The Central Bank of Nigeria (CBN) raised N39.72 billion naira ($130.57 million) for the federal government at a Treasury Bill (TB) sale last week, with yields unchanged on the previous auction, the apex bank said on its website on Friday.
This is just as the overnight lending rate rose sharply to around 50 percent on Friday, from an average of 4.5 percent the previous day, after the bank debited commercial lenders’ accounts for special foreign exchange sales, traders said.
The CBN sold N13.17 billion of three-month paper at 14 percent, the same yield as on Dec. 14, and sold N26.55 billion of six-month paper at an also unchanged 17.5 percent.
The apex lender on behalf of the federal government periodically issues treasury bills regularly to help banks manage their liquidity, curb rising inflation and provide naira to help the government fund its budget.
However, the CBN last week asked banks to submit bids for a “special currency auction” to clear the backlog of matured outstanding dollar obligations for selected sectors of the economy, which include airlines, fuel importers and manufacturing firms.
Traders said the central bank sold “funded forwards of two to five months tenor” dollars to the targeted sectors at an auction during the week and required them to pay for the dollar sale on Friday.
The CBN is yet to disclose the amount sold but currency traders said the cost of borrowing among banks climbed because of a scramble for funds among commercial lenders to pay for the foreign exchange purchases.
“The market is extremely volatile today as a result of the funding for the special forex auction, and we have seen rates up to around 50 percent and more,” one currency dealer said.
Nigeria’s financial market is closed until Wednesday due to public holidays over the Christmas period.
Meanwhile, financial experts Cowry Assets Management Limited in Lagos said there was liquidity pressure which was evident in the increase recorded in the Nigerian Interbank Offered Rate (NIBOR).
NIBOR represents the rate at which banks borrow from and lend funds to each other. It is the short-term lending rates of selected banks in the Nigerian interbank market quoted as annualized rates.
According to the experts, total money that left the financial system exceeded the total money that came into the system.
“The inflows were offset by outflows from auctioned bills worth N57.66 billion and via Open Market Operations of the Central Bank of Nigeria, through 198 treasury bills worth N10.29billion and 352-day bills worth N7.64billion,” the assets managers said in an emailed note.