Overnight Interbank Lending Rate Hits 16%

Aluminum coins to be minted into 1 Japanese yen coins are held for a photograph at the Akao Aluminum Co. plant in Tokyo. Tomohiro OhsumiAluminum coins to be minted into 1 Japanese yen coins are held for a photograph at the Akao Aluminum Co. plant in Tokyo. Tomohiro Ohsumi
  • Overnight Interbank Lending Rate Hits 16%

The country’s overnight interbank lending rate climbed to 16 per cent on Friday from about 13 per cent at the end of last week, as the Central Bank of Nigeria debited commercial banks’ accounts for dollar purchases and also issued Treasury bills to mop up liquidity.

The apex bank sold dollars twice this week to clear a backlog of demand for companies and private individuals to ease pressure on the naira.

Traders told Reuters that the regular foreign exchange auctions and the Treasury bill sales drained liquidity. The money market opened with a cash deficit of about N2.3bn on Friday, compared with a deficit of N45.64bn last week.

The central bank on Friday offered to sell about N40bn in Treasury bills to further tighten liquidity.

“The tight liquidity is designed to curb demand for dollar,” one dealer was quoted to have said.

Traders said money market rates might continue to rise next week as the central bank increases the frequency of its dollar sale.

Meanwhile, the CBN sold a total of $989.6m to importers and retail customers in January with commercial banks allocating them at rates as low as N466.75, a record low by banks for sale to customers, data showed.

This was prior to the central bank’s decision in February to sell dollars to Nigerians wanting to pay for travels, foreign medical bills or school fees at around 20 per cent above the official rate of N305.

The country has been running short of dollars as a result of lower global prices for oil, its major export. The economy shrank last year for the first time in quarter of a century.

The shortage has weakened the naira on the black market, where it trades far lower than the official interbank rate.

The January figures also showed that Access Bank Plc exchanged $50m with the United States lender, JP Morgan, at N400 per dollar, and another $100m with South Africa’s ABSA at N329.

It showed a range of between N257.50 and N466.75 for dollar allocations in January.

One commercial bank sold the dollar as low as N466.75 for school fees, while another sold at N257.5 for spare parts in January. The central bank settled some futures contract at N274 per dollar at the January sale.

Last week, the bank sold a total of $780m in forward contracts to support the naira after effectively devaluing the currency for individuals, offering to sell them dollars at about half the premium the black market charges.

On Thursday, it said it would sell forward contracts on the dollar via a book-building process to clear dollar demand for importers but not disclose how much was on offer.

Though the central bank has stepped up dollar supply in recent days, the currency still trades at a more-than 30 per cent premium on the black market.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years' experience as a foreign exchange research analyst and trader. A graduate of University of East London, U.K. and a vivid financial markets analyst.

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