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CBN retains MPR, CRR to stabilise economy

By on March 23, 2013

A major development in the money market this week was retention of the Monetary Policy Rate (MPR) at 12 per cent by the Monetary Policy Committee (MPC).

The Central Bank of Nigeria (CBN) Governor, Lamido Sanusi, announced the retention after two days of Monetary Policy Committee meeting in Abuja on March 19.

The MPR is the nominal anchor of banks’ lending rates. It is the rate at which the apex bank lends to commercial banks.

This is the ninth time the MPC would retain the MPR at 12 per since June, 2012.

The apex bank also retained the Cash Reserve Ratio (CRR) at 30 per cent.

Sanusi also said that the measures were to check inflationary pressure and to stabilise the financial system.

He said that the CBN needed to take steps to prevent a recurrence of the 2008 financial crisis, stressing that these measures would also ensure efficient management of funds by banks.

Mr Oluwole Ibikunle, Managing Director, Boaz Management and Financial Strategies Ltd., commended the decisions, saying that they would check money supply to the economy.

According to Ibikunle, any upward change in the benchmark lending rate will fuel inflation in the country.

He also said that the apex bank was trying to tighten the economy through its monetary policy instruments.

Ibikunle also said that retention of banks’ cash reserve ratio would curb unnecessary loans to customers.

Dr. Kazeem Bello, Senior Lecturer, Department of Economics, University of Ibadan, said that the 12 per cent was still high and would discourage manufacturers from taking banks’ loans.

“If the rate at which CBN lends to banks is still very high, automatically the banks rates will also be high and is not good for the economy,” he said. “No investor will be willing to borrow money at high rate from banks unless the returns on the investment are very high.”

Olumide Adegoke, the General Manager of the Standard Alliance Insurance Company, commended the CBN for retaining the benchmark lending rate and the cash reserve ratio. He said these were appropriate measures to ensure stability in the economy.

Adegoke also said that the retention of the banks’ liquidity requirement was to save the banking sector from another round of financial crisis.

[Daily Times]