Rates Diverge as Banks Deposit Surplus Funds with CBN
The short-term benchmark interest rates diverged as excess liquidity in the financial system closed at about N1.25 trillion last week. Despite a bucket of outflows, liquidity levels in the financial system remained strong as banks dumped N4.94 trillion at the Central Bank of Nigeria’s (CBN) standing lending facility (SDF).
By depositing excess funds in the window, local deposit money banks effectively removed liquidity from the banking system, as those funds are no longer available for lending or other purposes. In April, average daily liquidity balance reached N885.3 billion surplus, which translated to a 328.5% improvement after grappling with N387.4 billion shortfall in March.
This surge was fueled by inflows exceeding N3.5 trillion in the month, stemming from FAAC allocations, contractor payments, maturing Nigerian Treasury bills instruments, and FX purchases by the Central Bank. The interbank market remained liquid throughout last week, supported by inflows from a N259 billion FGN bond coupon totaling N259.96 billion.
The financial system recorded N132.06 billion in inflows from 13% derivatives for oil-producing states. Market analysts reported that the banks took about N5 trillion to the Central Bank of Nigeria (CBN) standing deposit facility.
Despite liquidity outflows from N804.85 billion OMO auction, CRR debits, FX settlements, and bond settlements, system liquidity stayed healthy—opening at N1.365 trillion and closing at N1.248 trillion.
The liquidity balance in the financial system was reduced as a result of the Federal Government of Nigeria bond auction settlement worth N397.89 billion, and the naira equivalent of CBN foreign exchange sales totaling $116 million was settled.
As a result, short-term rates remained stable, with the Overnight Policy Rate (OPR) unchanged at 26.50%, while the overnight rate softened slightly by 5 bps to close at 26.83% week on week. The market anticipates N230 billion OMO maturity inflows to boost system liquidity, likely maintain key money market rates at 26.5% in the new week.
A potential OMO auction could tighten liquidity conditions, according to analysts. In the absence of liquidity management measures by the CBN, analysts expect inflows from OMO maturities to further boost system liquidity. #Rates Diverge as Banks Deposit Surplus Funds with CBN NGX lists Nigeria’s First Telecom Company, Legend Internet Plc
