Money Market Rates Rise as Banks Compete for Limited Funds

Money Market Rates Rise as Banks Compete for Limited Funds

Money market rates rose as forex interventions, settlement, and Asset Management Corporation (AMCON) levy settlement widened the liquidity deficit in the financial system. As a result of a tight funding profile in the money market, local deposit money banks competed for limited funds in the absence of additional inflows. 

The short-term benchmark interest rates surged to 32% mark, while the banking system deficit surged to N659.92 billion last week. Banks’ borrowing activities increased as operators sought funding with the tight liquidity, which was primarily due to the absence of OMO or Treasury bill maturities, which meant no new liquidity injections into the financial system.

The financial system deficit expanded after the settlement of AMCON and CBN FX obligations by Deposit Money Banks (DMBs) last week. Banking system liquidity dropped by N442.88 billion, moving from a debit of N281.86 billion to N724.74 billion. The market recorded a N65.36 billion FGN bond coupon inflow.

As a result, banks and other financial institutions continued to compete for limited funds, leading to sustained pressure across short-term and interbank funding markets, Cowry Asset Limited said.

Despite the liquidity squeeze, the Overnight Nigerian Interbank Offered Rate (NIBOR) declined slightly by 4 bps to close at 32.71%, from 32.75% the previous week, suggesting relatively stable overnight conditions.

However, the strain was more evident on longer tenors, as the 1-month, 3-month, and 6-month NIBOR rose to 27.86% (+22 bps), 28.14% (+10 bps), and 28.66% (+13 bps), respectively, Cowry Asset stated in a note.

These elevated rates reflect persistent funding pressures across the interbank space last week. Similarly, key short-term borrowing benchmarks—the Open Buy Back (OPR) and Overnight (O/N) rates—trended upward. The open repo rate settled at 32.33%, up from 31.50%. Also, the overnight lending rate closed at 32.67%, up from 32.17%, indicating an elevated cost of overnight borrowing.

The liquidity level in the financial system is expected to be boosted by N326.88 billion in Treasury bill maturities. This significant injection is likely to ease short-term funding constraints, providing relief to banks and potentially dragging down interbank funding rates in the near term. #Money Market Rates Rise as Banks Compete for Limited Funds Market Value of All Nigerian Listed Banks Rises to N15.65trn