THE Nigerian money market witnessed a significant boost in liquidity last week, fueled by repayments totaling N521 billion. This inflow alleviated liquidity pressures, leading to a reduction in interest rates and creating favorable conditions for market participants.
According to analysts at Afrinvest (West) Africa Limited, system liquidity moderated by 32.5 percent week-on-week but remained substantial at N433.4 billion. The liquidity surge was largely driven by repayments of N521 billion, offsetting paper sales totaling N756 billion.
Reflecting the improved liquidity conditions, the Open Buy Back (OBB) and Overnight (OVN) rates dropped by 5.3 percentage points each, closing at 27.0 percent and 27.5 percent, respectively.
In the primary market, the Central Bank of Nigeria (CBN) offered a total of N530 billion through Treasury Bills across three tenors: N50 billion for the 91-day bill, N80 billion for the 182-day bill, and N400 billion for the 364-day bill.
Demand for the short- and mid-term instruments was weak, with subscription ratios of 0.5x and 0.2x, respectively. However, the long-term instrument attracted strong demand, recording a subscription ratio of 6.2x with total bids amounting to N2.5 trillion.
Overall, the auction saw a subscription rate of 4.8x compared to 3.0x in the previous auction. The CBN allocated 0.5x, 0.2x, and 1.8x of the respective offers, resulting in total sales of N756 billion worth of Treasury Bills.
The auction cleared at stop rates of 18.0 percent and 18.5 percent for the 91-day and 182-day instruments, maintaining the same rates as the previous auction. Meanwhile, the 364-day bill saw a decline in its stop rate by 82 basis points, settling at 21.8 percent.
The substantial inflows from repayments, combined with robust demand for long-tenured instruments, provided much-needed relief to the money market. Analysts expect liquidity conditions to remain relatively stable in the short term, supported by continued repayment inflows and moderated auction activity by the CBN.
This improved liquidity environment is anticipated to offer more favorable borrowing conditions for businesses and financial institutions, contributing to overall economic stability.
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