By Babajide Komolafe
LAGOSâ€”There has been a lull in inter-bank money market activities as banks have shunned themselves due to uncertainty over the outcome of the on-going fresh audit of the banks ordered by Central Bank of Nigeria, CBN.
Investigations by VanguardÂ showed that though, there is sufficientÂ liquidity in the market, it is not spread evenly among the banks.
A money market source said that some of the banks with surplus liquidity were reluctant to lend to other banks due to fear of losing their money in case the outcome of the CBN audit was negative.
â€œPeople are selecting who to deal with these days because they donâ€™t want to lose money,â€ the source said.
Investigation also revealed that this cautious attitude prompted one of the two biggest banks, said to beÂ the biggest net placers of fund in the market to withhold its funds from inter-bank lending. It was gathered that the bankÂ deposited N43 billion with the CBN through the Standing Deposit Facility (SDF).
Although average inter-bank rate is put atÂ 4.25 per cent, the bank, it was gathered, chose to deposit the money with the apex bank at 4.0 per cent.
The uncertainty in the market notwithstanding, money market operators said cost of funds was expected to remain stable this week.
Meanwhile,Â further depreciation of the Naira in the coming weeks has been predicted. This means that the cost of goods and services will most likely sky-rocket during the Yuletide
Only yesterday, the Naira lost 44 kobo as the exchange rate rose to N151.81 per dollar from N151.37 per dollar.
The Naira has been on the downward trend in the official market since the reintroduction of the Wholesale Dutch Auction System (WDAS).Â Analysis of the Naira exchange rate to the dollar in the WDAS sessions from July to September 2nd 2009 showed that the Naira depreciated by 462 kobo. From N146.75 per dollar, the exchange rose steadily to N151.37 per dollar last week.
Foreign exchange market operators told Vanguard that the Naira would continue to depreciate in the coming weeks due to rising demand and inadequate supply by the CBN. This, they said, would make goods imported for the Christmas and New Year more costly.
A senior bank Treasurer said that the Naira was expected to depreciate further in the coming weeks due to the persistent rise in the exchange rate in recent times. This, it was gathered, has prompted importers and other foreign exchange users to embark on stockpiling of dollar.
â€œInstead of buying dollars in bit to import, importers are now buying in bulk for future import purchases, to avoid buying dollar at a higher rate,â€ a foreign exchange dealer said.
Consequently, foreign exchange demand is expected to further rise and possibly further depreciation of the Naira.
AnotherÂ bank treasurer said that the problem was that the CBN was not meeting demand. Under the WDAS, the CBN sells to the highest bidder and with excess demand over supply, end users would naturally quote higher exchange rates to ensure a successful bid. If the CBN provides dollar to meet demand, the exchange rate is expected to stabilise.