The deposits of banks with the Central Bank of Nigeria, CBN, hit a weekly high of N3.42tn at the end of last week.
This followed the announcement of the operationalisation of the Standing Deposit Facility asymmetric corridor to +500/-100bps from +100/-300bps around the monetary policy rate by the Central Bank of Nigeria within the week.
The SDF rate, applicable to deposits made by banks at the CBN, was increased to 25.75 per cent while the Standing Lending Facility was adjusted to 31.75 per cent.
At the last MPC meeting of the CBN, the committee members had voted to raise the MPR by 50 basis points to 26.75 per cent from 26.25 per cent, adjust the asymmetric corridor around the MPR to +500/-100 from +100/- 300 basis points while retaining the cash reserve ratio of deposit money banks at 45 per cent and merchant banks at 14 per cent and retaining the liquidity ratio at 30 per cent.
Experts said the shift was aimed at discouraging banks from holding excess liquidity at the central bank and promoting increased lending activities.
Additionally, these changes are expected to affect the banks’ cost of funds, which will impact the interest rates they offer on loans and deposits.
At the close of the past week, the deposits of banks at the CBN stood at NN3.42tn, the highest in August. The deposits for the previous three weeks combined were N3.57tn.
The next day following the announcement, banks had deposited about N1.09tn.
A CBN circular signed by the Director of the Financial Markets Department, Omolara Duke, stated the Standing Deposit Facility rate had been increased to 25.75 per cent on deposits up to N3bn, while deposits exceeding the amount will attract a lower rate of 19 per cent for Commercial and merchant banks, while payment service banks will receive 25.75 per cent on deposits up to N1.50bn with amounts above this threshold earning 19 per cent.
The CBN’s latest adjustments are expected to have an impact on the banking sector.
By raising both SLF and SDF rates, the central bank aims to curb excess liquidity, which is often a precursor to inflation.
Recall that at the end of the February MPC meetings, members of the committee blamed excess cash in circulation for the accelerating inflation in the country.
The latest CBN data showed that currency in circulation surged to an unprecedented N4.05tn in July 2024, marking an all-time high.
The CBN also provides a Standing Lending Facility window, a short-term lending window for banks and merchant banks, to access liquidity to run their day-to-day business operations.
At the end of August, banks had borrowed over N3.02tn.
Meanwhile, Afrinvest in in its monthly market report projected that the operationalisation of the SDF asymmetric corridor reinforces rally expectations.
“Notably, the CBN has cut the interest rate on excess deposits by commercial and merchant banks above an initial N3.0bn limit to 19.0 per cent, down from 25.75 per cent. This effectively lowers the theoretical floor for T-bills, assuming other factors remain constant.
“Lastly, we estimate N1.2tn inflows from maturing T-bills (N622.7bn) and FGN bond coupons (N563bn) to improve liquidity dynamics,” the firm stated.
