Money Market Rates Crash over Excess Liquidity in Financial System
Money market rates fell strongly due to excess liquidity level experienced in the financial system in the just concluded week. There were flood of inflows, which boosted the liquidity level in the money market, thus reduced pressure on interbank rates.
In a market note, analysts at Cordros Capital Limited reported that disbursement from Federal Account Allocation Committee worth N926.92 billion increase liquidity balance in the financial system last week.
The huge amount came in addition to FGN bond coupon payments totaling N359.33 billion and net NTB repayments of N118.94 billion. On the other hand, the market also experience huge outflows.
The firm stated in its noted that the financial system was debited for August 2024 FGN bond auction worth N374.75 billion, CRR debits totaling N550.31 billion, and other payments which amounted to N526.25 billion.
Due to excess liquidity balance in the financial market, deposit money banks borrowing from the CBN standing lending facility decrease drastically, reversing previous trend.
Instead, banks deposited at the CBN’s SDF window, up by N1.83 trillion. Cordros Capital Limited revealed that this caused the average system liquidity for the week to settle at a net short position of N171.94 billion from net long position of N407.16 billion in the prior week.
“We anticipate the system liquidity will likely remain under pressure as the inflows from OMO maturities worth N16.00 billion will be insufficient to support the financial system. Thus, we expect an expansion in the overnight rate to increase”. #Money Market Rates Crash over Excess Liquidity in Financial System
