Interbank rate rises over tight market liquidity

The interbank offered rate rose strongly amidst tight liquidity in the financial system, forcing some cash-rich Nigerian banks were seeking higher rates on the free fund.

The financial market’s liquidity profile has been under pressure following interest rate hikes while investors switch into bullish mode on government instruments.

Unfortunately, the Central Bank of Nigeria tightened its nose around its discount window with penalties for possible infractions after spotting authorised dealers’ concurrent positioning in primary market auctions using access to the window.

Since the announcement, demand at various primary market auctions conducted by government agencies has tempered despite relatively improved spot rates.

In the money market, the Nigerian Interbank offered rate rose on Tuesday, according to Cowry Asset Management, across the board for all maturities it tracked.

With increased liquidity pressures, analysts noted that local banks with liquidity sought higher rates. In general, there was an uptick in short-term interest rate pricing.

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For these deposit money banks, it costs money to keep the money. Thus, due to market temperature, cash-rich banks request more from borrowers in the space – peers with liquidity requirements.

Exiting previous single-digit lows seen in the recent past weeks, short-term benchmark rates, such as the Open Buyback Rate (OPR) and the overnight lending rate (OVN), further widened to 14.75 per cent and 15.75 per cent.

Meanwhile, NITTY fell for the bulk of tenor buckets tracked despite the average yield on T-bills in the secondary market remaining unchanged at 10.51 per cent.