Money Market Rates Fall as N1.5tn FAAC Inflow Boosts Liquidity
Reflecting absence of funding pressure, money market rates fell as a huge inflow totalling N1.5 trillion from the Federation Account Allocation Committee (FAAC) bolstered system liquidity.
The financial system liquidity remained elevated at the close of the trading session on Friday, with the average net long position rising to N2.05 trillion from N1.88 trillion in the previous week, according to Cordros Capital Limited.
FAAC disbursement and coupon payment, among other money market activities, acted as liquidity support in the financial system.
Although the CBN absorbed N827.00 billion via an OMO auction to curb excess liquidity, the overnight lending rate fell by 24 basis points week on week to close at 24.83% in the absence of funding pressures.
Also, the open repo rate declined by 4 basis points to close at 24.50% on Friday, signalling improved funding conditions at the short end.
The market experienced a flood of inflows, while local deposit money banks continued apace at the Central Bank of Nigeria (CBN) Standing Deposit Facility (SLF), where sterilised funds earn a 24.5% interest rate.
Recall that the financial system liquidity opened the week with a net surplus of N956.71 billion, down sharply from N2.0 trillion recorded in the previous week.
Investment banking firm Cowry Asset Limited said the moderation was largely due to heightened funding activities at the (CBN) Standing Lending Facility (SLF), where deposit money banks accessed over N960 billion to meet immediate obligations.
The OMO bill auction and primary market repayments from earlier auctions tightened balances at the start of the week.
However, liquidity conditions improved significantly as the week progressed, buoyed by inflows from maturing Treasury Bills and FAAC disbursements, which pushed system liquidity to a robust N3.12 trillion by week’s close.
The surge in liquidity also coincided with increased placements at the Standing Deposit Facility (SDF), reflecting excess funds within the banking system. According to Cowry Asset Limited, the Nigerian Interbank Borrowing Rate (NIBOR) eased slightly by 10 bps to 24.82%.
The open repo and overnight policy rates dipped marginally by 4 bps and 24 bps to 24.50% and 24.83%, signalling improved funding conditions at the short end.
The Nigerian Interbank Treasury Bills True Yield curve also reflected mild upward adjustments, as investors priced in tighter liquidity and higher return expectations.
At the treasury bills auction last week, the CBN sold N650 billion worth of bills but allotted N391.6 billion across the 91-day, 182-day, and 364-day instruments amid strong investor demand.
The 364-day bill dominated interest, attracting N674.25 billion in subscriptions against a N450 billion offer, with N316.56 billion allotted at a stop rate of 16.14%, marginally higher than previous levels.
The shorter tenors—182-day and 91-day bills—cleared at 15.50% and 15.30%, respectively. The OMO auction earlier in the week reflected even stronger appetite, recording N1.11 trillion in subscriptions against a N600 billion offer.
The 252-day bill accounted for the bulk of demand (N1.01 trillion) and cleared at 19.84%, while the 196-day paper saw modest interest, closing at 19.50%. The CBN eventually allotted N827 billion, underscoring its willingness to accommodate strong market demand while sustaining a tight monetary stance. CBN Allots N2.1trn OMO Bills to Investors at Decent Rates
