The Nigerian interbank overnight lending rate closed at 1 percent on Friday, the same as last week, supported by the injection of cash from retired treasury bills and anticipated refunds of some money deposited by banks for forex purchases.
Traders said the interbank lending rate was however expected to rise next week amid central bank plans to hold treasury bills and bond auctions in its bid to reduce liquidity and raise cash to finance the government budget deficit.
The central bank on Thursday injected about 250 billion naira ($1.26 billion) in matured Open Market Operations (OMO) bills into the banking system, while additional funds from deposits for forex purchases were anticipated on Friday.
Traders said the cost of borrowing rose to around 2.25 percent for overnight placement after the central bank sold 85.32 billion naira worth in 220-day OMO paper at 7.9 percent to commercial lenders to reduce liquidity in the system.
Traders said market liquidity stood at 324 billion naira on Wednesday, the last time the central bank released banking credit balance data, compared with 270.49 billion naira in the same period last week, but traders said it was expected to rise with the matured bills and forex deposit refund.
"Interbank rates should increase next week as the central bank holds treasury bills and a bond auction next week, which will substantially reduce the level of liquidity in the banking system," one dealer said.
Nigeria plans to raise 80 billion naira in bonds maturing in 2020 and 2026, with primary action for 196 billion naira in treasury bills with maturities ranging between 3-month and 1-year set for next Wednesday.
Africa's biggest economy hopes to raise about 900 billion naira from local bonds to finance its more than 6 trillion naira budget this year.