Money Market Rates Heated Up by Liquidity Deficit
The money market rates heated up further due to deficit balance in the financial system. The short-term benchmark rates continue to surge in the week after successive primary auction sales caused huge outflow in recent past week.
The deficit in the banking system widened by 37%, opening the day with a negative balance of ₦219.69 billion, TrustBanc Capital Limited wrote in its market update. Due to low liquidity profile in the money market, deposit money banks have started to pitch their tents at the Central Bank of Nigeria’s (CBN) standing lending facility.
The CBN’s borrowing window had been on holiday amidst a higher standing lending rate of 31.75%, caused by an increase in Nigeria’s monetary policy rate. The adjustment to the benchmark interest rate raised borrowing costs across short- or long-term tenor. This also has immediate impacts on money market deposits, as it is on fixed-interest securities assets.
MarketForces Africa reported that the CBN had worsened the liquidity condition in the money market with recent debits on local deposit money banks for cash reserve maintenance as part of regulatory control.
However, analysts said some cash-rich banks are also demanding higher rates from smaller lenders with liquidity constraints. On Wednesday the Nigerian Interbank Offered Rate (NIBOR) declined across most maturities, except for the Overnight NIBOR, which rose by 0.16% to 32.58%, according to Cowry Asset Limited.
Analysts said NIBOR movements indicated tight liquidity within the banking system—in the absence of significant inflows. The open repo rate (OPR) and overnight lending rate (O/N) saw decreases of 0.10% and 0.12%, closing at 31.93% and 32.48%, respectively, data from the FMDQ platform confirmed.
The open repo rate (OPR) declined by 10 bps to 31.93%, while the overnight lending rate (O/N) fell by 12 bps to 32.48% as the liquidity deficit expanded on Wednesday. #Money Market Rates Heated Up by Liquidity Deficit FG Opposes Proposed Nigeria Mines Ranger Service
