The Central Bank of Nigeria has again justified its reliance on the Loan Deposit Ratio to control the country’s rising inflation.
The apex bank also said it is ready to do whatever it takes to reduce the inflation rate.
The CBN’s Acting Director of the Banking Supervision Department, Adetona Adedeji, disclosed this in ‘CBN Talk Today’, a podcast recently uploaded to the bank’s website titled “Loan to Deposit Ratio Adjustment.”
According to reports that CBN reduced the LDR of banks from the previous 65 per cent to 50 per cent, a move the regulator said would stabilise the economy.
Adedeji said the use of LDR as a control measure for inflation started in 2019 when it was observed there was a massive slowdown in credit growth.
“This policy was created to ensure that money flows into the real sector of the economy. The LDR then was set at 60 per cent, and later increased to 65 per cent before it was last week reduced to 50 per cent. And if you want to combat inflation using the orthodox method, you need to balance what you do with the monetary policy tools and other measures,” he said.
Speaking about the nexus between the LDR and rising inflation, he said the last Monetary Policy Committee decided to purge the financial system of excess cash by raising the Monetary Policy Rate.
