Liquidity: Interbank Rates Rise Sharply on FX, Bond Auction Debits
Reversing its downward trend, interbank rates rose sharply over liquidity constraints in the financial system, caused by huge outflows.
The liquidity shortfall at N330 billion deficit lifted the short-term benchmark interest rates by more than 600 basis points apiece. This left many small lenders in negative positions as analysts predict a rush to the CBN window to borrow funds.
The market experienced debits relating to payments for the Debt Management Office’s (DMO) monthly bond auction. Likewise, the payment for FX auction sales to authorised dealer banks drained liquidity balance in the money market.
A total of about N346 billion left the financial system in addition to the Central Bank of Nigeria (CBN’s) FX intervention settlement.
Consequently, the Nigerian Interbank Offered Rate (NIBOR) increased across all maturities, Cowry Asset Limited said, indicating tight liquidity in the banking system.
Data from the FMDQ platform confirmed that interbank rates increased significantly, with the overnight policy rate (OPR) climbing by 6.63% to 31.70% and the overnight rate (O/N) rising by 6.46% to 32.25%.
Cash-rich banks have started to demand higher rates from peers in deficit positions. The rate at the CBN standing lending facility has been adjusted upward to about 32%.
On Tuesday, the liquidity in the banking system declined by 27% despite the inflow of N6.38 billion from OMO maturities, opening the day with a relatively buoyant balance of N226.51 billion.
The rates in the money market are used to price financial instruments. Banks borrow and lend money in the interbank lending market in order to manage liquidity and satisfy regulations such as reserve requirements. #Liquidity: Interbank Rates Rise Sharply on FX, Bond Auction Debits Naira Plummets to N1690/$ after CBN Priced Spot Rate High
