Interbank Rate Climbs Marginally on Central Bank Debits

Nigeria's overnight interbank rate rose marginally to an average of 3.5 percent on Friday from 3 percent last week after banking system liquidity declined because the central bank debited banks in line with the cash reserves ratio (CRR), traders said.

Traders said about 21.6 billion naira ($108.54 million) in CRR was withdrawn by the central bank from the banking system on Thursday, sinking system liquidity and pushing up the cost of borrowing among commercial lenders.

Even though the central bank sold 150.6 billion naira in short-dated treasury bills at an auction on Wednesday, no cash left the system because the same amount of treasury bills also matured, resulting in roll over.

"The cost of funds among banks remained fairly stable this week because of the fact that the level of liquidity in the system was considered sufficient to support transactions," one dealer said.

Traders said the liquidity level stood at around 380.53 billion naira on Friday, down from 454 billion naira last week.

Traders expect interbank rate to decline sharply in the coming weeks after President Muhammadu Buhari signed the delayed 2016 budget into law on Friday.

"We are expecting increase liquidity in the banking system going forward as a result of the signing of this year's budget into law by the President and rate seen declining to around 2.5 percent," another dealer said.

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