Market News

By Elizabeth Adegbesan

Banks’ borrowing from the  Central Bank of Nigeria, CBN, rose sharply by 395.2 percent week-on-week (WoW) to N4.72 trillion last week from N953.11 billion the previous week.

The CBN has two short term lending windows for banks namely the      Standing Lending Facility (SLF) and Repo lending. The banks resort to these windows to bridge temporal liquidity gaps.

While the CBN lends money to banks through the SLF at interest rate of 500 basis points (bpts) above the Monetary Policy Rate (MPR), it also lends money to banks through Repurchase (Repo) arrangement, which involves    the purchase of    banks’ securities with the agreement to sell back at a specific date and usually for a higher price.

On the other hand, the CBN accepts deposits from banks through its Standing Deposit Facility (SDF) and pays an interest rate of MPR minus 100 bpts.

The rise in banks’ borrowing was triggered by the tight monetary policy of the apex bank, aimed at curtailing the steady rise in inflation.

In addition to the hike in the Monetary Policy Rate, MPR, the CBN also raised the Cash Reserve Ratio, CRR, of Commercial and Merchant banks to 50 per cent and 16 per cent respectively from 32.5 per cent and 10 per cent at the beginning of the year.

However, banks’ deposits with the CBN fell sharply despite an increase in interest rates by apex bank.

According to the CBN data, banks’ deposits    in the apex bank’s SDF fell by 56.8 percent WoW to N1.16 trillion last week from N2.69 trillion the previous week.

Last year, CBN raised the interest rates on deposits in its SDF  to 25.75 percent in August and 26.5 percent in November.

The November change was implemented as part of the decisions made during the 298th Monetary Policy Committee (MPC) meeting.