Interest rates in the money market have surged again due to liquidity shortages caused by the Central Bank of Nigeria’s (CBN) cash reserve ratio (CRR) debits. This has put additional strain on the financial system, pushing banks into a deeper deficit.
As of Tuesday, the banking sector’s deficit rose sharply to ₦98.65 billion, despite inflows from oil-producing states. This liquidity crunch is reflected in rising interest rates across various money market instruments.
According to Cowry Asset Limited, the Nigerian Interbank Offered Rate (NIBOR) saw mixed movements across different maturities. The overnight NIBOR increased by 0.26% to 32.58%, while the one-month NIBOR inched up by 0.06% to 27.12%.
Other key indicators followed a similar trend. The Open Repo Rate (OPR) climbed by 0.35% to 32.25%, and the overnight lending rate increased by 0.17% to 32.67%. The shortage of liquidity persisted despite inflows from oil-producing states, keeping borrowing costs high.
Throughout February, banks have struggled with liquidity due to large financial outflows from Open Market Operations (OMO) and Federal Government of Nigeria (FGN) bond settlements. At the start of the month, a massive ₦1 trillion OMO auction, along with CRR deductions, drained liquidity, forcing overnight and repo rates to soar past 32%.
Market analysts predict that these high rates will persist, as the recent inflows from oil-producing states have failed to ease the liquidity crunch. The settlement of outstanding CRR debits is expected to keep money market rates elevated in the coming days.
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