The Governor, Central Bank of Nigeria (CBN), Mr Godwin Emefiele made this known on Tuesday, while addressing newsmen on the outcome of the two-day MPC meeting held at the apex bank headquarters in Abuja.
He said the decision was made following the committee’s concern that the excess liquidity in the banking system was contributing to the current pressure in the foreign exchange market.
“The Committee, in its assessment of relevant internal and external indices, came to the conclusion that the balance of risks is tilted against price stability.
“The MPC therefore, voted to tighten the stance of monetary policy. One member voted to retain the CRR at 20 per cent while another member voted to retain the current width of the asymmetric corridor.
“The MPC voted to raise MPR by 100 basis points from 11.00 per cent to 12.00 per cent; raise CRR by 250 basis points from 20 to 22.50 per cent.
“The Liquidity Ratio was retained at 30 per cent; and the asymmetric corridor was narrowed from +200 and -700 basis points to +200 and -500 basis points.”
Emefiele said MPR was the anchor rate at which the CBN, in performing its role as lender of last resort, lends to Deposit Money Banks to boost liquidity in the banking system.
He said by this increase the cost of funds to the banking system from the apex bank would now increase thus leading to an increase in lending rate from commercial banks to businesses.
Emefiele said the increase was necessary because of the negative impact on consumer prices with inflation rate rising to its highest level in three years at 11.38 per cent.
He said at 11.38 per cent rate of inflation, this had breached the CBN’s policy reference band of six per cent to nine per cent.
He lamented that previous efforts to reflate the economy in order to spur growth had not elicited the required response from Deposit Money Bank as there had been resurgence in liquidity in the interbank market.
Concerned over low interest rates to support growth sectors, the governor said the committee urged the CBN to explore innovative ways of ensuring the unhindered flow of credit at low cost to key growth sectors.
He said that despite the accommodative monetary policy stance embarked upon by the apex bank since July 2015 by lowering CRR and MPR to free up more funds; banks have yet to access these funds.
“DMBs were to access these funds by submitting verifiable investment proposals in the real sector of the economy.
“The funds have not impacted the market yet because the CBN was still processing some of the proposals submitted by the DMBs.
“In the first episode of easing which resulted in injecting liquidity into the banking system, DMBs did not grant credit as envisaged.”
2016 budget affecting economy
Explaining how the delay in passing the 2016 budget was affecting the performance of the economy, Emefiele said it had affected the financial conditions in the economy.
“The delay in passage of the 2016 budget has further accentuated the difficult financial condition of economic agents; as output continues to decline due to low investment arising from weak demand.
“The committee also enjoined the relevant agencies to speed up passage of the 2016 budget in order to halt the depressing effect of the uncertainty that engulfs the waiting period.
“It is our hope that the implementation of the budget would go a long way in boosting business confidence, and reinvigorating the financial markets,” he said.
He lamented that the challenges facing the economy was one of the reasons why businesses were currently finding it difficult to service their loans obligations to banks.
This, according to him, had led to a resurgence of Non Performing Loans (NPLs) portfolio with the banking sector recording about five per cent as against the three per cent recorded few months back.
He said the committee would be meeting with the affected banks to discuss the type of loans that have been granted that led to the rising NPLs with a view to reducing it.
Conversion of 20 billion dollars to naira
The governor also ruled out claims that it planned to convert the 20 billion dollar in bank customer’s domiciliary account into Naira stating that such had never been considered by the apex bank.
“Yes there are customers that have 20 billion dollars in domiciliary account and I want to use this opportunity to say that those funds are not idle contrary to what people believe.
“Those funds on the balance sheet are funding certain assets on the other side of the balance sheet. The 20 billion dollar is a liability on the balance sheet and so there is nothing like it being idle.
“I need to reiterate the fact that there is no intention and there will never be that intention.
“It is not within our view to begin to start to convert people domiciliary account and I wish to say that this should be taken very seriously.
“What we are doing is to make the market open and not further tightening it to the point that would create problem for the economy.”
When asked why the apex bank had yet to harmonise its foreign exchange policy, the governor said this would be done after officials of the bank meet all the relevant stakeholders in the financial system.
“The issue is to improve the foreign exchange supply in the foreign exchange market. The price of crude oil is improving and we hope to improve on the supply.
“We will be meeting the various stakeholders and as soon as we are able to make tangible progress in this, we will certainly inform Nigerians about it,”.