Lending Rate Falls on N197BN Cash Inflow

Nigeria’s overnight lending rates halved to 3 per cent on Friday to a three-month low after the Central Bank of Ni­geria (CBN) injected liquidity into the banking system by paying off treasury bills, traders said.

A total of N197 billion ($989.9 million) in matured Open Market bills (OMO) was retired on Friday while the central bank did not issue fresh bills to mop up funds in a bid to keep borrowing costs low, traders said.

Traders expected another N300 billion ($1.5 billion) coming into the financial system after the apex bank cut banks’ cash reserve ratio to 25 per cent from 31 per cent a fortnight ago.

Liquidity had dried up on the inter-bank market two weeks ago after author­ities ordered banks to move government deposits into a Treasury Single Account (TSA) at the CBN in move to strengthen the anti-graft drive of President Muham­madu Buhari.

Some of the new funds were filtering into bonds.

“Treasury bill yields are lower than bonds at the short-end hence local in­vestors are piling into bonds,” said one trader at a commercial bank.

Domestic pension fund managers have been buying short-term bonds at higher yields as foreign buyers divested from the market after JP Morgan moved to evict Nigeria from its key emerging markets index.

A central bank official, Moses Tule, said on Wednesday the banking system had enough liquidity to take up what for­eign investors might sell after JP Morgan removed Nigeria from its bond index.

Banking system credit opened at N189 billion on Friday before the inflow hit the system, lifting the sector’s total cash balance with the central bank to N386 billion, traders said.

Yields on the benchmark 10-year bond, one of those to be delisted from the influential index, rose to 15.12 per cent, from 14.74 per cent last week.

The most liquid three-year bond trad­ed at 14.76 per cent while the one-year treasury bill was quoted at 13.84 per cent on Friday.

The Debt Management Office (DMO) said it will re-introduce the benchmark 10-year bond in its fourth quarter debt sale, after not issuing them in the previ­ous quarter.

The secured Open Buy Back (OBB), the rate at which lenders can borrow from the inter-bank market using trea­sury bills as collateral, fell to 3 per cent on Friday, 10 percentage points below the CBN’s benchmark interest rate of 13 per cent.