ARISE Business Analyst, Chika Mbonu, has urged the Central Bank of Nigeria (CBN) to carefully time any reduction in the Cash Reserve Ratio (CRR) to support economic growth without fuelling inflation.
Speaking during an interview with ARISE News on Tuesday, Mbonu said the CBN must carefully consider the timing and sequence of any CRR reduction, noting that while increased liquidity could stimulate growth, excessive or poorly timed injections of money could create additional economic pressures and worsen inflation.
“We all agree that you want to chase growth. We need to put more money in the system. And one of the ways of putting more money is to reduce, to bring down the CRR. But the issue is the sequencing and the timing, so that it don’t cause more problems into the system and avoid inflation,”
Mbonu said reducing the CRR could increase liquidity in the financial system and support economic activity, but cautioned that additional funds should be released at a pace the economy can effectively absorb.
“We believe that reducing the CRR can help improve liquidity in the financial system and support economic growth. But we have to ensure that any additional liquidity injected into the economy is done at a pace that the system can effectively absorb.”
He said the current CRR level could be reviewed to better reflect prevailing economic conditions, but stressed that the timing and sequencing of such a move remained critical.
“If you want to reflect the economy, you need to reduce CRR, that’s given. But the issue is the timing and the sequence,”
Mbonu said liquidity should be released gradually to ensure that the financial system and productive sectors of the economy are able to absorb the additional funds effectively.
“Open it at a pace that the pipes can absorb,” he said, stressing that simply increasing the amount of money available would not automatically translate into economic expansion.
He explained that the impact of additional liquidity would depend largely on how the funds are deployed, particularly whether they support productive activities such as agriculture, storage, transportation and manufacturing.
“So if 100 billion Naira is even released, if it finances storage, fertilizers, projects, transport and milling, the economy can expand. But if it just sees the same quantity of dollars and imported goods and demand rises further than supply. Inflation,”
Mbonu also cautioned that inflationary pressures had not disappeared despite the moderation in the rate of price increases.
“Inflation has not disappeared. Inflation has been moderated,”
Goodness Anunobi
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