Nigeria's interbank lending rate fell sharply to five percent on Friday from 15 percent last week following the distribution of budget allocations to government agencies, Reuters reports.
Overnight placement had closed around 11.6 percent at the interbank on Thursday.
A total of 652.2 billion naira ($2.14 billion) in budget allocations was handed out by the state to its three tiers of government -- federal, states and local -- late on Tuesday while a portion of states and local government money hit the banking system on Friday.
Nigeria, Africa's biggest economy, distributes revenue from its crude oil exports among its three tiers of government - federal, state and local.
Traders said the central bank sold 72.4 billion naira worth in open market operations (OMO) treasury bill with tenor range of 188 and 314-day in a bid to reduce the impact of the budget disbursal on the money market.
Traders said cost of borrowing among commercial lenders is expected to rise next week as the central bank sells more treasury bills to mop-up excess liquidity and intervene in the foreign exchange market.