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Pressure on naira expected as CBN harmonises CRR to 31%

By on May 21, 2015

There may be pressure on the naira at the foreign exchange market due to increased liquidity as the Central Bank of Nigeria (CBN) harmonises Cash Reserve Requirement (CRR) on public and private sector deposits.
The Monetary Policy Committee (MPC) members reached a consensus on monetary policy by harmonising CRR on public and private sector deposits to 31.0%. The harmonised CRR is 4.0% less than the previously implied CRR of 35.0%.
Bismarck Rewane, managing director and CEO of Financial Derivatives Company, said the change to the CRR was “a tacit way of increasing money supply and bringing down interest rates. The downside is that it will create extra liquidity and increase the pressure on the naira in foreign exchange markets.”
Meanwhile, naira on Tuesday gained slightly against the US dollar by N0.10k or 0.05 percent as it closed at N198.14/$ compared to N198.24/$ the previous day, data obtained from Financial Markets Dealers Quotations (FMDQ) revealed.
However, the CBN’s clearing rates as of May 19, 2015 stood at N197 at the inter-bank foreign exchange market.
At the money market, the overnight inter-bank rate rose by 29.92 percent to 53.67 percent from 23.75 percent.
Ayodeji Ebo, head investment research, Afrinvest West Africa Limited, said the slight easing may engender a positive impact on the financial market in sessions ahead. Commercial banks that are more exposed to public sector deposits will experience more liquidity while banks with more private sector deposits exposure will remain constrained. Other monetary policy rates (MPR: 13.0%, NOP: 0.5%, liquidity: 30.0%) were left unchanged in line with analysts’ expectation.
By implication, the CBN unleashed the strings on deposits in the banking system; hence, increasing available deposits by approximately N528 billion.

 

 

[Business Day]

One Comment

  1. busybee

    May 21, 2015 at 12:41 pm

    I am still surprised at the optimism that the changes in CRR will bring in money in to the system. It could go either way. With the single treasury account being implemented and drying up of government revenue, I can envisage any positive impact. Perhaps if CRR on private sector deposits was left unchanged it was made better impact. Let us hope that CBN has not taken us for a ride. The more you look the less you see. Give the right hand and take with the left.