The money market rates plunged below 28% apiece due to excess liquidity in the financial system, bolstered by inflows from matured Nigerian Treasury bills and Federal Government (FGN) bonds coupon payments.
Interbank rates have been fluctuating above 32% due to tight liquidity condition in the financial markets. This was triggered mostly by activities of local banks at the primary market auctions conducted by the Central Bank of Nigeria and the Debt Management Office. Most banks have increased their bets on Nigerian government borrowing instrument to boost their earnings performance, ramping up less risky investment option compare with loan disbursement and its attendance default risks.
On Thursday, liquidity in the financial system closed at about N512 billion following the receipt of FGN bond coupon payments totalling ₦164 billion and N1.18 billion from Nigerian Treasury bills that maturated.
Interbank rates movement were in check despite the fact that the banking system recorded ₦808.73 billion outflow for the settlement of Nigerian Treasury bills auctioned on Wednesday.
Hence, the surplus liquidity caused the market to price down short term benchmark interest rates. Data from the FMDQ Securities platform showed that open repo rate (OPR) fell 582bps to 26.60%, while the overnight lending rate (O/N) dropped 573bps to 27.10%.
Market analysts expect interbank rates to remain at current levels, barring any unexpected debit to the financial system by the Central Bank of Nigeria.
