Excess Liquidity in Financial System Hits N4trn, Rates Fall
Money market rates fell on the back of more than N4 trillion surplus liquidity in the financial system, bolstered by a sequence of inflows in the absence of a primary market auction.
Liquidity level increased by N2.352 trillion week on week to close at N4.018 trillion on Friday, data from AIICO Capital Limited review highlighted.
Deposit Money Banks (DMBs) actively placed excess funds at the Standing Deposit Facility (SDF) window, with daily balances ranging between ₦1.70 trillion and ₦3.73 trillion, according to AIICO Capital.
Banks’ deposit placements peaked towards the latter part of the week, reflecting the absence of liquidity pressures in the market. Hence, funding costs eased sharply, reflecting the MPC’s bps cut in the monetary policy rate to 27.00% and an adjustment to the policy corridor.
The robust liquidity level in the market at the beginning of last week was supported by elevated SDF activity in addition to inflows from matured instruments.
This includes OMO bill repayments and over N460 billion in additional primary market repayments, allowing the week to close with an even stronger surplus of about N4.02 trillion.
The Central Bank debited some banks for cash reserves ratio (CRR) for failing to meet their loan to deposit targets. Despite the passage of CRR debits on a few banks by regulators, the financial system liquidity remained surplus.
The Central Bank’s dovish tilt which reduced the policy rate to 27% while lowering the CRR for deposit money banks to 45% and introducing a higher 75% CRR on non-TSA deposits, provided additional tailwinds for liquidity conditions, Cowry Asset Limited said in a commentary note.
Reflecting these dynamics, the Nigerian Interbank Offered Rate (NIBOR) crashed across all maturity gauges as the system absorbed the impact of maturing OMO bills and higher cash balances.
According to Cowry Asset Limited, the NIBOR fell sharply by 2.06 percentage points week-on-week to settle at 24.78%, underpinned by the liquidity boost from CBN crediting of banks in line with the revised CRR framework.
Benchmark funding rates also reflected the ample liquidity. The average funding cost fell by 204 basis points week on week to 24.69%. The open repo rate (OPR) and overnight lending rate declined by 200 bps and 208 bps to 24.50% and 24.88%, respectively.
On the other hand, the Nigerian Treasury Bills Market Index presented a mixed performance. While the 12-month tenor eased by 17 bps to 19.10%, shorter and mid-term tenors climbed higher, reflecting investors’ demand for higher yields.
The market anticipates OMO bill maturities worth N450 billion to boost financial system liquidity in the new week, keeping rate movement in check. Analysts said the upcoming FGN bond issuance may serve as a counterbalance, mopping up part of the excess liquidity and keeping funding rates tilted toward the upper band. Wema Bank Drops by 12% as Investors Exit Huge Positions
