UPDATE 2-Nigeria raises bank's cash ratio for first time in four years

(Releads with cash ratio, analyst comment)
By Paul Carsten and Camillus Eboh
ABUJA, Jan 24 (Reuters) - Nigeria's central bank raised the
cash reserve ratio for banks for the first time in four years to
curb excess liquidity on the banking system, which it said is
contributing to inflation, Governor Godwin Emefiele said on
Friday.
At its first monetary policy committee meeting of 2020 the
bank raised reserves by 500 basis points, after majority of the
members voted to increase the ratio to 27.5%. It kept benchmark
interest rates on hold at 13.5%.
"Maintaining the monetary policy rate at its present level
is essential for sustainable support to growth before any
possible adjustment," Emefiele told reporters in Abuja.
Most analysts previously polled by Reuters had predicted the
central bank would leave rates unchanged. Emefiele has said the
bank would maintain its tight monetary stance in
2020. "Today's announcement is, however, still a tightening of
liquidity, and near-term, we would expect market interest rates
to adjust to this," said Razia Khan, chief economist for Africa
and the Middle East at Standard Chartered.
Nigeria, Africa's largest economy, emerged from its first
recession in 25 years in 2017, but growth remains fragile. The
central bank has tried to encourage banks to lend to stimulate
the economy, which has swelled liquidity.
Inflation stood at 11.98% in December, rising for the fourth
straight month, worsened by Nigeria's border closure in August
to fight smuggling. The central bank said inflation was outside
its band of 6% to 9% and that it wanted to curtail inflationary
pressure.
Emefiele said the bank would continue to sustain the value
of the naira, though its dollar reserve of $38 billion was
shrinking, no adjustment was planned.
Last year, the central bank banned domestic funds from
buying its treasury bills, keeping markets awash with naira. The
move also contributed to lowering bond yields, keeping foreign
investors away.
Foreign investors cut their participation in Nigerian
government bond auctions last year because of lower yields. They
moved into bills supported by the central bank.