Key Points
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Money market rates diverge amid strong system liquidity.
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Investors prefer short-term instruments for strategic gains.
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Central bank interventions guide market stability and returns.
Yesterday, Nigeria’s money market showed different trends. Short-term benchmark rates went in different directions, even though the financial system had plenty of cash. AIICO Capital Limited says that the liquidity surplus started the day at N3.0 trillion, which is N847.7 billion more than the previous session. This was helped by a N772.9 billion Open Market Operation (OMO) maturity and N10.2 billion bond coupon inflows.
After the Central Bank of Nigeria (CBN) changed the asymmetric corridor around the benchmark rate in November, short-term interest rates stayed below 23 percent. Some tenors went up while others went down, which shows that investors are being picky about what they buy and are being careful about how they position their portfolios in response to monetary policy changes.
Investors change their positions when short-term chances come up
Even though there was a lot of cash available, banks were careful about using short-term instruments. As the facility rate dropped from 24.5% to 22.5%, banks cut back on deposits at the CBN Standing Deposit Facility (SDF) to N1.99 trillion, a drop of 0.2%. Analysts said that the difference between overnight and one-week rates was due to strategic positioning rather than stress. Some institutions were trying to get the best returns by using treasury bills and interbank placements.
The Nigerian Interbank Offered Rate (NIBOR) went up for most tenors. Overnight rates went up 2 basis points to 22.80 percent, while one-month, three-month, and six-month rates went up 31, 45, and 33 basis points, respectively, according to Cowry Asset Limited. The overnight rate went down a little to 22.79 percent, while the Open Repo Rate stayed the same at 22.50 percent. The average yield on the composite Nigerian Treasury Bills went up by 1 basis point to 16.83 percent. This shows that investors are not very interested and are being careful with their short-term positions.
CBN actions keep short-term borrowing costs stable
Market operators said that the CBN’s monetary tools still have an effect on how the money market works. Open market operations, standing facilities, and the asymmetric corridor adjustment made the system less volatile and more stable as a whole. Dealers said that the difference in rates was partly due to banks using facilities in an uneven way. For example, banks with a lot of cash took advantage of short-term spreads while keeping liquidity buffers.
Analysts think that these trends will continue for a while, with selective positioning and ongoing CBN interventions keeping the system stable. A senior money market dealer said, “The difference is due to strategic bank decisions and market timing.” Even though it changes from day to day, overall liquidity stays above N3 trillion, which protects the market from sudden rises in the cost of borrowing.
