Interbank rate climbs marginally on CBN debits

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Mohammed Usman with agency report

Overnight interbank rate rose marginally to an average of 3.5 percent on Friday from 3 percent last week after banking system liquidity declined because the Central Bank of Nigeria (CBN) debited banks in line with the cash reserves ratio (CRR), traders said.

Traders said about 21.6 billion naira ($108.54 million) in CRR was withdrawn by the CBN from the banking system on Thursday, sinking system liquidity and pushing up the cost of borrowing among commercial lenders.

Even though the CBN sold 150.6 billion naira in short-dated treasury bills at an auction on Wednesday, no cash left the system because the same amount of treasury bills also matured, resulting in roll over.

“The cost of funds among banks remained fairly stable this week because of the fact that the level of liquidity in the system was considered sufficient to support transactions,” one dealer said.

Traders said the liquidity level stood at around 380.53 billion naira on Friday, down from 454 billion naira last week.

Traders expect interbank rate to decline sharply in the coming weeks after President Muhammadu Buhari signed the delayed 2016 budget into law on Friday.

“We are expecting increase liquidity in the banking system going forward as a result of the signing of this year’s budget into law by the President and rate seen declining to around 2.5 percent,” another dealer said.

The interbank rate reflects the level of naira cash liquidity in the banking system.

Meanwhile, News Agency of Nigeria (NAN) reported that the Naira on Friday traded at N321 to the dollar at the parallel market.

The NAN added that the Naira remained stable at N321 for almost a week.

However, the Pound Sterling and the Euro exchanged at N467 and N365 respectively.

Also, the Naira remained at N197 to the dollar at the official Central Bank of Nigeria (CBN) rate.

Traders attributed the stability in the price of the Naira to activities of currency hoarders who anticipated a new policy direction with the passage of the budget.

 

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