Money Market Rates Rise Sharply as System Liquidity Shrinks

Money Market Rates Rise Sharply as System Liquidity Shrinks

Money market rates rose sharply due to a strained liquidity level after a huge OMO auction debit against the balance in the financial system. The Nigerian interbank offered rate (NIBOR) rose across all maturities, indicating tight liquidity in the banking system

MarketForces Africa reported that the Central Bank of Nigeria (CBN) conducted OMO bills auction on Tuesday via primary market sales to local and foreign investors.

While the monetary authority offered N300 billion OMO for sales, investors staked about N1.5 trillion on the bills on the back of strong liquidity level seen in the market at the beginning of the week.

The huge debits for the transaction toned down liquidity levels in the financial system and thus lifted the short-term benchmark interest rates to a 30% range from 20% on Monday.

System liquidity opened lower today; however, after the OMO auction, interbank rates closed significantly higher, according to a note from analysts at AIICO Capital Limited.

Specifically, the overnight policy rate (OPR) increased by 10.59% to 29.81%, while the overnight lending rate (O/N) rose by 10.67% to 30.36%, data from the FMDQ platform confirmed.

Analysts said they expect system liquidity to drop into negative territory due to the OMO auction settlement. Consequently, interbank rates should remain elevated.

The CBN held an OMO auction, offering N300 billion across standard maturities. Continuing recent trends, demand focused on the long end, with subscriptions totaling N1.45 trillion, resulting in a bid-to-offer ratio of 4.83x. The CBN matched this demand, with sales concluded at a stop rate of 24.28%.

Last week, the overnight (OVN) rate contracted significantly by 10.46ppts week on week to 19.7%, underpinned by inflows from FGN bond coupon payments totaling N260.67 billion) and OMO maturities worth N254.25 billion.

Analysts at Cordros Capital Limited said the rate was the lowest point since February, which is also the last time the rate trended below the 20.0% mark, indicating strong liquidity in the financial system.

Accordingly, the firm said the average liquidity for the week settled at a net long position of N390.67 billion from a net short position of N437.00 billion in the previous week. #Money Market Rates Rise Sharply as System Liquidity Shrinks Jaiz Bank Value Increases by 11.2% to N86 Billion