The Central Bank of Nigeria (CBN) yesterday resolved in an overwhelming vote to further tighten the country’s money policy by raising lending rate and Cash Reserve Ratio (CRR).
At the end of the two-day Monetary Policy Committee (MPC) meeting in Abuja, the apex bank members resolved to increase cash reserve ratio (CRR) from 2 per cent to 4 per cent with effect from June 8, 2011, to align with the next reserve averaging maintenance period, while the lending rate was raised by 6.67 per cent or 50 basis points from 7.5 per cent to 8.0 per cent, with the symmetric corridor left unchanged at +/- 200 basis points.
The CBN governor, Sanusi Lamido Sanusi, told reporters at the end of the meeting that the resolutions were informed by the need to adopt a prudent policy stance that would help curb inflationary trends associated with excessive liquidity and pressure on foreign exchange market.
The policy, he explained, was to help maintain price stability as well as continue with the progress towards positive real interest rates, pointing out that “in a highly import-dependent economy with large pass-through effects of import prices on domestic prices, it is necessary to create a climate conducive to larger foreign capital inflows through appropriate fiscal measures, particularly in the light of the gains that could be made in the current context of high crude oil prices.”
No going back
The apex bank governor used the occasion to shed some light on the controversial cash limit policy it announced recently, insisting there was no going back on its implementation, though he said the CBN is still open to further discussions among stakeholders.
The policy limits daily cumulative free cash withdrawals and lodgments by individual and corporate customers to a maximum ceiling of N150,000 and N1 million respectively.
According to Mr Sanusi, the policy is only an aspect of a holistic programme to modernise the country’s financial system and move the economy from being cash-based to cashless, pointing out that the CBN did not set a N150,000 limit, but simply that it would be more expensive to cash more than that.
The policy attracts a penalty of N100 per N1000 on all individual cash transactions in excess of the limit, while corporate customers are to pay a fee of N200 per N1000, while contravention is to attract a fine of five times the amount the bank waives as a first offender, with the sanctions raised to ten times the charge subsequently.
He explained that the decision to peg the limit at N150,000 was informed by findings that throughout last year, less than 8 per cent of cash transactions in the country were more than that figure, adding that a small fraction of the population account for the high cost of managing money in the system.
“In a country where more than 70 percent of the population is living on a dollar a day, it is a very small percentage of people who are very rich that are costing the industry, including CBN, about N200 billion to print, transport, secure, process and destroy money (Naira) annually.
A survey of banks by the CBN shows that the top seven banks alone spend almost N100 billion in cash management. It is major drain on the country’s economy,” Mr Sanusi said.
Pilot scheme
He announced that in the next six months, the CBN, in collaboration with telecoms companies and automated teller machine (ATM) operators, is going to introduce a pilot scheme, ‘Project Cashless Lagos’ as a model that would enable people carry out their transactions using cards, pointing accusing fingers at the elites as those complaining about the policy.
“We have to move the economy to a point where the cost of cash transaction is reduced. We cannot talk about a top 20 economy if all our transactions are in cash. We have got to transform and modernise the economy by putting in measures to curb money laundering and corruption.
“We will continue to dialogue on the policy. We will be flexible on the limit. It can be N150,000, N300,000 or so. These are not cast in stone. But the important thing is that the principle is that there will be cash limit. There will a movement from cash. We have to move transactions in the country to electronic banking. We must move the country from a cash-based to a cashless economy.
“We are a country that has built a reputation for money laundering. Our children are growing in the “Ghana-must-go generation”, where they have to carry around millions of naira to carry out transactions. We have got to stop that and try using cards, internet and telephone banking,” Mr Sanusi said.