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Cost of fund rises to record high on huge cash withdrawal

By on December 18, 2014

The overnight lending rate at the interbank market rose sharply further by 20 per cent yesterday to 80 per cent following drop in liquidity on large naira cash withdrawal by the Nigerian National Petroleum Corporation (NNPC), dealers revealed.

“The NNPC withdrew more cash from the system today, hitting hard on some banks, which have to resort to borrowing heavily from other banks to cover their position,” one dealer told Reuters.
NNPC last week sold about $300 billion to some lenders as part of its usual month-end dollar sales and put the naira proceeds into its account with the central bank. The cost of borrowing among banks has oscillated between a high of 70 per cent and a low of 14 per cent since last month, when the central bank hiked the cash reserve requirement (CRR)on private sector deposits with commercial lenders to 20 per cent from 15 per cent.

Meanwhile, the Central Bank of Nigeria (CBN) intervened on the interbank market on yesterday  to prop-up the naira, but the currency still closed down by one per cent owing to strong dollar demand, traders said. The naira closed at N180.50 to the dollar, compared with N178.70 a dollar on the previous day.

Dealers said dollar demand remain strong from offshore funds selling down their equity holdings.

“The amount of dollars sold by the central bank was not sufficient to support the naira,” another dealer said.

The nation’scurrency is seen trading around the N180 level until the end of the year, baring any major measure by the central bank, dealers said.eveloping nations losing record $1 trillion a year in dirty money-report.

The CBN had last month moved the midpoint of the official window from N155/$1 to N168/$1. In addition, it had widened the band around the midpoint by 200 basis points from +/-3 per cent to +/-5 per cent. The central bank also increased the monetary policy rate (MPR) from 12 per cent to 13 per cent. The naira has adepreciated by about 12 per cent this year.

 

[ThisDay]