By Ademola Alawiye with agency report

Monday, 17 Jan 2011

Inter-bank lending rates rose to 9.25 per cent on average last week, compared to six per cent recorded the previous week as large cash withdrawals by the Nigerian National Petroleum Corporation drained liquidity in the system.

The secured Open Buy Back rose to 8.25 per cent from five per cent, 200 basis points above the Central Bank of Nigeria’s 6.25 per cent benchmark rate and 500 percentage points above the Standing Deposit Facility rate.

Overnight placement inched up to 9.50 per cent, from six per cent, while call money traded at 10 per cent against seven per cent last week.

Reuters quoted traders as saying, “The market was short by about N28bn ($182m) when it opened on Friday due to a large cash withdrawal by the NNPC, estimated at N85bn to N90bn.

According to a dealer, the system was in deficit after the large withdrawal by NNPC and funding for the purchases of forex and treasury bills on Thursday, caused rates to spike.

NNPC sells dollars to banks every month and recalls a portion of the naira proceeds to its accounts with the CBN, leaving lenders short of funds.

Dealers said the cost of borrowing among banks could ease this week, with the expectation of large releases from December budgetary allocations.

A total of N410.78bn was released on Friday from the federation accounts to the three tiers of government.

Traders said half of this could hit the system by Tuesday, helping to ease tight liquidity.

Source: Punch