Interbank rates mix as CBN mops-up N84b, injects

Activities in the nation’s financial market last week were marked by unsteady movements in the liquidity level at various times due to a mix of expansionary and tightening policy outcomes.

The week, which started with N1 trillion liquidity balance after the refund of unfulfilled foreign exchange provision by the Central Bank of Nigeria (CBN) and treasury bills maturity, impacted the interbank lending rates

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Meanwhile, as oil price volatility persists, reaching a low of $29.47 per barrel at the weekend for Brent, foreign exchange reserves touched new lows of $28.7 billion.

The development has rubbed-off negatively on the pricing of the naira, especially in the parallel market, although the official exchange rate had remained stable at N197/$, together with interbank rates at N199.10/$ throughout last week.

Specifically, the Open Buy Back (OBB) and Overnight rates had at first, closed 0.3 per cent and 0.4 per cent lower to settle at 0.9 per cent and 1.2 per cent respectively.

However, the rates trended higher as CBN embarked on liquidity mop-up through the Open Market Operation (OMO) worth N85.3 billion, closing at 1.8 per cent (OBB) and 2.1 per cent for Overnight lending, while average Nigeria Interbank Offered Rate (NIBOR) settled at eight per cent.

Still, upon the maturity of an OMO instrument worth N250 billion at the weekend, OBB, Overnight and average NIBOR rates flipped lower to 1.6 per cent, 1.2 per cent and 7.3 per cent respectively, and with no significant outflows from the system within the week, OBB fell further to 0.8 per cent while Overnight remained at 1.2 per cent.

Already, there is expectation that notwithstanding the Treasury Bills maturities this week, the credit from the Debt Management Office (DMO) January bond auction would shrink liquidity levels, which might cause increase in rates.

Meanwhile, analysts have said the interbank lending rate is expected to rise this week, amid central bank plans to hold treasury bills and bond auctions in its bid to reduce liquidity and raise cash to finance the government budget deficit.

Traders said market liquidity stood at 324 billion naira on Wednesday, the last time the central bank released banking credit balance data, compared with 270.49 billion naira in the same period last week, but traders said it was expected to rise with the matured bills and forex deposit refund.

“Interbank rates should increase next week as the central bank holds treasury bills and a bond auction next week, which will substantially reduce the level of liquidity in the banking system,” an analyst said.

Source: Guardian Newspaper.