Venezuela's interbank overnight rate soared to as high as 120 percent after the central bank said it would halt some of its lending operations to financial institutions.The rate hovered at about 40 percent at midday New York time, up from an average daily rate of 8.7 percent since Aug. 1. Banco Central de Venezuela suspended late yesterday repurchase agreements that it used at times to provide cash to the banking system. The bank made the move three days after President Hugo Chavez prodded policy makers to stop acting as an ``oxygen tank'' for banks that needed cash.
``There's just no liquidity in the market right now,'' said Richard La Rosa, a trader at brokerage ActiValores Sociedad de Corretaje SA in Caracas.
The cutback in lending is part of Chavez's effort to take greater control of the central bank and the South American country's economy. Chavez has taken $17 billion of foreign reserves from the bank to fund government spending in the past two years and is seeking to reform the constitution to strip the bank of its independence from the executive branch.
The central bank said in its statement yesterday that it will continue some lending operations, such as its role as lender of last resort.
The overnight rate rose from an average of 22 percent yesterday. Government debt sales this week also drained cash from the financial system, leaving some banks short of funds, La Rosa said. The government sold about $200 million of dollar bonds from its portfolio in a private placement with local investors, 215 billion bolivars ($100 million) of 5-year bonds and 50 billion bolivars of 91-day debt earlier this week.
