Interbank Lending Rate Grows After CBN Solidifies Liquidity

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Nigeria’s interbank lending rate increased to 23% on Friday from 5% last week after the Central Bank of Nigeria, CBN, thickened liquidity.

The more than quadrupling of the rate came after the bank sold a total of N167.6bn ($459.56m) in Treasury bills on Friday and withdrew an undisclosed amount from lenders to maintain cash reserve ratio, Reuters reported.

It did so to support the currency, making naira scarcer in the market and more attractive to hold; demand also strengthened the currency, helping fight inflation.

Inflation in Nigeria is running at more than 16 per cent annually, while the country’s economy, clobbered by the low oil price, has tumbled into recession over the past year.

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The naira, meanwhile, has weakened from around 200 to the United States dollar in mid-2016 to nearly 364 on Friday, a 45 per cent decline in value.

The CBN’s sales on Friday amounted to N167.16bn of 356-day open market operation Treasury bills at 18.55 per cent, and N439.45m of the 188-day paper at 17.95 per cent.

The total banking credit balance opened at N75bn. 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.

Source: Punch



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