Banking System Liquidity Declines by 66%, NOFR Unchanged
Short-term benchmark money market rates remained relatively stable despite a sharp decline in banking system liquidity on Thursday.
The financial system liquidity tightened after the Central Bank of Nigeria (CBN) carried out its open market operation, where N1 trillion worth of OMO bills were offered for subscription.
Hence, system liquidity fell 65.53% to N2.03 trillion, from N5.89 trillion, as the central bank drained cash from the banking system through its open market operations.
The policy rate was left unchanged at 22.00%, and the Nigerian Overnight Financing Rate (NOFR) also held at 22.00%, but the rate banks charge each other for overnight loans rose to 22.30% from 22.19%, AIICO Capital Limited said in an investor note.
Money market conditions are expected to remain relatively tight following a sharp decline in system liquidity to N2.03 trillion; a N57.42 billion coupon payment is also due to hit the system, Herwood Securities Limited said.
“We expect short-term borrowing costs to stay close to the central bank’s 22.00% target, but with the cash buffer now down to N2.03 trillion, the risk is that rates drift higher.
“How quickly the squeeze eases will depend on the size of the next OMO auction versus how much cash is repaid to banks this week”, AIICO Capital Limited highlighted. The average Treasury bill rate edged up to 18.81% from 18.77% in the secondary market due to sell pressure.
So far this year, banks are holding 46.81% less cash than they started with, the overnight lending rate is 0.45 percentage points lower, and Treasury bill rates are 1.81 percentage points higher, AIICO Capital said. Nigerian Treasury Bills Yield Climbs to 18.81% Amidst Repricing

