Money Market Rates Climb as Banks Borrow N420bn from CBN
Money market rates increase significantly as pressure on the financial system nudged banks to pitch their tents at the apex bank discount window to access funds to support their respective liquidity positions.
Deposit money banks (DMBs) returned to the standing lending facility of the Central Bank of Nigeria (CBN) to borrow about N420 billion to augment their liquidity needs as funding level in the financial system reduced.
The latest move was a reversal to what the market experienced earlier in August when cash-rich local lenders increase participation at the standing deposit facility to sterilised excess liquidity.
Robust liquidity – supported by FAAC credit, coupon payment and other inflows from maturing debt instruments – in the financial system had caused money market rates to crashed below 30%.
In the just concluded week, the overnight lending rate expanded significantly by 791 basis points week on week to 34.0%, analysts at Cordros Capital Limited said in note, citing data from the FMDQ platform.
The rate declined following the debits for the CBN’s FX Retail Dutch Auction worth N1.31 trillion on Thursday. The apex bank had sold $826 million to authorised dealer bank on Wednesday to boost liquidity in the foreign exchange market.
Nonetheless, average system liquidity settled at a net long position of N10.61 billion versus net short position of N132.33 billion in the previous week reflecting DMBs’ activities at the CBN SLF window.
At the CBN window, banks take out N419.87 billion in the week, according to analysts note.
“We anticipate sustained dearth in system liquidity this week, as we believe that the sole inflow from OMO maturities worth N20.50 billion would be insufficient to support financial system liquidity. Thus, we expect the overnight rate will likely maintain its uptrend”, Cordros Capital Limited projected.
System liquidity remained positive for most of the week but turned negative by the end of the week. As a result, the Open Repo Rate (OPR) and the Overnight Rate (O/N) increased by 778 bps and 791 bps to 33.39% and 33.97% respectively, compared to the previous week.
In July, the system liquidity was relatively tight with banks queuing up at the CBN discount window, net borrowing about N648.6 billion as against net deposit of N69.6 billion in June 2024.
In the money market, the Nigerian interbank offered rate surged by 500 basis points to close at 36.71%, as banks with liquidity sought higher rates on Friday, signalling tightening liquidity conditions. #Money Market Rates Climb as Banks Borrow N420bn from CBN
