The Monetary Policy Committee of Central Bank of Nigeria, CBN, has cut the benchmark lending rate to 12.5 per cent from 13.5 per cent, a move the CBN governor, Godwin Emefiele said would stimulate growth in the economy in the face of the coronavirus pandemic.
It is the first rate cut since March 2019 and the largest since 2015.
Analysts believe the Committee took into account developments in the global and domestic economy since its last meeting including the negative impact of COVID-19 on global growth. “Even on the domestic front the committee noted a sustained inflationary pressure April : + 8bps to 12.34 per cent y/y and a sustained decline in manufacturing PMI”.
Seven of the 10 members of the bank’s monetary policy committee backed a 100 basis point cut, two voted for 150 basis points and one for 200 basis points, Emefiele said.
The country, a top oil exporter is facing economic challenges from the coronavirus outbreak and sharp falls in crude prices, which have triggered decline in growth.
Emefiele said the lower rate would “stimulate credit expansion to critically important sectors”, which in turn would also stimulate employment and revive economic activity for a quick recovery in economic growth.
The Federal Government government expects the economy to contract by as much as 8.9 per cent this year, but Emefiele said the country could avoid a recession.
He said the economy could contract in the second and third quarters but recover in the fourth with the fiscal and monetary policy measures put in place by the authorities.
The decision surprised analysts. The central bank has kept interest rates tight for the last two years to curb inflation, support the naira and attract foreign investors to its debt market.
“This is a surprise. Not least because, despite the central bank’s relative optimism on growth, the question is really around the potency of the MPR (monetary policy rate),” said Razia Khan, chief economist for Africa and Middle East at Standard Chartered