CBN debited N6.9 trillion from banks last week, the result of the MPC decision to increase CRR to 32.5%. This means a third of all bank deposits now sterilised with CBN. It’s one of the worst MPC decisions I’ve ever seen, and has simply gone unnoticed.
In a country struggling for growth, CBN’s CRR hike will simply kill any type of lending, and by extension, growth. And the worst part is it won’t even curb inflation, which is now clearly more cost-push, than demand-pull.
So lending will stall and rates will go up. Now guess how companies will respond to the higher interest payment? Exactly; they will increase prices, which will only worsen the problem CBN is trying to solve. End
In a country struggling for growth, CBN’s CRR hike will simply kill any type of lending, and by extension, growth. And the worst part is it won’t even curb inflation, which is now clearly more cost-push, than demand-pull.
So lending will stall and rates will go up. Now guess how companies will respond to the higher interest payment? Exactly; they will increase prices, which will only worsen the problem CBN is trying to solve. End
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