Central Bank of Nigeria (CBN) activities plunged the financial system’s liquidity into deficit, reflecting outflow for cash reserves, open market operations, and foreign exchange market intervention debits.
The authority mopped up funds to a level that drained the money market funding flows and pushed rates higher, causing banks funding pressure to exacerbate. Hence, money market rates spiked above the 30per cent level as a result of a series of actions taken by the Apex Bank to manage liquidity levels in the financial system.
The banking system’s net liquidity fell by N393.69 billion, flipping the market from N275.53 billion credit to a N118.17 billion debit. This happened despite a hefty N301.94 billion injection from Treasury Bill maturities during the week; Nigeria’s money market remained under significant pressure.
The financial system liquidity conditions tightened, and short-term funding demand remained elevated in the absence of significant inflows to douse successive outflows from the market. The inflow, while notable, was insufficient to ease the grip of interbank stress, with financial institutions continuing to scramble for cash amid cautious sentiment.
In a note, Cowry Asset Limited reported that the Nigerian Interbank borrowing rate shot up sharply by 593 basis points to settle at 32.75per cent, from 26.82per cent the previous week—marking a steep spike in short-term borrowing costs.
In the OMO window, the Central Bank of Nigeria (CBN) offered N600 billion in 272-day and 363-day bills on Wednesday. However, investor appetite was overwhelmingly focused on the longer 363-day paper, which attracted a massive N2.13 trillion out of the N2.17 trillion in total subscriptions.
The 272-day offer received zero allotment, while the 363-day bill saw N1.25 trillion in sales, clearing at a stop rate of 21.99%. The bid-to- offer ratio for the auction came in at 1.74x, highlighting the persistent investor demand for high-yield, long-term instruments.
Meanwhile, the Nigerian Interbank Treasury True Yield (NITTY) curve experienced broad-based declines, reflecting shifting sentiment toward short-term debt. The 1-month, 3-month, 6-month, and 12-month yields fell to 16.06%, 16.57%, 17.73%, and 18.84%, shedding 160 bps, 213 bps, 247 bps, and 264 bps, respectively, Cowry Asset Limited said.
This shift came amid strong secondary market demand for Treasury bills, where average yields dipped by 156 bps to 18.35%. On Wednesday, the CBN conducted a Treasury Bills auction, offering N250 billion across standard maturities.
Demand remained robust, with total subscriptions reaching N1.33 trillion, although the apex bank allotted just N201.82 billion. Investor interest was heavily tilted toward the 364-day bill, which alone drew N1.18 trillion in subscriptions, with N126.31 billion allotted.
Data from the FMDQ platform revealed that rates soared to an average of 32% after CBN FX settlements and additional outflows hit the market. The repo rate rose 467 basis points week on week to close at 31.50per cent while the overnight lending rate jumped 475 basis points to 32.17per cent on Friday.
Market illiquidity will likely continue as banks are set to meet AMCON obligations. Analysts said the absence of any maturing instruments in the coming week could mean liquidity remains tight or even worsens slightly, potentially keeping short-term funding costs elevated.
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