Overall system liquidity started Jan-2020 on an elevated note, as naira inflows outweighed outflows. However, towards the end of the month, liquidity levels tightened, following the decision from the Monetary Policy Committee to increase the Cash Reserve Requirement from 22.5% to 27.5%. As a result, average interbank funding rates spiked from 2.9% as at Dec-2019 ending to 14.8% as of Jan-2020 ending.
In terms of primary market activities, the CBN mopped-up c. N1.5tn of the N2.4tn OMO maturity that hit the system amid the decision of the CBN to bar local investors (except banks) from OMO auction.
Accordingly, elevated amount of liquidity in the system spurred demand at the primary market auction for Nigeria Treasury Bills (NTBs) wherein the FG successfully rolled-over all maturing bills, worth N529.9bn.
Interestingly, at the last NTB auction for January, stop rates at the auction resumed an uptrend, as average stop rates climbed 84bps.
Elsewhere, secondary market activities for NTBs remained bullish, with average yield declining by 110bps m/m, while yields at the secondary OMO market stayed flat.
Looking at the size of OMO maturity in Feb-2020 (N2.3tn), we expect stop rates/yields at primary/secondary NTB market to remain flat or moderate further on the back of anticipated demand from local participants sidelined from participating at the OMO market.
Looking at the size of OMO maturity in Feb-2020 (N2.3tn), we expect stop rates/yields at primary/secondary NTB market to remain flat or moderate further on the back of anticipated demand from local participants sidelined from participating at the OMO market.
However, the recent CRR hike alongside OMO sales will check the size of liquidity in the system.
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