CBN retains MPR at 12%, raises CRR on private sector deposits to 15%

The Monetary Policy Committee, (MPC) of the Central Bank of Nigeria (CBN) yesterday decided to continue the tight monetary policy to keep inflation under check by retaining the Monetary Policy Ratio at 12 per cent.

Rising from the Monetary Policy Committee meeting, the first to be headed by the apex bank Acting Governor, Dr. Sarah Alade announced the raising of the Cash Reserve Requirement (CRR) on all private sector deposits in banks from 12 per cent by 300-basis point to 15 per cent.

The consequence of the new policy action is the attendant rise in interest rate as this will lead to the reduction of funds available for lending to the domestic economy and particularly to the real sector for expansion of activities to diversify the Nigerian economy.

Announcing the outcome of the MPC meeting at a press briefing in Abuja, the Acting Governor said that of the nine members of the MPC present at the brainstorming, five voted for the review of the MPR while four voted for the wholesale retention of its indices.

She explained that the MPC considered the success of Monetary Policy in attaining price and exchange rate stability; the potential headwinds in 2014; the ultimate goal of transiting to a truly low – inflation environment; and the need to retain portfolio flows.

Accordingly, she added that the Committee unanimously voted for further tightening of monetary policy but were divided on the instruments. While some voted for an increase in the MPR to retain and attract more inflows, others, she noted, felt that such increase could impact negatively on access to credit and domestic growth.

Giving more details of the decisions Alade said, “Five (5) members voted to keep MPR at 12%, while four (4) members voted for an increase in MPR. Seven (7) members voted to retain the MPR corridor at +/-2%, while two (2) members voted for an asymmetric corridor; seven (7) members voted to increase CRR on private sector deposits by 300 basis points to 15%, while two (2) members voted to retain the CRR on private sector deposits at 12%. The Committee, therefore, decided by a majority vote of 5 to 4 to hold the MPR and its corridor at current levels but raised the CRR on private sector deposits by 300 basis points to 15 per cent.’’

Alade gave further background on what informed the Committee’s decisions: “The Committee unanimously agreed that a continuation of a tight monetary policy was needed to consolidate recent gains.

“The MPC welcomed the growth expectations but expressed concern that the industrial sector has continued to lag behind. The Committee noted that growth remained consistently in favour of the agricultural sector, noting that the continued achievement of relative exchange rate stability and single digit inflation in 2014 given the risks in the horizon will require extra-ordinary measures. The Committee viewed some of the developments as positive optimism by the market relative to other emerging market economies. While tension in Ukraine over Russia’s claims to Crimea remained serious, direct trade and financial links between Nigeria and the duo remained largely limited. Thus, the risk premium could come from rising oil and gas prices, which were deemed positive shocks.’’

 

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