CBN battles inflation, to mop up excess funds

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The Monetary Policy Committee of the Central Bank of Nigeria (CBN) has announced its decision to move the Cash Reserve Ratio (CRR) formerly at 22.5% to 27.5%.

Speaking to newsmen after the committee’s meeting in Abuja, the CBN governor, Mr Godwin Emefiele said the upward movement in the CRR was a deliberate decision by the MPC to mop up excess liquidity in the system by the apex bank.

The Cash Reserve Ratio is the share of a bank’s total deposit that is mandated by the CBN to be kept with the latter in form of cash.

The development, according to the apex bank is part of measures aimed at driving down inflation which had in the last four months remain high.

Data from the National Bureau of Statistics indicates that inflation rate had gone up to about 11.98 per cent in December which is the highest in recent times stressing that the current aimed at mopping up excess liquidity from the banking system which has become a threat to inflation.

He said nine (9) members out of eleven (11) members of the committee voted to move the CRR from 22.5 per cent to 27.5 per cent.

He further said that the committee decided to retain all other parameters including the Monetary Policy Rate at 13.5 per cent, Liquidity Ratio at 30 per cent and the Asymmetric corridor which was left at +200 and -500 basis points around the Monetary Policy Rate(MPR).

He said the committee is worried about the rising inflation, which increased consecutively in the last 4 months as at December 2019 to 11.98 per cent and higher than its target range of 6-9%.

According to him, the rising price level is attributable to a combination of structural and supply side factors, expansionary fiscal policy; and growth in money supply arising from rising liquidity surfeit in the industry due to changes in the Bank’s OMO policy.

“In furtherance of its primary mandate to maintain price and monetary stability and in view of the anticipated medium-term liquidity surfeit from maturing OMO bills held by local private and institutional investors, which would not be rolled over, the Committee considered it prudent to raise the CRR to curtail liquidity surfeit in the banking system”, he said.

He further explained that the Committee is confident that increasing the CRR at this time is fortuitous as it will help address monetary-induced inflation whilst retaining the benefits from the Bank’s LDR policy, which has been successful in significantly increasing credit to the private sector as well as pushing market interest rates downwards.

The Committee further encouraged the Management of the Bank to be more vigorous in its drive to improve access to credit through its pursuit of the Loan-to-deposit ratio policy as doing this would help, not only in creating job opportunities but also help in boosting output growth and in moderating prices.