Interest rates in Nigeria’s money market dropped further because banks currently have a lot of extra cash to work with. The week started with a surplus of funds in the system, thanks to multiple inflows of money last week.
These inflows came from the Federal Account Allocation Committee (FAAC), Remita payments, and government bond (FGN coupon) payments, which eased the financial pressure on banks. As a result, banks reduced their borrowing activities from the Central Bank of Nigeria (CBN).
The excess cash in the banking system last Friday continued into the new week, jumping by 90% to reach ₦401.95 billion, according to a report by TrustBanc Financial Group.
Because of this surplus, the Nigerian Interbank Offered Rate (NIBOR) – which shows how much banks charge each other for short-term loans – dropped across various periods:
- For one day: 1.08% drop to 27.00%
- For one week: 0.75% drop to 27.38%
- For one month: 0.55% drop to 28.19%
- For three months: 0.21% drop to 28.93%.
Other key rates in the money market, like the Open Repo Rate (OPR) and Overnight Lending Rate, also fell. The OPR declined by 0.42% to 26.58%, while the Overnight Lending Rate dropped by 0.33% to 27.17%. This happened because there wasn’t much demand for extra funds.
However, things could change soon. A bond auction settlement worth ₦606.46 billion is expected, which will significantly reduce the available cash in the system. When this happens, analysts predict that interbank rates will likely increase. On the bright side, upcoming payments from matured Open Market Operation (OMO) bills, worth about ₦335 billion, could help bring in more cash and balance the system again.
