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Interest rate may rise as CBN raises banks cash reserve ratio

Central Bank of Nigeria (CBN)
Central Bank of Nigeria (CBN)

Rising from the first monetary policy committee meeting (MPC) in 2020, the Central Bank of Nigeria (CBN) raised the cash reserve ratio (CRR) by 500 basis point from 22.5 percent to 27.5 percent.

With this decision, the cash available to the banks for lending will reduce as the banks will be required to tie down more funds at the CBN vaults. This might impact interest rates.

However, the MPC however held all other rates constant. It retained the MPR at 13.5 per cent; retain the asymmetric corridor at +200/-500 basis points around the MPR; and retain the liquidity ratio at 30 percent.

While reading the communique, the CBN noted that as at December gross credit by banks grew to N2trn due to the pegging of loan to deposit ratio at 65 percent.
He also noted that inflation is rising and if not curtailed, it will have dire economic consequences.

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