In a significant move aimed at tightening monetary policy, the Central Bank of Nigeria (CBN) increased the Standing Lending Facility (SLF) rate to 31.75% at its 296th meeting of the Monetary Policy Committee (MPC).
The MPC adjusted the upper corridor of the standing facilities to 5.00 per cent from 1.00 per cent around the MPR. Consequently, the suspension of the SLF was lifted, and authorized dealers can submit their requests for SLF.
According to a recently released circular, authorized dealers are instructed to submit their requests for SLF through the Scripless Securities Settlement System (S4) within the operating hours of 5.00pm to 6.30pm.
The circular outlined the following key points:
SLF Access: Authorized dealers are permitted to access the SLF at 31.75 per cent.
Interbank Lending Facility (ILF): To avoid system gridlock, authorized dealers can access the ILF at no cost if repaid the same day.
Penalty: A 5.00 per cent penalty is retained for participants who do not settle their ILF, which the system will convert to SLF at 36.75 per cent.
Collateral Execution: The rediscounting of instruments pledged by participants at the penal rate by the CBN is reintroduced as stipulated in the approved repo guidelines.
The circular instruction takes immediate effect.
What is the SLF
The SLF is a lending window through which commercial banks can borrow funds from the CBN at a penal rate. The rate hike is a direct response to concerns about rising inflation and the need to support the naira exchange rate.
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Background
The CBN’s decision to raise the SLF rate comes amidst growing concerns about inflation in Nigeria. The country has been grappling with rising prices of goods and services, which has eroded the purchasing power of consumers and put pressure on businesses.
The MPC has been closely monitoring inflation trends and has taken several measures to address the issue. In addition to raising the SLF rate, the CBN has also increased the Monetary Policy Rate (MPR), the benchmark interest rate in the country. The aim of these measures is to discourage borrowing and reduce spending, which can help to curb inflation.
However, some economists argue that raising interest rates can also stifle economic growth. They contend that higher borrowing costs can make it more difficult for businesses to invest and expand their operations.
If You Ask Me: Impact on the Economy
The impact of the CBN’s decision to raise the SLF rate on the Nigerian economy remains to be seen. Some analysts believe that the move could help to stabilize the naira exchange rate and reduce inflationary pressures. However, others warn that it could also lead to higher borrowing costs for businesses and individuals, which could dampen economic activity.
It is important to note that the SLF is just one of several tools that the CBN uses to manage monetary policy in Nigeria. The central bank also has other instruments at its disposal, such as open market operations and reserve requirements. The effectiveness of the CBN’s monetary policy measures will depend on a variety of factors, including the state of the economy, global economic conditions, and the behavior of consumers and businesses.
