Nige­ria in­ter­bank lend­ing rate soars on cash squeeze

Kuwait Times - - BUSINESS -

LA­GOS: Nige­ria’s in­ter­bank lend­ing rate jumped to 23 per­cent on Fri­day from just five per­cent a week ago af­ter the cen­tral bank tight­ened liq­uid­ity. The more than qua­dru­pling of the rate came af­ter the bank sold a to­tal of 167.60 bil­lion naira ($459.56 mil­lion) in trea­sury bills on Fri­day and with­drew an undis­closed amount from lenders to main­tain cash re­serve ra­tio.

It did so to sup­port the cur­rency, mak­ing naira scarcer in the mar­ket and more at­trac­tive to hold. De­mand also strength­ens the cur­rency, help­ing fight in­fla­tion.

In­fla­tion in Nige­ria is run­ning at more than 16 per­cent an­nu­ally while the coun­try’s econ­omy, clob­bered by the low oil price has tum­bled into re­ces­sion over the past year. The naira, mean­while, has weak­ened from around 200 to the U.S. dol­lar in mid-2016 to nearly 364 on Fri­dayóa 45 per­cent de­cline in value.

The cen­tral bankís sales on Fri­day amounted to 167.16 bil­lion naira of 356-day open mar­ket op­er­a­tion trea­sury bills at 18.55 per­cent, and 439.45 mil­lion naira of the 188day pa­per at 17.95 per­cent.

The to­tal bank­ing credit bal­ance opened at 75 bil­lion naira. But out­flows from the sys­tem led the mar­ket into neg­a­tive ter­ri­tory, traders said.

“We see the cost of bor­row­ing ris­ing fur­ther as the mar­ket strug­gle with tight liq­uid­ity and banks seek to cover their po­si­tions,” one trader said. —Reuters

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