CBN Targets Liquidity Control with 75% CRR on Non-TSA Public Sector Deposits

The Central Bank of Nigeria (CBN) has introduced a 75% Cash Reserve Ratio (CRR) on non-Treasury Single Account (TSA) public sector deposits to better manage liquidity risks within the financial system. This move, announced by CBN Governor Olayemi Cardoso at a press conference after the Monetary Policy Committee (MPC) meeting in Abuja, aims to address fiscal liquidity challenges originating from government-related funds held in commercial banks.

Non-TSA public sector deposits, which include funds from ministries, departments, agencies, and parastatals, have been identified as a significant risk to the financial system. The new rule mandates banks to set aside 75% of such deposits as reserves. “Most of those liquidity challenges are not coming from the private sector. Most of it is coming from the public sector, and it is not fair to penalize the whole system with a huge CRR when the bulk of the liquidity is coming from the public sector,” said Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE).

In addition to the 75% CRR on non-TSA deposits, the CBN reduced the Monetary Policy Rate (MPR) by 50 basis points to 27%, with adjustments to the standing facilities corridor. The CRR for commercial banks was lowered from 50% to 45%, while the ratio for merchant banks remained at 16%. Cardoso explained that the CBN’s decisions are based on a sustained decline in inflation and the need to support economic recovery efforts.

See Also

Tinubu Requests Senate Approval for Amupitan as INEC Chairman

Yusuf emphasized that the measure would shield the financial system from potential liquidity surges stemming from fiscal pressures. “The main objective is to safeguard the system against liquidity surge arising from the fiscal side,” he added.