Inflows from matured investment securities, Nigeria LNG dividend refunds, and derivation payments to states kept interbank interest rates relatively stable last week. Banks’ borrowing activity decreased due to the absence of funding pressures, reflecting an improvement in the banking system despite a series of outflows.
Market analysis revealed that short-term benchmark interest rates reached their lowest point compared to the previous week’s records. The conditions within the money market were primarily influenced by NLNG dividend refunds and 13% derivation funds, as well as inflows from FGN bonds and matured Treasury bills.
Data from the FMDQ securities exchange platform indicated that the open repo rate fell by 5.90%, closing the week at 26.50%. Similarly, the overnight lending rate declined by 5.94%, closing at 26.96%, reflecting the absence of funding pressures.
The money market experienced substantial inflows from FAAC disbursements, totaling approximately N980.00 billion, in addition to FGN bond coupon payments worth N600.19 billion.
Inflows from matured Nigerian Treasury bills, amounting to N649.81 billion, also contributed, offsetting debits for the FGN bond auction, totaling N271.21 billion, and net Treasury bill issuances of N108.73 billion.
Consequently, the average system liquidity improved, settling at a net long position of N29.28 billion, compared to a net short position of N1.52 trillion in the previous week, according to an update from Cordros Capital Limited.
Banks’ borrowing activities at the Standing Lending Facility eased significantly, as successive inflows into the financial system alleviated previously experienced liquidity pressures.
The week commenced under tight financial conditions, with liquidity constraints driving up interbank funding rates above the 30% level. However, on Tuesday, inflows from bond coupon payments, bond maturities, and FAAC allocations provided relief, significantly narrowing the deficit.
The FGN bond auction settlement reversed some of these inflows, briefly pushing liquidity further into deficit, TrustBanc Financial Group Limited reported. However, this shortfall was short-lived, as fresh inflows from the net impact of Treasury bill issuances bolstered system liquidity.
The improved liquidity conditions resulted in a decline in interbank funding rates, with the average daily rate easing to 29.35% from 32.65% recorded the previous week.
Due to improved liquidity conditions in the money market in March, the average daily deficit balance shrank to N387.4 billion from the N686.4 billion shortfall recorded in February.
Without disclosing the specific amount, AIICO Capital Limited reported that additional inflows from the NLNG dividend refund and 13% derivation funds contributed to liquidity stability.
In the upcoming week, the market anticipates N652.4 billion in inflows from OMO maturity to boost liquidity, likely stabilizing rates barring significant funding pressures.
