Nigeria's interbank lending rates eased to 14 percent on Friday from 40 percent last week after injections of liquidity from matured Treasury bills and refunds by the central bank of cash set aside by banks to buy dollars. The cost of borrowing among banks jumped to as high as 70 percent during the week on tight liquidity after the central bank tightened liquidity to support the naira currency. The central bank last week directed banks to pay for their dollar purchases 48 hours in advance, draining the market of liquidity.
Traders said about 183 billion naira ($920 million) in matured Treasury bills was injected into the money market on Thursday by the central bank causing rates to fall. Also, more funds from interest payment on bonds and refunds to banks from the central bank for their forex cash provision also raised liquidity, traders said.
"Interbank lending rates swung this week as a result of tight liquidity arising from the provision for forex purchases and we expect the cycle to continue next week," one dealer said. Traders said banks' cash balances with the central bank stood at about 80 billion naira compared with a 25 billion naira cash surplus last week.
The secured Open Buy Back (OBB) and overnight placement closed at 14 percent from 40 percent apiece for OBB and overnight placement last week. "We expect rates to trend up early next week on possible cash withdrawal by NNPC (state-owned energy firm) and could trade around the 30 percent level until inflows of budgetary allocations to government agencies come in," another trader said. Nigeria, Africa's top crude exporter, distributes revenue from oil among its three tiers of government every month, injecting liquidity into the money markets.
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