Money Market Rates Increase over Huge Banking Deficit
Banking system ended at N1.32 trillion deficit, causing the short term benchmark interest rates to increase week on week. A huge deficit in the banking system triggered surge in the short-term benchmark interest rates in the money market.
In separate market updates, analysts said the financial system remained tight despite the N50 billion OMO bill maturity and the gradual absorption of the N1.72 trillion FAAC inflow.
As a result, money market rates trended higher, with the Overnight Nigerian interbank borrowing rate (NIBOR) climbing 2.14 percentage point’s week-on-week to 30.68%, according to Cowry Asset Limited.
Analysts explained that key monetary rates, including the open repo and overnight lending rates, followed suit, increasing by 33bps and 34bps, settling at 27.09% and 27.67%, respectively.
In its note, TrustBanc Financial Group Limited reported there was a deficit of N1.32 trillion in the financial system. The strained liquidity condition happened after OMO bill settlement and cash reserves ratio activities of the Central Bank.
Spurred by rising positioning in government securities, increased funding requirements plunged the banking system into negative territory in the absence of commensurate inflows.
The system opened the week with a healthy liquidity balance of N582.95 billion, supported by bond coupon payments of N279.29 billion. On Thursday, the net impact of the NTB auction settlement, worth N467.07 billion, further boosted system liquidity to approximately N1.52 trillion.
However, the debit for the OMO auction settlement, amounting to N1.68 trillion, outweighed these inflows, pushing the system into deficit, breaking the five-day surplus balance.
Rates expanded to 27.7% as OMO auction debits worth N1.68 trillion and net treasury bills issuances totaling N180.44 billion outweighed inflows.
Consequently, the average system liquidity remained in a net short position. In the new week, in the absence of significant inflows to support system liquidity, analysts said they expect the interbank rates to remain elevated.
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