Short-term Rates Diverge as Banks’ Placement at SDF Falls by 24%
The short-term interest rates diverged in the money market even with excess liquidity levels on record in the financial system on Monday.
Deposit money banks’ (DMBs) placement at the Central Bank of Nigeria (CBN) Standing Deposit Facility (SDF) eased as system liquidity maintained a surplus for the 16th consecutive trading session.
In their separate report, investment banking firms reported that liquidity levels opened the week at ₦3.84 trillion, representing a 2% decline from the previous close.
The short-term benchmark interest rates moved in a different direction as DMBs placements at the SDF window fell 24% to ₦3.65 trillion.
The market liquidity opened the day with a surplus balance of ₦3.8 trillion, reflecting a decrease of ₦70.1 billion from the previous level, TrustBanc Financial Group Limited said in a note.
The marginal decline, according to AIICO Capital Limited, was mainly driven by a decline in DMB placements amidst a tightened lending appetite.
Big banks are noted to be sufficiently liquid, while some small lenders are in cash deficit. Money market funding costs diverged: the overnight lending rate increased 7 bps to 24.86%, whereas the Open Purchase Rate held steady at 24.50%.
System liquidity strengthened last week, opening at N2.47 trillion, while the excess fund peaked at N4.96 trillion on Thursday despite two OMO and one T-bill auctions by the CBN.
The improvement was driven by N1.45 trillion in OMO maturities, which offset debits from N546.24bn in OMO allotments. Liquidity later moderated to N3.90 trillion following N1.15 trillion in OMO sales, with the weekly average settling at N4.16 trillion.
The week closed with interbank rates remaining largely stable, as the Open Repo Rate (OPR) closed flat at 24.50%, while the Overnight Rate (OVN) edged slightly lower to 24.79% from 24.86%.
The market anticipates funding costs to remain at a similar level, barring any funding activity. Treasury bill yields declined uniformly across all maturities in secondary trading.
Consequently, the composite Treasury Bills average yield compressed 4 bps to 17.35%, signalling robust and sustained investor demand in the fixed-income market. CBN Intervenes in Nigerian FX Market with $50 Million
