Illiquidity: BMBs, Merchant Banks Borrow N215.7bn From CBN In One Week

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Following scarcity of liquidity in the interbank money market, banks and merchant banks borrowed N215.7billion from Central Bank of Nigeria (CBN) last week.

Banks and merchant banks through the Standing Lending Facility (SLF) depend on the CBN for short-term liquidity needs. THISDAY can report that the CBN did not record any banks and merchant banks borrowing in previous week.

The CBN lends money to banks through the SLF at interest rate of 100 basis points above 13.5 per cent Monetary Policy Rate (MPR). Data from the CBN showed that banks’ borrowing through Repo arrangement rose sharply last week by to N338.6 billion from N9.63 billion the previous week.

On the flip side, banks’ and merchant banks deposit of surplus funds with the CBN through the Standing Deposit Facility (SDF) dropped by 87.3 per cent to N15.25 billion last week from N119.2 billion the previous week.

 

Meanwhile, the country’s foreign reserves closed last Thursday at $41.41billion, according to CBN. It means that foreign exchange buffer has dropped for the third consecutive week as the gross reserves closed lower by $102.58 million week-on-week (w/w), to $41.41 billion.

Meanwhile, the naira appreciated by 0.2per cent week-on-week (w/w) to N414.40 against the dollar at the Investors & Exporters Foreign Exchange (I&E) window but depreciated by 2.5per cent to N554.00 against the dollar at the parallel market.

According to analysts at Cordros Research: “Although the CBN has enough liquidity to support the market in the near term, we think foreign inflows (53.8per cent of FX inflows to the I & E FX pre-pandemic) is paramount for sustained FX liquidity over the medium term given their level of importance in the I & E FX.

“Hence, we think (1) further adjustments in the NGN/USD peg closer to its fair value and (2) flexibility in the exchange rate would be significant in attracting foreign inflows back to the market. Accordingly, we expect the CBN to devalue the IEW exchange rate over the short-to-medium term.”

In addition, the overnight (OVN) rate expanded by 475basis points w/w to 20 per cent last week, in light of the funding pressures for the November bond auction settlement (N225.25 billion), CBN’s weekly Open Market Operation (OMO) (N25.00 billion) and FX auctions that offset the sole inflow from OMO maturities (N70.50 billion).

“Next week, we envisage the OVN would remain elevated in the double-digit region as expected debits for CRR, possible net NTB issuances and CBN’s weekly auctions inflows are likely to offset expected inflows from FAAC disbursements, OMO maturities (N33.00 billion) and FGN bond coupon payments (N17.87billion),” analysts at Cordros Research added.

– Thisday

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