Banks, especially those with heavy government deposit exposure, may need to find alternatives to drive private sector funds into their coffers, as the Monetary Policy Committee of the Central Bank of Nigeria introduced a 75 per cent Cash Reserve Ratio on non-Treasury Single Account deposits.
CBN Governor Olayemi Cardoso, while reading the communique at the end of the two-day meeting, said the introduction of the 75 per cent CRR on non-TSA public sector deposits was to enhance liquidity management.
Cardoso noted that despite the consistent deceleration in inflation, the MPC had observed the persistent build-up of excess liquidity in the banking system, resulting largely from fiscal releases emerging from improved revenues.
TSA balances are revenues, receipts, and payments of ministries, departments, agencies, parastatals, and other institutions of the Federal Government that are warehoused directly with the CBN, while Non-TSA deposits represent state and local government funds typically maintained with Deposit Money Banks.
Like the CBN pointed out, these balances tend to swell after Federation Account Allocation Committee distributions, injecting liquidity into the system with effects for FX stability and inflation.
