By Ade Jacobs
The Central Bank of Nigeria (CBN) has debited commercial banks in the country N600 billion Cash Reserve Ratio, CRR in its quest to reduce excess cash in circulation.
The apex bank announced this at the weekend, noting that idle cash in the interbank money market is on the rise, and needed to be taken out.
The CRR was debited in two tranches of N400 billion and N200 billion, the CBN said.
CRR is the percentage of cash required by law from deposit money banks, DMBs to be kept with the CBN as part of its monetary policy to control excess liquidity in circulation.
The CBN said it was worried that excess cash in circulation has been on the rise, despite its efforts, noting that liquidity rose from N958 billion to over N1.1 trillion in one week. It said the increase was due to an inflow of N438.7 billion from matured secondary market ( Open Market Operations, OMO) treasury bills during the week
According to the Godwin Emefiele-led bank, the liquidity upsurge reflected on the secondary market (Open Market Operations, OMO) treasury bills auction conducted by the CBN on Thursday, which recorded oversubscription of 1,031 percent as investing banks demanded N678.6 billion worth of bills, more than N600 billion of the N60 billion offered and sold by the regulator.
The CBN said it was worried of the trend and had to intervene by quickly implementing two Cash Reserve Ratio (CRR) debits of N 600 billion in two tranches of N400 billion and N200 billion by last week, which it said has temporarily reversed the situation after the cost of funds rose by 800 percent at the close of business on Friday.
The CRR has remained a sore point between the CBN and commercial banks in the country.
In many cases, the apex bank had to wield the big stick on commercials banks who failed to meet the CRR requirement. Last year alone, the CBN sanctioned some DMBs by directly debiting their accounts of CRR worth N926.4 billion for breach of this policy.