Monthly Money Market Review: CRR debit squeezes liquidity

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In Jun-2020, the size of financial system liquidity declined relative to the prior month, as the effect of naira outflows outweighed naira inflows. The illiquidity in the financial system was fueled by the two CRR debits from the CBN (estimated at N675.8bn) which outweighed net-OMO inflows (maturities greater than sales), FAAC inflows.

Overall, the average interbank funding rates (OBB & O/N rate) closed at 15.5% in Jun-2020, relative to 2.6% in Mar-2020.

Monthly Money Market Review: CRR debit squeezes liquidity - Brand Spur
United Capital Plc Research

In terms of primary money market activities, the CBN only mopped up 43.1% of the N487.6bn worth of OMO bills that matured during the month. This was at a relatively low average interest rate of 7.2% (May-2020: 8.6%).

At the primary NTB market, the CBN on behalf of the FG sold exactly the amount of maturing bills worth N105.6bn, at a low average stop rate of 2.63% (May-2020: 3.06%).

At the secondary NTB market, sentiments were bearish given the tight system liquidity, as average NTB yield rose by 3bps m/m to settle at 2.15%.

However, sentiments at the secondary OMO market were different, as funds continue to filter into the segment. As a result, average OMO yield declined by 98bps m/m to settle at 5.07%.

In July 2020, we expect financial system liquidity to remain tight, given the small size of OMO maturities ( N304.1bn) expected to hit the system during the period. Also, we expect the DMO to mop up some of these funds via the July Bond auction.

United Capital Plc Research