Interbank Rates Fall On Budget Cash Inflow


Nigeria’s interbank lending rates dropped by 59 basis points to an average of 14.41 percent this week, compared with 15 percent last week, following the disbursal of budgetary allocations to government agencies, traders said last Friday.

Traders said the disbursal of over 300 billion naira ($1.90 billion) in January budgetary allocations to government agencies swelled cash liquidity in the system and forced down the cost of borrowing among banks. “The budget money was credited last Friday and its effect on interbank rates became apparent early in the week,” one dealer said. Africa’s top crude-oil exporter shares proceeds from oil sales from a centrally held account every month to its three tiers of government – federal, states and local – providing liquidity to the banking system and impacting on lending rates, The Tide source reports.

Traders said the market opened with a cash balance of about 130 billion naira, compared with a deficit of about 9.50 billion naira last week. They said rates would have been lower but for the aggressive liquidity mop up by the central bank through the sales of treasury bills at open market operations.

Nigeria also sold 111 billion naira worth of 2019 and 2022 bonds this week, which further restricted liquidity in the system. The secured Open Buy Back (OBB) eased to 14 percent, from 14.5 percent last week, 200 basis points above the central bank’s 12 percent benchmark rate, and 4 percentage points above the Standing Deposit Facility (SDF) rate.

Overnight placement dropped to 14.5 percent from 15 percent, while call money traded at 14.75 percent compared with 15.5 percent last week. “We expect rates to gradually inch up next week after major cash inflows into foreign exchange purchases and other transactions,” another trader said.