Excess Liquidity in Banking System Keep Rates Lower

Excess Liquidity in Banking System Keep Rates Lower

The short-term benchmark interest rates declined in the money market due to excess liquidity level in the banking system. The liquidity balance in the financial system opened stronger, rising by ₦648.7 billion to ₦1.99 trillion on Monday amidst Central Bank of Nigeria (CBN) open market operations.

In a note, analysts at AIICO Capital Limited said the strong liquidity conditions in the money market was supported by increased inflows from the Standard Lending and Deposit facilities.

Despite the liquidity boost, interbank rates showed mixed movement. The Overnight Policy Rate (OPR) closed flat at 26.50%, while the Overnight (O/N) rate inched up by 8 basis points to 27.00%, reflecting the impact of the CBN’s OMO bills auction.

The CBN floated OMO bill auctions to mop up excess liquidity in the banking system. The primary market OMO bills auction recorded a subscription of ₦1.63 trillion on the 204-day tenor at a stop rate of 23.87%.

Barring any significant fund activities on Tuesday, analysts said they expect the interbank rates to remain at a similar level. Interbank rates (NIBOR) trended higher across all tenors, reflecting the liquidity adjustment. However, the overnight NIBOR edged up slightly by 0.05% to settle at 26.88%.

The Nigerian Treasury Bills curve recorded yield decreases across most maturities, driven by a shift in investor sentiment. Despite the uptick in yields, activity in the secondary market picked up, as sell-side pressures pushed the average yield higher by 2 basis points to 17.66%.

The financial system liquidity opened the week in negative territory at -N499.69 billion, further tightening from the previous week’s level of -N280.57 billion.

However, liquidity conditions improved sharply in the final two trading sessions, closing at N112.14 billion and N134.56 billion, respectively, according to a Coronation Merchant Bank research note.

Reflecting this shift, activity at the Standing Deposit Facility (SDF) surged from N146.65 billion at the start of the week to N991.52 billion, as banks increasingly parked excess funds with the CBN.

Conversely, utilisation of the Standing Lending Facility (SLF) fell significantly from N916.08 billion to just N157.50 million, underscoring the easing of liquidity pressures.Despite the ₦1.55 trillion OMO bills auction settlement, system liquidity is expected to remain robust, keeping funding rates steady around prevailing levels. Naira Steady after CBN Intervention, FX Reserves Hit $38.765bn