The Central Bank of Nigeria (CBN) has said that it would debit all banks in the country on Thursday, Sept. 29, for the Cash Reserve Ratio (CRR).
This follows a 500 basis point or 5 per cent raise in the minimum regulatory limits to 32.5 per cent, up from 27.5 per cent on Tuesday. It was the second increase since the year 2020.
The apex bank on January 24, 2020, increased CRR by 500basis points or 5 per cent to 27.5 per cent up from 22.5 per cent.
CBN also increased the monetary policy rate (MPR) by 150 basis points to 15.5 per cent, up from 14 per cent with Asymmetric Corridor at +100 & -200 basis points around the MPR (interest rate) while raising the Liquidity Ratio to 30 per cent.
CRR is the minimum amount as specified by the central bank, to be maintained by the banks of the public deposits with the regulator.
It is the minimum percentage of cash deposits that must be maintained by every bank as part of its regulatory buffer with the central bank.
Briefing financial journalists at the end of its bi-monthly Monetary Policy Committee (MPC) meeting in Abuja on Tuesday, CBN governor, Godwin Emefiele, directed all banks in the country to ensure that they have sufficient liquidity in their reserve to meet the new CRR target.
“We expect that all the banks in Nigeria must fund their account by Thursday, 48 hours from now. We will debit them for CRR to a minimum of 32.5 per cent,” said Emefiele.
“This means that we are going to take liquidity out of their vaults by Thursday,” the CBN boss added.
He threatened to preclude from the foreign exchange market by Friday any bank that fails to meet expectations.
“If any bank fails to meet up with this expectation, the decision of the MPC is that we may need to preclude the defaulting bank from foreign exchange market on Friday onwards until they meet the 32.5 per cent CRR requirement,” Emefiele threatened.
According to him, the message was meant to underscore the fact that MPC thought that the aggressive decision to rein in inflation must yield expected results by December, stressing that the apex regulator has no excuse in its two-pronged approach fails.
The CBN hopes that by taking out huge sums of money from the commercial banks’ vaults, excess liquidity (cash) in the system would have been constrained, thereby reining in inflation.
Implications on Businesses
CRR is an essential monetary policy tool used for controlling the money supply in the economy, a regulation implemented in almost every nation by the Central Bank of that country.
Analysts believe that a raise in CRR results in higher interest rates, thus, constraining the buying capacity of the general public since it may discourage spending.
When interest rates rise, loans also become expensive, and existing bank loans may get repriced in line with new rates.
