Money Market Rates Fall Sharply as Funding Pressures Ease
Interbank rates fell as liquidity levels in the financial system increased following sizeable inflows from OMO bill and FGN bond coupon payments.
Last week, the banking system liquidity opened with significant fluctuation that placed pressures on interbank rates. The banking system opened negative territory due to liquidity constraints, which kept rates elevated.
Later, money market rates declined as the amount of inflows surpassed the level of outflow of funds witnessed last week. The market was debited for the Debt Management Office (DMO) bonds auction, which temporarily absorbed some liquidity from the financial system.
Inflows from matured OMO bills totaling ₦813.25 billion on Wednesday eased funding pressures in the financial system and causing rates to decline. The strong liquidity experienced in the banking system ended the 14-day liquidity deficit streak, TrustBanc Financial Group Limited said in a note.
In addition, an inflows of N118.07 billion from FGN bonds coupon payment bolstered the amount available in the banking system. The banking system recorded as sharp drop in liquidity after the FGN bond auction settlement of ₦910.30 billion, pushing rates higher.
Overall, funding conditions improved notably, leading to a week-on-week decline in the Overnight Policy Rate (OPR) by 5.58% to 26.75% and the Overnight Rate (O/N) by 5.50% to 27.33%.
The Nigerian Interbank Offered Rate (NIBOR) across all tenors, reflecting reduced funding pressures among financial institutions. The Overnight NIBOR saw the steepest drop, plunging by 438 basis points to settle at 28.54%, Cowry Asset Limited said in a note.
As a result, the average system liquidity improved, settling at a lower net short position of N388.14 billion vs a net short position of N1.08 trillion in the previous week, according to Cordros Capital Limited.
In February, the banking system’s average daily liquidity balance nosedived into deficit territory, closing at ₦686.36 billion, a sharp reversal from ₦204.44 billion surplus recorded in January.
This week, N50 billion worth of Open Market Operation (OMO) bills is expected to mature and N1.27 trillion from Treasury Bills will enter the market, further bolstering liquidity levels, Cowry Asset Limited said.
In the new week, analysts at Cordros Capital Limited expect the inflows from FAAC disbursements totaling N1.15 trillion to saturate system liquidity, causing rates to decline. #Money Market Rates Fall Sharply as Funding Pressures Ease Naira Exchange Rates Switch Positions in FX Markets
