Money Market Rates Rise as Banks Borrow from CBN
As liquidity conditions continued to be severely strained, money market rates rose and trended above 32% each. Last week, several local banks were compelled to use the Ceentral Bank of Nigeria’s (CBN) standing lending facility (SLF) due to the financial system’s low liquidity balance.
Strong outflows have heated up the liquidity balance, even though inflows into the financial system have decreased ahead of the Federal Account Allocation Committee’s payouts.
According to a slew of investment firms’ reports, the financial system opened relatively stronger last week until outflows for auction sales began to materialise.
The liquidity level plunged after debits due to the Federal Government of Nigeria’s (FGN) bond worth about N346 billion reduced the balance in addition to a net withdrawal of around N83.04 billion for Treasury bills auction payments.
In addition, the balance in the banking system was also reduced with the settlement of the CBN’s FX intervention, resulting in a deficit of roughly N321 billion at the end of the week, according to AIICO Capital Limited.
These outflows caused the liquidity balance to enter negative territory for three consecutive days. The market, however, registered inflows from FGN bond coupon payments and OMO bill maturity.
Details showed that FGN bond coupon payments worth N27.10 billion and OMO maturities totaling N6.38 billion bolstered liquidity balance in the money market last week.
Noting the trend in the market, analysts said this heavy borrowing drove interbank funding rates—open repo and overnight lending rates above 30% mid-week.
Data from the FMDQ platform confirmed that the overnight policy rate rose by 6.10% to 32.19%, while the overnight rate increased by 5.93% to 32.81% compared to the prior week.
The banking system ended the week with a deficit balance of N321.54 billion, marking a sharp reversal from its surplus of N312.31 billion at the start of the week.
Responding to the tight funding profile, deposit money banks pitched their tents at the CBN’s Standing Lending Facility, accessing a substantial N2.17 trillion to meet funding needs, TrustBanc Financial Group told investors in a note.
“Short-term interbank rates are expected to stay high as we await FAAC credits. The recent FAAC meeting approved N1.41 trillion for distribution, with around N667 billion anticipated to enter the system,” AIICO Capital Limited said in a commentary note.
Thus, system liquidity remained subdued, with the average system liquidity for the week settling at a net short position of N121.25 billion from a net short position of N57.77 billion in the prior week, according to Cordros Capital Limited. Naira Plunges on Suboptimal FX Intervention
