Nigeria’s money market witnessed a sharp drop in short-term interest rates last week, as commercial banks opted to deposit excess liquidity with the Central Bank of Nigeria (CBN) amid a wave of fund inflows from various government sources.
Recent injections into the financial system—such as Nigerian Treasury Bill maturities, FGN bond coupon payments, and the Federation Account Allocation Committee (FAAC) disbursement—helped shift the banking sector from a deficit to a surplus liquidity position.
The overnight lending rate plunged by 575 basis points to settle at 26.9% on Friday, while the open repo rate slid by 583 basis points to 26.5%, marking the lowest levels seen in recent weeks, according to data from the FMDQ Exchange.
A total of N37 billion entered the market via NTB maturities, while FGN bond coupon payouts amounted to N284.73 billion. Additionally, FAAC distributed N850 billion to federal, state, and local governments, significantly boosting banking system liquidity.
Cordros Capital Limited noted in its commentary that average system liquidity improved to a net long position of N214.13 billion from a net shortfall of N465.18 billion the previous week.
Unless the CBN undertakes liquidity mop-up operations, analysts expect interbank rates to remain low, especially with another N41.62 billion expected from fresh FGN bond coupon payments this week.
The new trading week had opened with tighter liquidity, with rates spiking to 32.63% despite N89.85 billion in coupon inflows. Liquidity pressures persisted midweek, as heavy borrowing through the CBN’s Standing Lending Facility drove system liquidity down to N931.75 billion.
However, a major turnaround occurred by Thursday, as interbank funding rates fell 471 basis points to 26.75%, buoyed by FAAC-related inflows that lifted market liquidity to N831.36 billion.
By Friday, total liquidity stood at N1.35 trillion, reflecting strong participation by deposit money banks at the Standing Deposit Facility.
Financial analysts believe these dynamics, alongside shifting yields and policy adjustments, will continue to shape money market performance in the coming days.
