Cost of funds to fall as N277bn boosts interbank liquidity

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COST of funds in the interbank money market is expected to fall this week in contrast to the 150 basis points (bpts) increase recorded last week, occasioned by liquid mop up by the Central Bank of Nigeria (CBN).

The volume of excess liquidity in the interbank money market was aggravated last week by inflow of N401.71 billion from matured treasury bills (TBs).

In response, the CBN on Thursday issued N400 billion worth of secondary market (Open Market Operation) TBs, but sold N533 billion to meet investors demand. This,  in addition to N133.49 billion outflow through primary market TB auction, caused average short term interbank interest rate to fall by 150 bpts.

Data from FMDQ showed that interest rate on Collateralised (Open Buy Back, OBB) lending rose by 149 bpts to 20.86 percent last week from 6.0 percent the previous week. Similarly, interest rate on Overnight lending  rose by 153 bpts to 22.5 percent on Friday from 7.17 percent the previous week.

Analysts, however, projected that this trend will be reversed this week, in response to expected inflow of N277 billion from maturing TBs, and absence of  further CBN liquidity mop up through OMO bills.

According to analysts at Lagos based investment firm,  Afrinvest Limited, “In the coming week, we expect money market rates to trend lower based on our expectation of a boost in system liquidity following the maturities of OMO instruments worth N277.1 billion. However, this may be impacted by the CBN’s liquidity mop up operations.”

Making a similar projection, analysts at Cowry Asset Management Limited, stated: “This week, T-bills worth N277.07 billion will mature via the secondary market; hence, we expect relative ease in the financial system liquidity with resultant moderation in interbank rates as primary market auction by CBN is not expected this week.”

Naira appreciates as CBN injects $544m

The naira last week appreciated slightly in the parallel market and in the Investors and Exporters (I&E) window as the CBN increased its weekly foreign exchange injection to $533 million.

The naira appreciated by 60 kobo in the parallel market where the exchange rate dropped to N359 per dollar last week from N359.6 the previous week.

In the I&E window, the indicative exchange rate dropped to N363.42 per dollar last week from N363.42 per dollar the previous week, indicating 50 kobo appreciation for the naira.

On Friday, the CBN in addition to the weekly injection of $210 million announced the injection of another $344 million as well as CYN 52.1 million

In a statement announcing the injection on Friday, Acting Director, Corporate Communications Department, CBN, Mr. Isaac Okoroafor said: “Further to its commitment to ensure stability in the inter-bank foreign exchange market, the Central Bank of Nigeria (CBN) on Friday, October 5, 2018, intervened in the Retail Secondary Market Sales (SMIS) to tune of $334.15 million

“A breakdown of the forex intervention figures obtained from the Bank on Friday indicates that the bank also injected the sum of CNY 52.1 million into the inter-bank forex market.”

Okoroafor assured that the apex bank will continue to intervene in the inter-bank sector in order to ensure adequate liquidity in the market as well as to meet its obligation in the Bi-lateral Currency Swap Agreement with the Peoples’ Bank of China (PBoC).

According to him, the dollar-denominated interventions were to meet forex requests for agricultural and machinery needs, while the Yuan denominated intervention were for spots and short-tenored forwards.

He said the CBN management was pleased with the performance of the naira against the United States dollar and other major currencies around the world, given the fact that currencies of many other emerging economies were struggling against the US dollar.

Mr. Okorafor expressed satisfaction that the apex bank’s intervention had largely eased pressure on the country’s foreign reserve, just as he underscored the determination of the CBN to sustain stability in the forex market through continued monitoring of authorised dealers in order to check incidences of sharp practices.”

 

Source: VANGUARD

 

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