Central banks tackle COVID-19 with monetary policy measures

Policymakers and central bankers in the West African Monetary Zone (WAMZ) are tackling COVID-19-induced difficulties in the maintenance of price, financial system stability and sustainable growth in their economies. The central bank governors in WAMZ member-states met in Lagos to discuss diverse and tailored measures deployed by them to meet the peculiar shocks the pandemic had exposed their individual economies. The central banks have also implemented various forms of liquidity measures to support the government’s short-term budgetary needs as well as other liquidity assistance frameworks to support small businesses, writes COLLINS NWEZE.

The West African Monetary Zone (WAMZ) member states and their central bankers have for years maintained a common drive to achieving regional economic integration and monetary union. That vision is continually being nurtured even in the face of COVID-19 pandemic which spared no economy, across the globe.

But the central bakers in WAMZ region decided to take the bull by the horn by instituting several monetary policy measures to keep their economies up and running.

During a WAMZ symposium hosted by CBN in Lagos, the six-member countries of Gambia, Ghana, Guinea, Sierra Leone, Nigeria and Liberia made presentations on steps they are taking to keep their economies going.

The symposium was attended by Central Bank Governors/representatives of member states, Director Generals of West African Monetary Institute (WAMI), West African Monetary Agency (WAMA), West African Institute for Economic and Financial Management, (WAIFEM), Nigeria’s Minister of Finance and Director, Country Department, International Monetary Fund, (IMF).

Globally, central banks carry out a nation’s monetary policy and control its money supply, often mandated with maintaining low inflation and steady Gross Domestic Product growth. On a macro basis, central banks influence interest rates and participate in open market operations to control the cost of borrowing and lending throughout an economy.

Speaking at the symposium with the theme: “Monetary Policy Responses of the Member States of the West African Monetary Zone (WAMZ): Emerging Lessons From Covid-19 Pandemic”, CBN Governor Godwin Emefiele said the gathering provides the much-needed forum for stakeholders to discuss their countries’ respective responses to the COVID-19 Pandemic and draw lessons from experiences for better intra-regional collaboration and coordination.

He said that the COVID-19 pandemic precipitated an economic emergency of unparalleled magnitude to national and global economies.

As it were, Central Banks across the advanced, emerging and developing economies had assumed a leading role in fashioning sets of policy responses to both the demand and supply-side shocks that the pandemic had exerted on their economies.

In most cases, the responses stretched monetary policy beyond its conventional boundaries, in order to prop up the many activities affected by lockdowns and the associated curtailment measures.

Emefiele said responses of central banks across the WAMZ had been timely, proactive and very commendable, with a focus at ensuring price and financial system stability, while also mitigating financial fallout on both corporates and households.

Broadly, responses of monetary policy across the zone were diverse and tailored to meet the peculiar shocks the pandemic had exposed their individual economies.

The monetary policy responses within the zone can be characterized, amongst others, to include reductions in policy rates, ostensibly aimed at reinvigorating growth in response to the sudden economic contraction caused by COVID-19.

Central banks have also implemented various forms of liquidity measures to support the government’s short-term budgetary needs as well as other liquidity assistance frameworks to ensure market liquidity.

He said there were in addition measures aimed at stabilising the foreign exchange market in the face of supply shocks precipitated by the pandemic. Also, spates of interventions to support and strengthen health institutions and medical support services to mitigate the impact of the pandemic were undertaken.

Emefiele said the measures had been very helpful in navigating the respective economies through this difficult time. “The need, however, remains imperative for monetary policy responses to the pandemic in the WAMZ to be synergised and coordinated in order to preserve the gains already achieved towards regional integration, particularly given evidence of interdependencies and likely spillover of the respective macroeconomic responses across the economies of the zone,” he said.

“To achieve this, it becomes imperative to create a forum like this to facilitate the sharing of country experiences on monetary policy responses in the management of the adverse socio and macroeconomic effects of the pandemic. This will go a long way to improve respective country performance in meeting the WAMZ convergence criteria”.

