Notwithstanding a N300 billion cash reserves debit that was repaid to local lenders, Nigerian deposit money banks continue their borrowing binge at the Central Bank of Nigeria’s (CBN) standing lending facility (SLF) amid ongoing liquidity challenges in the money market.
According to observers, increased liquidity demands in the financial system caused local lenders with access to large amounts of cash to demand higher rates, which raised interbank borrowing rates. Rates in the money market have increased since the monetary policy authority began adopting a more hawkish stance in May 2022 as traders become more aware of the growing inflation trend reading.
Analysts’ reactions to expectations as the naira crisis eases have been divided ahead of this week’s consumer price index data release. Nigeria’s headline inflation rate for February came in at 21.91%. The financial sector had a deficit balance of 160.70 billion last week, according to experts at TrustBanc Capital Limited. Experts observed that after rebounding from a 7-day deficit run, the week began with a surplus balance of 43.26 billion.
It was highlighted that the CBN’s move to reimburse deposit money banks for cash reserve (CRR) debits totaling $300 billion originally encouraged the market’s run-up in deficit. Yet as the week went on, banks’ demands for liquidity grew, causing them to withdraw a total of 686.59 billion from the CBN’s Standing Lending Funding window, according to a market brief from TrustBanc Capital.
Analysts said that as a result, the system went into deficit and continued to grow through Thursday, maintaining funding rates at 18% levels. Analysts predicted that, barring the top bank’s returns of cash reserves, the system’s deficit would widen further as funding rates remained high.
According to Cordros Capital, the lack of any large inflows into the system the next week could maintain money market rates high in the short term given the thin maturity profile over the upcoming weeks. But, experts at the investment banking business saw a sizeable maturity of around N759.00 billion at the month’s end, which would be followed by coupon payments that might push interest rates lower.
