Overnight, Repo Rates Ease as CBN Mops 4% of System Liquidity
The overnight lending and open repo rates eased due to surplus liquidity in the financial system, as the Central Bank of Nigeria (CBN) mopped up only 4% of the credit balance at the midweek auction.
The money market is anticipated to remain flooded, with low pressure on funding costs, while Deposit Money Banks (DMBs) maintained huge placements at the Standing Deposit Facility (SDF).
Bradstreet investment firm reported that banking system liquidity fell by 2.93% to about N6.30 trillion on Wednesday, down from N6.49 trillion the previous day.
Hence, the Nigerian Interbank Offered Rate (NIBOR) increased across all tenors on Wednesday, with the overnight rate rising by 2 bps to 20.39%, suggesting further tightening of liquidity conditions in the banking system.
Similarly, the 1-month, 3-month, and 6-month rates advanced by 9bps, 5bps, and 2bps, respectively, Cowry Asset Management Limited said in its investor note.
However, borrowing costs in the short-term money market declined, as the Overnight and Open Repo rates fell by 38bps and 40bps to 20.43% and 20.00%, respectively
Despite the excess funding, Apex Bank sold only N269 billion in Nigerian Treasury bills at the primary market auction conducted on Wednesday.
The allotment accounts for 4% of excess liquidity in the financial system on settlement day, suggesting that the market will maintain an excess credit balance on Thursday.
Some investment firms said the CBN is more likely to float an OMO bill auction to reduce surplus liquidity in the money market on Thursday.
Data from the FMDQ platform revealed that the Open Repo rate eased to 20.00% from 20.40%, and the Overnight rate fell to 20.43% from 20.81%.
Meanwhile, the average Nigerian Treasury bill rate was almost flat at 17.87%, and NOFR was unchanged at 20.00%, with AIICO Capital Limited reporting that liquidity is up 65.06% year-to-date.
“Expect liquidity to stay high. Today’s auction allotted only N269 billion, about 4% of the N6.30 trillion in the system, so its settlement tomorrow should barely dent liquidity”, AIICO Capital Limited said in its note.Naira Drops Against Dollar, Euro, Pound as FX Outflow Rises
