Overnight rate shoots up on FX, bond auction, CRR debit

Overnight interbank rate, the interest rate that banks charge each other for overnight lending, increased to 14 percent on Friday from 0.5 percent the previous day, due to effect of foreign exchange (FX), bond auction and Cash Reserve Ratio (CRR) debit, which affected the level of liquidity in the financial market.

The Open Repo (OPR) rate, a short-term agreement to sell securities in order to buy them back at a slightly higher price, increased by 12.25 percent to close at 13 percent compared to 0.75 percent on the previous day.

However, at the close of market on Monday, the Overnight rate decreased by 1.33 percent to close at 12.67 percent as against the last Friday close of 14 percent, and the Open Repo (rate decreased by 1 percent to close at 12 percent compared with 13 percent on Friday.

Approximately N113 billion was withdrawn from the system on Friday by the Central Bank of Nigeria (CBN) via CRR debits from the Deposit Money Banks (DMBs).

The financial market saw N305 billion withdrawn from the system, for the settlement of Wednesday’s bond auction.

“With the market also settling Friday’s retail Secondary Market Intervention Sales (SMIS) auction alongside other outflows, rates jumped from trading around 0.5 percent yesterday, to trade between 14 percent and 17 percent in the market today (Friday),” Ayodeji Ebo, head, retail investment, Chapel Hill Denham, told BusinessDay.

Rates are however expected to moderate next week, on the back of reduced funding pressures, he said on Friday.

The Nigerian treasury bills (NT-Bills) secondary market closed on a flat note with average yield across the curve remaining unchanged at 4.19 percent. Average yields across short-term, medium-term, and long-term maturities remained unchanged at 3.39 percent, 4.24 percent, and 4.93 percent, respectively, a report from FSDH stated.

In the Open Market Operation (OMO) bills market, the average yield across the curve decreased by 2bps to close at 5.28 percent as against the last close of 5.30 percent. Average yield across the long-term maturities declined by 4bps.

However, the average yield across the short-term maturities remained unchanged at 5.41 percent.

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OMO with 16-August-22 (-7bps) maturity bill witnessed mild buying interest. The CBN held an OMO auction on February 17, selling bills worth N60.00 billion across the 96-day (N10bn), 187-day (N10bn), and 362-day (N40bn) tenors with the stop rates remaining unchanged at 7 percent, 8.50 percent, and 10.10 percent, respectively.

The auction was oversubscribed, indicating a subscription level of 644 percent (N386.69bn). Demand was skewed towards long tenor maturity bills with bid-to-cover ratios settling at 3.63x (96-day), 5.67x (187-day), and 7.34x (362-day).

A report by Parthian Partners, Africa’s premier inter-dealer broker, indicated that the treasury bills market saw slight demand across the mid to long end with a couple of trades passing through, especially on the longer end. Demand for Special bill papers was notable with a handful of trades done as offers were scarce.

Buy interests across the curve closed the week in the bond market, activity was mostly on the short to mid-end as players went bargain hunting. Few trades were consummated on the day with most activity recorded on the 26s and 34s.

Ola Oladele, vice president, global market, Parthian Partners, explained that the drastic movement in interbank rates this week was driven by liquidity events.

Earlier in the week, the interbank market was awash with liquidity due to OMO maturity of about N136 billion, CBN intervention for some states salaries (estimated at N80-N100bn) and retail SMIS auction refund of about N250 billion, but on Friday overnight rates spiked due to bond auction debit of N305 billion, CRR debit of about N100 billion and an undisclosed amount provided banks as provision for retail FX sales by the CBN.