Money Market Rates Fall, Banks Step Up Cash Lodgment with CBN

Money Market Rates Fall, Banks Step Up Cash Lodgment with CBN

Money market rates fell as deposit money banks (DMBs) stepped up cash lodgment at the Central Bank of Nigeria (CBN) Standing Deposit Facility (SDF) window, enhancing financial system liquidity.

Data from the FMDQ platform revealed that the short-term benchmark interest rates adjusted downward in the absence of significant liquidity pressures in the system.

Liquidity conditions fluctuated amidst monetary authority actions, while inflows from money market repayments kept interbank rates movement in check.

Amidst tight appetite for domestic lending, banks are betting large at the CBN deposit window to augment their earnings. An increased loan default rate has tightened investors’ appetite for loans, but with preference given to selected industry including high-risk oil and gas lending.

Without such an opportunity, local lenders have shown a preference for investment securities, and deposit with the Apex Bank at 22.50% rate, while borrowing from the authority is much more expensive.

Last week, the financial system liquidity rebounded strongly from the previous week’s deficit level to a surplus level throughout the week, AIICO Capital Limited said in its market update.

The firm explained that the enhanced system liquidity was supported by robust placements at the CBN’s SDF, and inflows from OMO, Treasury bills maturities, and bond coupon inflows.

This happened despite the settlement for the midweek primary market for Nigerian Treasury bills, which was underwritten by the authority.

At the auction, the CBN offered ₦1.15 trillion but allotted ₦952.60 billion across the 91-day, 182-day, and 364-day bills.  Demand was robust at ₦4.58 trillion, with over 95% tilted to the 364-day bill.

Stop rates eventually cleared at 15.84%, 16.65%, and 16.98%. Notably, the stop rate on the 1-yr bill saw a decline of -137bps.  Meanwhile, rates on the 91-day and 364-day bills were left unchanged.

Recall that the money market liquidity opened the week with a surplus balance of ₦596.46 billion. The financial profile was buoyed by ₦1.02 trillion in SDF placements alongside ₦24.38 billion in primary market repayments.

As the week progressed, AIICO Capital Limited reported that liquidity surplus improved to ₦2.24 trillion, amid ₦1.03 trillion OMO maturity inflow and an increase in banks’ placements at the SDF window.

Towards the end of the week, liquidity improved to ₦2.47 trillion, buoyed by a significant increase in DMB placements at the SDF window to ₦2.65 trillion despite a negative flow of ₦283.74 billion from NTB maturity (₦668.87 billion) and settlement (₦952.61 billion).

On Friday, liquidity closed on a surplus level at ₦2.57 trillion, driven by a spike in placements at the CBN SDF window totaling ₦2.49 trillion.

Consequently, average funding cost dropped significantly by 356 basis points (bps) week on week to 22.66%, with Open Repo Rate (OPR) shedding 357bps to 22.50%, while the Overnight Rate dropped by 355bps to 22.81%.

With the expected inflow of ₦993.00 billion from the 10-Feb-26 OMO maturity billed for next week, system liquidity is expected to remain relatively buoyant, Anchoria Securities Limited said in its market update.

The market anticipates that the CBN will continue to sterilize system liquidity via OMO issuances. Inter-bank rates to remain range-bound between 22.5% and 22.80% Money Market Rates Mixed, OMO Bill Debit Soaks Up Liquidity