Liquidity Mop Up Imminent As N567bn Hits Interbank Market

The Central Bank of Nigeria (CBN) is expected to resume its liquidity mop up this week in response to inflow of N567 billion into the interbank money market.

Last week the apex bank suspended its liquidity mop up through issuance of secondary market (Open Market Operations, OMO) treasury bills. In its place the CBN auctioned primary (fresh) market TBs to borrow N133.97 billion from investors on behalf of the federal government. The impact of the auction was however doused by the inflow of N172 billion comprising N113.37 billion from matured primary market TBs, N40.77 billion from bond coupon payment, and N18.77 billion from matured OMO bills.

Consequently, cost of funds fell sharply in the interbank money market with interest rate on Collateralised (Open Buy Back, OBB) lending falling by 933 basis points (bpts) to 1.00 percent on Friday from 10.33 percent the previous week. Similarly, interest rate on overnight lending fell by 992 bpts to 1.58 percent on Friday from 11.5 percent the previous week.

Analysts opined that cost of funds will remain low this week courtesy of inflow of N567.7 billion from maturing OMO TBs, even as the CBN is expected to conduct OMO auction to mop up the inflow.

“In the new week, treasury bills worth N567.68 billion will mature via OMO; hence, we expect interbank rates to further moderate amid anticipated boost in financial system liquidity”, said analysts at Lagos based investment firm, Cowry Assets Management Limited.

Analysts at Lagos based investment firm, Afrinvest Securities Limited, stated, “In the coming week, we expect inflows of ¦ 567.7bn from maturing OMO bills to boost system liquidity and pressure yields in the secondary market. However, we believe CBN would resume OMO auctions to keep rates and system liquidity in check.”