Interbank rates soar as banks borrow N6.4trn from CBN
Interbank rates have surged in the money market due to an ongoing liquidity deficit within the banking sector.
Short-term benchmark interest rates reached double-digit highs last week, driven by a liquidity shortfall in the money market.
However, rates are expected to ease in the coming week, with expectations that inflows from the Federal Account Allocation Committee (FAAC) will help improve liquidity in the financial system.
Despite inflows from statutory revenue, FAAC, and a signature bonus last week, system liquidity remained negative throughout the week, according to AIICO Capital Limited in its market note.
TrustBanc Financial Group reported that the banking system ended the week with a liquidity shortfall of N377.5 billion, marking its tenth consecutive day of negative liquidity.
To meet operational funding needs in the face of a negative liquidity profile, banks were forced to borrow from the Central Bank of Nigeria’s (CBN) Standing Lending Facility (SLF). By the end of the week, a total of N6.43 trillion had been withdrawn from the facility, according to TrustBanc Financial Group’s note obtained by MarketForces Africa.
Market analysts indicated that contractor payments of N450 billion and FAAC credits of N400 billion contributed to inflows. Additionally, inflows of N9.52 billion from the Federal Government’s (FGN) bond coupon helped to stabilise liquidity in the financial markets.
Despite these significant inflows totalling N859.52 billion from contractor payments, FAAC disbursements, and bond coupon payments, liquidity remained tight throughout the week.
Foreign exchange sales, amounting to around $200 million, sold to banks added further pressure to the funding profile. Furthermore, there was a N263.21 billion settlement for bonds sold by the Debt Management Office at a primary market auction.
As a result, the average liquidity for the week improved, with the net short position closing at N867.73 billion, compared with a net short position of N1.14 trillion in the previous week, according to Cordros Capital Limited.
Both the overnight policy rate (OPR) and overnight lending rate (O/N) fluctuated within narrow ranges but trended downward by the end of the week, according to AIICO Capital Limited. Data from the FMDQ platform confirmed that the OPR closed 75 basis points lower at 31.79%, while the O/N rate fell 59 basis points to 32.33% week on week.
Unless the Central Bank of Nigeria implements additional liquidity management measures in the coming week, analysts expect that the inflows from FAAC disbursements (totalling N700 billion), FGN bond coupons (N216.76 billion), and OMO maturities (N10 billion) will further bolster system liquidity, which could lead to a tempering of the O/N rate from its current levels.
