Money Market Rates Remain Soft on Robust System Liquidity
Interbank funding pressures remained benign today as financial system liquidity opened higher at N298.8 billion from N230.4 billion on Friday.
Consequently, the Open Buy Bank rate closed flat at 0.50% while the Overnight (OVN) rate expanded marginally by 37bps to 1.00%.
Chapel Hill Denham expects funding pressures to remain subdued for the most part of the week, supported by open market operations (OMO) maturities totaling N281 billion expected on Tuesday.
However, analysts predict that rates are expected to shoot up on Friday, due to provisioning for the bi-weekly retail FX auction by the Central Bank of Nigeria (CBN).
Thus, the fixed income market traded largely flat as investors’ attention remained focus on Debt Management Office (DMO) bond auction holding on Wednesday.
“Nonetheless, we saw a slight short duration positioning”, analysts at Chapel Hill Denham explained in a note.
At the front end of the curve, discount rates on benchmark Nigerian Treasury Bills (NTBs) closed flat at an average of 0.10%.
Meanwhile the OMO curve eased by 8 basis points (bps) to 0.13%, mainly due to interest in mid (-12bps to 0.11%) and long (-9bps to 0.14%) day to maturity (DTMs).
In the bond market, analysts stated that duration apathy continued while yields on short term bonds compressed by 4bps to 1.81%, resulting in a marginal 1bp moderation in the benchmark bond yield curve to 4.27%.
Earlier today, the National Bureau of Statistics (NBS) published the Consumer Price Index (CPI) report for October 2020, which showed persistent pressures in consumer prices, amid supply chain challenges linked to public unrest in the month and an underwhelming harvest season.
Notably, headline inflation rate rose for the 14th consecutive month, surging by 53bps to a 32-month high of 14.23% from 13.71% year on year in September.
Pressures were broad-based in the review period, as core inflation spiked by 56bps to 11.14% while food inflation also surged by 72bps to 17.38% year on year.
The movement in fixed income yields over the past 13 months has sharply deviated from the trend in consumer prices, against the backdrop of the dovish monetary policy bias of the CBN and liquidity glut in the money market.
“Despite the higher inflation print, we expect a status quo outcome at the MPC meeting next week due to the weak growth backdrop, with the MPR likely to be maintained at 11.50%.
Read Also: Interbank Rates Remain Subdued despite Liquidity Drop
“Also, the liquidity glut which has supported the fixed income rally will likely persist until March 2021, before OMO maturities drop off substantially in April 2021”, Chapel Hill Denham hinted.
Money Market Rates Remain Soft on Robust System Liquidity
