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Home Opinions Blurb

Why The CBN Is Doing All It Can To Stimulate The Economy

Nairametrics by Nairametrics
October 19, 2015
in Blurb, Politics
Why The CBN Is Doing All It Can To Stimulate The Economy
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If you haven’t noticed, the Central Bank of Nigeria is pouring billions into the Nigerian economy. It has been doing that via a combination of policy pronouncements, quantitative easing and spending hard cash. In fact, it has not issued new open market bills in three weeks. The CBN mops up cash from the system whenever it issues Open market bills. Just last week it repaid about N280billion in Open market bills. So why is the CBN pumping so much cash? Here are possible reasons;

TSA Impact

The Government recently forced its MDA’s to comply with the provisions of the Treasury Single Account (TSA). This has essentially wiped out about N700 billion from the coffers of commercial banks. That sort of amount is large enough to cause a jolt in an already fragile economy. One sensible way of mitigating the impact is not to suck out more cash via auctions.

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Fear of a recession

The National Bureau of Statistics recently reported that Nigeria’s GDP had slowed down to about 2.35% last quarter. Any further slow down in the just ended third quarter of the year will officially throw Nigeria into a recession. I bet the CBN Governor and indeed the new APC Government will not be favorably disposed to having a recession happen under its watch.

Stagflation

To make things worse, just as GDP growth rate is slowing down inflation rate is rising. This phenomenon is called a stagflation and can be very onerous to climb out of. Whilst the CBN is on one hand fighting off inflation by keeping rates high, it has also increased the cash reserve requirement of banks increasing the amount of money that they can lend out.

Government is not spending

The Federal Government should have applied a stimulus package if it had the money. Currently it doesn’t especially with the wave of oil price volatility and unstable production output. The government is basically fighting for its life and has little cash to spare in the name of a stimulus. The CBN cannot sit and watch things slip under its hands so its riding on a controversial provision in its act which gives it legal backing to perform developmental roles. This is what gives the CBN the impetus to announce intervention funds from sector to sector. It has already rescued the power and aviation sector and looks like to come to the rescue of the textile industry.

As for the common man on the street and the small business trying to survive it is not clear if this so called stimulus will trickle down. Usually when you hear stimulus you expect to feel it all around the economy. For now it is only being felt on paper.

Tags: Aviation NewsNigeria GDP
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Nairametrics

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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Comments 1

  1. George says:
    October 19, 2015 at 1:22 pm

    Folks,Stagflation is very much unneccesary, and can be prevented,THE QUESTION NOW IS WHY ?,HOW DID IT STARTED TO HAPPENED ? to me I think that the naira should be first competitive and convertible in international market.CAN A DIRECT ACTION BY NIGERIAN GOVT BY FIAT TO ENHANCED THE NAIRA POSSIBLE.then we talk about this stagflation.Stagflation happens when all activities comes to standstill, and it will create more inflation, and erode the purchasing power of the naira,and will improvishes millions of Nigeria.nigerian economy needs to grow a minimum of 12 % annual growth for about 5 years.if it did happened before,many years ago.IT WOULD HAVE BROUGHT OUT(1) THE ELEMENTS OF JOINING THE MISSING ELEMENTS OF PRODUCTION (2) THE BREAKING UP OF THE OLD PRODUCTION MODES{THE COMPETITIVE STREAK IN ECONOMIC PRODUCTION.
    Competitions brings out the best,the ugly,the selfishness,the truth,a nd seperates the sheeps from the goat,if the nigerian economy contracts in the next quarter this year, and the first quarter of next year,the gov. of c.b.n and gen, buhari will kiss their job bye,bye at the gov renewal of his contract,and at the next general election.
    Those who support gen. buhari are young Nigerian under 50 yrs,mostly aged 20yrs,30yrs,40yrs.they want changes fast now,not in the next 10 yrs.why not increases the rates of taxation at the top( the riches) and transfers fund into new economic growth,to empower Nigerian economy and Nigerians.but it’s going to be difficult unless inflation is very much tamed

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