N16trn liquidity inflow seen subduing money market rates

As the banking system records robust liquidity in the first month of the year, there are indications that further cash inflows worth cumulatively over N1.5 trillion may hit the money market this month.

The breakdown indicates about N819.1 billion from maturities and coupon payment on monetary policy instruments, about N650 billion from Federation Account Allocation Committee, FAAC, and another N130 billion from sundry maturities in other Fixed Income securities.

Analysts believe that with the current robust liquidity transmitted from last month, the new inflows would subdue money market rates and subsequently prompt the Central Bank of Nigeria, CBN, to issue fresh liquidity mop-up.

Financial Vanguard  findings show that financial system liquidity level was robust for most of last month, supported by fixed income maturities of about N1.1trillion, coupon payment of about N217.3billion, and FAAC allocation of N700 billion.

Consequently, system liquidity hit a high of N424.1billion before settling at N89.7billion, from a start of N215.7billion last weekend.

OMO T-Bills

The apex bank repaid N470 billion worth of maturing secondary market (Open Market Operations, OMO) treasury bills (T-Bills) in January, which represented a 141 per cent, month-on-month, MoM, increase when compared with N195 billion repaid in December, 2021.

The OMO treasury bills are part of the policy tools employed by the CBN to manage money supply in the country, especially idle funds (liquidity) in the interbank money market. 

While sale of  OMO bills leads to  liquidity (idle cash) mop-up, repayment of matured bills  leads to liquidity injection into the system. 

To taper liquidity, the CBN conducted six rounds of primary auctions during the month of January 2022 which saw huge interests though rates and sales remained low.

At the two T-bills auctions, instruments worth N281.3billion were sold (N74.4billion higher than the amount on offer) while rates lowered in the last auction compared to the first by 2bases points (bps), 14bps and 10bps respectively for the 91, 182 and 364-day instruments.

Financial Vanguard  analysis shows that in addition to  the repayment of  N470 billion worth of matured OMO bills in January, the CBN also conducted four auctions to sell N130 billion worth of OMO bills in January.

This  represents 251 per cent increase in liquidity mop-up when compared with the N37 billion OMO bills sold in December.

The above translated to net inflow of N275 billion into the interbank money market through OMO bills, representing  196 per cent increase when compared with the N93 billion net inflows recorded in December through OMO bills.

Financial Vanguard  analysis showed that the increased net inflow from OMO bills was partly responsible for the improved liquidity in the interbank money market in January, reflected in  the 32 per cent, MoM,  increase in the average daily Opening Position  of the market in terms of liquidity which rose  to N179.98 billion as at January 28th  from N135.98 billion on December 31st 2021.