Commercial banks’ deposits with the Central Bank of Nigeria (CBN) rose sharply on Monday after the apex bank injected fresh liquidity into the financial system through the repayment of maturing securities.
Data from the CBN showed that deposits placed by banks under the Standing Deposit Facility (SDF) increased by 14.24 percent to N4.74 trillion on Monday from N4.15 trillion recorded on Friday, following the repayment of about N1.71 billion in maturing securities.
The rise in SDF deposits indicates that banks had excess cash which they preferred to park with the CBN overnight rather than lend in the interbank market. The Standing Deposit Facility allows banks to earn interest on surplus liquidity held with the apex bank.
The increase in deposits underscores the impact of the CBN’s liquidity injections, which have left the financial system awash with cash despite the monetary authority’s continued efforts to mop up excess liquidity through Treasury bill and Open Market Operations (OMO).
According to a report by Financial Markets Dealers Association (FMDA), system liquidity improved by 50.81 percent last week to N4.33 trillion from N2.87 trillion in the previous week as inflows exceeded the CBN’s liquidity sterilisation activities.
The report showed that while the CBN withdrew about N1.06 trillion through Treasury bill auctions, repayments from maturing securities amounted to N2.50 trillion, resulting in a net liquidity injection of approximately N1.44 trillion into the banking system.
Liquidity conditions are expected to strengthen further this week, with an estimated N3.12 trillion projected to flow into the financial system. About 95 percent of the expected inflows will come from maturing OMO bills.
Analysts, however, said the eventual impact on liquidity will depend on the CBN’s response through liquidity management operations.
With no Treasury bill or Federal Government bond auctions scheduled this week, market participants expect the CBN to rely mainly on OMO auctions to absorb part of the excess liquidity and keep short-term interest rates stable.
The abundant liquidity has continued to support demand for fixed-income securities.
According to Coronation Merchant Bank, the fixed-income market ended last week on a bullish note as investors increased purchases across the secondary market, supported by favourable liquidity conditions.
The bank noted that system liquidity expanded by N1.46 trillion week-on-week to N4.33 trillion, largely driven by N2.21 trillion in OMO maturities.
Despite the improvement in liquidity, money market rates remained relatively stable. The Open Repo Rate closed at 22.00 percent, while the Overnight Rate edged slightly higher to 22.23 percent from 22.18 percent recorded in the previous week.
At last week’s Treasury bill auction, the Debt Management Office offered N700 billion across the 91-day, 182-day and 364-day maturities.
Investors submitted bids worth N2.03 trillion, reflecting strong appetite for government securities. However, the DMO allotted N1.06 trillion, lower than the N1.49 trillion sold at the previous auction.
Demand remained concentrated on the 364-day bill, which attracted N1.86 trillion in subscriptions. Stop rates settled at 16.30 percent for the 91-day bill, 16.50 percent for the 182-day bill and 17.70 percent for the 364-day bill. The one-year bill recorded the largest increase in yield, widening by 36 basis points from the previous auction, reflecting the government’s continued aggressive borrowing strategy.
The improved liquidity also drove buying interest in the secondary market. Average Treasury bill yields declined by 22 basis points week-on-week to 19.72 percent, while average OMO yields fell to 21.58 percent. Treasury bill yields also eased to 18.51 percent.
The bullish sentiment extended to the Federal Government bond market, where average yields declined by 15 basis points to 17.63 percent. Yield declines were concentrated at the short and medium segments of the curve, while the long end recorded a marginal increase.
Nigeria’s Eurobond market also attracted buying interest, with average yields falling by eight basis points to 6.95 percent.
In the foreign exchange market, however, the naira weakened marginally by 0.07 percent in the Nigerian Foreign Exchange Market (NFEM) during the week, while market turnover declined to $1.72 billion from $3.39 billion, suggesting lower trading activity despite the relatively stable exchange rate.
Analysts also noted that renewed tensions involving Iran and the United States contributed to higher global crude oil prices during the week, reviving concerns over global energy supply.
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Looking ahead, market analysts expect the positive momentum in the fixed-income market to continue as excess liquidity is likely to sustain demand for Treasury bills and bonds. However, much will depend on the CBN’s decision on whether to conduct fresh OMO auctions to absorb part of the expected liquidity inflows.
The outlook aligns with recent comments by Aku Pauline Odinkemelu, a member of the Monetary Policy Committee (MPC), who said the CBN would continue to deploy active OMO operations as its primary tool for day-to-day liquidity management while maintaining a tight monetary stance. According to her, keeping the Monetary Policy Rate unchanged alongside elevated reserve requirements would help stabilise borrowing costs, anchor inflation expectations and strengthen the economy against both domestic and external shocks.
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