Nigeria’s financial system faced liquidity pressure last week, due to outflows from the Central Bank of Nigeria’s (CBN) swap arrangements, Open Market Operations (OMO), and Treasury bills auctions. These factors contributed to a week-on-week increase in interbank rates.
A tighter liquidity condition brought on by CBN actions that drained funds from the system was the reason given by analysts for the increase in money market rates.
Despite this, overall reserves remained strong. Cordros Capital Limited reported that the average system liquidity stood at a net long position of ₦401.74 billion, compared to ₦461.76 billion the previous week. The marginal decline was offset by OMO maturities inflow of ₦164.68 billion on Tuesday, which eased borrowing from the CBN’s standing lending facility and prompted cash-rich banks to demand higher rates for surplus liquidity.
Consequently, short-term benchmark rates rose to between 28% and 30% in the absence of significant inflows. According to AIICO Capital Limited, system reserves fluctuated throughout the week, initially dipping due to a late cash reserve maintenance event before rebounding from refunds and OMO maturities worth ₦300 billion.
Afrinvest Limited noted that a 2.1x week-on-week increase in banks’ and discount houses’ opening balances—reaching ₦405.7 billion—fueled this rebound. TrustBanc Financial Group Limited observed a slight uptick in average daily liquidity, rising 5% to ₦501.74 billion from ₦476.24 billion the previous week.
However, the CBN’s ₦500 billion OMO bill auction midweek reduced funding levels significantly, exacerbating liquidity constraints. AIICO Capital highlighted that Friday’s maturity of CBN swaps further strained the system, although the exact outflows were not disclosed.
The tightening reserves environment led to a 92-basis-point increase in average interbank funding rates. Open repo and overnight lending rates settled at 27.29% and 27.86%, respectively.
In its weekly report, Cowry Asset Limited noted that the Nigerian Interbank Offered Rate (NIBOR) increased across most tenors, except for the overnight NIBOR, which fell by 0.15%, reflecting ongoing liquidity challenges.
Despite an anticipated ₦270 billion OMO maturity inflow, analysts predict a drop into negative liquidity territory this week as a result of swap maturities and the impact of the Cash Reserve Requirement (CRR).
