CBN and CRR harmonisation - National Mirror

The Central Bank of Nigeria's (CBN) Monetary Policy Committee (MPC) said a few days ago in Abuja that it had uniformly harmonised the Cash Reserve Ratio (CRR) on public and private sector deposits to 31 per cent. Mr. Godwin Emefiele, the CBN governor, at a media briefing told reporters that the MPC 'considered that the current discriminatory CRR on public and private sector deposits has not only constrained the policy space, but could inspire moral hazard by private market participants'.

Before now, the apex bank clamped 20 per cent as CRR on private sector deposits; and 75 percent on deposits from the public sector. The CRR represents the minimum fraction of individual customer's (private depositor) or government's (public depositor) deposits that every legitimate commercial bank must hold as reserves not subject to lending out. However, not all countries operate the CRR system. About January last year, the CRR on public sector deposit was raised from 50 per cent to 75 per cent, while that of private sector was much less. But late last year, the MPC, at its 98th meeting in Abuja, devalued the naira from N155 to N168 against the American dollar, increased Monetary Policy Rate from 12 to 13 percent and hiked private sector CRR from 15 to 20 per cent.

When the CRR on public sector deposits was increased from 50 per cent to 75 per cent early last year, the organised private sector, led by the Lagos Chamber of Commerce and Industry (LCCI), was probably the first to cry out. Alhaji Remi Bello, the LCCI president, drew attention to the fact that the review of the CRR on public sector deposit with commercial banks from 50 percent to 75 percent would adversely affect interest rates, financial system stability, the real economy and financial inter-mediation.

'Current monetary policy regime is inadvertently reinforcing the import dependence of the economy, while penalizing domestic production. It is becoming increasingly difficult to produce domestically due to a combination of structural and monetary factors. The incentive to import is increasing while the motivation for domestic production is diminishing. It is impossible to build an inclusive and job creating economy with this scenario', Bello had stated.

All he cried about could be summed up as the persisting high cost of fund for businesses in the real sector. 'Financial intermediation is a major function of banks in any economy, which makes it possible for resources to be channelled from the surplus segment of the economy to the deficit sectors at any point in time. It is important, at this time, for the CBN to maintain a balance between its pursuit of low inflation and exchange rate stability on the one hand, and the need to stimulate the economy on the other. This is crucial in the light of the worsening unemployment and poverty situation in the country', Bello added.

We also recall that in defence of the increase in private sector CRR from 15 to 20 percent last November, CBN's Deputy Governor (Corporate Services), Mr. Bayo Adelabu, stated: 'The decision of the MPC was the best we could do under the circumstance the economy is presently…, a lot of things contributed to the pressure on the naira. Firstly is the declining revenue from oil. Our source of revenue in this country is just oil, and when oil price declined by about 25 percent in the last one month, we expected that there would be pressure on the foreign reserves…What the CBN is saying is that we need to become more patriotic. We should patronise locally-made goods and services. We do not need to be importing everything. This is part of the reasons for the pressure on the naira'. Adelabu said instead of lending to the productive sectors of the economy, banks were busy advancing loans to mainly importers of consumable items.

Ordinarily, pegging the CRR at 31 percent for both private and public sector deposits appears industry-friendly. But the fact remains that whether the CRR is adjusted upwards or downwards, it will scarcely make any positive impact on the Nigerian economy for as long as it mainly benefits importers to the detriment of genuine local entrepreneurs. Nigerian banks are among the most unpatriotic, worldwide. Their loanable funds are for the fast-lane. They are for quick-return- importers. They don't even mind making funds available for round-tripping or arbitrage. Why would any reasonable adjustment of the CRR pay off, and why would the naira not crash the more, when no tangible sum is invested to grow locally made products and services; and when loans sourced from supposedly friendly CRR end up being used to import all manner of rubbish into the country?