Nigerian interbank rates soar after central bank tightens liquidity

Nigeria's interbank lending rates have rocketed this week, ending on Friday at 40 percent compared with 6.75 percent last week, due to an acute cash shortage after the central bank moved to tighten liquidity and support the naira currency.
The central bank on Wednesday told commercial banks to pay for their dollar purchases 48 hours in advance, after banning them from accepting foreign currency cash deposits, to curb dollar demand and stem illicit financial flows.
Traders said the new measure had taken a huge amount of naira liquidity out of the market and put pressure on the cost of funds among banks.
"Some banks have to resort to selling down their fixed assets holdings to cover their position as the cash shortage bites hard," one dealer said.
The cost of borrowing among banks rose as high as 100 percent for overnight money earlier on Friday from about 45 percent at the close on Thursday before the central bank opened the discount window to enable some commercial lenders to cover their positions, another trader said.
Traders said banks' cash balances with the central bank stood at 25 billion naira on Friday, compared with 359 billion naira cash surplus last week.
The shortfall of some banks on their cash reserve requirements (CRR) at the central bank on Thursday compounded the liquidity shortage in the banking system of Africa's largest economy.
Secured Open Buy Back (OBB) and overnight placement closed at 40 percent against 6 percent last week for OBB and 7.5 percent for overnight placement.
Traders said they expect liquidity to remain tight next week because of expected cashflows into treasury bills at an auction on Wednesday.