CRR reduction to boost banking sector liquidity by N530bn –Analysts


By Blaise Udunze

FINANCIAL analysts have affirmed that the reduction of the Cash Reserve Re­quirement (CRR) from 31 per cent to 25 per cent by the Monetary Policy Com­mittee (MPC) at its meeting on Tuesday will cushion the effect of the Treasury Single Account (TSA) and increase liquidity in the money market by N530 billion.

At the meeting which ended on Tuesday the Central Bank of Nigeria (CBN) elect­ed to keep the Monetary Poli­cy Rate (MPR) unchanged at 13 per cent, the symmetrical corridor at 200 basis points around the MPR, while cut­ting the CRR by 600 basis points to 25 per cent from 31 per cent previously in order to ease the impact of TSA sys­temic liquidity.

But analysts at Financial Derivatives Company Lim­ited, in an emailed research note said while the implemen­tation of the TSA resulted in a net outflow of about N250 billion from the financial system, 600 basis points re­duction in CRR will bring about an inflow in excess of N700 billion. Prior to the an­nouncement of the decision of the MPC, bankers had hoped for a further reduction of the CRR to around 20 per cent to cushion the effect of the TSA implementation. “The imple­mentation of the TSA has resulted in a net outflow of approximately N250 billion. With a 600 basis points re­duction in CRR, an estimated N700 billion will be injected into the system given that a 100 basis points reduction in CRR results in an injection of approximately N130 billion into the system. Thus, the net increase in liquidity will be about N530 billion,” the FDC analysts stated.

Managing Director, Head – Africa Macro, Global Re­search at Standard Chartered Bank, Razia Khan, com­menting on the move of the MPC said with the reduction in CRR, the overall liquidity effect of the TSA becoming more operational was played down. “With the CBN sug­gesting that there has been a ‘moderate’ impact overall, and that earlier claims of a large liquidity withdrawal from the banking system were likely exaggerated, this suggests that there is no cer­tainty that the CRR will be eased further with the har­monised public and private sector rate now at 25 per cent, “ Khan said.

Source : SunOnline

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