Money Market Rates Increase as CRR Debits Drag Liquidity

Money Market Rates Increase as CRR Debits Drag Liquidity

Money market rates climbed strongly, trending at double digits highs, on the back of sustained liquidity squeeze in the banking system.  The market opened the week with more than N60 billion deficit in the absence of significant inflows to boost liquidity condition in the financial market.

At the close of trading session across financial markets on Tuesday, deficit in the banking system widened significantly as banks struggle with tight liquidity to fund operations. In a note, TrustBanc Capital Limited wrote that the deficit in the banking system expanded by 166% to close at N159.94 billion.

In separate report, analysts attribute the decline in the financial system liquidity to sterilization of fund relating to the Apex Bank’s cash reserve ratio (CRR)debit on banks deposits.

The Central Bank debited banks an undisclosed amounts on Tuesday, causing interbank rates to trend upward. The insufficient liquidity balance requires to meet demand for funds caused dislocation between demand and supply.

As the financial market allocate available limited funds to best alternative uses, the short term benchmark interest rates increased.  TrustBanc Capital Limited reported yesterday that activates of deposit money banks at the Central Bank of Nigeria (CBN) standing lending facility reduced sharply.

Though negative, the balance in financial system, settling at N60 billion deficit in the absence of additional inflows. Analysts noted banks borrowing activities reduced to N254 billion when compared with daily average withdrawal of about 900 billion.

The market expects inflows from FGN bonds coupon payments to bolster the financial system liquidity this week. Also, additional inflow is expected from Swap deals.

Reflecting the currency cash position, the Nigerian Interbank Offered Rate (NIBOR) rose across most maturities, signaling tight liquidity conditions within the banking system.

Data from the FMDQ platform showed that the open repo rate (OPR) and the overnight lending rate (O/N) increased, climbing by 1.60% and 1.55% to close at 32.03% and 32.60%, respectively.

Analysts anticipate that rates will stay elevated, even with the inflows from SWAP maturities and FGN bond coupons this week.   #Money Market Rates Increase as CRR Debits Drag Liquidity Money Market Rates Mixed as Banking System Deficit Reduces