Economic crisis: Five key decisions at CBN MPC meeting

The much awaited 293rd Monetary Policy Committee meeting of the Central Bank of Nigeria took place on February 26 and 27, amidst the nation’s ongoing economic hardship and fluctuations in the value of the Naira relative to the US dollar.

The MPC is the CBN’s highest policy-making committee. Its duties include assessing the financial and economic conditions of the economy, deciding on the best course of action for the short- to medium-term, and routinely examining and amending the CBN’s monetary policy framework.

Following the first MPC meeting following Olayemi Cardoso’s appointment as CBN governor, ZINGTIE identifies five crucial decisions.

Increase to 22.75% in the Interest Rate

The country’s interest rate increased by 400 basis points to 22.75 percent from 18.75 percent as the MPC decided on monetary policy measures.

It follows that when banks borrow from the apex bank, they must pay more.

Long- and short-term inflation needed to be moderated, according to the CBN.

Adjust the MPR’s asymmetric corridor.

The asymmetric corridor surrounding the monetary policy rate was modified by the MPC from +100/-300 basis points to +100/-700.

In the case of a liquidity shortfall to meet the requirement for cash reserves and overnight borrowing from each other, this sets the upper and lower bound around MPR, or the rate ceiling and floor upon which deposit money banks borrow from CBN.

Raise the Cash Reserve Ratio to 45.0% from 32.5 percent.

The Cash Reserve Ratio was increased by the CBN from 32.5 percent to 45.0%.

The percentage of reservable liabilities (client deposits) that commercial banks are required to retain in their safe deposit boxes rather than lending out is known as the cash reserve ratio.

For example, banks are required to retain N55,000 in their vault for every N100,000 deposit.

Maintain a 30 percent liquidity ratio.

The committee decided to keep the liquidity ratio at 30%.

The ability of a bank to settle its present liabilities without taking on new debt is measured by its liquidity ratio. It shows the proportion of deposits that a bank needs to hold in cash or near-cash assets before extending credit to clients. As a result, the CBN is requiring banks to retain 30% of deposits as cash in the vaults in order to satisfy bank requests for cash.

The next MPC meeting was scheduled for March 25 and 26, according to CBN.

The next date of the Monetary Policy Meeting was set by the apex bank on March 25 and 26, 2024.

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