Short-term Benchmark Interest Rates Rise on Banks Liquidity Deficit
The short-term benchmark interest rates increased by about 5% apiece in the money market on the back of a huge liquidity deficit in the banking system.
The pressure on funding level mounted following a heavy OMO bill auction settlement worth about N1.6 trillion in the absence of significant inflows.
Banks were forced to meet their liquidity demand from the Central Bank of Nigeria (CBN) standing lending facility at relatively higher rates in line with market dynamics.
Last week, the banking system settled with a deficit balance of ₦1.50 trillion, marking a sharp reversal from the surplus of N632.38 billion recorded the previous week, TrustBanc Financial Group said in a note.
According to data, liquidity balance was negative throughout last week in the money market—opened at N32.8 billion and closed at N1.499 trillion on Friday.
The deficit liquidity balance in the financial system was primarily due to local banks relying heavily on the CBN’s Standing Lending Facility (SLF) window for short-term funding, according to analysts.
Market analysts noted that liquidity shortfall or deficit balance in the financial system worsened after an OMO bills auction sold ₦1.559 trillion, far exceeding the ₦600 billion offered in the primary market.
As a result, interbank rates surged and trended above the 32% mark. Data from the FMDQ platform confirmed that the overnight policy rate (OPR) and overnight rate (O/N) rising to 32.54% and 32.92%, respectively, marking increases of 4.87% and 4.75% week-over-week.
Additionally, a net treasury bills auction settlement debit of ₦252.17 billion helped funding pressures to trend, causing liquidity to remain in deficit. Analysts said the interbank rates are expected to remain high in the short term unless there is a significant inflow.
The OMO auction and Treasury bills debits outweighed inflows from OMO maturities totalling N101.80 billion and FGN bond coupons worth N1.45 billion. Thus, the average liquidity closed at a net short position of N1.14 trillion versus net long position of N628.56 billion in the prior week. #Short-term Benchmark Interest Rates Rise on Banks Liquidity Deficit#
