CBN Declares Naira Rate Market-Driven, Keeps High Cash Reserve Ratio to Manage Liquidity

 

On November 25, 2025, Central Bank of Nigeria (CBN) announced that the naira’s exchange rate against the U.S. dollar is now market-driven, more open and transparent — signalling the central bank’s confidence in the reforms that have reshaped Nigeria’s foreign-exchange (FX) landscape. 

At the same time, during the 303rd meeting of the Monetary Policy Committee (MPC), the CBN retained its high Cash Reserve Ratio (CRR) — 45% for deposit-money banks and 16% for merchant banks — underscoring a cautious stance on liquidity even as macro-financial conditions improve. 

This policy update reflects the bank’s dual approach: allowing market forces to govern currency exchange, while maintaining tight controls over banking liquidity to manage inflation and financial stability.

What CBN is Saying — Market-Driven FX & Less Need for Intervention

During a post-meeting press briefing in Abuja, CBN Governor Olayemi Cardoso explained that the forex market no longer needs frequent central-bank intervention. He credited the transition to a more transparent system — especially the introduction of the Electronic Foreign Exchange Matching System (EF-EMS) — which allows willing buyers and sellers to freely transact. 

The result: “Differentials in foreign exchange rates are now down to about 2%,” Cardoso said — a steep improvement compared to spreads of up to 60% when reforms began. 

He noted that average daily turnover in the FX market is now around US$0.5 million, and often the central bank is not participating — a sign that genuine market depth has returned. 

CRR Held High — Managing Risks Amid Transition

Even as the FX market liberalizes, the CBN chose to retain the high CRR. This means that for every ₦1,000,000 in deposits, commercial banks must keep ₦450,000 with the central bank. 

Maintaining a high CRR helps the CBN control the money supply, limit excess liquidity in the banking system, and keep inflation and financial instability in check — especially during periods of transition or external economic turbulence. 

In tandem with the CRR, the CBN also held its benchmark lending rate, the Monetary Policy Rate (MPR), steady at 27% — signalling continued caution even as inflation slows and FX volatility reduces. 

Why This Matters — What It Means for Nigerians

1. Greater Transparency & Confidence in FX Market

With the currency rate now shaped by real supply-and-demand dynamics via EF-EMS, Nigerians may expect more predictable FX pricing, reduced volatility, and narrower spreads between official and parallel markets.

2. Stabilising Inflation and Banking Sector Risk

By keeping CRR high and MPR unchanged, CBN seems focused on preventing excess liquidity that fuels inflation or speculative lending. This could support a gradual and stable disinflation path.

3. Mixed Impact on Borrowing and Business Credit

While tighter liquidity stabilises the macroeconomy, it may also constrain banks’ ability to lend. According to recent data, private-sector credit has slowed, with more funds reportedly flowing to government borrowing rather than business lending. 

For businesses and consumers, this may mean tighter credit conditions and higher borrowing costs — at least in the short to medium term.

4. FX Access & Remittances Could Improve

If the FX market remains stable and transparent, Nigerians seeking foreign exchange for travel, business imports, or diaspora remittances may find it easier, with lower risk of large or unpredictable rate swings.

The Logic Behind CBN’s Strategy: Caution + Gradual Transition

Analysts following the MPC meeting suggest the CBN’s decision — though initially surprising to some — makes sense in context. The recent decline in headline inflation, a more stable FX rate, improved capital inflows, and healthy foreign reserves all point to macroeconomic improvement. 

Yet, given persistence of global risks, inflationary pressure, and uncertainty in oil prices, the bank appears to favour consolidation over aggressive loosening — preferring to gradually allow reforms to take root before relaxing liquidity constraints. 

Maintaining CRR and MPR at current levels gives CBN room to control liquidity, curb speculative FX demand, and preserve financial system stability while the reforms mature.

What to Watch Next

Whether the FX market remains stable over the coming months — especially during peak import periods or oil-price swings.

If private-sector lending revives or continues to slump under tight liquidity conditions.

Whether CBN begins loosening policy (lowering CRR or MPR) if inflation continues to fall and economic conditions improve.

How businesses, importers, and Nigerians in diaspora will respond to a market-driven FX rate for access to foreign currency.

Conclusion

The CBN’s twin decision — shifting to a market-driven FX rate and holding a high Cash Reserve Ratio — marks an important turning point in Nigeria’s monetary policy. It suggests a deliberate shift from direct intervention to letting market forces guide currency exchange while cautiously managing liquidity to safeguard financial stability. For Nigerians, this could mean more predictable access to foreign exchange and a gradual path toward economic normalization — though tighter credit conditions may pose immediate challenges for businesses and borrowers alike.