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Interbank rates in Nigeria’s money market declined to around 27%, driven by robust liquidity levels supported by inflows from the Federation Account Allocation Committee (FAAC) disbursements, Remita credits, and other financial injections.
Short-term benchmark interest rates remained stable throughout the week due to ample system liquidity, with analysts predicting that this trend may persist barring unexpected debits for cash reserve requirements or other liquidity management measures from the Central Bank of Nigeria (CBN).
Improved Liquidity in the Banking System
Last week, local deposit money banks required minimal borrowing from the CBN’s Standing Lending Facility (SLF)due to substantial liquidity. According to Afrinvest Limited, a liquidity injection of ₦354.2 billion through the SLF further eased financial pressures.
Impact on Interbank Rates
Despite the liquidity boost, the Nigerian Interbank Offered Rate (NIBOR) increased across all maturities, reflecting some levels of tightening within the banking system. Cowry Asset Limited attributed this to the influence of treasury and OMO bill settlements during the week.
Nonetheless, the repo rate and overnight lending rate declined slightly, closing at 27.7% and 28.2%, respectively, compared to 29.3% and 29.9% in the previous week.
Sources of Liquidity
Analysts at AIICO Capital Limited credited the robust liquidity to FAAC disbursements, Remita inflows, and other market credits. TrustBanc Financial Group highlighted that daily system balances averaged ₦600 billion, reaching a weekly high of ₦803.7 billion mid-week due to the FAAC inflows.
Outlook for the Week
Looking ahead, Cordros Capital expects system liquidity to remain strong, with inflows from Open Market Operation (OMO) maturities worth ₦125.80 billion anticipated to further bolster liquidity. This is likely to exert downward pressure on overnight lending rates, provided no unexpected liquidity management measures are introduced by the CBN.
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