Nigeria’s treasury bill average yield declined as the Central Bank of Nigeria imposed cash reserve ratio debits on banks for failing to meet 65 per cent loan to deposit ratio.
The apex bank policy implementation on shortfall relating to its 65 per cent loans to deposit target caused a run on financial liquidity, thus pushing interbank rates upward.
During the week, the fixed income market remains unimpressive with persistent yield declining.
The market has been cold, and quiet in recent times due to low issuance, robust financial system liquidity, and oversubscription in the primary market auction in August – putting pressure on 364-day treasury bills spot rate in particular.
Though on the high side of the curve, the headline inflation rate has been on the decline in the past four months, the situation investment analysts attribute to base effect after 19 months consecutive rise.
Speaking liquidity seen in the financial system, some analysts see this as a downside to upward yield repricing and lower issuance would probably tighten returns further in the second half of the year.
In the money market, interbank rates slowed down for the most part of the week but pressure from the Central Bank cash reserves ratio debit on Nigerian banks reversed earlier gain by the weekend.
The overnight lending rate closed at 13.5 per cent on Friday after a 500 basis point increase when compared with the previous week close, according to Cordros Capital market report.
The rate remained in the single-digit territory for most of the week following a higher net liquidity position supported by open market operations maturities.
Analysts report showed that the week’s average net liquidity position printed at N373.87 billion, in addition to N57 billion inflow from OMO maturities, thus stood far above last week’s close of N43.46 billion.
However, analysts said the eventual rates jerked up was driven by debits at the latter part of the week for cash reserve ratio on banks for failing to meet the 65 per cent loan to deposit ratio and the CBN’s weekly FX and N50 billion OMO auctions.
In the coming week, analysts at Cordros Capital expects the overnight lending rate to remain relatively range-bound as expected inflows from OMO maturities worth N170.00 billion is likely to offset funding pressures for CBN’s weekly auctions.