Interbank Funding Rates Climb as System Liquidity Slows

Interbank Funding Rates Climb as System Liquidity Slows

Interbank funding rates climbed in the money market as liquidity levels in the financial system slowed down due to FX sales payments debited against deposit money banks.

The Central Bank of Nigeria (CBN) has been selling US dollars to authorised dealer banks to boost forex market supply and keep the naira stabilized. In return, banks individual money market balances were debited for the amount of US dollars purchased.

This reduced the amount in the organised financial system, causing the market to price the short-term benchmark interest rates higher than previous day.

The interbank rates outlook remains stable, supported by the ₦747 billion expected from FAAC’s ₦1.578 trillion allocation approval and the impending ₦83.43 billion FGN Bond coupon payment following the recent committee meeting, AIICO Capital Limited said.

Hence, the Nigerian Interbank Offered Rate (NIBOR) increased across all tenors, reflecting tight liquidity conditions.  Similarly, key money market indicators trended upward ahead of huge inflows from FAAC allocation and other systemic credits.

Lower liquidity in the financial system prompted a modest upward adjustment in benchmark rates, with the Overnight Policy Rate (OPR) rising 9 bps to 26.67% and the Overnight Rate (O/N) increasing by an equal margin to 27.13%.

The banking system liquidity fell 74% to open the day with a surplus balance of ₦138.80 billion. Barring any major outflows, analysts at TrustBanc expect the system liquidity to be in surplus and interbank funding rates to trade near current levels.

The Nigerian Interbank Treasury Bills True Yield (NITTY) recorded mixed movements across all tenors. However, increased investor selloffs drove the average yield higher by 0.05%, closing at 21.11%. #Interbank Funding Rates Climb as System Liquidity Slows Pension Fund Assets Grows to N23.366 Trillion