CBN’s measures in line with IMF policy steps to addressing impact of Covid-19

As the coronavirus spreads across the globe, decisive and coordinated action is key to providing stability to the global economy and financial markets, boosting confidence, and preventing deep and prolonged economic effects, according to the International Monetary Fund (IMF).

Central banks, the Washington based Fund said should support demand and confidence by easing financial conditions, ensuring the flow of credit to the real economy, and fostering liquidity in domestic and international financial markets.

Consequently, the Central Bank of Nigeria (CBN) on Monday established a N50 billion credit facility through NIRSAL Microfinance Bank Limited, for households and Small and Medium Enterprises (SMEs) that have been particularly hard hit by coronavirus.

The beneficiary sectors include but not limited to airline service providers, hoteliers, and healthcare merchants.

Akintunde Olusegun, financial market analyst at Polaris Bank Limited, said the policy measures rolled out by CBN is a welcome development if well executed by all affected stakeholders, most especially, the policy around the regulatory forbearance, reduction of rates and credit support.

“Energy, Aviation and hospitality businesses are the most hit globally by the effect of the virus. A move that cushion the impact on the affected sectors will save jobs and also forestall their inability to meet their obligations to banks. However, more stimuli like this policy is required as the virus continues to ravage global economy,” he said.

Beyond bank loans, Olusegun said the CBN should also look at any corporate bond, commercial paper or any other debt instruments that might have been issued by any of the businesses most affected by the outbreak and extend policy measures that will ensure that there is no default on such instruments interest or principal repayments.

Other policy measures announced by the CBN include interest rate reduction on all intervention funds from 9 percent to 5 percent per annum for one year, effective March 1, 2020, regulatory forbearance for deposit money banks, strengthening of Loan to Deposit Ratio (LDR) policy, credit support for healthcare industry and one year extension of moratorium for all CBN’s intervention facilities.

Governor Godwin Emefiele said the ravaging coronavirus scourge had presented impetus for the CBN to provide support for affected households, businesses, regulated financial institutions, and other stakeholders in order to cushion the adverse economic impacts of the coved-19 pandemic.

The CBN said in a circular signed by Kevin Amugo, director, financial policy and regulation that it stands ready to provide liquidity backstops as and when required.

IMF said monetary easing will support demand and confidence while reducing borrowing costs for households and firms. In addition to rate cuts (where there is policy space), stimulus can be provided through forward guidance about the expected path of monetary policy, and expansion of asset purchases (including risky assets).

“Temporary targeted measures will support sectors that have been hit hardest. To complement generalized policy measures, more targeted support for certain asset classes should be considered,” the Fund said on Monday.