Nigerian inter-bank rates fall, liquidity tighten

Nigeria’s inter-bank lending rates dropped to an average of 10.75 per cent this week from 11.41 per cent last week.
This has brought about an increase in banks’ use of the Central Bank of Nigeria, CBN, discount window to borrow cheaper funds.

Also, the secured Open Buy Back (OBB) dropped slightly to 10.50 per cent from 10.75 per cent, 175 basis points above the CBN’s benchmark rate and 3.75 percentage points above the Standing Deposit Facility (SDF) rate.
According to a dealer who spoke on the condition of anonymity, the market went into a negative balance of N36.9 billion ($236.1 million) at the opening on Friday while many banks were borrowing funds from the central bank’s discount window and placing them in the market.

Analysts said that huge cash withdrawals by the Nigerian National Petroleum Corporation, NNPC, from its deposits with some lenders drained liquidity from the system.
The analysts further noted that inflows of matured treasury bills of about N51 billion on Thursday helped keep the market in check.

Overnight placement closed lower at 10.75 percent from 11.50 percent, while call money dropped to 11.0 percent from 12.0 percent last week. Dealers anticipate a further tightening of lending rates next week if the central bank hike its benchmark rate after the central bank’s Monetary Policy Committee meets on Tuesday.
“We are expecting the disbursement of budget allocations to government agencies next week, which could help improve liquidity in the system and force down lending rates, but this will depend on the outcome of the MPC meeting on Tuesday,” another dealer said.

The MPC is expected to meet on Monday and Tuesday, with analysts anticipating a hike in benchmark interest rate by 25 basis points to 9.0 per cent.
Indicative rates for the Nigeria inter-bank offered rate (NIBOR), however, climbed, with seven-day funds closing at 11.62 per cent from 11.50 per cent last week, while thirty-day funds were broadly flat at 12.04 percent against 12 per cent, the 60-day closed at 12.62 per cent from 12.45 per cent, while the 90-day fell to 12.90 from 13.0 per cent.