Excess liquidity: CBN hits banks with N600bn CRR debit
The Central bank of Nigeria (CBN) hit the banking system with N600 billion Cash Reserve Ratio (CRR) debit in a bid to combat idle cash (excess liquidity) in the interbank money market.
After this announcement from CBN, further investigations revealed that excess liquidity in the banking system, which persisted throughout last year, rose further to N1.1 trillion at the close of business on Thursday from N996.9 billion the previous week.
The increase was due to an inflow of N438.7 billion from the matured secondary market ( Open Market Operations, OMO) treasury bills during the week.
Reflecting the impact of the liquidity upsurge, the secondary market OMO treasury bills auction conducted by the CBN on Thursday recorded oversubscription of 1,031 per cent as investors (banks) demanded for N678.6 billion worth of bills while the apex bank offered and sold N60 billion.
Worried over the likely impact of the huge excess liquidity, CBN on Friday implemented two Cash Reserve Ratio (CRR) debits of N600 billion in two tranches of N400 billion and N200 billion.
This prompted the cost of funds to rise by 800 percent at the close of business on Friday.
Data from FMDQ showed that interest rate on Collateralised Open Buy Back (OBB) lending rose by 7.5 percentage points to 8.0 percent on Friday from 0.5 percent the previous week.
Similarly, interest rate on Overnight lending rose by 8.5 percentage points to 9.33 percent on Friday from 0.88 per cent the previous week.
External reserves gain $461m in 4days The nation’s external reserves rose by $461 million in four days to $35.834 billion, the highest level in six months.
Data from the CBN showed that the reserves rose from $35.373 billion at the close of last year, Thursday, December 31st to $35.834 billion on Thursday January 7th, translating to week-on-week (w/w) gain of $461 million, the highest in the last one year.
Thus the reserves have recovered from the nine weeks decline of $847 million to $34.825 billion on December 17th from $35.672 billion in October.
Financial Vanguard investigations showed that the sharp increase in the reserves is driven by the recent rally in crude oil price. After falling below $25 per barrel in April, due to the severe impact of the COVID-19 pandemic, crude oil prices went through a bumpy recovery which accelerated in December.
For instance, the price of Nigeria’s Bonny Light crude oil rose steadily to $53.94 per barrel on Friday from $46.67 per barrel on November 30th, indicating a 15.5 percent increase during the five weeks period. Reflecting the impact of the increased reserves in the foreign exchange market, the naira appreciated by N7.5 in the Investors and Exporters (I&E) window as the indicative exchange rate dropped to N393.49 per dollar on Friday from N410.25 per dollar the previous week.
Suzan O
