Interbank Rates Slide as OMO and FGN Bond Inflows Boost Liquidity
The Nigerian interbank market experienced a notable decline in rates, following a surge in liquidity driven by bullet payments from matured Open Market Operations (OMO) bills and inflows from Federal Government of Nigeria (FGN) bond coupons. These developments provided much-needed relief to the financial system, which had recently witnessed banks turning to the Central Bank of Nigeria (CBN) borrowing window for support.
A significant inflow of N86 billion from FGN bond coupons, coupled with additional liquidity from OMO maturities, bolstered the money market, dragging down rates. Prior to this liquidity boost, local deposit money banks had been increasingly dependent on the CBN’s lending facilities. Most of the activity at the CBN window involved Tier-2 banks seeking funding, while cash-rich lenders were able to part with excess funds at relatively lower rates.
Investment analysts emphasised the ongoing need for banks to access funding on a daily basis to meet both business and regulatory obligations. “Banks require funding to meet up their respective business and regulatory demands on a daily basis,” an investment analyst noted.
Traders reported an improvement in system liquidity on Tuesday, although it remained in negative territory. Analysts attributed the modest recovery to inflows from both OMO maturities and FGN bond coupons, which helped improve the financial market’s liquidity balance.
According to Cowry Asset Limited, the Nigerian Interbank Offered Rates (NIBOR) fell across all tenors, reflecting the increased system liquidity. Data from the FMDQ platform indicated that the Open Buy Back (OBB) rate decreased by 74 basis points to 30.46%, while the overnight lending rate dropped by 73 basis points to 31.00%.
Looking ahead, analysts at AIICO Capital Limited predicted further improvements in liquidity. “We expect further improvement tomorrow as more coupons hit the system,” they said.
The recent injection of liquidity, while bringing some short-term relief, underscores the financial system’s continued reliance on regular inflows to maintain balance, particularly in the face of ongoing regulatory and business demands.
