Quick disappearance of liquidity from the money market barely a week after  funds were allocated by the Federation Allocation Account Committee (FAAC) is causing anxiety among operators.Â
As a result, the Nigerian Inter-Bank Offer Rate (NIBOR) - the rate at which banks lend money among themselves, has begun to rise again. Â
Some experts say the respite provided by sharing of the funds to the three tiers of government has been short-lived by the governor of Central Bank of Nigeria (CBN), Sanusi Lamido Sanusi’s hints on what direction his tenure is going to take, while others think otherwise.
Wale Abe, chief executive officer, Financial Market Association of Nigeria, said there is little or no link with press statements made by Sanusi. According to him, the market is generally illiquid, and at times, three days after FAAC shares allocation, inter-bank lending resumes its northwards movement.
Henry Boyo, an economist, maintained that the banks might be worried, and thus, become cautious in lending in the inter-bank market because of CBN governor’s stance on disclosure, among others. He observed that if the banks were doing it right and not announcing bogus profits even in the face of huge margin loans weighing them down, they would not be afraid of any Act read by Sanusi.
On the issue of liquidity, Boyo backs Abe, saying there is high illiquidity in the economy, which result is the inter-banking lending that has shot up recently. For instance, the call rate rose from 17.5 percent last week Tuesday to 17.8333 percent Wednesday, and rose further to 18.06250 percent Thursday.
It was the same for the 7-day NIBOR that rose from 18.0883 percent to 18.5000 percent on Wednesday, and to 19.3333 percent last Thursday, which was the same for the 30-day, 90-day, 180-day and 365-day NIBOR.
He expressed worry that while on one hand, the authorities are expressing disapproval for the level of illiquidity; they are on another hand mopping up the market by selling treasury bills and bonds.
He however opposed the fact that the Federal Government actually needs the money from bonds to fund infrastructural projects, stating that despite trillions of naira government raised in the last four to five years, there is hardly anything on ground to account for the money.
The outcome is that while lending rates are being capped by the CBN to avoid spilling over, the level of illiquidity is kept worse by constant mopping up through the Open Market Operations among other ways.Â
Boyo, on how to resolve the capping of rates even though the CBN governor thinks lending rate at 24 percent is too high for the market; believes that a market-based solution to the lending rate will be fine. But that such a market-based solution will be devoid of sentiments, like capping of interest rates as is the case currently.
In addition, while being diplomatic in reacting to what direction lending rates will take, remarked, “We will have to discuss at Banker’s Committee; what I would like to do is to see if we can have policies and ideas on how using purely market-based solutions can make interest rates come down. I think 24 percent is too high as a lending rate,†he stated.