As CBN closes discount window

By Babajide Komolafe

LAGOS — Lending rates in the interbank money market, yesterday, shot up to 61.9 per cent following the decision of the Central Bank of Nigeria, CBN, to close its discount window to banks.

Data from the Financial Market Dealers Quote, FMDQ, shows that interest rate for Overnight lending rose by 31 per cent to 61.9 per cent yesterday from 30.92 per cent on Friday. Similarly, interest rate for Secured lending (OBB) rose by 30.9 per cent to 59.67 per cent from 29.17 per cent on Friday.

The sharp increase in lending rates commenced on Friday when interest rate on Overnight and Secured lending rose to 26.5 per cent and 25.5 per cent respectively from 14.92 per cent and 14.42 per cent on Thursday.

This development was attributed to a circular from CBN on Friday, which technically closed its discount window to banks that purchase dollars from the CBN.

According to the circular, banks that bid for foreign exchange in the official Retail Dutch Auction System, RDAS, sessions are not allowed to access the CBN discount window from the time they pay for their bid and when the CBN actually delivers the dollars to them.

However, since the process of paying for the dollars and taking delivery takes about a week, the implication is that any bank that participates in the RDAS cannot access the discount window of the CBN

Speaking to Vanguard on condition of anonymity, a bank treasurer said: “This technically barred all the banks from accessing the discount window because we all purchase dollars from the CBN.   This means that banks that need cash cannot take their treasury bills to the CBN discount window and exchange it for cash.”

This aggravated the scarcity of funds in the interbank market occasioned by the increase in banks’ Cash Reserve Requirements, CRR, for private sector deposit.