CBN’s $200m FX auction raises interbank lending rate

….As yields on short to midterm bonds advance

As the Central Bank of Nigeria (CBN) advances towards implementing its new forex policy to ease volatility in forex market, auction of $200 million by the apex bank regulator Thursday triggered remarkable rise on the interbank lending rate.

The auction by the CBN which further reduced system liquidity due to FX forward auction, led to interbank lending rates rising across all tenors while rates on governments OBB, OVN and yields in short to medium term bonds also advanced. For instance, Thursday, the Open Buy Back (OBB) and Overnight (OVN) rates rose to 133 per cent and 111 per cent levels respectively. Furthermore, the 1month, and 3month NIBOR rates grew by 15bps, 18 bps to settle at 17.72 per cent and 20 .64 per cent respectively.
An Open Buy Back Daily Times recalls, is a money market instrument used to raise short term capital. It is a form of borrowing using Nigerian Government Securities as collateral. It is an open ended transaction with both parties maintaining the right of liquidation or a roll-over without prior notice within trading hours of the day.

However, the 6 month NIBOR rate however declined by 32bps to berth at 23.04 per cent. In response to decline in system liquidity, the bond market was largely bearish today, as limited demand drove yields up. Yields on the 5yr, 7yr and 10 yr benchmark bonds inched up by 5bps, 8bps and 8bps to berth at 16.29 per cent, 16.00 % and 16.35 per cent respectively. Meanwhile, the auction by CBN further impacted the local currency against the naira in the interbank and parallel markets. The Naira shed -0.08 per cent against the USD at the interbank market to settle at N305 level .It equally declined by – 0.14 per cent and -0.43 per cent against the Great Britain Pounds (GBP) and EUR to berth at N393.37 and N332 .73 respectively .

At the parallel market, the NGN appreciated by 1 Per cent, 3.33 per cent and 1.96 per cent against the USD, GBP and EUR to end the day at N500, N600 and N510levels respectively .Analysts expressed that the current price attained by the Naira at the parallel market to hinge on ability of the CBN to sustain supply of foreign exchange (FX) to the market.