Interbank Rate Drops as Liquidity Pressures Ease, Naira Tumbles

Interbank Rate Drops as Liquidity Pressures Ease, Naira Tumbles

Following reduced pressures on the financial system liquidity, the average interbank rate has dropped to a double-digit low, traders note shows while the Nigerian naira falls by about 0.30% to N430.25 per the United States dollar at the official window.

Dry liquidity in the financial system had impacted short-term rates in the money market after the Central Bank of Nigeria’s (CBN) fast and furious interest rate hikes in the past months – a move to combat Nigeria’s rising headline inflation rate.

MarketForces Africa reported that financial system liquidity pressures had forced a number of Nigerian banks to sell their treasury bills holdings. The sell pressures due to large assets dumping helped raised the average yield curve apart from the impacts of interest rate hikes. READ: Nigerian Banks Battle Liquidity Shortfall, Borrow from CBN Facility

As of Thursday’s close, the average interbank rate dropped by 350 basis points to close at 11.25%; following a reduction in the Open Buy Back and the overnight lending rates. Data from FMDQ Exchange indicates that open buyback dropped off 367 basis points to close the day at 11%, from about 15% it has sustained over time. 

In the same light, the overnight lending rate declined by 333 basis points to close at 11.50%.

In the secondary market, trading activities on Treasury bills were noted to be quiet after the CBN primary market auction on Wednesday. As a result of a thin trading session, the average rate ended flattish to close at 7.54%.

Elsewhere, the average yield expanded by 64 basis points to 11.1% in the open market operations (OMO bills) segment, according to a market report.

On the other hand, the FGN bond was bearish as sell-side pressure was seen along the mid to long section of the curve, according to Alpha Morgan Capital note.  As a result, the average yield was up by 5 basis points to close at 12.62%.

Traders at Alpha Morgan Capital said in the market note that the FGN Eurobond secondary market resumed the recent bullish theme that has been witnessed in recent times as buying interests were witnessed across the sovereign curve trading session.

As a result of higher demand for the instruments, the average yield was down by 82 basis points to close at 10.30%. #Interbank Rate Drops as Liquidity Pressures Ease, Naira Tumbles