Nigeria's interbank lending rates climbed this week to an average of 14.16 percent, from 13.91 percent last week, as the central bank aggressively mopped up excess liquidity by selling treasury bills.
Traders said apart from a primary auction of treasury bills, where 147 billion ($932.59 million) worth ranging from 3-month to 1-year were sold, the central bank also issued over 100 billion naira in short-dated debt bills through the conduct of open market operations (OMO) this week.
Nigeria's central bank conducts open market operations regularly as part of measures to curb inflation.
"The central bank has been mopping up liquidity using OMO instruments and this has significantly reduced the volume of cash available for transactions in the market," one dealer said.
The market opened with a cash balance of about 87 billion naira on Friday, compared with 131 billion naira last week.
Dealers said cost of borrowing among banks will trend up further next week, as no fresh cash inflow is anticipated, while state-owned energy company NNPC is expected to recall a portion of its deposits with banks to its account with the central bank, which would further reduce liquidity.
NNPC is the major supplier of dollars traded on the interbank foreign exchange market, and the company recalls a portion of the naira proceeds to its account with the central bank to fund its obligations to the government.
"Market will remain tight next week and rates are seen inching up until budgetary allocations to government agencies are released," another dealer said.
The secured Open Buy Back (OBB) rose to 14 percent, from 13.50 percent last week, 200 basis points above the central bank's 12 percent benchmark rate, and 4.0 percentage points above the Standing Deposit Facility (SDF) rate.
Overnight placement and call money traded at 14.25 percent each, compared with 14 percent 14.25 percent, respectively, last week. Traders said funding for the purchases of foreign exchange and bonds up for auction next week would also soak up liquidity.