MPC decision: CBN increases banks deposits N528bn 

The Central Bank of Nigeria (CBN) has grown banks’ deposits by additional N528 billion with the harmonization of public and private sectors Cash Reserve Ratio (CRR) to 31 per cent. Before now, CRR for public posits was  75 per cent, while that of private sector was 20 per cent.
Analysts at Afrinvest said the move will unleashed the strings on deposits in the banking system; hence, increasing available deposits by approximately N528 billion. 
“In our view, the expectation that the new CRR may lead to increased real sector lending may not actually be the case in the interim, given the evident risks that pervade the space. Based on management guidance, banks are not willing to increase lending expressively until the new administration settles and policy direction is ascertained.
“On the other hand, the additional liquidity into the system may be channelled to the fixed income market given the current attractive yields. This in turn may help push down yields within the short term. We wish to highlight that the full implementation of the Treasury Single Account (TSA) may also reduce the quantum of public sector deposits in the banking system”, said Afrinvest. 
But Razia Khan, Managing Director, Head, Africa Macro Global Research, Standard Chartered Bank said the full impact of these measures will depend on the policy steps that are implemented soon after Nigeria’s political transition on 29 May. Currently, with growing anecdotal reports of public-sector arrears involving the payment of salaries by state governments as well as payments to contractors, this combination of measures is likely to signal an eventual tightening of policy. 
Public-sector deposits in the banking system have been under pressure for some months – following the reduction in oil prices and consequent pressure on the monthly allocation of oil earnings to the three tiers of Nigerian government (the FAAC). 
She said plans to eventually move to a more comprehensive Treasury Single Account (TSA) should, in future, reinforce the tightening bias of the CRR harmonisation. Private-sector deposits are expected to dominate the Nigerian banking system. The private-sector CRR hike is therefore the more important element of the harmonisation. 
“Could this be the precursor to eventual foreign exchange  liberalisation? While comments by the CBN governor suggest that no restrictions are in place, the current system is unlikely to be sustainable, given that foreign exchange reserves bear the brunt of Nigeria’s adjustment to external shocks. We believe that eventual foreign exchange liberalisation will still be required.

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