Nigeria’s interbank lending rate fell sharply on Friday amid increased liquidity caused by an injection of funds from matured treasury bills and the disbursal of monthly budget allocations to states and local government, traders said.
The secured open buy-back (OBB) – the rate at which lenders can borrow from the interbank market using treasury bills as collateral – crashed to 0.5 percent from 7 percent last week, far below the central bank’s 13 percent benchmark interest rate.
Traders said budget allocations to states and local government worth about 185 billion naira ($930.12 million) had been injected into the banking system, while around 140 billion naira in cash reserves requirements (CRR) were also credited to the accounts of some banks, further boosting liquidity.
Nigeria, Africa’s top crude exporter, usually disburses revenue from oil exports among its three tiers of government – federal, state and local – on a monthly basis, while the portion of the states and municipal governments pass through the banking system.
Banks’ credit balance with the central bank opened at 385 billion naira on Friday, from a surplus of about 256 billion naira last week, but with the additional funds from budget and CRR, market liquidity should exceed 600 billion naira.
Also on Thursday, the central bank repaid about 187 billion naira in matured open market operation (OMO) bills.
“The system is very liquid, with the interbank rate expected to stay low in the near term,” one trader said.
Some banks have resumed overnight lending due to the increased liquidity in the market, traders said.
The overnight placement was at 1 percent on Friday.
($1 = 198.90 naira)