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Overnight lending rate hits 70%

By on December 10, 2014

The overnight lending rate more than doubled to a record high of 70 per cent monday, amid a cash squeeze after the Central Bank of Nigeria (CBN) last week soaked up naira liquidity to support the ailing currency.

The central bank has continued to intervene to support the naira which has been under pressure in the past few months as falling oil prices shook confidence in the assets of Africa’s leading energy producer. Oil hit a five-year low on Monday.
“Banks are scrambling for funds to cover their positions,” one dealer told Reuters.

The naira eased 1.1 per cent yesterday, below the central bank’s new target since an eight per cent devaluation two weeks ago to save declining foreign reserves, despite the bank selling dollars onto the market.

Analysts argued that high interbank rates would constrain credit growth and could create bad loan problems for lenders.
“The tighter monetary policy — higher cash reserve requirement as well as higher policy rate — will filter through to the real economy via an increased cost of borrowing,” NKC Independent Economists, Melissa Verreynne said, adding that the spike in overnight rates was likely to be short lived.

Overnight lending rates had spiked to 30 per cent on Friday, a level itself more than double what rates were a week before.
Dealers said commercial lenders were scrambling for funds on the interbank market to keep their liquidity ratios at the regulatory minimum of 30 per cent, after the central bank last week withdrew N300 billion to enforce new cash reserve requirement of 20 per cent, up from 15 percent.

The naira closed at N182.10 to the dollar, after it touched an intra-day low of N184.57, prompting the central bank to intervene.
Dealers said Addax Petroleum also sold $11 million to lenders, which was not sufficient to meet demand.

The balance that lenders hold with the central bank closed at a debit of N20 billion on Monday, compared with N45 billion on Friday. The banking system was about N400 billion in credit two weeks ago, Reuters disclosed.

 

[ThisDay]