Banking System Liquidity Crunch Elevates Money Market Rates
The short-term benchmark interest rates pricing are currently at double-digit highs in the money market as the liquidity crunch facing the banking system persists.
Interbank rates remained elevated, reflecting limited funding accessible by Nigerian banks and other financial institutions active in the money market segment. The limited funding profile pushed deposit money banks to the Central Bank of Nigeria (CBN) standing lending facility to raise funds to finance their operations.
The market experienced a liquidity crunch even without main auctions in the absence of additional inflows from maturing bills. Instead, the AMCON levy and CBN FX sales settlement strained liquidity while banks competed for limited funds at SLF rate.
At the beginning of the week, the financial system liquidity deficit reduced to N499.69 billion from N659.92 billion following inflows from federal government of Nigeria (FGN) bond coupon payments on Monday.
A total amount of ₦90.59 billion in FGN bond coupon inflow, however, failed to ease the interbank market’s liquidity crunch, keeping rates pinned at 32.5%. The Nigerian Interbank Offer Rate (NIBOR) recorded mixed movements across tenors, with the overnight and 1-month rates rising by 4 bps and 22 bps, respectively.
Meanwhile, 3-month and 6-month NIBOR rates declined by 7 bps each, Cowry Asset Limited said in a note. Money market rates also trended upward, as the Open Buy Back (OPR) rate increased by 9 bps to 32.42%, and the overnight lending rate climbed by 16 bps to 32.83%, separate market analysts reported in their notes.
Interbank rates may hold at 32.5% until further coupon inflows are credited and other SRA inflows, which should improve liquidity and push rates toward 26.5%, AIICO Capital Limited said. #Banking System Liquidity Crunch Elevates Money Market Rates CBN to Float N290 Billion Treasury Bills for Subscription
