Money market rates in Nigeria declined this week as increased liquidity in the banking system pushed short-term borrowing costs lower.
Banking system liquidity rose by 7.92 per cent to N7.45 trillion, from N6.91 trillion previously. This marked the fourth consecutive weekly increase, with liquidity now about 95.3 per cent higher than at the beginning of 2026.
The increase followed the Central Bank of Nigeria’s recent decision to cut the Monetary Policy Rate (MPR) by 350 basis points to 23 per cent, from 26.5 per cent. The CBN also reduced the Standing Deposit Facility floor to 20 per cent.
According to market data from AIICO Capital, the overnight policy rate fell by one percentage point to 21 per cent, while the overnight lending rate declined by 51 basis points to 21.76 per cent.
The Nigerian Interbank Offered Rate also fell, with the overnight rate declining by 123 basis points to 20.93 per cent. The Open Repo rate dropped by 100 basis points to 21 per cent.
The increase in liquidity was partly supported by a N2.27 trillion inflow from matured Open Market Operation bills. Banks also increased their use of the CBN’s Standing Deposit Facility, with deposits reaching about N7.34 trillion.
The improved liquidity came alongside strong demand at the latest Treasury bills auction. Investors submitted more than N4.2 trillion in bids, while less than N500 billion was allotted.
The Financial Markets Dealers Association reported that total subscriptions at the September 23 Treasury bills auction reached N4.23 trillion, compared with N2.64 trillion at the previous auction. The three-month, six-month and one-year Treasury bill stop rates all declined.
The average Treasury bill yield also declined to 18.38 per cent, according to AIICO Capital. Strong demand in the secondary market contributed to lower yields across several maturities.
Analysts expect short-term interest rates to remain under pressure while excess liquidity persists in the financial system. AIICO Capital said overnight rates could move closer to the 20 per cent Standing Deposit Facility floor if the liquidity surplus continues.
However, the size of future CBN Open Market Operations auctions will be important in determining how quickly excess liquidity is removed from the banking system.
The latest developments indicate that the CBN’s rate cut is already influencing Nigeria’s money and fixed-income markets. Lower market rates could eventually affect borrowing costs for businesses and consumers, although the speed at which commercial banks adjust lending rates will depend on broader market conditions.
