There is hope that Nigeria’s interbank overnight lending rate, which had fell sharply on Friday to an average of 12 per cent from around 60 per cent a week ago will rebound within this week, as the Central Bank of Nigeria (CBN) had displayed its determination in ensuring system stability through aggressive liquidity mop up and injection of dollars into the official foreign exchange market, foreign exchange dealers have disclosed.
The interbank rate dropped drastically on the last trading day of the week, due to the repayment of the matured treasury bills and a refund of excess cash deposited by the commercial banks.
But forex dealers are of high expectations that the interbank rate its likely to gain significantly this week, as apex bank may return to its usual way of selling treasury bills in an efforts to reduce excess liquidity in the banking system, which is therefore believed to capable of helping the rate climbing again this week.
While explaining the factors responsible for the recent drop in the interbank rate, a senior forex professional noted that the sales of $100 million at its special intervention auction in the foreign exchange market last week was less than the amount requested by banks, leading to a refund of the excess deposited by banks on the last trading of the week.
The regulator, also, injected about N168 billion in matured open market operation (OMO) treasury bills into the system a day before the closure of the market on Friday, while raising money market liquidity levels.
It would be recalled that the overnight lending rate jumped last week to as high as 100 percent intraday after the central bank tightened liquidity to support the naira currency.
The regulatory bank has consistently issued OMO treasury bills to reduce excess liquidity in the money market and curb speculation on the local currency.
The central bank sold a total of 68.79 billion naira worth of treasury bills on Friday in its bid to further tighten liquidity in the banking system.
The CBN sold a total of 68.79 billion naira worth of treasury bills on Friday in its bid to further tighten liquidity in the banking system.
The bank’s sales on Friday amounted to 65.5 billion naira of 363-day open OMO treasury bills at 18.55 percent, and 3.29 million naira of the 174-day paper at 17.95 per cent.
Meanwhile, the apex bank in the preceding week sold N167.16 billion of 356-day open market operation Treasury bills at 18.55 per cent, and N439.45million of the 188-day paper at 17.95 per cent.
The total banking credit balance opened at N75billion. But outflows from the system led the market into negative territory, traders said.
“We see the cost of borrowing rising further as the market struggles with tight liquidity and banks seek to cover their positions,” one trader was quoted as saying.
Also, FMDQ OTC Securities Exchange, the Lagos-based platform that oversees interbank trading, during the same period asked lenders to publish quotes reflecting trades in the Investors’ & Exporters’ FX Window, according to Ecobank Transnational Inc. and Access Bank Plc. The window was opened in late April in a bid to attract inflows, so as to boost liquidity in the forex market.
“FMDQ and traders reached agreement to try to move toward a single exchange rate,” a currency analyst at Ecobank had said.
The largest economy in Africa has faced dollar shortages since the price of oil, its main export, crashed in 2014; and the central bank had responded by tightening capital controls.
However, as the squeeze worsened, Nigeria opted for a system of multiple exchange rates rather than floating its currency like other crude producers
Stories by Motolani Oseni