The interbank lending rates fell sharply on Friday to an average of 14 percent, from around 19.33 percent the previous day after about N283 billion was shared among the three tiers of government in Nigeria.
The Revenue Mobilisation Allocation and Fiscal Commission distributes money from oil revenue to the three tiers of government from a centrally held account, which provides liquidity for the banking sector and eases the cost of borrowing among banks.
Dealers said the market was short prior to the disbursal of the budget funds due to stricter central bank’s measures to tighten liquidity in the system and support the local currency.
“The market opened with a deficit of about N197 billion on Friday, but by the time the budget allocations hit the system today, the cost of borrowing fell sharply,” one dealer said.
The central bank in July raised the cash reserve requirement for lenders to 12 percent from 8 percent, and reduced net open foreign exchange positions to 1 percent from 3 percent, to restrict the money supply and support the currency.
The bank also barred banks that borrow naira funds from its official window from using those funds to buy dollars at its by-weekly auction, a bid to crack down on currency speculation.
Dealers said the release of the budget funds on Friday was a relief to the market which has been hit by cash shortages.
The secured Open Buy Back (OBB) dropped to 14 percent from 18 percent the previous day and lower than the 15 percent it closed last Friday.
Overnight and call rates closed at 14 percent each, compared with 20 percent respectively on Thursday.
“We see rates stable at this level for the better part of next week because of the fewer trading days and the improved liquidity level in the system,” another dealer said.
Monday and Tuesday have been declared public holidays to celebrate Muslim Eid festival.