Interbank Rates Dip as FAAC Credit Boosts Liquidity
The financial system closed with a liquidity deficit, which kept the short-term benchmark interest rates elevated in the money market. Banks maintained their borrowing habits as they faced pressure from weak funding profiles in the market.
Interbank rates declined after inflows from the Federal Account Allocation Committee (FAAC) lifted liquidity balance in the financial system.
The reduction in money market rates was short of expectations, reflecting a deficit balance in the system. In their separate notes, investment analysts said liquidity balance improved, though still in deficit for fifth consecutive days
According to analysts, FAAC inflows only reduced the deficit in the banking system by 34% to N270.62 billion from N412.90 billion on Wednesday. The deficit balance in the financial system was N321.5 billion on Friday last week, dropped to N269.7 billion on Monday, and surged to N438 billion by Tuesday before it settled at N412.9 billion on Wednesday.
The sustained liquidity deficit kept money market rates elevated with the short-term benchmark interest rate trend above 30% since the beginning of the week. Analysts said some local deposit money banks that struggled meeting their liquidity demand raised additional funds from the Central Bank borrowing window.
Many financial institutions affected by 50% cash reserves ratio have been shuttling for funding via the Standing Lending Facility (SLF) of the CBN, analysts said, noting that the borrowing rate at the window is currently about 32%.
Interbank borrowing rates affect smaller banks with a relatively lower deposit mix, which is often the reason for higher costs of funds and costs to income ratio, analysts explained.
The liquidity boost dragged interbank funding rate downward on Thursday. Data from the FMDQ platform showed the overnight policy rate (OPR) decreased by 1.97% to 29.81% and the overnight lending rate (O/N) fell by 2.00% to 30.50%.
Analysts said they expect liquidity conditions to remain constrained, with funding rates hovering around current levels. #Interbank Rates Dip as FAAC Credit Boosts Liquidity Egbin Power Wins Best in Safety Performance Power GenCo Award at AfriSafe 2024
