Interbank funding rates surged on Wednesday following a decline in system liquidity, attributed to recent foreign exchange (FX) sales by the Central Bank of Nigeria (CBN) to authorised dealer banks.
The liquidity squeeze emerged after the apex bank debited deposit money banks for the US dollars purchased in its continuous effort to boost forex supply and stabilise the naira. This reduction in financial system liquidity triggered a rise in short-term benchmark interest rates, with the Nigerian Interbank Offered Rate (NIBOR) climbing across all tenors.
Key money market indicators also trended upward. The Overnight Policy Rate (OPR) rose by 9 basis points to 26.67%, while the Overnight Rate (O/N) followed suit, increasing to 27.13%, reflecting tighter funding conditions in the market.
Despite the prevailing liquidity strain, analysts maintain a stable outlook for interbank rates. AIICO Capital Limited cited expected inflows of ₦747 billion from the Federation Account Allocation Committee (FAAC) following the recent ₦1.578 trillion allocation approval, alongside an impending ₦83.43 billion Federal Government bond coupon payment, as supportive factors.
Meanwhile, the banking system’s opening liquidity dropped significantly by 74%, settling at a surplus of ₦138.80 billion. However, analysts at TrustBanc expect the system to remain in surplus, barring any major outflows, with funding rates likely to hover near current levels.
In the treasury bills space, the Nigerian Interbank Treasury Bills True Yield (NITTY) showed mixed performance across maturities. Nonetheless, increased selloffs pushed the average yield higher by 0.05%, closing at 21.11%.
