Central Bank of Nigeria’s new monetary policies announced on Tuesday has created lots of bubble and excitement among the bankers, as interest rates closed higher on Thursday, the official last working day of the week before the Easter holiday.
The apex increase of the benchmark interest rate from 11 to 12 percent, and the cash reserve ratio for commercial banks to 22.5 percent from 20 percent has tightened the available cash liquidity within the financial system.
Overnight lending rates went up 20 percent after the central bank recalled about 400 billion naira ($2 billion) from the banking system to meet the new cash reserves ratio (CRR) on deposits, a banker said.
Bankers were unanimous that scramble for funds led to rise of both the open buy-back (OBB) and overnight money to 20 percent as against the closing rate of 6.75 percent and 7.33 percent respectively on Wednesday.
“We have had major funds placers in the market quoting between 20 and 25 percent for overnight placement, while takers are quoting between 7 and 10 percent,” a dealer said, adding that no deals had yet been done on the rates being quoted.”
Traders said an additional cash outflow for premium payments to the Nigerian Deposit Insurance Corporation (NDIC), further tightened the noose available liquidity in the system.
Meanwhile, yields on Nigeria’s benchmark 20-year bond rose 55 basis points to 12.7 percent on Wednesday after the CBN unexpectedly tightened monetary policy.
The total commercial lenders’ credit balance with the central bank stood at 320.9 billion naira on Thursday, up from 217 billion naira last week.
However, traders said the level of cash in banks’ vaults would have dropped significantly due to cash withdrawals to meet the new CRR and premium payments on customer deposits.
Official business resumes nationwide on Tuesday.