Banks Place N5.4trn at Deposit Facility Window at Steep Rate
Deposit Money Banks (DMBs) have continued to place excess liquidity with the Central Bank of Nigeria (CBN) standing deposit facility at a rate currently above the return on Nigerian one year Treasury bills.
A series of maturing inflows and a primary market auction slowdown have elevated the free liquidity in the banking system, resulting in placements with the authority.
Despite the Debt Management Office bond auction, the money market remains flooded with huge liquidity that has kept rate movement in check in the absence of CBN open market operation action.
DMBs have chosen an alternative course to boost their earnings, sterilising funds with placement at the CBN standing deposit facility as Sept heads to close as the most liquid period in the financial market.
The money market opened the week with robust system liquidity of about ₦5.73 trillion, resulting from additional inflows totalling N1.707 trillion.
The excess liquidity in the system was bolstered by DMB’s strong placement at the CBN’s SDF window, totalling ₦5.39 trillion, AIICO Capital Limited said in a note.
Despite the robust liquidity boost, the open repo rate (OPR) held steady at 24.50%, while the overnight lending rate (OVN) increased by 12 basis points (bps) to close at 25.00%.
“Interbank rates are expected to moderate, supported by the maturity of the 30-Sept-2025 OMO bill, barring any significant funding pressures,” AIICO Capital Limited told investors in a note.
The CBN adopted a dovish stance, lowering the monetary policy rate by 50 bps to 27.0% at its penultimate meeting of the year.
The asymmetric corridor around the MPR was also adjusted to +250 bps/-250 bps from +500 bps/-100 bps, implying that banks will now borrow from and deposit with the CBN at 29.5% and 24.5%, respectively.
“Despite adjusting the corridor, banks are likely to remain net depositors with the CBN, as the Standing Deposit Facility (SDF) rate remains more attractive than the 1-year Nigerian Treasury Bills”, CardinalStone Securities Limited said in a commentary note.
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