At the end of last week, bank deposits with the Central Bank of Nigeria (CBN) reached a weekly high of N3.42 trillion.

This surge came after the CBN announced the implementation of an asymmetric corridor for the Standing Deposit Facility (SDF), adjusting it to +500/-100 basis points from the previous +100/-300 basis points around the monetary policy rate.

The SDF rate, which applies to bank deposits at the CBN, was raised to 25.75 percent, while the Standing Lending Facility rate was adjusted to 31.75 percent.

At its most recent meeting, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) voted to increase the Monetary Policy Rate (MPR) by 50 basis points, raising it from 26.25 percent to 26.75 percent.

The committee also adjusted the asymmetric corridor around the MPR to +500/-100 basis points from +100/-300 basis points, while maintaining the cash reserve ratio at 45 percent for deposit money banks and 14 percent for merchant banks, and keeping the liquidity ratio at 30 percent.

Experts believe this move aims to discourage banks from holding excess liquidity with the central bank and to encourage greater lending activity.

These adjustments are also expected to impact banks’ cost of funds, influencing the interest rates they offer on loans and deposits.

At the end of last week, bank deposits with the Central Bank of Nigeria (CBN) reached N3.42 trillion, marking the highest level in August.

The total deposits for the previous three weeks amounted to N3.57 trillion.

The day after the announcement, banks deposited approximately N1.09 trillion.

According to a CBN circular signed by Omolara Duke, Director of the Financial Markets Department, the Standing Deposit Facility rate was raised to 25.75 percent for deposits up to N3 billion.

Deposits above this amount will earn a lower rate of 19 percent for commercial and merchant banks.

Payment service banks will receive 25.75 percent on deposits up to N1.50 billion, with any amount beyond that earning 19 percent.

These recent adjustments by the CBN are expected to affect the banking sector.

By increasing both the Standing Lending Facility (SLF) and Standing Deposit Facility (SDF) rates, the central bank seeks to reduce excess liquidity, which is often a driver of inflation.

It is worth noting that, during the February MPC meetings, committee members attributed the rising inflation in the country to the surplus cash in circulation.

Recent data from the CBN revealed that the currency in circulation reached a record high of N4.05 trillion in July 2024, the highest ever recorded.

The CBN also offers a Standing Lending Facility, a short-term lending option that allows banks and merchant banks to access liquidity for their daily operations.

By the end of August, banks had borrowed over N3.02 trillion through this facility.

Meanwhile, Afrinvest, in its monthly market report, projected that the implementation of the SDF asymmetric corridor would strengthen expectations for a market rally.

“Notably, the CBN has cut the interest rate on excess deposits by commercial and merchant banks above an initial N3.0bn limit to 19.0 per cent, down from 25.75 per cent. This effectively lowers the theoretical floor for T-bills, assuming other factors remain constant.

“Lastly, we estimate N1.2tn inflows from maturing T-bills (N622.7bn) and FGN bond coupons (N563bn) to improve liquidity dynamics,” the firm stated.

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