Experts explain why interbank rates will remain depressed

Experts have projected that the interbank rates at the Nigerian money market will remain depressed in the meantime despite the bi-weekly retail auction that is expected to happen, and the high liquidity levels in the market which is said to be over N1 trillion.

According to Apkeve Oputu, a Fixed Income dealer at Access Bank Plc, the rate drop is due to a significant increase in the number of inflows into the money market which has been recorded recently.

Speaking on behalf of the tier-1 bank, Oputu highlighted that the inflows of N250 billion earlier in the week, FAAC inflow of about N339 billion on Thursday, a net OMO credit of N129 billion that came into the market, and a bond coupon payment of N34 billion have affected the rate within the market, even as the OBD and overnight rates declined as low as 1.8% and 2.9%, respectively, she said.

Similarly, there has been very limited transactions going on in the I&E window of the foreign exchange (FX) market. This has also contributed to the low rates being witnessed in the market. Oputu said:

“There’s been limited transactions going on in the I&E window. We don’t see much activities happening in the mini market. So, the rates are going to remain at this depressed level because the turnover we saw earlier this week was just about a total of N130 million. So, there’s actually been a decline from the previous week.”

She, however, expressed optimism that the announcement of the retail SMI auction might cause rates to increase to about 5% or even 6% level.

Reason for liquidity in the market: Interestingly, the Nigerian money market opened Friday’s trading session with N277 billion worth of transactions.

Akpeve Oputu attributed the high liquidity in the market to various factors, including the Federal Government’s disbursement of COVID-19 relief fund.