The Central Bank of Nigeria (CBN) recently eliminated the daily limit of N2 billion for funds placed at the Standing Deposit Facility (SDF) window…CONTINUE READING....KINDLY READ THE FULL STORY HERE▶

This action led to a significant increase in banks’ net deposits at the CBN window, reaching N2.3 trillion in October, compared to an average net borrowing of N1.4 trillion per month this year.

The removal of the limit is expected to keep liquidity tight in the money market as banks take advantage of the interest paid on SDF and other liquidity control measures by the central bank.

The interest rate on SDF transitioned to 15.75 percent in July 2023, within an asymmetric corridor of +100/-300 basis points around the 18.75 percent Monetary Policy Rate (MPR).

The SDF functions as a savings account for banks at the central bank, where banks can deposit excess funds and earn interest.

It is a tool the central bank employs to regulate the money supply and influence interest rates in the banking system.

Last week, interbank rates, the rates at which banks lend to each other, increased by 194 basis points to 16.7 percent.

This uptick was primarily due to banks parking their excess liquidity in the CBN’s SDF window, which peaked at N888.72 billion on the previous Monday.

In addition to the heightened use of the SDF window, N499.86 billion was withdrawn from the system through Cash Reserve Requirements (CRR) debits and N477.20 billion was absorbed through Open Market Operation (OMO) auction settlements.

These withdrawals added pressure to the system’s liquidity, with the average system liquidity last week settling at a net short position of N333.50 billion, a significant shift from the net long position of N46.48 billion in the previous week.

Last week, the CBN conducted another OMO auction, selling N400 billion worth of instruments across three tenors, with the 365-day bill closing at 17.50 percent.

Two days later, the CBN held another OMO bill auction, selling instruments worth N77.20 billion.