…Directs banks to comply with 32. 5% CRR latest tomorrow

...As Foreign Reserves stands at $38. 5bn

Emma Ujah, Abuja Bureau Chief

The Central Bank of Nigeria (CBN) has raised the Monetary Policy Rate (MPR) to 15.5 percent, from 14 percent in an aggressive move to fight inflation in the country.

The Governor of CBN, Mr. Godwin Emefiele, disclosed this while briefing the press at the end of the 5th Monetary Policy Committee meeting in 2022, in Abuja, yesterday.

He also announced an increase in the Cash Reserve Ratio (CRR) to a minimum of 32.5% from the July CRR of 22.5 percent, while retaining Liquidity Ratio at 30%.”

Mr. Emefiele said, “The committee voted unanimously to raise the MPR…The MPC voted to raise the MPR to 15.5, retain the asymmetric corridor at +100 -700 basis points around the MPR. Increase the Cash Reserve Ratio (CRR) to a minimum of 32.5% and retain liquidity ratio at 30%.”

On why the rate was raised, he said, “Members deliberated the impact of the widening margin between the current policy rate of 14 percent and the inflation rate of 20.52 percent.

“At this meeting, the option of reducing the policy rate was not considered as this would be gravely detrimental to reigning in inflation. The committee thus agreed unanimously to raise the policy rate to narrow the interest rate gap and rein in inflation. The committee thus voted unanimously to raise the MPR.

“10 members voted to raise the MPR by 150 basis points, one (voted to raise it) by 100 basis points and one by 50 basis points. 10 members voted to increase CRR (Cash Reserve Ratio) by 500 basis points, while two members voted to increase it by 750 basis points.”

Explaining further why the committee raised the rate, the governor said, “The MPC noted with concern the continued aggressive movement in inflation, even after the rate hike at its meeting in May and July 2022, and expressed its unrelenting resolve to restore price stability, while providing the necessary support to strengthen the fragile recovery.

Why rate was raised

The governor said that members deliberated on the impact of the widening margin between the current policy rate of 14 per cent and the inflation rate of 20.52 per cent.

His words, “At this Meeting, the option to loosen the policy rate was not considered as this would be gravely detrimental to reining-in inflation. The Committee thus, agreed unanimously to raise the policy rate to narrow the negative real interest rate gap and rein-in inflation.

“The Committee thus voted unanimously to raise the Monetary Policy Rate (MPR) and the Cash Reserve Requirement (CRR).  Ten members voted to raise the MPR by 150 basis points, one member by 100 basis points, and another member by 50 basis points. Ten Members voted to increase the CRR by 500 basis points, while two Members voted to increase CRR by 750 basis points.”

 Explaining further, Mr. Emefiele said, “Our research study at Central Bank has shown us that once inflation trends above 13 per cent, it will retard growth. We have seen inflation in the last four months move so aggressively in Nigeria.

“It is difficult for us, for this MPC with all the data available, with all the research that has been conducted; it is difficult for us not to go in a very aggressive way we decided to go today.

“What we have done at this meeting is to say we will move CRR up by five per cent to a minimum of 32.5 per cent; that we will move MPR up by 150 basis points. That means over the last four months, we moved MPR up by over 400 basis points.

“But at the same time, let us not forget that the inflation rate in Nigeria at 20.5 percent is still higher than our policy rate which means we are still in the realm of negative interest rate which remains injurious to the economy.”

The governor directed all banks to comply with the new CRR by adequately funding their account, latest on Thursday, saying that CBN would ensure that each bank comply, latest tomorrow.

“Any bank that fails to fund their CRR to 32. 5 percent by Thursday may be stopped from participating in the FX market,” he said, adding, “we must mop up liquidity out of the vaults of the banks.”

Mr. Emefiele said that there was no guarantee that the CBN would not continue to raise rates, if the inflation rate continued to trend upwards, particularly given the fact that at over 20 percent, the inflation rate remained much higher that the interest rate.

He was however, optimistic that the impact of the increase in the MPR could have a significant impact on a decelerating inflation rate in the next two to three months.

The governor also disclosed that the apex bank has disbursed a whooping N9 trillion in various interventions in its efforts to stimulate growth across various sectors of the nation’s economy.

He said that despite the decision to reduce money in circulation, his team would continue to fund special interventions, although at a lower scale.

Insecurity driving inflation

Mr. Emefiele noted that the broad-based insecurity across the country, which continue to dampen production activities; legacy structural factors such as the inadequate state of critical infrastructure; high cost of importation of essential grains, such as wheat; and increased demand for money associated with the forthcoming electoral campaign season were factors driving inflation in the country.

CBN disburses N9 trillion in interventions

On the various interventions of the apex bank in critical sectors of the economy, the governor disclosed that CBN has disbursed N9 billion in the last four years.

“Members noted that in the last 3 years, the CBN has injected over N9 trillion into the economy, in addition to offering a 2- year moratorium for 10-year long-term loan facilities.  The Committee believes that these interventions have significantly helped engendered growth. However, in light of the persisting pressures on inflation, the Committee encouraged the Bank to maintain a close watch on the inflationary implications of the interventions,” he said.

$38 b Foreign Reserves

The governor noted the marginal increase of 0.39 per cent in the level of external reserves to $38.46 billion at end-August 2022 from US$38.31 billion at end-July 2022, despite continued demand pressure.

Airlines FX pressure

Mr. Emefiele urged home governments of foreign airlines flying into Nigeria to reciprocate by granting equal landing opportunities to Nigerian airlines to such countries, as means of reducing the pressure for foreign exchange.

He said that Nigerian airlines would not need FX for tickets in such cases, as their only demand for FX would be for the importation of planes and parts or services.

The governor added that the Bilateral Air Services Agreements never made it compulsory for CBN to provide FX for repatriation of foreign airlines income and that they should freely obtain such FX from the Exporters and importers’ Window.

Notwithstanding, he said that CBN would continue to treat airlines with priority and would clear the backlog but that they should ask their banks to obtain FX for them from the I & E Window.

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