The impact of the tightening policy of the Monetary Policy Committee (MPC) was decisive yesterday with overnight lending rates soaring to a two-year high of 35 per cent.
Overnight lending rate is the interest rate at which a depository institution lends immediately available funds to another depository institution overnight.
Stakeholders expressed fears that, if the rate at which banks lend among themselves could be that high, then, it would killing for individuals who come for loan.
Nigeria’s overnight lending rates soared 10 percentage points to a more than two-year high of 35 percent on Wednesday, dealers said, after the central bank squeezed liquidity to support the naira.
The movement of rates at the Nigerian Inter-Bank Offer Rate (NIBOR) was frightening, with call rate to 90- rising by more than nine per cent in one day.
Call rate rose to 31.933 per cent, 7-day NIBOR rose by 31.9083 percent, 30-day NIBOR rose by 32.4167 per cent, 60-day NIBOR rose by 33.0750 per cent, while 90-NIBOR rose by 33.25 per cent.
In response to these tightening measures, the naira closed at its firmest in two weeks, at N160.10 against the dollar yesterday, from N161.70 the previous day in the inter-bank market. It is still just outside the central bank’s 150-160 naira/dollar preferred trading band.
The Central Bank Governor Lamido Sanusi has shown his determination to support the naira in recent months, despite calls from some in the private sector for him to ease interest rates to aid the growth of Africa’s second-biggest economy.
Sanusi said last month that interest rate cuts weren’t the answer to spurring growth and would risk higher inflation.
He said the country spends too much of its budget on government and should allocate more to development and to a savings buffer against the risks of lower oil output and weaker global demand.
Dealers said the Central Bank yesterday sold N142.1 billion ($879 million) in treasury bills and $318 million at N155.83 to the dollar at its bi-weekly foreign exchange auction to reduce naira liquidity.
The implication is that about N191.52 billion was withdrawn from the system yesterday.
The central bank last week also barred banks that borrow funds from its repo window from participating in foreign exchange auctions and lending to others on the interbank naira market.
“The market was short because many banks could not access the repurchase agreement (repo) window for funds because of the central bank’s new rule restricting banks from trading funds from its repo in the interbank,” one dealer said.
Traders said the market opened with a cash deficit of about N120 billion as banks scrambled for available naira to fund their foreign exchange purchases.
Traders said some banks reduced their dollar positions to get naira to meet their obligations, which further supported the local currency.