The release of N293 billion from matured treasury bills into the banking system by the Central Bank of Nigeria, CBN, led to the crash of overnight naira interbank lending rate to about 15 per cent on Friday, September 9, from a peak of 35 per cent last Wednesday, September 7.
The apex bank repaid the matured bills to some commercial banks on Thursday, increasing liquidity and forcing down borrowing costs among banks, traders said.
The cost of overnight borrowing among banks had reached 35 per cent on Wednesday after cash dried up. Some commercial lenders resorted to borrowing at the CBN discount window to help meet their immediate obligations, Reuters report said.
Nigeria has been selling dollars in the interbank forex market to support the ailing naira, and selling T-Bills to curb speculation against the local currency.
The CBN sold N139.42 billion of T-Bills in open market operations on Thursday at 18.5 per cent, to reduce system liquidity. But the market cash balance remained up at N51.65 billion on Friday against an N87 billion deficit on Wednesday.
A dealer said:“We expect the rate to be trading around the 15 to 18 per cent level next week if the CBN did not sell fresh treasury bills to mop up cash from the system.”
The overnight lending rate had closed last week at 16 percent but gradually climbed to 35 percent on Wednesday, then eased marginally to 20 percent on Thursday after the cash from matured treasury bills reached the system. Nigeria’s financial market will be closed for a public holiday on Monday and Tuesday and will reopen on Wednesday.
The T-bills’ maturities range between three months and a year and would be raised today, according to the CBN. T-bills are marketable short-term money market securities that serve the purpose of raising money for the government and also help in monetary policy management of the CBN.
The main investors in government securities are mainly pension funds and commercial banks which control more than 60 per cent of the market, followed by insurance funds and a few micro-finance institutions.
Yields on fixed income securities have been rising in recent months with the CBN mopping up naira liquidity to try to lure back foreign investors who sold naira assets following the plunge in the price of oil, Nigeria’s economic mainstay.
