Interbank lending rates have dropped significantly due to an increase in available funds in the financial system. This comes after large inflows from matured Open Market Operation (OMO) bills and Federal Government of Nigeria (FGN) bond coupon payments.
At the start of last week, banks faced liquidity shortages, causing interbank rates to rise. However, as the week progressed, a surge of fresh funds entered the system, easing funding pressures. The Debt Management Office (DMO) bond auction temporarily absorbed some liquidity, but this was later offset by OMO bill maturities worth ₦813.25 billion, which helped push rates down.
Additionally, an FGN bond coupon payment of ₦118.07 billion increased the available liquidity in the banking sector. Despite a sharp drop in liquidity following the settlement of a ₦910.30 billion FGN bond auction, overall funding conditions improved. As a result, the Overnight Policy Rate (OPR) fell by 5.58% to 26.75%, while the Overnight Rate (O/N) declined by 5.50% to 27.33%.
The Nigerian Interbank Offered Rate (NIBOR) also reflected this liquidity boost. The Overnight NIBOR saw the biggest decline, dropping by 438 basis points to 28.54%, according to Cowry Asset Limited.
Overall, the banking system’s average liquidity position improved, reducing the net shortfall to ₦388.14 billion from the previous week’s ₦1.08 trillion deficit, Cordros Capital Limited reported. However, February’s average daily liquidity balance still showed a deficit of ₦686.36 billion, a sharp reversal from the ₦204.44 billion surplus recorded in January.
Looking ahead, ₦50 billion worth of OMO bills and ₦1.27 trillion from Treasury Bills are expected to mature this week, further increasing liquidity levels. Analysts at Cordros Capital predict that inflows from the Federation Account Allocation Committee (FAAC) disbursements, totaling ₦1.15 trillion, will further boost liquidity and drive interbank rates lower.
