Excess Liquidity in Financial System Hits N5trn, Rates Swing
The short-term benchmark interest rates swung as excess liquidity in the financial system increased to about N5 trillion on Thursday.
The absence of significant open market operations action by the Central Bank kept money market flooded, and rates movements have been in check with intermittent adjustments.
With the liquidity surplus, local deposit money banks continue to play hard depositing excess cash at Standing Deposit Facility, earnings rate below equivalent borrowing from the CBN.
In the absence of CBN’s action, market analysts project liquidity surplus to extend to next week with average interbank rates settling below 25%.
Despite the ₦546.2 billion settlement for Nigerian Treasury bills auctioned on Wednesday, market liquidity remained in surplus balance of ₦5.0 trillion. This reflects the fact that there was an increase of ₦401.5 billion.
In its update, investment firm AIICO Capital stated that the improvement in liquidity balance was mainly driven by ₦662.8 billion inflow from Nigerian Treasury bills that matured.
The financial system has been supported by commercial banks’ placement at the CBN Standing Deposit Facility window.
Despite the improvement, average funding costs rose by 1 bps, with the Open Repo Rate (OPR) steady at 24.50% while the Overnight (O/N) rate rose by 1 bps to 24.83%, respectively.
Analysts at AIICO Capital anticipate funding costs will remain at a similar level, barring any funding activity. Fidelity Bank: Analysts See 84% Upside on New Target Price

