Money market rates spiked as liquidity in the financial system dropped significantly amidst accelerating inflation conditions in Nigeria.

Money market rates spiked as liquidity in the financial system dropped significantly amidst accelerating inflation conditions in Nigeria.

The increase in short-term benchmark interest rate was driven by further tightening in the funding profile as a result of a significant outflow in the financial system versus inflows.

The financial system was debited N434.50 billion after the Debt Management Office FGN bond primary market auction. Overall, the liquidity level decreased to ₦263.98 billion.

As a result, key money market rates reversed position earlier seen in the week. The open repo rate (OPR) increased by 5.42% to 22.25%. The overnight lending rate (OVN) increased by 5.08% to 23.00%, respectively.

In its market update, Cowry Asset Limited said the Nigerian interbank borrowing rate fell across the board for the majority of the maturity gauges. Despite the tight liquidity level, there Treasury bills space witnessed some level of buying momentum that dragged yield downward.

Banks and other authorised dealers maintained the status quo on trading activities; though traders’ spot buying interest at the belly of the curve.

The Central Bank of Nigeria (CBN), expressed optimism that its monetary policy initiatives are yielding the desired results.

The bank’s Director of Corporate Communications Department, Isa AbdulMumin said this in Abuja on Wednesday while speaking on the latest National Bureau of Statistics (NBS) figures.

According to him, the low increase in the average price level in October is an indication that the CBN’s monetary policy stance to tighten, as well as its money market reforms, were yielding the desired effect.

The director said that aggressive monetary tightening using various liquidity mechanisms had raised Open Buy Back (OBB) rates from less than one per cent in August to their expected levels around the monetary policy rate presently.

He said that such mechanisms included removing the cap on the Standing Deposit Facility (SDF) and Open Market Operations. He acknowledged the 0.61 per cent increase in the headline inflation rate from 26.72 per cent in September to 27.33 per cent in October.

He, however, assured that in spite of the increase, the CBN was headed in the desired direction in terms of achieving price stability.

“Available statistics showed that the first indication of deceleration in prices was recorded in September. “Further reforms in the money market, which commenced in October had accelerated easing in prices as indicated by the substantial drop in month-on-month changes recorded in October.  Monetary Policy Stance,  Money Market Reforms Yielding Desired Economic Impact  – CBN

“Moderation in month-on-month changes in prices observed in the headline, food and core components of the consumer basket followed reforms in the money market and relative stability in the FX market,” he said.

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