Nigeria’s bond yields and interbank rates rose sharply on Tuesday as markets aligned after the central bank’s bigger-than-expected benchmark interest rate hike the previous day. Nigeria’s central bank raised its benchmark rate far further than analysts expected on Monday by 275 basis points to 12 percent, in the clearest sign yet of its commitment to support the naira and keep a lid on inflation.
Traders said yields rose across board on 3-, 5- and 20-year bonds on Tuesday after the central bank announced measures to curb excess demand for the dollar and reduce naira liquidity. The overnight interbank lending rate rose to 14.83 percent from 11.50 percent on Monday as market liquidity further tightened up with some banks recalling funds from their creditors to help them meet their new cash reserves requirements (CRR).
Traders said with the CRR increase to 8 percent from 4 percent of a bank’s deposits, over 800 billion naira funds will be sterilised at the central bank vaults, leaving the market with little to place in the market. “Immediately the market opened today, most major funds were calling back their funds to enable them fulfill their CRR obligations, which further tightened the market,” a dealer said.
The secured Open Buy Back (OBB) rose to 14 percent from 11.25 percent previously, on a par with the central bank’s new lending rate and 400 basis points above the Standing Deposit Facility (SDF) rate. Overnight placement jumped to 15 percent from 11.50 percent, while call money rose to 15.25 percent against 11.50 percent