Nigerian interbank rate rises on NNPC cash withdrawal
Market liquidity closed negative this week after NNPC recalled over 200 billion naira ($1.24 billion) from some lenders to its central bank account, shrinking liquidity to a negative opening balance of about 12 billion naira on Friday, traders said.
NNPC supplies the bulk of dollars traded on the interbank foreign exchange market and usually withdraws a portion of the naira proceeds to its account with the central bank.
Nigeria also sold 75 billion naira worth of bonds ranging from 5-year to 10-year maturities on Wednesday and $500 million at the bi-weekly forex auction, soaking naira liquidity from the system and forcing an increase in the cost of borrowing among banks.
The secured Open Buy Back (OBB) rate rose to 14.75 percent, compared with 13.50 percent last week, 2.75 percentage points above the central bank’s 12 percent benchmark rate, and 475 basis points above the Standing Deposit Facility (SDF) rate.
“We are expecting the release of budget allocations to government agencies by next week, which should raise the liquidity level in the system and help lower cost of borrowing in the Interbank,” one dealer said.
Nigeria central bank’s Monetary Policy Committee (MPC) is scheduled to announce its interest rate decision on Tuesday and analysts expect the committee to hold rates at 12 percent for the fifth time in a row.
Traders also said yields on government debt are expected to edge lower next week as expected budget allocations to state agencies could raise demand for treasury bills.