Interbank Rates Climb as Swap, OMO Outflows Squeeze Liquidity
Liqudity squeeze driven by the Central Bank of Nigeria’s (CBN) swap arrangement, OMO, and Treasury bills auction outflows pushed interbank rates higher week on week.
Analysts said in their separate reports that money market rates were heated up following a tight liquidity condition spurred by CBN activities that triggered outflows of funds that tightened liquidity. .
Nonetheless, financial system liquidity remained strong as the average system liquidity settled at a net long position of N401.74 billion as against a net long position of N461.76 billion in the previous week, Cordros Capital Limited said. Analysts said this improvement was primarily driven by the inflow of OMO maturities totalling N164.68 billion on Tuesday.
As a result, borrowing from the CBN standing lending facility by commercial banks eased. Instead, some cash-rich Nigerian banks were demanding higher rates to part with their surplus liquidity.
Hence, the short-term benchmark rates were adjusted higher; they trended between 28% and 30% in the money market in the absence of significant inflows. The banking system liquidity fluctuated throughout the week, according to AIICO Capital Limited, beginning with a dip due to a late cash reserve maintenance event, followed by a rise from refunds and OMO maturities inflow worth N300 billion.
Analysts at Afrinvest Limited said in a note that the system liquidity rebound was spurred by the 2.1x week-on-week growth in the opening balances of banks and discount houses to N405.7 billion. The average daily liquidity rose slightly to N501.74 billion, a 5% increase from last week’s average of N476.24 billion, TrustBanc Financial Group Limited told investors in a note.
But the CBN N500 billion OMO bill auction settlement knocked down funding levels in the money market. Liquidity tightened midweek after the Nigerian Treasury bills auction settlement, pushing rates higher. On Friday, liquidity constraints from matured CBN swaps drove rates up, AIICO Capital Limited said in its note without mentioning the amount involved.
Notwithstanding positive liquidity balance, average daily interbank funding rates: open repo and overnight lending rates surged by 92 basis points week-on-week, settling at 27.29% and 27.86%, respectively.
On Friday, Cowry Asset Limited said in a report that the Nigerian Interbank Offered Rate (NIBOR) increased across most maturities, except for the overnight NIBOR, which declined by 0.15%, indicating liquidity challenges within the banking system.
In the new week, analysts expect liquidity to plunge into negative territory due to upcoming swap maturities and the effects of the CRR, despite the expectation of OMO maturities of N270 billion.#Interbank Rates Climb as Swap, OMO Outflows Squeeze Liquidity Zenith Bank Sets Stage for Strong Finish after Q3 Earnings Beat
