By Babajide Komolafe
Cost of funds shot up again by 70 per cent yesterday following panic by interbank market operators over dwindling liquidity in the market.
Data from the Financial Dealers Association of Nigeria (FMDA), the umbrella body of banksâ€™ treasurers, shows that interest rate on Call rose by 68 per cent to 7.9187 per cent from 4.7083 per cent on Monday.
Interest rate on Seven Days lending also shot up to 8.333 per cent from 5.5417 per cent while interest rate on 30 Days lending shot up to 9.75 per cent from 6.67 per cent.
Furthermore, interest rate on collaterised lending or Open Buy Back (OBB) rose by more than 100 per cent to 7.0833 per cent from 3.333 per cent.
Investigation reveals that the sudden rise in cost of funds, which started on Monday when interbank interest rates rose by over 200 per cent, was triggered by panic among interbank market operators over the steady decline in market liquidity from over N600 billion in March to about N200 billion.
This, according to sources, prompted fears that the market is at the end of the excess liquidity regime to that of scarcity.
This fear was heightened by information that one or two banks recently borrowed from the Central Bank of Nigeria (CBN) through the Standing Lending Facility (SLF).
As a result, some of the big banks, who are net placers of funds in the market, started bidding up their rate, and others followed suit.
A bank treasurer who confirmed this development said â€œThe whole thing is driven by panic. You know the CBN has been mopping up through treasury bill sales, and have been selling foreign exchange heavily.
â€œThese caused the liquidity in the market to fall steadily. Imagine from N1 trillion, we are now down to about N200 billion.
â€œSo the mindset is that the market is about to turn from excess liquidity to scarcity, and everybody seems to be positioning for the expected change.â€