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Interbank rate rises as banks pay for dollar purchases – The Nation

HomeNewsInterbank rate rises as banks pay for dollar purchases – The Nation
Interbank rate rises as banks pay for dollar purchases – The Nation
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    Alex Ikechukwu
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Nigeria’s interbank lending rate climbed by around 20 percentage points at the weekend after the Central Bank of Nigeria’s (CBN’s) sale of dollar forwards to offset a backlog of forex obligations drained cash from the money market.

The overnight lending rate stood at 50 per cent against 29.33 per cent the previous day because commercial lenders scrambled for cash on Friday to pay for dollar purchase at a CBN foreign exchange intervention auction targeting certain sectors.

The bank said it would offer dollar forwards to offset foreign exchange obligations for manufacturers, airlines and fuel importers as part of measures to improve dollar liquidity and support the ailing naira.

The CBN has been intervening in the official market to try to narrow the currency’s spread with the black market rate and this has also put pressure on naira liquidity in the money market, causing cost of borrowing among banks to jump.

The lending rate among commercial lenders opened at 70 per cent on Tuesday, but fell to around 29.33 percent on Thursday after the injection of cash from matured treasury bills repayment by the CBN boosted liquidity.

Traders said market liquidity had opened at a N206.96 billion deficit on Friday, compared with a deficit of N239.53 billion the previous week, putting the money market under pressure to seek funds to finance their forex and treasury bill purchases from the CBN.

“The money market is in repo because of the sales of open market operations treasury bills and funding for special foreign exchange auctions by the central bank, putting the market in a tight position,” one senior currency trader said.

The naira closed at 206 to the dollar on the interbank market on Friday, the same level as the previous day, while it traded at 385 to the dollar on the black market.

Traders said the cost of borrowing in the interbank money market was likely to fall next week because of expected cash injections from the next round of monthly budgetary allocations to government agencies and repayment of matured treasury bills.

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