The Central Bank of Nigeria ( CBN) is to establish an Infrastructure Development Company, its governor, Godwin Emefiele, disclosed on Monday in Abuja.
Mr. Emefiele, who spoke during the online media briefing at the end of the 274th meeting of the MPC Monetary Policy Committee, said that the company should exploit local and foreign funds to restore critical infrastructure across the country.
At the briefing, the CBN Governor announced that the Committee had agreed to maintain at 12.5 per cent all monetary policy parameters, including the monetary policy rate (MPR), generally referred to as the lending rate.
Certain metrics held during the committee meeting included the cash reserve requirement (CRR) at 27.5 per cent, the liquidity ratio at 30 per cent and the Asymmetric Corridor at +200/-500 basis points across the MPR.
The CRR is the funds held with the CBN as a minimum deposit that the commercial bank will keep as reserves rather than lend to its customers.
Mr Emefiele said that the Federal Government has already authorized the establishment of a special purpose company, which would be solely based on Nigeria and on Nigerians alone.
The company, he said, would be co-owned by the CBN, the Africa Finance Corporation (AFC) and the Nigeria Sovereign Investment Authority (NSIA).
However, the management of the company would be exclusively run by an Independent Infrastructure Fund Manager (IIFM).
The fund manager will leverage local and foreign resources to help the federal government develop the transport infrastructure needed to transfer agriculture and other products to processors, raw materials to factories, and finished goods to markets.
The CBN governor said that around N15 trillion is expected over 5 years for the company’s initial service, adding that the MPC expressed satisfaction with the progress on updates and timelines for the company’s establishment.
On the committee’s decision, Mr Emefiele said that members had reviewed the policy options before them and argued that the option of tightening policy rates at this time would contradict the noble initiative of extending affordable credit to the real economy market.
Tightening the policy rates, the MPC said, would raise the cost of production, which would, in effect, result in higher prices of goods and services and tougher economic conditions for the Nigerian people.
On the other hand, the Committee noted that the loosening of the CBN monetary position would provide the desired means of stimulating output growth and rapid recovery, with implications for domestic private investment and capital mobilization to support the huge domestic financing gap.
However, a further reduction in the monetary policy rate might not automatically lead to a corresponding decrease in the market interest rate, he said, given the current economic challenges.
In addition, the Committee also noted the reduction in the policy rate at the last MPC meeting and the need to provide time for the transmission of the impact of that decision to permeate the economy.
In view of a number of monetary and fiscal initiatives recently adopted by the CBN to resolve the imminent economic crisis following the outbreak of the COVID-19 pandemic, the CBN governor claimed that the MPC chose to be prudent by choosing to maintain policy parameters.
This, the Committee argued, would allow the CBN to assess the efficacy of these tools in addressing current economic challenges , especially with growing uncertainties within the domestic economy and external vulnerabilities.
After reviewing the three options, the MPC considered the monetary policy imperative at the May 2020 meeting to strike a balance between encouraging the recovery of output growth and reducing output growth while maintaining stable prices.
The Committee also took into account the modest improvement in economic conditions by the end of June 2020 following the steady recovery of economic activities as a result of the numerous interventions by the CBN in the economy.
The Committee also noted the substantial positive effect on credit growth in the economy as a result of the downward adjustment of the MPR by 100 basis points to 12.5 per cent last May to signal a loosening of the monetary policy stance of the CBN.
In addition, the MPC noted the positive effect of the various fiscal and monetary interventions on families, small and medium-sized enterprises and the manufacturing sector. It noted that increasing MPR at this stage would be counter-productive, resulting in an upward pressure on market rates and production costs.
The Committee also examined the effects of the various initiatives by the CBN to resolve some of the systemic concerns posed by the economic pandemic of COVID-19.
Specifically, the MPC expressed optimism about the future impact of the N50 billion ‘Household and SME’ facility, of which N49.2 billion has been disbursed, on more than 92,000 beneficiaries.
Also noted was the N100 billion healthcare and N1 trillion manufacturing and agricultural interventions to support the rebound in growth from the impacts of the pandemic on the economy.
The Committee further commended the CBN coordinated CA-COVID – Private sector intervention scheme – which mobilised over N32 billion to support the economy.
The Committee noted that the CBN disbursed over N152.9 billion to the manufacturing sector to finance 61 manufacturing projects and another N93.6 billion to the healthcare sector, amongst many other sector-specific facilities.
