Interbank Rate Rises on Decline Liquidity

Nigeria's overnight interbank rate rose for the second consecutive week to an average of 6 percent on Friday, from 4.5 percent last week, amid a drop in commercial lenders liquidity level on payment for treasury bills purchases, but rate seen falling next week on budgetary disbursal.

Nigeria sold a total of 167.51 billion naira ($841.76 million) worth of debt with maturities ranging between three months and one year, while payment for the purchase is due on Friday.

Traders said the cost of borrowing among banks has declined progressively this week from last week's close after the central bank asked commercial lenders to make provisions for foreign exchange purchases on Wednesday, and the fact that no cash was flowing into the banking system.

Traders said liquidity level stood around 232.85 billion naira ($1.17 billion) on Thursday, down from 414 billion naira last week.

"We expect that rate will decline to around 2-2.5 percent level next week in anticipation of the disbursal of budget allocations to government agencies," one trader said.

Nigeria, Africa's biggest economy, distributes revenue from its crude exports among its three tiers of government -federal, states and local - portion of states and local governments are expected to hit the banking system on Monday.

Traders said about 199 billion to 200 billion naira is expected to be injected to the banking system next through budget allocation.

Traders said overnight lending was priced lower by fund takers because many of them had expected the injection of the budget cash on Friday, but resistance from major fund placers kept the rate at the prevailing level.

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