Rates Stay Low as Infrastructure Funds Boost System Liquidity
The short-term benchmark interest rates dipped as liquidity level in the financial system closed positive despite the monetary authority’s effort to sulk in surplus fund profile.
The interbank market was sufficiently liquid throughout last week, keeping rates movement in check amidst aggressive activities of the Central Bank while local banks borrowing from the authority reduced sharply.
The market saw funding rates broadly stable from the beginning of the trading session, with the system liquidity which opened with N1.39 trillion in credit and closed higher at N2.22 trillion on the last trading session.
The funding profile was surged by N459 billion in OMO maturities, Remita inflows, state infrastructure funds of about N100 billion, and 13% derivatives to oil-producing states, according to AIICO Capital Limited.
To take excess funding in the money market, the CBN intervened with a N600 billion OMO auction that attracted strong demand, allotting N620.65 billion, alongside a N251.28 billion net cash reserve ratio (CRR) debit and FX settlements, analysts said.
Despite these mop-up and a net treasury bills auction settlement of N260.84 billion, liquidity stayed ample – Interbank rates traded at the lower end, holding largely at 26.5%. At the close, the open repo rate (OPR) was steady at 26.50%, while the overnight lending rate inched up 5bps to 27.00%.
The Nigerian interbank borrowing rate (NIBOR) rose sharply by 14 percentage points to 26.92% as deposit money banks actively engaged the CBN’s standing deposit facility.
In the secondary market, NITTY rates largely trended lower, with the 1-month, 3-month, and 12-month tenors dropping by 19bps, 48bps, and 14bps, respectively. The 6-month NITTY was the lone gainer, edging higher by 3bps.
This softening filtered into the treasury bills market, where average yields declined by 6.92ppts to settle at 18.57% as strong buy-side demand compressed returns.
Analysts at Cowry Asset Limited expect funding rates to remain somewhat sticky in the new week, as system liquidity is likely to stay positive amid the level of activities of the apex bank to shape short-term funding conditions.
In the new week, the banking system liquidity is expected to remain strong, with N184.75 billion inflow from expiring Treasury bills. Interbank rates should hold around 26.5% given the surplus, though they may rise if the central bank conducts aggressive liquidity absorption through an OMO auction, AIICO Capital Limited said.
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