Harmonised CRR; An Analysts’ Perspective…

Still on the CRR… A simple analysis may give a different picture of things. Most quarters have welcomed the increase in CRR and all predictions have been made according to how we were taught in our university textbooks. However, let’s dig a little deeper beyond the surface using facts and figures.

At the end of 2014, broad money totaled about NGN 16.8 trillion. Between that time and April, net liquidity increased by about 1.85%. As at the end of April, 2015 total broad money was at about NGN 16.9 trillion. Of this total, private deposit is estimated to be about 80.8% putting private deposits within banks at about NGN 13.6 trillion and public deposits at NGN 3.2 trillion. At the time, CRR for private deposits was set at 20% meaning that of the total private deposit, only NGN 10.8 trillion was available liquidity. Furthermore, CRR for public deposits at the time was set 75% meaning also that of the total public deposit, only about NGN 805 billion is available liquidity bringing the total liquidity within the banking sector to about NGN 11.7 trillion.

With the current increase in the CRR on private deposit, from 20% to 31%, available liquidity on private deposit will reduce to about NGN 9.4 trillion, about 13.8% reduction. On the other side, public CRR was reduced from 75% to 31% bringing available liquidity on public deposit to NGN 2.2 trillion – about 176% increase! This brings the total liquidity available to about NGN 11.6 trillion. This is approximately a 1% decrease in available liquidity. This is technically an economic tightening.

What this shows is that beyond the academic approach to understanding financial events, there is need to dig a little deeper. Who says you can’t be the next Milton Friedman. Therefore, beyond the illusion that the CBN has flooded the market with liquidity, the underlying factors are subtle but apparent. The question to ask, however, is if this is an intentional act by the CBN or a fluke.

PS; If you don’t understand this post, try and go through the earlier prequels Part 1 and Part 2. Don’t worry, they are very short 😉