By Anayo Ezugwu
PROF. Adeola Adenikinju, member, Central Bank of Nigeria, CBN, Monetary Policy Committee, has said that rising inflation will limit the policy options available for the country in addressing the current headwinds in the economy. He said the inflation would also limit the extent to which Nigeria can retain and attract foreign capital as rising inflation erodes the real interest gap between the country and advanced economies.
In his personal statement at the end of the MPC meeting in July, Adenikinju said the high fiscal deficit and the negative accretion to foreign reserves are challenges the economy has to overcome in the medium to long term. He, however, noted that there are positive developments in the economy. “The price of oil stands at over US$40 per barrel. This is above the benchmark price in the revised 2020 budget.
“The economy and economic agents are responding positively to the current intervention programmes of the Central Bank and the government. Regulatory measures to protect the financial sector are working well and should be monitored continuously. The Central Bank should top up the Target Credit Facility, TCF, of N50 billion for households and SMEs to meet the increasing demand for the fund.
“The economy is slowly recovering from the effects of lockdown. It is also responding well to the various support programmes. Current and planned intervention programmes will help to expand aggregate supply and mitigate inflationary pulses. The government must use the challenges presented by COVID-19 to deliberately support sectors that will be critical to the Nigerian economy of the future. We need to allow existing measures to work themselves through the economy before considering further policy changes,” he said.
Adenikinju also expressed confidence that the banking system is coping well under the current challenging environment. “The presentation by the Bank’s Staff on the Banking System Stability shows that the banking system remains resilient, strong, and coping well under the current challenging environment.
The Financial Soundness Indicators, FSI, remain solid. The Capital Adequacy Ratio, CAR, and Non-Performing Loans, NPLs ratio are trending in the right direction. The Loan to Deposit Ratio, LDR, policy has boosted aggregate credit to the economy without impacting negatively on the NPLs ratio. Measures of bank performance like assets, deposits and credits to the economy also continue on a northward trajectory. Banking credit grew, albeit marginally, between May 2020 and June 2020.
“The increase in aggregate credit to the economy in spite of the pandemic suggests that the economy is responding well to current policy measures. Stress tests on the banking industry also confirm a resilient sector that is able to survive the effects of COVID-19 pandemic and volatility in the oil market. The Economic Report showed the domestic economic performance since the last MPC meeting in May, 2020.
“Although, the real GDP growth for the second quarter of 2020 was not available as at the time of the July meeting, however, the first quarter of 2020 real GDP growth rate of 1.87 percent was quite impressive against the background of COVID-19 challenges and the volatility in the oil market. Staff estimates show that the annual real GDP growth for 2020 would lay between -1.31 percent and -1.65 percent.
“This is significantly higher than the World Bank, IMF and even the National Bureau of Statistics, NBS, projections for Nigeria for 2020. Headline inflation rose to 12.56 percent year-on-year in June 2020 from 12.40 percent in May 2020. Food inflation and core inflation also rose over the same period. The growths in composite prices were driven by monetary and structural factors.”
– Aug. 14, 2020 @ 16.45 GMT |