Economists and financial analysts have questioned the Central Bank of Nigeria’s (CBN) decision to maintain a 45 per cent Cash Reserve Ratio (CRR), arguing that improvements in Nigeria’s foreign exchange reserves, moderating inflation and stronger bank capitalisation could support a gradual easing of the current monetary restrictions.
Nigeria’s external reserves stood at $54.6 billion as of September 14, 2026, marking their highest level in 18 years, while headline inflation eased to 15.39 per cent in August 2026.
The 45 per cent CRR for Deposit Money Banks remains among the highest reserve requirements globally, with only Venezuela recording a higher ratio at 73 per cent. Venezuela has retained its high reserve requirement as part of efforts to restrict lending amid extremely high inflation, which stood at 532.4 per cent in August 2026.
Speaking with LEADERSHIP, Chief Executive Officer of Economic Associates, Ayo Teriba, renewed his call for a significant reduction in the CRR, saying the economic conditions that led to the aggressive monetary tightening had changed substantially.
Teriba called on the CBN to reduce the CRR to about one per cent or remove it completely, arguing that the foreign exchange and fiscal pressures that prompted the tightening measures had eased.
“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 at 19 per cent, was eventually increased to 27.5 per cent, while the CRR was raised from about 35 per cent to higher levels, including 50 per cent and, for certain deposits, as much as 75 per cent.
The CRR for commercial banks was later reduced to 45 per cent, while merchant banks currently maintain a 16 per cent requirement.
Teriba said the aggressive tightening was understandable given the foreign exchange crisis that existed when the measures were introduced. He noted that Nigeria’s net reserves were significantly below its gross reserves at the time, with about $4 billion in net reserves compared with gross reserves of approximately $33 billion.
According to him, the difference reflected about $29 billion in past-due obligations.
He said the situation has since improved considerably, with net reserves now above $40 billion and outstanding obligations significantly reduced.
“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 said the fiscal pressures inherited by the current administration had eased, particularly following the reduction in the Federal Government’s reliance on Ways and Means advances.
Teriba recalled that the CBN had extended about N22 trillion in Ways and Means advances to the Federal Government, which he described as one of the monetary and fiscal pressures that contributed to the earlier tightening of policy.
He said the situation had changed following the securitisation of those obligations and reduced reliance on Ways and Means financing.
With foreign exchange and fiscal pressures reduced and the banking sector’s recapitalisation addressing concerns about capital adequacy, Teriba argued that banks should be allowed to deploy a greater portion of their deposits into productive lending.
He also disclosed that CRR debits had increased sharply from about N14 trillion in 2023 to nearly N28 trillion currently, with additional liquidity sterilised through the CBN’s Special Deposit Facility.
Chapel Hill Denham has also raised concerns about the cost of Nigeria’s high reserve requirement to the banking sector.
In its report, The Nigerian Banking Paradox: High Returns, Deep Discounts, the investment banking and research firm described the CRR as a major factor limiting banks’ earnings potential despite the sector recording high returns on equity compared with other African markets.
“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 cost the banking industry as much as N2.5 trillion annually in lost earnings because banks continue paying interest to depositors while a substantial portion of those deposits remains sterilised at the CBN without generating equivalent returns.
It also highlighted the difference between Nigeria’s reserve requirement and those of several other African and emerging economies. South Africa has 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 requirement to zero per cent.
Chapel Hill Denham projected that reducing Nigeria’s CRR from 50 per cent to 30 per cent could inject about N8 trillion into the banking system and increase annual pre-tax profits by an estimated N800 billion.
The World Bank has similarly recommended a gradual reduction of Nigeria’s high CRR, saying it could improve credit allocation and reduce borrowing costs.
In its April 2026 Nigeria Development Update, the World Bank 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 called for a reduction in the wide gap between the CBN’s overnight lending and deposit rates, saying this could reduce liquidity management costs for banks and allow them to operate with smaller spreads.
The institution acknowledged that monetary policy had contributed to moderating inflation but said implementation gaps had weakened the effectiveness of monetary policy transmission.
It therefore urged the CBN to adjust its policy framework to improve transparency, predictability and efficiency in the transmission of monetary policy.
At its most recent meeting in July, the Monetary Policy Committee (MPC) 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 kept the MPR at 26.5 per cent and maintained the Standing Facilities Corridor at +50/-450 basis points around the MPR.
However, MPC member Aloysius Uche Ordu defended the decision to retain the existing policy settings, arguing that the recent moderation in inflation was not yet sufficient to justify a major policy 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 maintaining the current settings would preserve monetary restriction, support positive real returns and sustain confidence in the naira while allowing the MPC to assess whether the recent moderation in inflation would be sustained.
