Interbank Rates Spike as Pressure Mount on Financial System Liquidity

Interbank Rates Spike as Pressure Mount on Financial System Liquidity

Interbank rates surge on Thursday as financial system becomes less liquid amidst dearth of inflow from maturing instruments, putting pressures on funding rates. Funding rates remained at double digits as open buyback and overnight rates settled at 14.50% and 15.00%.

This was higher when compare with 12.67% and 13.50% recorded previously. Analysts said they are expecting funding pressures to remain elevated in the near term.

Sentiments remained bearish in the fixed income market. In a report, analysts at Chapel Hill Denham said this was partly due to the elevated budget financing need.

Nigerian debt management office, DMO, had recently revealed its borrowing plan for the second quarter of 2021 as published Q2-2021 bond calendar.  

However, analysts reported that front-end rates traded flattish, as discount rates on the Nigerian Treasury Bills and open market operations benchmark curves closed at an average of 3.66% and 6.10% respectively.

In the bond market, yields expanded further by an average of 14bps to 10.85% across benchmark tenors, mainly due to upward repricing of yields at the intermediate and long end of the curve. 

In a related development, Naira rate continued to trade within a tight band at all segments of the foreign exchange (FX) market. In the Investors and Exporters Window, the Naira rate appreciated by 0.33% or N1.35 to N409.65 today. 

However, the local currency traded flat at 485.00 in the parallel market similarly, exchange rate remained unchanged in the official and Secondary Market Intervention Sale (SMIS) segments at 379.00 and 380.69 respectively.

Amidst scarcity of foreign currency, Nigeria’s external reserves improved 0.4% month to date as it printed at US$35 billion.

Read Also: Discount Rates on T-Bills Eased as Fixed Income Market Trades Soft

Interbank Rates Spike as Pressure Mount on Financial System Liquidity