Interbank Rates Climb as Liquidity Deficit Expands

Interbank Rates Climb as Liquidity Deficit Expands

Interbank rates climbed further in the money market, reflecting a tight liquidity level in the financial system. The short-term benchmark interest rates have been making uptrend successively as banks seek to meet their daily funding requirement.

This week, liquidity in the banking system has been under pressure, forcing local lenders to access credit from the Central Bank of Nigeria (CBN) borrowing window at a relatively high interest rate.

To reflect the latest market dynamics, the standing lending facility rate has been adjusted further to above 32%. This has continued to impact banks with lower liquidity, mostly tier-2 lenders who are often in short of liquidity.

Analysts explained that the short-term benchmark interest rates are often used to price money market deposits. On Tuesday, interbank rates heated up as huge OMO auction settlements drained liquidity strength in the money market.

This happened despite an inflow of N101.80 billion from OMO bills that matured. But a huge amount worth about N1.6 trillion relating to settlement for OMO bills auctioned by the CBN on Monday extended the liquidity deficit.

Hence, the Nigerian Interbank Offered Rate (NIBOR) declined across most maturities, with the exception of the overnight NIBOR, indicating illiquidity within the banking system, according to Cowry Asset Limited. OMO auction settlement debit of N1.559 trillion caused the market to reprice the open repo and overnight lending rates.

Data obtained from the FMDQ platform confirmed that the overnight policy rate (OPR) increasing by 0.68% to 32.07% and the overnight lending rate (O/N) rising by 0.82% to 32.82%. #Interbank Rates Climb as Liquidity Deficit Expands