CRR Debits Settlement Tightens Money Market Rates
Money market rates tightened due to the liquidity squeeze experienced in the banking system at the beginning of the week following banks tax payments and cash reserve ratio (CRR) activities.
The Nigerian financial system had opened the week with a sufficient liquidity level after the market closed with a net long position of N460 billion last week.
At the close of session on Monday, the settlement of pending cash reserve ratio slammed on some banks by the Central Bank (CBN) for failing to meet loan-to-deposit targets reduced liquidity levels in the financial system.
The short-term benchmark interest rates increased in the absence of additional inflows to boost liquidity, while settlement of CRR debits depleted liquidity at the interbank market.
The Overnight Policy Rate (OPR) eased slightly to 26.75% (-8 bps), while the overnight lending rate fell to 27.25% (-17 bps). The market expects rates to stay near current levels tomorrow, barring any major shock during the week.
The Central Bank is anticipated to mop up more liquidity via open market operations this week as the liquidity level in the banking system is expected to increase with N130 billion inflows from maturing treasury bills.
System liquidity closed the week on a positive note at N468.52 billion, down by N1.12 trillion from the previous week. This decrease was largely driven by CBN issuance of Open Market Operations (OMO) bills (with allotment of N745.40 billion), mopping up increased liquidity levels from the previous week.
As system liquidity trended lower, funding rates largely increased. The Open Repo Rate (OPR) expanded by 33 bps to 26.83%, while the Overnight (OVN) rate also edged up by 42 bps to 27.42%. Investors Ramp Up FGN Bonds, Lock in Yields on Rate Cut Fear
