The cost of borrowing money in the interbank market experienced a significant drop, falling below 28% across various tenors, driven by an oversupply of funds within the financial ecosystem. This surge in liquidity was primarily fueled by the maturity of Nigerian Treasury bills and the disbursement of Federal Government (FGN) bond coupon payments.
Previously, interbank lending rates had been oscillating above 32%, a consequence of constrained liquidity conditions prevailing in the financial markets. This tightness was largely attributed to the active participation of local banks in primary market auctions conducted by the Central Bank of Nigeria and the Debt Management Office.
A considerable number of banking institutions have strategically increased their allocation towards Nigerian government debt instruments as a means of enhancing their revenue streams, opting for a less volatile investment avenue compared to loan origination and its associated default risks.
On Thursday, the overall liquidity position within the financial system reached approximately N512 billion, following the distribution of FGN bond coupon payments amounting to ₦164 billion and the redemption of N1.18 billion worth of maturing Nigerian Treasury bills.
The movement of interbank rates remained relatively stable, despite the banking system experiencing an outflow of N808.73 billion for the settlement of Nigerian Treasury bills auctioned on Wednesday.
Consequently, the abundance of liquidity exerted downward pressure on short-term benchmark interest rates. Data sourced from the FMDQ Securities platform indicated that the open repo rate (OPR) decreased by 582 basis points (bps), settling at 26.60% for the day.
Similarly, data from the FMDQ securities platform confirmed that the overnight lending rate (OVN) declined by 573 basis points, closing at 27.10%, reflecting the absence of liquidity pressures within the money market on Thursday.
Market analysts anticipate that interbank rates will maintain their current levels, provided there are no unforeseen withdrawals of funds from the financial system by the Central Bank of Nigeria.
