Rates Diverge as Excess Liquidity Thins Out on CBN Actions
Rates mixed as the Central Bank of Nigeria (CBN) open market operations and local Treasury bills auctions significantly reduced excess liquidity level in the financial system last week.
At the close of the trading session, the total liquidity level in the financial system was in excess of N3.3 trillion, reflecting significant movement of funds in and out of the market.
The still robust funding level stepped down expected impacts of a sharp liquidity mop-up initiated by the CBN on the short-term benchmark interest – keeping funding rates movements in check.
Investment firms reevaled in separate reports that Nigerian commercial banks continue to pile up funds at the CBN standing deposit facility window, where they earn 24.5% – which is higher than returns on Nigerian treasury bills.
Despite multiple OMO auctions, liquidity conditions remained comfortable, averaging ₦4.6 trillion, buoyed by inflows from a ₦950.23 billion OMO maturity and tempered by moderate Nigerian Treasury bills settlement outflows of ₦339.34 billion.
Depot Money Banks maintained strong daily placements at the Standing Depot Facility window, ranging between ₦3.0 trillion and ₦5.5 trillion, while SLF borrowings stayed minimal.
In the money market, investment firms reported that financial system liquidity was in full flow, buoyed by maturing OMO and Treasury bills worth N250 billion and N230.66 billion, respectively.
The market opened the week on a strong footing with a robust system balance of N5.12 trillion but gradually tapered off, closing at N3.39 trillion as liquidity management operations kicked in.
To tame the excess cash in circulation, the Central Bank of Nigeria (CBN) conducted aggressive OMO auctions early in the week, followed by a round of Treasury bills auctions.
The CBN mopped up N5.42trillion in three OMO auctions last week. The breakdown showed that CBN raised ₦998.10 billion on Monday, ₦3.04 trillion on Tuesday, and ₦1.28 trillion on Friday.
Banks, however, remained largely passive on the lending front, redirecting surplus funds into the CBN’s Standing Deposit Facility (SDF) window, Cowry Asset said in a note.
Liquidity was further thinned by N154.75 million in primary market repayments and additional debits amounting to N55.24 billion.
Despite the fluctuations, short-term rates moved modestly lower as abundant liquidity kept funding pressures subdued. The Overnight NIBOR eased by 2bps week-on-week to 24.86%, while the 1-month and 3-month tenors each slipped by a basis point.
Interbank rates, however, remained broadly stable—overnight rate edged slightly up by 8bps to 24.97%, while the funding rate was flat at 24.50%. In the secondary Treasury bills market, sentiment was bullish throughout the week as investors repositioned amid sustained naira stability and improving market fundamentals.
Renewed demand—especially across short- and mid-tenor bills—drove average yields down by 55bps week-on-week to 17.40%. #Rates Diverge as Excess Liquidity Thins Out on CBN Actions Gold Hits Historic High of $4,000 on Global De-dollarisation
