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Nigeria: Interbank Rates Decline Amid Surplus Liquidity in Nigeria’s Banking System

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Interbank Rates Decline Amid Surplus Liquidity in Nigeria's Banking System
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Interbank funding rates have continued their downward trend, driven by a substantial liquidity surplus within Nigeria’s financial system. The money market opened the week with a robust liquidity position, buoyed by inflows from various sources last week.

Key contributors to this surplus include FAAC (Federation Account Allocation Committee) credit disbursements, Remita inflows, and coupon payments on Federal Government of Nigeria (FGN) bonds. These factors alleviated pressures in the money markets, reducing the frequency of banks accessing the Central Bank of Nigeria’s (CBN) Standing Lending Facility.

As of Monday, the liquidity surplus in the banking system had soared by 90%, reaching ₦401.95 billion, according to a market update from TrustBanc Financial Group Limited.

The abundant liquidity led to a decline in the Nigerian Interbank Offered Rate (NIBOR) across various tenors. NIBOR rates decreased by 1.08%, 0.75%, 0.55%, and 0.21%, settling at 27.00%, 27.38%, 28.19%, and 28.93%, respectively.

Other key money market indicators also reflected the ample liquidity. The Open Repo Rate (OPR) fell by 0.42% to 26.58%, while the Overnight Lending Rate (O/N) declined by 0.33% to 27.17%, as confirmed by data from the FMDQ.

Looking ahead, analysts anticipate a tightening of liquidity due to the upcoming bond auction settlement valued at ₦606.46 billion. This significant outflow is expected to put upward pressure on interbank rates. However, the impact may be mitigated by Open Market Operations (OMO) maturities worth approximately ₦335 billion, which are likely to provide additional liquidity support to the system.

Market observers will closely monitor these dynamics as they unfold, with expectations of fluctuations in funding rates influenced by the interplay of inflows and outflows within the banking sector.

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