Despite little to no pressure on the amount of liquidity in the financial system, the money market’s short-term benchmark interest rates fell last week.
The overnight lending rate dropped by 15 basis points to 32.45% on Friday, while the repo rate dropped by 14 basis points to 31.61%, according FMDQ statistics. Returns on mutual funds and interbank borrowing are impacted by changes in interest rates.
According to Cowry Asset Limited, banks with liquidity sought lower rates on Friday, which resulted in a fall in the Nigerian interbank offered rate overall. Due to pressure on system liquidity, MarketForces Africa revealed that local lenders resorted to net borrowers from the Central Bank of Nigeria’s (CBN) standing lending facility.
However, the market recorded an inflows from maturity instruments, causing funding rates to decline slightly. Last week, there were N32.20 billion inflows from OMO maturities. Deposit money banks’ activity at the CBN standing lending facility window cushioned the effects of debits for net Nigerian Treasury bills issuance worth N44.16 billion, Cordros Capital Limited said in a note.
The investment firm stated that the average liquidity closed at a net long position of N1.44 trillion versus a net long position of N1.13 trillion in the prior week. Barring any significant outflows in the new week, analysts anticipate the N16 billion inflows from OMO maturities and another 65.36 billion FGN bond coupon payments will likely support system liquidity.
System liquidity balance has been deficit despite a slight improvement from the previous week. Consequently, the Open Repo Rate and the Overnight Rate declined by 45bps and 8bps to 31.61% and 32.45% week-on-week.
AIICO Capital revealed expectations that the interbank rates would stay elevated this week, given that the bond coupon inflows on July 2034 paper are only ₦65.00 billion. With the expectation that funding levels will improve, analysts at Cordros Capital Limited forecast that the overnight lending rate will dip further.
