Benchmark short-term interest rates displayed divergent trends last week, amid elevated liquidity in Nigeria’s financial system, which ended the week with a surplus of roughly N1.25 trillion. Despite various liquidity outflows, system liquidity remained robust as commercial banks placed N4.94 trillion with the Central Bank of Nigeria (CBN) through its Standing Deposit Facility (SDF).
By doing so, banks effectively withdrew surplus funds from circulation, limiting availability for lending and other market activities. In April, average daily surplus liquidity stood at N885.3 billion—a dramatic 328.5% surge compared to a deficit of N387.4 billion recorded in March.
This upswing in system liquidity was fueled by inflows exceeding N3.5 trillion during the month. The sources of these inflows included FAAC disbursements, payments to government contractors, maturing treasury bill instruments, and foreign exchange interventions by the CBN.
Throughout last week, the interbank market retained ample liquidity, supported by a N259.96 billion coupon payment from Federal Government bonds.
Additionally, N132.06 billion flowed into the system via the 13% derivative payments to oil-producing states. Analysts noted that banks placed nearly N5 trillion at the CBN’s standing deposit window during the period.
Despite significant outflows from the N804.85 billion OMO auction, cash reserve requirement (CRR) deductions, FX settlements, and bond settlements, liquidity remained buoyant—starting the week at N1.365 trillion and closing at N1.248 trillion.
System liquidity saw reductions primarily due to the settlement of N397.89 billion in FGN bond auction allotments and naira settlements for CBN’s $116 million in foreign exchange sales.
As a result, short-term rates maintained relative stability. The Overnight Policy Rate (OPR) held steady at 26.50%, while the overnight lending rate eased by 5 basis points to 26.83% on a weekly basis.
Looking ahead, analysts expect the maturity of N230 billion in OMO instruments to bolster liquidity further, likely keeping money market rates around the current level of 26.5%.
However, the possibility of another OMO auction could reverse this trend by tightening conditions. Absent any new liquidity management interventions by the central bank, market participants anticipate that inflows from maturing instruments will continue to reinforce system liquidity.
