Money Market Rates Rise as CRR, Banks Tax Debits Hit Liquidity
Money market rates inched up as cash reserve ratio activity and banks corporate tax payments hit liquidity levels in the financial system ahead of fresh inflow from expiring Nigerian Treasury bills worth N130 billion in the new week.
This week in the money market, conditions remained tight despite a moderate boost in liquidity. The system closed the week with a net surplus balance of just over N400 billion, investment banking firm Cowry Asset Limited said in its market update.
Analysts noted that the excess liquidity in the banking system was made possible by inflows of N150 billion in Open Market Operation (OMO) maturities. At the same time, there was significant outflow relating to the Central Bank of Nigeria’s (CBN) open market operations, where the authority mopped up N745.50 billion at the primary market auction.
The OMO inflow did little to loosen the grip of short-term funding pressures, as financial institutions continued to scramble for liquidity amid strong demand for overnight and short-dated instruments. Some banks were noted to have pitched tent at the CBN standing lending facility to meet their funding demand, while activities at the standing deposit facility eased.
Market data revealed that the Overnight Nigerian Interbank Offered Rate (NIBOR) edged up by 11 basis points to settle at 26.82%, compared to 26.71% last week, reflecting tight liquidity conditions.
As the week closed, data from the FMDQ platform showed that the Open Buy Back (OPR) and overnight lending rates—key barometers of short-term funding cost—ticked higher.
Despite the modest liquidity surplus in the system, banks remained cautious, preferring to hold onto cash rather than deploy it into the market aggressively, Cowry Asset Limited stated in its market update.
The interbank market opened the week with robust liquidity, sustaining rates at 26.5%, analysts at investment firm AIICO Capital Limited recalled. However, liquidity conditions tightened midweek following a N600 billion OMO auction.
On the day, money market rates climbed to 28% in the absence of additional inflows. According to AIICO Capital Limited, strong liquidity then resurfaced from CBN disbursements to states, which helped stabilize rates around 26.5% midweek, even in the face of outflows from corporate tax remittances.
At the close of the trading session for the week, the CBN conducted cash reserve ratio activity by debiting banks that failed to meet the lending-to-deposit ratio. The CBN’s cash reserve ratio debits drained liquidity significantly, pushing rates to the 29% level.
On weekly comparison, data showed that open repo rose by 33 bps to 26.83% and overnight lending rates increased by 42 bps to 27.42%. Overall market liquidity declined sharply by N811.56 billion to close at N468.52 billion, driven by OMO settlements, tax payments, and CRR debits.
However, liquidity is expected to tighten in the new week due to last Friday’s CRR debit, AIICO Capital Limited said in its note, adding that an anticipated inflows from Nigerian Treasury bills maturity and the absence of a Debt Office auction may inject liquidity and ease interbank rates toward 26.5%. NIDF: The Silent Powerhouse of Structured Wealth Creation
