NIBOR Spikes as OMO, Bonds Auction Debits Tighten Liquidity
The benchmark interest rate for short-term, unsecured lending between banks, Nigerian Interbank Borrowing Rate (NIBOR), spiked by 154 basis points last week due to OMO bills and bonds auctions settlements.
The huge outflow of more than N7 trillion reduced the financial system liquidity balance sharply, though the money market is still close in net long position ahead of fresh inflows.
The market noticed the impacts of sizeable liquidity withdrawals from OMO operations and bond settlements, which compressed system balances on funding rates.
In its note, Cowry Asset Limited reported that net system liquidity moderated to a surplus of N1.91 trillion, representing a 31.4% week-on-week decline from N2.78 trillion.
The investment firm said the liquidity contraction was driven primarily by cumulative OMO debits of about N5.9 trillion alongside N1.54 trillion last week.
The cumulative amount debited against the financial system outweighed the matured N900 billion in OMO on Tuesday, and analysts said the tighter liquidity backdrop fed directly into interbank funding costs.
According to Cowry Asset, the overnight NIBOR advanced by 154 basis points to close at 24.36% as market participants grappled with reduced cash availability.
The investment firm noted upward repricing across term funding benchmarks, with the 1- month, 3-month and 6-month NIBOR tenors rising by 124bps, 114bps and 123bps, respectively.
Open Repo (OPR) and Overnight (OVN) rates climbed more sharply, each jumping 357bps to close at 26.07% and 26.36%, underscoring the intensity of the liquidity squeeze and the elevated cost of short-term funds.
Liquidity is expected to remain shaped by ongoing CBN mop-up activities, while market participants anticipate inflows from upcoming maturities totaling ₦5.9 trillion – ₦4.6 trillion in OMO maturities and ₦1.3 trillion in NTB maturities.
Consequently, funding costs are expected to remain rangebound, depending on the scale of liquidity absorption, AIICO Capital Limited stated in a note.
The market anticipates FAAC inflows to provide some liquidity relief, and Cowry Asset thinks these inflows are likely to be substantially offset by settlement for an estimated N1.15 trillion in upcoming Treasury bills primary issuance. CBN Allots N2.1 Trillion OMO Bills to Banks, FPIs at 17.25%
