Money market rates are falling, if only modestly, due to relative improvement in financial sector liquidity. Interbank rates remained high, although liquidity levels in the financial sector increased following a series of inflows reported last week.
The liquidity constraint in the financial sector persisted despite coupon inflows, big Remita inflows, and other major inflows targeted at balancing foreign exchange settlements and Remita outflows, according to AIICO Capital Limited.
Cowry Asset Limited analysts said in a letter to investors that the Nigerian interbank offered rate (NIBOR) decreased across all maturities, indicating better liquidity in the banking sector. Banks have borrowed from the Apex Bank to support their activities. Cash-rich lenders have also requested higher interest rates to meet interbank needs.
Overall, the interbank rates declined week-on-week. Specifically, the Overnight Policy Rate (OPR) fell by 3 bps to 32.33%, while the Overnight Rate (OVN) decreased by 44 bps to 32.56%, data from the FMDQ platform confirmed.
“We expect interbank rates to trade in a mixed range due to next week’s FGN bond auction and the upcoming FAAC credits”, AIICO Capital Limited told investors in a note.
Inflows from FGN bond coupon payments were N28.22 billion. As expected, inflows were inadequate to sustain system liquidity, leading the OVN rate to stay high.
Analysts highlighted that the average liquidity position fell, finishing at a net short position of N1.51 trillion, down from N643.66 billion the week before.
The liquidity balance in the financial markets was boosted by N1.5 trillion in daily average standing lending facility injections.
Afrinvest Limited stated that this reversed the daily average outflow of N47.6 billion from the Central Bank of Nigeria’s standing deposit facility (SDF) window.
The money market expects rate to slow further due to expectation that N873.13 billion FAAC credits will increase liquidity balance in the new week.
The sum is expected to offset debits for the FGN bond primary market auction. In the new week, the Debt Management Office is expected to conduct monthly bond auction where the authority plan to sell N200 billion worth of FGN papers to investors.
