Shor-Term Rates Plunge as FAAC Inflows Hits Financial System
The short-term benchmark interest rate plunged sharply as a huge inflow shared among tiers of government from the Federal Account Allocation Committee (FAAC) hit the financial system on Monday.
The sufficient liquidity position dragged funding costs lower, while local deposit money bank activities at the Central Bank of Nigeria standing lending facility reduced sharply.
Hence, interbank rates (NIBOR) opened the week with a downward trajectory across all maturities, with the overnight rate declining by 2.04% and the 1-month, 3-month, and 6-month rates decreasing by 1.75%, 1.88%, and 1.79%, respectively.
In its note, Cowry Asset Limited said this decline was propelled by enhanced system liquidity, bolstered by a N2 trillion FAAC inflow, which is permeating the system.
Money market rates dropped sharply on the day, with the Open Repo Rate (OPR) decreasing by 240 basis points to 26.50% and the overnight rate falling by 223 basis points to 26.92%.
Analysts reported that the Nigerian Interbank Treasury Bills True Yield exhibited varied performance, with yields on the 1-month and 6-month tenors rising marginally by 3 basis points and 4 basis points, respectively.
Last week, system liquidity opened the week in positive territory at N1.02 trillion, recovering from the previous deficit of -N94.56 billion.
However, conditions tightened sharply by the end of the week, closing at -N609.43 billion, largely due to the sizeable OMO auction conducted on Thursday, which absorbed significant liquidity from the system.
Reflecting this shift, activity at the Standing Deposit Facility (SDF) moderated from N923.68 billion at the start of the week to N539.12 billion, as banks pulled back excess placements with the CBN.
Conversely, utilisation of the Standing Lending Facility (SLF) surged from N179.08 billion to N821.50 billion. Despite the late-week contraction, average system liquidity still improved to N366.94 billion from N62.94 billion the prior week. #Shor-Term Rates Plunge as FAAC Inflows Hits Financial System Naira Depreciates as Total FX Inflow Declines to $751.70m
