Money market funding costs ease over N3trn CBN liquidity mop-up
Money market funding costs eased this week despite aggressive liquidity management by the Central Bank of Nigeria, as system liquidity remained in substantial surplus even after heavy open market operation interventions.
The Apex Bank intensified tightening measures as liquidity ballooned following earlier OMO bill maturities, but short-term benchmark interest rates softened rather than rose.
The CBN conducted OMO auctions twice within the week, taking up bids above initial offer sizes as Deposit Money Banks continued deploying excess liquidity.
System liquidity opened Thursday with a surplus balance of ₦2.7 trillion, an increase of ₦220.2 billion from the previous level, while DMBs placed around ₦1.5 trillion at the Standard Deposit Facility window, according to AIICO Capital Limited.
The CBN had earlier withdrawn ₦3.0 trillion through its last OMO exercise and followed up with another auction on Wednesday, allotting ₦909.4 billion across 174- and 188-day papers.
Despite the liquidity drains, the average money market funding rate still declined by 14 basis points, with the Open Repo Rate slipping by 10bps to 24.50 per cent and the Overnight rate moderating by 18bps to 24.92 per cent, an indication that system liquidity remained robust enough to absorb tightening pressure.
Analysts expect upcoming OMO and Nigerian Treasury bill settlements to steadily reduce liquidity in the coming days, although funding rates are projected to hover near their current elevated ranges.
AIICO Capital noted that the market could experience additional pressure as upcoming debt auction settlements are anticipated to offset the expected ₦689.5 billion inflow from Treasury bill maturities.
In the Treasury Bills secondary market, yields traded mixed as investor focus shifted to the midweek auction ahead of expected liquidity adjustments.
