Economic crisis: Five key decisions at CBN MPC meeting

The long-awaited Central Bank of Nigeria 293rd Monetary Policy Committee meeting was held on February 26 and 27 amid the continued fluctuation of the Naira against the USD and economic hardship in the country.

The MPC is the highest policy-making committee of CBN, with functions including reviewing economic and financial conditions in the economy, determining the appropriate stance of policy in the short to medium term, regularly reviewing the CBN monetary policy framework and adopting changes when necessary.

At the end of the first MPC meeting since the appointment of Olayemi Cardoso as the Governor of CBN, NEWS TELLY highlights five critical decisions.

Interest rate hike to 22.75 per cent

MPC decided on monetary policy measures by increasing the country’s interest rate by 400 basis points to 22.75 per cent from 18.75 per cent.

The implication is that banks need to pay more when borrowing from the apex bank.

CBN said the move was to moderate inflation in the long and short term.

Adjust the asymmetric corridor around the MPR

The MPC adjusted the asymmetric corridor around the monetary policy rate to +100/-700 from +100/-300 basis points.

This is setting the upper and lower bound around MPR, that is, setting the rate ceiling and floor upon which deposit money banks borrow from CBN in the event of a shortfall in liquidity to meet up with cash reserves requirement and overnight borrowing from each other.

Raise the Cash Reserve Ratio from 32.5 to 45.0%

CBN raised the Cash Reserve Ratio to 45.0 per cent from 32.5 per cent.

The cash reserve ratio is the portion of reservable liabilities (deposits from customers) that commercial banks must hold in their vaults rather than lend out.

For instance, for every N100,000 deposit, banks must hold N55,000 in its vault.

Retain the Liquidity Ratio at 30 per cent.

The committee retained the liquidity ratio at 30 per cent.

A bank’s liquidity ratio is its ability to pay off its current obligations without raising debt capital. It represents the percentage of deposits a bank must keep in cash or near-cash securities before making loans to customers. The CBN is thus mandating that banks hold 30 per cent of deposits as cash in the vaults to meet cash requests by banks.

CBN fixed March 25 and 26 for the next MPC meeting

The apex bank fixed March 25 and 26, 2024, as the next Monetary Policy Meeting date.