Godwin Emefiele (pictured), governor of the Central Bank of Nigeria (CBN), announced on September 22 that the bank has lowered its key interest rate from 12.5 to 11.5%.

By stimulating credit, the CBN's Monetary Policy Committee (MPC) hopes to face a recession that has been threatening the country since the beginning of the coronavirus pandemic. According to officials, this action will provide cheaper credit to improve aggregate demand, boost output, reduce unemployment, and support the resumption of output growth.

Of the 10 MPC members, six voted in favor of the measure, the second of its kind since the beginning of the year. This decision comes at a time of rising inflation in Nigeria, exceeding the Central Bank's forecasts.

Due to restrictions aimed at slowing the spread of the coronavirus, food prices, already on the rise after the latest protection measures in Abuja, has soared. Also, a drop in the price of oil, the country's main export, has led to a drop in its dollar reserves and GDP.

Also, the government's decision to end fuel subsidies has led to an increase in the cost of petroleum products while the purchasing power of the population has declined.

According to many analysts, no amount of credit stimulus will be enough to revive the economy as long as President Buhari maintains restrictions on access to foreign currency, from food and fertilizer imports, and until the other major problems in the economy are resolved.

“Any policy that focuses on stimulating credit growth alone without a major revamp of the structural bottlenecks in the economy will do little to provide cheaper credit” to boost output,” said Oluwasegun Akinwale, a research fellow at Nova Merchant Bank Ltd., quoted by Bloomberg.

As a reminder, in the worst-case scenario, Nigeria expects to record a recession of around 8.9% in 2020. For the last quarter of the year or by the first quarter of 2021 at the latest, the Central Bank expects to return to positive growth after the 6.1% year-on-year economic contraction recorded in the second quarter of 2020.

Moutiou Adjibi Nourou