Inter-bank rates drop on budget inflows

Inter-bank lending rate fell on Friday to an average of 14.83 per cent after it initially rose to a multi-year record high of 16 per cent on Thursday due to tight liquidity in the system.Currency traders said a portion of the September budgetary allocations hit the system on Friday, providing liquidity and helping cost of borrowing among banks to recede.Reuters quoted a dealer as saying, "About N337bn ($2.15bn) budget allocation for the month of September hit the system today, helping to provide liquidity in the market.Tight liquidity due to initial delay in the release of the budget funds caused acute cash shortage in the system in the week and forced some lenders to discount their Asset Management Corporation of Nigeria held bonds for cash at the Central Bank of Nigeria to help fund their operations.Traders said the Secured Open Buy Back was unchanged at 14 per cent, from 12 per cent the previous week, representing 200 basis points above the CBNs 12 per cent benchmark rate and 400 basis points above the Standing Deposit Facility rate. But the overnight placement fell to 15 per cent, from 17 per cent on Thursday, while call money dropped to 15.50 per cent, from 17.25 per cent."Though the market opened on Friday with a cash balance of N14bn, the inflows of additional N337bn from budget allocations credited to the system on Friday helped to push down lending rates," a senior treasurer said.The Federal Government distributes oil funds from centrally held accounts every month to its three tiers of government (federal, states and local governments), which provides a much needed cash inflow to the banking system.The funds were released on Wednesday, while actual inflows hit the accounts of some banks on Friday, helping to ease pressure in the inter-bank market for short-term borrowing among lenders.Traders said rates might inch up gradually next week because of the aggressive liquidity mop-up exercise by the CBN in its efforts to curb excess liquidity in the system and rein in demand for the dollar.Traders added that the regulator had already issued treasury bills worth about N200bn in the conduct of open market operation on Friday to preempt the negative impact of the budgetary inflows into the system.
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