Money Market Rates Climb as Banks Face Liquidity Squeeze

Money Market Rates Climb as Banks Face Liquidity Squeeze

Money market rates remained elevated as a liquidity deficit in the banking system persisted. The funding profile was in red throughout last week in the absence of significant inflows into the banking system.

Hence, the Nigerian Interbank Offered Rate (NIBOR) surged, reflecting increased liquidity pressures as banks with limited funds sought higher rates for lending.

Banks maintained a borrowing spree in the new week to fund operations ahead of midweek Treasury bills auction sales.

However, interbank liquidity improved slightly due to inflows from the FGN bond coupon amounting to about ₦66 billion. However, this was not enough to shift liquidity into positive territory, as most participants continued to rely on the CBN’s SLF to fund their operations amid tight market liquidity.

A slew of analysts said FGN bond coupon payments worth N66 billion eased the deficit in the banking system.

In its note, TrustBanc Financial Group Limited said the inflows reduced the deficit by 23% to start the week with a shortfall of N307.56 billion.

The market expects outflows from FX sales, banks cash reserves debits, and Treasury bills auction net settlement totalling about N500 billion to exert pressure on system liquidity.

As a result, interbank rates remained elevated. Specifically, the overnight policy rate (OPR) saw a slight increase of 5 bps, settling at 32.38%. Meanwhile, the overnight rate (O/N) remained relatively unchanged at 32.75%.

Analysts said after the recent FAAC meeting, a total of ₦1.424 trillion was approved for distribution among the three tiers of government.

Of this amount, ₦673.84 billion is expected to be credited to the market. Hence, analysts’ maintained consensus that the money market rates will remain tight until this inflow is received. #Money Market Rates Climb as Banks Face Liquidity Squeeze $9.6bn P&ID Scam: I’ve No Witness to Call, Briton Tells Court