New monetary policy pulls out N744bn from circulation

*Central Bank of Nigeria.

*Central Bank of Nigeria.

01 April 2016, Abuja — Due to its new monetary policy drive the Central Bank of Nigeria, CBN, may be pulling out up to N1.0 trillion from circulation in the economy through the banking system in the first month of its new monetary policy.

Already, N525 billion has been pulled out, less than one week after the policy which seeks to tighten money supply. An additional N219 billion is slated to be pulled out next week, just as banks’ treasury executives said they were preparing their treasury plans for more mop-up estimated to be up to N300 billion within the next three weeks.

The apex bank had last week announced a reversal of its expansionary monetary policy which it had run for eight months in place of contractionary measures under which the Monetary Policy Rate, MPR, was increased to 12 per cent from 11 per cent. Meanwhile, Cash Reserve Requirement, CRR, was hiked to 22.5 percent from 20 percent.

Both rate increases would raise interest rates; the cost of funds and yields on money market instruments floated by the apex bank while transferring huge cash from the banking system into the government vault.

Of the N525 billion already pulled out about N410 billion was quarantined in relation to the new CRR. N115 billion was pulled out into Nigerian Treasury Bills, NTB, and with another N219 billion slated for mop up next week in NTB, the apex bank would have taken out a total of N744 billion by the end of next week.
*Emeka Anaeto – Vanguard

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