CBN’s 50% CRR Sparks Concerns Despite Rate Pause, Says CPPE

CBN’s 50% CRR Sparks Concerns Despite Rate Pause, Says CPPE

The Centre for the Promotion of Private Enterprise (CPPE) has welcomed the Central Bank of Nigeria’s (CBN) decision to pause rate hikes but insists that more action is needed to ease economic pressure.

Dr. Muda Yusuf, the Chief Executive Officer of CPPE, praised the Monetary Policy Committee (MPC) for its decision in an interview with the News Agency of Nigeria (NAN) on Friday in Lagos. However, he emphasized that reducing rates should be the next step.

Yusuf noted that keeping rates steady aligns with CPPE’s expectations. He explained that with the newly rebased inflation calculation, inflation has dropped to 24.48%, which is lower than the current Monetary Policy Rate (MPR).

“This decision makes sense,” Yusuf said. “It helps prevent higher interest rate burdens on businesses and citizens relying on banks. However, moving forward, there should be a relaxation of these tightening measures.”

He argued that having the MPR higher than the inflation rate puts too much strain on investors.

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“That’s squeezing the economy too tightly,” Yusuf said.

He urged the CBN to gradually lower the MPR and ease the Cash Reserve Ratio (CRR) in its next MPC meeting in May.

According to Yusuf, prices of essential goods like energy, diesel, petrol, and pharmaceuticals are already showing signs of decline. He believes maintaining exchange rate stability will further bring down costs in other sectors.

Expressing optimism, he noted that inflation trends suggest a brighter outlook.

“We anticipate that by the next MPC meeting, the CBN will ease some of these rates,” Yusuf said.

Despite the positive outlook, he expressed deep concerns about Nigeria’s CRR, which stands at 50%, the highest in the world.

“There’s no justification for maintaining this level,” he stated. “Even Turkey, the country closest to Nigeria in CRR, only has 25%. Our macroeconomic situation is not dire enough to warrant such an extreme CRR.”

Yusuf also criticized the wide asymmetric corridor of +500/-100 basis points.

“If the MPR is already 27.5%, a +500 basis point asymmetric corridor creates financial instability,” he argued. “This needs urgent review.”

He warned that maintaining this trajectory could isolate the financial sector from the real economy, stunting economic growth.

“This could have serious consequences for our economic progress,” Yusuf added.

He urged the MPC to reconsider its stance on tightening measures to prevent long-term financial disruptions.

NAN reports that during its 299th meeting, the MPC retained the MPR at 27.50%, with the asymmetric corridor around it at +500/-100 basis points. The apex bank also maintained the CRR for Deposit Money Banks at 50%, Merchant Banks at 16%, and the Liquidity Ratio at 30%.