Short-Term Rates Diverge as Banking Liquidity Plunges by 37%

Short-Term Rates Diverge as Banking Liquidity Plunges by 37%

Short-term benchmark interest rates diverged as banking system liquidity balance declined sharply amid a slowdown in banks’ activities at the Central Bank’s standing deposit facility (SDF) window.

Data from the market showed that the financial system liquidity plunged by about 37% on the day following settlement of the midweek treasury bills allotment to fixed-income investors, including Nigerian banks.

Recall that the Central Bank of Nigeria (CBN) conducted a Treasury bills auction on Wednesday, seeking to raise N700 billion from investors across standard tenors.

The auction recorded strong demand, with total subscriptions of ₦3.62 trillion against an offer size of ₦700 billion, while the DMO ultimately allotted ₦1.25 trillion.

Reflecting a 24-hour settlement timeline, the Apex Bank debited the financial system for the amount of Treasury bills allotted to investors on Thursday, dragging the intermarket liquidity balance lower.

System liquidity fell sharply by 36.82% to ₦2.55 trillion from ₦4.04 trillion, largely due to a ₦1.25 trillion treasury auction settlement outflow, Broadstreet investment banking firms said in their notes.

 As liquidity tightened, the Overnight Rate (OVN) rose by 12 basis points to 22.35%, while the Nigerian overnight financing rate (NOFR) and open repo remained at 22.00%, indicating sustained but less abundant liquidity conditions.

Supported by current liquidity levels, funding rates are expected to hover around prevailing levels despite the treasury bills auction settlement, barring any major liquidity intervention by the CBN, such as a potential OMO auction. CBN Auctioned N600bn in OMO Bills, Raises N3.5trn at 20%