Funding rates in Nigeria’s money market fell below 27% last week as surplus liquidity flowed into the financial system, easing pressure on deposit money banks (DMBs) and reducing their reliance on the Central Bank of Nigeria’s (CBN) Standing Lending Facility.
Both open repo and overnight lending rates recorded sharp declines week-on-week, despite the apex bank’s aggressive liquidity mop-up through open market operations (OMO). The decline came as the system benefited from maturing OMO bills and significant inflows from statutory revenue distributions, including allocations from the Federation Accounts Allocation Committee (FAAC).
To curb the liquidity surge, the CBN sterilised part of the inflows with two OMO auctions, absorbing N1.19 trillion in short-term instruments. Despite this, liquidity remained strong, with the market closing the week at a net long position of N1.52 trillion, compared with N159.40 billion the week before.
Analysts at Cordros Capital noted a surge in placements at the CBN’s Standing Deposit Facility (SDF), where weekly averages reached N1.20 trillion, almost triple the previous week’s N419.77 billion. They added that upcoming OMO maturities worth N459.60 billion could further boost liquidity unless additional mop-up measures are introduced.
The improvement in system liquidity caused interbank rates to ease across all maturities. The Overnight Nigerian Interbank Offered Rate (NIBOR) dropped by 197 basis points to 26.78%, while the 1-month, 3-month, and 6-month benchmarks slipped to 27.39%, 28.16%, and 28.78% respectively. Open repo and overnight lending rates also declined by 240bps and 220bps, settling at 26.50% and 26.95%.
Meanwhile, trading in the secondary market showed heightened investor demand for higher yields, driving an upward adjustment in the Nigerian Treasury Bills Yield (NITTY) curve across most short- to mid-term maturities. Data from Cowry Asset Management revealed that the 1-month NITTY rose to 16.37%, while the 3-month and 6-month benchmarks climbed to 17.68% and 18.45% respectively. Only the 12-month maturity eased, slipping by 31bps to 20.43%.
Looking ahead, analysts warned that the current liquidity relief may be temporary. With the CBN expected to sustain liquidity tightening through auctions and the deposit facility window, market yields could face renewed upward pressure. Additionally, Treasury bill maturities of N324.41 billion this week may provide short-term relief, but the CBN’s planned issuance of N480 billion in new Treasury bills is anticipated to reinforce tightening pressures.
