Banks hit by liquidity shortage after CBN moves to harmonise exchange rates
Nigeria’s money market rate responded to the huge withdrawal from the banking system on Friday via foreign exchange sales and debit for cash reserves requirements (CRR) as rate jumped across the board, traders said on Monday.
The cost of borrowing among banks on overnight placement rose to 23.50 percent from 19.90 percent and 21.50 percent on Open buy Back (OBB) from 18.70 percent after the Central Bank of Nigeria (CBN) hit the market with N122 billion debit for CRR.
Money market dealers said the liquidity level dropped sharply in spite of the initial cash flows of N157.23 billion in repayment of matured Open Market Operations (OMO) bills by the regulatory bank.
The market liquidity is expected to sink further this week as the CBN will debit banks for the dollar sales at the retail auction later in the week and banks cover their position to recover from the CRR debit last week.
The CBN had weakened the local currency on the official window on Friday in what analysts said was in preparation for the unification of the country’s multiple exchange rate windows.
The country’s multiple foreign-exchange rates resurfaced after extensive dollar shortage in the wake of weak global oil prices in 2016 and flights to safety by portfolio investors as Nigeria slipped to its first recession in 25 years.
Currency dealers said the CBN asked them to bid for dollars at N380 against the N360 a dollar the exchange rate was adjusted in March by the regulatory bank, signally fresh devaluation of the local currency in less than four months.
The forex market opened on Monday flats at N463 to the dollar on the parallel market while at the Investors and Exporters’ (E&I) window, it opened down at N387 compared with N386 closed on Friday.