Interbank lending rates showed mixed movements last week as liquidity in Nigeria’s financial system declined week-on-week to about N3.8 trillion, reflecting a slowdown in the Central Bank of Nigeria’s (CBN) aggressive liquidity management operations.
Despite notable funding outflows and the Monetary Policy Committee’s (MPC) decision to retain a tight monetary policy stance, overall system liquidity remained resilient throughout the week.
According to Cowry Asset Management Limited, the banking system opened the week with a net liquidity surplus of N3.20 trillion, down from N4.68 trillion recorded in the previous week.
The weaker opening position was largely attributed to lower balances held in the CBN’s Standing Deposit Facility (SDF).
Liquidity conditions improved after N1.50 trillion worth of Open Market Operations (OMO) bills matured, injecting substantial funds into the banking system.
However, funding conditions tightened midway through the week following a N929 billion debit for the settlement of the Federal Government of Nigeria (FGN) bond auction.
Despite the liquidity drain, strong SDF balances helped cushion the impact, enabling the financial system to close the week with a healthy liquidity surplus of N3.78 trillion, although this remained below the previous week's level.
Money market rates suggested broadly stable funding conditions despite the moderation in liquidity. The Overnight (OVN) rate eased marginally by one basis point to 22.12%, while the Open Repo Rate (OPR) remained unchanged at 22.00%, indicating sufficient liquidity to meet short-term funding needs.
Across the Nigerian Interbank Offered Rate (NIBOR) curve, borrowing costs moved higher. Overnight, one-month, three-month and six-month tenors rose by three basis points, six basis points, seven basis points and 17 basis points, respectively.
The upward movement indicates that market participants continue to price in an extended period of restrictive monetary policy following the MPC’s decision to leave the benchmark interest rate unchanged at 26.50%.
“Interbank funding rates are expected to remain range-bound in the near term, supported by current system liquidity levels,” Herwood Capital Limited projected.
Looking ahead, analysts at Cowry Asset Management Limited expect liquidity conditions to remain relatively comfortable, supported by N500 billion in OMO bill maturities.
However, they noted that the CBN is likely to conduct another OMO auction to mop up excess liquidity and reinforce its tight monetary policy stance.
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