Nigerian Interbank Rate Falls As Matured Treasury Bills Are Paid Off

forexNigeria’s overnight naira interbank lending rate fell to around 15 percent on Friday from a peak of 35 percent on Wednesday, after the central bank injected cash from matured treasury bills into the banking system, traders said.

The central bank repaid around 293 billion naira in matured bills to some commercial lenders on Thursday, increasing liquidity and forcing down borrowing costs among banks.

The cost of overnight borrowing among banks had reached 35 percent on Wednesday after cash dried up. Some commercial lenders resorted to borrowing at the central bank discount window to help meet their immediate obligations.

Nigeria has been selling dollars in the interbank forex market to support the ailing naira, and selling treasury bills to curb speculation against the local currency.

The central bank sold 139.42 billion naira of treasury bills in open market operations on Thursday at 18.5 percent, to reduce system liquidity. But the market cash balance remained up at 51.65 billion on Friday against an 87 billion-naira deficit on Wednesday.

“We expect the rate to be trading around the 15 to 18 percent level next week if the central bank did not sell fresh treasury bills to mop up cash from the system,” one dealer said.

The overnight lending rate had closed last week at 16 percent but gradually climbed to 35 percent on Wednesday, then eased marginally to 20 percent on Thursday after the cash from matured treasury bills reached the system.

Nigeria’s financial market will be closed for a public holiday on Monday and Tuesday and will reopen on Wednesday.

Interbank rates fall after governments share N283 billion

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.