Worried by the rising inflationary pressures, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has increased the Cash Reserve Requirements (CRR) of banks from 22.5 to 27.5 percent.

CRR is a mandatory deposit with the CBN by deposit money banks and it is one of the apex bank’s instrument to mop up excess liquidity (cash) in circulation in attempts to control inflationary trend.

According to statistics released by the National Bureau of Statistics (NBS) last month, the nation’s inflation rose to 11.98 percent higher than the target range of 6-9 percent.

The MPC members, according to the CBN Governor, Godwin Emefiele, at its meeting expressed concerns over the rising inflation and the need to curtail the trend.

While reading the Communique released at end of the MPC meeting Friday, Emefiele said: “The MPC expressed concern about the rising inflation, which increased consecutively in the last 4 months as at December 2019 to 11.98 per cent and higher than its target range of 6-9%.”

He attributed the rising price level to a combination of structural and supply side factors, expansionary fiscal policy; and growth in money supply arising from rising liquidity surfeit in the industry due to changes in the Bank’s OMO policy.

According to the CBN Governor, “The Committee noted the persistent increase in the inflation rate, which stood at 11.98 per cent in December 2019. It also noted that the inflation was driven by both monetary and structural factors.

“In furtherance of its primary mandate to maintain price and monetary stability and in view of the anticipated medium-term
liquidity surfeit from maturing OMO bills held by local private and institutional investors, which would not be rolled over, the Committee considered it prudent to raise the CRR to curtail liquidity surfeit in the banking system.

“Having addressed the monetary factors, the headroom for further monetary policy measures has become constrained, being
supported by empirical evidence which suggests that inflation above 12.00 per cent is inimical to output growth in the Nigerian economy.

“The MPC thus called on the fiscal authorities to speedily address legacy structural impediments giving rise to upward-trending price developments.

“Amongst these, the Committee identified infrastructure deficit and the long-standing clashes between herdsmen and farmers, which are constraining domestic production
and contributing substantially to the rise in food inflation.

“The MPC, therefore, urged the Federal Government to relentlessly seek innovative ways of addressing security challenges across the country in order to boost aggregate food supply.”

The Committee further noted the contribution of imported food and other tradeables to the rise in price levels but emphasized the opportunity to ramp up
production of domestic substitutes supported by the Bank’s development finance initiatives, particularly in agriculture and manufacturing sectors.

MPC urged Government to gradually reduce reliance on oil receipts and focus on revenue diversification through reforms of the tax system.

It further called on Government to rationalize fiscal expenditure towards reducing the current excessively high cost of governance.

The MPC however, retained retained other parameters including Monetary Policy Rate (MPR) at 13.5 per cent and Liquidity Ratio at 30 per cent and retained the Asymmetric Corridors at +200 and -500 basis points around the MPR.