Short Liquidity Moves Short-term Interest Rates Up

Tinubu Orders Osayande To Investigate CBN, Related Affairs

A new dimension of liquidity concerns in the money market caused a sharp jolt in short-term interest rates. To increase their financing profile, deposit money banks visited the central bank’s standing lending facility window once again.

In order to maintain the cash reserve ratio (CRR), the banks were debited 32.5% of their increased deposits, which led to another flood of loans through the CBN window.

Data from the FMDQ platform indicates that following the financial system’s debit of N1.3 trillion for the net treasury bills auction, the overnight lending rate increased by 108 basis points to 26.5%, as per a note from Cordros Capital Limited.

At the primary market auction conducted recently, the authority had increased treasury bills offer to N1 trillion for subscription. Analysts said the significant increase is to fast-track borrowing for the government after the CBN stopped overdraft funding through its ways and means window.

In line with changing dynamics in the financial markets, short-term interest or money market rates increased on the back of tighter liquidity levels, with banks seeking liquidity for funding obligations.

Notably, key money market rates such as the open repo rate (OPR) and overnight lending rate (OVN) rose to conclude at 25.50% and 26.50%, respectively.

Last week, the overnight rate contracted by 7 basis points to 16.9%, as the financial system remained buoyant, supported by N40 billion inflows from OMO maturities.

Analysts predicted an upward shift in the overnight rate due to debits for FGN bonds auction size of N2.50 trillion which was heavily undescribed. However, the market expects inflows from FGN Bond coupon payments worth N112.67 billion.

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