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Interbank rates ease on cash inflows

By on August 30, 2015

The nation’s interbank lending rates fell sharply to 8.25 per cent on average this week from 40 per cent last week after budgetary allocations to government agencies on Thursday raised liquidity levels in the money market.

The cost of funds among commercial lenders rose sharply in the week to over 100 per cent as the Nigerian National Petroleum Corporation recalled cash and commercial lenders scrambled to cover about N136bn short in positions when the Central Bank of Nigeria sought to support the local currency.

The CBN had last month directed banks to pay for dollar purchases 48 hours in advance, seeking to curb foreign exchange demand and tighten liquidity in the banking system.

“The lending rate eased by Thursday when a portion of budget allocations to states and local governments hit the market … (along) with additional funds from matured treasury bills repayment, providing liquidity relief for many banks,” one dealer said.

The NNPC, which sells dollars to commercial lenders monthly, started the usual withdrawal of a portion of the naira proceeds to deposit in its account with the central bank last week and continued earlier in the week, causing initial tight liquidity.

Dealers said the market is currently liquid enough, and expect it to remain so until next week, when banks must start putting all revenues from government agencies into one account at the central bank within 24 hours of receiving them.

The Treasury Single Account is part of efforts by President MuhammaduBuhari to crack down on mismanagement of government funds.

The secured open buy back closed at eight per cent against 40 per cent last week, while overnight placement was traded at 8.5 per cent, compared with 40 per cent last week.

“We expect rates to open around 10 per cent early next week until the movement of the budget allocation to the single account,” another dealer said.

The Head, Research and Investment, Afrinvest West Africa, a research and investment advisory firm, Mr. AyodejiEbo, said the movement the TSA policy and activities in the markets would determine the interbank rate over the coming weeks.

[Punch]