Money Market Rates Climb on Liquidity Pressure
The short-term benchmark interest rates inched higher in the money market yesterday as liquidity in the financial system drained.
Pressure on liquidity followed huge outflow for FGN bonds in the absence of additional, supportive inflows from maturing instruments.
The market recorded an outflow for bond auction sold to investor by debt office early this week worth N297 billion.
The debits for the auction dragged funding level lower. Total liquidity eased to ₦567.50 billion on Wednesday, according to AIICO Capital Limited from ₦921.73 billion recorded yesterday.
Likewise, Cowry Asset Management Limited told investors that the Nigerian interbank offered rate was flat as banks exercised caution with their borrowings.
Local deposit money banks have been pitching their tents at the Central Bank of Nigeria (CBN) standing lending facility to meet liquidity requirement.
However, the rate at the window has become margin depressant for lenders, especially mid and small Nigerian lenders with persistent funding demand.
In the note, analysts at Cowry Asset Management Limited highlighted that banks maintained distance from standing lending facility on Wednesday due to high lending rates.
“Instead of excessive borrowing, banks are opting to meet their obligations with available liquidity”, analysts said in a note. Funding rates in the money market had been declining in the absence of funding pressure.
Traders identified drivers of liquidity strain as the primary market auction sales by the apex bank and Debt Management Office auction sales debit, resulting in increased interbank rates for the 3-month and 6-month tenors.
A total sum of N297.01 billion for the June 2024 FGN bond sold to investors and authorised dealers exited the financial system yesterday, dragging liquidity level in the market downward.
The liquidity level in the system eased to ₦567.50 billion on Wednesday, according to AIICO Capital Limited from ₦921.73 billion recorded yesterday.
Consequently, key money market rates dipped. Data from FMDQ Exchange showed that the open repo rate (OPR) increased by 23 bps to 23.68%, while the overnight lending rate climbed by 10 bps to 24.14%.#Money Market Rates Climb on Liquidity Pressure Oil Dips over Surprise Increase in US Crude Stock
