Interbank Rates Spike as Banks Scramble for Liquidity
Tight liquidity in the system has pushed interbank rates higher above 31%, according to information obtained from Broadstreet. Nigerian deposit money banks have been visiting the Central Bank of Nigeria’s (CBN) standing lending portfolio to access funding.
As a result of CBN’s tough sterilization of liquidity, banks are heavily reliant on the standing lending facility for liquidity, tapping ₦8.6 trillion so far in 2024, according to Afrinvest Limited.
The investment firm stated that is 11.6x higher than the average borrowings from the window in the comparable period of 2022 and 2023. Analysts added that sustained mopping up of excess liquidity would force banks to reprice accordingly.
It is noted that borrowing from the CBN window has become costlier, Afrinvest said SLF is now 23.75% from 19.75%. Despite higher rate, deposit money banks’ usage of CBN’s standing lending window was N464.70 billion on the average last week.
The increase in primary auction size which comes with large debits has been a major driver of lower liquidity in the financial system, coupled with low inflows from maturing instruments.
The tightened system liquidity led to increased demand for funding among banks, Cowry Asset Management Limited said in a note. The investment firm attributes the increase in rates to efforts by the CBN to mop up excess liquidity through Open Market Operations (OMO) and Nigerian Treasury Bills (NT-bills) auctions, resulting in rising yields.
Analysts explained that the tightened system liquidity led to increased demand for funding among banks. At the close of business, short-term benchmark interest rates climbed, signalling there is pressure in the money markets.
The interbank rates—the open report and overnight lending rates expanded by 58 and 111 basis points to close at 30.08% and 31.57%, respectively, data from the FMDQ platform cited by market analysts showed.
This signalled the CBN’s efforts to maintain rates within the upper band of the Monetary Policy Rate, according to Cowry Asset Limited. #Interbank Rates Spike as Banks Scramble for Liquidity Anti-Homosexuality: Uganda Faces Difficulties Accessing External Funding –Fitch
