Interbank Liquidity Supports Steady Short-Term Rates Despite OMO Outflows

Robust liquidity in Nigeria’s financial system has kept short-term benchmark interest rates stable, despite outflows from net Open Market Operation (OMO) bill settlements. The financial system closed with N1.373 trillion, down N94.10 billion from an opening balance of N1.467 trillion, according to data from AIICO Capital Limited.

Banks’ borrowing activity at the Central Bank of Nigeria (CBN) Standing Lending Facility (SLF) window has declined significantly, with local lenders instead placing excess funds in the deposit facility.

“The sufficient liquidity conditions reversed the previous trend, remaining positive despite CBN efforts to mop up excess funds. The interbank market retained ample liquidity despite a net OMO settlement of ₦160.40 billion yesterday, holding rates steady at 26.5%,” analysts at AIICO Capital Limited said in a note.

Both the Overnight Policy Rate (OPR) and the Overnight (O/N) rate remained unchanged at 26.50% and 26.96%, respectively. “Rates should hold near 26.5% tomorrow, as no major funding pressures are expected despite the NTB settlement of ₦585.25 billion (net debit of ₦260.84 billion),” the analysts added.

Meanwhile, the Nigerian Interbank Offered Rate (NIBOR) declined across all tenors on Wednesday. The Overnight rate dropped by two basis points to 26.99%, while the 1-month, 3-month, and 6-month rates fell by 27, 18, and 18 basis points, respectively.

Cowry Asset Limited attributed the decline to improved system liquidity from OMO bills repayment by the CBN. “In contrast, money market rates remained stable, with the Open Repo Rate (OPR) and overnight rate unchanged at 26.50% and 26.96%, respectively,” the firm noted.

The Nigerian Interbank Treasury Bills (NTB) True Yield showed mixed performance midweek. Yields on the 1-month, 3-month, and 12-month tenors increased by 14, 16, and 11 basis points, respectively, while the 6-month tenor fell by seven basis points. 

According to Cowry Asset Limited, the average yield for NTBs declined by 23 basis points to 18.61%, reflecting strong investor sentiment in the secondary market.