Boyo blames CBN on management of excess liquidity

An economist, Mr Henry Boyo, on Thursday urged the Central Bank of Nigeria (CBN) to find lasting solution to the management of excess cash in circulation.

He warned the CBN to desist from the regular review of Cash Reserve Requirement (CRR).

Boyo , Chief Executive of Les Leba Nigeria Ltd, gave the advice in an interview with the News Agency of Nigeria (NAN) in Lagos.

According to him, the constant review of CRR would not stem the problem of excess liquidity in the system.

NAN recalls that the CBN, on Jan. 21, raised the CRR on public sector deposits from 50 per cent to 75 per cent.

The apex bank also retained the Monetary Policy Rate (MRR) at 12 per cent, liquidity ratio at 30 per cent and CRR on private sector deposits at 12 per cent.

Also in july last year, the CBN raised the CRR on public sector deposits from 12 per cent to 50 per cent.

The monetary policy instruments are used to control the liquidity in the financial system.

Boyo said that increase of CRR to 75 per cent would be ineffective if CRR across the board remained at the current level of 12 per cent for private deposits.

The economist also called for adoption of dollar-certificates for the payment of dollar revenue to address oppressive burden of excess liquidity.

Boyo said that unyielding burden of surplus cash was the product of money supply whenever CBN created fresh naira supply in place of dollar allocations for dollar derived revenue.

“It is certainly a difficult task to appropriate government deposits from private sector deposits by the mere demand that banks should comply with CBN directive,” Boyo said.

He said that the policy could be effective if deposits remained specifically in the account of government organisation,but would transit to private sector deposits when used to pay salaries or contractors.

Boyo said that it could instigate a cash surplus in the hands of the banks with the attendant possibility of liquidity expansion that could drive higher inflation rate.

He said that a 100 per cent CRR for public funds would neither ultimately reduce excess liquidity nor diminish government’s appetite for borrowing to mop up surplus cash.

“Despite the increase of CRR to 50 per cent a few months ago, the available evidence is that CBN has since mopped up well-over N200 billion from the money market,” Boyo said.

He said that the Debt Management Office had also borrowed well over N100 billion at a cost of over 10 per cent from the money market. (NAN)