world.

“Members thus agreed that the Committee’s current priority remains to quicken the pace of the recovery through sustained and targeted spending by the fiscal authority supported by the Bank’s interventions.

The Governor said it was thought necessary to increase collaboration with the fiscal authority by providing complementary spending to finance productive ventures in a bid to improve aggregate supply and reduce prices.

“This is in addition to effectively collaborating with the Presidential Task Force on COVID-19 through the existing private sector Coalition against COVID-19 (CACOVID) to procure and distribute vaccines to fast-track the pick-up of business activities and economic recovery.

“Members reiterated the adverse impact of insecurity on food production, stressing that the current uptick in inflationary pressure could not be solely associated to monetary factors, but due mainly to legacy structural factors across the economy, including major supply bottlenecks across the country.

Emefiele disclosed that the Committee has therefore called on the Government to redouble efforts at strengthening infrastructural efficiency and address the emerging security challenges in the country.

He said similarly, the Committee has enjoined the Government to explore the option of effective partnership with the private sector to improve funding sources necessary to address the huge infrastructural financing deficit.

According to him, the Committee expressed concern over the rising public debt stock, as recurrent expenditure remained relatively high, compared with capital expenditure, thus, signalling future debt servicing challenges.

He said, to improve Government revenue sources and investment in capital, the Committee called on the Government to take advantage of the take-off of the African Continental Free Trade Area (AfCFTA), which could boost domestic production and generate sizeable revenues for Government, as well as improve domestic productivity and competitiveness.

He said the Committee commended the Bank’s effort of improving liquidity in the foreign exchange market, “but noted the need to continue to explore avenues to improve inflow from sources such as the International Money Transfer Operators (IMTO), diaspora remittances and non-oil export promotion, given the current trajectory of crude oil prices.

“These sources, in the view of the Committee, would boost foreign exchange supply and ease the current exchange rate pressure.
The Committee noted the continued improvement in the equities market as a lead indicator of medium-term macroeconomic recovery, thus, urging the Bank to maintain its collaboration with the fiscal authority to improve the investment climate towards attracting sustainable Foreign Direct Investment (FDI)”, he said.

The Committee, he pointed out also commended the Bank for maintaining a sound regulatory surveillance over the banking system by ensuring a reasonably low level of non-performing loans (NPLs), even with the aggressive credit expansion programme during this crisis period.

Though, NPLs remained slightly above the prudential benchmark, members noted that the banking system remained stable, strong and resilient. Given the success recorded under the LDR policy, it thus urged the Bank to sustain its risk surveillance approach and ensure the continued soundness of the banking system.

“In the Committee’s consideration, it noted the broad-based global stimulus packages, including expanded credit lines, asset purchase programme, corporate bond purchase, additional funding facilities for financial system, commercial paper purchases, special central bank lending, increase in the Ways and Means limits introduced by the central banks of different countries to support economic recovery in their various economies and to prevent further distortions to the economy caused by the devastating impact of the pandemic.

“The Committee noted the large stimulus packages deployed by many countries to fast-track growth recovery and restore livelihoods across the world
It also encouraged the Central Bank of Nigeria Management to intensify its efforts in the targeted credit facility to household, SMEs, the Health Sector, as well as Agric and manufacturing sectors which would not only boost consumer spending but result in manufacturing output thereby positively impacting the GDP.

“On this basis, the MPC agreed to hold all policy parameters constant. The Committee thus decided by a unanimous vote to retain the Monetary Policy Rate (MPR) at 11.5 per cent.

“In summary, the MPC voted to:
I. Retain the MPR at 11.5 per cent;
II. Retain the asymmetric corridor of +100/-700 basis points around the MPR; III. Retain the CRR at 27.5 per cent; and IV. Retain the Liquidity Ratio at 30 per cent”, he added.

Meanwhile, reacting to the development, economic expert, Prof Uche Uwaleke said as usual, the choices before the MPC was whether to reduce, increase or hold the rates.

The Capital Market professor said in a statement on Tuesday that on one hand, a rate cut appeared justified, while on the other hand there is the need for the CBN to support economic recovery efforts of the government.

His words, “On the other hand, the need to stabilize Exchange rate as well as tackle the rising inflation favoured tightening monetary policy.

“This presented a dilemma which the MPC rightly managed by maintaining the status quo and holding the rates in a bid to strike a balance between the two seemingly diametrically opposing sides of enabling output growth and curbing rising inflation.

“By doing so, the CBN will have some more time to monitor macroeconomic response to all its interventions in the wake of COVID’19 pandemic.

“So, in my view, the MPC did not disappoint. Their unanimous decision is consistent with market consensus and expectations”.

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