Interest rates rise as banks, naira dealers scramble for funds

INTEREST rates increased by about 50 basis points (bps) on Wednesday as banks and naira dealers scrambled for funds to cover their positions amidst tight system liquidity. Specifically, local banks borrowed from the Central Bank of Nigeria (CBN), thereby increasing their Standing Lending Facility (SLF) positions and causing system liquidity to roll back into a deficit of -N75.35 billion. 

The SLF window of the CBN was therefore full of activity as lenders borrowed from the overnight CBN credit which is usually available on banking days between 2pm and 3.30pm, with settlement done on same day value. 

Bankers said funds were sourced mainly from time, savings and foreign currency deposits, as well as accretion to unclassified assets. 

The funds were used, largely, to extend credit to the private sector and payment of claims on demand deposit. Consequently, dealers from Zedcrest Capital Limited observed that Open Buy Back (OBB) and Overnight (O/N) rates closed at 18.75 per cent and 19.25 per cent, respectively. 

For tomorrow (today), “we anticipate funding rates to remain steady at these levels, as no positive liquidity respite is expected to improve system in the interim. “We expect the market to remain sparsely traded as participants await the outcome of the FGN bond auction scheduled for tomorrow (today)” the dealers stated in a market review on Wednesday. 

Meanwhile, the current tight system liquidity continued to dictate the tune of the Treasury-bills market as trading activity remained low due to the one-sided nature of almost all interests (SELL side). 

Dealers saw some firm buying mandates on the CBN Special Bills albeit most bids stayed steady above 9.30 per cent levels while offers remained sub 9.00 per cent, making it difficult to execute trades. On the NTB side, the buying interest lingered, with two-way quotes staying steady around 9.05/8.75 all day.

 

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