Interbank rates ease on budget releases

 
An aerial view shows the central business district in Nigeria's commercial capital of Lagos.

Interbank lending rates fell to an average of 5.0 percent this week from 11.33 percent last week following the release of budgetary allocations to government agencies, traders said on Friday.

Traders said rates could edge up gradually from next week as most banks prepare to close their books for the year end and seek funds to cover their positions, although the cost of borrowing was expected to remain in single digits.

The secured Open Buy Back (OBB) fell to 4.50 percent from 8.25 percent, 175 basis points below the central bank's 6.25 percent benchmark rate and 25 percentage points higher than the Standing Deposit Facility (SDF) rate.

Overnight funds eased to 5.0 percent from 12.75 percent, while call money closed at 5.5 percent from 13 last week.

"The injection of over 200 billion naira into the system on Tuesday from November budget allocations buoyed liquidity and eased the cost of borrowing," one dealer said.

Traders said the market opened with liquidity of about 300 billion naira on Thursday, though there were later outflows for forex, bonds and treasury bill purchases.

The banking sector in sub-Saharan Africa's second biggest economy depends largely on the injection of budgetary allocations to the three tiers of government -- federal, state and local -- to fund its operations.

"We expect interbank rates to edge up slowly and remain around the central bank's benchmark rate next week as some banks seek funds to cover their positions for the year end," another trader said.

Dealers said cost of borrowing should however remain below 10 percent for the rest of the year as the system will still have sufficient liquidity to meet all transactions.

Source:234Next