Efforts to stabilize interbank rates through signature bonuses, Remita inflows, and government contractor payments proved insufficient last week as rates climbed due to heightened funding demands that strained the financial system’s liquidity.
Short-term benchmark interest rates rose as the money market faced liquidity challenges. However, market analysts predict that rates may decline this week if funding pressures ease and liquidity levels remain positive.
In a report, TrustBanc Financial Group noted that system liquidity closed the week on a positive note, with a balance of N871.20 billion, a significant 147% jump from the previous day’s surplus of N353.26 billion.
Despite this, midweek liquidity dipped to a N166 billion shortfall, primarily due to outflows from the Central Bank of Nigeria’s (CBN) Open Market Operations (OMO) auction. The week had initially started with robust liquidity of N846.78 billion, bolstered by nearly N600 billion in contractor payments.
AIICO Capital Limited highlighted that inflows from Remita contributed to lower interbank rates earlier in the week. The Overnight Policy Rate (OPR) dropped to 26.50%, while the Overnight Rate (O/N) fell to 27.14%. However, liquidity tightened midweek following the CBN’s OMO auction, which mopped up N500 billion, and additional debits from cash reserve ratio (CRR) maintenance.
As liquidity contracted, interbank rates surged to between 28% and 30%, according to AIICO Capital. Later in the week, inflows from a signature bonus and Remita credits helped stabilize the market. TrustBanc noted that liquidity rebounded strongly, positioning the system for a positive start to the year. Inflows into the Standing Deposit Facility (SDF) surged by 76%, contributing to a robust closing balance.
By Friday, interbank funding rates stabilized, with the OPR and O/N closing at 26.75% and 27.25%, respectively. TrustBanc projects these rates to remain steady barring any significant outflows. Cordros Capital Limited reported that average system liquidity ended the week at a net long position of N471.76 billion, a reversal from the prior week’s net short position of N402.18 billion.
