CBN Reduces Money In Circulation 4 years ago 7

The Central Bank of Nigeria on Tuesday accused Deposit Money Banks of not lending to the economy.

This, it said, forced it to reduce the money in the banking system to minimise the upward movement in Monetary Policy Rate.

The CBN Governor, Mr. Lamido Sanusi, said this shortly after the Monetary Policy Committee meeting held at the apex bank’s headquarters in Abuja.

He said Tuesday’s decision was the most difficult in recent times owing to various choices confronting the committee.

He said rather than lend to the real economy, the banks had continued to take advantage of high yields on government securities to direct credit away from the core private sector.

The liquidity of banks, he noted, had provided an opportunity for speculative activity in the foreign exchange market.

Figures from the apex bank showed that relative to December 2011, aggregate domestic credit (net) declined by 2.73 per cent in June 2012 and 5.46 per cent when annualised.

The development, according to him, has serious implications for inflationary expectations in the short to near term.

He, however, lamented that the apex bank was handicapped as it could not force banks to lend.

Sanusi said the committee at its meeting decided to increase the Cash Reserve Requirement of DMBs from eight per cent to 12 per cent with effect from Wednesday (today)

The CBN governor, however, said this choice was not viable when viewed from the standpoint that it could further weaken the exchange rate and adversely affect reserves at a time when the country needed to build up buffers against external shock. Home Page

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