21 May 2012

Nigeria: Interbank Rates Up As Liquidity Dips Further

Nigeria's interbank lending rates rose last week to an average of 14.66 percent, from 14.16 the previous week, as cash outflows to bonds and dollar purchases drained liquidity in the market further, traders said on Friday.

Nigeria sold N70 billion worth of 5-year and 10-year bonds maturing in 2017 and 2022 at its regular auction on Wednesday, while a total of $350 million was sold at the bi-weekly foreign exchange auction this week.

Traders said the market opened with a cash balance of about N32 billion on Friday, compared with an N87 billion balance last Friday.

"The market is short. That was the reason rates went up slightly higher ... but the inflow of about N71 billion on Friday in cash call to joint venture oil producing partners helped calm the market a little today (Friday)," one dealer said.

The secured Open Buy Back (OBB) was unchanged at 14 percent, 200 basis points above the central bank's 12 percent benchmark rate, and 4 percentage points above the Standing Deposit Facility (SDF) rate.

But overnight placement and call money traded at 15 percent each, compared with 14.25 percent each a week earlier.

"We see rates initially trending downward early in the week because of the anticipated flow of about N200 billion in matured treasury bills and bonds, but it could be back up with selling of treasury bills at the primary auction and open market operations later in the week," another dealer said.

The central bank plans to raise about N126 billion in primary market treasury bills Wednesday, while cash flow to foreign exchange purchases could further soak up cash from the system.

Nigeria's central bank will hold its rate setting meetings Tuesday and analysts expect the bank to keep interest rates on hold at 12 percent, despite an uptick in inflation.

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