As the Central Bank of Nigeria (CBN) continued to mop up excess liquidity in the financial system, banks in May 2024 borrowed an estimated N10.86 trillion from the apex bank to meet their daily business obligations.
Banks access lending from the apex bank using the Standing Lending Facility (SLF) window and deposit cash with the apex bank using the Standing Deposit Facility window (SDF).
The CBN provides the SLF, a short-term lending window for banks and merchant banks, to access liquidity to run their day-to-day business operations.
InsideBusinessNG gathered that banks in April 2024 had borrowed an estimated N12.17 trillion from CBN through its SLF window amid a rising inflation rate and an unstable foreign exchange market.
On the flip side, banks’ deposits with CBN stood at N943.08 billion in May 2024, about a 119.8 percent increase from N428.98 billion reported in April 2024.
The CBN in May through its Monetary Policy Committee (MPC) at its third meeting in the year, and for the third consecutive time, raised the MPR significantly by 150 basis points, to 26.25 percent from 24.75 percent in the bids to tackle the inflation rate. The raise aligns with the CBN’s hawkish stance on monetary policy since May 2022 to tackle the rising inflation rate (33.69 percent as of April 2024) amid mopping up liquidity in the financial system.
Analysts attributed the increase in borrowings by banks from CBN to the dwindling Naira at the foreign exchange market, coupled with the rising inflation rate and mopping up liquidity.
“Notably, the Committee deliberated on either tightening its monetary policy further or holding the MPR steady to assess the impact of previous rate increases. The MPC’s decision to further tighten its monetary policy was driven by its near-term inflation outlook, acknowledging the persistently elevated inflation risks and the necessity to consolidate the gains from previous rate hikes.
“Meanwhile, the MPC kept other parameters unchanged: the asymmetric corridor around the MPR at +100bps/-300basis points, the Cash Reserve Requirement (CRR) for Deposit Money Banks (DMBs) at 45.0per cent, and the liquidity ratio at 30per cent,” according to analysts at Cordros Research.
The firm stated, “In our previous note, we pointed out that the MPC will tighten its monetary policy rate further despite the moderation in price increases primarily due to high inflation risks emanating from the depreciation of the naira and the inflationary impact of a potential review of the minimum wage by the Federal Government (FG).
“However, we anticipated a slower increase, given the moderation in the month-on-month inflation numbers and the DMO’s reluctance to increase the yields on Treasury bonds due to its impact on the FG’s debt service burden.
“Whilst our direction of a further tightening of monetary policy was on point, the Committee voted to raise the MPR to 26.25 percent, representing a 150basiis points increase (Cordros expectation: +100bps), whilst maintaining other parameters constant. We highlight that the higher-than-expected increase in the MPR indicates the Committee’s unrelenting desire to drive inflation downwards to bearable levels.”
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