Short-term benchmark interest rates in Nigeria swung this week as excess liquidity in the financial system surged to about N5 trillion on Thursday. The large surplus comes amid limited open-market operations from the Central Bank of Nigeria (CBN), resulting in a money-market environment characterised by abundant cash and intermittent rate movements.
Commercial banks, flush with excess deposits, continue to park large amounts of cash at the CBN’s Standing Deposit Facility — earning a modest return, yet still preferable to borrowing.
In spite of the hefty liquidity cushion, average funding costs ticked upward: the Open Repo Rate (OPR) remained at 24.50 percent while the overnight (O/N) rate rose by one basis point to 24.83 percent.
Investment firm AIICO Capital noted that the liquidity surge was principally triggered by the maturity of ₦662.8 billion in Treasury-bill inflows. Even though ₦546.2 billion of T-bills were auctioned on Wednesday, net liquidity still increased by ₦401.5 billion.
Despite the increase in spare cash, analysts anticipate that funding costs will remain broadly stable unless significant funding demands emerge. With the system flush and the CBN inactive on the operations front, inter-bank rates are expected to linger below 25 percent in the near term.
