Excess Liquidity in Banking System Tightens Short-Term Rates
The banking system closed in July with a high liquidity balance in the absence of significant funding pressures ahead of substantial inflows from Treasury, coupon payments, and open market operations bills in August.
With the surplus liquidity balance in the financial system, the short-term benchmark interest rates were relatively lower since the week began, with intermittent upswings seen but not significant enough to push funding costs of market operators.
On Thursday, the money market rates were little changed amidst rising liquidity levels in the Nigerian banking system, boosted by additional inflows in the absence of auction.
The system liquidity improved by ₦242.1 billion to ₦1.5 trillion barring any significant funding activities; the market has seen a slowdown in banks borrowing activities from the Central Bank. Excess cash in the banking system has kept rates lower amidst expectations of N2.7 trillion inflows across fixed interest securities maturities in August.
Investment firms reported in their separate notes that funding rates appeared mixed in the interbank window on Thursday. The open repo rate fell by 10 bps to 26.40%, while the overnight rate inched up by 10 bps to 26.98%.
Analysts said they expect the short-term benchmark interest rates to remain at a similar level, supported by improved liquidity and barring any significant funding. Interbank rates (NIBOR) rose across all tenors, except the overnight rate, which declined by 4 bps, reflecting improved system liquidity.
The Nigerian Treasury Bills (NITTY) curve recorded yield gains across all maturities. However, average yields in the secondary market rose by 4 bps to 17.77%, driven by sell-side pressure despite the general downward bias on the curve. #Excess Liquidity in Banking System Tightens Short-Term Rates FirstHoldCo: Strong Top-Line Growth, But Profitability Tells a Cautionary Tale
