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System liquidity in Nigeria’s money market is expected to remain robust in the near term as approximately N500 billion in maturing Open Market Operation (OMO) bills is set to flow back into the banking system, reinforcing already elevated cash levels despite the Central Bank of Nigeria’s (CBN) continued sterilisation efforts.
The banking system had closed the previous week with a strong liquidity surplus of N4.10 trillion, slightly higher than the N3.98 trillion recorded a week earlier.
This came even as the CBN intensified its liquidity management operations, mopping up N2.10 trillion through OMO auctions and debiting an additional N1.20 trillion for Federal Government bond settlements. Also, the CBN allotted the full subscription, with stop rates clearing at 20.75 per cent for the 70-day bill and 19.99 per cent for the 140-day bill.
While noting the resilience in system liquidity, market experts highlighted the scale of inflows from maturing instruments, adding that this has continued to offset the impact of the apex bank’s aggressive tightening measures.
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“Looking ahead, system liquidity is expected to remain robust, supported by approximately N500 billion in maturing OMO bills scheduled to hit the market. However, with excess liquidity persisting and the CBN maintaining a tight monetary stance, further OMO auctions are anticipated to absorb surplus funds”, analysts at Cowry Research said. This simply means that the expected N500 billion OMO maturity this week is likely to sustain this trend, keeping the market awash with funds. Despite the surplus liquidity environment, interbank funding rates have shown mild upward movement, reflecting cautious positioning by banks.
The Overnight rate edged higher to 22.23 per cent, while the Nigerian Interbank Offered Rate (NIBOR) rose across tenors, with the 6-month rate climbing to 23.69 per cent.
Analysts attribute the uptick in rates to ongoing CBN interventions aimed at curbing excess liquidity and anchoring inflation expectations. “Banks are becoming more defensive in their liquidity management, anticipating further sterilisation actions by the CBN,” a fixed income analyst said. In the fixed income market, the Nigerian Treasury Bill True Yield (NITTY) curve shifted upward across benchmark tenors. While short-dated yields rose modestly, longer tenors saw sharper increases, with the 6-month and 12-month yields climbing to 18.40 per cent and 20.84 per cent, respectively, reflecting investor demand for higher returns amid sustained primary market supply.
Secondary market activity in Treasury bills remained bearish, as selling pressure persisted across the curve. Consequently, the average Treasury bills yield rose by 52 basis points week-on-week to 18.67 per cent.
