Nigeria’s interbank lending rates climbed this week to an average of 15.50 percent, from 13 percent the previous week after foreign exchange, bonds and treasury bills purchases drained liquidity in the system 

Dealers said liquidity in the system receded drastically this week with the market opened on Friday with a cash balance of 84 billion naira ($529.63 million) from about 214 billion naira last week. 

“The central bank was consistent in conducting open market operations in the week in an effort to mop-up perceived excess liquidity in the system, while forex and bonds purchases further drained cash from the system and led to an increase in the cost of borrowing in the market,” one trader said. 

The secured Open Buy Back (OBB) rose to 14 percent from 12.50 percent last week, 200 basis points above the central bank’s 12 percent benchmark rate and 400 basis points above the Standing Deposit Facility (SDF) rate. 

Overnight placement climbed 16 percent from 13 percent, while call money rose to 16.50 percent against 13.50 percent previously. 

Some dealers said state-owned energy firm NNPC also transfer a portion of its deposit with some lenders to its account with the central bank this week, further draining liquidity in the system. 

Nigeria sold 65 billion naira in 10-year sovereign bonds this week, while the central bank sold about $583 million at the bi-weekly foreign exchange auction, aside its regular direct dollar sales to some lenders. 

“We see cost of borrowing in the market gradually easing next week because we are expecting that FAAC -Federation Account Allocations Committee – will meet and disburse funds to the three tiers of government,” another dealer said. 

Africa’s top crude exporter distributes oil funds from centrally held accounts every month to its three tiers of government — federal, states and local — which provides a much needed cash inflow to the banking system. 

Funds from October revenue is yet to be distributed and when this is done, the system will experience increase cash with rate dropping. 

Indicative rates for the Nigeria interbank offered rate (NIBOR) closed higher in tandem with short-end of the market, with the seven day funds climbing to 17.25 percent, from 14.20 percent last week. 

Thirty-day funds rose to 17.50 percent from 15.16 percent, the 60-day closed at 17.75 percent against 15.62 percent, while the 90-day jumped to 18.08 percent from 15.95 percent.
 

($1 = 158.600 Naira)

Source: Reuters (Reporting by Oludare Mayowa)