Nigerian interbank lending rates fall on huge cash inflows

Nigerian interbank lending rates eased marginally to around 10.16 percent on Friday from an average 10.3 percent last week, helped by liquidity from matured treasury bills and flows from government agencies.

“The market is seen flat next week until the debiting of the new cash reserves on Aug. 7, which is expected to take out huge liquidity from the system with rates hitting the roof,” one dealer said.

The regulator announced on Tuesday that it will impose a 50 percent cash reserve requirement on banks’ public deposits to curb the practice of taking deposits and lending the money back to the government at a profit. The squeeze on liquidity is also aimed at supporting the naira.

Dealers said the current cost of borrowing among banks has been pushed down by the repayment of about 56 billion naira ($348 million) in matured treasury bills while 80 billion meant for public sector wages also hit the system.

The market opened with a cash balance of about 514 billion naira on Friday, compared with 300 billion naira last week.

The secured Open Buy back (OBB) eased marginally to 10.1 percent from 10.15 percent last week, 1.9 percentage points lower than the central bank’s benchmark interest rate.

Overnight placement dropped to 10.15 percent compared with 10.25 percent, while call money closed at 10.5 percent compared with 12.5 percent last week.

Dealers say the new cash reserve measure, taking out around 900 billion naira of public sector cash deposited with lenders, could push up cost of borrowing in the market.

“We don’t expect the central bank to sell open market operation debt notes next week because of the planned debiting for the new CRR,” another dealer said. ($1 = 161 naira) (REUTERS)