Interbank lending rates surged as the cash reserve ratio (CRR) debit left the banking system in a liquidity deficit. By Friday, the financial system recorded a negative balance of N1.32 trillion after a massive N1.68 trillion debit for an Open Market Operations (OMO) bill auction settlement.
At the start of the week, liquidity levels remained tight due to the absence of significant inflows from maturing debt instruments. The shortage of funds pushed some banks to borrow from the Central Bank of Nigeria (CBN), while cash-rich banks took advantage of the situation by lending at higher rates.
AIICO Capital Limited noted that despite a slight improvement in liquidity on Monday, the system remained in a deficit, primarily due to the previous Friday’s CRR debits.
Banking system liquidity reached a peak of N1.518 trillion on Thursday before the auction payment. However, at its lowest, liquidity dropped to N516 billion before the Nigeria Treasury Bills (NTB) auction conducted by the CBN on Wednesday. Despite significant maturities expected in March, liquidity levels continued to fluctuate.
As a result, interbank rates climbed, with the Overnight Policy Rate (OPR) increasing by 4.82% to 31.90%, while the overnight lending rate rose by 4.83% to 32.50%. These sharp increases in short-term benchmark rates are likely to affect money market accounts and investment returns on mutual funds.
Meanwhile, the Nigerian Interbank Offered Rate (NIBOR) saw mixed movements, with rates declining across most tenors, except for the overnight NIBOR, which increased by 1.64% to 32.32%.
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