Liquidity tightening pushes overnight rate to 22.20%

Nigeria’s overnight lending rate edged higher as the banking system absorbed the impact of recent Central Bank of Nigeria treasury bills transactions, which reduced liquidity in the financial market.

The overnight rate rose by two basis points to 22.20 per cent, while the Open Buy Back rate remained unchanged at 22 per cent.

The increase reflected tighter liquidity conditions following the settlement of the CBN’s midweek treasury bills auction.

Data from Herwood Securities Limited showed that system liquidity opened at a credit balance of N3.66tn, down by about N930bn from N4.61tn recorded in the previous session.

The decline followed the settlement of government securities purchased by banks and other investors, temporarily removing funds that would otherwise have been available for interbank transactions.

Liquidity conditions were also affected by the CBN’s sterilisation measures, after the apex bank sold N2.888tn worth of Open Market Operations bills earlier in the week as part of efforts to mop up excess cash in the financial system.

Despite the liquidity withdrawal, the banking system remained firmly in surplus, indicating that financial institutions still maintained substantial cash buffers.

The N4.61tn liquidity position recorded earlier in the week had supported strong demand for treasury bills as banks sought to deploy excess funds into short-term government securities.

Market participants are, however, expecting some relief from the maturity of N734.81bn worth of treasury bills, which is expected to return liquidity to the banking system.

The inflow could help offset part of the recent liquidity withdrawals and limit further increases in short-term borrowing costs.

As a result, analysts expect the overnight and OBB rates to remain broadly stable around current levels in the near term, provided the CBN does not introduce fresh large-scale liquidity withdrawals.

The movement in money market rates highlights the growing impact of the CBN’s liquidity-management operations on short-term funding costs as the apex bank continues to manage excess liquidity while maintaining stability in the financial system.