Market Rates Rise as CBN FX Settlement Drags Liquidity
The Central Bank of Nigeria (CBN) foreign exchange market intervention settlement nudged market rates higher to hover around 29% level in the money market. Short-term benchmark interest rates surged in the absence of supportive inflows, and banks with excess liquidity have begun to demand higher rates.
The market has seen a surge in withdrawals from the CBN Standing Deposit Facility (SLF), which signals a return to a tight funding structure in the money market. The tight liquidity conditions in the money market effectively reversed recent past experience.
As a result of surplus liquidity and low funding requirements, Banks sterilised unused funds by placing huge amounts at the CBN deposit facility, where authorised dealer earn below the benchmark interest rate.
A series of recent debits, including substantial outflows for OMO bills and settlements for the Nigerian Treasury bills auctions, have negatively impacted the liquidity level in the banking system.
In the absence of significant inflows to cushion the effects of settlements for auctions and the latest round of FX interventions for authorized dealer banks, fund rates have increased by at least 200 basis points from the 26% range. On Wednesday, the Nigerian Interbank Offered Rate (NIBOR) increased across all tenors, reflecting tight liquidity conditions within the banking system.
Concurrently, key money market indicators also trended upward, with the Open Repo Rate rising by 1.00 percentage point to 28.50% and the Overnight Lending Rate gaining 0.82 percentage point to 29.42%.
Rates are expected to adjust to FGN inflows on Thursday, in the absence of any financial market surprise or CBN actions.
The market anticipates an inflow of ₦175 billion from FGN bond coupon payments to boost financial system liquidity. Meanwhile, the Nigerian Interbank Treasury Bills True Yield fell across all maturities, with the average Treasury bill yield dipping by one basis point to 20.93%. #Market Rates Rise as CBN FX Settlement Drags Liquidity BUA Foods Changed Dividend Payment Date
