Inter-bank rates decline as CBN rolls over maturing bills Wednesday

Nigeria’s overnight rate, which is the interest rate at which large banks borrow and lend a day (or overnight) funds among themselves, declined by 2.00 percent to close at 17.25 percent on Tuesday as against the last close of 19.25 percent on Monday.

Also, the Open Buy Back (OBB) rate, a money market instrument used to raise short term capital,   decreased by 1.75 percent to close at 16.75 percent on Tuesday compared to 18.50 percent on the previous day.

In the absence of any major inflows the decline in the inter-bank rates may be due to the end of half-year activities, said Ayodeji Ebo, head, retail investment, Chapel Hill Denham.

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 The Central Bank of Nigeria (CBN)  scheduled to conduct a Primary Market Auction to roll over NT-bills maturities worth N81.74 billion across 91-day (N2.88 billion), 182-day (N20.00 billion), and 364-day (N58.86 billion) tenors.

Nigeria’s treasury bills secondary market closed on a mildly negative note on Tuesday with average yield across the curve increasing by 1 basis point to close at 6.58 percent from 6.57 percent on the previous day.

A note from the FSDH Research indicated that average yield across the long-term maturities increased by 2 bps. However, the average yields across the short-term and medium-term maturities closed flat at 4.35 percent and 5.47 percent, respectively. Selling pressure was seen in the NTB 9-Jun-22 maturity bill with a yield increase of 27 bps.

Last year saw a precipitous fall in Naira-denominated market interest rates, and this year is seeing them rise again, according to a report on Nigerian banks by Coronation Asset Management.

Last year saw 1-year T-bill rates fall from 5.40 percent per annum in January to 0.15 percent in early December. At this point, at the end of 2020, the CBN effectively put a floor under rates by issuing Special Bills to banks at a rate of 0.5 percent per year.

The report stated that this year rates are heading back up again. 1-year Nigerian Treasury Bill (T-bill) rates have risen from 0.65 percent in January to 9.77 percent recently.

The rate at which banks lend to each other, the interbank rate, has also gone up sharply, with the 1-month Nigerian Inter-bank Offered Rate (NIBOR) rising from 0.54 percent in January to 12.55 percent recently.

“Financial institutions that depend on short-term funding in the marketplace, and that have relied excessively on duration trades for their asset yields, could be facing problems this year, in our view,” Guy Czartoryski of Coronation Research said.

On the foreign exchange market, Nigeria’s currency closed strong against the dollar at the official market by 0.11 percent to N410.83k compared to N411.28k closed on Monday, data from the FMDQ showed.

Currency traders who participated in the trading session on Tuesday maintained bids at between N387.67k and N420.90k per dollar.

The daily market turnover rose significantly by 114.50 percent to $215.53 million on Tuesday from $100.48 million recorded on Monday.

At the parallel market and the Bureau De Change (BDC) segment of the foreign exchange market, the local currency steadied at N502 and N500 per dollar.