Huge banking sector liquidity threatens monetary policy as CBN retains rates

Huge liquidity in the Nigerian banking sector, which is still inaccessible to the real sector of the economy and its potential effects on inflation and exchange rate, is now threatening monetary policy management as the Central Bank of Nigeria (CBN) yet again retains key rates and rules out possible easing, anytime soon.

The CBN on Friday kept its Monetary Policy Rate (MPR) steady at 12 percent with a corridor of +/- 200 basis points, around the midpoint, retained public sector Cash Reserve Requirement at 75.0 percent; and also left the private sector Cash Reserve Requirement unchanged at 15.0 percent.

The CBN is concerned that banks were holding large excess reserves averaging over N300 billion even when there were ample opportunities for productive and profitable lending to the real sector of the economy.

The concern is further heightened by the reality of injecting an additional N866 billion into the system through the redemption of maturing AMCON bonds in October.

Godwin Emefiele, CBN governor, said there are fears that given apathy to lending, banks may be inclined more to placing these new funds in the apex bank’s Standing Deposit Facility (SDF) or use it to increase pressure on the exchange rate.