Short-term Interest Rates Fall on Robust Banking System Liquidity
Short-term benchmark interest rates fell as robust liquidity in the banking system reduced funding pressures in the money market. The financial system was awash with funds following a flood of inflows, which caused banks to stay off the Central Bank of Nigeria’s (CBN) Standing Lending Facility (SLF).
In its market update, Cowry Asset Limited said liquidity balance in the financial system was supported by a net inflow of N1.53 trillion. The inflows were largely driven by N651.7 billion from OMO bills maturities. On the downside, the market recorded outflow from the CBN cash reserve ratio activity last week.
The CBN debited banks N400 billion for CRR, thus reducing the liquidity balance lower. The ample system liquidity continued to ease funding pressures, leading to a broad-based decline in interbank rates. The Nigerian Interbank Offered Rate (NIBOR) fell across all tenors, with the overnight NIBOR shedding 23 basis points (bps) week-on-week to 26.77%.
The 1-month, 3-month, and 6-month rates also dropped by 98bps, 64bps, and 28bps, respectively. In tandem, the overnight rate and repo rates closed at 26.50% and 26.86%, with the overnight lending rate holding steady and the repo rate declining marginally by 10 bps on Friday.
Looking ahead, liquidity is expected to remain buoyant with anticipated inflows of N927.25 billion in T-bill maturities and N150 billion in OMO maturities in the coming week. Analysts said these inflows are likely to support robust system liquidity and drive strong investor participation in the scheduled auctions.
The market anticipates inflows from maturing Treasury bills to boost liquidity this week, but potential CBN OMO auctions could push rates back up to 32.5% if the bank maintains its tight policy stance.
As of Friday, the average daily liquidity climbed to a surplus balance of N1.33 trillion, compared to the previous week’s average daily balance of ₦29.28 billion, according to Cordros Capital Limited.
Interbank funding rates: open repo rate and overnight lending rate declined by 266 bps week on week, settling at 26.50% and 26.86%, respectively. #Short-term Interest Rates Fall on Robust Banking System Liquidity Yield Slides on Post Auction Demand for Nigerian Treasury Bills
