Interbank Rates Surge as DMBs Activities Squeeze Liquidity

Interbank Rates Surge as DMBs Activities Squeeze Liquidity

Interbank rates surged as deposit money banks’ (DMBS) activities squeezed liquidity level in the financial system, according to market reports. The funding level declined on Tuesday in the absence of additional inflows from maturing instruments; hence, there was zero primary market auction on Wednesday.

System liquidity pulled back moderately by ₦151.1 billion, AIICO Capital Limited said in a note, from ₦313.9 billion in the prior session.

Analysts explained that the decline in liquidity in the financial system was driven by a ₦72.5 billion drop in DMBs’ placements at the Central Bank of Nigeria’s (CBN) standing deposit facility.

The market also recorded a ₦69.1 billion rise in borrowings from the CBN standing lending facility window the same day.The strained liquidity balance nudged funding costs higher in the absence of additional inflows.

Consequently, funding costs rose sharply, with the repo rate (OPR) climbing 228 basis points (bps) to 28.70% and the Overnight (O/N) rate increasing 240 bps to 29.40%.

The Nigerian Interbank Borrowing (NIBOR) rates rose across all major tenors amid sustained liquidity pressures, with the overnight, 1M, 3M, and 6M rates up by 2 bps, 175 bps, 171 bps, and 157 bps, respectively.

Rates are expected to remain at a similar level, except for any significant funding activity, analysts stated. Yesterday, the Nigerian Interbank Treasury Bills True Yield (NITTY) curve declined across most maturities, while the average secondary market yield inched up by 2bps to 17.90% on the back of selling pressure. #Interbank Rates Surge as DMBs Activities Squeeze Liquidity OMO, T-Bills Yields Ease as Investors Boost Holdings