Interbank rate rises on cash scarcity


Overnight interbank lending rate rose week-on-week to an average of 5.5 per cent on last  Friday, up from 3.5 per cent prior week, as naira cash dries up in the banking system after payment for dollar and treasury bills purchases.

CBN Governor, Godwin Emefiele
CBN Governor, Godwin Emefiele

The Federal Government issued N160 billion worth of 213-day treasury bills at an open market operations (OMO) auction early week at 7.75 per cent returns.

The Central Bank of Nigeria (CBN) had directed commercial lenders  to pay for their dollar purchases 48 hours in advance of its Thursday intervention in the official interbank forex market, which further drained cash from the system and led to a hike in the cost of borrowing among banks.

CBN usually intervenes once a week in the official interbank foreign exchange market to provide dollars for eligible importers, while it requires commercial lenders to fund its naira account 48 hours ahead of the intervention.

The total commercial lenders’ credit balance with the CBN stood at N242 billion by last Thursday, down from N439 billion last week.

FG plans to raise N100 billion in local currency denominated bonds with maturities ranging between five and 20 years on March 16 and around N166.59 billion in treasury bills same day.

The interbank rate reflects the level of naira cash liquidity in the banking system.

However, the nation’s foreign reserves are on the rise again, as the CBN confirmed on last week that the Bonny Light, is trading at $39.07 per barrel.

The current selling price, which is above the 2016 budget benchmark of $38 per barrel of crude by $1, is also the highest point for Bonny Light in 2016.

According to the latest figures from the CBN website, the reserves rose to $27.88 billion following a nine-day rising streak from $27.82 billion at the beginning of the month.

CBN Governor, Godwin Emefiele
CBN Governor, Godwin Emefiele

The reserves had a four-day rise in February, the very first of such, since President Muhammadu Buhari took office in May 2015.

On the other hand, Brent crude – the global benchmark for crude oil prices – is trading at $40.07 per barrel on the international market.

President Buhari and Udo Udoma, minister for budget and national planning, have come under fierce criticism for pegging the national budget for 2016 at an oil benchmark of $38 in December, when oil sold less than $35.

The crude oil prices were said to be rallying, following plans by the Organisation of Petroleum Exporting Countries (OPEC) and some Latin America oil producers to stabilise prices.

The new turn of events, regarding increase in crude oil prices would mean some sort of surpluses for the 2016 budget.