Nigeria’s interbank market rates soar after CBN hits banks with N600 bln CRR debits

By Samuel Bankole

Nigeria’s interbank rates climbed more than 800 basis points last week after the Central Bank of Nigeria (CBN) hit bank vaults with N600 billion in compliance with the Cash Reserves Requirements (CRR), traders said.

Traders said the market had opened at over N1trillion positive on Friday before the regulatory bank sent a notice to debit the system for CRR, which saw the market liquidity tumbling and interest rate climbing.

According to banking sources, the CBN hit the system with an initial N400 billion and later with an additional N200 billion, totaling N600 billion, which send the cost of borrowing among banks soaring.

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The CRR debit was followed with debit for dollar purchases made by banks during the week, which significantly sucked liquidity from the system and pushed up the cost of borrowing and reduce investments in fixed income.

Apart from the N600 withdrawn from the market, the regulatory bank also debited banks for N350 billion in bi-weekly retail forex intervention fund.

Overnight placement closed at 9.33 percent, up by 8.58 percentage points while Open Back Back (OBB) jumped 7.63 percentage points to 8 percent, according to traders.

Consequently, interest in Treasury Bills and Bonds declined significantly due to the low liquidity in the market as banks scrambled to cover their positions in the market.

Currency dealers anticipate that the market will recover a little this week as no expectations of significant funding and while the Debt Management Office (DMO) is expected to release cash through coupon payment in the system this week.

“Activities are expected to pick up slightly this week as inflows from FGN bond coupon payment trickle into the market.
Treasury Bills,” Local unit of Citibank wrote in a note to clients on Monday.