Interbank Rates Diverge as Financial System Liquidity Declines

Interbank Rates Diverge as Financial System Liquidity Declines

Interbank rates diverge as financial system liquidity reduced week on week to about N3.8 trillion amidst a sharp slowdown in aggressive liquidity management actions by the Apex Bank.

The financial system liquidity remained resilient despite significant funding outflows and the Monetary Policy Committee’s (MPC) decision to maintain a tight monetary policy stance.

System liquidity opened the week with a net surplus of N3.20 trillion, according to Cowry Asset Management Limited, lower than the N4.68 trillion recorded in the previous week.

The funding profile largely reflected a decline in balances at the Central Bank of Nigeria’s (CBN) Standing Deposit Facility (SDF).

Liquidity was subsequently boosted by N1.50 trillion in Open Market Operations (OMO) bill maturities, which provided substantial inflows into the banking system.

The investment firm reported that funding conditions tightened midweek following a N929 billion debit for the settlement of the Federal Government of Nigeria (FGN) bond auction.

Despite this liquidity withdrawal, elevated SDF balances helped cushion the impact, allowing system liquidity to close the week at a healthy N3.78 trillion, albeit below the previous week’s level.

Money market rates reflected broadly stable funding conditions despite the moderation in system liquidity. The Overnight (OVN) rate declined marginally by 1 basis point to 22.12%.

Meanwhile, the Open Repo Rate (OPR) remained unchanged at 22.00%, indicating that liquidity remained sufficient to meet short-term funding requirements.

Across the NIBOR curve, rates edged higher as the overnight, one-month, three-month, and six-month tenors increased by 3bps, 6bps, 7bps, and 17bps, respectively.

This suggests that market participants continued to price in a prolonged restrictive monetary policy environment following the MPC’s decision to retain the key policy rate at 26.50%.

“Interbank funding rates are expected to remain range-bound in the near term, supported by current system liquidity levels”, Herwood Capital Limited projected.

Looking ahead, analysts at Cowry Asset Limited expect market liquidity to remain relatively comfortable, supported by N500 billion in OMO bill maturities.

However, the CBN is likely to conduct another OMO auction to sterilise excess liquidity and reinforce its tight monetary policy stance. #Interbank Rates Diverge as Financial System Liquidity Declines #
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