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Nigeria interbank rates jump, CBN tightens liquidity
Nigeria’s interbank lending rates jumped this week to an average of 17 percent from 14.08 percent last week after the Central Bank of Nigeria (CBN), introduced further liquidity tightening measures to support the local currency and curb inflation.
The CBN last week raised the cash reserve requirement for lenders in Africa’s second-biggest economy to 12 percent from eight percent and reduced net open foreign exchange positions to one percent from three percent to support the currency.
The bank this week also barred banks that borrow funds from its repo window from participating in foreign exchange auctions and lending to others on the interbank naira market.
Traders said the new rules had spurred an upward movement in debt yields, including the cost of borrowing among banks.
“A new central bank policy on restriction of cash movement between repo window and interbank lending and foreign exchange auction has impacted on liquidity in the market, causing cost of funds to jump,” one dealer said.
The secured open buy back (OBB) rate jumped to 16.50 percent, from 13.50 percent last week, 4.50 percentage points above the central bank’s 12 percent benchmark rate, and 650 basis points above the standing deposit facility (SDF) rate.
The overnight rate closed at 17 percent, up from 14.25 percent last week, while the call money rate rose to 17.50 percent compared with 14.50 percent the previous week.
Traders said the market opened with a cash balance of about 19.60 billion naira ($121.66 million) on Friday, compared with a cash balance of 166 billion naira last Friday, reflecting the dearth of funds in the market.
“We expect rates to remain at this level next week because we don’t anticipate any cash inflow and even if there is, it will have minimal effect in the market,” another trader said.
Traders said cash flow to treasury bills and foreign exchange purchases next week will further drain liquidity in the market and impact on cost of borrowing among banks.
