The Public Sector Deposit Volcano Erupts

The long awaited 50% public sector deposit squeeze has now hit the banks. The shallowness and fragility of the money market is now evident. This is because a less than 4% withdrawal of money supply led to an 8% increase in interest rates or an 80% increase in the range of money market rates.

 The CBN’s new policy initiative targets high powered money (bank reserves plus vault cash), as a policy tool to curb inflationary threats that emanate from fiscal excesses, and possible currency weakness.

The irony of fiscal dominance and the threat posed by high powered money are among the issues discussed at length by Bismarck Rewane and his Financial Derivatives Company Limited team at this month’s LBS Breakfast session.

Source of information: Financial Derivatives Company Limited

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