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INTEREST RATES RISE ON NEGATIVE LIQUIDITY

By NBF News
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Interbank lending rates rose to an average of 15 per cent last week compared with 14.33 per cent recorded penultimate week as liquidity closed negative on cash withdrawals by the Nigeria National Petroleum Corporation (NNPC) as well as flow of funds to bonds and foreign exchange purchases

Liquidity closed negative after NNPC recalled over N200 billion from some lenders to its account with the Central Bank of Nigeria, shrinking liquidity to a negative opening balance of about N12 billion naira on Friday, traders said.

NNPC supplies the bulk of dollars traded on the interbank foreign exchange market and usually withdraws a portion of the naira proceeds to its account with the CBN.

The Debt Management Office had during the week sold N75 billion worth of bonds ranging from 5-year to 10-year maturities, while the bi-weekly forex auction of $500 million drained naira liquidity from the system and forcing an increase in the cost of borrowing among banks.

The secured Open Buy Back (OBB) rate rose to 14.75 per cent, compared with 13.50 per cent the week before, which was 2.75 percentage points above the CBN's 12 per cent benchmark rate, and 475 basis points above the Standing Deposit Facility (SDF) rate.

'We are expecting the release of budget allocations to government agencies by next week, which should raise the liquidity level in the system and help lower cost of borrowing in the Interbank,' one dealer said.

The Monetary Policy Committee (MPC) is scheduled to meet tomorrow to announce its interest rate decision as analysts predict that the committee will hold rates at 12 per cent for the fifth time in a row.

Traders also said yields on government debt are expected to edge lower this week as expected budget allocations to state agencies could raise demand for treasury bills.