Interbank rates hit multi-year low

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Interbank rates hit multi-year low

Interbank rates plunged to their lowest level in years this week after the central bank cut its overnight deposit rate by 100 basis points, traders said on Friday.Rates plunged to 1.28 percent on average from 2.23 percent last week, below the central bank's 6.0 percent benchmark rate but above its new Standing Deposit Facility (SDF) rate of 1.0 percent.The secured Open Buy Back (OBB) dropped to 1.10 percent from 2.05 percent, while overnight placement fell to 1.25 percent from 2.15 percent. Call slipped to 1.50 percent from 2.50 percent last week.Dealers attributed the drop in rates to Tuesday's decision by the Monetary Policy Committee (MPC) to slash its SDF rate from 2.0 percent to 1.0 percent to boost lending to the real sector by banks and stimulate economic growth."Immediately the central bank slashed its deposit rate, all other rates took their cue from that," one dealer said.Excess liquidity, spurred by the disbursement of large public sector funds and limited lending, had meant many banks preferred to deposit idle funds with the central bank.Traders said the market opened on Friday with a surplus of about 574 billion naira with payment for foreign exchange purchases being the only main cash outflow."Not many banks are willing to resume lending to the real sector despite the rate cut by the central bank," another dealer said. "The focus is more on the safety of their funds."Most of sub-Saharan Africa's second biggest lenders froze credit to the real sector after a banking sector audit by the regulator last year forced many financial institutions to make huge provisions for non-performing loans.Traders said rates would remain low in the near-term because of prevalence of excess liquidity, the ongoing credit freeze and an expected slow-down in government spending

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