Nigeria on Monday raised its benchmark interest rate for the fifth time this year to 9.25 percent to tackle future upward inflationary pressure and expectations of continued high government spending.
Dealers said the market balance is in the negative with more banks now borrowing from the central bank's discount window, using their treasury bills and bonds holdings as collateral.
The secured Open Buy Back (OBB) rose to 11.25 percent, up from 10.50 percent last week and at par with the new central bank's benchmark lending rate.
With the hike in central bank rate and its retention of 200 basis corridor around it, its Standing Deposit Facility (SDF) rate now stands at 7.25 percent, while its lending rate is now at 11.25 percent.
Overnight placement closed higher at 11.75 percent from 10.75 percent previously, while call money jumped to 12.0 percent from 11.0 percent last week.
The market opened on Friday with a negative balance of about 225.80 billion naira ($1.43 billion), encouraging many banks to borrow funds from the central bank to cover their positions.
"Most banks are turning to the central bank's discount window to cover their positions, instead of aggressively using the interbank market and this has limit the impact of the negative balance on the market," one dealer said.
Dealers expect cost of borrowing to hover at the same level next week or trend lower slightly due to possible inflow of budgetary funds into the market between late Friday and Monday.
"We still see rates trending around the present level, even with the expected inflows of budgetary funds between today and Monday. We should not expect the regime of low interest in sometimes to come with the central bank's determination to reduce money supply in the system," another dealer said.
Indicative rates for the Nigeria interbank offered rate (NIBOR), climbed in tandem with seven-day funds closing at 12..08 percent from 11.62 percent last week.
Thirty-day funds were rose to 12.50 percent from 12.04 percent, the 60-day closed at 12.79 percent against 12.62 percent, while the 90-day rose to 13.25 percent compared to 12.90 percent. ($1 = 157.375 Nigerian Nairas)