CB observes sizeable return of currency in circulation into banking system

• Cites relatively high rates offered by banks also a reason for the development

The Central Bank in the recent past has observed a notable improvement in deposits held by the banking system after they took the interest rates to sky high levels in a long overdue correction in the country’s monetary policy. 
In the year through August 2022, Central Bank officials measured that the average weighted new deposit rates and the average weighted new fixed deposit rates have climbed 16.3 percent and 16.5 percent compared to the 10 percent increase in key policy rates. 

According to separate data which is also reported by the Central Bank, the two average rates stood at 21.29 percent and 21.62 percent respectively in the licensed commercial banking sector compared to 5.19 percent and 5.35 percent a year ago, although the banks were seen lately coming up with creative products with uncommon tenors offering rates north of 25.0 percent. 

 “With relatively high deposit rates offered by licensed banks, a return of currency in circulation to the banking system is also observed”, the Central Bank stated. 
This could be also seen from the money supply measured by broad money (M2b) which continuously fell to 14.0 percent by the end of August from 21.0 percent a year ago on demand destruction policies the Central Bank and the government together implemented from April onwards. 

As licensed banks were seen almost entirely closing their lending spigots in fear of large defaults on borrower weakness, they were seen recently putting together these customer deposits and parking them in short-term Treasury bills which now yield over 30 percent, as this provides them comfortable margins at lesser to zero cost. 
For instance, the most favourite 3-month bill yield climbed about 27.0 percent since the current tightening cycle began in August last year through last week to 33.05 percent, compared to 8.04 percent a year ago. 
Banks’ earnings reports for the three months ended in September would provide better proof over how their deposits had grown in response to the elevated deposit rates.