Money Market Funding Costs Ease Despite Huge OMO Actions

Money Market Funding Costs Ease Despite Huge OMO Actions

Money market funding costs declined as liquidity levels remained in surplus despite a series of open market operations conducted by the Central Bank of Nigeria (CBN).

The Apex Bank turned aggressive with liquidity management this week as the funding profile expanded sharply after previous OMO bill repayments. Still, the short-term benchmark interest rates brushed off liquidity tightening efforts.

In the week, OMO bills have been floated twice, while the authority accommodates excess subscription with above-the-offer-size allotment. The market liquidity opened the day with a surplus balance of ₦2.7 trillion, reflecting an increase of ₦220.2 billion from the previous level.

Deposit Money Banks (DMBs) maintained strong participation at the CBN’s Standard Deposit Facility (SDF) window, recording a placement of ₦1.5 trillion, according to AIICO Capital Limited.

With significant liquidity management actions, the CBN mopped up ₦3.0 trillion through OMO auction in the previous session. In addition, the CBN had another OMO auction on Wednesday, allotting ₦909.4 billion across 174- and 188-day tenors.

Hence, the average funding rate eased by 14 bps as the Open Repo Rate (OPR) slipped by 10 bps to 24.50%, while the Overnight (O/N) shed 18 bps to 24.92%.

The market expects OMO and Nigerian treasury bills auction settlements to reduce liquidity levels in the financial system, while funding rates are likely to remain elevated around current ranges.

“We anticipate tighter funding costs as OMO and Nigerian Treasury bill auctions are expected to offset the anticipated inflow of ₦689.5 billion from treasury bill maturity,” AIICO Capital Limited said in a note. In the Treasury Bills secondary market, yields displayed mixed performance as attention shifted to the midweek auction. GTCO Slides Amidst Multiple Block Transactions