Interbank rate closes at 11.5%, as securities payment drain liquidity

Interbank lending rate at the end of market operations last week closed at 11.5 percent from 7 percent the previous week. The rate spike was due to payments for bond and treasury bills purchases which drained liquidity from the money market.

The federal government during the week raised N214.95 billion from local currency bonds at its first auction this year, with payment of the bonds due on Friday.

This development was responsible for the hike in the interbank lending rate recorded on Friday, as some lenders scrambled for cash to pay for bonds and treasury bills.

The Debt Management Office (DMO) last Wednesday raised the aforementioned amount in local currency bonds, with the debts sold at yields below the annual inflation in the country which has climbed to more than an 11-year high of 18.55 percent in December.

The debt office said it raised an N105.10 billion bond maturing in 2036 at 16.99 percent compared with 16.43 percent at its last sale.

It issued a 2026 bond to fetch N74.90 billion at 16.99 percent as against 16.24 percent last month and sold the 2021 note for N34.95 billion at 16.89 percent compared with 15.99 percent in December.

The government issues local currency bonds every month to raise funds to support its spending plan, which also goes to help the banking system manage liquidity.

Consequently, the naira weakened slightly at the unofficial market to N498 to the dollar against 497 previously as inadequate greenback supply pressured the local currency.

The local currency, however, closed flat at the official interbank window at 305.50 to the dollar, its level since August.

Travelex, an international money transfer firm, sold around $20 million to 2,500 bureaux de change (BDC) operators on Thursday at $8,000 each, but the supply was not enough to calm the market, traders said.

BDC operators quoted their official selling rate at 399 to the dollar on Friday.

The government has been pressing retail operators to narrow what it says is a damaging gulf between the naira’s official rate and the unapproved open retail market.

“We see the interbank rate drop below the double-digit next week on anticipation of budgetary disbursal to government agencies,” one trader said.

Traders said the local currency might firm a bit as international money transfer agents plan to sell another round of dollars to the bureau de change operators next Thursday.