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Interbank rate falls on budget, treasury bill funds

By on May 3, 2016

The nation’s overnight interbank rate has fallen to an average of three per cent from five per cent a week earlier, data from the FMDQ OTC website have shown.

This came after banking system liquidity rose following March’s distribution of oil revenues to Federal Government agencies and the maturation of treasury bills.

The Federal Government distributes revenue from crude exports among the three tiers of government – federal, states and local.

A portion of state and local government revenues pass through the banking system.

Traders said that about N200bn ($1.01bn) in budget allocations were injected into the banking system on Monday, while N96.36bn in matured treasury bills reached the system on Thursday, increasing liquidity and forcing down the cost of borrowing among commercial lenders, Reuters reported.

The level of liquidity in the banking system was raised as well by additional cash inflow from a cash call payment to joint crude oil production partners by the government during the week.

Traders, however, said the Central Bank of Nigeria issued a series of treasury bills to mop up excess liquidity in the system, curbing inflation and reducing the negative impact on forex demand.

The CBN floated open market operations treasury bills worth N105.27bn from the banking system twice in the week to get rid of excess liquidity. It also debited banks for cash reserves ratio of about N16.2bn.

“Even with the cash withdrawals by the central bank through OMO auction and the CRR debit, the market remains liquid and able to support lending activities at the 3 percent level next week,” one dealer said.

Traders said the liquidity level stood at around N454bn on Friday, compared with N232.85bn last week.

The interbank rate, which reflects the level of naira cash liquidity in the banking system, is expected to remain broadly stable next week because of expected lower cash outflow from the system, traders said.

 

[Punch]