Nigeria’s financial system remained awash with liquidity this week despite aggressive efforts by the Central Bank of Nigeria (CBN) to mop up excess funds, as massive inflows from maturing securities continued to overwhelm sterilisation measures.
Market data reviewed on Friday showed that banking system liquidity opened the week at N5.60 trillion, rising from N4.96 trillion recorded at the close of the previous week before strengthening further to N5.67 trillion.
The surge in liquidity was largely driven by repayments of N767 billion in Open Market Operations (OMO) bills and N556.02 billion in Treasury bills maturities issued by the Debt Management Office (DMO).
The development underscores the growing challenge facing monetary authorities as they battle stubborn inflation and attempt to stabilise the naira through tighter liquidity management.
Despite the elevated cash levels in the banking system, short-term rates edged higher following debits for Treasury bills and OMO auction settlements.
The overnight Nigerian Interbank Offered Rate (NIBOR) rose by eight basis points week-on-week to 22.33 percent, while the one-month, three-month and six-month tenors climbed to 22.90 percent, 23.60 percent and 24.34 percent respectively.
Funding conditions, however, remained relatively stable, reflecting the resilience of liquidity levels in the market. The Open Repo Rate closed flat, while the Overnight Rate eased by 11 basis points to 22.19 percent.
Meanwhile, investors intensified demand for fixed-income securities amid macroeconomic uncertainty and persistent inflationary pressures.
The Nigerian Interbank Treasury True Yield (NITTY) curve trended largely downward during the week, with yields on one-month, three-month and 12-month instruments declining to 15.84 percent, 16.09 percent and 18.92 percent respectively. Only the six-month tenor recorded a slight increase.
Average secondary market Treasury bills yields also fell by four basis points to 17.51 percent, highlighting sustained bullish sentiment across the fixed-income market.
Investor appetite was particularly strong at the latest Nigerian Treasury Bills auction conducted by the DMO.
Total subscriptions surged to N2.40 trillion against the N700 billion offered, representing an oversubscription rate of 3.4 times. However, allotments were limited to N731.80 billion despite the heavy demand.
Stop rates on the 182-day and 364-day instruments eased marginally to 16.14 percent and 16.15 percent respectively, further reinforcing investor confidence in government-backed securities.
The CBN’s OMO auctions also witnessed robust participation during the week.
At Monday’s auction, the eight-day OMO bill attracted subscriptions worth N1.07 trillion against an offer of N300 billion, while the 134-day instrument drew N640.10 billion in bids against the same offer size.
Similarly, Thursday’s OMO auction recorded total subscriptions of N1.64 trillion compared to N600 billion offered across 33-day, 75-day and 96-day maturities.
Demand remained strongest for the 33-day and 96-day instruments, which posted oversubscription rates of 3.4 times and 4.6 times respectively.
Despite the heavy demand, the apex bank retained stop rates at 21.57 percent, 20.63 percent and 20.45 percent across the respective maturities, suggesting a cautious approach toward raising borrowing costs further.
Analysts at Cowry Assets Management said liquidity conditions were expected to remain elevated next week due to anticipated OMO maturities valued at about N1.07 trillion.
The analysts, however, noted that fresh liquidity mop-up operations by the CBN could help moderate the impact of the inflows on market rates and overall system liquidity.