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Published On: Thu, Jan 18th, 2018

Banks enjoy improved liquidity as overnight rate drops three consecutive days

FELIX OLOYEDE

The redemption of Treasury Bills by Federal Government has helped to improve liquidity in Nigerian banking sector as overnight rate declined three consecutive times this week.

Overnight (O/N) rate dropped -0.75 per cent to 5.75 per cent on Thursday, while Open Buy Back (OBB) rate was down -0.92 per cent to 5.25 per cent, data obtained from FMDQ OTC platform showed.

O/N and OBB rates fell -23.53 per cent to 6.5 per cent and -17.73 per cent to 6.17 per cent respectively on Wednesday, after recording an earlier dip of -26.34 per cent to 8.5 per cent and -30.75 per cent to 7.5 per cent the previous day.

“There has been increased liquidity (in banks), because of the treasury bills that were redeemed in the previous week. And Federal Government has plans to refinance some of the local debts,” explained Moses Ojo, analyst, Panafrican Capital Plc. to Business Hallmark through telephone.

Nigerian Money Market Rates

The Federal Government redeemed N198 billion treasury bills in December and has promised to used $3 billion of its planned $5.5 billion Eurobond  to refinance domestic debts.

Zedcrest Capital Ltd, an investment firm attributed the decline in O/N and OBB to market players anticipation of inflow from N96 billion maturing Open Market Operations (OMO) bills and N65 billion 2034 bond coupon payment.

“We consequently expect rates to decline further tomorrow (Thursday), barring a significant OMO T-bill sale by the CBN. We also note that expected funding for retail FX purchase by banks on Friday would result in a significant decline in system liquidity and consequently higher rates closing the week,” the firm stated in its daily market report on Thursday.

O/N rate rose 20.46 per cent to 11.54 per cent and OBB increased 20.33 per cent to 10.83 per cent Monday.

The overnight rate is the interest rate that banks borrow and lend from one another in the overnight market, Open Buy Back (OBB), are discountable securities traded in the Nigerian Inter-Bank financial market. It is a money market instrument used to raise short term capital.

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