Money Market Liquidity Tightens as CBN Steps Up OMO Actions

Money Market Liquidity Tightens as CBN Steps Up OMO Actions

Money market liquidity tightened as the Central Bank of Nigeria (CBN) stepped up its aggressive open market operations, including Treasury bill sales, last week.

The financial system was flooded with surplus liquidity, and the robust money market position eased pricing of short-term benchmark interest rates.

The CBN resumed active sterilisation through OMO operations, even as sizeable maturities provided intermittent support. Deposit Money Banks (DMBs) maintained strong positions at the standing deposit facility, without recourse to the lending window.

System liquidity opened at N5.46 trillion last week, following N139.15 billion of inflows, with the CBN initially holding back despite the heavy maturity calendar, according to Cowry Asset Limited.

The apex bank absorbed N2.79 trillion through an OMO auction on Wednesday, an amount that was more than offsetting the day’s N2.32 trillion OMO maturities and keeping liquidity at N4.61 trillion, against a potential N7.40 trillion without the intervention.

The drain continued on Thursday, with another N2.69 trillion OMO allotment alongside N763 billion in Nigerian Treasury bills settlement, before system liquidity closed the week at N3.61 trillion.

The investment firm said despite the sizeable liquidity mop-up, overnight funding conditions remained relatively stable. The overnight rate declined by 7 bps to 22.21%, while the funding rate remained unchanged at 22.00%.

The Nigerian Interbank Offered Rate (NIBOR) also eased marginally by 1bp to 22.229%, suggesting that maturing OMO and Treasury bill inflows provided some cushion.

However, the firmer tone was more evident further along the NIBOR curve, with 1-month, 3-month, and 6-month rates rising by 11 bps, 28 bps, and 34 bps, respectively.

This points to a market that remains reasonably liquid in the immediate term, but is beginning to price in a tighter funding environment over the medium term, Cowry Asset Limited said in its note. Treasury Bills Yield Rises to 19.5% Ahead of Q2 Supply