By Agency reporter

Monday, 20 Dec 2010

Nigerian inter-bank lending rates fell to an average of five per cent this week from 11.33 per cent penultimate week, following the release of budgetary allocations to government agencies, traders said on Friday.

Reuters quoted traders as saying that the rates could edge up gradually from this week as most banks prepared to close their books for the year end and seek funds to cover their positions, adding that the cost of borrowing was expected to remain in single digits.

The secured Open Buy Back fell to 4.50 per cent from 8.25 per cent, 175 basis points below the Central Bank of Nigeria‘s 6.25 per cent benchmark rate and 25 percentage points higher than the Standing Deposit Facility rate.

Overnight funds eased to five per cent from 12.75 per cent, while call money closed at 5.5 per cent from 13 last week.

”The injection of over N200bn into the system on Tuesday from November budget allocations buoyed liquidity and eased the cost of borrowing,” one dealer said.

Traders said the market opened with liquidity of about N300bn on Thursday, though there were later outflows for forex, bonds and treasury bill purchases.

The banking sector depends largely on the injection of budgetary allocations to the three tiers of government (federal, state and local), to fund its operations.

”We expect inter-bank rates to edge up slowly and remain around the central bank‘s benchmark rate this week as some banks seek funds to cover their positions for the year end,” another trader said.

Dealers said cost of borrowing should, however, remain below 10 per cent for the rest of the year as the system would still have sufficient liquidity to meet all transactions.

Source: Punch