CBN Retains MPR at 13.5%, to Enhance COVID-19 Interventions

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•Predicts economic recession, unveils guidelines for N50bn pandemic facility
•House passes economic stimulus bill

James Emejo, Adedayo Akinwale in Abuja and Nume Ekeghe in Lagos

The Central Bank of Nigeria (CBN) yesterday resolved to allow its interventions on COVID-19 to permeate the economy and retained the Monetary Policy Rate (MPR), otherwise known as interest rate at 13.5 per cent.

The apex bank also left both the Cash Reserve Ratio (CRR) and Liquidity Ratio unchanged at 27.5 per cent and 30 per cent respectively.
The MPR is the rate at which the CBN lends to commercial banks and often determines the cost of borrowing in the economy.

CBN Governor, Mr. Godwin Emefiele, who read the communique at the end of the two-day meeting of the Monetary Policy Committee (MPC) in Abuja, said the decision to keep all monetary policy tools unchanged was to allow previously announced interventions “time to permeate the economy and allow pandemic to wear out itself.”

The CBN last week had announced its decision to increase its intervention to boost local manufacturing and import substitution with the injection of an additional N1.1 trillion across all critical sectors of the economy.

The move, which was in line with the banking sector regulator’s efforts to cushion the impact of COVID-19 on the economy, came two days after it had unveiled a six-point palliative to ameliorate the continued impact of the global pandemic on the country.
According to Emefiele, not only will the pandemic result in a health crisis, it will unleash a massive economic crisis that may plunge many industrialised countries as well as Nigeria into a recession.

Emefiele noted that the COVID-19 pandemic, which is a public health crisis, would continue to undermine any monetary and fiscal stimulus unless appropriate measures are taken to test, isolate, curtail the spread and treat infected persons while ensuring that migration across the country is prohibited.

He urged the federal government to implement measures to safeguard the population, including a compulsory restriction of movements to curtail the spread of the virus.
Emefiele also tasked the government to embark on close monitoring and install emergency-ready measures to identify and care for infected persons in the country.
The central bank warned about the huge economic costs of the pandemic, which has brought the global economy to its knees.

The CBN governor said available data on the country’s key macroeconomic variables indicated the likelihood of subdued output growth for the economy in 2020.
He stated that based on the current down trend in oil prices, projections indicate that the output in 2020 would be less than earlier envisaged, largely as a result of the continued spread of COVID-19, further decline in crude oil prices and reduction in accretion to external reserves, reduced government revenues linked to weak aggregate demand, declining non-oil receipts as well as infrastructural and security challenges.

However, he said these headwinds could be partly mitigated by the timely and effective response of both the monetary and fiscal authorities in containing the spread of the viral infection, the recalibration and adjustment of the 2020 budget to the revised threshold while pegging expenditure to critical sectors of the economy.

Emefiele called for the adoption of a new fiscal regime to encourage the build-up of fiscal buffers, sustained CBN interventions in selected sectors, enhanced flow of credit to the real sector and deliberate policies to diversify the Nigerian economy.

However, in holding the monetary policy instruments constant, he said the MPC noted the continued rise in domestic prices; the glut in oil supplies and low oil prices in the wake of the current global shocks; exchange rate pressure and other domestic monetary and fiscal responses to the evolving crises.
He said: “On the choices before the committee, the MPC noted the recent actions of the bank, targeted at strengthening the resilience of the financial system and alleviating the initial impact of the crisis.

“In its wisdom, the committee felt that tightening would result in reining in the rising trend in inflation and that it would support reserve accretion.
“However, it would reduce money supply and limit DMBs credit creation capacity, thus resulting in increasing the cost of credit, with adverse impact on output growth.”
He explained that tightening would also result in a reduction in aggregate demand as a fall in disposable income results in output compression; whereas at this time, policy emphasis should be on stimulating aggregate supply and demand, both already weakened by COVID-19.

According to the governor, “With respect to loosening, whereas the committee felt it would stimulate the economy in the short term, and boost aggregate supply and demand, the committee nevertheless, was of the view that there was a need to be cautious in loosening given the fact that it would exacerbate an already worsening inflationary condition, resulting in massive pressure on reserves and the exchange rate.

“Based on the balance of these arguments, the MPC, in taking note of the recent actions already taken by the management of the bank in response to the COVID-19, resolved to allow time for the measures to permeate the economy while allowing the pandemic to wear out its plateau before deciding on further supporting policy measures to boost and strengthen aggregate demand and supply in the recovery phase of the economy. ”
He noted that the choice to hold the rates also factored the subsisting LDR and the DCRR policies, which sterilises excess liquidity in the banking system, hence an increase in the MPR would be counter-productive.

He said the monetary policy stance arrived at the meeting took cognisance of the need to address the unfolding unfavourable macroeconomic developments, rein in inflation, support growth and employment through the extant interventions and recent initiatives, check capital outflows and support external reserves accretion as well as dampen pressure and ensure foreign exchange market stability.

Emefiele said the MPC considered the weakened revenue position of the federal government, arising from the sharp drop in oil prices and reiterated the need for the government to urgently reduce reliance on oil revenue by gradually diversifying the economy and improving tax collection.

