By Babajide Komolafe

The naira recorded significant appreciation at the interbank foreign exchange market on Tuesday gaining 222 kobo against the dollar.

naira sign

However cost of borrowing among banks maintained upward trend reflecting the impact of the the liquidity mop up activities of the Central Bank of Nigeria (CBN).

At the close of business on Tuesday, the naira exchange rate at the interbank market closed at N152.1875 per dollar, down from N154.4125 per dollar on Monday.

The 222.5 kobo appreciation reflects the increased supply of dollars in the market both from the CBN and autonomous sources. On Monday the apex bank sold $387 million at 149.88 per dollar at the bi-weekly foreign exchange auction while Oil giant, Shell Petroleum also sold an undisclosed amount of dollars.

Interbank interest rate however continued to rise across all tenors. Interest rate on Call lending rose by 0.58 per cent to close at 10.5833 per cent while Seven Days and 30 Days lending rose by 0.5833 and 1.0833 per cent to close at 11.4583 per cent and 12.5833 per cent respectively.

The rise in interbank rates started last week due to further drop in the liquidity position of the market through Treasury Bills and foreign exchange auctions. Interbank interest  rates sustained  steady rise in the first two trading days of the week and later rose at an increasing rate in the last two trading days of the week due to combined effects of illiquidity and closure of T24  to allow for system upgrade in CBN.

From the closing rate of 3.5417 per cent for Call/Overnight and 4.6667 per cent  for 7-day money, the market recorded a marginal increase to 3.7500 per cent  for Call/Overnight and 4.7250 per cent  for 7-day money.

It further went up to 4.0833 per cent  for Call/Overnight and 5.2917 per cent  for 7-day money on Tuesday, in response to provisions for WDAS auction of Monday, However, in what look like a shift in the yield curve, the most liquid tenors in the market recorded 300-400 basis points movement upward, while the longer end of the market added 200 basis points on Wednesday, and moderated mildly upward to close the week at 8.2917 per cent  for Call/Overnight and 8.7917 per cent  for 7-day money on Thursday 30 September 2010.