Godwin Emefiele, CBN Governor


The Central Bank of Nigeria (CBN) has put machinery in place to alleviate the impact the looming recession would have on the economy with the reduction of the benchmark interest rate also called Monetary Policy Rate (MPR) at the end of its Monetary Policy Committee (MPC) meeting last week.

The MPC cut benchmark interest rate to 11.5 per cent from 12.5 per cent and adjust the asymmetric corridor to +100/-700 around the MPR but retain other monetary parameters, explaining that the decision was taken to stimulate growth as the Nigerian economy is expected to slip into recession in the third quarter of the year, having contracted by 6.1 per cent in the second quarter due to the twin factors of the five weeks total lockdown of the economy to curtail the spread of the coronavirus pandemic March and early May and the significant drop in oil price, which is the country’s main source of foreign exchange. And it has been projected that the economy is likely to contract in the third quarter, which will confirm the country’s recession. The International Monetary Fund had forecast earlier in the year that the Nigerian economy will shrink 5.4 per cent this year.

The CBN was in a quagmire deciding to cut the interest rate, which will increase money circulation because Nigeria was not only struggling with an economic downturn, it was also battling with the skyrocketing inflation rate, which an interest rate cut would exacerbate. The country’s inflation rate accelerated for the 12 consecutive months to 13.22 per cent in August, the highest since March 2018. Though the CBN has been targeting 6-9 per cent inflation rate in the last five years, the apex bank has projected that it may reach 14 per cent by December.

“The MPC was, at this meeting confronted by policy dilemma. Whereas MPC believes in the primacy of its price and monetary stability mandate, it nevertheless was confronted with what policy direction to focus on, given the contraction in output growth during the second quarter of 2020, which may lead to a recession, if the third quarter of 2020 output growth numbers further show a contraction. It is, therefore, of the view that, if a recession occurs in Q3, the Committee would be confronted with proposing policy options in a period of stagflation. This is because, with the recent removal of subsidy on fuel price, the increase in energy prices, and the adjustment of the exchange rate, inflationary pressure will no doubt persist unless MPC considers options that will deal with the pressure aggressively.” The MPC said in a communique it issued at the end of its meeting last week.

Mr Johnson Chukwu, Managing Director, Cowry Asset Management Company, argued that all efforts should be geared towards stimulating economic growth to minimize the level of economic contraction, which was what the CBN has done. “The priority of economic policymakers should be stimulating economic recovery even if it will come at the expense of a higher inflation rate. “I can relate with the stance of the CBN to adopt accommodating monetary policy to see if that would spur faster economic recovery,” he opined. He asserted that if the apex bank had tightened monetary policy that could worsen the country’s economic woe and cause civil unrest.

Professor Leo Ukpong, professor of Financial Economics at the University of Uyo, posited that Nigeria would have to address the challenge of depending majorly on import to meet its domestic needs if it would witness economic growth. He said though infrastructural development is important, the government should pay more attention to encouraging productivity. He expressed worry over the steep rise in food prices.

“Beyond the politics of corruption, I think our emphasis should be on the supply side of the economy. If we can supply most of what we need in Nigeria, our economy will recover as fast as possible,” he said.

Meanwhile, the fiscal and monetary authorities have taken different steps to reflate the economy. The government approved N2.5 trillion stimulus through its Economic Sustainability Plan (ESP) with the sole aim of supporting the economy to fast-track its recovery from the disruption caused by COVID-19. The CBN has also intervened in different sectors of the economy since the pandemic hit the country in March. The apex bank disclosed it has injected over N3.5 trillion in the economy through different intervention in the last six months.

However, the removal of fuel subsidy which made the price of petrol in the country to jump from N148 per litre to N160 per litre and the hiking electricity tariff further tightened the knot of hardship on many Nigerians.  Although the government has explained the removal of fuel subsidy was to free the over N1 trillion spent subsidizing petrol for other developmental projects and that the electricity tariff hike was to ensure cost-reflective tariff and help address the many constraints in the sector which include poor transmission capacity and distribution capacity, but has not gone down well with many Nigerians.

The organised labour has warned that it will embark on a nationwide protest and strike action on Monday, September 28if the government fails to rescind its decision of the petrol pump price and electric tariff hike. On the other hand, the government has obtained court judgment barring labour from embarking on the planned industrial action, but the labour led by the Nigerian Labour Congress and the Trade Union Congress are adamant that the court judgment would not deter them from the embarking on the strike action.


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