Why new Minimum Wage will boost the economy – CBN

The Central Bank of Nigeria (CBN) has welcomed the proposed new National Minimum Wage, saying that it would boost the economy.

CBN Governor, Mr Godwin Emefiele, disclosed the apex bank’s position while briefing the press on the outcome of yesterday’s Monetary Policy Committee, MPC, meeting, in Abuja.

According to Emefiele, Deposit Money Banks should avoid lending money to politicians for the 2019 general elections.

He expressed optimism that the proposed increase in the nation’s minimum wage would boost the economy through increased aggregate demand.

“Given the negative output gap, the proposed increase in minimum wage would increase aggregate demand, it will stimulate output growth after the prolonged weak aggregate demand which was due to salary arrears and contractor debts,” he said.

On the possible inflationary impact of the increased money supply due to increase in minimum wage, the CBN boss stated: “Its impact on aggregate price level would be likely muted, given that aggregate demand has largely underperformed in the fiscal year of 2018.”

The CBN boss reiterated that the economy’s recovery from recession was tepid and that efforts should be made to step up domestic aggregate demand through banks giving more access to credit to high employment generating sectors, with particular emphasis on Small and Medium Enterprises, SMEs.

This, he said, would be achieved with an improvement in productivity in both the oil and non-oil sectors of the economy, improvement in harvest, exchange rate stability and addressing security challenges across the country.

The downside of the economic outlook, according to Emefiele, include reduced portfolio investment inflows, absence of fiscal buffers, low domestic credit and weak aggregate demand.

He, however, added that there would be an increased inflationary pressure towards the end of the year, largely due to consumer spending for the Christmas festivities, election-related spending and an increased spate of implementation of the 2018 Federal Government budget.