Money Market Rates Mixed, Banks Actions Reduce Liquidity
Money market rates moved in different directions, reflecting different impacts of liquidity movement on key indicators. The repurchase rate has hit its floor level, failing to react to the surplus liquidity balance, but overnight lending has continued to swing.
The amount of reserves held by commercial banks over and above the Central Bank’s (CBN) minimum reserve requirements settled at N1.21 trillion, which represents a slide from N1.606 trillion previously reported by MarketForces Africa, as per data from AIICO Capital Limited.
The amount in the financial system fell by ₦397.6 billion lower than the previous session, the investment firm said. Analysts added that this was a result of ₦339.5 billion in flows to the CBN standing deposit facility from banks.
Banks participation at the CBN’s standing deposit facility window and indicators highlighted that interbank rates have already hit the floor level.
The repo rate deployed in repurchase transactions—where one party sells a financial asset with a simultaneous commitment to repurchase that asset at a future date—has settled around 26.5% without moving downward even with excess funds in the banking system.
On Monday, the repo rate remained flat at 26.5%, while the overnight rate increased by 10 bps to 27.00%. Analysts said rates are expected to remain at a similar level, except for any significant funding activity.
In reaction to liquidity conditions in the financial system, the Nigerian Interbank Offered Rate (NIBOR) crashed across tenor buckets, Cowry Asset Limited said in its report.
The overnight rate stayed flat from Friday’s close at 26.88%, while the 1-month, 3-month, and 6-month benchmarks declined to 27.37%, 27.95%, and 28.51%, respectively. The NITTY curve posted a mixed outing across maturities, but weak investor demand in the secondary market pushed average yields up marginally by 1 bp to 17.78%.
Last week, the system liquidity closed the week in a surplus position at N1.61 trillion, up from N1.35 trillion in the prior week. The market liquidity was primarily driven by possible FAAC inflows, which drove activity at the standing deposit facility.
The standing deposit facility average printed N1.24 trillion, up significantly from N421.47 billion the previous week. The CBN reacted to the excess liquidity through conducting an OMO primary market auction, with total allotment amounting to N1.55 trillion.
Despite the liquidity build-up, interbank rates were relatively stable; the Open Repo Rate eased marginally by 2 bps to 26.90%, while the Overnight Rate remained unchanged at 26.50%. #Money Market Rates Mixed, Banks Actions Reduce Liquidity#
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