Short-term Interest Rates Rise Sharply on Liquidity Deficit
The short-term interest rates benchmark rose sharply in the money market due to a liquidity squeeze in the financial system. A series of outflows relating to the Central Bank of Nigeria’s (CBN) activities drain funding profiles and drag money market rates higher by about 500 basis points.
Swap arrangements and banks’ cash reserve maintenance triggered a shortfall, reversing the financial system liquidity surplus. Hence, banks with funding demand pitched tents at the CBN’s borrowing window and accessed cash at a double-digit rate.
In a note, TrustBanc Financial Group Limited told investors that the banking system opened the week with a deficit balance of N388.68 billion, driven by a significant increase in withdrawals.
Specifically, the liquidity balance fell into deficit as banks borrowed N885.35 billion from the CBN’s Standing Lending Facility (SLF) window. On Monday, the banking system liquidity significantly declined into negative territory, starting the week.
The market experienced liquidity pressures due to huge outflows for net cash reserves (CRR) debit activities and swap rollovers last Friday.
As a result, interbank rates saw a notable increase. The Overnight Policy Rate (OPR) surged by 4.79%, closing at 32.08%, while the Overnight Rate (O/N) rose by 4.72%, settling at 32.58%.
This week, OMO bills worth about N270 billion is expected to boost liquidity levels in the money market. Despite this, analysts said interbank rates will remain elevated, as the upcoming OMO inflow is unlikely to significantly impact market liquidity. #Short-term Interest Rates Rise Sharply on Liquidity Deficit FBN Holdings Records Huge Off-Market Shares Transactions
