Money Market Rates Tighten as Banks Borrow N4.7Trn from CBN

Money Market Rates Tighten as Banks Borrow N4.7Trn from CBN

Money market rates increased by at least 3% apiece as banking system faced closed with a huge liquidity deficit.  Funding pressure was loud in the money market in the just concluded, a condition that triggered more borrowings from the Central Bank.

As the system continues to allocate the thin funding resources among competing requests, the short term benchmark unterest rates trended higher while cash rich lenders who spotted the opportunity began to demand for higher rates for their funds.

In the week, a number of money market analysts reported that the short-term benchmark interest rates climbed as a results of significant funding demand by banks to meet their respective liquidity targets.

In a note, TrustBanc Financial Group Limited said the financial system closed the week with a deficit balance of N315.9 billion, marking a negative end to the week – having moderated from N519.5 billion on Thursday.

Hence, the overnight Nigerian interbank borrowing rate, NIBOR, increased by 4.14 percentage point week on week to 32.64% on the back of thin liquidity. “The financial system liquidity printed negative while banks with liquidity seek higher returns from those seeking liquidity for their funding operations”, Cowry Asset Limited said.

The heightened pressures on short term benchmark interest rates was driven by the impact of large debits from last Friday’s OMO auction worth N1.00 trillion.  The outflow outweighed inflows from net Treasury bills maturities totaling N285.37 billion and FGN bond coupon payments of N154.23 billion.

Market analysts said there was temporary relief midweek as inflows boosted liquidity balance, leading to a brief decline in rates.  However, liquidity tightened again as ₦285.37 billion Treasury bill redemption proved insufficient to enhance the liquidity conditions in the money market significantly, keeping rates elevated.

Hence, the Overnight Policy Rate (OPR) rose by 3.28% week on week to settle at 32.42% on Friday, according to data from the FMDQ data.  Also, the Overnight lending Rate climbed by 3.18% week on week to 32.75% in the absence of significant inflows to saturate the amount available in the financial system.

In its note, TrustBanc Financial Group Limited said liquidity conditions worsened as banks struggled with shortages due to the impact of FX sales settlements. To meet short-term funding needs, Deposit Money Banks (DMBs) accessed a total of ₦4.72 trillion through the CBN’s Standing Lending Facility (SLF) window, the firm said.

“In the absence of significant inflows to saturate system liquidity, we expect the overnight lending rate to remain elevated”, Cordros Capital Limited said in a note. #Money Market Rates Tighten as Banks Borrow N4.7Trn from CBN IAS 29: Nigeria Not Hyperinflation Economy – Financial Reporting Council