The Central Bank of Nigeria (CBN) on Tuesday, November 25, defended its tight liquidity stance, saying that the foreign exchange (FX) rate of the Naira to the Dollar is now market-driven, “more open and transparent.”
Fielding questions from journalists at the end of the 303rd Monetary Policy Committee (MPC) two-day meeting held in Abuja, CBN Governor Olayemi Cardoso said the forex market no longer needs CBN’s constant intervention.
At the same time, the Monetary Policy Committee (MPC) retained its elevated cash-reserve requirement of 45% for deposit money banks and 16% for merchant banks, a policy stance that keeps liquidity constrained even as the Bank celebrates macro-financial gains.
The Cash Reserve Ratio (CRR) is the percentage of commercial banks’ deposits which the regulator requires the lenders to keep in reserve. It is a key monetary policy tool used by central banks to control the money supply in the financial system, influence inflation, and ensure the stability of the financial system.
It implies that for every N1 million commercial banks receive as deposit, they must keep N450,000 with the CBN in the vaults.
Cardoso credited the FX reforms, stronger regulatory coordination and bank recapitalisation efforts for the forex market turnaround.
CBN’s defense
The Governor argued that the foreign exchange (FX) market has shifted from a heavily managed system to one largely driven by willing buyers and sellers. He cited the Electronic Foreign Exchange Matching System (EF-EMS) trading platform that provides “open and very transparent” visibility of who is buying and who is selling — and said the result has been dramatically reduced rate differentials between the official FX and parallel market rate.
“Differentials in foreign exchange rates are now down to about 2%,” he said, contrasting that with spreads of roughly 60% when market reform began.
The CBN also told investors that average daily turnover in the FX market is about half a million dollars — with the Bank often not participating with interventions — a signal, according to the Governor, of genuine market depth.
“We now have a market that operates openly and transparently… where people can buy and sell freely without depending on the Central Bank,” Cardoso said, adding that Nigerians now travel and transact internationally with minimal concern over forex access.
Cardoso said the FX market is now functioning on a willing buyer–willing seller basis, backed by the EF-EMS platform, which ensures transparency and visibility of trades.
The CBN introduced EF-EMS to conduct foreign exchange (FX) transactions in the Nigerian foreign exchange market to automate the matching of buy and sell orders, increasing market transparency and efficiency, and thereby reducing speculative activities while allowing for market-driven exchange rates.
CRR retained at 45% for banks despite easing market pressure
The MPC retained the benchmark interest rate at 27%, extending its pause on monetary tightening. Cardoso said, “All the 12 members of the Committee were present. The MPC decided by a majority vote to maintain the monetary policy stance,” indicating that members were not yet convinced that current economic conditions warranted another reduction.
Despite the positive signals, Cardoso announced that the MPC has retained the Cash Reserve Requirement at 45% for deposit money banks and 16% for merchant banks, describing the move as necessary to preserve liquidity discipline and consolidate macroeconomic stability.
He said commercial banks are actively building capital buffers in line with ongoing recapitalisation efforts, adding that 16 banks have fully met requirements, while 27 others have raised capital through various means. He argued that stronger capital positions would support banks’ continental operations and better serve Nigerian businesses across Africa.
Nigeria’s FATF exit to boost trade finance and remittances
Cardoso highlighted Nigeria’s recent removal from the FATF grey list as a critical indicator of improved inter-agency cooperation among the CBN, NFIU, SEC and security agencies.
He noted that the exit sends a strong positive signal to global investors and foreign correspondent banks, reducing caution in dealings with Nigerian institutions.
“It promotes financial system stability and leads to more competitive pricing for remittances and trade finance,” he said. “But the bigger challenge is sustaining the achievement — because once stability is lost, the consequences are severe.”
Cardoso emphasized that a disciplined approach to monetary policy, combined with avoidance of “policy flip-flops,” has given market players better forward visibility and planning ability. He underscored the importance of continued collaboration between fiscal and monetary authorities, particularly as Nigeria moves toward an inflation-targeting framework.
He disclosed that the permanent secretary of the Ministry of Finance now sits on the MPC to deepen policy alignment.
Stability now, growth later
While acknowledging that tight CRR continues to restrain bank lending, Cardoso suggested that the trade-off was necessary to safeguard recent market gains.
“We are building buffers, reinforcing confidence, and setting the stage for long-term financial system fitness,” he concluded.
“The stability we’ve achieved must be protected at all costs — because only then can we move toward sustained growth.”
Cardoso’s statements signal that while the CBN sees significant progress in FX transparency and monetary policy credibility, it remains cautious and determined to defend stability even at the expense of short-term domestic liquidity expansion.
