As more multinational companies exit Nigeria over exchange rate volatility, economists and other Investment analysts fear that more businesses may face similar fate as the amount of banks’ deposits with the Central Bank of Nigeria (CBN) otherwise known as Cash Reserve Ratio (CRR) soared by 45.51 percent in the nine months to September 2023.
Financial analysts and economic experts have emphasized that the high CRR in Nigeria, one of the global highest, would constrain economic growth as it denies companies access to credit and raises the cost of credit.
Citing the impact of high cash reserve requirements debit on banks’ ability to lend to the manufacturing sector, they charged the new leadership of the CBN to put machinery in place to stabilise the exchange rate as well as the fiscal situation to lower the CRR and ease its debilitating impact on the economy.
Mandatory reserve deposits represent a percentage of the customers’ deposits that are not available for use in the bank’s day-to-day operations and must be kept with the CBN. The amount, which is based on qualified assets, is determined by the CBN from time to time and is non-interest bearing.
The apex bank has been employing cash reserve requirements as a monetary policy tool to regulate money supply, tighten liquidity in the financial system, and contain inflation.
Within the review period, the Monetary Policy Committee (MPC) of the CBN raised the CRR to 32.5 percent from 27 percent, amid surging inflationary pressures and has since retained it at the rate.
