Budget cash inflow pulls down inter-bank rates

Inter-bank lending rates fell by 59 basis points to an average of 14.41 per cent in the week ending 2nd March 2012, compared with 15 per cent the week before, following the release of budgetary allocations to government agencies in the country.
Banker treasurers who keep government agencies account said the release of over N300 billion in January budgetary allocations to government agencies swelled cash liquidity in the system and forced down the cost of borrowing among banks.
“The budget money was credited last Friday and its effect on inter-bank rates became apparent early in the week,” a bank treasurer said. Federal Government shares proceeds from oil sales from a centrally held account every month to its three tiers of government – federal, states and local – providing liquidity to the banking system and impacting on lending rates.
Bank treasurers said the market opened with a cash balance of about N130 billion, compared with a deficit of about N9.50 billion last week. They said rates would have been lower but for the aggressive liquidity mop up by the central bank through the sales of treasury bills at open market operations. Nigeria also sold N111 billion worth of 2019 and 2022 bonds this week, which further restricted liquidity in the system.
The secured Open Buy Back (OBB) eased to 14 per cent, from 14.5 per cent last week, 200 basis points above the central bank’s 12 per cent benchmark rate, and 4 percentage points above the Standing Deposit Facility (SDF) rate. Overnight placement dropped to 14.5 per cent from 15 per cent, while call money traded at 14.75 per cent compared with 15.5 percent last week. “We expect rates to gradually inch up next week after major cash inflows into foreign exchange purchases and other transactions,” another treasurer said.