The Monetary Policy Committee on Thursday said the lower growth recorded in the economy in first quarter of 2020 was expected to dip slightly but with combined monetary and fiscal stimulus, the country may avoid a recession. The CBN Governor, Mr Godwin Emefiele, said this in Abuja at the end of the MPC 273th meeting held virtually.
The MPC reduced the Monetary Policy Rate to 12.5 per cent from 13.5 per cent. It however retained the Cash Reserve Ratio and the liquidity ratio at 27.5 per cent and 30 per cent respectively.
Emefiele said, “Available output data from the National Bureau of Statistics showed that real Gross Domestic Product grew by 1.87 per cent in the first quarter of 2020 compared with 2.55 and 2.10 per cent in the preceding and corresponding quarters of 2019 respectively”. This was driven largely by 5.06 per cent growth in the oil sector and 1.55 per cent in the non-oil sector. The economy, however, expanded by 2.27 per cent in 2019, the most since 2015, compared to 1.91 per cent in 2018.
“The positive but lower growth observed in Q1 2020 is expected to dip slightly, on the back of the combined monetary and fiscal stimulus by the monetary and fiscal authorities to ensure that growth at this time is supported to avoid a recession.” He said available data on key macroeconomic variables in the domestic economy indicated that the economy achieved a positive output growth during the first quarter of the year.
Emefiele noted that even if the lag effects of COVID-19 resulted in a low negative output growth in the second quarter of 2020, it could quickly be reversed to avoid a recession by Q3 2020 based on the far-reaching measures taken by the monetary and fiscal authorities to mitigate the combined effects of the COVID-19 pandemic and oil price shock.
Uche Uwaleke, a professor of capital market, said the MPC’s decision to cut the benchmark interest rate by 100 basis points was a demonstration of the bank’s sensitivity to the need to stimulate the economy.