Excess Liquidity in Banking System Rises on Multiple Inflows
A flood of inflow from expired investment securities, amid zero liquidity mop-up, drove excess liquidity in the money market higher last week.
Deposit Money Banks (DMBs) increased their activities at the standing deposit facility of the Central Bank amidst a tight appetite for lending to the real sectors of the economy.
Instead of credit creation, significant numbers of local lenders have doubled down on investment in money market securities with positive real returns on investments.
Cash-rich banks continue to seek higher returns on the excess liquidity, while borrowing from the Central Bank window remains elevated.
Last week, the short-term benchmark interest rates diverged amidst a significant surge in excess liquidity in the financial system, reflecting the absence of monetary actions.
Despite multiple inflows, there was no monetary action to sterilize excess funds. System liquidity strengthened to N4.32 trillion from N2.62 trillion the previous week, AIICO Capital Limited said in a report.
The increase was largely driven by N993 billion in OMO maturities alongside primary market settlements and deposit money banks’ activities at the standing deposit facility.
The market recorded N154.23 billion inflows from Primary Market Repayment, which helped keep the money market rates movement in check.
Market analysts reported that despite the liquidity expansion, funding conditions were mixed as the overnight rate eased marginally by 3bps to 22.78%, while the repo rate held steady at 22.50%.
Liquidity in the banking system remained firmly in surplus throughout the week, expanding progressively and closing stronger than it opened.
There were sizable placements at the CBN’s Standing Deposit Facility (SDF) window and primary market repayment inflows, despite marginal borrowing at the Standard Lending Facility (SLF).
In the interbank space, Overnight NIBOR declined by 2bps to 22.82% amid improved liquidity and naira stability, Cowry Asset Limited said in a note.
The market expects system liquidity to remain robust in the new week, with ₦765.89 billion inflow from maturing Treasury bills and N319.54 billion in OMO repayment.
Overall, the CBN is expected to continue to sterilize system liquidity via OMO issuances, with analysts projecting that Inter-bank rates will remain range-bound between 22.5% and 22.80% UBA Unveils Diaspora Platform to Power Global African Lifestyle
