- Raises MPR by 15.5%”
By Munachimso Obienyi
The Central Bank of Nigeria (CBN) on Tuesday, ordered Deposit Money Banks (DMBs) to fund their Cash Reserve Requirement (CRR) accounts as it would start debiting banks by Thursday this week.
This was even as the Monetary Policy Committee (MPC) of the CBN, announced a 1.50 percent raise to the existing (14 per cent) MPR bringing it to 15.5 percent, stating that this was done to tackle the aggressive inflation bedeviling the nation’s economy.
The CBN Governor, Godwin Emefiele made these annoucements at a media briefing after that Monetary Policy Committee meeting in Abuja.
Whilst pointing out that the global economy is still recovering from the effects of COVID-19 which impacted Nigeria’s environment, Emefiele noted that the MPC retained other monetary parameters constant around the MPR. This implies that the apex bank’s asymmetric corridor of +100/-700 basis points was also retained, the liquidity ratio at 30 per cent while the Cash Reserve Ratio was raised to 32.5 per cent.
He said, “What we have also done is to move CRR up by 5 per cent to a minimum of 32.5 per cent. We have also said we will move MPR up by 150 basis points and that means we have moved MPR up by over 400bps in the last one month.
What does this mean for the banks? This means that we have increased the CRR and we expect that this decision at this meeting must be seen to be potent and must achieve the effect that the MPC thinks it should achieve.
“We expect that all the banks in Nigeria must fund their account by Thursday because we will debit them for CRR. We will take their CRR at a minimum of 32.5 per cent and that means we are going to take liquidity out of their vaults by Thursday”.
Emefiele further added that if any bank fails to meet up with these expectations, the decision of the MPC is that it may exclude those banks from foreign exchange market on Friday and onward until they meet the 32.5 per cent requirement.
According to him, this is meant to underscore that the aggressive decision taken by the MPC to rein in inflation would yield results.
“We do not want to face Nigeria in the next few months and begin to take blame for not being able to rein in inflation in spite of all the rates that we have raised. So we have decided to adopt a two-pronged approach, increasing interest rate, CRR going up because we must mop liquidity effectively out of the halls of the banks”, Emefiele said.
Speaking further on the decision of the MPC, the CBN Governor, hinted that the committee might continue to raise rates if inflation keeps trending upwards.
“When one does not raise rate or is mute, what will happen is that consumption and investment expenditure will be affected because purchasing power of the citizens will erode and completely dissipate or you will see that once inflation continues to bite, the quantity of goods you can buy with some money will reduce and that is what also helps to increase the level of poverty in your country”, he said.
