Money Market Rates Surge over Huge OMO Auction Outflow
The short-term benchmark interest rates tightened in the money market after a huge outflow relating to OMO auction conducted by the Central Bank of Nigeria (CBN) last week.
Early in the week, bank funding pressure eased as inflows from matured fixed interest securities flooded the money market. Rates reversed from a downward trend on the back of a relatively huge outflow when compared with total inflows from matured bills and Central Bank cash reserve ratio refunds.
Investment banking firm TrustBanc Financial Group Limited said in its investors note that the financial system wrapped up the week on a strong footing, maintaining a healthy liquidity balance of N721.34 billion, from N507.6 billion.
Liquidity balance in the financial system surged as floods of inflows eclipsed auction payments. Interbank liquidity saw mixed trends last week, according to analysts. The money market experienced early liquidity improvements, driven by cash reserve maintenance credits, OMO maturities, and FAAC inflows.
Midweek, liquidity tightened as N606 billion from an FGN bond auction settlement was debited, pushing rates higher, AIICO Capital Limited told investors in a note. The Central Bank’s aggressive tightening continued with a N600 billion OMO auction, oversubscribed at N2.89 trillion, leading to a N1 trillion allotment.
Interbank rates—open repo and overnight lending rates—climbed by 256 bps and 257 bps, respectively, ending the week at 29.14% and 29.57%, as system liquidity tightened due to the OMO auction conducted during the session.
Despite mid-month pressures, system liquidity strengthened in January, closing with an average daily surplus of N204.44 billion. This marked a sharp turnaround from December’s average daily deficit of N285.41 billion, reflecting a 172% increase.
Analysts said barring any unexpected outflows, the current liquidity balance is expected to remain steady, with funding rates likely to trade at similar levels in the near term
In February, system liquidity is expected to be further drawn down as the Central Bank conducts more Nigerian Treasury bills auctions to absorb inflows from anticipated OMO.
Investor sentiment will likely be influenced by expectations of a benchmark interest rate hike by CBN at the upcoming monetary policy meeting, making T-bills an attractive and relatively safe investment for higher returns, Afrinvest said.
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