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By Chinwendu Obienyi
The International Monetary Fund (IMF) has said that stronger demand for the naira could create conditions for a gradual reduction in Nigeria’s high Cash Reserve Ratio (CRR), easing liquidity constraints in the banking sector and strengthening monetary policy transmission over time.
The Fund made the observation in its June 2026 country report, Nigeria: Selected Issues, where it assessed the effectiveness of monetary policy reforms and the functioning of the country’s financial system.
According to the IMF, increased confidence in the naira, supported by lower and more stable inflation, would encourage households, businesses and investors to hold more local currency assets and reduce reliance on foreign currencies.
This, in turn, would help reduce structural excess liquidity in the banking system and lessen the need for stringent liquidity management measures by the Central Bank of Nigeria (CBN).
The IMF noted that Nigeria’s current CRR of 45 per cent for deposit money banks remains among the highest in the world. The ratio requires commercial banks to keep a significant portion of their deposits with the CBN, limiting the amount available for lending and other banking activities.
While the high reserve requirement has served as a tool for managing liquidity and containing inflationary pressures, IMF argued that a more stable macroeconomic environment could allow policymakers to gradually ease the burden on banks.
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“Lower and more stable inflation would strengthen confidence in the naira, reduce dollarisation pressures and increase demand for local currency in both circulation and bank deposits,” the IMF said.
The report explained that when confidence in the local currency improves, individuals and businesses are less inclined to convert their savings into foreign currencies. As a result, the demand for naira-denominated assets increases, helping to absorb excess liquidity and improve the effectiveness of monetary policy.
The IMF further stated that stronger demand for the naira would reduce the amount of surplus funds circulating within the financial system, making liquidity conditions more predictable and easier for the central bank to manage. This would support a gradual reduction in reserve requirements without undermining price stability.
This recommendation comes as the CBN maintains a tight monetary stance to consolidate gains in the fight against inflation. At its most recent Monetary Policy Committee (MPC) meeting, the apex bank retained the Monetary Policy Rate (MPR) at 26.5 per cent and left the CRR unchanged at 45 per cent for deposit money banks, 16 per cent for merchant banks and 75 per cent for non-TSA public sector deposits.
Also, the IMF stressed the importance of strengthening the CBN’s operational framework and aligning liquidity management operations more closely with monetary policy objectives.
According to the Fund, improvements in policy implementation would help ensure that the MPR serves as a more effective anchor for money market rates and broader financing conditions across the economy.
The Fund’s assessment suggests that sustained macroeconomic stability, declining inflation and stronger confidence in the naira could eventually provide room for a gradual easing of reserve requirements, potentially improving credit availability and supporting economic growth while preserving financial stability.
