Rates Crash as FAAC Credit, Coupon Payment Boost Liquidity

The short term benchmark interest rates nosedived in the money market as flood of inflows saturated the liquidity level in the financial system.

Banks borrowing spree from the Central Bank of Nigeria’s (CBN) standing lending facility last week followed an adjustment to monetary policy rate and decision to tighten asymmetric corridor which affected borrowing rate from the apex bank window.

Data from the FMDQ securities exchange platform showed that the overnight lending rate declined by 536 basis points to 26.7%, after reaching a peak of 35.5% midweek, Cordros Capital Limited said in a note. 

Also, the open repo rate decreased by 526 basis points to 26.13% compared to the previous week.  Analysts attributed the changing market dynamics and actions to MPC’s decision to raise the MPR (+50bps) and tighten the asymmetric corridor (+500/-100).

Last week, system liquidity remained healthy as inflows from FAAC disbursements, FGN bond coupon payments and OMO maturities dwarfed debits for the FGN bond primary market auction and Remita payments.

Specific details showed that FAAC credit of N894.60 billion boosted the financial system in addition to N216.59 billion coupon payment on FGN bond.

The market also receive another inflow of N44 billion from OMO maturities. On the other hands, FGN bonds auction resulted in outflow of N225.72 billion and N319 billion Remita payment.

The average liquidity for the week settled at a net long position of N292.31 billion, Cordros Capital Limited told investors, from net long position of N870.92 billion in the previous week.

Barring any liquidity management measures (OMO auction and/or CRR debits) by the CBN next week, analysts said they expect the liquidity in the financial system to remain strong, leading to a likely contraction in the overnight lending rate. #Rates Crash as FAAC Credit, Coupon Payment Boost Liquidity

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