Short-term Benchmark Interest Rates Rise on Tight Liquidity
The short-term benchmark interest rates have continued to rise as the financial system’s liquidity balance collapsed due to an outflow associated with Treasury bill payments.
The short-term benchmark interest rates accelerated above 30% apiece from as low as 26% this week due to a weakening liquidity level. An unmet liquidity demand by ahorised dealers in the money market would trigger a rush to borrow.
The net impact of the Nigerian Treasury Bills auction settlement expanded the deficit in the banking system by 44%, bringing the opening balance to a shortfall of N475.92 billion, TrustBanc Financial Group said in a note.
At the end of trading session midweek, the banking system deficit had printed at N330.5 billion in the absence of significant inflows. The funding pressure triggered a number of banks to pitch tents at the Central Bank of Nigeria’s (CBN) standing lending facility (SLF) to access liquidity to meet their funding obligations.
On Thursday, liquidity in the financial system weakened due to the settlement of the Nigerian Treasury bills auction, which resulted in a net debit of N83.04 billion, AIICO Capital Limited said in a note.
The tight liquidity in the market triggered an increase in the short-term benchmark interest rates. Nigerian Interbank Offered Rate (NIBOR) decreased across the 1-month, 3-month, and 6-month tenors, while the overnight NIBOR increased by 331 basis points, indicating the system’s liquidity levels, Cowry Asset Limited said in a note.
Data from the FMDQ platform confirmed that the overnight policy rate (OPR) is increasing by 55 bps to 32.25% and the overnight rate (O/N) climbing by 58 bps to 32.83%.
Analysts at AIICO Capital Limited expect short-term interbank rates to remain elevated as markets await FAAC credits.
Recalls that the Federal Account Allocation Committee (FAAC) has approved N1.41 trillion for distribution among the three tiers of government, with about N667 billion anticipated to enter the system. #Short-term Benchmark Interest Rates Rise on Tight Liquidity FX Stability: CBN Sells 122.671m Dollars to 46 Authorised Dealers
