Short-Term Interest Rates Dive Ahead of CBN Debit on Banks
Ahead of Central Bank of Nigeria’s (CBN) debits on local lenders’ cash reserves balance today, the money market has recorded a decline in short-term benchmark rates over healthy liquidity in the system.
Market data shows that liquidity in the financial system remains strong after sustained pressures that drove Nigerian deposit money banks and other financial institutions’ funding rates higher last week.
However, as money market pressures eased, banks with excess liquidity have started to accept lower rates to part with their funds. MarketForces Africa reported that the liquidity level in the market has been supported by coupon payments, matured bonds and FAAC inflows.
This week, Nigerian banks have reduced their visit to the apex bank standing lending facility window for withdrawals to support their liquidity needs ahead of cash reserves debits.
Analysts at TrustBanc Capital Limited said in a note that system liquidity declined by 7% to close at ₦297.75 billion. Notwithstanding, the overnight lending rate eased by 12 basis points to close at 11.38%.
Meanwhile, Open Repo Rate (OPR) was unmoved at 11.00% due to the absence of significant funding pressures in the market, ahead of an expected outflow from Banks’ cash reserves on Friday.
For failing to meet 65% loans to deposit ratio targets, Nigerian banks have seen their cash reserves debited persistently over the years by the regulator. The debits have been a downside exposure to Nigerian banks’ business to take on market opportunities.
“Cash reserves debit by the apex bank on Friday will deplete system liquidity and elevate funding rates”, TrustBanc Capital said. Last month, deposit money banks borrowed N4 trillion from the CBN to support their respective liquidity positions. #Short-Term Interest Rates Dive Ahead of CBN Debit on Banks
