By Peter Egwuatu & Elizabeth Adegbesan
The Central Bank of Nigeria, CBN, is expected to mop up not less than N6.96trillion from the banks operating in the country following the increase in Cash Reserve Ratio, CRR, from 22.5 per cent to 32.5 per cent.
CRR refers to the percentage or proportion of a bank’s total cash deposit required to be kept as reserves with CBN.
The total deposits in the banks as at last month was N21.43 trillion which would have yielded about N4.8 trillion CRR under the previous ratio of 22.5 percent.
The Monetary Policy Committee of the CBN, yesterday, announced that banks are to increase their CRR to 32.5 per cent with effect from today (Wednesday).
The immediate implication of the implementation of this measure is restriction in the amount of money available to banks for lending to the economy.
This measure complements the CBN’s mounting contractionary monetary policy stance it began mid this year to tame the rampaging inflationary pressure which hit a 17 year high at 20.52 percent last month.
The new monetary policy stance was in addition to the sustained increases in the Monetary Policy Rate, MPR which hit 15 percent yesterday.
Making the positions of the apex bank known yesterday after the Monetary Policy Committee, MPC meeting, the Governor of the CBN, Mr Godwin Emefiele stated: “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.
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.”
Explained further what transpired at the meeting he said, “10 members voted to increase CRR (Cash Reserve Ratio) by 500 basis points, while two members voted to increase it by 750 basis points.”