The Monetary Policy Committee (MPC) of the Central Bank of
Nigeria(CBN), at the first meeting of the year held on Friday, January
24, 2020 voted to raise the Cash Reserve Requirement (CRR) to 27.5%.
The CRR determines the minimum deposit commercial banks must
hold in reserves with the Apex Bank rather than lend out. With the raise,
Deposit Money Banks in Nigeria would have to increase their cash reserves with
the Central Bank.
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Speaking to CBN Correspondents after the MPC meeting at
Abuja, the CBN Governor, Godwin Emefiele, stated that the Committee by a
decision of nine members, voted to alter the Cash Reserve Requirement (CRR) by
500 basis point from 22.5 percent to 27.5 percent while leaving all other
policy parameters constant.
According to him, the MPC voted to change the CRR from 22.5
to 27.5 percent, retain the MPR at 13.5 percent, retain the Assymetric Corridor
of +200/-500 basis point around the MPR and retain Liquidity Ratio at 30
percent.
Emefiele, while noting that the CRR is being used to mop up
liquidity in order to control inflation, opined that Monetary policy could not
sit idle and allow inflation to rise above 12 percent, and so, it took the
decisions to be very aggressive, through tightening and using all forms of
monetary policy instruments available to the bank to drive down inflation.
According to him, “Committee realised that there is a
lot of liquidity in the market, particularly also coming from not only the
fiscal but also the fact that some actors have been excluded from the Open
Market Operation (OMO).
“Committee felt that there will be a lot of liquidity
in the market and there was need for the bank to do something to mop the excess
liquidity to a level that it considers optimal to be able to run the economy,
in a way that the level of excess liquidity does not become injurious to the
economy.
“Committe increased the CRR to take the liquidity
out”, he said.
He further said that to retain the gains from the credit
expansion and current industry focus on lending, Committee advised the bank to
sustain its current loan to deposit ratio policy.
“Whereas we are trying to remove the excess liquidity,
the CBN should continue to push on the loan to deposit ratio, to ensure that
the economy can run in an optimal way. It will not constrain lending”, he
remarked.
Emefiele added that the MPR would be maintained at its current rate due to the need to understand the growth trend of the year.
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