Interbank Rates Firm, Banks Borrow as SDF Placements Ease

Interbank Rates Firm, Banks Borrow as SDF Placements Ease

Interbank rates steadied due to excess liquidity levels in the financial system, reflecting the absence of funding pressures across money market activities.

Deposit money banks have continued to park funds at the Central Bank of Nigeria (CBN) standing deposit facility as the market opened the year strong, which supported the first OMO bills action.

Total placement by banks at the CBN window eased on Tuesday, suggesting system liquidity is on the decline ahead of the debit for the latest OMO bills action.

Cash-rich financial institutions sought higher returns on the excess fund, and there were other borrowing actions by smaller lenders at the standing lending facility of the CBN.

Market liquidity opened the day with a surplus balance of N4.12 trillion, representing an improvement of N706.71 billion from the previous day, according to a report from Broadstreet.

In its note, AIICO Capital Limited said the liquidity surge was driven by an inflow of N1.37 trillion in OMO maturities despite reduced banks placement as CBN deposit window and N108.00 billion in borrowing through the standing lending facility window.

The CBN conducted an OMO auction worth N600 billion but allotted N2.71 trillion across 161- and 210-day tenors; settlement is expected to tighten liquidity conditions this week.

Consequently, average funding cost held steady at 22.61% as the Open Repo Rate (OPR) remained at 22.50% while the Overnight Rate (OVN) dropped 1bps to close at 22.71%.

“We expect liquidity to stay relatively strong, barring any notable outflow, and keep funding rate within the same range,” AIICO Capital Limited said.

Treasury Bills secondary market yields showed varied performance, with the 1-month and 3-month tenors advancing by 10 bps and 2 bps, respectively, while the 6-month and 12-month maturities dropped 15 bps and 7 bps.

The overall Nigerian Bills average yield climbed 19 bps to 17.70%, indicating weakened investor confidence in the secondary market. #Naira Rallies Ease Corporate Foreign Payments Burden