The Nigerian financial markets are witnessing a notable liquidity crunch following the Central Bank of Nigeria’s (CBN) recent foreign exchange (FX) intervention settlements. This has pushed benchmark short-term interest rates to the brink of 29%, reflecting tightened conditions across the money market.
As commercial banks experience a scarcity of funds due to the lack of robust inflows, those with surplus balances have begun to price liquidity higher, resulting in elevated money market rates. This new development marks a departure from the relatively liquid conditions observed in the recent past.
A significant increase in drawdowns from the CBN’s Standing Lending Facility (SLF) has emerged as a key signal of tightening market conditions. Previously, banks with idle liquidity placed hefty deposits with the central bank, earning returns below the policy benchmark rate due to the absence of immediate funding demands.
However, this dynamic has shifted dramatically. Recent large-scale withdrawals, including settlements for Open Market Operation (OMO) bills and Nigerian Treasury Bills (NTBs), have depleted liquidity levels within the banking system.
With limited inflows to counterbalance these outflows—particularly those related to the latest CBN FX interventions targeted at authorized dealer banks—interest rates have surged by at least 200 basis points, rising from the earlier average of 26%.
Data from Wednesday revealed that the Nigerian Interbank Offered Rate (NIBOR) saw increases across all tenors. The Open Buy Back (OBB) rate also climbed by 1.00 percentage point to 28.50%, while the Overnight Lending Rate increased by 0.82 percentage point to reach 29.42%.
Barring any surprise interventions by the central bank or unexpected market events, rates are projected to adjust on Thursday when inflows from Federal Government of Nigeria (FGN) bonds are expected. Approximately ₦175 billion in coupon payments is set to be injected into the financial system, potentially easing liquidity constraints.
Meanwhile, despite the rate hikes, the Nigerian Interbank Treasury Bills True Yield declined across all maturities. On average, the yield on treasury bills dipped marginally by one basis point, settling at 20.93%.
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