CBN monetary policy in H2: Prioritizing between growth and inflation
In the first half of 2020, the Monetary Policy Committee (MPC) consolidated the Central Bank of Nigeria (CBN’s) expansionary policy efforts by easing the benchmark monetary policy rate by 100 basis points to 12.5 percent at the May-2020 meeting.
In justifying its decision, the committee emphasised the need to signal a direction towards economic recovery, and further stimulate credit expansion to critical sectors, particularly as the pace of acceleration in inflation rate is still slow.
Looking ahead, we expect the apex bank to move to the next stage of its expansionary policy response as stated in the 27-page report presented by the bank’s governor, Godwin Emefiele, titled “Turning the COVID-19 tragedy into an opportunity for a new Nigeria.”
This is predicated on our expectation for the economy to be fully reopened in the second half of 2020. According to the guideline, the CBN will expand its sectoral interventions, offer long -term financing for the entire healthcare value chain, promote the establishment of InfraCo Plc (with combined debt and equity take-off capital of N15.0 trillion), and prioritise the provision of foreign exchange for the importation of machinery as well as other critical raw materials needed to drive a self-sufficient Nigerian economy once the COVID-19 transmission curve flattens and restrictions are eased.
This should help create a further boost for economic recovery in H2-2020.
Overall, we expect the apex bank to sustain its current heterodox policies until the end of the year. Also, we expect the monetary policy stance to remain broadly accommodative with an intent to spur growth at the cost of further inflationary pressure.
*United Capital Plc note to clients on Thursday