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CBN Pursues Expansionary Monetary Policy to Boost Output and Moderate Inflation

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CBN Says it Lowered Interest Rates to Use Expansionary Monetary Policy Boost Output and Moderate Rising Inflation

Following the shocking reduction in the monetary policy rate by 100 basis points to 11.5 percent, the Central Bank of Nigeria has explained the reason for such a decision after months of saying no.

The Governor of the apex bank, Godwin Emefiele said the central bank is pursuing an expansionary monetary policy to abate pressure, up economic productivity and then use expected improved in aggregate supply to moderate the rising inflation rate.

Emefiele said this was necessary to address likely recesssion and contain the rising inflation rate.

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.

According to the governor, Monetary Policy Committee members were confronted with a policy dilemma after the economy contracted by 6.10 percent in the second quarter and expected to dip again into recession in the second quarter.

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 added.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.