Excess Liquidity in Banking System Keeps Money Market Rates Stable
Money market rates remained relatively stable, supported by excess liquidity in the banking system, despite a major outflow from the Central Bank of Nigeria (CBN) open market operations.
The financial system’s net liquidity moderated to N4.86 trillion, down 18.74% week-on-week from N5.98 trillion the previous week, though it remained comfortably liquid.
The market opened with a net liquidity surplus of N6.50 trillion, supported by N2.43 trillion in OMO maturities and increased activity at the Standing Deposit Facility (SDF).
However, the CBN continued its liquidity-management operations through OMO auctions, absorbing N4.69 trillion from the system.
Despite the decline in excess liquidity, money-market rates remained broadly stable. The overnight rate increased marginally by 3bps week on week to 20.80%, while the funding rate was unchanged at 20.40%.
In its note, Cowry Asset Limited said the modest movement suggests that the CBN’s sterilisation activities have so far been sufficient to trim excess liquidity without creating significant funding pressure in the interbank market.
The Nigerian Interbank Offered Rate (NIBOR) curve was mixed, with the overnight rate rising by 26bps to 20.57%, while the 1-month tenor edged down by 3bps to 20.76%.
The mixed movement points to continued repricing as investors adjust rate expectations following the recent monetary-policy easing. The secondary Treasury bills market maintained its bullish tone, with yields compressing across the short, mid and long ends of the curve.
Broad-based demand pushed the average T-bill yield down 11 bps week-on-week to 17.81%, as investors continued to reposition toward fixed-income instruments amid a changing rate environment.
The yield decline also reflects sustained demand for short-term government securities as investors balance liquidity, carry, and duration considerations.
Investment firms reported that at the OMO auction conducted by the CBN on September 29, investor demand remained strong, with total subscriptions reaching N6.40 trillion against N2.50 trillion on offer, representing a 2.56x bid-to-cover ratio.
The CBN ultimately sold N4.69 trillion, equivalent to 1.87x the amount offered. Demand was strongest at the 266-day tenor, which attracted N4.54 trillion in subscriptions against a N1.00 trillion offer, while its stop rate settled at 16.23%.
The strong demand, particularly for the longer tenor, underscores investors’ appetite for locking in yields despite the ongoing easing cycle, according to Cowry Asset Limited.
OMO Bills: CBN Raises N4.7T from Investors as Subscription Hits N6.4T
