Money market rates to open high on resumption of business activities

AS business activities resume today after a two-day public holiday marking the Eidel-el-Kabir celebrations, expectations are high that money market rates which closed high last week, will trade even higher in the remaining days of this week.

Dealers at Cowry Assets Management Limited said the expectation that interbank interest rates will trade high is based on the fact that there is liquidity crunch in the market. They added that there will be excess of about N86.69 billion leaving the financial system through treasury bills auction by the Central Bank of Nigeria.

Available records show that the Central Bank of Nigeria (CBN) will auction treasury bills worth N183.24 billion via Primary market, comprising 91-day bills worth  N48.10  billion;  182-day  bills  worth  N48.45  billion;  and  364-day  bills  worth N86.68  billion.

“The outflows will  outweigh maturing  treasury  bills worth N96.55  billion  via  primary market,  viz:  91-day  bills worth N48.10  billion  and  182-day  bills worth N48.45  billion.

“Hence we anticipate increase in interbank interest rates resulting from expected strain in financial system liquidity,” the dealers said.

Nigerian Tribune had exclusively reported on Monday, that Deposit Money Banks (DMBs) do not have enough cash to meet their immediate financial obligations as evidenced by the rush to the CBN last week where they borrowed a total of N881.53 billion at 14 per cent interest rate.

Interestingly, some of the lenders had earlier in the week deposited a total of N113 billion with CBN to earn 7 per cent interest rate, just as the cost of borrowing from each other (interbank lending rate) shot up amid strained liquidity.

The situation they said caused a rise in the amounts banks borrow from each other; Open Buy Back (OBB) and Overnight (O/N) funds to 27.3 per cent and 29.1 per cent on Tuesday, further surging 5.8 per cent and 6.4 per cent to 33.2 per cent and 35.5 per cent on Wednesday respectively.

Banks access the SLF to borrow from the CBN while they access the Standing Deposit Facility (SDF),  to place deposit with the CBN. Presently the CBN charges 14 percent as interest rate on loans to banks through the Standing Lending Facility (SLF) while it pays 7.0 percent as interest on deposit placement through the SDF.

Dealers from two major investment banking and securities houses in Lagos confirmed that there was no major inflow of funds into the system, just as aggregate system liquidity opened at about N93.0billion last week Monday.