Interbank Rates Spike over Liquidity Squeeze in Banking System
The banking system slipped into deficit as huge OMO auction settlements drained liquidity balance in the financial system at the beginning of the week. The deficit has negative impacts on money market rates direction, which trend above 32% level apiece at the beginning of the week as per data from the FMDQ platform.
Liqudity deficit in the market was spurred by increased borrowing from the Central Bank of Nigeria’s (CBN) standing lending facility, according to TrustBanc Financial Group Limited, up by N585 billion from N188.78 billion on Friday.
As a result of the negative liquidity balance in the money market, the short-term benchmark interest rates surged amidst tight resource allocation. The Nigerian Interbank Offered Rate (NIBOR) trended upward, reflecting tightening liquidity conditions.
Similarly, key money market indicators, including the Open Repo Rate (OPR) and the Overnight Lending Rate, rose by 2.83% and 3.01%, respectively, closing at 32.07% and 32.64% The market saw N1.0 trillion settlement for OMO auction sales on Friday, which outweighed the impact of coupon payments worth N24.4 billion.
Today, opening interbank liquidity fell into negative territory, primarily due to the settlement of the OMO auction sold along with some cash reserves ratio (CRR) deductions. Interbank rates are anticipated to stay elevated unless there are significant changes to the current liquidity status in the market.
In a report, Afrinvest Limited said system liquidity further declined from a deficit of ₦236.3 billion in December to a negative ₦307.5 billion in January. The investment firm said this was primarily due to FAAC allocations of ₦1.4 trillion, which reduced banks’ borrowing needs in the month.
The Central Bank of Nigeria had earlier conducted ₦500 billion in OMO auctions at the start of the month. Hence, open repo and overnight lending rates increased by 1.8% apiece month on month to close at 29.1% and 29.6%, respectively. #Interbank Rates Spike over Liquidity Squeeze in Banking System 2025 Budget: Reps Move to Improve Funding for NiMC, NYSC, NDA
