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Wednesday, April 15, 2015

Cash Shortage Hits Banks, Overnight Lending Rate Jumps

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Overnight lending rate jumped to 78.5 per cent on Tuesday, up from 60 per cent on Monday, statistics from the FMDQ OTC showed

The increase came two days after the Central Bank of Nigeria debited banks about N72bn to enforce its Cash Reserve Requirements policy.

The development has triggered a surge in demand for funds on the interbank market, according to financial market dealers.



The CBN requires banks to set aside 75 per cent of public sector and 15 per cent of private sector deposits in cash in their respective accounts with the central bank.

Data from the FMDQ showed that overnight lending rate stood at 27 per cent on Friday before the CBN withdrew the funds.

Traders said that the liquidity shortage was compounded by lack of cash flow to the banking system because there were no Treasury bills maturing during the past week.

An analyst at Ecobank Nigeria, Mr. Kunle Ezun, said the increase in overnight lending rate was a reflection of the market, adding that the recent cash withdrawal by the CBN had led to liquidity squeeze in the market.

He, however, said the situation might change in coming days as payment for maturing treasury bills would pump liquidity into the market.

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