Short-term Benchmark Interest Rates Soar as Liquidity Fluctuates
The short-term benchmark interest rates rose as liquidity levels in the financial system fluctuated. Funding condition was robust at the beginning of the week, underpinned by sustained system liquidity and significant fiscal injections.
The banking system opened with a net positive liquidity balance exceeding N130 billion, which was further buoyed by a N1.58 trillion disbursement from the Federation Account Allocation Committee (FAAC).
This substantial inflow helped maintain an overall liquid posture in the system but could not hold the line till the week’s close. Despite these inflows, funding rates displayed a mixed pattern, largely reflecting constrained liquidity distribution and investor caution ahead of upcoming auctions.
By midweek, the tide began to turn, as foreign exchange (FX) settlement depleted liquidity levels to N138.80 billion long. As the week progressed, the drawdown deepened, closing the week at N103.01 billion short, a 134% decline from opening levels.
The Nigerian Interbank Offered Rate (NIBOR) for overnight funds climbed sharply by 2.64 percentage points over the week, closing at 29.50%. Similarly, the one-month, three-month, and six-month NIBOR rates rose to 26.90%, 27.47%, and 28.12%, respectively, according to Cowry Asset Limited.
The firm said the upward trajectory suggests that, while liquidity remains available in aggregate, its flow across the financial system has been relatively limited— keeping interbank conditions tight.
The banking system saw inflows from Remita, Project Gazelle, and N73.75 billion in FGN bond coupons; they were insufficient to offset outflows. On average, the daily liquidity balance fell to a positive balance of N215.19 billion, a 65% drop from N611.29 billion surplus recorded the previous week.
This liquidity crunch drove interbank rates higher, with the overnight policy rate (OPR) and overnight rate (O/N) rising to 31.60% and 32.05%, respectively, up 5.02% and 5.09% week-on-week.
Analysts said with current system liquidity from SRA inflows, an expected N145.97 billion FGN Bond coupon payment, and pending FAAC allocations, interbank rates should hold steady in the coming week.
On the other hand, the Nigerian Treasury Bills market (NITTY) recorded broad-based yield compression as market participants took a cautious stance in anticipation of next week’s primary market auction.
Investors largely remained on the sidelines, resulting in minimal secondary market activity. This week, the Central Bank of Nigeria (CBN) is scheduled to conduct a treasury bills auction in the coming week, offering a total of N400 billion across standard maturities.
This supply will be met with maturities worth N369.78 billion, creating a net issuance gap of approximately N30.22 billion.
Given the prevailing liquidity conditions and anticipated investor interest, next week’s auction is likely to attract significant participation and will provide critical signals for the near-term direction of short-term interest rates. GCR Affirms Dangote Cement AA+ (NG) Rating
