Cash squeeze more than quadruples interbank lending rate

Nigeria’s interbank lending rate jumped to 23 percent on Friday from just five percent a week ago after the Central Bank tightened liquidity.

The more than quadrupling of the rate came after the bank sold a total of N167.60 billion ($459.56 million) in treasury bills on Friday, and withdrew an undisclosed amount from lenders to maintain cash reserve ratio.

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

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

The naira, meanwhile, has weakened from around N200 to the U.S dollar in mid-2016 to nearly N364 on Friday — a 45 percent decline in value.

The Central Bank’s sales on Friday amounted to N167.16 billion of 356-day open market operation treasury bills at 18.55 percent, and N439.45 million of the 188-day paper at 17.95 percent.

The total banking credit balance opened at N75 billion, 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 said.

  • Reuters


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