Money Market Rates Surge as Market Price in Policy Action
Money market rates spiked despite improved liquidity in the financial system on Wednesday. The system’s liquidity improved to a positive balance, AIICO Capital Limited told investors in an emailed note.
However, there was an outflow of N225.72 billion for the July 2024 FGN bond auction which depressed system liquidity. Analysts had predicted that the money market rates would rise due to the latest benchmark rate hike.
FMDQ data showed that the overnight Nigerian Interbank Offered Rate increased by 624 basis points to 35.13% reflecting a touch of pressure on the financial system liquidity level.
Funding rates have been reacting to the recent adjustment of the asymmetric corridor around the monetary policy rate by the Central Bank of Nigeria. The monetary authority bolstered interest rate tightening to combat inflation.
Once again, the apex bank policy action altered money market dynamics, with immediate effects on funding rates. Analysts said costs of money will impact rates, including banks access to borrowing from the CBN standing lending facility.
Cash-rich deposit money Banks are expected to begin to demand for higher rates to part with their funds in the money market, which makes funding rate outlook skewed to the upside. Analysts said the expansion of the upper band of the MPR from +100bps to +500 bps signaled a potential for tighter system liquidity
FMDQ data showed that key money market rates such as the open repo rate (OPR) and overnight lending rate (OVN) also increased, closing at 34.88% and 35.53%, respectively. Analysts said they expect interbank rates to stay elevated tomorrow. #Money Market Rates Surge as Market Price in Policy Action Naira Slides as Nigerians Import Appetite Rises
