Inter bank lending rates would react to the inflow of the N405 billion from the maturity of treasury bills, as the former are expected to drop further.
Last week, the Interbank rates were brought down by the inflow of N900 billion matured Open Market Operations (OMO) treasury bills (on Friday), dropping rates by 4.25%.
Meanwhile, rates had initially fallen by 900 basis point to 12.1% last Tuesday due to the Central Bank of Nigeria’s (CBN) deduction of N650 billion from some banks as cash reserve ratio for failure to meet the 65% Loan-to-Deposit Ratio (LDR).
According to analysts, it is expected that the interbank rate will keep on falling this new week, due to the liquidity boost expected from the maturing N405.9 billion secondary market treasury bills.
Analysts at Cowry Assets Management Limited disclosed that rates were expected to decrease marginally amid liquidity boost.
“In the new week, CBN will auction T-bills worth N74.84 billion, viz: 91-day bills worth N10billion, 182-day bills worth N20.00 billion and 364-day bills worth N44.84 billion. The maturing T-bills worth N74.84 billion, in addition to the maturing OMO bills worth N331.05 billion, we expect rates to decrease marginally amid boost in financial system liquidity,” Cowry Asset Management said.
However, on the foreign exchange scene, the Naira continued its downward trend in the foreign exchange market as it dropped by an average of 50.5 kobo in the parallel market and in the Investors and Exporters (I&E) window last week.
Data from FMDQ stated that the rate for the I&E window rose for the sixth consecutive weeks to N364.57 per dollar last week from N364.06 per dollar the previous week, translating to 51 kobo depreciation, Vanguard reported.
[READ MORE: CBN issues N847.4 billion treasury bills for Q1 2020)
The continuous decline can be attributed to increased demand for dollars due to rising concerns over the six month decline of the nation’s external reserves. While the downward trend in the external reserves is driven by lower revenue from oil, which accounts for about 90% of the nation’s dollar earnings, it is aggravated by increased dollar sales by the CBN in its bid to meet dollar demand by foreign investors exiting the nation’s fixed income market.
The country’s foreign reserves stood at $38.775 billion as at Tuesday, December 24th, 2019, meanwhile, it is still unclear whether the CBN would devalue the country’s currency has foreign reserves continues to drop.