Cash shortage raises inter-bank rates

INter-bank lending rates rose sharply last week to an average of 16.50 per cent from 14.83 per cent in the previous week mainly on the delayed release of some N300bn of Octobers budget allocation.Currency traders said the market was also in deficit because the Central Bank of Nigeria aggressively drained the system of about N106.83bn last week.Traders said the Secured Open Buy Back climbed to 15 per cent from 14 per cent previously, representing 300 basis points above the Central Bank of Nigerias 12 per cent benchmark rate and 700 basis points above the Standing Deposit Facility rate.Overnight placement rose to 17 per cent from 15 per cent, while call money closed at 17.50 per cent against 15.50 per cent it closed the previous week.Reutersquoted a dealer as saying, The market is very short, people were looking for money to cover their position because of the aggressive liquidity mop-up by the CBN which led to high cost of borrowing at the interbank.Dealers said the market opened with a negative cash balance of about N137.09bn on Friday as banks scrambled for available cash to cover their positions.Traders said cost of borrowing should ease next week when a portion of the October budget allocation hit the system.Another dealer said, We are still expecting the inflow from the budget allocation and when it finally hits the market we expect rates to drop to around 14 per cent for call money.Inter-bank lending rates had eased penultimate week to an average of 14.83 per cent from 15.50 per cent recorded the previous week after a portion of public sector wages hit the system and helped boost liquidity.Traders had said about N95bn was released, helping to ease liquidity pressure.Dealers said, The market opened with a cash balance of about N148.10bn on Friday due to the inflow and better than what the market opened with on Monday. We see rates risingnext week because of the aggressive liquidity tightening by the CBN with the conduct of open market operation.
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