Nigeria's interbank lending rates rose sharply this week to an average of 16.50 percent from 14.83 percent in the previous week mainly on the delayed release of some 300 billion naira of October's budget allocation.
Traders said the market was also in deficit because the central bank aggressively drained the system of about 106.83 billion naira in the week.
Traders said the seccured Open Buy Back (OBB) climbed to 15 percent from 14 percent previously, 300 basis points above the central bank's 12 percent benchmark rate and 700 basis points above the Standing Deposit Facility (SDF) rate.
Overnight placement rose to 17 percent from 15 percent, while call money closed at 17.50 percent against 15.50 percent it closed last week.
"The market is very short, people were looking for money to cover their position because of the aggressive liquidity mop-up by the central bank which led to high cost of borrowing at the interbank," one dealer said.
Dealers said the market opened with a negative cash balance of about 137.09 billion naira on Friday as banks scrambled for available cash to cover their positions.
Traders said cost of borrowing should ease next week when a portion of the Oct budget allocation hits the system.
"We are still expecting the inflow from the budget allocation and when it finally hits the market we expect rates to drop to around 14 percent for call money," another dealer said.
Africa's second biggest economy after South Africa distributes oil funds from centrally held accounts every month to its three tiers of government -- federal, states and local -- which provides a much needed cash inflow to the banking system.