July 18, 2022

Interbank liquidity falls 82% as scarcity of funds intensifies


By Babajide Komolafe, Economy Editor

The prevailing scarcity of funds in the interbank money market intensified last week, prompting the volume of idle funds (liquidity) in the market to fall by 82 per cent to N39.4 billion

Financial Vanguard analysis of data from the Central Bank of Nigeria, CBN, showed that the opening liquidity balance of the market dropped to N39.4 billion on Friday last week from N222.9 billion at the end of Friday the previous week, representing 82 per cent decline.

This combined with the 60 per cent decline in the opening balance recorded in the previous week from N563.6 billion at the end of June resulted to 93 per cent decline in the daily opening liquidity balance of  market in the first half of July.

Following the same trend, average daily opening liquidity balance of the market fell by 32 per cent in the first half of July to N124.8 billion from N184.9 billion in June.

Consequently, cost of funds remained high throughout last week with interest rate on Collateralised lending (Open Buy Back, OBB) and Overnight lending closing the week at 13.83 per cent and 14 per cent respectively.

Explaining the factors driving the the intense scarcity of funds in the interbank money market, analysts at Coronation Coronation Asset Management, led by Chinwe Egwim said: “In recent weeks, outflows from the system such as the Cash Reserve Requirement (CRR), Open Market Operations (OMO), T-bill and FGN bond auction debits have outweighed inflows from sources such as Federation Account allocations to states and local governments, T-bill and OMO maturities, and FGN bond coupons.”

Projecting the trend to persist this week, analysts at Comercio Partners said: “Given the absence of any significant inflows, interbank rates remained elevated this week. The Open Buy Back (OBB) and Overnight (O/N) rates both remained unchanged at 13.83% and 14.00%, respectively, week-on-week. We expect the elevated interbank rates to persist next week, despite the expected bond coupon and OMO maturities inflows.”

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