Interbank lending rate seeing rising further on bond auction as overnight climb to 7.08%
Cost of borrowing among banks may jump this week as the country’s Debt Management Office (DMO) sell N150 billion worth of bond at an auction on Wednesday, bankers said.
According to currency traders, the interbank lending rate climbed on Tuesday after investors were debited with N162.6 billion work bought at the Sukuk bond auction last week.
For instance, the overnight borrowing cost rose 7.08 percent at the interbank from 6.92 percent previously as market liquidity dipped after the Central Bank of Nigeria (CBN) debit banks for Sukuk purchase.
Also, Open Buy Back (OBB) inched up to 6.33 percent at the close of transactions on Tuesday against 5.83 percent the previous day.
Traders said with the plan sales of N150 billion at the bond auction and N14.6 billion expected to be put on sales at the primary treasury bill auction, market liquidity is seen dropping further, leading to further spike in the cost of funds at the interbank market.
Fixed income dealers said the DMO may also take advantage of a possible surge in demand for government debt instruments to increase its debt sales about the initial offering at the auction.
“From all indications, the debt office has been selling more than it intended at the previous auction and we are not expecting a different scenario at today’s auction,” a trader told our correspondent.
Market open balance at the CBN stood at N193.06 billion on Tuesday and with no immediate expectations of maturity inflows, the banking system might be hit with low liquidity as investors scramble for piece of the bonds on offer at the auction on Wednesday.