Interbank Rates Steady as Banks Scale Back SDF Placements
Interbank rates steadied due to a decline in the financial system liquidity, resulting from deposit money banks’ (DMBs) reduced placements at the Central Bank Standing Deposit Facility (SDF).
Excess liquidity in the money market had surpassed N4 trillion level in the absence of open market operations. The Nigerian bonds auction settlement failed to drain excess funds.
Reflecting the absence of funding pressure, interbank rates remained stable across all tenors on Thursday, with the overnight rate holding at 24.88%, indicative of equilibrium in system liquidity conditions and subdued funding pressures.
Investment firms reported that market liquidity eased, though it remains at a surplus balance of N2.3 trillion, reflecting a decline of N2.2 trillion from the previous level.
The drop was mainly driven by a decrease in balances at the Central Bank of Nigeria (CBN) Standing Deposit Facility (SDF) window to N1.9 trillion. Banks’ placement at the CBN SDF window was N4.1 trillion, priced at the rate of 24.5% – higher than the average yield on Nigerian Treasury bills.
Medium-term tenors also exhibited no movement, according to Cowry Asset Limited. Analysts said money market funding rates were similarly unchanged.
The open repo rate (OPR) and overnight lending rate are at 24.50% and 24.84%, respectively. “We anticipate funding costs to remain at a similar level, barring any funding activity,” AIICO Capital Limited said in its report.
In the Treasury Bills secondary market, yield movements were divergent on Thursday. Short- to medium-term benchmarks: 1-month, 3-month, and 6-month compressed by 7 bps, 1 bp, and 1 bp, respectively, while the 12-month tenor expanded by 8bps.
The average yield on Nigerian Treasury bills experienced substantial compression of 127 bps to settle at 16.13%, signaling robust risk appetite and intensified buying interest across the fixed-income space, consistent with a flight to quality and strong demand fundamentals in the secondary market.
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