Central Bank of Nigeria (CBN) Governor, 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, because the Q2 contraction may lead to a recession, if the third quarter of 2020 output growth numbers further show a contraction.
According to him, this was part of the resolutions of the Monetary Policy Committee meeting held last week.
“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.
Emefiele also said the MPC was confronted by policy dilemma, adding that though 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.
“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..