COVID-19 Challenges May Compel MPC to Cut Lending Rate

Central Bank of Nigeria

The Monetary Policy Committee of the Central Bank of Nigeria may consider cutting interest rates in the country as a result of the challenges of COVID-19 pandemic.

The CBN had notified that it would hold the next MPC meeting on Monday and Tuesday in Abuja.

According to a former President, Association of National Accountants of Nigeria, Dr. Sam Nzekwe, the MPC might need to observe how the COVID-19 was affecting situations.

“If I am to advise, I will tell them to see how to drop interest rate and also, if cash reserve requirements should be reduced so that there will be more cash available with the bank to be able to loan,” he said.

While noting that the year is still early, he said some economies were considering lockdown while some had already locked down. He observed that some countries that were suppliers to Nigeria and those buying Nigerian oil were also taking a beating from the COVID-19 pandemic.

FSDH research report on ‘Macroeconomic review and outlook for Nigeria’, with the need to drive economic recovery, the MPC would likely cut the benchmark rate

Part of the report read, “The MPC will also be concerned about the misalignment of interest rates in the fixed income market. This could further support rate cut in 2021.

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“The introduction of the new CBN special bill as an alternative investment vehicle, will absorb a proportion of the liquidity in the system and stabilise the interest rate environment, at least in the short run.

“As regards price stability, the monetary authority had earlier hinted that structural factors are more responsible for the increase in inflation rate. This view therefore creates more room for expansionary monetary policy in 2021.”

FSDH further stated that key factors expected to influence monetary policy decisions in 2021 are supporting economic recovery; lower crude oil prices/output and government revenue; lower inflows of foreign investments; balance of payment challenges; and declining external reserves.