Nigeria’s interbank lending rates dropped by 59 basis points to an average of 14.41 per cent this week, compared with 15 per cent week, following the disbursal of budgetary allocations to government agencies, traders said on 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 government federal, states and local-providing liquidity to the banking system and impacting on lending rates.

Traders said the market opened with a cash balance of about 130 naira, compared with a deficit of about 9.50 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 per cent, from 14.5 per cent last week, 200 basis points above the central bank’s 12 per cent benchmark rate and 4 percentage points above the Standing Deposit Facility (SDF) rate Reuters report.

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