Budgetary Allocation Pushes Interbank Rates Down

The budgetary allocation to the three tiers of government has buoyed liquidity at the interbank market, as the lending rates among banks declined to eight per cent on average last week.

The rate dropped by 2.41 per cent when compared to 10.41 per    cent traded in the preceding week.
Dealers attributed the fall in the interbank lending rates to a large portion of July’s budgetary allocations to government agencies that hit the financial system last week.

Government distributed about N616bn from the Federation Account to the three tiers of government, a portion of which came into the banking system last week, and helped to boost liquidity and pushed down the cost of borrowing among banks.

The secured Open Buy Back (OBB) fell to 7.25 per cent from 10 per cent traded the previous week, 150 basis points below the Central Bank of Nigeria’s benchmark rate and 50 percentage points above the Standing Deposit Facility (SDF) rate.
Overnight placement also fell to 8.0 per cent from 10.50 per cent, while call money decreased to 8.75 per cent against 10.75 per cent traded the previous week.

“The market opened with a cash balance of about N468bn on Friday, higher than about N195.9bn two weeks ago, due to the large budgetary inflows  which help increase liquidity in the system,” a dealer said.

Dealers projected that the cost of borrowing could go up slightly this week, as the apex bank announced plans to conduct Open Market Operations (OMO) and sell treasury bills as part of moves to reduce liquidity.

“We expect rates to inch up slightly or stay flat next week, because of the planned issuance of treasury bills at the secondary market by the CBN on Monday. Expected cash inflows from personnel costs and wages could, however, counter the cash outflow next week and ensure that the cost of borrowing remains stable,” they added.

It would be recalled that the government raised N93bn in three, five and 10-year sovereign bonds last Wednesday and a cumulative $750m at its bi-weekly foreign exchange auction last week.

But the indicative rates for the interbank offered rate (NIBOR) dropped in line with the short-term instruments, with seven-day funds closing at 9.0 per cent, down from 11.29 per cent  traded the previous week.

The 30-day funds fell to 10.08 per cent from 11.95 per cent, the 60-day closed at 10.79 per cent compared to 12.54 per cent, while the 90-day declined to 11.54 per cent from 11.70 per cent.