Interbank Rates Remain at Low Single Digit despite Liquidity Drop

Interbank rates remained at low single digit in the money market amidst relatively strong liquidity that characterises the financial system.

As such, rates remained low on the back of benign funding pressures, though there was a moderation in liquidity level.

Chapel Hill Denham in a note detailed that system liquidity remained strong, although weakened to N386 billion from N502 billion previously.

The Open Buy Back (OBB) and Overnight (OVN) rates eased slightly by 8 basis points (bps) and 12bps to 0.75% and 1.38% respectively.

“We expect funding pressures to remain benign Wednesday, buoyed by a large Open Market Operations (OMO) maturity worth N567.69 billion”, Chapel Hill Denham said.

However, analysts expressed that pressures may resurface on Friday due to the scheduled retail foreign exchange auction.

Also, sentiments were largely bullish in the fixed income market, ahead of the large OMO maturity expected Wednesday.

At the front end of the curve, analyst said the Nigerian Treasury Bills benchmark curve eased slightly by 1bp to 1.45%, due to interest in long day to maturity (-3bps to 1.88%).

However, the OMO benchmark curve closed flat at an average of 1.78%.

In the bond market, yields declined by an average of 19bps across benchmark tenors to a new low of 6.19%.

This was driven by bullish sentiments across the curve, including short (-5bps to 3.18%), intermediate (-24bps to 6.54%) and long (-27bps to 8.74%) end of the curve.

President Buhari is expected to present the 2021 budget to the parliament Wednesday, which will provide more clarity on the deficit financing plans of the government for the next fiscal year.

Last week, the Federal Executive Council approved the budget proposal for 2021. Expenditure is estimated at N13.08 trillion with fiscal deficit pegged at N4.48 trillion.

This is substantially lower (compared to revised 2020 budget) domestic borrowing plan may be interpreted as bullish.

“In the near term, believe the strong liquidity backdrop is still supportive of fixed income yields”, Chapel Hill Denham stated.