The Central Bank of Nigeria (CBN) through its Monetary Policy Committee (MPC) yesterday further tightened liquidity in the financial sector by raising the Cash Reserve Ratio (CRR) on private sector deposits by 300 basis points to 15 per cent.
The committee however left the Monetary Policy Rate (MPR) at 12 per cent.
Addressing the media at the meeting in Abuja, acting governor of the apex bank, Sarah Alade said 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.
According to her, the committee unanimously voted for further tightening of monetary policy and commended the Bank for its continued commitment to exchange rate stability in the face of undue pressure on the Naira.
“It noted with satisfaction the calm in the foreign exchange market and the relative stability in the interbank exchange rate after the initial turbulence. The Committee acknowledged that while this stability was at a high cost, safeguarding short run macroeconomic stability under the circumstance required firm and bold measures,” the committee added.
Alade explained that the recent pressure in the foreign exchange market was in response to key developments in the US over the Fed’s unwinding of its assets purchase programme.
In addition, the pressure on external reserves was deemed to be consistent with the seasonal annual payment of dividends to foreign investors, pointing out that inflation forecasts indicate that food inflation may not grow beyond current levels, especially with bumper harvests expected in 2014.
She however observed that core inflation could rise, adding that frontier markets were positioning themselves to attract higher capital inflows by raising their policy rates to contain inflation and also remain competitive.
Continuing, she stated that oil prices remained relatively high while production was improving, and there were signs of accretion to external reserves. Even as the committee also expressed concern over the sudden surge in domiciliary account balances which may offset the gains from imposing 75 per cent CRR on public sector funds.
