order to minimize increased volatility in monetary rate, the Central Bank of Nigeria (CBN) has reduced flow of money in the banking system.

This decision was made at the Monetary Policy Committee meeting held at the financial institution’s head office in Abuja.

The reason for this decision, the apex bank said, is because, Deposit Money Banks do not lend to the economy.

CBN Governor, Sanusi Lamido, complained that Deposit Money Banks continued to take advantage of high yields on government securities to direct credit away from the core private sector instead of lending to the real economy.

This development may cause inflation at the long run as CBN cannot force other banks to lend money, Lamido explained. He noted that the liquidity of banks had provided an opportunity for speculative activity in the foreign exchange market.

According to Punch; “Figures from the apex bank showed that relative to December 2011, aggregate domestic credit (net) declined by 2.73 percent in June 2012 and 5.46 percent when annualised.”

Meanwhile, the committee at its meeting has decided to increase the Cash Reserve Requirement of DMBs from eight percent to 12 percent with effect from today, 25th of July.

In justification, Lamido explained that “The committee recognised that a logical response to the increasing inflationary outlook would be an increase in the MPR, especially considering the impact of sustained liquidity in the banking system on exchange rates.

“It was, however, conscious of the impact of higher interest rates on small businesses and the potential for higher non-performing loans on the books of banks. In addition, it is important to leave room and flexibility for further tightening should conditions so warrant in the near future.”