Interbank lending rates fell sharply last week, driven by an influx of liquidity from Remita inflows and coupon payments on Federal Government of Nigeria (FGN) bonds.
According to data from the FMDQ platform, short-term interest rates dropped below 27% by Friday, down from over 32% the previous week. Liquidity constraints in prior weeks had forced some banks to rely on the Central Bank of Nigeria’s (CBN) standing lending facility to meet funding needs.
Last week’s decline in interest rates was supported by inflows of ₦143.52 billion from FGN bond coupons and additional funds from Remita. However, these inflows were partially offset by ₦100 billion in cash reserve debits and ₦137 billion in outflows for foreign exchange (FX) settlements, according to Cordros Securities.
The average system liquidity closed at a net shortfall of ₦57.77 billion, a significant improvement from the ₦361.08 billion deficit recorded the previous week.
Outlook for Liquidity and Interest Rates
In the coming week, analysts expect system liquidity to face fresh debits of around ₦120 billion for FGN bonds and additional outflows tied to a Treasury bills auction. These are expected to counter anticipated inflows of ₦9.37 billion from FGN bond coupons and ₦6.38 billion from OMO maturities.
The anticipated reduction in liquidity is likely to push money market rates higher. Despite a deficit of ₦60 billion at the start of last week, the system’s liquidity improved significantly, ending with a surplus of ₦396.75 billion, according to a note by AIICO Capital Limited.
By week’s end, the overnight policy rate dropped by 5.86% to 26.09%, while the overnight lending rate fell by 5.60% to 26.88%, signaling a short-term easing in financial conditions.
