Nigerian deposit money banks (DMBs) borrowed more than N1.8 trillion from the Central Bank of Nigeria’s (CBN) standing lending facility to strengthen their liquidity situations. A restricted financing level pushed money market rates above 36%, up from as low as 25% in early August, when liquidity levels increased dramatically.
Local bankers with short-term cash restrictions resort to the facility to increase money market liquidity as financial system pressures rise again. The Nigerian interbank offered rate rose to 32.70% at the conclusion of the week, as cash-rich lenders hiked rates for market peers.
Meanwhile, analysts explained that the seemingly huge amount from the CBN window reflated the liquidity balance, causing money market rates to decline week on week. Accessing funds from the CBN signals the banks need to cover short positions, which analysts call a common daily occurrence in the money market space.
Short-term benchmark interest rates had climbed above 36%, according to market data tracked by analysts. During the early part of the week, system liquidity was positive, AIICO Capital Limited said in its market update.
Analysts noted that as the week progressed, liquidity improved and resulted in a surplus balance from the middle of the week to the end.
Consequently, the open repo rate and the overnight rate decreased by 109 bps and 99 bps to 32.30% and 32.98%, respectively, compared to the previous week.
“We anticipate that the system liquidity will improve next week, as the FGN offer size has been reduced, and there are bond coupons worth approximately ₦365.01 billion and the possibility of early FAAC credits.”.
Further details showed that the overnight rate declined by 99 basis points week on week to settle at 33.0% on Friday. DMBs funding obligations always swing at the same time when depositors are taking out cash.
An inflow from OMO maturities worth N20.50 billion increased the liquidity balance in the money market. Analysts at Cordros Capital Limited said banks’ activity at the CBN SLF window worth N1.82 trillion also supported system liquidity.
The investment firm said the average system liquidity settled higher at a net long position of N407.16 billion last week, from a net long position of N10.61 billion in the previous week.
Analysts said they expect debits for the N190 billion FGN bond and Nigerian Treasury bills auction to put pressure on system liquidity, leading to a surge in funding rates.
