CBN raises CRR to 12% as foreign reserves hit $37bn

[MrVan]

By Emma Ujah, Abuja Bureau Chief

ABUJA — The Central Bank of Nigeria, CBN, yesterday, tightened liquidity in the banking system, by raising the Cash Reserve Requirement, CRR, from 8.0 per cent to 12.0 per cent.

With the new requirement, banks will now be left with less cash and, therefore, with less money to lend to their customers or play around with, in a measure that the Governor of the CBN, Mallam Sanusi Lamido Sanusi, said was to check rising inflation.

The apex bank's boss who announced the new policy in Abuja, said the requirement takes effect from today.

Sanusi, however, announced a retention of the Monetary Policy Rate, MPR, at 12.00 per cent with symmetric corridor of +/-200 basis points, while reducing the Net Foreign Exchange Open Position, NOP, to 1.0 per cent from 3.0 per cent with immediate effect.

C'ttee reviews challenges

Sanusi said the Monetary Policy Committee, which assists the apex bank in its policy decisions, reviewed the series of challenges the nation's economy faced, particularly the declining global economy and its effects on the Nigerian oil revenue as well as the inflationary outlook and decided to take steps that might be painful in the immediate but better than allowing the nation to be confronted with a worst economic performance.

His words: "The committee recognised that a logical response to the increasing inflationary outlook would be an increase in the MPR, especially considering the impact of sustained liquidity in the banking system on exchange rates.

"However, it is important to note that the significant liquidity on the books of banks has not led to intermediation and lending to the real economy. Banks have continued to take advantage of high yields on government securities to direct credit away from the core private sector. In addition, the liquidity has provided ammunition for speculative activity in the foreign exchange market with implications for inflationary expectation.

Policy trajectory

"Against the foregoing, therefore, the MPC reiterated the need to choose a policy trajectory that would have the least negative impact on the wider economy, to the extent that the longer-term benefits to the economy far outweigh the short-term costs".

Justifying the new requirement further, the CBN boss said "the raise of the CRR is primarily about contribution to stability. At the moment, if you look back to what happened a few weeks ago, we had a lot of pressure on exchange rate and the only reason we are able to keep the Naira stable was we tighten money and increased supply from the reserves of dollars.

On the external sector, Sanusi said the nation's foreign reserve stood at US$37.16 billion, as at July 19, representing an increase of US$ 0.33 billion over the level of US$36.83 billion at end-May.

 

Vanguard Nigeria