Liquidity management involves the supply/ withdrawal from the market the amount of liquidity consistent with a desired level of short-term interest rates or reserve money. It relies on the daily assessment of the liquidity conditions in the banking system, to determine its liquidity needs and thus the volume of liquidity to allot or withdraw from the market. The liquidity needs of the banking system are defined by the sum of reserve requirements imposed on banks, excess reserves, i.e. funds held in excess of these requirements, autonomous factors. In other words, a set of items on the central bank balance sheet, which have an impact on banks’ liquidity, needs but are not under the direct control of the central bank (e.g. banknotes in circulation, government deposits or net foreign assets). Liquidity management is supported by daily liquidity forecasting of the central bank balance sheet to guide the Bank’s management on the expected level of liquidity in the system over a period of time from the current period so that appropriate measures are taken to prevent undesirable market developments, that may negatively impact on the objective of price stability.
About the Author - Central Bank Of Nigeria (CBN) - Education Series
The series seeks to educate stakeholders and the general public on monetary policy issues such as: what is monetary policy, how it is conducted, What it can do and not do and how the monetary policy actions of the Central Bank of Nigeria affects Nigerians, the economy and the outside world.
Prior to the banking sector consolidation exercise that was concluded in December 2005, the framework for monetary policy in Nigeria had witnessed some transformation. This included the shift from the use of direct monetary policy control to indirect (market-based) monetary management, and the sw [Read more]
Report Highlights: Nigeria's retail food imports are estimated at $750 million in 2010 and projected to increase by 20 percent in 2011. Changing demographics and lifestyles are resulting in increasing consumer demand and preference for packaged retail foods. Domestic food processing is underd [Read more]
Think the current business climate is temporary, and that things will eventually get back to normal? Well, you ain't seen nothing yet! - The death of whole industries, global pandemics, the actions by one individual that affect the whole (think one terrorist with a small nuke in New York), th [Read more]