Interbank Rates Soar as Banks Borrow N6.4Trn from CBN

Interbank Rates Soar as Banks Borrow N6.4Trn from CBN

Interbank rates soared in the money market on the back of an extended liquidity deficit pattern in the banking sector. The short-term benchmark interest rates settled at double digits high due to a liquidity shortfall in the money market last week.

Rates are expected to ease on the expectation that the Federal Account Allocation Committee’s credit or FAAC inflows will boost liquidity balance in the financial system in the new week.

Last week, system liquidity remained negative throughout the week despite inflows from statutory revenue, FAAC, and the signature bonus, AIICO Capital Limited said in its market note. According to TrustBanc Financial Group, the banking system liquidity wrapped up the week with a shortfall of ₦377.5 billion, its tenth consecutive day in red.

The need to fund operations amidst a negative liquidity profile in the money market caused banks to borrow from the Central Bank of Nigeria’s (CBN) Standing Lending Facility (SLF). By the end of the week, an aggregate of ₦6.43 trillion was withdrawn from the facility, TrustBanc Financial Group said in a note obtained by MarketForces Africa.

Market analysts said there were inflows from contractors’ payments worth N450 billion, in addition to N400 billion FAAC credits. Additionally, inflows worth N9.52 billion from the FGN bond coupon helped in reflating liquidity balance in the financial markets.

Despite substantial inflows totalling ₦859.52 billion from contractor payments, FAAC disbursements, and bond coupon payments, liquidity remained constrained throughout the week. FX sales worth about $200 million sold to banks add pressure on the funding profile. Also, there was a N263.21 billion settlement for bonds sold by the Debt Management Office at a primary market auction.

Accordingly, the average liquidity for the week improved, settling at a net short position of N867.73 billion compared with a net short position of N1.14 trillion in the prior week, according to Cordros Capital Limited.

The overnight policy rate (OPR) and overnight lending rate (O/N) fluctuated within tight ranges but trended downward by week end, AIICO Capital Limited said. Data from the FMDQ platform confirmed that the OPR closed 75 bps lower at 31.79%, while the O/N rate fell 59 bps to 32.33% week on week.

Barring any liquidity management measures by the CBN in the new week, analysts expect the inflows from FAAC disbursements totalling N700.00 billion, FGN bond coupons (N216.76 billion), and OMO maturities (N10.00 billion) will further boost system liquidity, causing the OVN rate to temper from current levels. Interbank Rates Soar as Banks Borrow N6.4Trn from CBN Naira Sinks, CBN Double Down Forex Market Interventions