Interbank Rates Jerk Up as Financial System Liquidity Falls
Interbank rates became more restricted due to decreased liquidity following the Central Bank of Nigeria’s cash reserve actions. The continuous outflows strained liquidity, causing fluctuations in short-term interest rates. Banks boosted their liquidity by borrowing from the CBN’s standing lending facility.
Due to the tight funding profile in the financial system, analysts said cash-rich banks have started to ask for higher rates to part with their excess funds. The banking system liquidity dropped 62% to open at ₦105.89 billion, according to TrustBanc Financial Group Limited.
The decline was driven by a 70% increase in borrowing from the standing lending facility, settling at ₦271.60 billion. Also, standing deposit facility (SDF) placements also declined by 9% to ₦332.60 billion
In a note, Cowry Asset Limited said the Nigerian Interbank Offered Rate (NIBOR) trended upward across all maturities, reflecting tightened liquidity conditions in the banking system.
Reflecting the situation, money market rates climbed, as the Open Repo Rate (OPR) and Overnight Lending (O/N) rate rose by 2.00 and 2.08 percentage points, respectively, to settle at 28.75% and 29.33%.
System liquidity is expected to remain buoyant in the near term. Funding rates are likely to hover around current levels barring major outflows, TrustBanc said in its market update.
The Nigerian Treasury Bills curve declined across most maturities, indicating lower yields on short- and medium-term instruments. Nonetheless, the secondary market maintained a bullish tone, with strong investor demand pushing the average yield down by 46 basis points to 19.43%. Naira Maintains Multi-Week Rallies as FX Inflow Spikes by 74%
