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Interbank lending rate down as liquidity rises

By on September 15, 2015

The nation’s interbank lending rates fell 75 basis points to an average of 6.50 per cent on Friday from 8.25 per cent the previous week, as cash built up in the banking system, Reuters reported.

Traders said that about N101bn in matured treasury bills had been repaid and N45bn in cash-reserve-requirement refunds also flowed into the banking system. The greater liquidity lowered the cost of borrowing among banks.

Also, the Central Bank of Nigeria declined to sell short-dated Treasury bills to banks in the last two weeks. That left more cash in the banking system.

“The central bank has declined to sell open market operation treasury bills to commercial lenders in the past two weeks due to its unwillingness to raise yields in line with bids by investors,” one dealer said.

The lenders’ balance with the central bank stood at about N300bn on Friday, higher than the N261bn in credit the previous week.

The CBN usually sold treasury bills in the secondary market to mop up perceived excess liquidity from the banking system.

Traders quoted the secured Open Buy Back at six per cent on Friday, lower than eight per cent the previous week, and nine percentage points lower than the CBN’s 13 per cent benchmark interest rate.

Overnight placement was also down to seven per cent against 8.5 per cent the previous week.

Dealers expect rates to inch up next week as the government enforces its policy to consolidate revenue in a single account with the central bank.

“We see rates inching up by next week, to be driven by compliance with government policy on Treasury Single Account which is expected to come to full effect on September 15,” another dealer said.

 

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