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By Chinwendu Obienyi
Liquidity pressures deepened in Nigeria’s interbank market last week as commercial banks continued to channel surplus funds to the Central Bank of Nigeria’s (CBN) Standing Deposit Facility (SDF), reflecting tepid credit appetite and cautious positioning ahead of fresh monetary tightening.
This is coming after system liquidity opened the week with a net surplus of N2 trillion, down sharply from the N3.4 trillion recorded in the previous week.
The decline was partly cushioned by N300 billion in Open Market Operation (OMO) maturities, which provided some stability to interbank funding levels. By week’s close, however, liquidity had further thinned to N1.62 trillion as the apex bank intensified its liquidity sterilisation efforts through primary market repayments.
“The persistent placement of excess cash at the CBN’s SDF window underscores weak risk appetite among banks, even as short-term funding rates continue to tighten,” Cowry Research said in a note to investors.
He added: “This reflects a combination of cautious credit expansion and strategic liquidity management amid an aggressive policy stance by the monetary authority.” The CBN has maintained its tight monetary posture in recent months to curb inflationary pressures and support the naira. The central bank has repeatedly used liquidity sterilisation measures including increased issuances of OMO bills and T-bills—to drain excess cash from the financial system.
Money market rates trended higher across most maturities as the CBN’s mop-up operations restricted short-term funding. The Overnight Nigerian Interbank Offered Rate (NIBOR) rose 6 basis points week-on-week to 24.92 per cent, while the 1-month, 3-month, and 6-month tenors climbed to 25.75 per cent, 26.51 per cent, and 27.30 per cent, respectively. Similarly, the policy corridor reflected tightening conditions, with the Open Repo Rate (OPR) and Overnight Rate (OVN) inching up to 24.54 per cent and 25.07 per cent.
Looking ahead, analysts expect system liquidity to stay in positive territory, supported by N378 billion in maturing T-bills and expected inflows from the Federation Account Allocation Committee (FAAC).
“The CBN is also set to auction N650 billion in fresh T-bills across the 91-day, 182-day, and 364-day tenors, which will likely shape short-term yield dynamics this week”, analysts at Cowry Research said.
Cordros Research on the other hand, projects that N145.98 billion in FGN bond coupon inflows this week will further support liquidity, though the CBN’s continued sterilisation efforts could keep funding pressures elevated.
“Liquidity conditions are expected to remain relatively stable in the near term,” Cordros said, “but the CBN’s aggressive liquidity management and high-interest environment may sustain pressure on short-term rates.”
As banks continue to favour the CBN’s deposit window amid policy tightening, investors will closely watch how this week’s T-bills auction and FAAC disbursement influence short-term yields and interbank funding dynamics.
