Money market rates have started easing as Nigerian banks increasingly place excess liquidity with the Central Bank of Nigeria (CBN) rather than borrow from the apex bank.
Data on the CBN’s liquidity operations showed that banks cumulatively placed N33.03 trillion through the Standing Deposit Facility (SDF) between August 12 and 21, highlighting the relatively strong liquidity position across the banking system.
The development comes shortly after the CBN removed restrictions that had previously limited banks’ access to its Standing Lending Facility (SLF), also known as the Discount Window.
Under the revised framework announced on August 12, banks can now access the Discount Window regardless of their participation in foreign exchange transactions or primary auctions of government securities. The move is part of efforts by the apex bank to improve money market operations and strengthen the transmission of monetary policy.
Despite the removal of the restrictions, demand for CBN funding remained subdued. Banks borrowed N15.8 billion through the SLF on August 13 and another N700 million on August 17, while no borrowing was recorded on the other days covered by the CBN data.
In contrast, banks continued to channel substantial funds into the SDF, with daily placements ranging from N2.56 trillion to N6.14 trillion during the period.
The highest daily placement was N6.14 trillion on August 12, when the CBN announced the relaxation of the Discount Window restrictions. SDF placements subsequently fell to N5.94 trillion on August 13 and N3.36 trillion on August 14 before declining further to N2.56 trillion on August 18.
The placements later recovered to N4.65 trillion on August 19, before standing at N3.37 trillion and N3.80 trillion on August 20 and 21 respectively.
The figures suggest that banks currently have sufficient liquidity to meet their funding needs, leaving them with excess funds to deposit with the apex bank rather than seek emergency financing.
The easing liquidity conditions have also been reflected in overnight market rates.
The Open Buy Back (OBB) weighted average rate declined from 22.02 per cent on August 11 to 21.97 per cent on August 20. Although the rate climbed to 22.25 per cent on August 12, it subsequently moderated to 22.16 per cent on August 13, 22.13 per cent on August 17 and 21.98 per cent on August 18.
Comercio Partners, in its weekly market report, said system liquidity rose during the week, opening at N3.37 trillion and closing at N4.47 trillion, supported largely by repayments from the primary market.
The firm said the Nigerian Overnight Financing Rate remained around 22 per cent, while overnight rates declined by 11 basis points week-on-week to 22.14 per cent. It expects rates to remain around current levels in the near term.
Meanwhile, activity in the fixed-income market is expected to remain strong, with United Capital projecting continued interest in Open Market Operation bills and relatively stable Treasury bill yields.
United Capital expects average Treasury bill yields to remain around 16.59 per cent, with demand tilted towards shorter-dated instruments. It also forecasts FGN bond yields within a range of 14.80 per cent to 17.75 per cent.
The combination of substantial SDF placements, limited borrowing through the SLF and relatively stable overnight rates points to a banking system currently characterised by ample liquidity rather than a shortage of funds.
For the CBN, the removal of restrictions on the Discount Window gives banks greater flexibility to obtain central bank funding, when necessary, while current market activity indicates that most banks are presently more inclined to deposit surplus funds with the apex bank than borrow from it.
