Tuesday, December 1, 2020
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Tuesday, December 1, 2020

Borrowing cost to crash as CBN reduces MPR to 11.5% – The Sun Nigeria

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•Says Nigeria’ll enter V-shaped recession

Uche Usim, Abuja

The Monetary Policy Committee of the Central Bank of Nigeria (CBN) rose from its 275th meeting on Tuesday with a decision to reduce the  Monetary Policy Rate (lending rate) from 12.5 per cent  to 11.5 per cent.

Chairman of MPC and CBN Governor, Mr Godwin Emefiele, who made the disclosure at a virtual media briefing after the meeting, said  the committee retained all other policy parameters, except the asymmetric corridor that changed from +200 and -500 basis points to +100 and -700 basis points around the MPR. The liquidity ratio was left at 30 per cent and Cash Reserve Ratio (CRR) retained at to 27.5 per cent. 

Emefiele said the decision to reduce the MPR was to sustain ongoing economic recovery efforts and arrest rising inflation.

Accordig to him,  Nigeria will enter a V-shaped recession, meaning it will be entered into and exited almost immediately. This means that Nigeria will enter recession in the third quarter of this year and there will be growth in the fourth quarter or first quarter of 2021.

The Committee, he added, stressed the urgent need for a combination of broad-based monetary and fiscal policy measures to curb rising in inflation and contraction in output growth. This will involve targeted investment by the fiscal authorities to resuscitate critical infrastructure to improve the ease of doing business across the country.

The key factors considered by the MPC as likely to exert upward pressure on domestic prices in the near term include: the prevalence of security challenges in the country; adverse weather conditions causing flooding in some farming regions; the increase in petroleum pump price; deregulation  in electricity tariff; low crude oil price; and exchange rate adjustment. 

“The Committee noted that available evidence does not support the view that the rise in inflation was due to monetary factors. Rather, there is overwhelming evidence that the inflationary pressure reflects the prevalence of structural rigidities and supply shocks. Hence, the traditional tools of monetary policy may not be helpful in addressing current inflationary pressures. Instead, the useful policies will be the supply-side measures implemented by the bank. In the light of this, reducing MPR will signal to the Deposit Money Banks to lend more to stimulate growth, increase aggregate supply, which should dampen prices in the immediate term.

“Although the MPC remains committed to its primary mandate of ensuring price stability, it however, noted the need to address the structural supply-side issues that are putting upward pressure on production cost and depressing economic growth.  

The Committee noted the various interventions by the CBN to reflate the economy, improve aggregate supply and drive down inflation. Recent interventions were largely in the areas of Manufacturing, Agriculture, Electricity & Gas, Solar Power and housing constructions among others. 

It expressed optimism that these initiatives will significantly ease the adverse impact of the COVID-19 pandemic and set the economy on a path of recovery. So far, total disbursements from the Bank’s interventions in the wake of the COVID-19 pandemic amount to N3.5 trillion.

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