CBN Adjusts CRR Upward to 27.5%, Holds Other Parameters Constant
By UDO ONYEKA
The Central Bank of Nigeria, CBN in its first-rate decision of the year, took a striking decision by adjusting the Cash Reserve Ratio (CRR) upward by 500bps to 27.5 per cent, while holding all other parameters constant.
The CRR raise the first time in four years is to curb excess liquidity on the banking system, which it said is contributing to inflation, according to CBN, Governor Godwin Emefiele.
The CBN kept benchmark interest rates on hold at 13.5 per cent.
“Maintaining the monetary policy rate at its present level is essential for sustainable support to growth before any possible adjustment,” Emefiele told reporters in Abuja.
“ While the committee highlighted increasing concerns around sustained inflationary pressure, which has persistently run ahead of the CBN target of 6.0 per cent – 8.0 per cent , its disposition reflects signs of the ineffectiveness of monetary policy tools in curbing consumer price pressures”, analysts have said. The analysts at Cordros Securities said amidst concerns of impending OMO maturities which are expected to significantly increase financial system liquidity, the 9 members of the monetary committee elected to increase the CRR.
“In our view, despite bourgeoning system liquidity, the imperative to drive credit extension to the private sector in a bid to support economic growth essentially nullifies any argument for a rate hike over 2020”, the analysts stated.
The nation’s inflation stood at 11.98 per cent in December, rising for the fourth straight month, worsened by Nigeria’s border closure in August to fight smuggling.
The CBN said inflation was outside its band of 6 per cent to 9 per cent and that it wanted to curtail inflationary pressure.
Emefiele said the bank would continue to sustain the value of the naira, though its dollar reserve of $38 billion was shrinking, no adjustment was planned.
Last year, the apex bank banned domestic funds from buying its treasury bills, keeping markets awash with naira. The move also contributed to lowering bond yields, keeping foreign investors away.
Foreign investors cut their participation in Nigerian government bond auctions last year because of lower yields. They moved into bills supported by the central bank.