Open Market Operation Drives Rates Surge in Money Market
The money market rates edged higher after the Central Bank of Nigeria (CBN) conducted an open market operation to counter rising liquidity levels in the financial system. The CBN floated N600 billion in OMO bill sales offers to investors but raised N2.12 trillion. The OMO auction was targeted at excess liquidity conditions in the money market.
The CBN will also sell N220 billion to investors at its midweek primary market auction for Nigerian Treasury bills. Still, the market maintains solid liquidity, reflecting the absence of significant pressures. Banks have been sterilizing funds by depositing excess cash with the CBN.
The OMO bills settlement will drain free funds available in the financial system and push rates higher on Wednesday, analysts said. In a report, TrustBanc Financial Group reported that banks borrowed N1.5 trillion from the standing lending facility after three days of inactivity while deposit placement with the CBN eased.
On Tuesday, the Nigerian Interbank Borrowing Rate (NIBOR) rose across all tenor buckets, with the overnight rising from 26.88% to 27.18%. The open repo rate and overnight lending rates edged higher, though excess liquidity level in the banking system persisted.
Investment firm AIICO Capital Limited reported that the liquidity balance in the financial system increased to ₦2.26 trillion from a previous opening balance of ₦1.21 trillion.
Despite the increase, funding costs edged higher as the average rate climbed 60 bps to 27.35%, with the Overnight Policy Rate (OPR) up 50 bps to 27.50% and the Overnight (O/N) rate up 70 bps to 27.20%.
The short-term benchmark interest rates are expected to stay near current levels tomorrow unless significant market moves occur. The financial system liquidity surplus position closed at N1.61 trillion on Friday, up from N1.35 trillion in the prior week. The market liquidity was primarily driven by possible FAAC inflows, which drove activity at the Standing Deposit Facility. Equity Investors Gain N584bn as BUA Cement, Oando Rally
