NIGERIA: Interest rates up 60% on scarcity of funds

For the first time this year, the interbank money market experienced severe scarcity of funds, which occasioned interest rates to rise by over 60 per cent.
Data from Financial Market Dealers Quote (FMDQ)  revealed that interest rate on overnight lending rose to 17.5 percent from 10.75 percent the previous week. Also, interest rate on Open Buy Back (OBB) or Secured lending rose to 16.9 per cent on Friday from 10.5 per cent the previous week.
Vanguard investigation revealed that the sharp rise in interest rate was due to severe scarcity of funds occasioned by outflow due to funding of treasury bills, FGN Bonds, and foreign exchange purchases.
For example, N85 billion left the market through FGN Bond purchase, while N94.85 billion was spent on treasury bills. In addition to this was a debit of N132 billion by the Nigeria National Petroleum Corporation (NNPC). Consequently, market liquidity fell to N158.39 billion from N429 billion the previous week.
However, the FGN Bond and treasury bills offered last week recorded oversubscription. The N90 billion FGN Bond offered by the Debt Management Office (DMO) recorded over 100 per cent over subscription. Total subscription was N185 billion while the DMO allotted N85 billion.
Total subscription to the N80 billion worth of treasury bills stood at N133.94 billion, while the CBN allotted N94.85 billion. The apex bank however repaid N166 billion worth of matured treasury bills during the week.
The interbank market is however expected to experience huge inflow of liquidity this week courtesy of statutory allocation from the Federation Accounts Allocation Committee (FAAC).
The committee met last week and approved N614 billion to be shared by the three tiers of government. Meanwhile, the nation’s external reserve continued on its downward trend last week, falling to $38.798 billion as at March 12. Cumulatively, the external reserves have declined by $4.81 billion this year.

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