The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) on Friday raised the Cash Reserves Ratio (CRR) from 22.5 per cent to 27.5 per cent. While maintaining the Monetary Policy Rate MPR at 13.5%.
This means Deposit Money Banks (DMBs) in the country will have to increase their cash reserves with the apex bank.
The CRR is the share of a bank’s total deposit that is mandated by the CBN to be maintained with the latter in the form of liquid cash.
It is used by the CBN to ensure that a part of Deposit Money Bank’s cash is with the Central Bank and is hence, secure. It influences funds available at the bank’s disposal to create loans.
Addressing journalists shortly after the committee’s two-day meeting, CBN Governor, Godwin Emefiele, said the move was aimed at mopping up excess liquidity from the banking system which has become a threat to inflation.
He said nine members out of eleven voted to alter the CRR from 22.5 per cent to 27.5 per cent.
The governor said apart from the CRR that was increased, the committee decided to retain the Monetary Policy Rate (MPR) at 13.5 per cent.
Also retained are the Liquidity Ratio which was left at 30 per cent; and the Asymmetric Window which was left at +200 and -500 basis points around the MPR.
Emefiele noted that inflation rate is still above the target band of 6% to 9% and “inflation above the 12% will be inimical to output growth”.
Figures from National Bureau of Statistics (NBS) showed that inflation rate had risen to about 11.98 per cent in December – from 11.85% in November – which is the highest in recent time.