Funding conditions in the Nigerian financial system came under pressure last week after the settlement of N1.20 trillion in Nigerian Treasury Bills (NTBs) and N2.19 trillion in Open Market Operations (OMO) auctions drained significant liquidity from the banking system.
System liquidity fell 20.68 per cent to N2.99 trillion from N3.78 trillion the previous week. Despite the moderation, liquidity remained firmly in surplus, underscoring the resilience of banking system funding even as the Central Bank of Nigeria (CBN) maintained its tight monetary policy stance aimed at containing inflation and managing excess liquidity.
Money market rates stayed broadly stable amid the squeeze. The Open Repo Rate (OPR) was unchanged at 22.00 per cent, while the Overnight (OVN) rate edged up by two basis points to 22.14 per cent, indicating that short-term funding conditions remained relatively comfortable.
Across the Nigerian Interbank Offered Rate (NIBOR) curve, funding costs rose beyond the overnight tenor. The one-month, three-month and six-month rates increased by 25bps, 45bps and 58bps to 22.70 per cent, 23.22 per cent and 23.67 per cent respectively, while the overnight NIBOR eased slightly by three basis points to 22.21 per cent. The upward repricing of medium- to longer-term interbank rates reflects market expectations that the CBN will sustain its restrictive stance after retaining the Monetary Policy Rate (MPR) at 26.50 per cent.
Meanwhile, the Nigerian Treasury Bills True Yield (NITTY) curve recorded broad-based declines across all maturities. The one-month, three-month, six-month and twelve-month tenors fell by 41bps, 8bps, 34bps and 16bps respectively, reflecting sustained investor demand for government securities in the secondary market. Trading activity remained largely subdued, although mild buying interest compressed the average yield by 12bps to 18.23 per cent.
At the primary market auction, the Debt Management Office (DMO) offered N700 billion across standard NTB maturities and attracted overwhelming demand of N3.60 trillion-an oversubscription of more than 5.1 times. The DMO allotted N1.20 trillion. Stop rates for the 91-day and 182-day bills were held at 16.30 per cent and 16.50 per cent, while the 364-day stop rate declined 31bps to 17.35 per cent, signalling stronger appetite for longer-dated short-term instruments.
Looking ahead, dealers expect liquidity conditions to receive support from N783.78 billion in maturing securities, comprising N500 billion in OMO bills and N283.78 billion in Treasury bills. Nonetheless, the CBN is likely to conduct additional OMO auctions to sterilise excess liquidity and keep short-term interest rates within the current range as it continues to pursue its inflation-targeting objectives.