Liquidity Rises Despite CBN’s Aggressive Mop-Up

Nigeria’s money market remained awash with liquidity this week despite intensified liquidity sterilisation by the Central Bank of Nigeria (CBN), as strong inflows from maturing securities helped offset the impact of the apex bank’s open market operations.

Data from the financial markets showed that system liquidity opened the week at N5.60 trillion, higher than N4.96 trillion recorded at the close of the previous week, and settled slightly stronger at N5.67 trillion.

The robust liquidity position was largely driven by inflows from N767 billion worth of Open Market Operations (OMO) maturities and N556.02 billion in Debt Management Office (DMO) Treasury bills repayments.

However, liquidity debits from Treasury bills and OMO auction settlements exerted modest pressure on short-term interest rates. Consequently, the overnight Nigerian Interbank Offered Rate (NIBOR) rose by eight basis points week-on-week to 22.33 per cent.

Other tenors also trended higher, with the one-month, three-month and six-month NIBOR advancing to 22.90 per cent, 23.60 per cent and 24.34 per cent respectively.

Funding rates, however, remained relatively stable. The Open Repo Rate held steady, while the Overnight Rate declined marginally by 11 basis points to 22.19 per cent, underscoring the resilience of liquidity conditions within the banking system.

Across the fixed income market, trading in Treasury bills remained bullish as investors continued to position for attractive yields amid lingering macroeconomic uncertainties.

The Nigerian Interbank Treasury True Yield (NITTY) curve trended largely downward during the week, with yields on the one-month, three-month and 12-month tenors easing to 15.84 per cent, 16.09 per cent and 18.92 per cent respectively. The six-month tenor, however, inched up by 17 basis points.

As a result, average secondary market Treasury bills yields declined by four basis points to 17.51 per cent, reflecting sustained buy-side interest across maturities.

At the latest Nigerian Treasury Bills auction, investor appetite remained strong as total subscriptions surged to N2.40 trillion against the N700 billion offered by the DMO, representing an oversubscription rate of 3.4 times.

Despite the strong demand, allotments were capped at N731.80 billion, while stop rates on the 182-day and 364-day instruments moderated slightly to 16.14 per cent and 16.15 per cent respectively, reinforcing bullish sentiment in the fixed income market.

Similarly, the CBN’s OMO auctions recorded overwhelming participation, highlighting sustained investor preference for short-dated, risk-free instruments.

At Monday’s auction, the eight-day OMO bill attracted N1.07 trillion in subscriptions against N300 billion offered, translating to a 3.6 times oversubscription. The 134-day tenor also drew N640.10 billion in bids against a similar N300 billion offer.

At Thursday’s auction, total subscriptions reached N1.64 trillion compared to N600 billion offered across 33-day, 75-day and 96-day maturities. Demand was particularly strong for the 33-day and 96-day instruments, which recorded oversubscription rates of 3.4 times and 4.6 times respectively.

Stop rates were largely unchanged at 21.57 per cent, 20.63 per cent and 20.45 per cent across the three tenors, indicating that the apex bank remains cautious about raising yields aggressively despite elevated inflation and persistent excess liquidity.

Analysts at Cowry Assets Management said the money market is expected to remain liquid in the coming week as OMO maturities worth N1.07 trillion are scheduled to flow into the system.

They noted, however, that further liquidity mop-up auctions by the CBN could temper the impact of the inflows on market rates and overall liquidity conditions.