Inter-bank lending rate fell to an average 14.08 per cent on Friday and has now fallen lower than 300 basis points since Wednesday as liquidity increased, reversing a jump after the Central Bank of Nigeria announced on Tuesday it was raising banks’ cash reserve requirement.

The CBN raised the reserve requirement for banks to 12 per cent, from eight per cent, to tighten liquidity coming from government spending and to support the weakening naira currency.Traders said lending rates among banks jumped to 18 per cent for overnight placement on Wednesday, from 15 per cent, in reaction to the CBN’s measures.

But budgetary inflows of about N266bn ($1.66bn) late on Wednesday and net flows from matured treasury bills raised liquidity levels and forced down the cost of borrowing among banks, traders said.

Reuters quoted a dealer as saying, “The impact of the Monetary Policy Committee’s decision was immediate on the cost of funds in the market but rates softened after the disbursal of budget allocations to government agencies late on Wednesday.”

The market opened with a cash balance of N166bn on Friday from a negative level on Wednesday.

Traders said more than N400bn was debited from bank accounts for the cash reserves’ balance shortly after the MPC announced its decision to increase the reserve requirement.

The secured open buy back rate fell to 13.50 per cent, from 15.5 per cent on Wednesday, 1.50 percentage points above the CBN’s 12 per cent benchmark rate, and 350 basis points above the standing deposit facility rate.

The overnight rate closed at 14.25 per cent on Friday, down from 18 per cent on Wednesday, and the call money rate fell to 14.50 per cent compared with 18 per cent in the wake of the CBN’s announcement on cash reserves.

Source: Punch