Short-term interest rates in Nigeria’s money market have surged as liquidity conditions tighten within the financial system. Increased demand for funds from banks has kept rates elevated, exceeding 32% due to a widening banking deficit.
Funding pressures initially emerged due to the settlement of Nigerian Treasury bills auctions. Additionally, the Central Bank of Nigeria (CBN) sterilized substantial cash reserves earlier in the week, further exacerbating liquidity constraints.
Despite some inflows from Federal Government of Nigeria (FGN) bond coupon payments, short-term benchmark rates remained high. By the end of the week, the financial system recorded a negative balance of N956.03 billion, significantly worse than the N856 billion deficit reported on Thursday.
According to TrustBanc Financial Group Limited, the banking sector’s average daily liquidity deficit stood at N477.96 billion, driven mainly by new Treasury bills worth N387.83 billion. This reversed the previous week’s surplus of N420.92 billion.
Throughout the week, interbank liquidity remained in negative territory due to continued Cash Reserve Ratio (CRR) debits and liquidity constraints. Even with inflows to oil-producing states, market liquidity failed to improve, keeping interbank rates high.
The overnight lending rate and Open Buy Back (OPR) rate increased to 32.75% and 32.33%, respectively, as liquidity conditions deteriorated. Further stress was placed on the market following a net Nigerian Treasury Bills settlement of N516.59 billion.
By week’s end, the repo rate increased by 5.32% week-on-week to 32.40%, while the overnight lending rate climbed by 5.13% to 32.80%. The Nigerian Interbank Offered Rate (NIBOR) also rose across most tenors, except for the overnight rate, which dropped slightly by 0.10% to 32.83%.
Analysts predict further liquidity tightening due to upcoming T-bill auction settlements totaling N800 billion, which will likely exceed FGN bond coupon payments of approximately N300 billion.
