Interbank Rate Rises on Cash Shortage

Nigeria's overnight interbank lending rate rose week-on-week to an average of 5.5 percent last Friday, up from 3.5 percent last week, as naira cash dries up in the banking system after payment for dollar and treasury bills purchases.

Nigeria issued 160 billion naira ($808.08 million) worth of 213-day treasury bills at an open market operations (OMO) auction on Monday at 7.75 percent returns.

The central bank also directed commercial lenders on Tuesday to pay for their dollar purchases 48 hours in advance of its Thursday intervention in the official interbank forex market, which further drained cash from the system and led to a hike in the cost of borrowing among banks.

The central bank usually intervenes once a week in the official interbank foreign exchange market to provide dollars for eligible importers, while it requires commercial lenders to fund its naira account 48 hours ahead of the intervention.

The total commercial lenders' credit balance with the central bank stood at 242 billion naira by Thursday, down from 439 billion naira last week.

"Interbank lending rate is expected to rise slightly early next week because of treasury bills and bond auctions on Wednesday, which may further drain liqudity from the banking system," one trader said.

Nigeria plans to raise 100 billion naira in local currency denominated bonds with maturities ranging between 5 and 20 years on March 16 and around 166.59 billion naira in treasury bills same day.

myfinancialintelligence.com