Nigerian overnight interbank lending rates fell more than half on Friday to around 5 percent from last week's 13 percent after the central bank injected fresh liquidity into the system, traders said. The central bank retired about 179 billion naira ($900.40 million) in matured treasury bills through open market operations (OMO) on Thursday.
On Wednesday the bank refunded about 500 billion naira in unused balance of cash deposited by commercial lenders for forex purchases, swelling liquidity in the market and forcing down cost of borrowing among banks. Overnight placement rose sharply last week to around 20 percent after the central bank recalled some 400 billion naira from the banking system to meet a new cash reserves ratio (CRR) on deposits.
The market closed at 13 percent last week after cash payments from international oil companies operating in Africa's largest crude producer under a joint venture agreement hit the system. Nigeria's central bank raised its benchmark interest rate from 11 to 12 percent last week, and the cash reserve ratio for commercial banks to 22.5 percent from 20 percent, to try to curb an increase in inflation, leading to fears of higher interest rates.
The total commercial lenders' credit balance with the central bank rose to 564.35 billion naira, up from 320.9 billion naira last week Thursday, traders said. Traders said the central bank floated 50 billion naira in 209-day OMO bills on Friday, but was yet to release the auction results. "We expect to see interbank rate inching up slightly next week as banks make provisions for foreign exchange purchases and possible sales of more OMO bills by the central bank," one dealer said.The interbank rate reflects the level of naira cash liquidity in the banking system.
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