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Monday, April 13, 2015
Interbank rates jump as CBN plans cash withdrawal
The Central Bank of Nigeria’s plan to withdraw N72bn from Deposit Money Banks to enforce its Cash Reserve Requirements has triggered a surge in demand for funds on the interbank market.The development has led to a sharp increase in overnight lending rates as banks rush for funds to meet the CBN’s cash reserve requirements.
Data from the FMDQ showed that overnight lending rates had jumped to 27 per cent as of Friday, up from 10.25 per cent the previous week.
The CBN requires banks to set aside 75 per cent of public sector and 15 per cent of private sector deposits in cash in their respective accounts with the regulator.
“Demand for funds was very high … in anticipation of the CRR debit,” one dealer told Reuters.
The secured Open Buy Back rate closed at 27 per cent as liquidity thinned out, from nine per cent the previous week, four percentage points below central bank’s benchmark interest rate of 13 per cent.
Traders said the liquidity shortage was compounded by lack of cash flow to the banking system because there were no Treasury bills maturing during the past week.
“We expect the market to be tight this week, while rates should hover around 25 per cent until the CBN repays some matured Treasury bills,” another dealer said.
Analyst at Afrinvest, Mr. Ayodeji Ebo, said the interbank rates were expected to drop after a couple of days.
He said the increase was caused by the heavy demand for cash among the banks.
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