The interest rates in Nigeria’s money market have increased due to a shortage of available cash in the banking system. This liquidity crunch was mainly caused by the settlement of large Open Market Operation (OMO) bills. As a result, commercial banks turned to the Central Bank of Nigeria (CBN) for financial support through its Standing Lending Facility (SLF)......CONTINUE READING THE ARTICLE FROM THE SOURCE>>>>>
Market analysts noted that many banks had to borrow heavily from the CBN to meet their short-term funding needs. Throughout the week, the banking system operated with a negative liquidity balance, leading to a significant rise in interest rates. The Overnight Policy Rate (OPR) and Overnight Lending Rate (O/N) stayed above 32%, indicating the difficulty banks faced in accessing cash.
Initially, the market saw a slight improvement in liquidity, but pressures intensified after banks had to settle N1.4 trillion in OMO bills. This settlement further deepened the negative balance in the banking system, increasing it to N3.1 trillion.
Looking ahead, financial experts predict that the liquidity squeeze will continue, meaning interbank interest rates are likely to remain high in the coming days. Reports from TrustBanc Financial Group Limited revealed that banks borrowed N5.8 trillion from the CBN’s lending window to manage their short-term cash flow. By the end of the week, the overnight lending rate had increased by 0.05 percentage points to 32.8%, as the impact of OMO bill settlements outweighed the small inflow of N283.11 million from Federal Government bond coupon payments.
As a result of this borrowing spree, the banking system’s overall liquidity weakened significantly. It closed the week at a net shortfall of N1.08 trillion, a sharp decline from the previous week’s shortfall of N195.37 billion, according to Cordros Capital Limited.