CBN takes steps to curb inflation- increases CRR to 27.5% while retaining MPR at 13.5% and Liquidity ratio at 30%   

24 January 2020

The Monetary Policy Committee ( MPC) of the Central Bank of Nigeria warned the Federal Government, and brought their much required attention towards the rising debt level in the country.They advocated the need to build fiscal buffers in order to dilute the impact of the oil price decline on the economy.

As of September 30, 2019 , Nigeria’s current debt profile stands at N26.22tn, according to the Debt Management office.

Addressing journalists shortly after a two-day MPC meeting in Abuja, the CBN Governor, Mr Godwin Emefiele, said the committee noted the rising debt profile and called for caution.

Although the CBN governor, Mr Godwin Emefiele is cautious about the rapidly rising debt profile, he is also positive that this year may steer things in a favourable direction in terms of economic growth, owing to the enhanced flow of credit to real sector; the CBN intervention on agriculture and the MSME, and effective implementation of the Economic Recovery and Growth Plan.

But, the positive projections might not go as smoothly, as there are some serious road blocks that might deter the growth - rapidly rising public debt, dearth of fiscal buffers, poor infrastructure, and malnourished private sector investment.

Projections for economy growth for 2020 :

  • International Monetary Fund predicts a 2.5% growth
  • Word Bank predicts a 2.1% growth; while
  • CBN anticipates it to be 2.35%

More importantly, the committee reiterated the fact that the massively high cost of governance ought to go down.They also stressed on the fact that the government has to reduce their dependance on oil receipts and focus their attention towards diversification through reforms of the tax system.

The CBN governor said, “The MPC, however, cautioned that public debt was rising faster than both domestic and external revenue, noting the need to tread cautiously in interpreting the debt to GDP ratio.

“The committee also noted the rising burden of debt services and urged the fiscal authorities to strongly consider building buffers by not sharing all the proceeds from the Federation Account at the monthly Federation Account Allocation Committee meetings to avert a macroeconomic downturn, in the event of an oil price shock.

“It urged government to gradually reduce reliance on oil receipts and focus on revenue diversification through reforms of the tax system.”

Commenting on the sky-high level of inflation the governor said that they have received MPC’s approval to increase the Cash Reserves Ratio from 22.5% to 27.5% which essentially is the share of a bank’s total deposit mandated by the CBN to be maintained with the latter in the form of liquid cash.This will be pivotal in controlling inflation which has risen to a whopping 11.98% in December and is the highest in recent times.

Apart from this they have decided to retain the Monetary Policy Rate at 13.5 per cent, the Liquidity Ratio at 30 per cent; and the Asymmetric Window at +200 and -500 basis points around the MPR.

Reporting for EasyKobo on Friday , 24 January 2020 in Lagos, Nigeria

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