Nigeria’s interbank rate jumps as CBN slams banks with N93.4 bln CRR debit
…CBN slams N30 bln debit on Zenith Bank, N10 bln on SCB
By Oludare Mayowa
Nigeria’s interbank lending rate rose sharply on Friday by 13.33 percent to 28.33 percent for overnight placement after the Central Bank of Nigeria (CBN) slammed N93.4 billion Cash Reserves Requirement (CRR) debit on banks.
The interest rate on overnight placement had closed at 15 percent on Thursday while the Open Buy Back (OBB) closed at 14.50 percent.
However, the rates jumped to 28.33 percent for overnight and 25 percent for OBB as banks scrambled for cash to cover their positions after the CBN withdrew cash in compliance with CRR and FX retail auction.
CRR is the amount of cash that banks have to maintain with the CBN at all times. Whenever the CBN debit banks account with the stipulated requirements, the amount of cash available with the banks declines and it curbs their ability to lend or speculates in the foreign exchange market.
Banks are required to keep 27.5 percent of their deposits with the CBN as CRR in a bid to reduce liquidity in the market and help the system to maintain stability.
The regulatory bank resorts to CRR debit as part of liquidity management measures and curtails inflation and curb banks’ ability to speculate on the forex market.
The bulk of the withdrawal came from Zenith Bank, which has to cough out about N30 billion and Standard Chartered Bank with N10 billion debit.
Also, Stanbic IBTC was debited with N9 billion, Polaris Bank N7 billion, while Ecobank, Union Bank and GTbank were debited with N5 billion each.
The CBN withdrew N4 billion from Access Bank, N3 billion from Citibank, and Fidelity Bank each, while Providus cough out N2 billion, Coronation N1.8 billion and Globus N1 billion,
Currency traders said market liquidity will remain tight next week as banks focus on covering their positions after the debit.
Nigeria inflation rose to 18.17 percent in March, from 17.33 percent in the previous month and driven by food inflation.
“We expect the liquidity market to remain tight next week due to outflows for CRR and FX and no significant inflows coming in next week, except if FAAC is paid next week,” said Bukky Aregbesola, chief dealer at the country’s biggest bank by customer base, Access Bank.