Some financial experts on Tuesday expressed worry that the increase in Cash Reserve Requirement (CRR) on public sector deposits would hamper activities at the nation’s bourse.
They said this in separate interviews in Lagos that the increase would lead to out flow of investments from the capital market.
It would be that the Central Bank of Nigeria (CBN) in July raised the CRR on public sector deposits from 12 per cent to 50 per cent.
The instrument is use to control the volume of money in circulation and to mobilise more deposits for commercial banks.
They said that the new CRR, which took effect on Aug. 7, would impact heavily on the cost of loans to various sectors of the economy.
According to Mr Harrison Owoh, Managing Director, H J & Trust Investment Ltd. in Lagos, the policy will slow down risk appetite in the capital market.
“Investors’ risk appetite will reduce because investors will be seeking for investments with higher returns.
“It will lead to higher interest rate as banks will compete for loan able funds which will affect the growth of the real sector.
“There will be deposit competition and where there is drive for deposit, interest rate will be higher to attract more deposits,” Owoh said.
Mr Henry Boyo, an economist with Abel & Sell Ltd., Lagos, said that banks might reduce their exposure to government bonds and Treasury Bills (TBs).
Boyo said that although the policy was commendable, he feared if it would be effectively implemented.
He urged the apex bank to ensure full implementation of the policy to further reduce the cash in circulation and make banks to concentrate on core business of deposit mobolisation.
Mr Olaleye Williams, Managing Director, GlobalView Consult & Investments Ltd. Lagos, said that the policy would impact heavily on the cost of funds for industries.
Williams added that the real sector would be badly affected as some maturing exposures would be reviewed, re-priced or withdrawn as the case may be.
“It may trigger a run on a few banks if they don’t respond by raising deposit rate to retain some other special deposits,” Williams said