Interbank Rate Eases on Matured T-Bills Repayment

Nigeria's overnight interbank lending rate held steady over the week at an average of 1 percent, traders said on Friday, after an injection of cash from retired matured treasury bills into the banking system by the central bank boosted liquidity.

Traders said about 257 billion naira ($1.29 billion) had been put into the system in matured open market operations bills on Thursday - the usual day for any intervention.

Lending rates at the interbank market had jumped to around 4.71 percent for overnight and 4.08 percent for secured open buy back on Wednesday after commercial lenders moved cash to the central bank to back their planned foreign exchange purchases.

Last Friday, the cost of borrowing among banks had closed at 1 percent overnight and 0.5 percent for OBB. The secured open buy back traded at 0.5 percent this Friday.

The central bank usually intervenes once a week in the official interbank foreign exchange market to provide dollars for eligible importers, while it requires commercial lenders to fund its naira account 48 hours ahead of the intervention.

The cycle usually leads to an increase in the lending rate mid-week, but as the central bank refunds surplus from forex cash deposits back to commercial lenders, rates decline.

The total commercial lenders' credit balance with the central bank stood at 591.76 billion naira on Friday, more than 376 billion naira last week and is expected to rise further at the close of business on Friday when refunds on surplus deposit for forex is reflected in their accounts.

Although the central bank sold 296.7 billion worth of 195-day OMO treasury bills on Friday at 7.75 percent in a bid to mop-up excess liquidity in the banking system, expectations of additional funds from budgetary allocations kept rate low, traders said.

"We see interbank lending rate stable around this present level next week by the time January budgetary allocations to government agencies are disbursed and refunds of cash backing for forex purchases hit the market," one trader said.

The interbank rate reflects the level of naira cash liquidity in the banking system.