Central Bank of Nigeria Retains Key Lending Rate at 12.5%

Central bank of Nigeria retained the key lending rate at 12.5 percent, governor Godwin Emefiele announced on Monday. CBN retained all monetary policy parameters; cash reserve requirement (CRR) at 27.5 percent, liquidity ratio at 30 percent, and the asymmetric corridor at +200/-500 basis points around the monetary policy rate.

In May, the bank had cut the lending by 100 basis points from 13.5 percent to the current 12.5 percent citing covid19 interventions that would make access to credit cheaper for businesses.

In a communique, the governor said the retention of the rate was informed by weakening global output due to a persisting decline in global aggregate demand and supply. Global markets are experiencing rising sovereign and corporate debts, heightened financial market vulnerabilities, and disruptions in the global supply chain and trade.

On the domestic front, Nigeria has grappled with rising unemployment, low prices of crude oil, and shocks from the Covid-19 pandemic.

The governor says that Nigeria’s real gross domestic product (GDP) grew marginally by 1.87 per cent in the first quarter of 2020 compared with 2.55 and 2.10 percent in the preceding and corresponding quarters of 2019.

He attributes the decline in output growth in the first quarter to the twin effect of the decline in oil prices and the covid19 pandemic.

The monetary policy committee observes the persistent decline in the manufacturing and non-manufacturing purchasing manager’s indices (PMI). In this case, the Manufacturing PMI declined to 41.1 index points in June 2020 from 42.4 index points in May 2020. Conversely, the non-manufacturing PMI improved to 35.7 index points in June 2020 from 25.3 index points in May 2020.

The trend in the manufacturing and non-manufacturing PMIs was due to slower growth in production levels, new domestic orders, employment rate, raw materials supply, and new export orders. However, the money market rates remained relatively stable in the review period, reflecting the prevailing liquidity situation in the banking system.

In addition, the central bank remained worried about the uptick in inflation for the tenth consecutive month as headline year-on-year inflation rose to 12.56 percent in June 2020 from 12.40 percent in May 2020. The increase in headline inflation was largely driven by the increase in both food and core inflation, which rose marginally to 15.18 and 10.13 percent in June 2020 from 15.04 and 10.12 percent in May 2020, respectively.

COVID19 STIMULUS

CBN says that it had unveiled stimulus programs to shield businesses and households to weather the impacts of the pandemic. The governor said that the N50 billion Household and SME facility had been disbursed to over 92,000 beneficiaries. In addition, there has been a N100 billion healthcare and N1.0 trillion manufacturing and agricultural interventions to support the rebound in growth from the impacts of the pandemic on the economy. The Committee noted that the CBN had disbursed over N152.9 billion to the manufacturing sector to finance 61 manufacturing projects and another N93.6 billion to the Healthcare sector

Outlook

CBN retains a negative outlook saying that global economy remains weak and cites IMF’s downgrade of output growth forecast. In addition, the governor says that the slow recovery in oil prices and its attendant volatility is projected to continue into 2020 and well into 2021.

Provisional data on key domestic macroeconomic variables indicate that the Nigerian economy may record negative quarterly GDP growth in the 2nd quarter of 2020.

AfDB Issues $288.5 Million Loan to Support Nigeria’s Economy