AGS NEWS – The Central Bank of Nigeria (CBN) has reiterated its stance on using the Loan Deposit Ratio (LDR) to curb the country’s rising inflation.

Dr. Adetona Adedeji, Acting Director of the Banking Supervision Department at CBN, reaffirmed this in a recent podcast titled “Loan to Deposit Ratio Adjustment,” uploaded to the bank’s website.

CBN reduced the LDR of banks from 65% to 50% in a bid to stabilize the economy.

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Adedeji highlighted that this policy began in 2019 to encourage credit flow into the real sector of the economy, aiming to combat inflation using various monetary policy tools.

The recent Monetary Policy Committee decision involved raising the Monetary Policy Rate (MPR) by 200 basis points to 24.75% and adjusting the asymmetric corridor around the MPR.

Adedeji explained that while this decision limited loan accessibility for bank customers, it also curtailed the volume of cash in circulation, which is beneficial for the economy’s financial health.

Acknowledging the adverse effects of this policy, Adedeji emphasized the necessity of a tradeoff for economic progress.

He noted the traditional Phillips curve’s inverse relationship between inflation and unemployment, suggesting a focus on tracking inflation rather than economic growth.

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Adedeji underscored the CBN’s commitment to fighting inflation using appropriate monetary policy tools, with the current LDR aligning with the bank’s monetary tightening plan.

He directed commercial banks to maintain the LDR level and ensure compliance, as it serves as a crucial metric for assessing banks’ lending capacity and financial system stability.