Liquidity pressures in the Nigerian banking system eased as inflows from the Federal Accounts Allocation Committee (FAAC) strengthened the financial sector's cash reserves.
FAAC disbursements to the three tiers of government in January, derived from December's total revenue, fell by 17.5% month-on-month to N1.42 trillion, down from N1.73 trillion.
Analysts linked the decline partly to a 6.6% month-on-month appreciation of the naira in December, when the currency was valued at N1,563.47 compared to N1,667.41 in November. This reduced exchange rate gains from foreign-related revenue streams, coupled with a drop in domestic oil production. A significant portion of the disbursed funds is anticipated to flow into the money market.
With reduced funding pressures, short-term interest rate benchmarks in the money market declined. Analysts noted that key money market indicators, including the overnight policy rate (OPR), dropped by 36 basis points to 26.58%, while the overnight rate (O/N) fell by 50 basis points to 27.00%.
As a result, bank borrowing decreased, with records indicating a surplus liquidity level ahead of an expected liquidity surge in February. Next month, the market is projected to receive N3.5 trillion in inflows from bonds, Treasury bills, and matured OMO bills.
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