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Cost of funds rises as banks fund forex purchases

By Babajide Komolafe

Cost of funds in the interbank money market rose slightly yesterday due to funding of foreign exchange purchases by banks at the Wholesale Dutch Auction System (WDAS).
Interest rate on Call lending rose to 4.4 from 4.3 per cent while Seven days lending attracted 7.0 per cent up from 6.75 per cent. Similarly, interest rate on 30 days lending rose to 11.12 from 10.62 per cent.


This was in contrast to the downward movement in cost of funds on Monday when the market experienced a general decline of about 200 basis points in interst rates.
A treasurer told Vanguard that the slight increase in cost of funds was due to funding of foreign exchange purchases by banks.
“Each bank has to provide naira payment for their foreign exchange purchases and this led to outflow of funds in the system”.
Last week, the market experienced an outflow of N90.3 million through funding for foreign exchange purchase, up from N89.1 million in the previous week.
The figure for this week is expected to by higher  due to further increase in the exchange rate hence bank treasurers said they expected further increase in interbank interest rate. .
Meanwhile, the Naira depreciated in all the segment of the foreign exchange market on Wednesday, a development market operators attributed to the continued slide of the nation’s currency in the official market.
In the interbank foreign exchange market, the naira lost about one kobo as the exchange rate rose to N154 per dollar from N153.9 per dollar.
At the bureaux de change segment the exchange rate rose to N156 from N155 per dollar indicating N1 depreciation.


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