The organised private sector (OPS) has described as heartening the reduction in the interest rate from the previous 13.5 per cent to 12.5 per cent, stressing that such development if sustained in the short, medium to long term, will bode well for the economy.
The major decision from the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) at its May 28, 2020 meeting was the reduction of the Monetary Policy Rate (MPR) from 13.5% to 12.5%.
The MPC held other key parameters unchanged. Cash Reserve Requirement (CRR) remained at 22.7%, while the liquidity ratio was kept at 30% as well as retained the asymmetric corridor around the MPR at +200/-500bps.
While commenting on the MPC outcome, Dr. Timothy Olawale, Director-General of the Nigeria Employers’ Consultative Association (NECA) at the weekend, said, this development signals a pro-growth response, that could lead to reduction in the cost of credit, increase investment and impact positively on output growth, in order to address the current global challenges.
“We applaud the current decision of the Monetary Policy Committee, which aligned perfectly with the Association’s earlier recommendation,” he said, adding that it is good the Committee appreciates that high interest rate is a risk to the economy at this time.
The NECA boss also impressed the need for the fiscal and monetary policy to forge a synergy of cooperation in order to move the economy forward.
In a related development, Dr. Olawale said Nigeria’s economy like every other economies in the world was faced with grave threat, most especially oil dependent-economies- an indication of the headwinds the economy is facing from the coronavirus pandemic and low crude prices, reflecting in fall in government revenue.
While noting that the country’s economic growth as released by National Bureau of Statistics (NBS) indicated an expansion by 1.87% in the first quarter of the year, compared with growth of 2.55% in the previous quarter, he said, the slowdown in the GDP growth reflects the earliest effects of the disruptions on non-oil economy, coupled with an escalating cold war between the U.S. and China which resulted into low demand in global oil.
“The lockdown of the Nigerian economy commenced in April due to the pandemic, therefore, the real impact of COVID-19 on the economy would be felt in the Q2 GDP result,” he said.
Expatiating, he said, a strong correlation between global oil prices (Brent) and the country’s GDP between Q1 2014 and Q1 2020, indicates that the direction of growth is pretty much determined by the direction of oil prices.
“It can be adduced that a dollar increase in global oil prices corresponds with average 0.1% rise in growth. A similar trend was witnessed in Q2 2017, when the country exited from recession, it was not buoyed by government policies, but rather rebound in oil prices. This calls for a more drastic management of the country’s economy from the global shock of oil prices.”
Creating enabling environment for the non-oil economy to be the major contributor to the revenue profile would salvage the economy from external shocks.
While reiterating that there could be anticipated contraction in the second quarter, as the economy witnessed a six week’s lockdown on the commercial nerves of the country, and similar trend witnessed in global economy, except China, whose consumption of fuel due to opening of industrial hubs and transportation could portends mild positive growth pattern due to demand for crude oil, he urged “The Fiscal and Monetary authorities to develop a more aggressive and decisive policies to sustain an economic recovery in the wake of further low oil prices,” adding that “More coordinated stimulus packages targeted at the worst-hit sectors of the economy would sustain the economy from experiencing contraction of 8.9% as predicted.”
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