Nigeria’s short-term benchmark interest rates surged on Thursday as tighter liquidity conditions gripped the financial system, driven largely by deposit money banks (DMBs) ramping up borrowings from the Central Bank of Nigeria (CBN).
With no major cash inflows recorded, money market rates broke past the 32% mark — a level rarely seen in recent months. Analysts project that without any significant liquidity injections in the coming days, rates are likely to remain elevated into next week.
This latest development follows recent open market operations (OMO) and Treasury bill issuances that further drained liquidity from the system. As a result, commercial banks, which had previously been in a position to deposit surplus funds, have now turned to the CBN’s Standing Lending Facility (SLF) for the third straight trading session this week.
Data from AIICO Capital Limited revealed that the deficit position in the banking system widened to ₦35.30 billion, while banks’ total borrowings from the CBN’s SLF spiked to ₦311.53 billion.
Funding Costs Climb as Interbank Rates Show Mixed Trends
The rising liquidity crunch has pushed funding costs higher. The Overnight Policy Rate (OPR) jumped by 20 basis points to 32.30%, while the overnight lending rate increased by 10 basis points to 32.60%.
According to Cowry Asset Management Limited, interbank rates (NIBOR) posted mixed movements across major tenors. The overnight and 6-month rates climbed by 43 bps and 19 bps respectively, while the 1-month and 3-month tenors fell by 5 bps and 11 bps.
Market watchers say that unless there is a major liquidity injection, rates are expected to hold around these elevated levels.
Treasury Yields Advance Despite Mild Secondary Market Demand
Meanwhile, the Nigerian Interbank Treasury Bills True Yield curve advanced across all maturities. Mild investor activity in the secondary market saw the average yield ease slightly by 1 basis point to 17.93%, even as the overall trend remained upward.
Analysts maintain that liquidity pressures, coupled with CBN’s monetary tightening measures, will continue to keep short-term interest rates elevated in the near term.
