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Scarcity of funds reemerges as cost of funds rises

By Babajide Komolafe
Scarcity of funds has   reemerged in the  interbank money market causes a rise in cost of funds.Interest rate on Call lending which was stable at 10 per cent last week rose to 11 per cent, while interest rate on Collateralised Lending or Open Buy Back (OBB) rose to 7.8 per cent from 7.3 per cent. Interest rate on Seven days lending also rose to 12.63 from 12.2 per cent while 30 days lending increased to 142. To 14.7 per cent.

Naira sign
Naira sign

A bank senior bank treasurer attributed the re-emergence of scarcity of funds to outflows for  foreign exchange purchases. The increasing volume of foreign exchange sales at the Wholesale Dutch Auction (WDAS) in recent times is impacting on market liquidity hence the upward movement of interest rate. Vangaurd investigation revealed that total outflow per week through foreign exchange from the market rose to steadily from N22.2 billion in the first week of August to N60.5 billion in the third week before dropping to N57 billion last week. Total outflow through foreign exchange in July was N172 billion.

Analysis of the foreign exchange demand and sales in the six auctions conducted by the CBN before and after the introduction of WDAS  shows demand for foreign exchange shot up by 351 per cent to $3.16 billion from $861.8 million. Total amount sold also rose by 56 per cent to $1.19 billion from  $$764.  Average demand per auction session went up by 313 per cent to $526.7 million from $127.4 million, while average sales rose by 38 per cent to $198.4million from $143.6 million.

Foreign exchange operators attributed the speculative activities to belief that given the continued decline in the nation’s external reserve, the Central Bank of Nigeria would not be able to sustain the current exchange rate of the naira hence further depreciation of the  naira is inevitable.

But the apex bank on Tuesday moved to forestall speculation with foreign exchange purchased from the official market. It barred interbank trading of foreign exchange purchased from the official market.

In a circular to banks titled, “Non Transferability of Funds from Wholesale Dutch Auction System (WDAS) Among Authorised Dealers”, with reference TED/FEN/FPC/GEN/01125, the apex bank said that banks can no longer use foreign exchange sourced from the official market for interbank trading. Such funds, it said should only be used to meet customers demand for foreign exchange. It also directed that banks should keep separate books for their interbank foreign exchange transactions and WDAS foreign exchange transactions, and make the books available to it examiners.


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