By Babajide Komolafe
LAGOS — Inter-bank interest rates fell last week following the inflow of N289.33  billion released by the Federation Accounts Allocation Committee (FAAC) last week.

Interest rate data released by the Financial Market Dealers Association of Nigeria (FMDA) showed that interest rate for overnight lending fell to 16.5 per cent from 17.5 per cent at the beginning of the week.

Similarly, interest rates for call and seven days lending fell to 16.3 and 16.6 per cent from 17.2 and 17.3 per cent respectively. On the average the three lending for short tenured funds fell by 86 basis points.

The release of the excess crude fund neutralised the impact of the outflow of N135 billion from the inter-bank money market during the week. The market experienced outflow of N63.3 billion for foreign exchange purchase, N47 billion for funding of government overheads and N25 billion debit by Nigeria National Petroleum Corporation (NNPC).

Analysts at Kakawa Discount House, however, predicted that the effect of the excess crude fund on inter-bank interest rates would be temporary and funds would become scarcer in the market this week.

Meanwhile, funds in the inter-bank money market declined by N409 billion last month, says FMDA.

In its monthly financial and economic report for November released last week, the Association of banks’ treasury department said that N1.28 trillion left the inter-bank market while  N870.91 billion came into the market.

It said that N550 billion left the market for foreign exchange funding, N65 billion was used to purchase FGN  Bond auction, while N666.73 billion was invested by banks in Treasury bills auction.

The report also showed that demand for foreign exchange fell by 17.7 per cent in November while the amount sold by the Central Bank of Nigeria (CBN) also fell by 60.6 per cent. Demand fell to N3.054 billion from N3.596 billion in October while amount sold fell to N1.764 billion from N2.834 billion.

The Association noted that the sharp decline in the amount of foreign exchange sold by the apex bank “was deliberate and intended to manage exchange rate volatility and ensure price stability against the backdrop of global economic crisis.”

The report observed that banks’ deposit and lending rates rose slightly during the month. It stated, “In tandem with the changes in the monetary policy indices, rates of deposit and lending in the month further went up to a monthly average of 2.3119% for saving, against 2.3050% in the previous month.

On the lending leg, rates for the prime structured loan closed at monthly average of 18.0476%; while the normal structured loan averaged 20.7143% from 20.5095% recorded in the previous month. Other tenured deposit rates were equally stable in the month.