IN apparent bid to douse the scarcity of funds in the economy, the Central Bank (CBN) yesterday injected about N955 billion into the banking industry as it reduced bank's liquidity ratio and cash reserve requirement to 25 per cent and 1.0 per cent respectively.

The apex bank also slashed its Monetary Policy Rate (MPR) (interest rate) to eight percent from 9.75 per cent.

The liquidity ratio is the portion of banks' total assets that are kept in liquid assets such as treasury bills and government bonds; while the cash reserve requirement is the portion of banks total assets that they must keep in cash.

Following the meeting of its Monetary Policy Committee (MPC), the apex bank reduced the liquidity ratio by 500 basis points from 30 per cent to 25 per cent. With total assets/liabilities of banks as at January 31 at N15.923 trillion, the reduction in liquidity ratio translates to injecting five per cent of banks' total assets, which is N796 billion, into the economy.

The apex bank also slashed the cash reserve requirement by 100 basis points from two per cent to one per cent translating to injection of one per cent of banks assets, which is N159.2 billion into the economy. Combined together, the apex bank is injecting N955 billion into the economy and hence making more money available to lend to businesses and individuals.

To complement this by reducing the cost of lending money in the economy, the CBN reduced its Monetary Policy Rate (MPR) by 175 basis points to 8.00 per cent from 9.75 per cent.

The MPR is the anchor rate for interest rate in the economy.

Announcing the measures after the MPC meeting, CBN Governor, Professor Chukwuma Soludo said the measures were taken to address the tight monetary conditions in the economy.

He said "the domestic money market rates have been under pressure since February 2009. The weighted average inter-bank call rate went up from 17.62 per cent in February to 22.15 per cent in March. The collateralised Open Buy Back (OBB) rate however was lower than the Monetary Policy Rate (MPR).

The deposit and lending rates too have inched up. The staff expects that in the near term, interest rates are likely to moderate in response to expected subdued inflation and improvements in the liquidity conditions facilitated by the CBN initiatives in this regard.

The MPC observed the relative tight monetary conditions in the economy, hence the need for monetary easing. The major pressure points for monetary policy in the short term include: Liquidity tightness and hence relatively higher interbank interest rates and also pressures on other interest rates; lower growth rate of credit to the private sector compared to the trend in the last three years; rising food price inflation, and need for increased agricultural output and ensuring the continuation of banking and financial sector stability and soundness.

The MPC also commended the earlier CBN Board's decision and Mr. President's approval in respect of the N200 billion special agricultural fund for large scale agriculture.

"The CBN will fully underwrite the cost of the fund, and ensure immediate implementation. This initiative will significantly reduce food price inflation, and assist the CBN in achieving its core mandate of price stability", Soludo said.

Restricts banks on ATMs

Meanwhile, has restricted the siting of Automated Teller Machines (ATMs) to the banks' premises.

In a circular to banks signed by Mr James Olekah, Director, Banking Operations, the while noting the growth in the adoption of the Automated Teller Machines (ATMs) by Nigerians as one of the channels of e-payment said it is committed to ensuring that the deployment and management of ATMs within the economy are in line with global best practices.

"It would be recalled that one of the policies guiding the operations of ATM consortium (ATMC) is that the ATMC shall have the sole mandate to deploy ATMs at public places while the banks shall deploy ATMs only within their premises.

"The CBN has observed with concern that the banks are competing with the ATMC in the deployment of ATMs in public places.

A worrisome trend is the number of ATMs at the airports and hotel lobbies, which if unchecked would soon, congest these public places. Against this backdrop, the CBN hereby directs that banks should forthwith restrict the deployment of the ATMs to their premises. Banks are further advised to re_deploy all existing ATMs in public places to their premises on or before June 30, 2009.

"Furthermore, in line with the Bank's policy on shared payments infrastructure by the banking industry and the need to effectively respond to the rising demand for ATM services by the public, the CBN has decided to commence soon, the process of licensing an additional ATM consortium. This will bring the total number of ATM consortia in the economy to (2) two. The two (2) consortia shall be solely responsible for the deployment of ATMs in public places in line with this policy and best practices."