Money Market Rates Fall as Banks See Excess Liquidity

Money Market Rates Fall as Banks See Excess Liquidity

Money market rates fell further, tracking at a distance behind 30%, due to the absence of pressure on the financial system on the back of a strong liquidity experience in the just concluded week.

Rates had climbed higher above 35% last month due to borrowing activities of commercial banks at the Apex Bank’s standing lending facility -SLF.

In a drastic change of an event, and pattern, deposit money banks (DMBs) sterilized excess funds in the system. Banks parked N1.92 trillion into the Central Bank of Nigeria’s (CBN) standing deposit facility last week due to excess cash position.

Analysts said the Nigerian interbank offered rate increased by eight basis points to close at 26% on Friday as banks with liquidity sought higher rates for parting with their excess cash.

Money market rates declined steeply due to an increase liquidity level in the financial system. This was brought about by maturing bills, recent Federal Account Allocation credits and coupon payments.

In contrast, auctions conducted by government monetary authority and debt management office has seen slowdown in demand for government borrowing instruments. This keeps balance in the financial system stronger than the level seen in the past as a result of large bets on naira assets at the primary market auctions.

Analysts at AIICO Capital Limited said system liquidity maintained a positive balance throughout the week, supported by some government-related disbursements.

According to data from FMDQ, the open repo rate (OPR) and the overnight lending rate decreased by 52 bps and 60 bps to 25.61% and 26.06%, respectively, compared to the previous week – driven by the still saturated system liquidity.

Analysts at Cordros Capital Limited said DMBs sterilised excess cash totaling N1.92 trillion at the CBN’s Standing Deposit Facility causing the average liquidity for the week to settle at a net short position of N132.33 billion from a net long position of N292.31 billion.

“We expect the system to remain awash with liquidity … further supported by inflows from the open market operations (OMO) bill maturities worth N80.00 billion.

“However, we highlight that a significant net issuance at the Wednesday Nigerian Treasury bills auction could diminish liquidity levels, leading to a likely expansion in the overnight lending rate,” the firm added. #Money Market Rates Fall as Banks See Excess Liquidity Liquidity: Banks Drive Yield Surge with T-Bills Selloffs