Excess Liquidity in Banking System Climbs 73%, Rates Mixed
Money market rates were mixed as excess liquidity levels in the banking system increased by more than 73% due to FAAC inflows and the absence of aggressive mop-up activities.
Interbank rates closed mixed, with the overnight rate declining by 12 bps to 22.16%, reflecting improved system liquidity following the N2.228 trillion FAAC distribution.
The Central Bank of Nigeria (CBN) failed to pursue aggressive liquidity management, and the absence of open market operations left the money market flooded with free credit.
Investment firm AIICO Capital Limited reported that financial system liquidity rose 73.15% to ₦6.91 trillion from ₦3.99 trillion, marking the third straight increase.
According to Cowry Asset Limited, the banking system recorded N2.28 trillion in inflows from FAAC distribution following recent allocations to the Federal Government, states, and local government councils.
Hence, short-term benchmark interest rates reacted to liquidity movements amid the latest drive toward expansionary monetary policy in the country.
The Monetary Policy Committee cut the policy rate by 350 basis points to 23.00% from 26.50% and narrowed the lower band of its corridor to 300 basis points, which moves the deposit floor to 20.00% from 22.00%.
The funding rates inched up 3 basis points to 22.27%, while the overnight policy rate and the Nigerian Overnight Financing Rate held at 22.00%.
AIICO expects overnight rates to move down towards the new 20.00% floor, with a ₦6.91 trillion cash surplus in the system. Analysts said the size of the central bank’s next OMO auction will decide how quickly that surplus is drained Treasury Bills Yield Rises to 19.5% Ahead of Q2 Supply

