Banking Liquidity Rises to N1.94trn as Interbank Rates Fall
Nigeria’s money market came under less funding pressure on Wednesday as a substantial build-up in banking system liquidity pushed interbank borrowing costs lower.
System liquidity rose by 35.53 per cent to N7.40tn during the session, representing an increase of about N1.94tn from the previous day, according to AIICO Capital Limited.
The liquidity expansion was driven by coupon inflows and stronger placements by banks at the Central Bank of Nigeria’s standing deposit facility, indicating that financial institutions had sizeable cash balances available for investment or short-term placements.
The improved liquidity position also reduced banks’ dependence on the CBN’s lending window. Market analysts reported no utilisation of the standing lending facility during the day, easing pressure on overnight funding rates.
Consequently, the overnight rate slipped two basis points to 22.12 per cent, while the open repo rate held steady at 22.00 per cent.
Meanwhile, liquidity conditions could receive another boost from about N2.32tn in expected maturities from the CBN’s Open Market Operation securities. However, the apex bank simultaneously conducted an OMO auction that absorbed about N2.8tn from the financial system.
The opposing flows underline the CBN’s active management of banking-system liquidity as it seeks to prevent excess cash from exerting undue downward pressure on short-term interest rates.
Overall, increased trading activity helped sustain positive sentiment in the fixed-income market.