Money Market Rates Climb as Liquidity Condition Worsens

Money Market Rates Climb as Liquidity Condition Worsens

Money market rates climbed further over a depressed funding profile in the banking system. Due to the absence of significant inflows from maturing instruments, the money market liquidity level closed on negative territory again on Thursday.

As a result, the short-term benchmark interest rates climbed further, with rates staying above 32% ahead of expected outflow on Friday. The liquidity shortfall forced some local deposit money banks to have a day at the Central Bank of Nigeria’s (CBN) borrowing facility.

The deficit in the banking system expanded further by 12%, opening the day with a negative balance of ₦245.57 billion, TrustBanc said in a note. Hence, some Nigerian lenders have started to raise funds from the CBN borrowing window at higher rates to fund their respective operations following an adjustment to the monetary policy rate in September.

Cash-rich deposit money Banks started to demand higher rates on their free liquidity while some smaller lenders who required funding weighted rates on available funding options.

Analysts said the absence of significant inflows kept liquidity level at negative territory following a series of outflows this week. The liquidity balance is expected to remain tight due to outflows relating to the CBN weekly FX settlements and cash reserve maintenance.

According to Cowry Asset Limited, the Nigerian Interbank Offered Rate (NIBOR) declined across most maturities, except for the overnight NIBOR, which rose by 0.09% to 32.67%.

The movement in the short-term rates suggested tight liquidity within the banking system. The open repo rate (OPR) and overnight lending rate (O/N) saw increases of 0.25% and 0.07%, closing at 32.18% and 32.55%, respectively, data from the FMDQ platform confirmed.

“We anticipate that interbank rates will remain high due to the CRR debits and FX settlements scheduled for tomorrow despite the credit of the FGN bond coupon, analysts at AIICO Capital Limited said in a note.

The deficit in the banking system widened by 37%, opening the day with a negative balance of N219.69 billion, TrustBanc Capital Limited said in a note. #Money Market Rates Climb as Liquidity Condition Worsens Reforms: Fitch Revises Nigeria’s Outlook to Positive