MPC shocks markets, increase CRR on private deposit 500bps to 20%, MPR to 13% • Devalues naira officially to N168/N

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) convened for the sixth time in the year between Monday 24th and Tuesday 25th November 2014 and at the end of today’s deliberations increased the Cash Reserve Requirements (CRR) on Private Sector Deposit by 500 basis points (bps) from 15.0 per cent to 20.0 per cent. It also increased in the Monetary Policy Rate (MPR) by 100bps from 12.0 per cent t0 13.0 per cent.
“Wow! Big surprises from the Central Bank of Nigeria (CBN). Although we had forecast some CRR tightening, and an Retail Dutch Auction System (RDAS) devaluation to a more realistic level, the CBN MPC has exceeded expectations”, exclaimed Razia Khan, Managing Director/Head, African Macro Global Research, Standard Chartered bank, London.
The Committee however retained the Cash Reserve Requirements (CRR) on Public Sector Deposit at 75.0 per cent.
There was however an adjustment in the mid-point of the exchange rate target band from N155.00/$ to N168.00/$, while adjusting the window of the target band from +/-3.0 per cent to +/- 5.0 per cent.
The MPC maintained the Net Open Position of Banks on foreign exchange trading at 1.0 per cent of shareholders fund.
Razia Khan said “with these moves the CBN has shown absolute commitment to dealing with current challenges. They have not shied away from the tightening needed to sustain current foreign exchange reserves. The official devaluation of the naira allows the RDAS to move within the range that straddles the interbank foreign exchange rate”.
She continued that, “while the market reaction to the RDAS move in the near-term will be important, we think that these measures deal as comprehensively as possible with the challenges facing Nigeria. While Nigeria cannot do much to influence the oil price, the combination of measures today sends a powerful signal to all stakeholders on the CBN’s intent to do what it can to preserve macroeconomic stability”.

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