Analysts: Nigeria, others to sustain expansionary monetary policy

Nigeria’s inflation rate may be on an upward trajectory, but according to analysts at United Capital Research, the country’s monetary authorities, like their counterparts on the continent are likely to sustain expansionary monetary policy stance until the end of 2020. In a note obtained by New Telegraph last weekend, the analysts said the need for African countries to continue to shield their economies from the devastating impact of COVID-19 would compel them to persist with their current expansionary monetary policy stance.

The analysts said: “In the wake of COVID-19, global monetary policy authorities have launched several expansionary programs, to cushion the virus’ negative economic effect on growth. African economies were no different, as the pandemic posed a threat to decades of economic growth, which was formerly buoyed by capital inflows, favourable commodity prices and large aggregate demand. “Notably, the massive flood of monetary stimulus in developed markets created room for African economies to trim policy rates, amid the implication on foreign fund flows.

This included notable regional economic giants; Egypt (-300bps), South Africa (-275bps), Ghana (-150bps), Kenya (-150bps) and Nigeria (-100bps). Also, the Central Bank of Egypt approved an EGP100.0 billion package, to cover lending at preferential rates to the manufacturing, agriculture, and contracting loans. Similarly, the Central Bank of Nigeria launched a N1.1 trillion intervention fund to the manufacturing and healthcare sectors. Elsewhere, the Central Bank of Kenya lowered banks’ cash reserve ratio by 100 bps to 4.25 per cent.” Continuing, they stated: “For the rest of the year, the current expansionary stance of African monetary authorities is unlikely to change. As a result, we expect policy decisions to be focused on guiding economies into recovery, as different countries lift restrictions and lockdowns placed due to the pandemic.”

It will be recalled that although Nigeria’s inflation rate has been on an upward trend since September last year, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) caught market analysts off guard at its meeting last month as it cut the benchmark interest rate-the Monetary Policy Rate (MPR) by 100 basis points, from 13.5 per cent to 12.5 per cent.

CBN Governor, Mr. Godwin Emefiele, said that the decision of the MPC was necessitated by the need to stimulate growth and recovery of the economy in the face of the impact of the COVID-19 challenges. He said: “The MPC observed the weakening of the global macroeconomic environment due to the adverse impact of COVID-19 and drop in crude prices which has resulted in negative outputs for most economies.

“Excess liquidity engendered by loosening may overshoot the economy’s capacity and accelerate inflationary pressures, it nevertheless feels that given the slow rate of acceleration of inflation, the accommodative stance will stimulate aggregate demand and supply in a short term. “This is because an accommodative stance through a lowering of policy rates will stimulate credit expansion to critically sectors that will also stimulate employment and revive economic activities for quick growth recovery.”


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