Emefiele has described the responses of member states of West African Monetary Zone, (WAMZ), on the global pandemic as timely, proactive and commendable. These responses according to him were aimed at ensuring price and financial system stability, while also mitigating financial fallout on both corporates and households.

While noting that the pandemic had precipitated an economic emergency of unparalleled magnitude to national and global economies, Emefiele, however, stated that the dialogue will provide the much-needed forum to discuss regional responses to the pandemic for better and intra-regional collaboration and coordination. He added that “the Pandemic posed difficult challenges to policymakers and central bankers in the maintenance of price and financial system stability while keeping an eye on the growth performance”.

Continuing, the governor further stated that the ”Pandemic posed difficult challenges to policymakers and central bankers in the maintenance of price and financial stability while keeping an eye on growth performance”. It was in view of this, according to him, that “Central Banks across the advanced, emerging and developing economies had assumed a leading role in fashioning out policy responses to both the demand and supply-side shocks that the pandemic had exerted on the economies, recalling that no economy, including those of WAMZ, was spared from the fall-out of the COVID-19 outbreak”.

On his part, Commissioner, Microeconomic Policy and Economic Research of the ECOWAS Commission, Kofi Konadu Apraku, who represented President of ECOWAS Commission, Jean Brou, said the organisation of the symposium is a clear testimony of the determination and commitment of WAMZ in overcoming the economic and social challenges presented by the COVID-19 pandemic.

Apraku said that global concerns about the pandemic have revolved around its overall impact on the economy, health and humanitarian impacts, with particular emphasis on the sectors of the economies that are most vulnerable.

He said the outbreak has generated demand and supply shocks across the global economy with an economic slowdown and significant negative impacts on financial markets.

The devastating economic and financial impacts are still ongoing. The extent of the damage would ultimately depend on how quickly the virus is contained and how governments respond in terms of the steps taken to contain it, as well as economic support governments, are able to deploy to mitigate the epidemic’s impacts.

ECOWAS, like all regional economic communities, is very concerned about the unprecedented negative health, economic and humanitarian impacts of the COVID-19.

“To activate a regional response to the pandemic, and based on the assessment of its effects, the ECOWAS Head of States and Government at its Extraordinary Summit helming in April expressed deep concern about the spread of COVID-19 and its negative social, economic, financial and human security impact on all ECOWAS Member States,” he added.

He said the summit further acknowledged the immense efforts of Member States in terms of the various response measures put in place to mitigate the negative impacts of the pandemic to regenerate economic growth and reduce negative social, humanitarian and public health impacts of the pandemic.

The summit presented opportunity to set up three Ministerial Coordinating Committees, namely a Ministerial Coordinating Committee on Health, Ministerial Coordinating Committee on Finance (including ECOWAS Central Bank Governors) and the Coordinating Committee of Ministers of Transport, logistics, free movement and trade with the broad responsibility to establish conference between the national and regional strategies and ensure that all the economic and financial impacts linked to COVID-19 are addressed effectively.

The summit also appointed President Muhammadu Buhari as the “Champion” for this cause and took some far-reaching decisions, including deploying, through the Central Banks, tools, means and significant liquidity to support SMEs and Microfinance Institutions in all member states.

He said the Central Banks of the WAMZ have taken the bull by the horn and with this programme to examine and share country experiences on monetary policy responses in managing the COVID-19 pandemic.

“As the pandemic and the related containment measures undertaken by member states of WAMZ have significant and widespread impact on economic activities, the WAMZ Central Banks have the responsibility and essential foundation for sustainable economic growth and job creation,” he stated.

He said the ECOWAS Commission will continue to strengthen its cooperation with Central Banks, Regional Institutions and the Member States in the diligent implementation of the conclusions emanating from the symposium.

He advised that Governors work more with stakeholders in their respective counties to galvanise renewed interest and commitment in ensuring rapid economic recovery in their various countries.

Key interventions by govt

Significantly, the Nigerian economy has taken a big knock because of Covid-19. In line with established best practices, it is the responsibility of government (like most western countries) to reboot the economy by supporting businesses with various incentives which can also include a business support fund.

