Money Market Rates Jump as Liquidity Pressure Deepens
Interbank rates skyrocketed in the money market as liquidity conditions failed to improve due to the absence of significant inflows from key sources. The market saw the liquidity balance in the financial system dropping to a negative level owing to funding pressures at the Central Bank of Nigeria’s (CBN) Standing Lending Facility (SLF) window.
Banks pitched their tent at the CBN borrowing window after the apex bank lifted suspension on the facility to allow authorised dealer banks to access funds at about 32%. Analysts said higher rates often reflect on banks borrowing costs.
At the same time, it affects return paid on money market funds and placements. Investment banking firm Cowry Asset Limited said in an email note that Nigerian interbank offered rate surged on Wednesday reflecting tightening liquidity. Hence, deposits money banks with liquidity sought higher rates in Wednesday.
FMDQ data confirmed that the open repo rate (OPR) increased by 542 basis points to 28.39%, and the overnight lending rate (OVN) jerked up by 565 bps to 29.18%. The surge in short term interest rates benchmark highlighted the strain on liquidity.
“We expect interbank rates to remain elevated tomorrow, in the absence of any major flows,” AIICO Capital Limited said. The interbank rate is the rate of interest charged on short-term loans between banks, analysts said, adding that movement in monetary policy rate affects market dynamics.
MarketForces Africa reported that local banks borrow and lend money in the interbank lending market in order to manage liquidity and satisfy regulations such as reserve requirements. #Money Market Rates Jump as Liquidity Pressure Deepens Liquidity: Banks Drive Yield Surge with T-Bills Selloffs
