By Babajide Komolafe

Lending rates in the interbank money market rose to 95 percent yesterday as scarcity of funds intensified.

According to data from Financial Marker Dealers Quote (FMDQ), lending rate   for Overnight borrowing rose to 95 percent at the close of business yesterday   from 92.58 percent on

Monday indicating 2.6 percent increase. The Overnight rate had on Monday rose by 15.47 percent from 80.17 percent Friday last week.   Similarly lending rate for Secured borrowing rose to 88.33 percent from 76.67 percent last week Friday indicating 13.2 percent increase.

The sharp increase in lending rates,   which started on Friday,   was triggered by huge outflows of cash from the interbank market   causing severe scarcity of funds in the market. Commenting on this development, the Ecobank Daily Market Update said, “The inter-bank rate rose by 6190 basis points on 13 February, reflecting inter-bank liquidity squeeze.

Increased liquidity outflows driven by funding requirements for government securities, foreign exchange and statutory withdrawal for Cash Reserve ratio (CRR) weighed on the market.”

On the foreign exchange scene, the naira appreciated by 35 kobo against the dollar at the interbank foreign exchange market as the interbank exchange rate declined for the second time this week to N198.45 per dollar from N198.88 per dollar on Monday.   The naira had earlier on Monday appreciated by 22 kobo as the interbank exchange rate fell from N199.10 last week Friday.

Thus the naira has appreciated by 57 kobo in the interbank market this week. The appreciation, according to Mr. Kunle Ezun, currency analysts was prompted by the measures announced by the CBN on Friday to curb speculation in the interbank market and satisfy genuine foreign exchange demand.

In order to curb speculation, the CBN had request that banks should first approach it for dollars to meet demands by customers before going to the interbank market to source for dollars to meet such demands.

The apex bank said it would sell dollars to the bank to meet such demand at the ruling interbank rate, provided such demands are backed with documentary evidence, and provision of the naira required to fund the dollar purchase.

This, according to Kunle Ezun is to discourage banks from trading in the interbank market and hence reduce pressure on the naira, as well as curb depreciation in the interbank market. He added that if the measure is sustained it will compel further appreciation of the naira in the interbank market.