Business & Investment

To maintain recovery, CBN will extend pandemic interest rate cuts

The· Central Bank of Nigeria (CBN) interest rate extension According to most analysts surveyed by Busines Day, a further 12-month decline during the pandemic (formally known as the discounted interest rate) is seen as a major boost to the economy licking the wounds from the recession. I will.

The discounted interest rate is the interest rate charged by the financial authorities, in this case the CBN of the savings bank.

On March 1, 2020, CBN reduced the interest rate on the intervention fund from 9% to 5% annually for one year.

This reduction was part of measures to mitigate the negative impact of the COVID-19 pandemic on the Nigerian economy. One of the main impacts of the intervention was the management of non-performing loans (NPL) in the banking system.

Non-performing loans in the banking sector rose from 5.88% at the end of November 2020 to 6.01% at the end of December 2020, above the health limit of 5.0%, but analysts said this without discount facilities. Said it was worse than. Moratorium of banks and other financial institutions.

Akintunde Olusegun, an analyst at Polaris Bank Limited, said extending the discount rate is good for the economy as the COVID-19 pandemic continues. Most of the affected companies have not recovered, and ending it now would not have helped them.

He said CBN acted in the right direction, saying: The impact of previous discount rates was seen on GDP, which was contrary to the expectations of most economists and the IMF. Surprisingly, Nigeria has emerged from the recession. “

This extension was positively impacted by the first discount intervention facility recorded in 2020. The renters of the facility were mainly manufacturers and agribusiness operators.

According to FBNQuest data, the Manufacturing Purchasing Managers Index (PMI) recovered steadily from 44.5 to 53.0 in February 2021. A good recovery was driven by SMEs.

This is a positive development, according to Evo Ayodigi, Head of Retail Investment at Chapel Hildenham. It helps banks manage their bad debts. If it is positive, it gives them room. Last year’s CBN intervention facility discount rates provided support to most businesses, especially the real sector. It helped increase crop production and reduce cost of capital.

According to the National Bureau of Statistics of China (NBS), agriculture contributed 24.23% to nominal GDP in the fourth quarter of 2020, higher than the rate recorded in the fourth quarter of 2019, but in the third quarter of 2020. It is lower than the 23.38% recorded in. 28.41% each. Agriculture’s annual contribution to nominal GDP in 2020 was 24.45%. Crop production increased by 3.68% in the fourth quarter of 2020 from 1.38% in the third quarter of 2020 and 2.52% in the fourth quarter of 2019.

As of January 2021, total spending on CBN intervention facilities reached 2 trillion N. Specifically, CBN paid 426,016 N to 426,016 beneficiaries from the COVID-19 Target Credit Facility (TCF) for homes and small businesses. It also paid 106.96 billion N to 27,956 beneficiaries under the Agribusiness SME Investment Scheme (AGSMEIS) and 72.96 billion N to 73 projects, including 26 pharmaceutical projects, at healthcare support intervention facilities. Among other things, 47 hospital and healthcare service projects in the country.

Olalekan Aworinde, senior lecturer at the Faculty of Economics at Pan-Atlantic University in Lagos, explained that the discounted interest rate is the interest rate charged by the monetary authorities, in this case the CBN of the savings bank.

Discount rates are used to determine or measure the time value of money in the economy.

“CBN, which extends discounted interest rates for the purpose of intervention, is the right step in the right direction. The economic impact of this is likely to be positive. Lower interest rates will also affect lending rates. Would be. “

This means that interest rates on loans will also fall, giving investors and entrepreneurs access to loan funds at lower interest rates.

Another implication, he said, would be that it would give the economy an increase in the level of investment, thereby lowering the level of employment, and later producing growth.

Frank Onieb, chairman of the Apapa branch of the Nigerian Manufacturers Association (MAN), added that the move was timely and highly beneficial to business owners, especially manufacturers, and praised financial regulators for the extension.

“In line with the general economic trends, manufacturers are struggling, which helps reduce their business burden. Such policies will help Nigerian manufacturers thrive and have a significant impact on the economy. It’s what you need to give, “says Onieb.

Recently, the production process has become extremely difficult due to the shortage of FX and the difficulty in obtaining raw materials locally, he added, adding that the inventory of unsold products is increasing due to the decrease in demand.

He said many manufacturers were beneficiaries of the intervention facility in 2020, but for now they will work on repayment of existing loans rather than renting new ones.

To maintain recovery, CBN will extend pandemic interest rate cuts

https://businessday.ng/banking-finance/article/to-sustain-recovery-cbn-extends-interest-rate-cut-on-pandemic-loans/ To maintain recovery, CBN will extend pandemic interest rate cuts

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