Interbank lending rates soar over N215b bond payments
Nigeria’s first effort this year to raise money for the budget deficit through local bond auction worth N214.95 billion, has also resulted in increased cost of lending among banks.
Bond auctions, which also serve as a mean to control the quantity of money in circulation, caused the rate at the weekend, as commercial banks scramble for cash among themselves for payments that were due Friday.
The rates rose to 11.5 per cent for Overnight, a 0.58 per cent increase from Thursday and 4.5 per cent from seven per cent of last week’s record, while the Open Buy Back reached 10.67 per cent, as payments for treasury bills’ purchases added more pressure.
The bond auction was executed on Wednesday.
A financial analyst told The Guardian that the soaring rates would be calmed next week as anticipations over budget disbursements and its actualisation get to the market.
The Federal Government debt plan, earlier released by the Debt Management Office, showed that it is targeting N445.8 billion deals for the first quarter (Q1).
The total package would be a combination of bonds issuances- reopening of existing ones and a new issue worth N55 billion, as well as incremental Treasury Bills auction of N15.8 billion.
The move would sustain the already low money supply mode in the economy, aid fight against inflation and provide immediate cash for the government to implement its planned budget.
Analysts also raised the concern that it would increase cost of fund for private sector operators due to shortage of money supply among banks and lenders’ unwillingness to lend to the sector in preference to government’s risk-free securities.
Meanwhile, the persistent and gradual gains recorded in the nation’s foreign exchange (forex) reserves since November 2016 have pushed it to nine–month record high at $27.44 billion.
The new record was achieved after a seven trading-day gains of about $468 million, lower than about $600 million it added in the previous week.
The resurging reserves’ profile is raising the hopes for calm forex market activities in 2017, if the trend subsists, as it would curtail panic and speculative demands, which affect the naira value.
In the last three months, the nation’s foreign exchange reserves’ profile has been on the ascendancy, adding no less than $3.5 billion from a low of $23.89 billion.
Specifically, in the last five weeks, the reserves have added about $2.4 billion, defying mounting pressure from demand and series of interventions through special auctions by the regulator in the last three months.
Five weeks ago, it gained $320 million, followed by a $420 million gain; $440 million; $600 million; and now, $468 million.
The local currency, however closed flat at the official interbank window at 305.50 to the dollar, the level it has traded at since August last year.
The newly launched Bureau De Change operators’ website quoted their exchange rate at N399 to the dollar at the weekend.
However, at the roadside market, it was quoted at N498 to the dollar from N497 it was previously quoted.
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.