Interbank Rate Rises on Bonds Settlement

Nigeria's overnight interbank lending rate inched up marginally week-on-week to an average 6 percent on Friday, up from 5.5 percent last week, as the naira cash level dropped after payment for bonds and treasury bills purchases.

Nigeria raised 125 billion naira worth of bonds with maturities ranging between 5 and 20 years this week, with settlement due on Friday, while 166.58 billion of treasury bills were issued at the primary market on Wednesday.

Traders said the central bank offered 50 billion naira in the open market operations (OMO) bills on Friday, but had yet to release results.

Liquidity levels dropped further on Friday as commercial lenders scrambled for funds to settle bond purchases and bids for short-dated treasury bills on offer at the open market operations (OMO) window.

Traders said although about 172 billion naira in retired matured treasury bills was repaid on Thursday, cash outflows to settle bonds on will Friday further drain liquidity.

Cost of funds among commercial lenders rose to around 7 percent on overnight placement on Wednesday, but eased to around 5.7 percent on Thursday after the matured treasury bills were repaid.

The total commercial lenders' credit balance with the central bank stood at 217 billion naira by Wednesday from 242 billion naira last Thursday.

"We expect the interbank rate to rise slightly by the middle of next week when banks are expected to make provision for foreign exchange purchase at the central bank intervention by Tuesday, but could ease toward the weekend after budgetary allocation disbursal," one dealer said.

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