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Short-term benchmark interest rates have experienced a significant upswing, reaching double-digit highs, amid a weakening liquidity profile in financial markets. The strain on liquidity has intensified, exacerbated by debits for primary market auctions.
Despite the usual influx of funds from maturing government instruments, recent times have witnessed some scarcity in market liquidity, with Federal Accounts Allocation Committee disbursement being a notable exception.
Financial market data indicates a consistent rise in short-term rates, and analysts suggest that the evolving money market dynamics may drive rates above their current levels.
Analysts noted, “Interbank lending has been reduced as banks seek higher rates on their excess cash placements,” signaling a shift in banks’ strategies.
The removal of the N2 billion cap limit on local banks’ deposits in the Central Bank of Nigeria’s standing deposit facility contributed to the upward trends in Interbank Offered Rate (NIBOR) across all tenor buckets. Financial system illiquidity, coupled with the expectations of a N907 billion Federal Account Allocation Committee (FAAC) inflow, further impacted the rates.
The overnight lending rate surged by 150 basis points to 26.7% following the debit for Nigerian Treasury bills (NTB) net issuance worth N453.58 billion.
The central bank’s decision to allow lenders to deposit excess funds at the window with interest has triggered liquidity pressures in the financial system, leading to a notable flow of free funds into the CBN standing lending facility.
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