Liquidity: CBN FX Swap, OMO Debit Heighten Market Rates
Money market rates climbed on aggressive liquidity management operations of the Central Bank of Nigeria (CBN) ahead of FAAC inflows in the new week. Hence, the open repo and overnight lending rates increased sharply as open market operations and CBN forex swaps reduced the liquidity level in the financial system.
Data from the FMDQ platform showed that funding rates surged as average liquidity declined from N986.49 billion to N180.96 billion. The open repo rate increased by 167 basis points week on week to 28.17%, while overnight lending climbed by 193 basis points to 28.92%.
Funding rates inched higher on a series of CBN actions, though banks borrowing activities at the Standing Lending Facility remained in check. Early in the week, the CBN conducted cash reserve ratio debits alongside a N600 billion OMO auction, which attracted robust demand of N1.15 trillion in subscriptions.
The CBN allotted OMO bill worth N1.07 trillion, which then drained liquidity and caused rates to spike. This tightening was later offset by N985.88 billion in OMO maturities, which helped restore liquidity and pull rates back to the 26.5% level midweek.
However, subsequent outflows from cross-currency repayments, FX settlements, and net Treasury bills funding totaling N134.8 billion re-tightened liquidity conditions, AIICO Capital Limited said in a note.
Analysts said the short term benchmark interest rates may hold near 28% in the new week until key inflows arrive, including sales and repurchase agreement (SRA) funds, N216.76 billion in bond coupons, and N283.78 billion from maturing treasury bills hit the financial system.
The outflow for OMO bills allotted to investors at the primary market auction worth N1.07 trillion significantly reduced the liquidity level. Funding level worsened following another N1 trillion outflow relating to the CBN FX swaps deal.
Analysts at Cordros Capital Limited noted that these two huge outflows outstripped the inflows from OMO (N975.88 billion) and NTB (N38.04 billion) maturities.
Consequently, the financial system liquidity wrapped up the week in a net long position of N780.22 billion compared to a net long position of N986.79 billion in the previous week due to heightened activities at the CBN’s Standing Deposit Facility window at an average of N872.98 billion.
Barring any mop-up activity by the CBN, analysts said they expect inflows from FAAC disbursements totaling N1.12 trillion, Treasury bills maturities worth N283.79 billion, and FGN bond coupon payments of N216.76 billion to boost system liquidity. Dangote Cement Opens N100bn Commercial Papers for Subscription
