Nigerian Overnight Rate Rises as Central Bank Mops up Liquidity

Nigerian interbank lending rates climbed two percentage points to an average of 10.75 per cent this week from 8.75 per cent last week, after the central bank moved to support the ailing local currency by draining excess cash from the market.
Traders said the cost of funds has steadily risen as the central bank sold Open Market Operation (OMO) bills this week. That reduced liquidity and helped to shore up the naira, which closed at a record low of N190.60 to the dollar on Friday.
Maturing treasury bills repaid about N144 billion on Thursday last week,  but the OMO sales offset that, one dealer said.
Traders said the central bank sold N260 billion and N120 billion worth of OMO bills on Thursday and Friday, pushing interbank lending rates higher.
Cash balances in lender accounts with the central bank stood at N344 billion on Friday, compared with N377 billion last week.
The secured Open Buy Back traded at 10.5 per cent on Friday. That was up from 8.5 per cent last week but 2.5 percentage points below the central bank’s benchmark rate of 13 per cent.
Overnight placement rose to 11 per cent from nine per cent last week, traders said.
Traders said the cost of borrowing should be stable next week if the central bank drains less cash, allowing the cash flow from matured bills to reach the market.
Nigeria kept its benchmark interest rate at 13 per cent for the second consecutive time at a Monetary Policy Committee meeting this week. 

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