Interbank Rate Falls After Banks Rediscount Debt Notes | Independent Newspapers Limited
Newsletter subscribe


Interbank Rate Falls After Banks Rediscount Debt Notes

CBN Resists Political Pressure, Retains Rates
Posted: Jun 27, 2016 at 6:05 am   /   by   /   comments (0)


Nigeria’s interbank overnight rate eased 20 percentage points to 15 percent on Friday from Thursday’s close after some banks approached the central bank’s discount window for short-term cash accommodation, traders said, reports Reuters.

The cost of borrowing had peaked at 60 percent for overnight lending on the interbank on Wednesday and eased to 35 percent on Thursday after banks resorted to rediscounting their fixed income instruments to get short-term cash from the central bank.

On Thursday, some banks increased their borrowing from the Standing Lending Facility (SLF) of the central bank to around N420 billion in a bid to ease liquidity pressure, after the central bank debited commercial lenders for forex purchase at the new forex market.

The cost of borrowing at the central bank SLF window was 14 percent, but not all commercial lenders choose to resort to the facility because they are required to pledge their treasury bills or bonds holdings as collateral for borrowing.

The central bank caved in to ditch the peg on the naira to allow the currency to trade freely on the interbank market, abandoning its 16-month-old peg at N197 to the dollar last week.

On Monday, the central bank sold $3.5 billion on the forward market after it auctioned $532 million and intervened on the interbank market to clear a backlog of hard currency orders worth around $4 billion. The bank then debited banks’ accounts for the naira proceeds, leaving the market short of cash.

“Interbank lending rates are seen dropping further this week because of expectations of cash flow from budget disbursement to government agencies,” one dealer said.

The Federal Government distributed N305 billion from oil revenue among the three-tier government on Wednesday, dealers said.

Half of the May budgetary disbursal will pass through the banking system this week.

Meanwhile, naira held steady at the close of trading on Friday as the central bank intervened for a fifth straight day with dollar sales to ease liquidity.

The naira ended at N281 to the dollar, its same level as previous day, after the central bank’s intervention.

A total of $58 million volumes exchanged hands just before market close which traders attributed to central bank’s intervention.

“There’s still a lot of demand with no liquidity,” one trader said, adding that it was not clear for how long the bank would continue to sell dollars on the interbank market.

Deputy governor Sarah Alade told Reuters that the bank expected Britain’s vote to exit the European Union to be good for its forex policy as interest rates are likely to stay low in the U.S., channeling foreign investors to Nigeria.

“We only need to take advantage of this opportunity to grow the economy,” she said.

Britain voted to exit the European Union, spreading jitters across emerging markets including Nigeria.

Quitting the EU could cost Britain access to the EU’s trade barrier-free single market and means it must seek new trade accords with countries around the world.