Money Market Rates Ease on Surplus Banking System Liquidity
Money market rates eased over the last week due to excess liquidity in the banking system, reflecting a lack of significant funding pressure.
The movement in short-term benchmark rates was influenced by banks’ placements in the standing deposit facility, primary market auctions, and repayments.
The money market is expected to remain highly liquid despite Apex Bank’s open market operations and scheduled Treasury bill auctions.
Last week, data showed that financial system liquidity remained firmly in surplus, with net system liquidity rising to N4.66 trillion from N3.61 trillion in the previous week.
Of the surplus, approximately N4.4 trillion was placed at the Standing Deposit Facility (SDF), while N2.3 trillion in primary market repayments provided additional support to system liquidity, Cowry Asset Limited said in a note.
OMO settlement exerted downward pressure on system liquidity as the CBN intensified its sterilisation efforts. Market analysts reported no activity at the standing lending facility.
With liquidity surplus on record, money-market rates remained relatively stable: the overnight rate decreased marginally by 13 basis points (bps) to 22.13%, while the funding rate remained unchanged at 22.00%.
The direction of short-term benchmark rates would influence some money market pool funds — open-ended collective investment schemes managed by financial institutions.
Some financial institutions pool money from many individual investors to buy short-term, low-risk debt securities like Treasury bills, commercial papers, and fixed deposits
Nigerian Interbank Offered Rate (NIBOR) rates moved higher across the curve, reflecting expectations of tighter liquidity conditions, according to Cowry Asset analysts.
Last month, the financial system liquidity opened in surplus but experienced temporary compressions following front-loaded CBN liquidity mop-ups.
System liquidity improved significantly in August, rising by 56.17% to N4.65 trillion from N2.98 trillion in July, driven by sizeable inflows from maturing securities, FAAC allocations, and other repayments, which more than offset the CBN’s liquidity mop-up operations.
Inflows are projected at N15.72 trillion in September, about 16.10% higher than the N13.54 trillion recorded in August, according to the Financial Market Dealers Association (FMDA).
Dealers said OMO maturities are expected to account for approximately 74% of total inflows, although the net liquidity impact will depend on the CBN’s sterilisation stance.
In early August, the CBN absorbed N4.72 trillion through consecutive OMO auctions, more than double the N2.19 trillion absorbed in July, and settled N1.456 trillion in Treasury Bills on August 12.
Despite sizeable liquidity debits, system liquidity recovered towards month-end, supported by bond coupon inflows and maturity repayments, according to a monthly report from Cowry Asset.
In response to tighter funding conditions, the overnight rate rose 170 bps to 23.80% on August 31, up from 22.10% at the end of July and 22.00% at the end of June.
Similarly, the Open Repo (OPR) rate increased to 23.25% from 22.00% at the end of July. Money Market Liquidity Tightens as CBN Steps Up OMO Actions
