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Home Business News Politics

This Is The Real Reason Why CBN Raised Bank CRR On Public Sector Funds

Nairametrics by Nairametrics
August 12, 2013
in Politics
This Is The Real Reason Why CBN Raised Bank CRR On Public Sector Funds
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Sanusi fires first shot as MPR is Hiked. Interest Rates to rise by 2.75%

When the CBN announced a couple of weeks ago that it was increasing bank CRR for public sector funds a lot of pundits (including me) thought this was part of the Apex banks objective of controlling inflation. Well, we were somewhat correct but way of the main reason. According to a Thisday interview the CBN Deputy Governor, Financial System Stability, Dr. Kingsley Moghalu was quoted as saying

“We often see lending rates rise in response to the Monetary Policy Rate (MPR) set by the CBN in its efforts to tighten money supply to reign in inflation, but a very little corresponding increase in rates banks pay depositors.”

The report also quoted him as saying

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“banking on the perverse incentive of government deposits which they then turn around and lend to government and the CBN (in this case through Open Market Operations) at extremely profitable rates for too long.” This, he insisted, was not “real banking and creates structural bottlenecks for increased credit to the private sector”.

Now this my friends is the major reason for the policy. The CBN finally wants to bridge the lending and deposit rates which for years have been lopsided. For the wise investors….now is the time to invest in the money market.

Tags: banksCash Reserve RequirementCBN NigeriaNews Review
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