The committee noted the speedy response of the federal government to the oil price shock by the revision of the 2020 budget downwards by N1.5 trillion and the oil price benchmark to $30 per barrel as well as urging the National Assembly to fully cooperate with the federal government in coming up with a budget that reflects the new realities.

He stated that the introduction of price modulation measures, resulting in reduction in the pump price of petrol from N145 to N125 per litre had a contributory effect in boosting aggregate demand, lowering inflation and improving the welfare of the ordinary Nigerians.

He said the MPC noted the persistence of inflationary pressures attributed to a combination of monetary and structural factors and urged the federal government to leverage on Public Private Partnership (PPP) to intensify investment in infrastructure to increase output and employment.

According to him: “The committee noted the sustained improvement in the financial soundness indicators, applauding the continued decline in the ratio of non-performing loans, growth in assets of the banking system and profitability of the industry in the light of increasing global uncertainties.

“It also recognised the success of the bank’s loan-to-deposit ratio policy and its potential to alleviate production shortfalls, reduce unemployment and boost aggregate demand, urging the bank to pursue this and other related policies to a conclusive end,” Emefiele added.

CBN Unveils Guidelines for N50bn COVID-19 Facility

Meanwhile, the CBN has released guidelines for the disbursement of the N50 billion special intervention fund meant to cushion the impact on the COVID-19 disease on the economy.

Emefiele had last week announced the fund as part of stimulus package by the bank.
According to the guidelines for the fund posted on the central bank’s website yesterday and signed by the Director, Financial Policy and Regulation, Mr. Kevin Amugo, NISRAL Microfinance Bank (NMFB) will serve as the disbursing financial institution with SMEs, households and enterprises that have verifiable evidence of livelihood and evidence of business activities adversely impacted by the deadly virus. He urged those with bankable plans to take advantage of opportunities arising from the COVID-19 pandemic.

The guideline listed sectors eligible for the credit facility to include agric value chain, hospitality, health, airline service providers, manufacturing/value addition, trading as well as any other income generating activities as may be prescribed by the CBN.

The scheme, which will be financed out of the CBN’s N220 Micro, Small and Medium Enterprises Development Fund (MSMEDF), earmarked a maximum facility of up to N25 million for MSMEs while households can access up to N3 million based on the activity, cashflow and industry/segment size of a beneficiary.

“Working capital shall be a maximum of 25 per cent of the average of the previous three years’ annual turnover; where the enterprise is not up to three years in operation, 25 per cent of the previous year’s turnover will suffice.

“Interest rate under the intervention shall be five per cent per annum all-inclusive up to 28th February 2021 and thereafter, the interest on the facility shall revert to nine per cent as from 1st March 2021.”

The guideline stated that collateral for the facility would include one or more of the following: “Moveable asset(s) duly registered on the National Collateral Registry (NCR), simple deposit of title documents, in perfectible state, Deed of Debenture (for stocks), in perfectible state, irrevocable domiciliation of proceeds, two acceptable guarantors, personal guarantee of the promoter of the business, life insurance of the borrower, with NMFB noted as the first loss payee and comprehensive insurance over the asset.”

House Passes Emergency Economic Stimulus Bill

In a related development, a Bill for an Act to provide temporary relief to companies and individuals to alleviate the adverse financial consequences of a slowdown in economic activities brought on by the outbreak of the Covid-19 disease in Nigeria has passed third reading in the House of Representatives.

The bill, which was sponsored by the Speaker, Hon Femi Gbajabiamila, was given accelerated hearing at the resumption of plenary on Tuesday.

The speaker noted that the bill seeks to provide for relief on corporate tax liability, suspension of import duty on selected goods and deferral of residential mortgage obligations to the Federal Mortgage Bank of Nigeria for a fixed term to protect jobs and alleviate the financial burden on citizens in response to the economic downturn occasioned by the outbreak of COVID-19 disease.

The proposed legislation also seeks to protect the employment status of Nigerians who might otherwise become unemployed as a consequence of management decision to retrench personnel in response to the prevailing economic realities.

The bill would also provide for a moratorium on mortgage obligations for individuals at a time of widespread economic uncertainty.

Gbajabiamila explained that the bill would eliminate additional fiscal bottleneck on the importation of medical equipment, medicines, personal protection equipment and other such medical necessities as may be required for the treatment and management of the Covid–19 disease in Nigeria, to ease the burden of importation and financial burden, thereby fostering easier access and reduction in the price.

The speaker said that the bill would cater for the general financial wellbeing of Nigerians pending the eradication of this pandemic and a return to economic stability.

“Notwithstanding the provision of any other law in force in Nigeria, any employer duly registered under Companies and Allied Matters Act (CAMA), which maintains the same employee status without retrenching their staff as at 1st of March 2020 till the rest of the year ending 31st of December 2020 shall be entitled to 50 per cent income tax rebate on the total of the actual amount due or paid as Pay As You Earn (PAYE) Tax under the Personal Income Tax Act Cap C8 LFN 2004 (as amended),” he said.