Nigeria’s money market came under less funding pressure on Wednesday as a significant increase in banking system liquidity pushed interbank borrowing costs lower.
System liquidity rose by 35.53 per cent to N7.40tn during the trading session.
The increase represented about N1.94tn from the previous day’s level, according to AIICO Capital Limited.
The expansion in liquidity was driven by coupon inflows and stronger placements by banks at the Central Bank of Nigeria’s standing deposit facility.
The development indicated that financial institutions had substantial cash balances available for investment and short-term placements.
The improved liquidity position also reduced banks’ dependence on the CBN’s lending window.
Market analysts reported that there was no utilisation of the standing lending facility during the day.
The reduced demand for the lending window helped ease pressure on overnight funding rates.
Consequently, the overnight rate declined by two basis points to 22.12 per cent.
The open repo rate, however, remained unchanged at 22.00 per cent.
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 also conducted an OMO auction that absorbed about N2.8tn from the financial system.
The opposing inflows and outflows highlighted the CBN’s active management of banking system liquidity.
The central bank is seeking to prevent excess cash in the financial system from exerting significant downward pressure on short-term interest rates.
Increased trading activity also helped sustain positive sentiment in the fixed-income market.
The improved liquidity conditions are expected to continue influencing short-term borrowing costs and trading activity in Nigeria’s money market.
