Interbank rates surged in the money market last week, driven by a persistent liquidity deficit in the banking sector. Short-term benchmark interest rates climbed to double digits as liquidity shortages strained the system. However, expectations of liquidity inflows from the Federal Account Allocation Committee (FAAC) this week may ease the pressure.
Despite inflows from statutory revenue, FAAC allocations, and a signature bonus, system liquidity remained in deficit throughout the week, according to a market note by AIICO Capital Limited. TrustBanc Financial Group reported that the banking system liquidity ended the week with a shortfall of ₦377.5 billion, marking its tenth consecutive day in the red.
To fund operations amidst the liquidity crunch, banks turned to the Central Bank of Nigeria’s (CBN) Standing Lending Facility (SLF), withdrawing a total of ₦6.43 trillion by the week’s end, TrustBanc stated in a note cited by MarketForces Africa.
Inflows during the week included ₦450 billion from contractors’ payments, ₦400 billion in FAAC credits, and ₦9.52 billion from FGN bond coupons. However, these inflows, amounting to ₦859.52 billion, were insufficient to offset liquidity constraints. Additional pressures came from FX sales totaling approximately $200 million and a ₦263.21 billion settlement for bonds sold at a primary market auction.
According to Cordros Capital Limited, the average liquidity position for the week improved slightly, settling at a net shortfall of ₦867.73 billion compared to ₦1.14 trillion in the prior week. AIICO Capital noted that overnight policy and lending rates trended downward by week’s end. The FMDQ platform recorded that the overnight policy rate closed 75 basis points lower at 31.79%, while the overnight lending rate fell 59 basis points to 32.33% week-on-week.
Analysts expect FAAC disbursements (₦700 billion), FGN bond coupons (₦216.76 billion), and OMO maturities (₦10 billion) to bolster liquidity this week, potentially reducing overnight rates.
