Money Market Rates Sink as Liquidity Improves

Naira Reclaims Value amidst Gloomy FX Predictions
Naira Reclaims Value amidst Gloomy FX Predictions

Money Market Rates Sink as Liquidity Improves

Money market benchmark rates, open repo and overnight lending rates sink further on Tuesday as additional inflow from matured open market operations instruments (OMO Bills) hit the financial system, according to traders.

According to market analysts, a total sum of N10 billion from OMO bills that matured hit the financial system following the decision by the Central Bank of Nigeria (CBN) not to refinance the instrument.

Trading activities in the fixed income market detailed that OMO bills yield slumped to 3.4% region in the secondary market amidst the ongoing rally. Buying interest on fixed interest income instruments has been supported by a rather healthy liquidity level in the market.

Opening market liquidity was reported at N1.3 trillion on Friday when overnight and repo rates closed within a range of 5% – 15%, as system liquidity tightened on the back of outflows from OMO and FX auctions.

According to traders, financial system liquidity has remained strong despite debit on local banks’ cash reserve ratio for failing to meet the CBN loan-to-deposit target. >>>Naira Steadies as FX Transactions Fall by 21%

Analysts told MarketForces Africa that Nigerian deposit money banks were debited about N1 trillion (N995 billion), though lenders have been positioning strongly with other asset managers in short-term instruments.

Fixed income analysts and traders said benchmark short-term rates have been on the decline in the absence of liquidity squeeze in the market and rates have been around single-digit highs.

Consequent to declined financing pressures, data show that cash-rich lenders were accepting lower rates on their funds while analysts hint at a slowdown in accessing standing lending portfolios.

Given the warm temperature, the Nigerian Interbank offered rate moved in mixed directions, although the open repo rate (OPR) and the overnight lending rate (OVN) decreased.

Market data from FDMQ Exchange showed that open buy back slow down further to 9.5% from 10.17% and the overnight lending rate fell to 9.83% from 10.83%, respectively.

Coronation research expects rates in the money market to remain elevated as the projected outflow from an NTB, OMO, and FX auctions, as well as a potential CRR debit by the CBN would likely outweigh potential inflows from Nigerian Treasury bills maturity. #Money Market Rates Sink as Liquidity Increases