Money Market Rate Mixed, Banks Boost SDF Placement
Money market rates closed mixed despite a significant surge in financial system liquidity at the beginning of the week. The overnight lending rate rose, but the repo rate closed flattish.
Deposit Money Banks (DMBs) buoyed liquidity in the financial system with N4.3 trillion placement at the Standing Deposit Facility (SDF) of the Central Bank of Nigeria (CBN).
Despite the robust money market funds profile, the market recorded divergence in rates ahead of upcoming Open Market Operations (OMO) and the imminent auction of Nigerian Treasury bills.
Analysts pointed out that these actions are expected to effectively absorb surplus funds circulating in the market, thereby alleviating potential inflationary pressures.
Though funding costs surge, the short-term benchmark interest rates remained relatively stable, holding around 22% following a recent adjustment to the monetary policy rate.
There is N4.38 trillion surplus in the financial system on Monday, up from ₦3.74 trillion at the end of the previous week, according to Anchoria Securities Limited.
In a note, AIICO Capital further highlighted that this liquidity increase was predominantly driven by DMBs’ lodgements with the CBN, amounting to ₦4.31 trillion.
Banks’ placements with the CBN consistently rise alongside improved liquidity conditions, signalling a prolonged, cautious approach to lending by financial institutions amid uncertain economic conditions.
Meanwhile, the deposit money banks’ activity at the standing lending facility (SLF) has diminished, indicating the absence of significant funding pressures.
All in, the Nigerian Interbank Offered Rates (NIBOR) rose substantially as market yields increased across all tenors, Cowry Asset said in a note, reflecting persistent liquidity challenges in the system.
According to FMDQ data, the overnight funding rate rose 18 basis points to 22.35%, up from 22.17%. In contrast, the Open Repo rate held steady at 22.00%, indicating a balance between demand and supply in the interbank market.
In the secondary market for Nigerian Treasury Bills, trading concluded on a positive note, with the average benchmark yield declining by 2 basis points to 17.24%.
The OMO secondary market also showed bullish behaviour, with the average benchmark yield falling 3 basis points to 20.23%, suggesting strong investor sentiment and demand in the current market environment. CBN to Open Treasury Bills for Subscription as N799bn Mature
