Rates jump as CBN sterilises N1.3trn in cash reserve requirement

MONEY Market Rates jumped by 187 basis points (bps) on the average in Friday’s session as the market reeled from a N1.3 trillion Cash Reserve Requirement (CRR) debit by the Central Bank of Nigeria (CBN).

The shock of the CBN’s heavy CRR debit caused local banks to lose appetite for Open Market Operation (OMO) bills in the day’s session.

The cash reserve requirement is the minimum amount banks are expected to retain with the CBN from customer deposits.

Dealers said bids weakened for most of the trading session as offers of the newly issued OMO bills at higher 10 per cent levels by offshore players proved un-interesting to local banks, with very little volumes crossed.

Rates inched higher by about 4bps on the average across the benchmark OMO curve.

In January 2020, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) raised the Cash Reserve Ratio by five per cent to 27.5 per cent.

The move shocked bankers who had expected the CBN to taper down on its tight monetary policies considering the economic headwinds. This was very well before the COVID-19 virus started worldwide.

The CBN had attributed the reason for the increase to raise the CRR to recent inflationary pressure in the economy. Also, the CBN Governor stated that the decision to hold other rates was informed by the conviction of the committee members that there is a need to observe the response of the economy to several policies introduced by the Central Bank.

Dealers said system liquidity opened at N272 billion positive but this offered no reprieve as banks’ funding pressures from Bond auction debits of N156 billion were further compounded by their inability to access the Standing Lending Facility (SLF) window on a retail Foreign Exchange (FX) funding day.

“We expect rates remain tight opening next (this) week as Banks remain shut from the SLF window again because of Wholesale FX funding on Monday,” one dealer said.

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