Professor of Finance and Capital market at the Nasarawa State University, Keffi, Uchenna Uwaleke has called on the Central Bank of Nigeria (CBN) to consider reducing the Cash reserve ratio (CRR) for Deposit money bank from 32.5% to 25% in view of the high monetary policy rate.
Professor Uwalake made the call in the wake of the CBn revision of the CRR of merchant banks to 10 percent from 32.5 percent.
Nigerian banks as of March 2022, before the CRR hike to 32.5 per cent had a combined deposit base of N48.64 trillion. Implicintly, this means that as much as N15.8 trillion, being 32.5 percent of N48.64 trillion, are kept with the CBN as CRR, yielding zero return to the banks.
The new cut reverses significantly the increase in the CRR by the Monetary Policy Committee (MPC) last September from 27.5 percent to 32.5 percent to tame inflationary pressure.
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Prior to the increase last year, Nigeria’s CRR was one of the highest in the world at 27.5 per cent. The CBN hiked it by 500 basis points to 32.5 per cent from 27.5 per cent where it has been for two years.
Speaking on the development, Prof Uwalake said: “I consider this a welcome development which will place the wholesale banks in a stronger position to attend to the financing needs of the real sector.
“By the same token, the CBN should consider reducing the CRR for DMBs from 32.5% to say, 25% in view of the high MPR.”
He argued that the huge evidence of non-monetary influence on inflation supports this recommendation.
He said: “It’s a no-brainer that increased liquidity in the banking sector following a reduction in the CRR has the potential of lowering interest rates with positive pass-through to the stock market.”
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