25/07/2024
MPR raised by 50 bps from 26.25% to 26.75%
1. MPR [MONETARY POLICY RATE] 26.75%
2. CRR [CASH RESERVE RATIO] 45% COMMERCIAL BANKS AND 14% MERCHANT BANKS
3. LR [LIQUIDITY RATIO] 30%
4. AC [ASYMMETRIC CORRIDOR] +500 /-100 Basis Point (Bps around the MPR)
MONETARY POLICY RATE (MPR) OF 26.75%
The summary of the decisions made by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria during their 296th meeting on July 23rd, 2024. Below is the breakdown of what each item implies:
1. Monetary Policy Rate (MPR): The old rate was 26.25% currently raised to 26.75%, which depicts an increase of 0.50%, interpreted as 50 basis points (0.50%) from the previous 26.25%. MPR shows the interest rate at which the Central Bank of Nigeria will lend to Deposit Money Banks (DMBs). An increase in MPR here means that the CBN wants to control the present inflation in the country by making sure that the cost of borrowing becomes more expensive of which the resultant effect will be a slowdown in spending, economic activities, and the supply of money.
2. CASH RESERVE RATIO (CRR):
· 45% COMMERCIAL BANKS
· 14% MERCHANT BANKS The CRR is the percentage of banks’ total deposits that must be held in reserve by DMBs. A higher CRR depicts that commercial banks have less money to lend to their customers, which can help in controlling inflation but might also reduce economic growth in Nigeria.
3. LIQUIDITY RATIO (LR) 30% The liquidity ratio is the proportion of banks’ assets that must be in liquid form (readily convertible to cash). This is to ensure that banks have enough liquidity to meet short-term obligations as they fall due.
4. ASYMMETRIC CORRIDOR (AC)
· Upper Limit: +500 basis points (5%)
· Lower Limit: - 100 basis points (1%) Asymmetric Corridor around the MPR tends to define the range at which the Central Bank of Nigeria will be willing to provide and also absorb liquidity. The upper limit above is higher than the lower limit, indicating CBN’s willingness to lend money at a higher rate and on the other hand borrowing at a lower rate, thereby helping to manage liquidity in the banking industry. Above all, these changes reflect the CBN’s attempt to manage the current inflation in Nigeria and also maintain economic stability by adjusting interest rates and liquidity rates for Deposit Money Banks (DMBs).
By Victor Egbe
