Interbank Rates Collapse over Tight Financial System Liquidity

Interbank Rates Collapse over Tight Financial System Liquidity

On Monday, interbank funding rates collapsed as the financial system liquidity open the trading day tight, Chapel Hill Denham hinted in a note.

Funding rate fell sharply from 8.0% for the Open Buy Back rate and 9.3% Overnight rate to 2.5% and 3.2% apiece, despite that liquidity pared 86.3% to settle at N134.7 billion, Greenwich Merchant Bank explained.

However, Chapel Hill Denham expects funding pressure to ease from tomorrow, mostly due to Open Market Operations (OMO) maturities estimated at N211.25 billion coming in on Tuesday.

Also, the first batch (N40.7 billion) of January bond coupon payments (N194 billion) is expected on Wednesday.

“We note that the rollover of N232.4 billion maturing Nigerian Treasury bills will have a zero-net effect on system liquidity”, Greenwich said.

Meanwhile, sentiments were broadly mixed in the fixed income market as investors continued to remain on the fence, mostly owing to the imminent January 2021 MPC meeting.

At the front end of the curve, the OMO benchmark curve closed flat at an average of 0.99%, while the NTB benchmark yield curve expanded by an average of 4bps to 0.45%.

Elsewhere in the bond market, the benchmark bond yield curve dipped by 2bps to 6.61% on average.

The dip was supported by downward movements in the short end (-3bps to 3.96%), mid (-2bps to 7.20%), and the long (-2bps to 7.91%) end of the curve.

In the foreign exchange market, the Nigeria’s local currency, Naira, strengthened marginally against the USD at the I&E Window by 0.04% or 17 kobo to N393.33.

Meanwhile, the local currency weakened in the parallel market by 0.63% or N3.0 to N475.00.

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Interbank Rates Collapse over Tight Financial System Liquidity written by Julius Alagbe

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