In the past week, multiple liquidity injections—including the disbursement from the Federation Account Allocation Committee (FAAC), Nigerian Treasury Bills (NTB) net inflows, and Federal Government of Nigeria (FGN) bond coupon payments—significantly bolstered market liquidity and reversed weeks of tight monetary conditions.
Prior to this development, the financial system had experienced a liquidity squeeze that pushed money market rates above 32%. However, as inflows surged, banks with surplus funds repriced their positions downward. According to data from the FMDQ platform, the overnight (O/N) lending rate plunged by 575 basis points to close at 26.9% on Friday, while the open repo (OPR) rate followed suit, falling 583 basis points to 26.5%—its lowest level in weeks.
Major Inflows Bolster System Liquidity
The key drivers of this liquidity surge include:
- N37.00 billion in net inflows from Nigerian Treasury Bills
- N284.73 billion in FGN bond coupon payments
- NGN850.00 billion in FAAC allocations
Cordros Capital Limited, in its market commentary, noted that these inflows lifted the average system liquidity to a net long position of NGN214.13 billion, compared to a net shortfall of NGN465.18 billion recorded the previous week.
In the absence of major liquidity mop-up operations by the CBN, analysts expect this elevated liquidity to keep interbank rates relatively subdued in the near term. Further reinforcement is expected with an additional N41.62 billion in FGN bond coupon payments scheduled in the coming week.
Interbank Market Volatility Stabilizing
Despite an initial spike in funding rates to 32.63% at the start of the week—despite N89.85 billion in coupon inflows—liquidity conditions improved markedly as the week progressed. The CBN’s Standing Lending Facility saw significant drawdowns early in the week, with usage dropping to around N931.75 billion by Tuesday.
By midweek, the easing began to reflect in market rates. Funding costs dropped 117 basis points midweek and another 471 basis points by Thursday, settling at 26.75%, buoyed by the FAAC injection and a system-wide liquidity swing that reached N831.36 billion.
As of Friday, market liquidity had risen further to N1.35 trillion, with local deposit money banks actively participating in the CBN’s Standing Deposit Facility—an indication of system-wide surplus cash seeking safe parking options.
Broader Market Gains
The ripple effects of improved liquidity also extended to the capital market. The Nigerian stock market’s total capitalization expanded to N85 trillion, with investors gaining approximately N793 billion over the week. Analysts attribute the bullish momentum to improved investor sentiment, boosted partly by the liquidity-driven decline in money market yields and anticipation of improved corporate earnings.
Outlook
Looking ahead, the market is likely to remain flush with liquidity, barring any aggressive monetary tightening or liquidity sterilization by the CBN. Analysts suggest that in the short term, interbank rates will stay on a downward trajectory, creating a more favorable environment for both lending and investment.
However, sustained monetary expansion could test inflation control efforts and pressure the naira if not carefully managed. The balancing act for monetary authorities will be maintaining adequate liquidity to support economic activity without igniting macroeconomic instability.