Interbank Rates Mixed on Liquidity Stress in Financial Market
Money market rates diverge on the back of a significant decline in liquidity balance in the financial system following Central Bank of Nigeria (CBN) monetary policy action.
After the benchmark interest rate was increased to 27.25%, the market dynamics was altered with expectation that local deposit money banks would begin to adjust borrowing rates.
Likewise, money market fund investors are expected to see rerating to optimise return on pooled funds. Last week, the money market experienced significant inflows, however, it was overwhelmed by strong outflows of funds, according to analysts’ notes.
The system liquidity contracted sharply to close at negative ₦584.5 billion, Afrinvest Limited said in a note, from the prior week’s level of ₦1.1 trillion. The declining liquidity balance in the financial market occurred following a series of auctions conducted by the Central Bank of Nigeria (CBN) last week.
Nigerian interbank offered rate (NIBOR) increased across all maturities, signaling system illiquidity, said Cowry Asset Limited in an email noted. Initially, the liquidity balance in the financial system was boosted mainly due to inflows from Federal Accounts Allocation Credit (FAAC), FGN bond coupons, and the maturity of FGN Sukuk 2024.
Interbank rates remained around 20.00% for most of the week but increased after the OMO auctions at the end of the week. Overall, the interbank rates showed mixed numbers week on week, with the Open Repo Rate (OPR) decreasing by 26 bps to 29.43%, while the Overnight Rate (O/N) increased by 5 bps to 30% and 29.97%, respectively.
The market recorded an outflow of funds relating to FGN bonds worth N264.53 billion, and OMO totaling N252.90 billion outweighed the sizeable inflows from FAAC disbursements amounting to N828.08 billion and FGN bond coupon payments of N273.43 billion. #Interbank Rates Mixed on Liquidity Stress in Financial Market FBNH Worth Rises Slightly Despite Femi Otedola Huge Bet