The Nigerian money market showcased remarkable resilience despite a major liquidity shock last Friday, when the Central Bank of Nigeria (CBN) debited commercial banks to the tune of N400 billion under the Cash Reserve Requirement (CRR). Interestingly, short-term benchmark interest rates such as the open repo (OPR) and overnight (O/N) lending rates remained relatively stable, trailing around the 27% mark. This was largely due to excess liquidity that had built up in the banking system ahead of the debit.
However, while money market rates stayed anchored, the foreign exchange (FX) market told a different story — one of mounting pressure and volatility. The Nigerian naira came under intense strain as foreign investors accelerated efforts to exit their positions in the economy. This triggered a dramatic surge in demand for the US dollar, putting significant pressure on available forex reserves.
The spike in dollar demand yesterday sent ripples across the market, with the naira depreciating swiftly as supply struggled to match the sudden spike in demand. Market watchers say this rush was driven by concerns over Nigeria’s macroeconomic stability and the broader global risk-off sentiment that is pushing capital back to safer havens.
The dual shock — of a massive CRR debit and a rush for dollars — has ignited fresh fears about the sustainability of Nigeria’s fragile monetary equilibrium. While excess liquidity shielded the money market from rate spikes, the broader economic implications of capital flight and currency depreciation could force policymakers back to the drawing board.
This moment serves as a flashback to previous periods of foreign reserve pressure — a reminder that market confidence is as critical as liquidity when it comes to economic stability. As the naira grapples with volatility and external interest wanes, the question on everyone’s mind remains: how long can the system hold before deeper interventions are required?
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