The Central Bank of Nigeria (CBN) is to reduce the amount of cash held by banks due to their failure to direct excess money into developing the real sector of the economy.
Before the CBN arrived at this decision, banks' Cash Reserve Requirement at the CBN was 8 per cent.
Sanusi Lamido Sanusi, the CBN governor said the Monetary Policy Committee meeting members agreed to raise Cash Reserve Requirement to 12 percent.
Other decisions taken by the MPC is to retain the Monetary Policy Rate (interest rate) at 12 percent and reduce the net foreign exchange Open Position to one percent from three percent with immediate effect.
Sanusi said: "It is important to note that the significant liquidity on the books of banks has not led to intermediation and lending to the real economy. Banks have continued to take advantage of high yield on government securities to direct credit away from the core private sector.
"In addition, the liquidity has provided ammunition for speculative activities in the foreign exchange market with implication for inflationary expectation. It was therefore, imperative to reduce the liquidity in the banking system and minimize the upward increment in MPR."
He said that the MPR was left at 12 percent to avert higher interest rates on small businesses and the potential for higher non-performing loans on the books of banks.
The CBN has kept rates on hold since November, after six successive hikes last year, including a 275 basis point rise in October to 12 percent, to ward off speculation on the naira.
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