Nigerian economists are urging the Central Bank of Nigeria (CBN) to improve how it manages liquidity in the banking system.
They say current tools need clearer links to market rates and careful use of the cash reserve requirement (CRR).
Ayo Teriba, CEO of Economic Associates, has highlighted a long-standing gap between the Monetary Policy Rate (MPR) and actual market rates.
In an Arise TV program monitored in Lagos, he noted the disconnect between the MPR and market rates. He argues that CRR should be zero percent, meaning banks should not be mandated to keep a percentage of customers’ deposits with the CBN at no interest accruals to them.
He called for reforms to be judged separately from outcomes and impact. Measurements, he argued, should focus on liquidity segments and cover price stability, growth, welfare, and net reserves.
CRR in Nigeria stands for Cash Reserve Requirement (also called Cash Reserve Ratio). It is a key monetary policy tool used by the Central Bank of Nigeria (CBN).
Simple explanation
CRR is the percentage of customers’ deposits that commercial banks (and other deposit-taking institutions) must keep as cash reserves with the CBN. Banks cannot lend or invest this money.
Example:
If a bank has ?100 in customer deposits and the CRR is 45%, the bank must keep ?45 with the CBN. It can only use the remaining ?55 for lending or other investments.
Why the CBN uses CRR
To control the amount of money (liquidity) in the banking system
To help fight inflation
To influence how much banks can lend to businesses and individuals
Raising the CRR takes more money out of circulation (tightens policy). Lowering it frees up more money for lending (eases policy).
According to the CBN Monetary Policy Committee decisions:
Deposit Money Banks (commercial banks): 45%
Merchant Banks: 16%
Non-TSA public-sector deposits: 75%
These rates were retained at the MPC meeting of 21-22 September 2026, even as the Monetary Policy Rate (MPR) was cut to 23%.
CRR is one of the main tools the CBN uses alongside the MPR, liquidity ratio, and open market operations to manage the economy.
Teriba pointed out that the MPR stayed the same for more than a year and a half while market rates kept changing. ‘Market rates are variable, and get rates connect to everybody’s decision. Market rates are what get transmitted. MPR has been the same number for more than a year, one and a half years for two years. That tells you it’s as misaligned,’ he said.
He welcomed talk about foreign reserves but noted the absence of discussion on net reserves and the size of any misalignment. ‘Unless you know the size of misalignment, you can’t talk about realignment,’ Teriba said. He stressed that discussions of the MPR and rates must include the related quantities of money, because those quantities help set the prices. Simply cutting the policy rate by 30 or even 1150 basis points does not fix the problem if the gap remains large.
Professor Uche Uwaleke agreed with much of Teriba’s analysis. He described the CRR as a crude but useful tool in Nigeria’s economy, where normal policy channels work slowly and banks hold large excess liquidity. ‘Cash reserve requirements as instrument of monetary policy is grossly unpopular for several reasons which we cannot go into on this platform. But like you rightly suggested, it is a very crude but effective tool for dealing with excess liquidity in a quasi-market economy where traditional transmission channels are slow,’ Uwaleke said.
He added that high CRR can still affect money outside the banking system because banks influence how much cash people hold. ‘Under such circumstances, cash reserve requirements coupled with other liquidity management tools become veritable instruments of monetary control. Should it be reduced or abolished? Only the CBN can tell us how effective they have been in controlling liquidity,’ he said.
Hashim supported a lower CRR but firmly rejected cutting it to zero. ‘I share Prof Ayo Teriba’s view that there is a strong case for reducing the current Cash Reserve Requirement of 45% for commercial banks. However, I respectfully disagree with his reported position that the CRR should be reduced to zero,’ Hashim stated.
He warned that a sudden drop to zero could flood the system with cash, push interest rates down sharply, and encourage borrowing for consumption or political spending. Banks might also expand margin lending, risking a stock-market boom followed by instability. Lower yields on government securities could then drive portfolio investors away, pressure the naira, and reverse recent gains in exchange-rate stability, inflation control, and the balance of payments.
‘The objective should therefore be to find the right balance: a CRR that is sufficiently accommodative to support credit creation and economic activity, while remaining prudent enough to preserve monetary and macroeconomic stability,’ Hashim said. He welcomed the CBN Monetary Policy Committee’s recent decision to recalibrate the policy rate and urged careful, gradual steps rather than one big move.
The experts agree that Nigeria’s liquidity tools need better alignment with real market conditions. They call for clearer data on net reserves, proper measurement of rate gaps, and a balanced approach to the CRR so that policy supports growth without endangering hard-won stability.