- Dollar Purchases Raise Interbank Rate to 14.5%
The nation’s overnight lending rate has risen by 2.5 percentage points after the Central Bank of Nigeria debited bank accounts for debt purchases, draining liquidity in the money market.
The overnight lending rate increased to 14.5 per cent on Friday, up from 12 per cent at the start of the week, after CBN debited bank accounts for cash payments for dollar and Treasury bill purchases, Reuters reported.
The CBN sold around $250m forwards at a special auction and an undisclosed amount at the spot market in its bid to improve dollar liquidity and support the naira.
The sales drew liquidity out in the money market and pushed up the interest rate.
Although the central bank repaid around N234bn in matured Treasury bill on Thursday, the same amount was rolled over into another set of Treasury bills sold at an auction on the same day.
Market liquidity stood at around N35.06bn surplus on Thursday, compared with N40bn in surplus the previous week, Reuters reported.
Traders said the cost of borrowing among commercial banks might further increase this week as the central bank continues to inject more dollars into the forex market to defend the local currency.
The naira has recorded gains in the recent weeks. The local unit has, however, plummeted in the last few days due to a relative scarcity of dollars.
The naira closed at 306.15 to the dollar on the official interbank market on Friday, slightly firmer than 306.20 per dollar the previous day.
But the local currency weakened on the black market to 405 to the dollar compared with 395 per dollar the previous day.
The International Monetary Fund had on Wednesday said the naira was overvalued by around 10 to 20 per cent and called for changes to Nigeria’s exchange rate policy, increasing pressure on the local currency despite the improved supply of dollars.