By Babajide  Komolafe

Scarcity of funds in the interbank money market grew worse last week as the amount of funds that left the market surpassed those that came in by N234.6 billion.

The interbank money market is the market where banks lend and borrow money from each other, mostly to meet short term need of money.

During the week, money came into the market through matured treasury bills (N45.73 billion) and payment for Joint Venture Cash call. On the other hand, the Nigeria National Petroleum Corporation (NNPC) withdrew N133.65 billion, while N118.09 billion was spent to fund foreign exchange purchase at the bi-weekly foreign exchange auction conducted by the Central Bank of Nigeria (CBN).

To fund the net outflow of N234 billion, banks borrowed N132. 6 billion from the CBN through its Standing Lending Facility (SLF) hence the liquidity (cash) position of the market further deteriorated to a deficit of N76.4 billion from deficit of  N43.6 billion the previous week.

As a result of the net outflow, cost of funds, which dropped on Thursday, rose on Friday in response to the withdrawal by NNPC.  Interest rate on Call lending rose to 15.5 per cent from N14.5 on Thursday, while interest rate on 7-Days lending rose to 15.6 from 14.96 per cent.

But despite the scarcity of funds in the market, government securities (treasury bills) recorded 50 per cent over subscription.  The CBN offered N100.63 billion worth of fresh bills while public subscription, which represents demand, stood at N152.7 billion. The CBN sold N100.63 billion at interest rate of 14.05 and 15.32 per cent.

In the foreign exchange, market, the exchange rate of the naira remained stable at the official segment as the CBN increased foreign exchange supply by $50 million at the bi-weekly foreign exchange auctions as well as sold an undisclosed amount to banks in the interbank segment.

At the bi-weekly auction the CBN sold $750 million, as against $700 million sold the previous week. This helped stabilized the official exchange rate at N155.9 per cent.

The special foreign exchange sale by the apex bank in the interbank market caused the interbank exchange rate to drop to N162.95 per dollar from N163.21 per dollar the previous week, translating to 26 kobo appreciation for the naira during the week.