Money Market Rates Rise as Banks Borrow N5.8trn from CBN
Money market rates rose due to tight liquidity level in the banking system following huge outflow for OMO bills settlement. Due to increase demand for liqudity, deposit money banks accessed funding from the Central Bank of Nigeria (CBN) standing lending facility (SLF) to access funds.
Market analysts said there was strong borrowing activities as local lenders rush to meet their liqudity demand from the window.
Banking system liquidity level was deeply negative throughout the week, analysts said noting this caused the money market rates to surge. The overnight policy rate (OPR) and the overnight lending rate (O/N) hovered above 32.0%, reflecting the tight liquidity conditions.
The money market experienced a slight improvement at the start of session, but liquidity pressures intensified following the settlement of N1.4 trillion OMO bills. This caused negative balance in the banking system to increase to N3.1 trillion.
Market analysts said they expect that the ongoing liquidity crunch will continue, with interbank rates likely to remain steady at their current levels in the coming week.
Banks borrowed from the CBN’s Standing Lending Facility window aggressively, withdrawing a total of N5.8 trillion to meet short-term liquidity needs, TrustBanc Financial Group Limited said. The overnight rate expanded by 5bps week on week to 32.8% as OMO auction debits outweighed inflows from FGN bond coupon payments totaling N283.11 million.
As a result, the average system liquidity weakened, settling at a net short position of N1.08 trillion as against a net short position of N195.37 billion in the previous week, according to Cordros Capital Limited. CBN Opens FX Window for BDC to Stock up at NFEM Rate