Short-Term Rates Ease as Banks Deposit Excess Fund with CBN
The short-term benchmark interest rates in the absence of funding pressures in the financial system following an influx of inflows across sources. The local banks switched gear from active borrowing to deposit their excess funds with the Central Bank of Nigeria (CBN) after federal account allocation committee inflow, net inflows from Nigerian Treasury Bills and FGN coupon payment boost system liquidity.
The latest inflows ended the deficit liquidity conditions that pushed money market rates above 32%. In the week, rates declined sharply as local banks with surplus fund re-priced funds. Data from the FMDQ platform showed that the overnight lending rate contracted by 575 basis points to 26.9% at the close of trading session on Friday.
Also, open repo rate declined by 583 bps to 26.50%, the lowest seen in weeks. The market recorded N37.00 billion as net inflows from the Nigerian Treasury bills. FGN bond coupon payments totalling N284.73 billion and FAAC disbursement worth NGN850.00 billion hit the financial system last week.
Owing to the high liquidity influx, the average system liquidity improved, settling at a net long position of NGN214.13 billion compared to a net short position of NGN465.18 billion in the previous week, Cordros Capital Limited said in a commentary note.
Barring any mop-up activities by the CBN, analysts said they expect the interbank rates to remain subdued, with an additional inflow of N41.62 billion coming from FGN bond coupon payments in the new week.
The interbank market opened the week on a tighter note, with funding rates rising to 32.63% despite coupon inflows of about N89.85 billion. System liquidity remained deeply negative through the middle of the week, following significant use of the standing lending facility window of the CBN, which dropped to around N931.75 billion on Tuesday.
However, as the week progressed, funding rates began to ease, down by 117 bps midweek and another by 471 bps on Thursday to 26.75%, supported by FAAC inflows of about N850 billion and a liquidity swing to roughly N831.36 billion.
On Friday, market liquidity rose to N1.35 trillion, with strong participation of local deposit money banks at the standing deposit facility. Short-Term Rates Ease as Banks Deposit Excess Fund with CBN Stock Market Expands to N85trn, Investors Gain N793bn