The government has so far done through the various Covid-19 committees injected funds to support the economy. Some of the notable initiatives being implemented are the Nigeria Economic Sustainability Plan (NESP), and its injection of N2.3 trillion into the economy over a period of 12 months.

There is also the Ministry of Trade and Industry, Micro, Small and Medium Enterprises Survival Fund, which incorporates a Guaranteed Off take Stimulus Scheme and the Credit Support to Micro Small Medium Enterprises.

The N100 billion CBN facility for pharmaceutical and healthcare-related industries, under the COVID-19 intervention scheme.

The Special Public Works programme expected to engage 774, 000 Nigerians to cushion the effect of COVID-19 pandemic, among others.

Monetary policy actions against COVID-19

Many African central banks, within and outside WAMZ took certain regulatory and monetary policy actions to support their economies and businesses against COVID-19 impacts.

The Central Bank of Algeria took regulatory and monetary policy measures including amending the minimum reserve system, the key interest rate for bank refinancing and the terms and conditions of open market operations.

The Central Bank of Algeria also fixed the minimum reserve ratio at six per cent of the reserve base; set the key interest rate for the main refinancing operations at three per cent instead of 3.25 per cent.

The bank further lowered the minimum threshold of the liquidity ratio to 60 per cent. In Nigeria, the CBN injected liquidity into the banking sector in order to protect jobs, stimulate local economic production and the process of import substitution.

The Central Bank of Nigeria also provided a one-year extension of a moratorium on principal repayments for the central bank’s intervention facilities; reduced interest rate on intervention loans from nine per cent to five per cent and regulatory flexibility for banks to restructure facilities in the affected sectors.

Bank of Ghana provided a range of monetary policies to support the economy reduction of the key interest rate to an 8-year low of 16 per cent to 14.5 per cent; lowering reserve requirements for lenders from 10 per cent to eight per cent to provide liquidity support to critical sectors.

The Bank of Ghana also lowered the reserve requirement for lenders from 10 per cent to eight per cent to provide liquidity support to critical sectors; decreased in bank retention margin from three per cent to 1.5 per cent, reducing the capital adequacy ratio from 13 per cent to 11.5 per cent.

The Central Bank of Sierra Leone lowered the monetary policy rate by 150 basis points, from 16.5 per cent to 15 per cent; the Central Bank of the Republic of Guinea (BCRG) reduced BCRG’s key interest rate by one percentage point; the Central Bank of Liberia decided to reduce the monetary policy rate from 30 per cent to 25 per cent while the Central Bank of The Gambia lowered its policy rate by 50 basis points to 12.0 per cent.

Also, the South Africa Reserve Bank (SARB) reduced its main lending rate by 50 basis points to 3.75 per cent and purchased government bonds to the value of Rand (R) 11.4 billion (USD 684 million).

The Bank of Tanzania (the BoT) took some steps to introduce policy measures to safeguard the stability of the financial sector.

The Federal council lowered the Statutory minimum reserves (SMR) requirement from seven per cent to six per cent. Also, in anticipation that banks may require additional funding from the BoT in light of COVID-19, the BoT has reduced the discount rate from seven per cent to five per cent.

The bank also reduced haircut on government securities from 10 per cent to five per cent for treasury bills and from 40 per cent to 20 per cent for treasury bonds.

It also provided regulatory flexibility to banks and other financial institutions that will carry out loan restructuring in a transparent and impartial manner and recommend to mobile money operators to increase daily transaction limit to customers, among others.

World Bank’s responses in African countries

According to the World Bank, the pandemic continues to take a toll on African lives and economies, pushing the region into its first recession in 25 years.

Many countries have seized the opportunity within the crisis to move faster on necessary reforms and investments that will be crucial for long-term development. However, concerns of a second wave are fueling further uncertainty.

Recent estimates show that COVID-19 could push up to 40 million people in Sub-Saharan Africa into extreme poverty.

The road to the recovery will be long and vary significantly across economies and sub-regions. As part of the global response, the World Bank Group will be deploying up to $160 billion in financial support over 15 months to help more than 100 countries protect poor and vulnerable people, support businesses, and bolster economic recovery. This includes up to $50 billion for African countries.

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