Traders have noted that the sustained liquidity strain in the money market has pushed short-term benchmark interest rates upward. This trend, however, could potentially have a positive impact on mutual funds.
Low inflows from maturing instruments have negatively affected rate movement. However, the market anticipates that inflows from OMO bills and FGN coupon payments will boost liquidity levels in the financial system.
Money market rates have remained elevated in recent weeks as banks turn to the Central Bank of Nigeria’s (CBN) Standing Lending Facility (SLF) window to meet their short-term funding needs.
System liquidity has remained negative throughout the week, with most deposit money banks (DMBs) increasingly relying on the SLF window.
Interbank rates – open repo and overnight lending rate rose by 20 bps and 19 bps, respectively, to settle at 31.20% and 31.73%.
“We anticipate ample system liquidity due to inflows from FGN bond coupons”, AIICO Capital Limited said in a note.
Despite an inflow of N35.20 billion from OMO maturities, the overnight lending rate increased by 7 basis points week-over-week to 31.7%, according to Cordros Capital Limited.
According to the investment banking firm’s report, the average liquidity position in the market remained positive, closing at a net long position of N612.68 billion. This figure represents a significant increase compared to the previous week’s net long position of N198.32 billion.
“We envisage moderation in the overnight lending rate as we believe the combined inflows of N452.75 billion from FGN bond coupon payments totaling N442.75 billion and OMO maturities in the sum of N10.00 billion will boost liquidity in the financial system”.
