The inter-bank lending rate in Nigeria rose over night, moving sharply to an average of forty percent (40%) on Friday, September 16 2016, up from 15 percent last week after the central bank debited commercial lenders’ accounts for treasury bills and bonds purchases, according to a Reuters report.
Market dealers attributed the cause to the large cash withdrawal to settle debt purchases which led to some commercial lenders scrambling for naira cash to meet their immediate obligations thereby pushing up the cost of borrowing among banks.
Nigeria raised 121 billion naira in an auction of local-currency bonds and 183 billion naira in short-dated treasury bills on Wednesday, September 14 2016 in a separate auction, while payment for the debt issues were due on Thursday and Friday, draining liquidity in the banking system.
On Friday, market liquidity was 128 billion naira in deficit after the central bank withdrawals, while the money market went into repurchase (Repo) due to the naira cash shortage.
Nigeria’s central bank issue treasury bills and bonds as part of measures to fund government budget deficit, curb speculations against the local currency and help commercial lenders to manage liquidity in the system.
“We see rates trading within the same range in the early part of next week, but they could fall later in the week due to anticipated repayment of matured treasury bills on Thursday,” one dealer said.
