By Emele Onu

14 Feb 2011

 

The opening balance of banks at the interbank naira market, which is a key measure of the liquidity of the system, crashed at the weekend to about N15 billion from N124 billion the previous week.

When the market was awash with liquidity last year, with banks involved in skeletal intermediation following the meltdown, the
opening balance was in excess of N400 billion. Traders have linked the cash depletion to recent monetary tightening that raised the key ratios of the banks as well as outflows to alternative markets for foreign exchange and fixed interest securities, among others.

A treasurer with one of the banks told THISDAY at the weekend that the implication of the depressed liquidity on the economy is that “rates for various lending will go up, limiting access to credit and jeopardizing economic growth.”

With the level of decline observed in banks liquidity, it was also gathered that for the operators to sustain the market this week, they may have to resort to the CBN repurchase window.

The CBN window was handy to banks during the illiquidity era that finally dragged to the intervention of the new CBN leadership, led by
Sanusi Lamido Sanusi.

 

According to the CBN Governor, by the day he assumed duty on June 4, 2009, the total amount outstanding at the then Expanded Discount Window (EDW), was N256.571billion most of which was owed by five banks. There were some destabilizations to the inter-bank market last week, which either reflected the declining lenders’ liquidity or exacerbated the condition.

Overnight placement rose to 10 percent from 8 percent, while call money climbed to 10.50 percent from 8.50 percent. The secured Open Buy Back (OBB) jumped to 8.50 percent from 7.50 percent, which represented an increase by 200 basis points.

The Nigerian National Petroleum Corporation (NNPC) was said to have
withdrawn about N90 billion from the system to its accounts with the
CBN, in line with the regulator’s monetary control.

Traders see cost of borrowing climbing further this week owing to expected cash outflows by banks that will be responding to CBN’s new cash reserve requirements instituted recently for monetary control. The other major outflow is to bonds and forex.

According to a market observer last week, about N100 billion is
expected to be debited for Cash Reserves Requirement (CRR), while N67 billion will go to bonds auction.

The CBN had at the end of its Monitory Policy Committee (MPC) meeting towards the end of January this year,  raised the benchmark interest rate, the Monetary Policy Rate  (MPR) by 25 basis points to 6.5 percent as it seeks to get inflation down to single digits. The
Committee also raised the CRR to 2 percent from 1 per cent and lifted the Liquidity Ratio (LR) to 30 percent from 25 per cent.

 

 

Source: ThisDay