Money market rates dropped slightly this week following a surge in liquidity within Nigeria’s financial system, driven by renewed investor participation in Treasury bills auctions. The Central Bank of Nigeria (CBN) held a primary market auction where ₦650 billion worth of Treasury bills was floated for subscription, attracting a total demand of ₦750 billion — a weaker turnout compared to previous sales, reflecting a reduced appetite for naira-denominated assets.
Despite the lower subscription levels, market liquidity improved as banks maintained a cautious stance, particularly with the Standing Deposit Facility (SDF) rate at 24.5%, remaining higher than the average yield on Treasury bills. Analysts observed that the liquidity boost provided some relief to the interbank market after weeks of tight funding conditions.
According to a report by Meristem Securities Limited, total financial system liquidity rose by 23.81%, climbing from ₦1.77 trillion to ₦2.19 trillion. The firm attributed the increase mainly to a ₦534.30 billion rise in banks’ placements at the CBN’s Standing Deposit Facility.
Market analysts noted that several commercial banks with sufficient cash reserves continued to take advantage of the 24.5% SDF rate, while others turned to the Standing Lending Facility to meet short-term funding needs. This mix of borrowing and depositing reflected a more balanced liquidity position in the banking system.
Interbank rates also displayed a mixed performance midweek. Overnight rates eased by four basis points to 24.83%, following the liquidity inflow. The week saw ₦6.76 billion in primary market repayments and ₦275 billion in fresh borrowings from the CBN.
However, medium-term money market rates trended upward, with the 1-month, 3-month, and 6-month tenors rising by 25 basis points, 72 basis points, and 119 basis points respectively, according to Cowry Asset Management Limited.
Overall funding costs moderated across the market, as the overnight rate declined by 49 basis points to 24.86%, and the Open Purchase Rate dropped 30 basis points to 24.50%.
The Treasury bills secondary market reflected a similarly mixed performance. Yields on 1-month, 6-month, and 12-month maturities advanced by 15 basis points, 16 basis points, and 1 basis point respectively, while the 3-month yield declined by 20 basis points. This divergence indicated varying investor preferences along the short-term yield curve.
Despite the fluctuations, the average Nigerian Treasury Bills (NT-Bills) yield inched marginally higher by approximately 0.5 basis points to 17.35%, signaling cautious sentiment among fixed-income investors.
Financial experts believe that the easing in short-term rates, coupled with improved liquidity conditions, could provide short-lived relief to the banking sector, especially as the CBN continues to maintain tight monetary controls to curb inflation and stabilize the naira.
