Lending rates to remain high as moves to lure foreign flows intensify

Nigeria’s interbank overnight lending rate which jumped to 23 per cent on Friday from its 10 per cent  previous close, is expected to remain high as the Central Bank continues sale of treasury bills at higher yields to lure foreign investors.

Traders said that Commercial banks on Friday were paying for treasury bill purchases and a foreign currency intervention, thereby reducing the amount of naira in the banking system.

This week, Central Bank of Nigeria (CBN) will auction treasury bills worth N62.44 billion at the primary market,  viz:  91-day  bills worth N32.44  billion  and  182-day  bills worth N30  billion.

The outflows will be more than offset by inflows worth N133.50 billion in matured bills, viz: 220-day bills worth N100.42 billion and 224-day bills worth N33.08 billion.

“However, we expect pressure on financial system liquidity due to anticipated bond auction. Hence, we anticipate rise in interbank lending rates,” dealers at Cowry Assets Management Limited told Nigerian Tribune.

The Central Bank has been offering treasury bills at high rates to attract offshore flows into Nigeria, which has been hit by the fall in oil prices, prompting foreign players to flee bond and equities markets.

“The Central Bank is trying to drive the economy with bills and bonds that is why they are offering securities at such high yields,” one trader said.

The regulator raised N256 billion  in six-month bill on Friday, N206 billion naira more than it had planned to issue, and at a higher yield of 18 per cent to soak up naira liquidity and attract foreign investors back to the country.

It also intervened on the currency markets after the naira hit an all-time low of N353.75 on the interbank market on Friday. By close, the naira was trading back at N310.

Traders say banking system liquidity has been in debit for more than a week as the Central Bank continues to drain cash to support the currency. But it opened with a credit of N84 billion on Friday due to Treasury Bill maturities, they said.

Nigeria plans to raise 110 billion naira in local currency denominated bonds on August 17.  The latest bond issue would be coming as the government steps up measures to raise $1 billion, about N315 billion, from the international market to also support its borrowings for 2016 budget funding plan.

Cumulatively, the government plans to raise over N900 billion from the local bonds market this year to bridge the revenue gap and the deficit of N2.2 trillion in the 2016 budget.

The bonds are also coming at a time activities in the local bonds market have been subdued, following a crowding out effect of the recent increases in yields in fixed income securities.