Tight Liquidity Pushes Short-term Interest Rates Up
Yemi Cardoso

Short-term interest rates jerked strongly as liquidity pressures in the money market took another dimension. Deposit money banks paid another visit to the central bank’s standing lending facility window to augment their funding profile.

The banks were debited 32.5% of their deposits increase for cash reserve ratio (CRR) maintenance, thus triggering another rush toward borrowings from the CBN window.

According to data from the FMDQ platform, the overnight lending rate expanded by 108 basis points to 26.5% after the financial system debited N1.3 trillion for net treasury bills auction, according to a note from Cordros Capital Limited.

At the primary market auction conducted recently, the authority had increased treasury bills offer to N1 trillion for subscription. Analysts said the significant increase is to fast-track borrowing for the government after the CBN stopped overdraft funding through its ways and means window.

In line with changing dynamics in the financial markets, short-term interest or money market rates increased on the back of tighter liquidity levels, with banks seeking liquidity for funding obligations.

Notably, key money market rates such as the open repo rate (OPR) and overnight lending rate (OVN) rose to conclude at 25.50% and 26.50%, respectively.

Last week, the overnight rate contracted by 7 basis points to 16.9%, as the financial system remained buoyant, supported by N40 billion inflows from OMO maturities.

Analysts predicted an upward shift in the overnight rate due to debits for FGN bonds auction size of N2.50 trillion which was heavily undescribed. However, the market expects inflows from FGN Bond coupon payments worth N112.67 billion. #Tight Liquidity Pushes Short-term Interest Rates Up

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