N767.4billion monetary policy

The Central Bank of Nigeria, CBN, adjusted monetary policy released about N767.4 billion into the credit market yesterday, interbank interest rates crashed from this month’s high of 50 percent to about 6.5 percent. Also, yields on government bonds came down to 14.9 percent from 15.2 percent. The rates were spiked up principally by the implementation of the Treasury Single Account, TSA, policy of the Federal Government. However, investors in the stock market appear not yet impressed with the return of stability in the banking sector as negative sentiments towards the banking stocks persisted, leading to further decline in the value of the banking sector index in the Nigerian Stock Exchange, NSE, for the third consecutive day in the week. Surprisingly, the banking sector was the only one that recorded decline yesterday, as all other sectors, for the first time, recorded appreciation in their sectoral indices. MPC’s anouncement CBN Monetary Policy Committee, MPC, had, Tuesday, announced a reduction in the cash reserve requirement, CRR, to 25 percent from 31 percent to ease the liquidity squeeze gripping Nigeria’s financial system, at the backdrop of the implementation of the TSA policy of the Federal Government, which transferred about N1.3 trillion from the deposit portfolios of banks to CBN last week. Bank treasurers told Vanguard that the rates would remain low if the estimated N400 billion Federation Account Allocation Committee, FAAC, funds hit the market early next week. However, the low rate would not likely impact positively on lending rates as banks price their lendings on the basis of private sector rather than public sector or interbank cost of funds. But bank treasurers said if complementary monetary and fiscal policies would help sustain the low rates in the interbank, the effect would begin to show in private sector lending rates in a couple of months. Prime lending rate still averages 20 percent. Impacts Commenting on the overall impact of the adjustment in CRR Afrinvest Group, a Lagos based investment banking outfit, said yesterday: “We expect the net-credit to the financial system, estimated at N767.4 billion, to return liquidity levels of the financial system slightly above pre-TSA implementation level, and consequently lessen the earnings headwinds facing the industry. “However, banks with little exposure to Federal Government deposit (hence less impacted by the TSA implementation) will have the highest accrued gain from the CRR cut: Tier-1 banks with the most robust deposit base and cheaper cost of funds.” Afrinvest stated further: “Despite the projected improvement in banking sector performance and capital market activity, the impacts of the decision on the real sector, especially in an atmosphere of slowing growth, will be mainly determined by the complimentary actions from the fiscal authorities in terms of longer-term structural reforms.” The vote The 10-member CBN MPC had voted by seven against three to reduce CRR. Other decisions include unanimously voting to retain the Monetary Policy Rate, MPR, at 13 percent and retain the Liquidity Ratio at 30 percent. Key to the committee’s considerations in reaching the decisions mentioned above were the slowing economic growth momentum after GDP growth slowed for the third consecutive quarter to 2.35 percent in the second quarter, 2015, weakened consumer spending power against the backdrop of the fiscal challenges faced by many state governments in meeting salary obligations to civil servants, among others.