Though the ongoing pandemic has ravaged the world economy, experts are of the view the recently introduced CBN reduction of lending rate is panacea to return the economy to its lost glory.
The recent decrease in lending rate from 13.5 % to 12.5% by the Central Bank of Nigeria(CBN) has attracted a lot of discourse in the economic market. The CBN Governor, Godwin Emefele, pointed out the reality of COVID-19 bite, which has affected the world economy vis a vis of the country has necessitated the step.
According to him, seven out of the 10 members of the Monetary Policy Committee (MPC) voted for the cut, noting that the step will go a long way to alleviate the economic hardship created by the pandemic in the recent time.
However, economic experts explained that the move is to spur lending to the economy which faces imminent recession on twin pressures of COVID-19 pandemic and low oil prices.
In the past, the CBN has taken a major step in the area of intervention programmes particularly in the area of agriculture and industry which has translated to huge success, therefore a similar step is now being taken to cushion the effect of the pandemic through Monetary Policy Rate (MPR).
While assessing impact of the CBN decision, the Managing Director, BIC Consultancy Services, Boniface Chizea, said the reduction would increase the amount of money and credit in circulation.
According to him, the reduction is the lowest rate in the last four years, adding that the gradual unlocking of the economy to resume activities might result in the anticipated contraction of the economy not being as steep as feared.
Chizea pointed out: “By this move it is clear that focus on the rate of exchange particularly with regard to the attractiveness of investments to foreign investors is for once not a major thrust of policy.Well at least we now have some movement in the critical indices as opposed to the fact that they have remained sticky for a long time now.”
He explained: “It is important that we witness focused implementation so that the expectations of a reflated economy will be achieved in not too distant a future.”
The Managing Director of Cowry Assets Management Ltd., Johnson Chukwu, said the reduced rate would allow credit flow into the enconomy.
According to him: “The key thing the MPC did is to send a message to the economy that it is ready to adopt a bit of an accommodative policy. That is, it is the intention of the CBN that credit should flow to the economy at the same pace. That is the primary motivation of reducing the MPR from 13.50 per cent to 12.50 per cent.To send a message to economic operators that the intention of the CBN is to have an interest rate environment where customers can borrow at lower rates.”
In as much as the fact remains that the return of the economy back to pre-covid 19 is a gradual process, an agronomist and Managing Director of Roll Over Venture Mr. Gabriel Aloba said that the decision of the apex bank at this critical period was a right step towards a right direction.
Aloba pointed out that the proactive and swift decision taken on the economy at the right time by the CBN has been its hallmark, adding that this one is not an exceptional.
“In the last three years before we experience the ongoing pandemic, the CBN had foresighted the danger ahead for the country’s economy because of over depended on oil, therefore took some giant and bold step by deliberately funded agriculture and seriously frowned at exportation of some food items especially rice thereby encouraged home grown industries.”
Aloba, while speaking to the Nation, lamented that if not the sudden experience of the pandemic which was not envisaged, the cumulative positive effect of the huge investment and interventions in agricultural programmes could have been felt by now.
He pointed out that all hopes are not lost noting that the MPR policy will go a long way to assist farmers, industrialist and encourages Small scale business enterprise at the long run.”This will have impact on banks lending and deposits as the banks will have to reduce their lending rates to clients.”
The expert noted that if lower interest rate is combined with other earlier measures such as extended moratorium, lower interest rate on intervention funding and targeted facilities, agriculture and industrial sector may experience a leap in productivity.
According to the National Bureau of Statistics (NBS) the contribution of Nigeria’s agricultural sector to the Gross Domestic Product (GDP) in the first quarter of 2020 was the sector’s highest first-quarter contribution in the last two years.
In real terms, Nigeria’s GDP for the first quarter of 2020 stood at N16.7 trillion, meaning agriculture generated about N3.7 trillion.
A former director at the CBN, Mr. Titus Okunrounmu, praised the apex bank for its timely response by reducing the lending rate adding that the downward review of interest rate to 12.5 per cent will encourage private investment to boost the nation’s economy.
According to him, it was an attempt to further encourage people to take credit and loans as the nation’s economic activities had slowed under the lockdown situation.
“With COVID-19 pandemic associated with lockdown, no investor will be willing to invest money in the country until the environment is conducive for investment.”
Though the issue of the pandemic is a global phenomenon, Mr. Lukeman Alatise, a stock broker, argued that it will take a gradual process and consistence before the damage done to the economy could be salvaged.
Alatise, who is also a risk manager, pointed out the CBN decision was a positive growth response noting that it will cushion the effect of covid 19.
“Before the pandemic the country was battling with a mono economy in which oil was heavily relied upon and in the last three years that the paradigm has completely changed towards a favourable disposition to agriculture and resuscitation of ailing industries, covid 19 like a thunder struck.
“The downward review of interest rate to 12.5 per cent by the apex bank will protect the economy from external shocks which the pandemic has caused.”
