Short-Term Rates Dip Amid Strong Liquidity In Nigerian Banking Sector

Short-term interest rates in Nigeria’s money market dropped significantly last week, driven by an influx of liquidity into the banking system. The surge in funds eased funding stress, reducing reliance on the Central Bank of Nigeria’s (CBN) Standing Lending Facility (SLF).......CONTINUE READING THE ARTICLE FROM THE SOURCE>>>>>

Cowry Asset Management, in its market bulletin, revealed that net inflows into the financial system totalled approximately N1.53 trillion, bolstering overall liquidity. These inflows were largely attributed to the maturity of OMO bills worth N651.7 billion.

However, some of that liquidity was absorbed after the CBN debited N400 billion from commercial banks as part of its Cash Reserve Ratio (CRR) operations. Despite this outflow, liquidity levels remained robust, putting downward pressure on interest rates across the board.

The Nigerian Interbank Offered Rate (NIBOR) saw notable declines across all maturities. The overnight NIBOR fell by 23 basis points over the week, closing at 26.77%.

Further down the curve, the 1-month, 3-month, and 6-month NIBOR rates also dropped, declining by 98bps, 64bps, and 28bps, respectively. The overnight lending rate held steady at 26.50%, while the repo rate slipped slightly by 10bps to 26.86% by Friday.

Looking ahead, analysts predict that liquidity will remain strong in the coming week, supported by maturing government securities. Treasury bill maturities worth N927.25 billion and additional OMO maturities of N150 billion are expected to hit the system, further boosting cash flow.

These inflows are likely to keep funding rates subdued and spur heightened investor participation in the upcoming auctions, unless offset by liquidity-tightening measures from the apex bank.

Cordros Capital reported that the average daily liquidity balance climbed sharply to N1.33 trillion last week, a massive improvement compared to the previous week’s average of just N29.28 billion.

On a week-on-week basis, interbank funding rates—including open repo and overnight lending—dropped by 266 basis points, settling at 26.50% and 26.86%, respectively, reflecting a well-lubricated financial system.