The scarcity of funds in the interbank money market intensified last week prompting a 253 per cent spike in banks’ borrowing from the Central Bank of Nigeria, CBN.
Financial Vanguard analysis of data from the CBN showed that the volume of idle cash (liquidity) in the interbank money fell by 87 per cent, week-on-week, WoW, to N41.41 billion last week from N326.6 billion the previous week. This represents the second consecutive WoW decline in market liquidity, following a similar trend in the previous week when market liquidity fell by 31 per cent.
The sharp decline in liquidity last week was occasioned by outflow of N269.16 billion through the FGN bond auction conducted by the Debt Management Office, DMO.
In a bid to survive the scarcity of funds occasioned by the sharp drop in market liquidity, banks increased patronage of the Standing Lending Facility, SLF, of the CBN to meet short term liquidity needs.
Consequently, banks’ borrowing from the apex bank via the SLF, rose sharply by 253 per cent, WoW, to N632.83 billion last week from N179.03 billion the previous week.
On the flip side, banks’ deposit of idle cash with the CBN via the Standing Deposit Facility, SDF, fell by 94 per cent, WoW, to N6.33 billion last week from N104.44 billion the previous week.
On the other hand, the cost of funds shot up sharply in the interbank money market, reflecting the intense scarcity of funds. Data from FMDQ showed that interest rate on Collateralised (Open Buy Back, OBB) lending rose by 425 basis points,bps to 16.25 per cent last week from 12 per cent the previous week. Similarly, interest rate on Overnight lending rose by 367bps 16.50 per cent last week from 12.83 per cent the previous week.