Interbank Rates Sink as Remita, Coupon Payment Boost Liqudity
The interbank rates sank deeply as the liquidity level in the financial system increased significantly week on week after inflows from Remita and Federal Government of Nigeria (FGN) bond coupon payments hit the system.
According to data from the FMDQ platform, the short-term benchmark interest rates crashed below 27% apiece at the close of trading session on Friday, from an elevated position of above 32% in the previous week.
The negative financial system liquidity had nudged interbank rates higher in the absence of significant inflows week on week. With the aim to meeting their liquidity needs, some deposit money banks pitched their tents at the Central Bank of Nigeria’s (CBN) standing lending facility to borrow funds.
Both open repo and overnight lending rates declined sharply week on week, trailing the 27% mark in the money market on Friday. The effects of recent money market outflows were reversed by inflows, which strengthened the financial system.
These inflows were from FGN bond coupons worth N143.52 billion and Remita inflows. The banking system, however, witnessed cash reserve debits of N100.00 billion against banks and outflows relating to settlements for FX sales of about N137 billion, according to Cordros Securities Limited.
Thus, the average system liquidity settled at a net short position of N57.77 billion, which is a sharp improvement compared with net short position of N361.08 billion in the previous week.
Analysts expect debits for the FGN bond of about N120.00 billion and a possible net issuance at the Wednesday Treasury bills auction to offset expected inflows in the new week. The market expects FGN bond coupon inflows of N9.37 billion and OMO maturities worth N6.38 billion to boost the financial system in the new week.
The net position suggests that money market rates would increase due to an expected reduction in the liquidity balance. Last week, system liquidity opened at a ₦60 billion deficit, remaining negative throughout most of the week.
However, by the week’s end, it improved to a positive balance of ₦396.75 billion, AIICO Capital Limited said in a note. The overnight policy rate fell by 5.86% to 26.09%, while the overnight rate decreased by 5.60% to 26.88% compared to the previous week. #Interbank Rates Sink as Remita, Coupon Payment Boost Liqudity FX Stability: CBN Sells 122.671m Dollars to 46 Authorised Dealers
