Economy
CBN shifts attention to economic growth
CBN Governor Godwin Emefile
By FELIX OLOYEDE
The Central Bank of Nigeria (CBN) is refocusing its attention to economic growth after steadfastly battling inflation for over 30 months.
The Monetary Policy Committee (MPC) of the CBN at the end of its meeting last week adjusted benchmark interest rate also known as Monetary Policy Rate (MPR) to 13.5 per cent from 14 per cent for the first time since July 2016.
The first interest rate cut since November 2015, which is coming after steady deceleration of inflation rate, which dropped to 11.37 per cent in February, having reached over 18 per cent in 2017, would spur economic growth.
The CBN Governor, Godwin Emefiele told the press at the end of the MPC meeting last week that the committee decided to shift focus from inflation targeting and pay attention to economic growth since there was relative stability in key macroeconomic variables.
He added that “This rate cut is meant to signal that there is a need for us to move course a little further. To do so we need to begin to look at money supply, liquidity to push growth.”
The Nigerian economic growth has been sluggish since it recovered from 18 months recession in March 2017, growing 1.9 per cent in 2018, but the government has projected 3 per cent growth for this year, while IMF is expecting it to grow by 2.1 per cent.
Moses Ojo, Head, Research and Business Development, PanAfrican Capital noted that the 50-basis points reduction in MPR was not significant on the surface, considering that rates have been crashing in the fixed income market before the MPC meeting.
“The impact of the rate cut is expected to lead to lower yields in the market. Also, considering the fact that headline inflation has moderated recently. The effects of the cut in policy rate is expected to be significant in the market in the days ahead, even though the cut wasn’t significant,” he claimed.
“Well, from the CBN Governor’s speech, we heard him mention things like Debt service and deficits. He also sounded a lot more dovish and it is obvious the focus has shifted towards economic growth.
“I believe the main aim now is to spur growth and leave rates high enough to still wet investor’s appetite. We should see rates crash further and effectively reduce cost of borrowing and by extension lead to improved production,” Abayomi Ajayi, Research analyst with Investment One Financial Services told Business Hallmark.
The interest rate adjustment ought to have come early, but it is better late than never, Bismarck Rewane, Managing Director, Financial Derivative Company told Channels TV.
Professor Leo Ukpong, a Financial economist and Dean, School of Business, University of Uyo noted the benchmark interest rate cut was a move towards the right direction, vis-a-vis the state of the economy.
“If CBN continues at that rate, businesses and consumers will be able to increase borrowing and spending, in turn will help in stimulating the economy.
“The key is to sustain the expansion of monetary policy, at least for 1 year (or more). If it’s a onetime event, it won’t have any significant impact on the economy.”
However, Moody’s, a credit rating agency, believed the benchmark interest rate cut would minimally impact the Nigerian economy.
Aurélien Mali, one of Moody’s vice presidents said, “the Central Bank of Nigeria’s benchmark interest rate cut was expected.
“However, its possible effects on growth should be minimal because its transmission to the real economy and to lending rates is low in Nigeria.”
Ayodele Akinwunmi, Head, Research, FSDH Merchant Bank shares Moody’s viewpoint, saying that interest rate cut is significant being the first in a long time, but lending is not taking place there, it would be of little significance.
The MPC, more so, retained the Cash Reserve Ratio (CRR) at 22.5 per cent;
Liquidity Ratio (LR) at 30.00 per cent; and the Asymmetric Window at +200 and -500 basis points around the MPR.
During the last MPC meeting, only 6 out of the eleven Committee members threw their weight behind the downward review of the interest rate by 50 basis points.
Two members were against the cut, while two of them suggested a 25 basis points cut and another member suggested a 100 basis points cut.
The committee indicated that it believed the cut strengthened the central bank’s commitment to the promotion of strong credit flow into productive sectors.
The Central Bank would have to devise ways to motivate commercial lenders to extend credit to the private sector as they have been advised to expand their risk assets due to high non-performing loans (NPLs) bedevilling the banking industry, which currently stands at over 13 per cent, compared to 5 per cent benchmark set by the regulator.
The National Assembly is yet to pass the 2019 budget, which President Muhammadu Buhari presented in December.
The recurring delay in budget passage has been adversely impacting the Nigerian economy, making banks unwilling to lend to the private sector.
