Money Market Rates Fall on Excess Banking System Liquidity
Money market rates were kept at comfortable levels over excess liquidity levels in the banking system in the absence of overbearing funding pressures. Pressures on interbank rates eased last week on the back of a robust liquidity surplus in the financial system ahead of fresh inflows from OMO bills in the new week.
The short-term benchmark interest rates sharply fell by more than 500 basis points week on week, aided by inflows from Treasury bill maturities and Federal Accounts allocation disbursement to states.
The financial system recorded a liquidity injection of N283.79 billion from maturing Nigerian Treasury Bills (NTBs). These maturities were spread across N38.65 billion in 91-day bills, N25.47 billion in 182-day bills, and a significant N219.67 billion in 364-day bills.
There was an additional sum of N216.76 billion in Federal Government of Nigeria (FGN) bond coupon inflows, which also aided in pushing rates slightly below 27%.
However, midweek saw a sharp liquidity squeeze due to CBN FX settlements and outflow, which drove the open repo rate and overnight lending rate to highs of 32.20% and 32.60%, respectively.
Liquidity tightened further after the N100 billion FGN bond auction settlement and FX sales worth N94.00 billion.
By Friday, however, FAAC disbursements of about N800 billion and N283.79 billion in Nigerian Treasury bill maturities provided significant relief, bringing rates down to 26.5%. FX sales of N94.00 billion.
Overall, market liquidity improved by N1.39 trillion week on week to close at N1.58 trillion, AIICO Capital Limited said in an update. The improved liquidity led to a notable drop in interbank lending rates. The overnight Nigerian Interbank Offered Rate (NIBOR) dropped sharply by 279 basis points to 26.71%, according to investment firm Cowry Asset Limited.
The overnight and open buyback rates both declined significantly, falling by 506 bps and 510 bps to settle at 26.99% and 26.50%, respectively, at Friday’s close. Market analysts said these movements in short-term interest rate benchmarks reflected the boost in liquidity and a somewhat calmer funding environment.
The market expects liquidity to remain steady in the new week, keeping rates near current levels unless funding pressures emerge. However, any OMO auction by the CBN could push rates higher in line with its tight monetary policy. #Money Market Rates Fall on Excess Banking System Liquidity Nigeria’s Eurobond Yield Falls to 8.6% on Bargain Hunting
