LAGOS Oct 14 (Reuters) – The Nigerian interbank lending rates eased on Friday to an average of 13.50 percent from 17.16 percent the previous day after some lenders sold a portion of their bond holdings to the central bank to get cash for operations, dealers said.

Dealers said formerly rescued lenders sold a portion of their AMCON bonds to obtain funds from the central bank, raising liquidity in the system to a positive level and helping to ease cost of borrowing at the interbank.

Analysts said AMCON bonds are illiquid, meaning that the banks cannot trade them but rather prefer to sell to the central bank to get cash.

Nigeria’s central bank raised its benchmark rate far further than analysts expected on Monday by 275 basis points to 12 percent and hiked cash reserves requirement to 8.0 percent from 4.0 percent, leading to a sharp rise in yields and interest rates across board.

“We understand that some banks sold a large portion of their AMCON bonds to the central bank and the proceeds were credited into their accounts, raising liquidity in the system and helping to forced down cost of borrowing in the interbank,” one dealer said.

The secured Open Buy Back (OBB) fell to 12 percent from 15 percent on Thursday, but on a par with the central bank’s new benchmark rate and 200 basis points above the Standing Deposit Facility (SDF) rate.

Overnight placement dropped to 14 percent against 18 percent, while call money eased to 14.50 percent from 18.50 percent the previous day.

“The market opened on Friday with a cash balance of 402 billion naira ($2.51 billion), from a negative balance of about 850 billion naira the previous day and reflecting the inflows from AMCON bonds discounted by some of the formerly rescued lenders,” another dealer said.

Dealers said initially before the proceeds of AMCON bond sales were credited to the system, market was volatile with many traders not willing to strike any deals because of the uncertainty in the system.

“As a result of the higher-than expected increased in yields on bond and treasury bills, fixed income assets market shut down since Thursday and this has also impacted on the interbank transactions until the system reflected a positive balance position, which spurred rates adjustment,” a dealers said.

Dealers said rates may remain stable next week if budget allocations to the three tiers of government – federal, states, local governments – hit the system, but this will also depend on whether the central bank will also conduct open market operations to mop-up liquidity in the system.

Indicative rates for the Nigeria interbank offered rate (NIBOR), rose, reflecting the hiked in benchmark interest rate with the seven day funds, closing at 15.50 percent from 12.16 percent last week.

Thirty-day funds rose to 16.50 percent against 12.54 percent, the 60-day closed at 17.45 percent from 12.95 percent, while the 90-day climbed to 17.75 percent compared 13.33 percent.

($1 = 160.250 Nigerian Naira)

Source: Reuters / Reporting by Oludare Mayowa; Editing by Joe Brock