CRR refund to some banks boost interbank liquidity, eases rates
Nigeria’s money market rate eased on Thursday after the Central Bank of Nigeria (CBN) adjusted the Cash Reserves Requirments (CRR) of some banks, resulting in net cash refund to some commercial lenders, cash traders said.
The CBN had last week withdrawn about N122 billion from some banks in compliance with the 27.5 percent CRR policy in a bid to curb speculations on the domestic forex market.
However, traders said banks open balance position with the CBN improved to N322.38 billion on Thursday leading to a decline in the cost of borrowing among commercial banks.
Overnight borrowing among banks dropped to 16.10 percent from 21 percent previously while Open Buy Back (OBB) fell to 15.20 percent against 20 percent previously.
On Wednesday the open balance of banks with the CBN stood at negative N274.40 billion while most banks boring from the regulator’s Standing Lending Facility (SLF) had peaked at N384 billion.
However, many of the banks heave a sigh of relief at the fresh cash flow into the market, easing their liquidity position and ending almost four days of liquidity drought in the interbank market.
Shortage of funds on the money market usually raised the funding cost of many fragile banks that depends on interbank borrowing to stabilise their illiquidity position.
The interbank rate is usually used to gauge the liquidity position of many banks as a jump in the rate is and indication of cash shortage in the market, which also push some banks to approach the CBN SLF to borrow at 14.5 percent, which is 200 basis points above the 12.50 percent Monetary policy Rate (MPR).
Although, the cost of borrowing on the SLF window seems lower than the interbank, however the condition for borrowing from the CBN is more strigent than on the interbank.