Nigeria: Money Market Rates Surge Amidst Liquidity Drop, CBN Touts Reform Impact

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Money market rates experienced a spike as liquidity dwindled significantly in Nigeria’s financial system, driven by escalating inflation conditions.

The surge in short-term benchmark interest rates resulted from a tightening funding profile, influenced by a substantial outflow in the financial system compared to inflows.

Following the Debt Management Office FGN bond primary market auction, the financial system saw a debit of N434.50 billion, causing an overall decrease in liquidity to ₦263.98 billion.

Consequently, key money market rates shifted from their earlier position. The open repo rate (OPR) rose by 5.42% to 22.25%, while the overnight lending rate (OVN) increased by 5.08% to 23.00%.

In its market update, Cowry Asset Limited reported a decline in the Nigerian interbank borrowing rate across various maturity gauges, despite the tight liquidity level. The Treasury bills space witnessed some buying momentum, leading to a decrease in yields.

The Central Bank of Nigeria (CBN) expressed confidence that its monetary policy initiatives are yielding the intended results. Isa AbdulMumin, the Director of Corporate Communications Department at the CBN, highlighted the impact of aggressive monetary tightening, including measures like removing the cap on the Standing Deposit Facility (SDF) and Open Market Operations.

Speaking on the latest National Bureau of Statistics (NBS) figures, AbdulMumin stated that the low increase in the average price level in October indicates the success of the CBN’s monetary policy stance and money market reforms.

While acknowledging a 0.61% increase in the headline inflation rate from September to October, AbdulMumin assured that the CBN is moving in the desired direction in terms of achieving price stability. He cited reforms in the money market and relative stability in the FX market as contributing factors to the moderation in month-on-month changes in prices across various consumer basket components.

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