Liquidity Deficit Keeps Money Market Rates Elevated
Money market rates remained elevated due to liquidity pressures in the financial system. Though the market has seen inflows this week, their effects remain insufficient to greatly impact the short-term benchmark interest rate movements.
On Wednesday, interbank rates stayed in double digits high in the money market, though liquidity deficits eased slightly. A moderate inflow into the banking system reflated the liquidity position after N438.02 billion negative close on Tuesday.
To fund operations, banks have found their ways again into the Central Bank of Nigeria’s (CBN) standing lending facility to access funds at higher rates after adjustment to the monetary policy rate.
The liquidity concerns have kept the short-term benchmark interest rates above the 30% mark following twin primary market auctions—FGN bonds and Nigeria Treasury bills.
The net outflows suppressed the financial system liquidity position ahead of FAAC inflows. On Wednesday, the Nigerian Interbank Offered Rate (NIBOR) rose across all maturities, Cowry Asset Limited said in a note, reflecting tighter liquidity conditions in the banking system.
AIICO Capital Limited, however, noted that system liquidity improved slightly but continued to be negative. The deficit in the banking system expanded for the fifth consecutive day to open at N438.02 billion negative On Tuesday. However, the funding profile improved midweek.
From N438 billion, the deficit liquidity balance in banking eased by 5% to open the day at N412.93 billion short as market anticipates FAAC inflows.
Data from the FMDQ platform showed that interbank rates remained elevated, with the overnight policy rate (OPR) falling by 22 basis points to 31.78% and the overnight lending rate (O/N) decreasing by 21 basis points to 32.50%. Naira Plunges on Suboptimal FX Intervention