Inter-bank lending rates fell further last week to an average of 14.25 per cent compared to the previous week’s 14.41 per cent after additional cash inflows from the excess crude account disbursal hit the market.

 Currency traders said rates would have been lower but for the outflows into treasury bills sales at the open market operation and withdrawal by the Nigerian National Petroleum Corporation, which drained liquidity from the system in the week.

Reuters quoted a dealer as saying, “About N102bn ($648.03m) came into the system from the excess crude account last Wednesday, boosting the liquidity level and helping to  push down the cost of borrowing in the inter-bank.”

The market opened with a cash balance of about N67bn naira on Friday, reflecting gradual drain in liquidity in the system after the NNPC cash withdrawal.

NNPC sold about $450m to some lenders last week, and recalled a portion of the naira proceeds to its account with the Central Bank of Nigeria as part of statutory requirement and move to reduce excess liquidity in the system.

Traders said cost of borrowing among banks should inch up this week because of further withdrawal by the NNPC and outflows into foreign exchange purchase.

“Since we are not expecting any further cash inflow this week, rates should climb because the market will be tight as a result of additional NNPC withdrawal and outflows into foreign exchange auction,” another dealer said.

The secured Open Buy Back eased to 13.75 per cent, from 14 per cent the previous week, representing 175 basis points above the CBN’s 12 per cent benchmark rate, and 3.75 percentage points above the Standing Deposit Facility rate. Overnight placement dropped to 14.24 per cent from 14.5 per cent, while call money traded at unchanged at 14.75 per cent.

Meanwhile, the naira strengthened against the United States dollar on Friday on the inter-bank market following sales of around $72m by two local units of oil companies.

The naira closed at N157.30 to the dollar on the inter-bank, compared to N157.50 close on Thursday.

Dealers said units of Chevron sold $53m, while Addax Petroleum, which is owned by China’s Sinopec Group sold  $19m to banks, boosting dollar liquidity in the market and provided support for the local currency.

An increase in dollar inflows from oil multinational companies and offshore investors into local debt instruments has supported the naira since the start of the year.

“The outlook favours  a slight depreciation of the naira because we are not expecting much dollar inflow next week,” one dealer said.

Source: Punch