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Interbank rates in Nigeria displayed mixed movements as the financial system faced significant liquidity pressure, following monetary policy actions by the Central Bank of Nigeria (CBN). The liquidity crunch was primarily driven by increased outflows from the market, despite substantial inflows earlier in the week.
After the CBN raised its benchmark interest rate to 27.25%, market dynamics shifted, with expectations that local deposit money banks would soon adjust borrowing rates in response to tighter monetary conditions. Additionally, money market fund investors are expected to reprice their investments to optimize returns amid the changing rate environment.
Last week, the money market saw significant fund inflows, including disbursements from the Federation Accounts Allocation Committee (FAAC), FGN bond coupons, and the maturity of the FGN Sukuk 2024. However, these were outweighed by considerable outflows, including Open Market Operations (OMO) auctions and FGN bond sales, creating liquidity stress in the system.
According to Afrinvest Limited, the system liquidity contracted sharply, closing at a negative ₦584.5 billion, a stark contrast to the prior week’s liquidity surplus of ₦1.1 trillion. This contraction was largely driven by multiple auctions conducted by the CBN.
Cowry Asset Limited also noted a rise in the Nigerian Interbank Offered Rate (NIBOR) across all maturities, signaling increased pressure on liquidity. Early in the week, inflows from FAAC credits and bond coupons temporarily boosted liquidity levels. However, by week’s end, interbank rates had risen, particularly after the CBN’s OMO auctions.
Throughout the week, interbank rates fluctuated, reflecting the liquidity imbalance. The Open Repo Rate (OPR) declined by 26 basis points to 29.43%, while the Overnight Rate (O/N) inched up by 5 basis points to close at 30%.
Despite FAAC disbursements of ₦828.08 billion and FGN bond coupon payments amounting to ₦273.43 billion, the market was hit by significant outflows. These included FGN bond outflows totaling ₦264.53 billion and OMO-related outflows amounting to ₦252.90 billion, ultimately putting the financial system under liquidity strain.
Analysts expect further adjustments in interbank rates in the near term, as liquidity remains tight amid the ongoing monetary policy actions and market dynamics.
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