Excess Banking System Liquidity Lower Funding Rates
Funding rates eased in the absence of pressures in the money market due to sufficient liquidity levels in the financial system. Banks with liquidity deficiency were able to access funding from the Apex Bank borrowing window, while cash-rich local lenders sterilised funds at the deposit facility.
In spite of the mixed activities, the interbank liquidity remained ample and largely stable, and the market anticipates rates will ease in the new week, barring the Central Bank’s liquidity mop-up actions.
Briefly, the banking system’s liquidity tightened as there was a substantial outflow of ₦2.5 trillion via the standing deposit facility, and this outweighed the standing lending facility, totaling ₦949.2 billion, according to Afrinvest Capital Limited.
At the close of the week, the open repo rate (OPR) dropped by 8 basis points to 26.42%. Also, the overnight lending rate declined by 4 basis points in the same period to close at 26.92%, respectively, despite notable liquidity movements.
The liquidity level in the banking system opened at N438.17 billion and closed marginally lower at N431.87 billion, according to AIICO Capital Limited. The liquidity level recorded was supported by an inflow of N1.14 trillion in OMO maturities and a N17.87 billion FGN bond coupon inflow.
As part of efforts to achieve liquidity balance in the finance system, the CBN held a ₦500 billion OMO bills auction to part-finance OMO bills that matured last week. The CBN’s OMO auction attracted strong demand, with N743.25 billion subscribed across mid-tenor instruments.
OMO bill inflows of N1.14 trillion and FGN bond coupon payments worth N17.87 billion helped offset debits for the OMO auction settlement of N655.25 billion and net Nigerian Treasury bills issuance totaling N115.80 billion.
Investment firms reported that the decision to keep the interest rate benchmark and other policy parameters unchanged at the monetary policy committee meeting reinforced rates stability.
Despite midweek liquidity tightening, markets remained resilient, keeping interbank funding rates anchored around 26.5% for most sessions. System liquidity is expected to remain ample, supported by N984.22 billion in OMO maturities against N300 billion in FGN bond auction settlements in the new week.
Analysts think the CBN may conduct OMO auctions to manage money supply, which could pressure interbank rates higher. The average system liquidity improved, settling at a net long position of N646.50 billion as against a net long position of N230.04 billion in the previous week, Cordros Capital Limited said in a note.
Barring any mop-up activity by the CBN, analysts at Cordros Capital Limited expect N987.22 billion in inflows from OMO maturities and FGN bond coupon payments worth N5.63 billion to offset expected debits for the Debt Management Office’s N300.00 billion bond auction on Monday, thus bolstering system liquidity.
On Friday, the Nigerian Interbank Offered Rate (NIBOR) declined across most tenors, with the exception of the 1-month benchmark, which eased by just 2 basis points.
Key money market benchmarks trended downward on Friday: the open repo rate dropped by 8 basis points to 26.42%, while the overnight lending rate decreased by 4 basis points to 26.92%. #Excess Banking System Liquidity Lower Funding Rates Oil Prices Dip amidst Excess Supply Concerns
