Nigerian overnight rate holds around 120 pct as naira supply dries up

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LAGOS, Oct 24 – Nigerian overnight lending rates were quoted around 120 percent on Tuesday after a court ordered a freeze on millions of bank accounts with incomplete identity documents and the central bank sold treasury securities to tighten liquidity, traders said.

The central bank has kept rates high in Africa’s biggest economy to fight inflation and currency weakness and to attract foreign investors. It has been selling treasury securities almost four times a week to soak up naira liquidity.

A Nigerian court has ordered a temporary freeze on millions of bank accounts with incomplete identification documents and the forfeiture of funds in those accounts as the government seeks to ensure compliance with money-laundering rules.

Overnight rates had closed as high as 148 percent on Monday as news of the court order filtered into the market. It later fell on Tuesday but remained above 100 percent.

“There’s no liquidity in the market. The aim is to keep the money supply low as a way of controlling inflation and supporting the currency,” one trader told Reuters.

Inflation slowed for the eighth month in September but was still high at 15.98 percent. The central bank has left benchmark interest rates at 14 percent for more than a year to keep debt market yields in positive territory to lure investors.

The debt office plans to auction 100 billion naira in bonds on Wednesday. The central bank sold 18 billion naira in open market bills on Tuesday and another 11.3 billion the previous day.

Traders said the liquidity deficit in the banking system was widening, after hitting 300 billion naira on Tuesday.

On Monday, the central bank said it had sold $195 million to lenders as part of its regular dollar sales to boost forex liquidity and keep the currency stable, but the move was contributing to a naira shortage, traders said. (Reporting by Chijioke Ohuocha; Editing by Hugh Lawson)

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Godwin Okafor is a Financial Journalist, Internet Social Entrepreneur and Founder of Naija247news Media Limited. He has over 16 years experience in financial journalism. His experience cuts across traditional and digital media. He started his journalism career at Business Day, Nigeria and founded Naija247news Media in 2010. Godwin holds a Bachelors degree in Industrial Relations and Personnel Management from the Lagos State University, Ojo, Lagos. He is an alumni of Lagos Business School and a Fellow of the University of Pennsylvania (Wharton Seminar for Business Journalists). Over the years, he has won a number of journalism awards. Godwin is the chairman of Emmerich Resources Limited, the publisher of Naija247news.

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