Nigeria's overnight interbank lending rate rose week-on-week to an average of 3.5 percent on Friday, up from 1 percent last week, after central bank sales of treasury bills and deposits for dollar purchases drained liquidity in the banking system.
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| Access Bank ceo |
Nigeria raised 329.93 billion naira ($1.66 billion) worth of three-month to one-year treasury bills at an auction on Wednesday with higher returns than in its previous auction. [nL8N16B3KO]
The central bank also directed commercial lenders on Tuesday to pay for their dollar purchases 48 hours in advance of its Thursday intervention in the official interbank forex market. This step also drained cash from the system and led to a hike in the cost of borrowing among banks.
The central bank usually intervenes once a week in the official interbank foreign exchange market to provide dollars for eligible importers, while it requires commercial lenders to fund its naira account 48 hours ahead of the intervention.
Traders said the central bank offered 50 billion naira in open market operation (OMO) treasury bills on Friday, but the result of the auction was yet to be released.
The total commercial lenders' credit balance with the central bank stood at 439 billion naira on Thursday compared with 591.76 billion naira last Friday.
Traders said banking system liquidity was expected to decrease further after additional cash outflows to OMO bill purchases and cash reserves requirements are debited from commercial lenders' accounts.
"The cost of borrowing is expected to spike further on Monday if the central bank sells more treasury bills than it offered at the OMO auction today (Friday) and the CRR debit is reflected in the banking system credit balance," one trader said.
The interbank rate reflects the level of naira cash liquidity in the banking system.
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