…Naira appreciates to N320
By Blaise Udunze
Following the hike in the cash reserve ratio (CRR) to 22.5 per cent from 20 per cent by the Central Bank of Nigeria (CBN), Nigeria’s overnight interbank lending rates rose on Thursday to 20 per cent as the apex bank recalled about N400 billion from commercial banks.
The Open Buy Back (OBB) and overnight rate were quoted by banks at 20 per cent compared with 6.75 per cent and 7.33 per cent at the close on Wednesday as banks scrambled for funds to meet outstanding and routine obligations.
The CBN had on Tuesday, raised its benchmark interest rate from 11 to 12 per cent and the CRR for commercial banks to 22.5 per cent from 20 per cent, in an effort to curb rising inflation.
“We have had major funds placers in the market quoting between 20 and 25 per cent for overnight placement, while takers are quoting between 7 and 10 per cent,” a dealer in the market stated. He hinted that no deals had yet been done on the rates being quoted.
Meanwhile, dealers said there was additional cash outflow for premium payments to the Nigerian Deposit Insurance Corporation (NDIC), which further put pressure on liquidity in the system and forced lending rates up.
On Wednesday, yields on Nigeria’s benchmark 20-year bond rose 55 basis points to 12.7 per cent after the central bank unexpectedly tightened monetary policy. The total commercial lenders’ credit balance with the CBN stood at N320.9 billion on Thursday, up from N217 billion last week.
However, traders said the level of cash in banks’ vaults would have dropped significantly due to cash withdrawals to meet the new CRR and premium payments on customer deposits.
But at the parallel market, the naira appreciated to N320 to the dollar yesterday, compared with N326 last week, spurred by tight liquidity and increased dollar supply.
The naira is expected to appreciate slightly against the dollar on the parallel market next week, although the official rate will remain steady around the 197.50 level.
The President of the Association of Bureau De Change of Nigeria (ABCON), Aminu Gwadabe, said the move by CBN to tightening liquidity would help curb speculations in the foreign exchange market and subdue pressure on the currency.
“We see the tightening of liquidity by the central bank curbing speculations on the forex market and reducing pressure on the naira,” Gwadabe said.
Also, the Debt Management Office (DMO) said yesterday the apex bank sold N114.97 billion ($579.05 million) worth of three-month to one-year treasury bills at higher returns than in its previous auction.
The debt office said N18.12 billion of three-month paper was sold at 5.99 per cent, up from 5.74 per cent at a sale on March 3. It raised N13.68 billion of six-month debt at 8.30 per cent against 7.95 per cent, while a total of N83.17 billion of one-year paper was sold at 9.55 per cent compared with 9.15 per cent previously. Total subscription fell to N323.47 billion from N409.84 billion at the previous auction.
Yields on fixed income paper rose after CBN rate hike. Three-month bills closed at 7.28 per cent on the secondary market on Wednesday, up from 4.92 per cent before the rate rise.
Six-month paper traded at 8.97 per cent, up from 6.84 per cent on Tuesday, while one-year paper closed at 10.01 per cent against 7.77 per cent previously.