The interbank lending rates rose to 42.5 percent on Friday, from 30 percent last week, following a large Central Bank of Nigeria (CBN) withdrawal to meet banks’ cash reserves requirement (CRR).
The central bank last month hiked the CRR on private sector deposits with commercial lenders to 20 percent, from 15 percent, to support the local currency. It also raised interest rates by 100 basis points to 13 percent.
The bank has mopped up 868 billion naira from the banking system over the last two weeks to meet the CRR.
Overnight rates spiked to 70 percent on Tuesday as banks scrambled for cash to cover their positions but eased by Thursday after 150 billion naira of treasury bills matured.
As the bank has been forced to tighten monetary policy to defend the currency, it also risks hurting Africa’s biggest economy, as high interbank rates will constrain credit growth and could create bad loan problems for lenders.
The balance that lenders hold with the central bank closed at a debit of over 100 billion naira, compared with 45 billion naira last week.
The secured Open Buy back (OBB) traded at 40 percent on Friday, compared with 30 percent last week, while overnight lending closed at 45 percent, against 30 percent last week.
The OBB was cent is 27 percentage points higher than the central bank’s benchmark rate of 13 percent.
“Lending rates should ease next week to below 20 percent on average because there will be treasury bill maturities and possible cash flows from budget allocations to government agencies for November,” one dealer said.
Reuters
