Inter-bank lending rates eased by 200 basis points on Friday to an average of 11 per cent last week, from 14 per cent recorded the previous week after repayment of large funds in mature treasury bills helped boost the amount of naira in the system.

Dealers said about N116bn ($734.41m) in maturing bills from an open market operation hit the market on Thursday, helping to lift liquidity and pushing down the cost of borrowing among banks.

They said the market opened with a cash balance of about N237bn on Friday, compared with N197bn deficit the previous week.

The secured Open Buy Back fell to 10.50 per cent, from 14 per cent recorded the previous week, 1.50 percentage points lower than the Central Bank of Nigeria’s 12 per cent benchmark rate, and 50 basis points above the standing deposit facility rate.

Overnight closed at 11 per cent compared with 14 per cent recorded the previous week, while call rates dropped to 11.50 per cent against 14 per cent previously.

Reuters quoted a dealer as saying, “We are anticipating a situation where the CBN would intensify its effort to mop-up idle funds from the system this week and this should see rates inching up to around 14 per cent for overnight.”

The CBN sold N50.65bn in three and six month bills last week, N20bn less than planned at its regular auction with yield also lower than at the previous auction, while it sold $120m at the only foreign exchange auction last week.

The naira firmed against the US dollar on the inter-bank market  on Wednesday, with large inflows from foreign investors buying short-tenor bonds and as banks sell the greenback to stay within a stipulated open position for them. The unit firmed to close at N157.90 to the dollar, recovering from an intraday low of N158.40, compared with Friday’s close of N158.10.

Dealers had expected the currency to trade within the current band of N157.90-N158.30 for the rest of last week, saying that it could strengthen further as month-end dollar flows from oil firms trickle in. Last month, the CBN raised the cash reserve requirement for lenders to 12 per cent from eight per cent, and reduced net open positions to one per cent from three per cent, to curb the money supply and support the naira.  

Source: Punch/Ademola Alawiye