Money market rates hold at 20% despite N2.42trn liquidity outflow
Nigeria’s money-market interest rates remained elevated at about 20 per cent despite a N2.42 trillion withdrawal from the banking system, as excess liquidity of N6.09 trillion continued to cushion the impact of recent Open Market Operations (OMO) settlements.
The development indicates that substantial cash balances remain available across the financial system, even as the Central Bank of Nigeria (CBN) intensifies efforts to mop up surplus funds through its securities operations.
At the close of trading on Monday, the Overnight (O/N) and Open Repo (OPR) rates remained unchanged at 20.20 per cent and 20.00 per cent, respectively, reflecting relatively stable short-term funding conditions despite the substantial liquidity reduction.
Market liquidity opened with a credit balance of N6.09 trillion, down N2.42 trillion from the N8.51 trillion recorded at the close of trading on Friday.
The reduction followed outflows associated with the settlement of OMO bills, although the remaining liquidity cushion prevented significant upward pressure on interbank funding rates.
According to Herwood Securities Limited, the financial system is expected to receive about N2.3 trillion from maturing OMO instruments ahead of the midweek Treasury Bills auction.
The anticipated inflows could reinforce liquidity conditions and provide additional funds for banks to deploy in short-term government securities and other money-market instruments.
For deposit money banks, the elevated liquidity position provides opportunities to earn returns from investments in government securities and placements with the CBN, rather than relying exclusively on traditional lending activities.
The trend also reflects banks’ cautious approach to credit expansion amid concerns over borrowers’ repayment capacity, particularly as economic pressures continue to affect households and businesses.
While lending remains an important source of banking income, elevated credit risks could encourage financial institutions to maintain substantial investments in relatively liquid and lower-risk financial instruments.
The stability of money-market rates despite the N2.42 trillion outflow also highlights the challenge facing the CBN in managing surplus liquidity without triggering excessive volatility in short-term funding costs.
The apex bank’s OMO operations are designed to withdraw excess cash from the financial system and reinforce monetary tightening, while maturing securities periodically return funds to banks and other investors.
This cycle of liquidity absorption and reinjection continues to influence the availability and pricing of short-term funds.
Herwood Securities Limited expects money-market liquidity to remain comfortable, supported by the anticipated N2.297 trillion in OMO maturities.
The investment firm, however, noted that interbank rates could remain around current levels, with further movements depending on changes in system liquidity.
For businesses and borrowers, sustained money-market rates around 20 per cent point to the continued high cost of short-term funds, although actual lending rates charged by banks may be substantially higher depending on credit risk, operating costs and other lending conditions.
The persistence of elevated funding costs could constrain access to working capital and expansion financing, particularly for small and medium-sized enterprises already facing high operating expenses.
The immediate outlook for the money market will therefore depend on the balance between fresh OMO maturities, additional CBN liquidity withdrawals and the DMO’s Treasury Bills issuance.
Although the N6.09 trillion liquidity balance provides a substantial cushion for banks, the direction of short-term interest rates will remain closely tied to the apex bank’s efforts to manage excess cash and maintain monetary stability.
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