The N331 billion inflows from payment of matured treasury bills halted the huge outflows experienced by the interbank money market, which led to scarcity of funds.
Findings revealed that the amount of idle cash in the market dropped from N633 billion on Monday to zero at the end of business on Tuesday as banks diverted the idle cash to participate in foreign exchange sales by the Central bank of Nigeria (CBN).
The ensuing scarcity of funds caused cost of funds to rise sharply from Tuesday to Wednesday. Data from Financial Market Dealers Quote (FMDQ) show that cost of unsecured lending rose from 0.67 percent on Monday to 7.17 percent on Tuesday and further to 8.61 percent on Wednesday. Similarly, cost of Over-night lending rose from 1.08 percent on Monday to 8.08 percent on Tuesday and further to 9.25 percent on Wednesday.
This trend was however reversed on Thursday when the market experienced inflow of N331 billion from payment of matured treasury bills. As a result, amount of idle cash in the market rose and closed the week at N462 billion. Consequently, cost of unsecured lending and Over-night lending fell sharply on Thursday and closed the week at 0.71 percent and 1.08 percent respectively.
Reflecting the improved liquidity (cash) in the market, treasury bills auction held on Friday recorded 400 percent oversubscription. Though the CBN offered N50 billion worth of secondary market bills (OMO), investors however demanded for N233.428 billion at interest rates (bid rates) ranging from 7.5 percent to 10 percent. The CBN accommodated N131.523 billion stopping at 7.6 percent.
