Nigeria’s overnight interbank rate eased to an average of 5 percent for overnight lending on Friday, down from 9 percent last week in anticipation of April budgetary allocations disbursal to government agencies.
Nigeria, Africa’s biggest economy, distributes money from oil revenue to its three tiers of government from a centrally held account, which provides liquidity for the banking sector and eases the cost of borrowing among banks.
“There was speculations of possible injection of April budget allocation into the system today (Friday), this forced down cost of borrowing from an average of 8 percent in early trade to 5 percent at 1330GMT,” one dealer said.
Total banking system liquidity stood at 277 billion naira ($1.39 billion) on Friday, compared with 141.7 billion naira last week, dealers said.
They said system liquidity should receive a boost next week by the time the central bank injected budget allocations to states and local governments.
Also on Thursday, the central bank retired about 83.81 billion naira in matured treasury bills into the system, which further helped to lower the cost of borrowing at the interbank.
“We expect (the) rate to further drop next week when budget cash would have hit the system,’ another dealer said.