Economists Question CBN’s 45% CRR Despite 18-year High Foreign Reserves, Moderating Inflation

Experts have questioned the continued retention of the Central Bank of Nigeria’s (CBN) 45 per cent Cash Reserve Ratio (CRR), arguing that improved foreign exchange reserves, moderating inflation and stronger bank capitalisation provide room for a gradual easing of the restrictive monetary policy.

Nigeria’s external reserves stood at $54.6 billion as of September 14, 2026, the highest level in 18 years, while headline inflation moderated to 15.39 per cent in August 2026. Meanwhile, the country’s 45 per cent CRR for Deposit Money Banks is currently one of the highest in the world, second only to Venezuela, where the reserve requirement is 73 per cent. Venezuela has maintained the high ratio as part of efforts to restrict lending amid extreme inflation, which stood at 532.4 per cent in August 2026.

Speaking with LEADERSHIP, the chief executive officer of Economic Associates, Ayo Teriba, who had earlier in the year called for a cut in the CRR, maintained that the prevailing macroeconomic environment no longer justified maintaining the CRR at its current level.

Teriba called on the CBN to reduce the CRR to about one per cent or eliminate it entirely, arguing that the circumstances that prompted the aggressive tightening of monetary policy had changed materially.

According to him, the country has moved past the severe foreign exchange and fiscal crises that confronted the authorities when the current tightening cycle began. “When President Tinubu came, he inherited certain crises, including a forex crisis and a fiscal crisis. That compelled the response of the financial managers, led by the CBN, to increase already high monetary policy,” Teriba said.

He recalled that the Monetary Policy Rate (MPR), which was already high at 19 per cent, was eventually raised to 27.5 per cent, while the CRR, which had been around 35 per cent, was increased at various points, including to 50 per cent and, in some cases, as high as 75 per cent for certain deposits. CRR for commercial banks had been reduced to 45 per cent, while that of merchant banks remained at 16 per cent.

Teriba said the aggressive tightening could be understood in the context of the conditions that prevailed when the policies were introduced, particularly the foreign exchange crisis. He noted that Nigeria’s net reserves at the time were significantly lower than the gross reserves, with about $4 billion in net reserves against gross reserves of approximately $33 billion, reflecting about $29 billion in past due obligations.

However, he said the situation had changed considerably, with net reserves now exceeding $40 billion and past due obligations substantially narrowed. “Nigeria’s net foreign reserves is now $42 billion. It’s more than $40 billion now. More than tenfold increase,” Teriba said, adding that the reduction in outstanding obligations meant “there is no financial crisis anymore.”

He also argued that the fiscal crisis inherited by the current administration had eased, particularly with the end of reliance on Ways and Means advances to finance the federal government.

Teriba said the CBN had previously extended about N22 trillion in Ways and Means advances to the federal government, which he described as part of the monetary and fiscal pressures that necessitated the earlier tightening measures.

He maintained that the situation had since changed following the securitisation of the obligations and the reduced reliance on Ways and Means financing. With the foreign exchange and fiscal pressures significantly reduced, and the banking recapitalisation addressing concerns over capital adequacy, Teriba said there was now a strong case for allowing banks to deploy more of their deposits into productive lending.

He also disclosed that CRR debits had risen sharply from about N14 trillion in 2023 to nearly N28 trillion currently, with additional liquidity sterilised through the CBN’s Special Deposit Facility.

His position is supported by findings from Chapel Hill Denham, which said Nigeria’s high reserve requirement was imposing a significant cost on the banking industry.

In its report, The Nigerian Banking Paradox: High Returns, Deep Discounts, the investment banking and research firm said the CRR was a major factor constraining banks’ earnings potential despite the sector recording some of the highest returns on equity in Africa.

“Our analysis reveals that Nigerian banks operate under a uniquely restrictive regulatory perimeter,” Chapel Hill Denham stated. The firm estimated that the current reserve requirement could be costing the banking industry as much as N2.5 trillion annually in lost earnings, as banks continue to pay interest to depositors while a substantial portion of deposits remains sterilised at the CBN without generating equivalent returns.

Chapel Hill Denham also highlighted the wide disparity between Nigeria’s reserve requirement and those of other African and emerging market economies. It noted that South Africa maintains a CRR of 2.5 per cent, Kenya 4.25 per cent, Ghana 15 per cent and Egypt 16 per cent, while Morocco has reduced its reserve requirement to zero per cent.

The firm projected that reducing Nigeria’s CRR from 50 per cent to 30 per cent could release about N8 trillion into the banking system and increase annual pre tax profits by an estimated N800 billion.

The World Bank had similarly called for a gradual reduction in Nigeria’s high CRR, arguing that such a move would improve credit allocation and reduce borrowing costs. In its April 2026 Nigeria Development Update, the Brentton Woods institution said, “Gradually lowering the high share of customer deposits that banks are required to hold at the central bank as reserves (the Cash Reserve Ratio, CRR) would ease pressures on banks’ liquidity management, improve credit allocation, and lower borrowing costs for businesses and households.”

The World Bank also recommended narrowing the wide gap between the CBN’s overnight lending and deposit rates, saying this would reduce banks’ liquidity management costs and enable them to charge smaller spreads.

The World Bank nevertheless acknowledged that monetary policy had played an important role in moderating inflation, but said implementation gaps had weakened the effectiveness of monetary transmission.

It therefore urged the CBN to recalibrate its policy toolkit to improve transparency, predictability and efficiency in monetary policy transmission.

At its last meeting in July, the Monetary Policy Committee (MPC) had retained the CRR for Deposit Money Banks at 45 per cent, Merchant Banks at 16 per cent and non-Treasury Single Account public sector deposits at 75 per cent.

The committee also retained the MPR at 26.5 per cent and the Standing Facilities Corridor at +50/-450 basis points around the MPR.

In his personal statement, MPC member Aloysius Uche Ordu defended the decision to retain the current policy settings, arguing that the recent moderation in inflation remained insufficient to warrant a major shift.

“Maintaining the MPR at 26.50 percent, while retaining the existing corridor, CRR, and liquidity ratio, therefore provides what I consider the most appropriate signal currently,” Ordu said. He said the decision preserved monetary restriction, supported positive real returns and sustained confidence in the naira, while giving the MPC time to determine whether the moderation in inflation would prove durable.