The Central Bank of Nigeria (CBN) has lifted its suspension on banks borrowing from its Standing Lending Facility (SLF), setting the lending rate at 31.75%. This decision follows resolutions made during the 296th meeting of the Monetary Policy Committee (MPC).
Thank you for reading this post, don't forget to subscribe!In a circular signed by Omolara O. Duke, Director of the Financial Markets Department, the CBN directed authorized dealers to submit their SLF requests through the Scripless Securities Settlement System (S4) between 5:00 pm and 6:30 pm. The new guidelines take immediate effect.
Banks can also access the Intraday Liquidity Facility (ILF) without cost, provided the borrowed funds are repaid on the same day. However, unsettled ILF will incur a 5% penalty, and such cases will automatically convert to SLF at a 36.75% rate. The CBN has reinstated collateral execution, rediscounting instruments pledged by participants at a penal rate, as outlined in the approved repo guidelines.
The rise in the SLF rate to 31.75% indicates the CBN’s effort to curb excess liquidity in the market. Higher borrowing costs for banks may lead to increased interest rates on loans and credit facilities, potentially reducing borrowing by businesses and consumers, which could slow economic growth. Households might feel the impact through higher loan costs, decreasing disposable income and consumer spending.
In another adjustment, the MPC has revised the Asymmetric Corridor around the Monetary Policy Rate (MPR) to +500/-100 basis points, raising the Standing Deposit Facility (SDF) rate to 25.75%. Commercial and Merchant Banks will receive this rate for deposits up to N3 billion, with a reduced rate of 19% for excess deposits. Payment Service Banks will receive the same SDF rate for deposits up to N1.5 billion, with a 19% rate for amounts beyond that threshold. These new SDF rates are intended to encourage banks to deposit surplus funds with the CBN, helping to reduce excess liquidity in the economy. While this measure aims to control inflation, it may also limit the funds available for lending, affecting credit availability for businesses and consumers.
These policy adjustments are part of the CBN’s broader strategy to manage liquidity effectively while maintaining a balance between economic growth and inflation control. The changes underscore the CBN’s commitment to ensuring financial stability amid evolving economic challenges.
Experts like Ayodele Akinwunmi, Senior Relationship Manager at FSDH Merchant Bank, note that the Central Bank functions as the lender of last resort, allowing banks to borrow to meet short-term liquidity needs, a practice common in financial markets globally. Tomi Bayode, an analyst at Parthian Partners Limited, highlighted that these measures reflect the CBN’s ongoing efforts to tackle inflation and stabilize the financial sector, which has been grappling with issues like foreign exchange shortages and policy changes since the start of 2024.
