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Money market rates surged to double-digit highs this week, driven by a liquidity squeeze in the banking sector. Opening with a liquidity deficit exceeding N60 billion and without significant inflows, the financial system faced mounting pressures.
By Tuesday, the banking system’s deficit had widened to N159.94 billion—a 166% increase—according to a report from TrustBanc Capital Limited. This deepened shortfall was largely attributed to the Central Bank of Nigeria’s (CBN) cash reserve ratio (CRR) debits on bank deposits, which further restricted available liquidity.
The CRR debits—an undisclosed amount taken by the CBN on Tuesday—intensified the shortage, leading interbank rates to spike. The limited liquidity prompted banks to allocate their funds more conservatively, pushing up short-term benchmark interest rates. TrustBanc Capital Limited noted a sharp drop in banks’ activities at the CBN’s standing lending facility, with borrowings falling to N254 billion from a daily average of around N900 billion.
Market participants anticipate relief from upcoming inflows, including FGN bond coupon payments and Swap deals, which are expected to ease liquidity constraints in the coming days. However, analysts suggest that even with these additional funds, rates are likely to remain elevated due to continued market tightness.
Reflecting these conditions, the Nigerian Interbank Offered Rate (NIBOR) rose across most maturities, underscoring ongoing liquidity stress. According to FMDQ data, the open repo rate (OPR) and overnight lending rate (O/N) increased by 1.60% and 1.55%, closing at 32.03% and 32.60%, respectively.
Analysts project that the market will remain constrained in the short term, with sustained pressure on rates despite the anticipated inflows from FGN bond coupons and SWAP maturities.
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