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The Central Bank of Nigeria held its 293rd Monetary Policy Committee meeting on February 26-27, addressing the Naira’s fluctuation against the USD and economic challenges in the country. The MPC is tasked with reviewing economic conditions, determining policy stances, and adjusting the monetary policy framework.
Five critical decisions were made at the meeting:
1. Interest Rate Hike: The interest rate was increased by 400 basis points to 22.75% from 18.75%. This move makes borrowing more expensive for banks from the CBN, aiming to curb inflation in the short and long term.
2. Adjusting Asymmetric Corridor: The asymmetric corridor around the Monetary Policy Rate (MPR) was adjusted to +100/-700 basis points from +100/-300. This sets the upper and lower bounds around the MPR, determining the rates at which banks borrow from the CBN in case of a liquidity shortfall.
3. Cash Reserve Ratio (CRR) Increase: The CRR was raised to 45.0% from 32.5%, mandating banks to hold a higher portion of customer deposits in their vaults, reducing the amount available for lending. For example, for every N100,000 deposit, banks must hold N45,000 as reserves.
4. Retaining Liquidity Ratio: The liquidity ratio was maintained at 30%, indicating the percentage of deposits that banks must hold in cash or near-cash securities before lending to customers. This ensures they can meet cash demands promptly.
5. Next MPC Meeting Date: The next Monetary Policy Meeting is scheduled for March 25-26, 2024.
These decisions reflect efforts to stabilize the economy, combat inflation, and manage liquidity in the financial system. The CBN under Governor Cardoso seeks to restore stability amid economic challenges, providing a framework for monetary policy decisions to navigate the current economic conditions in Nigeria.
