Nigeria: Interbank Rates React as Banks Withdraw N1.4 Trillion from CBN Standing Facility

Short-term benchmark interest rates in Nigeria’s money market edged higher last week amid tightening system liquidity, following a significant withdrawal of funds through the Central Bank of Nigeria’s (CBN) Standing Deposit Facility (SDF).

According to a market update by Afrinvest Limited, banks withdrew approximately ₦1.4 trillion from the SDF, contributing to a further decline in system liquidity and extending the tight funding conditions observed the previous week.

Analysts observed that while interbank rates fluctuated throughout the week, they eased by Friday, supported by a ₦57 billion net credit to the Cash Reserve Ratio (CRR) by the apex bank.

Liquidity in the financial system opened the week on a strong note at ₦684.79 billion, but was significantly reduced to ₦423.82 billion due to CRR debits and foreign exchange (FX) settlements. This triggered midweek spikes in interbank rates, with the Overnight Rate (O/N) reaching 29.42%, and the Overnight Policy Rate (OPR) climbing to 28.50%.

However, inflows from ₦175 billion in Federal Government of Nigeria (FGN) bond coupon payments helped to ease funding pressures toward the end of the week, according to a commentary by AIICO Capital Limited.

By the close of trading on Friday, the Open Repo Rate had moderated to 26.50%, while the Overnight Lending Ratesettled at 26.96%, staying within the expected band of 26.5%–27.0%.

Looking ahead, analysts anticipate a rebound in liquidity, supported by expected inflows of approximately ₦1.14 trillionin OMO (Open Market Operations) maturities and ₦101 billion in net treasury bill roll-offs. These are expected to push interbank rates toward the lower end of the current band, potentially around 26.5%.

Cordros Capital Limited reported that the average system liquidity closed the week at a significantly lower net long position of ₦230.04 billion, compared to ₦915.26 billion in the preceding week, highlighting the impact of sustained monetary tightening.

On the final trading day, the Nigerian Interbank Offered Rate (NIBOR) fell across all maturities, mirroring the improved liquidity dynamics. Key money market rates also trended downward, with the Open Repo Rate and Overnight Lending Rate declining by 35 and 44 basis points, respectively.