A financial expert, Wale Abe, on Saturday applauded the decision of the Central Bank of Nigeria (CBN) to increase the Monetary Policy Rate (MPR) and the Cash Reserve Ratio (CRR).
Abe, who is the Executive Secretary of the Financial Markets Dealers Association (FMDA), told the News Agency of Nigeria (NAN) on Saturday in Lagos that the measures would curtail inflation in the country.
According to him, the decision is necessary to mop up excess liquidity in the system.
He, however, noted that customers would be discouraged from borrowing from the banks because of the 100 basis points increase in the MPR (from 11 per cent to 12 per cent)
The executive secretary also said that the increase in CRR would lead to a reduction in funds at commercial banks’ disposal for lending to customers and for the development of the real sector in the country.
He further said the increase in the interest rates would raise the cost of capital, as companies would now “borrow less and produce less.”
The expert said the rate of consumption of goods would decrease further as there would decrease in spending on the part of the consumers.
He said that the aggregate demand would in due course reflect in the nation’s overall Gross Domestic Product (GDP).
Abe pointed out that household savings would reduce because there was no incentive to save, given the fact that the interest rate was on the decline.
NAN reports that the CBN increased the portion of customers’ deposits that banks keep as cash, known as the Cash Reserve Ratio, to 22.5 per cent from 20 per cent.
CRR is a monetary policy tool meant to set the minimum deposits commercial banks must hold as reserves
NAN reports that the apex bank retained the Liquidity Ratio (LR) at 30 per cent.
The CBN Governor, Godwin Emefiele, had announced the new guidelines at the end of the Monetary Policy Committee (MPC) meeting held between March 21 and March 22.