Nigerian Interbank’s Rates Climb On Cash Shortage

Nigerian interbank lending rates climbed to 9.25 per cent on average last week, compared to 6.0 per cent penultimate week as large cash withdrawals by state-run energy firm NNPC drained liquidity in the system, traders said.

The secured Open Buy Back (OBB) rose to 8.25 per cent from 5.0 percent, 200 basis points above the Central Bank’s 6.25 percent benchmark rate and 500 percentage points above the Standing Deposit Facility (SDF) rate.

Overnight placement inched up to 9.50 percent from 6.0 percent, while call money traded at 10 per cent against 7.0 percent the upper week, Reuters reports.

Traders said the market was short by about 28 billion naira ($182 million) when it opened last Friday due to a large cash withdrawal by the Nigerian National Petroleum Corporation (NNPC), estimated at 85-90 billion naira.

“The system was in deficit after the large withdrawal by NNPC and funding for the purchases of forex and treasury bills last Thursday, causing rates to spike,” one dealer said.

The state-owned energy firm through waste wood usually sells dollars to banks every month and recalls a portion of the naira proceeds to its accounts with the central bank, leaving lenders short of funds.

Dealers said the cost of borrowing among banks could ease next week, with the expectation of large releases from December budgetary allocations. Nigeria announced last Friday the release of 410.78 billion naira from the federation accounts to the three tiers of government and traders said half of this could hit the system by tomorrow, helping to ease tight liquidity.