The Central Bank of Nigeria (CBN), Wednesday opened its discount window in apparent bid to save the banking system from scarcity of funds which sent interbank interest rate to 74 percent at the close of business.
The discount window is the medium through which banks use financial instruments like treasury bills, to borrow from the CBN on short term basis to meet temporary cash shortages.
Meanwhile, the naira appreciated to N283 per dollar, yesterday, in the revived interbank foreign exchange market while competition for funds in the money market intensified, sending interest rates to 68 per cent.
The decision of the CBN to sell $4.2 billion to clear backlog of matured foreign exchange obligations had triggered intense demand for funds in the interbank market as banks sourced for N1.1 trillion to fund the dollar purchase. Consequently, interest rate has more than doubled from Monday to yesterday.
On Tuesday, interest rates rose by average of 165 per cent and yesterday by average of 33 percent.
Interest rate for overnight lending shot up to 74 per cent, wednesday, in some segment of the interbank market, while the Financial Market Dealers Quote (FMDQ) disclosed that average interest rate for overnight lending rose to 68.5 percent, Wednesday from 51 per cent on Tuesday, while interest rate for securitised lending rose to 63.3 per cent from 45 percent on Tuesday.