Drop in cash supply cause inter-bank rates to rise

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Inter-bank lending rates in Nigeria rose to an average of 15.25 per cent from last week’s 14.91 per cent as the Nigerian National Petroleum Corporation mopped up available naira in the inter-bank market. NNPC sells dollars to banks regularly and transfers a portion of the naira proceeds to its account with the central bank. The NNPC has sold more than $700 million to some banks in the last few weeks resulting in low naira cash available to banks. Bankers said the cost of borrowing could rise further next week if the NNPC continue its cash withdrawals coupled with expected naira outflows into treasury bills and foreign exchange.
“Hopefully, respite may come to the market next week if government release a portion of budget allocations to its agencies, otherwise the cost of borrowing will definitely jump further,” one banker said. The secured Open Buy Back (OBB) was unchanged at 14.50 per cent, 250 basis points above the central bank’s 12.0 per cent benchmark rate, and 4.50 percentage points above the Standing Deposit Facility (SDF) rate. Overnight placement rose to 15.50 per cent compared with 15 per cent, while call money traded at 15.75 per cent against 15.25 per cent last week.
Bankers also said the market opened with a cash balance of about N65 billion better than last week’s 10 billion naira balance. Inflows from disbursement from excess crude account to the three tiers of government and cash call payments for joint oil production partners by the government had boosted liquidity early in the week, but this was countered by major outflows to NNPC withdrawals and foreign exchange purchase.

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