Short-term benchmark interest rates climbed higher last week as liquidity levels within Nigeria’s financial system experienced significant volatility. Robust funding conditions marked the start of the week, supported by continued system liquidity and a substantial fiscal inflow.
The banking sector began the week with a net liquidity surplus exceeding N130 billion, further bolstered by a disbursement of N1.58 trillion from the Federation Account Allocation Committee (FAAC). This sizeable inflow sustained a broadly liquid system initially, but the liquidity position weakened as the week progressed.
Despite early-week inflows, funding rates reflected a mixed performance, driven largely by uneven liquidity distribution and heightened investor caution in anticipation of upcoming auctions. By midweek, system liquidity had taken a hit due to foreign exchange (FX) settlements, which brought the net balance down to N138.80 billion long.
This downward trend continued through the week, eventually dragging the net balance into negative territory at N103.01 billion short—a 134% plunge from the opening figure. According to Cowry Asset Management, the Nigerian Interbank Offered Rate (NIBOR) for overnight borrowing spiked by 2.64 percentage points to 29.50% by week’s end. Similarly, NIBOR for one-month, three-month, and six-month tenors advanced to 26.90%, 27.47%, and 28.12%, respectively.
Cowry Asset noted that while liquidity is technically available in aggregate, its movement within the system remains limited, maintaining tight interbank market conditions. The banking system recorded inflows from Remita, Project Gazelle, and FGN bond coupon payments totaling N73.75 billion. However, these were insufficient to offset persistent outflows.
On average, daily liquidity balances fell sharply to N215.19 billion—a 65% decrease from the N611.29 billion surplus recorded the previous week. This liquidity crunch drove interbank lending rates even higher, with the Overnight Policy Rate (OPR) and the overnight (O/N) rate jumping to 31.60% and 32.05%, respectively. These figures represent week-on-week increases of 5.02% and 5.09%.
Analysts believe that with the expected system liquidity boost from Statutory Revenue Allocation (SRA) inflows, a projected N145.97 billion FGN bond coupon payment, and further FAAC allocations on the horizon, interbank rates may stabilize in the coming week.
Meanwhile, the Nigerian Treasury Bills (NITTY) segment recorded a general decline in yields, as market players adopted a wait-and-see approach ahead of the next primary market auction. This cautious sentiment led to reduced secondary market activity.
The Central Bank of Nigeria (CBN) is scheduled to auction N400 billion worth of Treasury Bills this week across the usual maturity categories. With N369.78 billion worth of bills maturing, a net issuance gap of approximately N30.22 billion is expected.
Given current liquidity dynamics and anticipated investor engagement, the upcoming auction is expected to draw significant interest and could serve as a critical indicator of the short-term interest rate trajectory.
