Money market interest rates experienced upward pressure last week as liquidity in the banking sector came under strain due to Cash Reserve Ratio (CRR) debits and corporate tax remittances, according to a report by Cowry Asset Management
Although the system opened the week with a liquidity surplus, driven by a ₦150 billion inflow from OMO maturities, the relief was short-lived. The Central Bank of Nigeria (CBN) quickly absorbed ₦745.50 billion through a primary OMO auction, tightening financial conditions further.
As liquidity thinned out, some banks turned to the CBN’s Standing Lending Facility (SLF) for short-term funding, while placements at the Standing Deposit Facility (SDF) declined. Consequently, the Nigerian Interbank Offered Rate (NIBOR) rose by 11 basis points, reaching 26.82% compared to 26.71% a week earlier.
Data from FMDQ showed that Open Buy Back (OBB) and overnight lending rates—two critical indicators of short-term borrowing costs—also edged higher. Despite modest liquidity buffers, banks remained cautious, favoring a conservative cash-holding strategy over aggressive lending.
AIICO Capital Limited noted that the week started with stable liquidity and rates hovering around 26.5%. However, by midweek, a fresh ₦600 billion OMO auction pushed rates up to 28% due to a dearth of inflows. Relief came later in the week from FAAC inflows to state governments, which helped stabilize interbank lending at 26.5%.
Nevertheless, Friday’s CRR debits by the CBN—targeted at banks that failed to meet lending thresholds—further drained system liquidity. This drove rates to a weekly high of 29%.
Comparative weekly data showed that the open repo rate increased by 33 basis points to 26.83%, while overnight lending climbed 42 basis points to close at 27.42%. Overall, banking system liquidity fell significantly by ₦811.56 billion, ending the week at ₦468.52 billion.
Looking ahead, analysts expect tighter conditions in the short term, especially after the recent CRR deductions. However, a ₦130 billion Treasury bill maturity and the absence of a DMO auction may help ease rates slightly toward the 26.5% range.
