Nigeria's interbank overnight rate fell to 5 percent on Friday from 15 percent a week ago, as cash from maturing treasury bills and payments by the government to contractors helped boost liquidity.
The increased cash flow left the money market with a 267.10 billion naira surplus balance on Friday, reversing the 300 billion naira shortfall of a week ago and pushing down the cost of borrowing among commercial lenders.
"There was repayment of about 115.03 billion naira in matured treasury bills at the Open Market Operations (OMO) on Thursday, while the release of an unspecified amount of cash payment to government contractors also boosted system liquidity," one dealer told Reuters.
Many banks had approached the central bank's discount window to borrow short-term cash last week to enable them meet obligations and ease liquidity pressures, traders said.
Traders said the expected release of capital spending by the federal government to reinflate the economy should inject more cash into the money market in the coming days, which should impact positively on the interbank rate.