Nigeria interbank rates spike 238.5% w-o-w as naira liquidity concerns weigh on banks

Nigerian interbank rates including overnight, open buy back and repos have risen on average 238.5 percent from last week fuelling concerns over naira liquidity in the banking system.

The interbank rate reflects the level of naira cash liquidity in the banking system.

At the opening of business Monday last week overnight rates hover at 14.25 percent while OBB was at 13.67 percent. However, as at the close of trade Tuesday, a week after, the rates have gone to 48.25 and 45.50 percent respectively for overnight and OBB.

The rates monitored on the FMDQ platform also indicate overnight rising 16.17 percent from 32.08 percent Monday this week to 48.25 percent Tuesday, just as it had risen 6.08 percent from Friday to 32.08 Monday.

Open buy back (OBB) rates also rose in tandem from 29.17 percent on Monday to 45.50 percent Tuesday, indicating a 16.33 percentage change, which is a further rise to the 3.33 percentage change from the rates on Friday last week.

Analysts say the Central Bank of Nigeria (CBN) tightening stance with continued issuance of OMO Securities and a focus on curbing naira liquidity to reduce speculative dollar demand may have been responsible for rising rates, that the recent rise may not be unconnected with N93 billion OMO bills sold last week.

Specifically, the CBN conducted OMO auctions worth N93.2 billion (vs. N180.0bn offered) on three out of three trading days to mop-up system liquidity.

It also sold N28.7 billion, N33.5 billion and 68.1 billion of the 91-day, 182-day and 364-day bills respectively at the treasury bills market auction last week

Traders said the auction and sales of treasury bills left some banks short of liquidity, forcing them to scramble for cash to pay for their purchases on the interbank market.

The current market development indicates that there is serious pressure on naira liquidity in the system, making banks desperate to cover their positions and consequently driving up the overnight rates, according to a treasurer who spoke to businessamlive.