Buckets of Inflows Keep Money Market Rates in Check
Money market rates declined sharply as a flood of inflows upturned the liquidity deficit in the banking system, investment firms said in separate notes. The short-term interest rates retreated from 30% levels as FAAC credits, Remita inflows, and FGN coupon payments increased liquidity position in the money market last week.
Analysts at AIICO Capital Limited noted that interbank liquidity fluctuated throughout the week, influenced by FGN bond coupon inflows, FAAC payments, and Remita credits. Early in the week, liquidity position improved slightly but remained negative, keeping interbank rates elevated.
By midweek, there was significant recovery due to additional inflows, leading to declines in the overnight policy rate and overnight lending rate (O/N), according to analysts. However, net NTB settlement debits temporarily constrained liquidity before a late-week surge in Remita inflows eased pressure, AIICO Capital Limited said in a market report.
On Friday, data from the FMDQ Exchange confirmed that the repo rate dropped 533 bps week on week to 27.00%. Also, the overnight lending rate declined 525 bps to 27.50% in the absence of significant funding pressures.
The market is expected to maintain sufficient liquidity, supported by ₦335.00 billion in OMO maturities and forthcoming FAAC disbursements, analysts said in separate market reports. Liquidity level settled at a surplus balance of ₦211.80 billion on Friday, upturning a total deficit of ₦307.56 billion at the beginning of the week.
In a note, TrustBanc Financial Group Limited said the negative trend shifted on Tuesday, driven by reduced outflows from the Standing Lending Facility (SLF) window.
The investment firm noted there was an inflow from bond coupon payments totalling ₦414.98 billion. But financial system liquidity was squeezed during midweek following the settlement of FX sales to banks The money market was also debited for net treasury bills settlement worth ₦489.20 billion on Thursday after midweek primary market auction.
“We anticipate the bond auction scheduled for Monday to exert pressure on available liquidity, while interbank rates are expected to remain elevated at current levels,” TrustBanc said.
Cordros Capital Limited told investors in a note that the average liquidity short position moderated to N23.68 billion versus a net short average of N145.29 billion in the previous week. #Buckets of Inflows Keep Money Market Rates in Check FBN Holdings Records Huge Off-Market Shares Transactions
