Money Market Rates Climb as Liquidity Drops
The short term benchmark interest rates climbed in the money market as liquidity level in the financial system reduced due to huge outflow.
The system became depressed in the absence of inflows from maturing securities while banks with liquidity need continue to scout for funding sources.
While some Treasury bills assets dumping were notice, other commercial banks switched to the Central Bank to access liquidity from standing lending facility. The rates spikes as banks with liquidity started to demand for higher rates to part with their funds.
According to data from the FMDQ, funding rates crossed 30% benchmark this week. Rates have been steadied below the level in the recent past weeks despite multiple primary market auctions.
The opening system liquidity plunged further to a negative balance on Wednesday. Consequently, the open repo rate (OPR) increased by 19 bps to 31.69%, while the overnight lending rate (O/N) increased by 36 bps to 32.28%.
The Overnight Nigerian Interbank Offered Rate (NIBOR) increased by 121 basis points to 32.51% at midweek, reflecting limited liquidity in the financial system.
This prompted deposit money banks with funding obligations to seek liquidity, said Cowry Asset Limited in a note. Banks take to the standing lending facility of the central bank to augment their funding demand at higher rate. .
The financial system faced a liquidity shortage for the significant part of June. While inflows from federal allocations and FX Swap maturities helped increase money in the financial system, OMO auctions, NTB auctions, and FGN local bond auctions significantly impacted liquidity. #Money Market Rates Climb as Liquidity Drops
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