CBN Orders Banks To Fund Accounts, Raises CRR To 32.5%

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Godwin Emefiele

The Central Bank of Nigeria (CBN) has directed all commercial banks to fund their accounts by Thursday in order to allow for liquidity mopping-up.

The move comes after the Monetary Policy Committee (MPC) increased the Cash Reserve Ratio (CRR) from 27.5 percent to 32.5 percent in order to combat inflationary pressures.

The Governor of the central bank, Godwin Emefiele, stated this on Tuesday while answering questions from journalists following the committee’s meeting at the CBN headquarters in Abuja.

What does the new directive mean?

The CRR is the percentage of a bank’s total customer deposits that must be held with the central bank.

CRR is one of the methods by which the CBN regulates the country’s money supply, inflation level, and liquidity.

The higher the rate, the less liquidity there is in the banks.

Emefiele stated that the directive would allow the apex bank to achieve its goals.

“We have increased the CRR, and we expect that this decision at this meeting must be seen to be potent and must achieve the effect that the MPC thinks it should achieve,” he said.

“We expect that all the banks in Nigeria must fund their accounts by Thursday, 48 hours because we will debit them for CRR.

“We will take their CRR to a minimum of 32.5 which means we are going to take liquidity out of their vaults by Thursday.”

He went on to say that if any bank fails to meet the target, the central bank may be forced to “preclude those banks from the foreign exchange market until they meet this 32.5.”

“This message is meant to underscore the fact that this very aggressive decision to rein in inflation must yield results.

“We do not want to face Nigerians in the next few months, and we begin to take the blame for not being able to rein in inflation and in spite of all of the rates that we raised,” the CBN governor said.

“So we have decided to adopt a two-pronged approach by increasing CRR – we want to see interest rate go up and CRR going up because we must mop liquidity effectively out of the vaults of the bank.”

MPR

BizWatch Nigeria had reported that to combat growing inflation, the Central Bank of Nigeria (CBN) policy-setting council increased the Monetary Policy Rate (MPR), which measures interest rates, from 14% to 15.5%.

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