Interbank Rates Spike as Banks Face Liquidity Challenge

Interbank rates spiked significantly in the money market as deposit money banks faced liquidity challenge ahead of Nigerian Treasury bills auction.

Due to elevated yield in the fixed income securities market, banks have become active players, assigning huge amount for investment in government securities.

With liquidity squeeze experienced on Tuesday, analysts said most of the financial institution have again pitched tents at the Central Bank of Nigeria (CBN) standing lending facility (SLF).

MarketForces Africa reported that banks borrowed more than N1.8 trillion from the CBN window last week to augment their funding obligations. In the new week, the liquidity pressure has persisted.

Opening system liquidity declined significantly, AIICO Capital Limited said in a note. Consequently, the Open Repo Rate (OPR) increased by 499 bps to 33.69% in the absence of strong inflows into the financial system. 

Also, the overnight lending rate rose by 498 bps to 34.36%, according to data confirmed by FMDQ platform. “Banks faced liquidity challenges on Tuesday, causing Nigerian interbank offered (NIBOR) rates to surge across maturities”, Cowry Asset Limited said in an update to investors.

“We expect interbank rates to stay elevated tomorrow, following FGN bond auction settlement”, AIICO Capital stated. The CBN is expected to conduct primary market auction tomorrow, where the authority would offering Treasury bills worth ₦409.98 billion to investors.

Analysts said the auction would further tighten liquidity size in the market, and push rates higher.  On Friday, the opening market liquidity was reported at N32.9 billion n on Friday.  

Coronation Research analysts said in a note that call, overnight, and repo rates closed within the range of 7.6% – 32.9%, as rates in the money market moderated after Banks raised N1.82 trillion from the CBN. #Interbank Rates Spike as Banks Face Liquidity Challenge

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