Banks’ Increase Demand for Liquidity Drive Rates North
Nigerian deposit money banks’ sustained demand for liquidity boost drove interbank borrowing rates higher in the money market amidst fast-changing market dynamics. The banks borrowed N1.4 trillion from standing lending facility of the Central Bank of Nigeria (CBN) on Friday.
After its conclusion of its bimonthly policy meeting on Tuesday, the apex bank monetary policy committee hiked the benchmark interest rate by 4% to 22.75 to combat inflation. The decision to purse contractionary economic policy came as rude shock to many due to market inconvenience, unintended consequences of high interest rate environment on productive segment.
A review of analysts reactions suggest that high benchmark interest rate in a growth-starved economy is expected to affect lending towards the productive activities, which is expected to have negative impacts on the ability of private sector players to drive growth.
Banks could as well park more funds into investment securities as yield on asset remained elevated. MarketForces Africa reported that Nigeria’s one year Treasury bills was sold at 19% at the latest auction conducted by the apex. On the average, yield on government is approaching 20%.
Government high borrowing rates could effectively reduce local deposit money banks’ appetite to create more credit amidst rising default. The ongoing reform has transferred wealth from the private sector to government, analysts told MarketForces Africa.
“For governments, monthly allocation has increased strongly while companies are downsizing and tightening up operation”, research analysts at LSintelligence Associates said at a forum organised by MarketForces Africa.
In the money market, a broad-based upward trend in rates was observed following decision to hike monetary policy rate on Tuesday. The overnight interbank borrowing rate saw a significant 19 basis points increase, reaching 25.13%, reacting to the recent interest rate hike by the CBN to 22.75%, Cowry Asset Limited said in an update.
Analysts added that this tightening of system liquidity led to heightened demand for funding among banks at the same time. Then, key money market rates, including the open repo rate (OPR) and overnight lending rate (OVN), concluded at 25.46% and 26.71%, respectively. #Banks’ Increase Demand for Liquidity Drive Rates North CBN Clears $400m FX Backlog, Claims Naira Grossly Undervalue
