Money Market Rates Fall as Excess Liquidity Nears N2trn
Money market rates declined as excess liquidity in the financial system neared N2 trillion amidst adjustment to the monetary policy rate asymmetric corridor by the Central Bank of Nigeria (CBN).
The monetary authority’s decision to make an adjustment to the asymmetric corridor around the key interest rate was to reduce the interest earned by banks for placing funds at the Standing Deposit Facility.
System liquidity stayed in positive territory last week, closing with a net surplus of N1.96 trillion, which was a 49.98% increase from N1.31 trillion recorded the previous week.
Investment firms reported that the improvement was largely driven by OMO maturities and inflows from FGN bond coupon payments last week.
These inflows enhanced banks’ access to funding. Deposit money banks continue to park funds at the CBN standing deposit facility but at a lower rate after asymmetric corridor adjustment.
SDF placements averaged N1.67 trillion, TrustBanc Financial Group Limited said in its market update, down 34% from the prior week’s N2.51 trillion. The firm reported that average daily liquidity for November settled at N3.35 trillion, up 13% from October’s N2.96 trillion.
Interbank rates crashed on Tuesday following the monetary policy committee decision to hold monetary policy steady but tightened the asymmetry corridor around the policy rate to +50 bps/-450 basis points.
The adjustment in key banking liquidity management control further reinforced market confidence, prompting increased activity at the CBN’s Standing Lending and Deposit Facilities. Market analysts said the corridor banks’ fine-tuning will enhance interbank market efficiency and strengthen policy transmission.
It will make it less attractive for Banks to place excess liquidity with the Apex Bank, encourages funds flow into the private sector, supporting credit growth and improved economic activity.
This change places the Standing Lending Facility (SLF) at 27.50% (just 50 bps above the MPR, down from 29.50%) and the Standing Deposit Facility (SDF) at 22.50% (a deeper discount to the MPR than the previous 24.00%).
This means Banks will now borrow from the CBN at 27.50%, a 200 basis point reduction from 29.50% previously charged to close the liquidity gap. Also, Banks will earn 22.50% for funds place at the standing deposit facility, down by 2% from 24.50%
The Nigerian Interbank Borrowing Rate (NIBOR) fell by 198 basis points, according to Cowry Asset Limited, reflecting the combination of ample market liquidity and the hold on policy rates.
Key funding rates mirrored this trend: the open repo declined 2 percentage points week-on-week to 22.50%, while the overnight lending rate eased 2.12 percentage points to 22.71%.
