Abuja - The Central Bank of Nigeria (CBN) on Tuesday in Abuja unveiled plan to introduce a 50 per cent Cash Reserve Requirement (CRR) on public sector deposits.
CBN governor Lamido Sanusi made this known while briefing newsmen at the end of the Monetary Policy Committee (MPC) meeting.
CRR is the minimum amount of cash or cash equivalents (computed as a percentage of deposits) that banks and other depository institutions are required by law to keep on hand.
This deposit may not be used for lending or for investment.
Sanusi said the measure would be applied to the federal, states and local governments’ deposits as well as all ministries, departments, and agencies.
He added that "for other deposits, CRR will remain at 12 per cent”.
Sanusi said the committee unanimously voted to retain the CRR at 12 per cent for others and also held that the Monetary Policy Rate (MPR) be retained at 12 per cent.
According to him, the committee agreed to maintain the symmetric corridor around the MPR plus or minus two per cent.
He said the committee was satisfied with the prevailing macro-economic stability achieved during the period, including the single digit inflation, stable banking system, exchange rate stability, and favourable output growth.
The governor said the committee was also satisfied with capital market recovery, and growth in external reserves, thus sustaining internal balance and external viability.
He said the committee noted the recent volatility in the foreign exchange market and recognised the commitment of the CBN to defending the currency in the face of capital flow reversal.
"The significant revenue attrition has stemmed the depreciation of the naira. Consequently, the CBN has been able to sustain the objectives of financial and price stability,’’ he said.
According to him, the committee observes the build-up in excess liquidity in the banking system, and expresses concern over the rising cost of liquidity management.
He said the committee was concerned about the sluggish growth in private sector credit, traced to DMB’s appetite for government securities.
"This situation is made more serious by the perverse incentive structure under which banks source huge amount of public sector deposits.
"The banks lend same to the government through securities and the CBN (via OMO bills) at high rates of interest,’’ he said.
Sanusi said the committee expressed strong concerns about the risks posed to government revenues from oil theft, less than expected production, new discoveries of shale oil.
It also worried about the fast increasing number of African oil exporters, the dwindling market for Nigerian crude, as well as the inevitability of a fall in global oil prices.
The committee, according to him, also expressed concern about "the capital flow reversal which may impact the current global (dollar) carry trade for which Nigeria has been a major beneficiary”.
The committee, he said, commended the Federal Government on its sustained efforts towards fiscal consolidation in 2012, and stressed the need to reverse the loose fiscal stance of 2013.
The committee articulated the monetary policy risks of dwindling fiscal revenues to include: the crowding out effect of government borrowing, depletion of excess crude savings and pressure on the exchange rate.
He said available data indicated that capital expenditure was the first casualty of dwindling government revenues as available resources were channeled into funding non-discretionary recurrent expenditure.
"The committee considered the inflationary outlook for the rest of the year as normal,” he said.
"The principal risks still remain largely due to the loose fiscal stance and rising deficit.
"The risk also include excess liquidity in the banking system and risks to the exchange rate due to a combination of revenue shocks and external developments.’’