By Niyi Jacobs
Nigeria’s banking reserves have surged to a record high of N26.8 trillion in August 2024, representing a significant increase from N19.4 trillion a year earlier. This remarkable growth is a direct result of the Central Bank of Nigeria’s (CBN) aggressive monetary tightening measures, aimed at curtailing excessive liquidity and containing rising inflation.
The CBN, under the leadership of Governor Yemi Cardoso, has been proactive in adjusting monetary policy to address the country’s economic challenges. In its most recent Monetary Policy Committee (MPC) meeting, the committee raised the Monetary Policy Rate (MPR) by 50 basis points to 27.25%, signaling a continuation of its tightening cycle.
Notably, the MPC also raised the Cash Reserve Ratio (CRR) by 500 basis points to 50%, a clear indication of the apex bank’s determination to mop up liquidity and stabilize the economy. This move has resulted in a significant increase in banking reserves, with the CRR now at its highest level since 2019.
The CBN’s policies have been designed to address the twin challenges of inflation and a growing money supply. Nigeria’s inflation rate remains persistently high at 32.15% as of August 2024, driven by structural inefficiencies, global price pressures, and volatile energy costs. By increasing the CRR, the CBN aims to reduce the money supply and curb excess liquidity, which has been exacerbating inflationary pressures.
However, bankers have voiced concerns over the impact of these aggressive CRR hikes. With the CRR now at 50%, banks are compelled to lock half of their customer deposits at the CBN, where they earn no interest. This dynamic is placing increasing pressure on banks’ margins, making it more difficult for them to lend effectively and maintain profitability.
As the CBN continues its aggressive monetary tightening, the banking sector is likely to face further challenges in the short term. However, the long-term benefits of a more stable economy and lower inflation
