In spite deep liquidity, Nigerian interbank rate stays flat

Nigeria's overnight lending rate held steady at 1 percent for the fifth consecutive week on Friday, despite lower money market liquidity as the central bank mopped up excess cash from the banking system, traders said.
One dealer said the central bank had sold about 230 billion naira of Treasury bills in open market operations (OMO) in an apparent move to reduce liquidity in the system. That "prompted initial spike in the (overnight) rate, but it later stabilised at the 1 percent level", he added.
Traders said market liquidity dropped to around 400 billion naira on Friday, from 709 billion naira a week earlier, after the OMO sales and payment for Treasury bills bought at an auction on Wednesday.
Nigeria sold 155 billion naira ($779 million) of bills with maturities from three months to one year, at lower yields compared with the previous auction.
The overnight lending rate jumped to around 1.5 percent in early trade as some commercial lenders scrambled for cash to settle their T-bill purchases, but it fell back to 1 percent as the close of trading neared.
Nigeria's central bank last month slashed its benchmark interest rate to 11 percent from 13 percent to stimulate growth, but many banks are not lending to companies and households due to an increased risk of default by borrowers.
Dealers said the cost of borrowing is expected to stay at the prevailing level for the rest of 2015 unless the central bank increases its intervention in the market and mops-up more excess cash from the banking system to rein in inflation.
The secured open buy-back (OBB) -- the rate at which lenders can borrow from the interbank market using treasury bills as collateral -- remained flat at 0.5 percent, far below the central bank's benchmark rate.
The overnight placement rate also closed flat at 1 percent on Friday.