At its first meeting for 2014, the Monetary Policy Committee of the Central Bank of Nigeria raised the cash reserve ratio for public sector funds but retained the monetary policy rate.

On July 24 2013, there was commotion in the Nigerian banking community when the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) announced an increment of the Cash Reserve Ratio for public funds to 50 percent. It is common knowledge that banks here rely more on public sector funds for survival. Many current senior banks attained their position on account of the huge public sector accounts that they won for their banks. In the same fashion, public officials made plenty of money by making deals with bankers.

So when the CBN announced the policy shift last July, many banks scampered to the central bank for lifeline. Also, interbank rates rose sharply. Even then, the MPR remained unchanged like it has been for a very long time. It was thus a surprise move again when CBN Governor, Lamido Sanusi announced the decision to further raise CRR on public sector funds from 50 per cent to 75 per cent while keeping the Monetary Policy Rate unchanged at 12 per cent.
The CRR determines the amount of funds that banks must keep in their vaults never to be lent out. The CBN uses the CRR to drain what it considers as excess money from circulation. As the 2015 general elections draw near, the apex bank is taking measures to ensure that the economy is not distorted and inflation is put under check by controlling the amount of cash in circulation.
Liquidity ratio was also held at 30 per cent.
The committee agreed to address the foreign exchange supply imbalance to the bureaux de change (BDC), which it blamed for the widening gap between official and BDC rates. There is a huge differential between the official rates and BDC rates. While the official rate opened with N157 to the dollar in 2013, it closed at N157.6 different from the BDC, which opened at N159.5 but closed at N170 to the dollar, a depreciation of over 7 per cent.
The central bank said it was mulling over the possibility of reversing the administrative limit placed on the amount BDCs could sell foreign exchange. It also agreed to redress the supply-demand imbalance in the BDC segment while maintaining its focus on anti-money laundering (AML) activities.

MPC decided that developments in the economic environment do not conduce to any monetary easing this year as it foresees 2014 as a difficult period for both the monetary and fiscal authorities on the back of recent external sector developments. While welcoming the sustained stability of the exchange rate and single digit inflation in 2013, members of the committee identified four key concerns for policy in the short- to medium-term. Sanusi listed the concerns as: depletion of fiscal buffers following the continuing decline in oil revenue, rundown of reserves and depletion of excess crude oil savings; falling portfolio and FDI inflows; widening gap between the official and the BDC exchange rates; and an increase in core inflation.
‘My view has always been that we’ve not come to the end of the tightening cycle. The central bank should continue tightening so long as tightening is required and obviously there’s a limit to how much you can continue raising the interest rate or increase CRR.’