Interbank money market liquidity falls 95%
Naira depreciates to N459/$ in parallel market
By Babajide Komolafe
The interbank money market has been gripped with intense scarcity of funds as amount of idle cash (liquidity) in the market fell by 95 percent, prompting banks to besiege the Standing Lending Facility, SLF, of the Central Bank of Nigeria (CBN) for short term cash needs.
Financial Vanguard investigations revealed that the level of liquidity in the interbank money market fell to N30.9 billion at the close of business on Friday from N617.8 billion the previous week, indicating 95 percent decline.
The sharp fall in market liquidity was prompted by absence of major liquidity inflow into the market during the week.
As a result, many banks were compelled to borrow from the apex bank’s SLF window to meet immediate cash needs.
Confirming this development, analysts at Zedcrest Securities Limited, said: “The interbank market remained illiquid, with most banks stuck at the SLF window amidst tight liquidity.”
Consequently, cost of funds remained high, and closed at double-digit level on Friday. Data from FMDQ showed the interest rate on Collateralised (Open Buy Back, OBB) lending closed at 15.2 percent, three basis points (bpts) up from 15.17 percent the previous week. Interest rate on Overnight lending also closed at 16.1 percent, 57 bpts down from 16.67 percent the previous week.
Meanwhile, the naira, last week, depreciated in the parallel market for the second consecutive week, as the market exchange rate rose by N3.5 to N459 per dollar on Friday from N455.5 per dollar the previous week. The continued depreciation of the naira is driven by dollar scarcity triggered by suspension of dollar sales to bureaux de changes (BDCs) since March 25th 2020.
But the naira appreciated last week in the Investors and Exporters (I&E) window by 17 kobo as the indicative exchange rate for the market dropped to N386.33 per dollar on Friday from N386.5 per dollar the previous week.