We’ll pursue expansion policies to fight recession – CBN

The Governor of the Central Bank of Nigeria, Mr Godwin Emefiele , has said the bank will pursue expansionary monetary policies to fight recession because the fiscal policy was already constrained .

Emefiele said this was necessary to curb the rising inflation and address recession in the economy .

He said this was part of the resolutions of the Monetary Policy Committee meeting held last week .

He said , “ The committee was therefore of the view that to abate the pressure , it had no choice but to pursue an expansionary monetary policy using development finance policy tools , targeted at raising output and aggregate supply to moderate the rate of inflation.

“ At present , fiscal policy is constrained and so cannot , on its own , lift the economy out of contraction or recession , given the paucity of funds arising from weak revenue base , current low crude oil prices , lack of fiscal buffers and high burden of debt services .

“ Therefore , monetary policy must continue to provide massive support through its development finance activities to achieve growth in the Nigerian economy . ”

He said the MPC was confronted by policy dilemma .

He said though the MPC felt the primacy of its price and monetary stability mandate , it nevertheless was confronted with what policy direction to focus on , given the contraction in output growth during the second quarter of 2020 .

According to Emefiele , the Q2 contraction may lead to a recession , if the third quarter of 2020 output growth numbers further show a contraction.

“ It is , therefore , of the view that , if a recession occurs in Q3 , the committee would be confronted with proposing policy options in a period of stagflation , ” he said .

The CBN governor said this was because with the recent removal of subsidy on fuel price , the increase in energy prices , and the adjustment of the exchange rate , inflationary pressure would no doubt persist unless MPC considers options that would deal with the pressure aggressively.

He said this was the reason the MPC would continue to play a dominant role in the achievement of the goals of the Economic Sustainability Programme through its interventionist role to navigate the country towards a direction that would boost output growth and moderate the level of inflation.

Emefiele said given that the currency adjustment was a causal factor in determining the price of petroleum products and energy prices , the MPC believed that the CBN management must take bold actions to stabilise the exchange rate .

He said the CBN was further enjoined by the MPC to continue to provide funding to sectors that would resolve the supply constraints in petrol pricing , energy pricing and food availability.