Interbank Rates Rise as OMO Auction Debit Tightens Liquidity

Interbank Rates Rise as OMO Auction Debit Tightens Liquidity

Interbank rates increased strongly in the money market due to OMO auction settlement in the absence of other inflows.  The system liquidity plunged further into negative territory, causing a significant surge in interbank rates.

This was caused by about N1.45 trillion OMO auction sold by the Central Bank of Nigeria at the primary market auction (PMA) conducted on Tuesday, which got settled Wednesday.

The settlement for the OMO bills auctioned worth N1.44 trillion submerged the banking system into a negative liquidity position of N2.3 trillion, investment banking firms reported. Hence, the Nigerian interbank offered rate (NIBOR) rose across all maturities, indicating tight liquidity in the banking system, according to Cowry Asset Limited.

Data from the FMDQ platform confirmed that the Overnight Policy Rate (OPR) rose by 2.09% to 31.90%, while the Overnight Rate (O/N) increased by 2.17% to 32.53%.

Tight liquidity balance in the financial market is expected to drive local banks to the CBN Standing Lending Facility to raise funding. The CBN has recently repriced rate to 31.75% at its borrowing window to reflect its policy tightening.

Rates would surge further after the CBN treasury bills auction sales worth more than N500 billion on Wednesday, analysts said in their separate projections. The Apex Bank conducted primary market auction midweek where it offered N513.43 billion treasury bills for sales to investors.

Analysts at AIICO Capital Limited anticipate that interbank rates will remain elevated unless there is a significant change to the current liquidity status. The money market rates were higher in October due to persistent illiquidity in the interbank market. This was driven by debits for CBN FX auctions intervention, cash reserve debits and frequent OMO auctions.

According to AIICO Capital report, the month began with a significant credit of ₦709.32 billion, but liquidity sharply declined throughout the period, averaging a debit of -₦579.71 billion, down from -₦26.13 billion in September.

Analysts said FAAC disbursements, Remita credits, and other state inflows temporarily eased liquidity pressures in mid-October, with interbank rates reaching a low of 19%-25% by month-end.

However, funding pressures remained high, with rates spiking up to 34% during peak OMO settlements and closing around 26%-27% after FAAC inflows #Interbank Rates Rise as OMO Auction Debit Tightens Liquidity FX Stability: CBN Sells 122.671m Dollars to 46 Authorised Dealers

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