Nigeria’s interbank overnight lending rate rose for the second consecutive week on Friday to an average of 15 percent from 10 percent a week ago, as banks scrambled for liquidity to settle bond purchases.
Nigeria sold 120 billion naira worth of local currency-denominated bonds with mixed yields compared with the returns from previous issues last month while payment for the debt sale was due on Friday.
Total banking system liquidity opened at 137.30 billion naira on Friday, but payment for bonds significantly reduced the level of cash in the market, leading to a sharp rise in the cost of borrowing among commercial lenders.
Traders said some banks actually quoted as high as 50 percent for overnight placement in early trade in their quest to get cash to pay for their bond purchases. But demand for cash dropped after the central bank refunded about 40 billion naira in cash reserve ratio to some banks.
“We see the market trading around this level next week because of anticipation that some banks would prefer to go to the discount window to borrow at a cheaper rate of 14 percent,” one dealer said.