Nigeria's overnight interbank lending rate held steady for the second consecutive week at 14 percent on Friday even as the market anticipated the injection of October budgetary allocations to government agencies to boost liquidity in the system.
On Wednesday, Nigeria distributed 420 billion naira ($1.34 billion) between its three tiers of government from crude oil revenues for the month of October.
Traders said half of the amount distributed, which belongs to states and local governments, is expected to pass through the banking system.
Nigeria, an OPEC member that relies on crude sales for two-thirds of national income, distributes the revenue among government tiers each month. The cash provides substantial cash flow for the banking system.
Traders said the central bank, which is closely monitoring the level of liquidity in the banking system to curb pressure on the foreign exchange market, is expected to also issue a series of treasury bills next week.
"We are anticipating that as soon as the budget allocation hits the system, the central bank will issues open market operations (OMO) bills to mop-up part of the cash from the system," one dealer told Reuters.
The interest rate at the interbank market is expect to initially drop below the benchmark interest rate early next week, but should pick up again as the central bank sells treasury bills to reduce liquidity in the system.