Nigeria's interbank lending rates were up on Friday to an average of 15.50 percent, compared with 14.25 percent last week, as a delay in releasing the December budgetary allocation to government agencies starved the system of funds, traders said.
Traders said the market opened on Friday with a cash balance of one billion naira, an indication that the system was illiquid.
Africa's top crude exporter 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.
No official was willing to comment on reason for the delay in releasing funds from the December allocation.
The secured Open Buy Back (OBB) climbed to 15 percent from 14 percent last week, 300 basis points above the central bank's 12 percent benchmark rate, and 5.0 percentage points above the Standing Deposit Facility (SDF) rate.
Overnight placement jumped to 15.50 percent, from 14.25 percent, while call money rose to 16 percent, against 14.50 percent previously.
"We are still expecting the payment of budget allocations to government agencies, so the system is short of funds. That is why rates are going up," one dealer said.
Traders said large cash outflows to foreign exchange, treasury bills and bonds purchases also drained liquidity from the system this week, helping to weaken further the borrowing rates among banks.
The state-owned energy company NNPC also recalled a portion of its deposit with some lenders to its account with the central bank and this further compounded the liquidity problem in the market, forcing some banks to rediscount some of their treasury bills and bonds to raise funds.
Nigeria's central bank sold about $500 million to banks at its bi-weekly auction this week, while the debt management office auctioned 89.76 billion naira worth of 10-year bonds and 138 billion naira in 91-day and 182-day treasury bills.
"Cost of borrowing will continue to climb until the release of budget allocation to government agencies," another dealer said.