CBN reduces cash mop up 82% by M9 2023
By Jeph Ajobaju, Chief Copy Editor
Cash mop up by the Central Bank of Nigeria (CBN) reduced 82 per cent from N830 billion in the first nine months of 2022 (M9 2022) to N150 billion in M9 2023 to stimulate economic growth.
Banks enjoyed a 46 per cent increase in average opening balance of idle cash during the period, according to CBN data.
To manage money supply, the CBN occasionally mops up or injects cash into the system through the sale or repayment of Open Market Operations (OMO) Treasury Bills (TBs).
The CBN sells OMO TBs to reduce money supply with a view to curbing inflation.
But when the CBN wants to increase money supply to spur economic growth, it repays the maturing OMO TBs with interests to banks and investors.
However, it is not clear if the drastic reduction in cash mop up stimulated economic growth in M9 2023 as inflation maintained a steady upswing with Gross Domestic Product (GDP) sluggish.
CBN data on OMO TB transactions shows the apex bank sold N150 billion OMO TBs in 9M 2023, down from N830 billion in 9M 2022, per Vanguard.
Matured OMO TBs repaid by the CBN fell 82 per cent to N313.52 billion in 9M 2023 from N1.741 trillion in 9M 2022.
Consequently, the banking system recorded net cash injection of N164 billion from OMO TBs in 9M 2023 down from N911 billion in 9M 2022.
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46% rise in banks’ average daily cash balance
However, the reduction in cash mop up enabled banks to enjoy a 46 per cent increase in average daily cash balance which rose to N407.13 billion in 9M 2023 from N214.87 billion in 9M 2022, per reporting by Vanguard.
Average daily cash balance rose 31 per cent in the first week of October 2023, boosted by inflow of N1.1 trillion the Federation Accounts Allocation Committee, (FAAC) allocated to the three tiers of government the previous week.
In response, interest rates in the interbank money market dropped, on the average, by 170 basis points from the previous week.
Data from FMDQ Exchange shows interest rate on Overnight lending fell to 1.7 per cent at the end of the first week in October 2023 from 3.4 per cent the previous week.
Interest rate on Collateralised borrowing (Open Buy Back, OBB) fell to 2.7 per cent from 2.7 per cent the previous week.
The CBN plans to inject N10 billion via matured OMO TBs, and analysts project further boost in the amount of idle cash in the system hence interbank interest rates are expected to remain low.
“As a result of the robust liquidity infusion stemming from FAAC inflows, interbank interest rates experienced a week-on-week decline, with the Open Buy Back rate (OBB) and the Overnight rate (O/N) converging at 1.00% and 1.70%, respectively,” said analysts at Comercio Partners, an investment bank based in Lagos.
“This liquidity surge in the interbank market catalyzed the downward movement, marking a reduction of 170 bps on average. We expect rates to hover at these current levels.”
