CBN Improves Liquidity, Slashes MPR to 8%

The Central Bank of Nigeria (CBN) has pegged the monetary policy rate (MPR) at eight percent, in a move to improve liquidity conditions in the domestic money market.
Monetary policy rate, formerly minimum rediscount rate (MRR), is an instrument which determines the lower and upper band of the CBN standing facility and have the capability of acting as the nominal anchor for other rates.
The MPR was 9.75 percent and that caused liquidity squeeze in the economy as financial institutions were cautious of lending.
Central Bank of Nigeria also announced the reduction of the cash reserve requirements of banks (CRR) from 2 to 1 percent with effect from April 14, 2009; just as it slashed the liquidity ration of banks from the current 30 percent to 25 percent with effect from the aforementioned date.
The apex bank stressed the need for the 24 banks to adhere strictly to the ceiling on interest rates released last month after the bankers’ committee meeting, saying that violators risk a fine of N50 million and suspension of their officials.
Prof. Chukwuma Soludo, governor of CBN said these are policy decisions taken to further ease the current tight monetary conditions in the nation’s economy.  
The bankers’ committee had in its last month meeting put a ceiling on interest rates, insisting that the deposit rate and lending rate must not exceed 15 and 22 percents respectively. The MPR is the rate at which the CBN lends to commercial banks and it determines the rate at which the money banks lend to their clients or borrowers.
The easing of tight monetary conditions coincides with increase in the external reserve of the nation which to date is $47 Billion.
Soludo revealed  that in order to ensure compliance, the Board of CBN had last week approved a set of sanctions against non-compliance, and any bank found violating the decision of the bankers’ committee would have to pay severely for it.
He said that if it is confirmed that a bank has violated the rules for the first time, there will be a fine of N50 million against the bank and a letter of warning to the managing director/chief executive officer. “If the bank violates it for the second time, it will be suspended from participating in the Retail Dutch Auction System (RDAS) as well as the imposition of the N50 Million fine. If it does it for the third time; in addition to the fine involved, it will also incur the suspension of the managing director/chief executive officer and the officials.”
The CBN governor explained that the sanctions signal that it was not a joke, and that once a decision had been taken at the bankers’ committee meeting; it must be complied with.