Banks’ Borrowings Stoke Pressure on Financial System Liquidity
Borrowing from the central bank’s (CBN) standing lending facility squeezed the financial system as money market rates spike Wednesday.
Specifically, liquidity in the financial system deteriorated from Tuesday’s surplus of N24.9 billion to a deficit of N201.5 billion amidst the borrowing spree by deposit money banks.
In a comment, analysts at Chapel Hill Denham explained that the development was caused basically by increased activities in the Standing Lending Financing (SLF) windows, which showed a 160.7% growth.
Consequently, funding pressure soared by 175 basis points (bps) on the open buyback and the overnight rates to 14.5% and 15% respectively.
“We expect this pressure to persist over the week with no open market operations (OMO) maturity in view”, Chapel Hill Denham said in a report.
Meanwhile, sentiments were broadly mixed in the fixed income market yesterday across the maturities.
At the front end of the curve, the Nigerian treasury bills (NTB) and OMO benchmark curves expanded by an average of 9bps and 10bps to 5.15% and 8.63% respectively.
Analysts said trading was relatively flat in the bond market as investors concentrated on the N150 billion bond issuance that held on Wednesday.
At the Debt Management Office (DMO) bond auction, investors oversubscribed the Mar-29 and Apr-49 maturities with a bid-cover ratio of 1.39X and 1.64X.
According to analysts, the auction cleared at higher marginal rates of 13.1%, 14.0% and 14.1% for the Mar-27, Mar-29, and Apr-49 maturities, reflecting demand pressures.
In a related development, the Nigerian local currency, naira, continued to witness near-zero volatility at all segments of the FX market.
In the Investors and Exporters Window, naira weakened against the USD by 0.21% or 21 kobo to close at N410.75.
In the parallel market, the local currency closed flat against the USD at 484.00 as external reserves extended decline, closing lower by 0.5% week on week to US$34.40 billion.
Banks’ Borrowings Stoke Pressure on Financial System Liquidity
